India’s Planning Landscape: From Centralized to Decentralized Planning

Before the demise of planning commission, India followed a soviet model of five year plans and these plans were implemented regularly except few disruptions here and there. The key features of planning were as follows:

  • Planning was comprehensive, focusing on economic as well as social parameters and was aimed at inclusive growth and regional balance.
  • Till 1991, it was biased towards public sector and regulation of the market forces. After 1991, the strategy was changed to accommodate the private sector as well.
  • It followed a top-bottom and centralized planning approach. A draft plan would be prepared by planning commission, and was sent to National Development Council. Once NDC approved it, the plan was implemented.
  • For states, the Planning commissions would approve the state plans for expenditure.
  • The planning was both short term and long term perspective and involved allocation of funds to various sectors.

While discussing the Planning strategy, the Planning Commission era can be divided into two phase viz. Pre-1991 {Pre-reform Phase} and Post-1991 till 2015 {Post reform phase}.

Pre-Reform Phase

The Pre-reform phase was characterized by heavy reliance on public sector; regulated expansion of pvt sector; development of heavy industries; protection of small industries; inward looking trade strategy and highly centralized planning and fund allocation.

Post-Reform Phase

In the post-reform period, Planning Commission gradually started losing relevance as India saw free play of market forces. The economic planning was now to be based on competition instead of controls. While Liberalisation, Privatisation and Globalisation became three components of New Economic Policy; the role of government was expected to tilt towards social balance and social justice. This is mainly because from 1991, while economy was driven by the market forces, government was expected to give maximum attention to the range of social sector (especially health, education and food security). This required planning to be less intrusive to market and more penetrative to social sectors so that the benefits of LPG could trickle down the bottom of pyramid. Thus, in the post-reform period, the entire planning landscape required changes.

However, planning had not yet lost its relevance. India’s rural infrastructure was still in shambles. The government needed to focus more on rural roads; agriculture; rural land development and land reforms etc. As the economy opened up for private sector; the role of government in economy needed to be more as a partner with private sector instead of controller of private sector.

Thus, in post reform period, following were key changes that came into India’s planning:

  • Despite of rise of private sector, the public investment, both at centre and in states would continue to have a major role in the development and thus, prioritisation of public investment would become important part of planning process.
  • PPP got significant weightage in planning.
  • More emphasis in Planning would be on national objectives of poverty alleviation, population control, employment generation and balanced regional development.
  • The way ahead was a shift from centralized planning to decentralized planning.

Way to Decentralised Planning and NITI Aayog

Between 1950 and 2015, India’s economic planning was centralized on  the pattern of socialist and communist countries. The decentralization of the planning process was paid attention to right since beginning but was never materialized. For example, the establishment of National Development Council was one instrument of decentralized planning, but decentralization was never achieved. By the 1980s, it was almost clear that without decentralization and without making planning bottom-top, the goal of development would be difficult to achieve. Via the 73rd and 74th amendment acts of constitution, the local bodies were given constitutional status and for the first time, decentralization of planning was visible in India at local level. However, the fiscal status of local bodies and procrastination by states never allowed it to be implemented in letter and spirit.

It was only after 2014 general elections that a central government decided to redraw the contours of decentralized planning. The basic premise of the new planning landscape is that “development of India cannot happen without development of states” and “one size fits all is not a suitable idea for India”. Thus, the key change we notice since 2015 is the changed outlook of centre towards states. The states now get 42% of the share in central pool of taxes; they are getting liberal funding and grants from states; their grievances are being accommodated in GST; they have been allowed to go for higher market borrowings without permission from centre (though such a move comes from centre only).

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