The NITI Aayog must be converted from a Department of Development Implementation to a High Command of Development Strategy.
https://www.business-standard.com/article/opinion/reforming-the-niti-aayog-122051601487_1.html
That’s the very last sentence of a thought-provoking column by Nitin Desai. The column is about why the NITI Aayog (in Nitin Desai’s opinion) hasn’t done all of what was hoped of it, and what needs to change for some of these hopes to be realized.
But for us to reach the end of this column, we need to start somewhere, and we’ll start with the setting up of the Planning Commission.
The Indian planning project was one of the postcolonial world’s most ambitious experiments. It was an arranged marriage between Soviet-inspired economic planning and Western-style liberal democracy, at a time when the Cold War portrayed them as ideologically contradictory and institutionally incompatible. With each Five-Year Plan, the Planning Commission set the course for the nation’s economy. The ambit ranged from matters broad (free trade or protectionism?) to narrow (how much fish should fisheries produce to ensure protein in the national diet?). The Commission’s pronouncements set the gears of government in motion. Shaping entire sectors of the economy through incentives, disincentives and decree, the Planning Commission’s views rippled across the land to every farm and factory. Despite this awesome power, economic planning in India was considerably different from the kind practised in communist regimes. The Planning Commission was reined in by democratic procedure that required consultation with ministries in an elected government, with people’s representatives in Parliament—and ultimately with the popular will—through citizens voting every five years.
Menon, Nikhil. Planning Democracy (p. 9). Penguin Random House India Private Limited. Kindle Edition.
That’s from a book I’m currently reading (and thoroughly enjoying), Planning Democracy. There’s a lot to like about the book, and I hope to write a full review once I’m done, but for the moment, think about just the title. There’s a (hopefully healthy) tension implicit in it, because as the excerpt above puts it, the Planning Commission was to be reined in by democratic procedure.
What was it supposed to do? Further on in the same chapter from the book I have just quoted is a nice compact description of what was supposed to have happened:
Its potency stemmed from its authority to draw up an economic roadmap for the country and back it with all the resources and policy instruments available to the Government of India.
Menon, Nikhil. Planning Democracy (p. 21). Penguin Random House India Private Limited. Kindle Edition.
That is, there are two separate but interlinked things worth noting: it had to develop an plan of economic development for a newly independent India, and in order to do so, it had the backing in terms of resources and policy instruments. By the way, there is a reason the word “resources” has not been qualified with a word like financial – the back was not just financial, but also political, given the presence of the Prime Minister and other cabinet ministers as members.
The story of how the Planning Commission evolved, struggled, and refined itself over time (not always successfully, it should be mentioned) is a fascinating one, but not one that we can cover in a single blog post, alas. But long story (very) short, the Planning Commission came to an end in 2015:
Born the same year, Modi and the Planning Commission shared another milestone together. In his first Independence Day address as India’s leader, Modi declared that the Planning Commission had once merited its place and made significant contributions. Now, however, he believed it had decayed beyond repair. ‘Sometimes it costs a lot to repair an old house,’ he said, ‘but it gives us no satisfaction.’ Afterwards we realize ‘that we might as well build a new house’, Modi explained with a smile. He would build it by bulldozing a decrepit structure and raising a shiny new one, the NITI Aayog (National Institution for Transforming India).
Menon, Nikhil. Planning Democracy (p. 8). Penguin Random House India Private Limited. Kindle Edition.
And how has the NITI Aayog done?
But despite progress in these areas, some 7 years since the establishment of NITI Aayog, questions are being raised as to whether India can continue to function without medium-term planning. Annual budget allocations are made by the Finance Ministry to meet various investment goals and objectives but without a well-defined plan. NITI Aayog’s advice is also not taken seriously by state governments as it comes without resources. Some feel that NITI Aayog should have resources it allocates to address development imbalances and that the Ministry of Finance is naturally focused on budgetary management rather than development outcomes.6While no one wants a return to the old Planning Commission, a more involved and competent NITI Aayog, with a stronger voice is clearly needed.
Ajay Chhibber, 2022. “Economic Planning in India: Did We Throw the Baby Out with the Bathwater?,” Working Papers 2022-03, The George Washington University, Institute for International Economic Policy.
The idea itself isn’t all that new. Back in 2019, Vijay Kelkar had given a speech in which he proposed “NITI Aayog 2.0”:
It should rather strive to be a think tank with “praxis” possessing considerable financial muscle and devote its energies to outline coherent medium and long term strategy and corresponding investment resources for transforming India. Towards this, my preliminary study suggests that the NITI Aayog 2.0 will annually need the resources of around 1.5% to 2% of the GDP to provide suitable grants to the States for mitigating the development imbalance. These formulaic annual grants, whether capital grants or revenue grants for the relevant CSS will need to be conditional to ensure that (1) outcomes are commensurate and (2) it discourages an individual State to adopt policies that have negative policy externalities, e.g., creation of populist subsidies and thus avoid race to the bottom. Such presence of “negative policy externalities” we notice often, e.g., the provision of free “electricity,” irrigation water subsidies, etc. “Gresham’s Law” seems to be relevant not only for the currency markets alone!
Towards India’s New Fiscal Federalism, No. 252, NIPFP Working Paper Series, Vijay Kelkar (https://www.nipfp.org.in/media/medialibrary/2019/01/WP_252_2019.pdf)
If you don’t know what Gresham’s Law is, take a look here.
All of which eventually gets us back to the column that we started with, by Nitin Desai:
The real problem of strategy formation for development is that it is not being done. The NITI Aayog has produced some vision documents; but they are not agreed strategies formulated after widespread consultations with experts and discussion with the states. The word “niti” in the name of this organisation is an abbreviation for National Institution for Transforming India. This task requires looking a level above the designing of programmes to a strategy from which programmes must be derived.
https://www.business-standard.com/article/opinion/reforming-the-niti-aayog-122051601487_1.html
A grand strategy for development must spell out the opportunities and threats faced by the key objectives of development which are growth, equity and sustainability. It must then identify the changes in the role of the public and private sector, shifts in global economic alliances and policy shifts that are required to maximise benefits from opportunities and manage risks from threats. The time frame for a grand strategy has to be long-term but the more specific strategies derived from it must take into account short- and medium-term challenges that the country faces.
We need, that is to say, a NITI Aayog that focuses on not just reporting what has been (or is being) done, but also on explaining what needs to be done, over what time period, and why, along with some pointers towards what risks we might encounter. Or as Nitin Desai puts it, “The new Vice-Chairman, Suman Bery, must bring in the talent required and launch a process of broad-based consultation, particularly with the states, to secure a broad national consensus on a long-term growth strategy. Specific programmes must be based on the implementation of this strategy.”
Easier said than done, of course, but this is where NITI Aayog needs to go next.
EconForEverybody 