The attack by the Covid-19 virus has revealed the bad shape in which the Indian economy is. It has revealed the precarity in the lives of masses of Indians. Citizens are ordered to stay in their homes to prevent the pandemic. Many have no homes. They are being urged to wash their hands frequently when many do not have access to enough clean water to drink. The public health system is woefully inadequate. GDP growth rates may be good. But many systems in the country are fragile.
National planning, by whatever name it is called (Planning Commission or NITI Aayog), has failed to produce all-round development of India’s economy so far. An all-round plan for recovery from the pandemic is required. As Einstein said, ‘you cannot solve intractable problems with the same thinking that produced the problems’. Therefore, it is timely to consider the weakness in India’s national planning.
Any national planning institution in a federal and democratic system has two fundamental challenges to perform a long-term planning role. It has a constitutional challenge. And it must have the requisite competence.
The constitutional question
The fundamental issues a national plan must address, such as the condition of the environment, the shape of the economy, and pace of human development, need consistent actions over decades. Therefore, policies must be sustained beyond the terms of governments that change in shorter spans in electoral democracies. Moreover, if the planning body does not have a constitutional status independent from the government, and it is a creature of the elected government as India’s planning body is, it must bend to the will of each newly elected government. Planning in China does not face this disruption. In India it does.
Short-termism in policymaking is a weakness of electoral democracies everywhere. As citizens of California, a vibrantly democratic state in the US, have realized. California is suffering from great environmental stress. Its vaunted public education system has been underfunded for years. A group of concerned citizens in California, convened by the Berggruen Institute formed a Think Long Committee, to examine structural issues affecting long-term planning and policy. They studied the systems of governance of many countries and examined how long-term planning fits with them. China, whose remarkable economic progress can provide some lessons for planners everywhere, received special attention. With their insights they have proposed a few changes to constitutional structures in California that will facilitate long-term planning while conforming to democratic norms.
Debates have begun amongst economists about the inefficacy of long-term planning in India and the performance of NITI Aayog. They say that planning is weak when planners do not have the powers to allocate money for national priorities, which NITI does not have. They forget that the Planning Commission had such powers and yet was considered ineffective in bringing about all round progress. Moreover, they glide over constitutional issues in granting powers to institutions that allocate public money in democracies. A fundamental principle of democratic governance is that the power to allocate public money must be supervised by elected representatives of the people. Therefore, a planning body that actually allocates money, not just advises other democratic institutions how to spend it, must have a constitutional charter to do this, and must be accountable to the elected Parliament.
The Think Long Committee in California addresses the constitutional relationship between the planning process and an elected government within a state. In addition, India’s national planning process must address the constitutional relationship between the center and the states. In India’s constitutional structure, elected governments in the states are accountable to the people. They are expected to improve human development, create infrastructure, and make it easy to do business in the state. They must manage their financial resources efficiently and balance their budgets. Constitutionally established Finance Commissions determine the sharing of centrally raised resources with the states. What then is the role of a national planning commission?
Indeed, this was the question that several state chief ministers had raised during UPA2.
States who were becoming self-sufficient in their resources—as all states should become—questioned the value they were getting from their interactions with the Planning Commission. They said the commission was out-of-touch with their ground realities and had little experience of how to get things done to produce outcomes. It was preaching from an ivory tower. Moreover, it was becoming apparent that the model of an economy on which the commission seemed to form its’ advice was inadequate.
The question of competence
Whether a planning institution allocates money, or advises others how to, it must have the
competence to plan. A national planning institution must guide all round progress. To achieve not just faster GDP growth, but more socially inclusive, and more environmentally sustainable growth too. For this, it needs a good model in which societal and environmental forces are within the model, not externalities to the economy. Economists who have been advising policymakers do not have comprehensive models of socio-environmental systems. Their models are inadequate even to explain economic growth. Because they have not incorporated the implications of economic growth on inequality, for example, which has become a contentious issue.
An economy is a complex system. Which sits within an even larger and more complex system of human society and the natural environment. The globalization agenda has been driven by an economic agenda with policies promoting global trade and global finance to maximize global economic output. It has paid too little attention to the impact of the ‘GDP agenda’ on the well-being of communities where employment declined when production moved to lower cost sources elsewhere. Or to the total environmental impact of global supply chains. Now the system is reacting and stalling globalization. In this context, PM Modi’s appeal to the heads of G-20 this week is telling. He has asked them not to focus on the growth of economies, but on the well-being of people.
A feature of complex systems, in which all the parts are connected, is that the system cannot be healthy if any part becomes very sick—even if the others are in robust health. Even if all other organs in a human body are functioning, if one fails, the whole body dies. Therefore, a healthy global system must help its weaker members to become stronger.
Another feature of complex systems with many interacting forces is that the forces combine in unique ways in different parts of the system. For example, the conditions of livelihoods, the natural environment, and infrastructure, combine in different ways in Kutch, Nagaland, and Bijnore. Therefore, systems solutions must be local too. One size cannot fit all.
These insights into systems structures, as well as considerations of democratic governance in which governance should be devolved to national governments, and, within them, to state governments, and even to the third tier of city and district governance, have implications for the role and competencies of a national planning institution for India. It must be a systems reformer, not fund allocator. And a force for persuasion, not a control center. Because its role must be to promote local systems solutions to national problems.