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The Next Stage of Planning in India

Yoginder K Alagh (yalagh@gmail.com) is Chancellor, Central University of Gujarat and vice-chair, Sardar Patel Institute of Economics and Social Research.

A close review of the Niti Aayog’s vision document vis-à-vis earlier plans and programme details offers valuable insights and suggestions on the real issues that India must face for inclusive growth.

After considerable examination, the government has released the Niti Aayog’s Vision Statement up to 2020 (Niti Aayog 2017). We examine it from the planning angle and for its sectoral perspective for agriculture, rural development and the manufacturing sector. The approach is to analyse the policy stance of the present National Democratic Alliance (NDA) government as stated in recent official documents and to see if it has any relationship with past plans in terms of concepts or programme details.

The growth strategy of the NDA government is unequivocal and unconditional as clearly stated in the vision statement. The NDA government was elected on the promise of abolishing planning. Strangely, the then Planning Commission decided to hold a meeting to which “experts” were invited on 24 August 2014. I was also on the list of invitees. When I remonstrated that it was not useful to participate in a process with necromaniacal intentions, I was told somewhat severely that the Prime Minister’s Office (PMO) had decided on who should attend the meeting. Being somewhat traditional, I accepted, because the PMO’s authority cannot be lightly questioned. In my invited Raj Krishna Memorial lecture I had addressed the issue of “The Next Stage of Planning” (Alagh 2014). A number of participants at the meeting argued that reform of the Planning Commission was an ongoing issue, in an economy following the Manmohan Singh 1991 liberalisation path.

I had argued in the lecture that a more focused body concentrating on issues like energy, water and demographics which have a long-term perspective should be the agenda of the new body. This was done in China after the State Planning Committee was replaced by the National Economic and Social Deve­lopment Commission.

The Planning Secretary put all this down in a two-pager, which it was announced was to be discussed in the National Development Council. But in fact it was decided to abolish planning after a hurriedly called meeting of chief ministers. The new body called NITI Aayog had a very amorphous agenda. To sum up, if the NITI Aayog was to be taken seriously its agenda would have to be amongst others, in demographics, energy, land and water and like in China it should also allocate resources for the long-term plan, which it was not mandated to.

The NITI Aayog interestingly decided that resource allocation or not, it would do planning. This was to be so in spite of planning being abolished and the finance minister allocating resources amongst the states in his government’s schemes, which now in the annual budgets aim to allocate more money than the United Progressive Alliance government did in centrally sponsored projects. The only difference is that the Planning Commission allocated resources in the annual plan based on the Gadgil–Mukherjee formula, which was a rule-based criteria. Now that allocation was ad hoc or as some states said, arbitrary. In spite of all this, the NITI Aayog has already produced a Three Year Vision Plan 2018–19–2021–22. These do not have a resource allocation function but consist like all earlier plan documents of sections with objectives, expenditure targets, resource allocation, sectoral plans and special problems (NITI Aayog 2017). It has also said that a longer Seven Year Plan will be released (PIB 2016).

The NITI Aayog however states: “The Vision, Strategy and Action Agenda represents a departure from the Five Year Plan process …” (NITI Aayog 2017: 1). It has annexed a directive from the PMO for stating this. But the output is now in the public domain for comment and the similarities with earlier plan documents are much too striking to ignore.

Manufacturing

The NITI Aayog has given a refreshingly new focus to the thinking on industrial policy. It has repeated a classical perspective on the manufacturing sector as an engine of growth and the need to remove many cobwebs from the industrial policy environment. It begins its analysis of the manufacturing sector by underlining its low productivity and low wages. It points out that China’s industrial productivity per worker is three times that of India (NITI Aayog 2017: 31). Small firms employing less than 20 workers account for 72% of employment but 12% of output in the manufacturing sector. Our workers are overwhelmingly employed in low productivity and low wage employment (NITI Aayog 2017: 31). The NITI Aayog is clear that we need more formal sector jobs. Again India’s performance in exports is dismal. In 2015, China accounted for 13.72% of world exports, while India accounted for only 1.67%. Export performance has to be on the basis of higher productivity and that needs scale economies. China relies on special economic zones (SEZs) where restrictions and labour laws are relaxed. India needs one big SEZ on each coast. The Aayog gives the example of Gujarat as a success in this regard (NITI Aayog 2017: 32).

Now, this clear commitment to fast economic growth and nothing but fast economic growth is very attractive to a professional economist. Like others of our generation, we studied in graduate school about the famous vent-for-surplus models of trade and growth (Richard Caves et al 1965 ). We discussed this in planning models, which were used in the erstwhile Planning Commission (Alagh 1995), but to state it in cold blood as it were is different and refreshingly so. It is embedded in the past but is a more focused priority because it is not embedded in a detailed plan.

However, a few questions on circumspection arise. In the same chapter the NITI Aayog illustrates its vent-for-surplus and growth models with interesting perceptions followed by some debatable statements. It points out that the gems and jewellery industry is a success story. At $39.4 billion it accounts for 15.1% of India’s exports, employs 4.5 million workers and handles 95% of the world’s processed diamonds. But NITI Aayog is unhappy. Apart from demand shocks, it argues that technological substitution by higher capital labour ratios in China will be a threat to India (NITI Aayog, p 38). This is a debatable stance. This is at best incomplete and at worst incorrect. The Chinese have for over two decades, unsuccessfully tried to compete with the Surat diamond polishers and failed. In a study for the International Labour Organization (ILO) in 2006, I had argued this out (Alagh 2008) and will discuss it below.

Before we look at these empirics a word at the general theoretical level may be in order. There are generally, some limitations to the vent-for-surplus or maximal growth models concentrating only on maximising labour productivity per person to plough back the maxima to surplus for growth. To begin with, there is the Keynesian exhortation in the general theory not to confuse margins with averages. A very large number of small changes added together can be more significant than a small number of large changes. Further, a strategy that is of a mobilising nature, can absorb latent reserves in the economy and social system which a vent-for-surplus effort could miss out on account of its narrow focus. The Surat diamond polishers constitute in a sense a social enterprise, discussed in India’s policy literature earlier. Their flexibility came from the social capital of trust. The employer could hand over a “rough” or a “passa” as it was called and ask for it to be polished and brought back the next day. The Dutch factories in Amsterdam had to close down because they did not have this “social capital.”

In the 1980s, I had gone to the Planning Commission, prepared a plan for self-reliance in foodgrains which succeeded and was later recommended by Jeffrey Sachs for the Sahel. I insisted on going back to my research nest, resisting the Delhi “ladoos” as my friend Arjun Sengupta described it, and returned to my research job in Ahmedabad. My colleague Rohit Desai was then working on research on the diamond polishers of Surat and I accompanied him. It was discovered that the diamond polishers in cottages were using the latest technology, since miniaturisation had begun and computer-fitted polishing machines were reaching cottages. The diamond polishers would buy “passas” as the diamond roughs were called locally, from Antwerp, give them to the artisan and get it back polished in a day. The system worked on trust. The Dutch as mentioned earlier did not have that social capital and lost out initially in the polishing and finishing game. Later the diamond polishers bought them out and the factories shifted from Holland to Surat in Gujarat.

I was invited to the ILO to evaluate the World Employment Programme and met Gerry Rodgers, who was leading a global team integrating population and employment in national econometric models. Michael Piore had written the great classic on the great changes taking place in industrial structures. This was the origin of the literature on the Neo-Fordist revolution and lean production in Italy and Japan. The original book was his Second Industrial Divide. Modern communication, computerisation and the new materials were reviving cottage production in Emilia-Romagna in northern Italy in fashion garments and the French were losing out to the Italians who were to become household fashion names later. Piore was serving with me on the board of a think tank in the ILO and he insisted that this revolution was happening in India, and art silk fabrics, zari and diamond polishers in Surat all studied in his Ahmedabad mother institute. Piore, Rodgers and others fell for the argument after their colleagues visited Surat.

Gitanjali progressed, bought out the diamentaries in Antwerp and went backwards to acquire retail trade in Europe and America. They integrated backwards into the market and partially owned Rodgers and India almost had a fifth of that market.

The NITI Aayog’s Vision Document for 2020 expressed the fear that China would take over diamond exports, which equal software exports (in the net), even if they do not exceed them. I did not agree (Alagh 2017). NITI Aayog’s vent-for-surplus as I called it or a yen for large size was fine but facts should not be tampered with. Diamonds, gems and jewellery are our niche and the Chinese failed for decades because they do not have the social enterprise organisations. So the NITI Aayog’s fear of the small size of Indian firms and its desire to change it by increasing the capital, was unfounded in this case, although as an economist I agreed with the vent-for-surplus models that Arvind Panagriya and Rajiv Kumar were advocating. However, I was not too happy at their exclusive advocacy of large firms and did not agree on the so-called Chinese threat in the gems and jewellery industry.

In fact, a few years earlier, we had been critical of large corporates in jewellery. Now Mehul Choksi and Gitanjali have changed the world at one stroke and we will have to start all over again. First is the study of systems as to how a few can completely hoodwink all checks and balances. Second, what is the required mix for the future? The NITI Aayog’s next vision document will have to contain a reappraised policy stance on gems and jewellery as compared to what it wrote in its vision document approved by the government and circulated everywhere. All of us have to help the NITI Aayog in this difficult task. We cannot let down the next generation while the Choksis and others get their just desserts.

The argument in a nutshell is that India must trade in goods and services and foreign exchanges and do it efficiently. But Indian economists must also try and answer questions like the strategic paths of the final stages of India’s open economy macro reforms, trading consequences on the structure of the economy and impacts and India’s role in expanding the concentric circles of influence and cooperation. India must participate in the global dialogue on reform in a more positive and thought-out manner, based on its own experience. This was possible earlier. It should be possible now.

The chapter on the agricultural sector in the NITI Aayog’s vision document is not its best chapter. It is somewhat sketchy. Capital development expenditure, which was falling since 2013, had fallen to 0.9% of the gross domestic product (GDP) in 2015–16, but the NITI Aayog expected it to rise, as budgeted to 1.2% in 2016–17. It presented a medium-term expenditure framework in which this would rise further to 1.7% in 2019–20.

Agricultural Sector

The NITI Aayog’s agricultural vision had “a strong programme for agricultural transformation,” “measures to raise farm productivity,” “remunerative prices to farmers,” “put farmers’ land to productive uses when they are not able to farm it themselves.” Chapters in subsequent parts of the document offer an ambitious agenda for empowering the rural population through improved road and digital connectivity, access to clean energy, financial inclusion and “Housing for All.”

“The scope of irrigation to increase crop intensity, improve access to irrigation, enhance the seed replacement rate and encourage the balanced use of fertilisers, precision farming and related new technologies,” were emphasised as also “shift into high value commodities” by “direct sales to buyers of all commodities” (NITI Aayog 2017). These ideas were introduced in earlier plans (Alagh 2012).

No schematic and project-level details are given and irrigation is clubbed with power. But the irrigation chapter has programme and project details. The vision document discusses land markets, food processing, agricultural produce market committees (APMCs), rural–urban growth clusters and capacity building of panchayats. These largely repeat earlier ideas (Alagh 2016a, 2016b). There is also a mention of technology for the water and agriculture sectors, and the need for governance reform. However, there are no details and so these issues can be discussed only from past perspectives. Details are given for the irrigation and flood control sector.

In a centennial conference (Alagh 2017), as India takes its place in the sun as a major global entity, I had noted that it does so with a high rate of growth and a young restless population on the move. There is very little that can hold it back. But water, energy and other non-renewable resources like land will set the eventual limits of high growth. In spite of all the hiccups and the fact that in some regions India was already very stressed, as a policymaker stated that India had the civilisational—and given its federal democracy, institutional strength to use water well. Therefore, when the Ministry of Water Resources (MoWR) asked me to chair a committee to develop a draft framework law for the water sector, I accepted the daunting task. This work gained relevance because the MoWR has now introduced a bill on the National Water Framework Law in Parliament in 2017. It follows in the main the draft act that the committee had prepared. The only exception is that the right to a minimum amount of water was not accepted. Since water is a controversial subject we submitted the reasoning behind the provisions of this act, so that it may be of some use in the public and parliamentary debates on the subject.

Framework Law

The framework is meant to provide the larger structure for organising the support mechanisms to states and communities in their governing institutions at the levels that matter—the local government, community-based organisations (CBOs), the management of ponds, waterbodies, watersheds, aquifers, and river basins. Once these mechanisms are fully in place, as appropriate structures, the national role is largely that of support. But these support mechanisms can be critical for the appropriate government. Cutting-edge frontier technology in water delivery (Alagh 2003) and development projects have to be developed at home, accessed in the world, and made available, while working best practices must be known and disseminated. Development and applications of success stories will require data and information support. The framework attempts to set up systems that will aid state governments, local bodies and others in these support mechanisms.

The framework also provides for a web-based information system (WRIS). It will be state-of-the-art, comprehensive and user-friendly. Geographic mapping systems and satellite-based technologies will be developed at the national level. The Andhra Pradesh Farmer Managed Groundwater System that I had highlighted in my evaluation of the Food and Agriculture Organization in South Asia has now been introduced as a major instrument of water management in the Twelfth Plan. Similar examples of technology-based solution systems in ground­water, river basins, watersheds and other waterbodies have also been recognised in the framework.

Integrated Water Resources Management gives every individual the right to a minimum quantity of potable water for essential health and hygiene and makes available within easy reach of the household. The state’s responsibility for ensuring people’s right to water remains despite the corporatisation or privatisation of water services and the latter, where it is considered necessary and appropriate, should be subject to this provision. The water resources law has to detail how to give every Indian at least a minimum amount of water to survive.

A new research effort is needed and in a three- to five-year framework, it should be possible to generate knowledge, from which generalisation could begin. It is extremely likely that assessment of water as a resource will gain another dimension if such efforts are pursued.

It is obvious that a lot of work is needed to operationalise the integrated water resources management.

At the beginning of the century, I was asked among others by the United Nations as to how India would move over to a higher growth path of say 7% to 8%. Using the tools that my teachers taught me, I answered that we will have to save more (unlike the NITI Aayog, I believe it is too early to dream of only goodies in a country where poverty is high and that technology application will have to be faster). What was called factor productivity would have to grow at 5% annual and not 3%. And for all that we needed more trade. The Indian abroad was doing the saving and sending it across with a benign central bank underwriting him with an impossible interest rate, but President Trump may put a spanner here. If there were other ways the NITI Aayog’s vision could have stated it. The earlier plans discussed such issues. The present vision document does not. If it did we could seriously start debating it. Until then, as Keynes said, even mad men have visions. The Niti Aayog is much too respected an institution to fall in that category.

Conclusions

The careful attempt at reconstructing planning is noteworthy. It would be good if experts to talk about the NITI Aayog and chief ministers came to its seat, the Yojana Bhavan. There should also be three-year action plans (also as earlier a “mid term review”) and a perspective. The real issue for India is growth across gender, caste or religious lines, for markets cannot function otherwise. Also, it has to grow fast or it will end up in the dustbin of history, for she is a cruel mistress. The present planning states this even now but the detail is unfortunately only promised.

References

Alagh, Yoginder K (1991): Indian Development Planning and Policy, WIDER Studies in Development Economics, Helsinki and Delhi: Vikas.

— (1995): “Development Models: The Next Phase,” Statistics and Its Applications, B L S Prakasa Rao, Indian National Science Academy, New Delhi, also published in Indian Journal of Pure and Applied Mathematics, Vol 26, No 6, Special Issue.

— (2003): “Technology Policies and Investment Strategies,” OECD-ADB Asia Forum, Braga de Macedo and Tadao Chino, OECD, Paris, pp 165–80.

— (2008): Enterprise Linkages and Quality Jobs, International Labour Organization, Geneva and New Delhi.

— (2012): The Future of Indian Agriculture, Delhi: National Book Trust.

— (2014): “The Uneasy Case against Planning,” Raj Krishna Memorial Lecture, Jaipur, University Department of Economics, 10 December.

— (2016a): “Structure of Indian Agriculture: Growth and Policy Epochs,” Vicissitudes of Agriculture in the Fast Growing Indian Economy: Challenges, Strategies and the Way Forward, C Ramasamy and K R Ashok (eds), Delhi: Academic Foundation, pp 57–70.

— (2016b): “The Presidents Speak,” Review Article, Indian Journal of Agricultural Economics, April 2016, pp 212–22, Indian Society of Agricultural Economics.

— (2017): Invited Valedictory Address to the Centennial Conference of the Indian Economic Association, Guntoor.

Braga de Macedo, J and Tadao Chino (2003): “Technology and Poverty Reduction in Asia and the Pacific, Paris,” OECD and ADB, Development Centre Seminar Series.

NITI Aayog (2017): “DRAFT Three Year Action Agenda, 2017–18 to 2019–20,” Governing Council of the NITI Aayog, Government of India, New Delhi, 23 April.

PIB (2016): PMO ID No.360/31/c/38/2014-ES-II dated 19/05/2016 referred to in Niti Aayog.

Richard, E Caves (1965): “Vent for Surplus Models of Trade and Growth,” Trade Growth and Balance of Payments, R E Baldwin et al, Chicago: Rand Mcnally.

Updated On : 9th Jul, 2018

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