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M Govinda Rao, member of the 14th Finance Commission, recently gave a presentation to a Parliament Standing Committee on the issue of planning without the Planning Commission. Though he does not disclose details of his presentation, he gives his viewpoints on the role of NITI Aayog, clarifying that his opinion is based on the remit detailed in the Cabinet resolution on the new body. He tells Indivjal Dhasmana that the death of Planning Commission does not mean demise of planning as well. However, its structure should change. On Sunday, Prime Minister Narendra Modi would deliberate on this crucial issue with members of the Aayog and chief ministers. Rao also roots for making the finance commission a permanent body. Edited excerpts:
As the Planning Commission is now a passe, does it mean that the process of planning will also be dead? Or will it acquire the new role under the NITI Aayog?
The abolition of Planning Commission does not mean that the process of planning is over. The five-year Plans practiced in the past with the Planning Commission approving state plans was against the spirit of federalism. Centralised planning is the negation of federalism. Federalism stands for provision of public services, according to the preferences of the people residing in the jurisdiction and not based on the approval by the Union Planning Commission.
The Cabinet resolution gives the responsibility of strategic planning to the NITI Aayog. Strategic planning has to be undertaken at both macro and sectoral levels. There are two distinct differences however. First, the planning that will be done should be indicative. Strategic planning is to assess the requirements of public investments in infrastructure and services to meet the requirements of the market and the people for achieving the dynamism required. Second, Planning will exercise should not be top down but bottom up right from the grassroots level. Given the resource envelop at each level and unit of government, it will have to prepare the plans from villages and wards. This should be aggregated at higher levels - block, district and state by aggregating the plans prepared by the lower level and adding to it the plans required at that level. The national Plan will be merely aggregation of the sub-national plans and the investment plan undertaken by the Union government.
NITI Aayog should not be in the business of approving the plans prepared by the sub-national governments. It should only consolidate them. It should however have (i) a strong research team which should undertake strategic planning exercises at macro level as well as for various sectors — perspective plans, medium term plans as well as annual plan exercises for the country as a whole. It should have research capacity to access the best available research globally.
As far planning at the sub-national level is concerned, it should have a team to prepare a framework for decentralised planning, and provide advice and guidance to the subnational governments as and when they seek them.
NITI Aayog has not been given jurisdiction over fund allocation. Do you think it is a right strategy?
According to the Constitutional provisions, transfers have to be done based on the recommendations of the Finance Commission under Article 270 (Devolution of taxes) and Article 275 (Grants). In fact, the first two Finance Commissions' recommendations covered both plan and non-plan requirements of the States being undertaken. From the third Commission onwards, the Commission were asked to limit themselves to assessing non-plan revenue expenditure requirements. As far as the states are concerned, this provides an opportunity to avoid the distortions of separating plan and non-plan expenditures. The Finance Commission’s recommendations can cover the entire revenue expenditure requirements. In regard to allocating expenditures to various departments, the NITI Aayog can be involved in the allocation along with the spending departments/ministries and the Union finance ministry.
There is still ambiguity over the fate of five-year plans. What are your views on how should NITI Aayog deal with these plans?
I have already detailed them above. There should be perspective plans, medium-term plans as well as annual plans prepared by each spending level and department. Perspective plans will define the overall saving and investment requirements for achieving the desired growth and the action needed to achieve them. Medium-term plans will focus on the infrastructure spending by the governments at various levels within the overall feasible resource envelop. The annual plan exercise will have to be prepared by each level of government based on the estimated resource envelop.
NITI Aayog will have to work on strategic planning for the future based on its own research and the research it will access globally from various think tanks and scholars and practitioners. It could also be involved in coordinating the investment plans of various ministries at the Union level and providing advisory and assistance to the sub-national governments as and when these are sought.
The new government has replaced the Planning Commission with NITI Aayog. Do you think that governments should replace the age-old institution just like that? What if next government thinks that NITI Aayog is also not relevant for the current dynamics of the economy?
It is quite possible. It will depend on how NITI Aayog evolves and becomes relevant to changing situations. The functioning of the Planning Commission had lost relevance and therefore, not many will shed tears on its abolition. It is a challenge NITI Aayog has to meet in order to be relevant to the developmental process in the country.
The government talks about cooperative federalism in the context of NITI Aayog. What do you make out of this concept?
Essentially, we do not have an institution for inter-governmental bargaining and conflict resolution in the country and NITI Aayog can fill this vacuum. Although the Constitution divides the responsibilities of the Union and states, there are significant concurrent areas and these include energy, infrastructure, education and environment. Considerable efforts are needed to coordinate the initiatives of the Union and states. Even in states' subjects, initiatives at the national level may be needed either because these have significant nation-wide externalities or they have significant merit good elements, but these should not proliferate and constrain the states. Similarly, the Union government can use the states as agencies for implementing the functions under the Union subject, if it is found to be advantageous.
However, the governmental units have essentially competitive and that will be the source of dynamism as detailed in the literature on competitive federalism. However, there are some preconditions for efficient intergovernmental competition and these include competitive equality and cost-benefit appropriability to prevent competition from becoming predatory. The NITI Aayog has to regulate intergovernmental competition to ensure gains from efficient competition.
Should cooperative federalism be under the ambit of NITI Aayog or should there be some other body to look after that?
Cooperative federalism is an approach to inter-governmental relationships. NITI Aayog will be one of the institutions, albeit an important institution to promote it.
Will the distinction between plan and non-plan expenditure go away with the demise of the Planning Commission?
It depends on the way in which budgeting evolves. The distinction has no Constitutional basis. It has distorted the resource allocation in the country. The Rangarajan Committee had recommended that the distinction should be done away with. This, however, provides a good opportunity to evolve budgeting in terms of defining the expenditures on new projects/programmes and linking them to well defined outcomes.
You have advocated that the Finance Commission be given the jurisdiction over grants-in aid for non-plan side as well. What is the rationale behind this?
The Finance Commission is required to cover the non-plan requirements any way. My contention is that they can cover the so called plan revenue expenditure requirements as well. The Constitution does not make plan/non-plan distinction.
Why do you think that the Finance Commission be a permanent body?
There is nothing in the Constitution which states that the Finance Commission should be a temporary body. It merely states that the President will appoint a Finance Commission within two years of the Constitution and thereafter at the expiration of every five years or earlier as may be required.
Permanent Finance Commission with a strong research secretariat can ensure continuity and change. It can undertake research in inter-governmental finance on a continuous basis and have the requisite expertise. With the appointment of new Chairman and Members every five years the work can be taken up expeditiously.
In a dynamic economy making recommendations for five years in the future might not take account of changing economic realities. A permanent finance Commission can take account of changes in economic environment. A permanent commission can interpret and monitor the recommendations and will not leave it to the Union Finance Ministry.
We have the experience of the Commonwealth Grants Commission in Australia which is a highly respected institution. Perhaps, that can be the model to follow.
There have been talks of increasing share of states in tax devolution by the Centre. Do you support such idea and to what extent?
The share of the states in the Union taxes should depend upon the requirements of the Union state governments to carry out the functions mandated to them in the Constitution. The Finance Commission is appointed every five years to essentially assess the revenues and expenditures of the Union and states on a normative basis and determine the extent of tax devolution and grants in aid.
What is wrong in the erstwhile Planning Commission making estimates for economic growth for a five year time and assessing it mid-way?
There is nothing wrong in making estimates of growth rates. However, the growth rates should be realistic. The public sector investment plan should be based on the resources available. At best, the Planning Commission can only make public sector plan for the Union government. To pretend that it can make the investment plan for the whole country involving the States as well as the private sector is a myth.
