Now that prime minister Narendra Modi has officially pronounced the Planning Commission dead and is crowdsourcing ideas on what its replacement should look like, there is a host of comments on how it is a bad idea to junk the plan panel while there is no clarity on its eventual replacement. Among the more serious objections to winding up the plan panel is that this will take away the much-needed flexibility to central finances. Central to the idea of abolishing the Planning Commission is that states get more flexibility in using funds through automatic devolution of tax collections?so, in a period when economic growth and tax collections are down, this does reduce the Centre?s flexibility to slash expenditures. There is also the argument that not all states have the same ability to manage funds or execute projects so, were they to be given more funds through the automatic route, there is no guarantee they will spend it well in the absence of a central oversight mechanism. Related to this is the issue of elite capture, obviously easier at the level of the states, and the fact that states have not devolved power to the third tier of government?so where is the guarantee the money will even get spent on projects that people need?
In a nutshell, the argument is that the plan panel has a relevance?for perspective planning, as an independent arbiter on inter-ministerial wrangles, as a repository of good practices including creating viable and fair PPP frameworks, etc?so just tweak its functions and let it carry on. Indeed, since there is clearly a need for a US-style Congressional Budget Office that is independent of the finance ministry to give a non-partisan impact assessment of tax/non-tax policies, this is also a role the new panel can perform. With more money flowing directly to states, there is a greater need to track the efficacy of public spending, a role ideally suited for the panel or its Independent Evaluation Office. Before state and local governments are ready to spend money, a lot of capacity building also needs to be done to ensure those given more freedom are in a position to do something with it.
Whatever shape the plan panel?s successor takes, it has to be ensured the new body does not remain as much a symbol of central oppression as its predecessor. While the plan panel had several redeeming features, it cannot be denied it has been used as a tool of favouritism over the years. A study by Stuti Khemani of the World Bank had shown that, during 1972-95, states run by parties that were allies of the Centre typically received transfers that were 4-18% more than the average for 15 major states. Plan transfers for these states were 10-30% higher. A similar analysis by Govinda Rao and Nirvikar Singh found grants for state plans?these comprise around a fifth of all transfers from the Centre?were around 30% higher for ally states. Between FY01 and FY13, apart from the obvious weavers? and
Bundelkhand-type packages, the ultra discretionary Special Plan Assistance and Special Central Assistance have risen from 5.9% of central assistance to state Plans to 16.5%. Such central government policing, it has to be said, is anathema to the concept of federalism.
