Should foreign agencies be involved in economic planning?

DEBATE

PRAKASH KARAT
Politburo member,
CPI(M)

The opposition of the Left parties to the inclusion of representatives of the World Bank and other multilateral agencies in the Planning Commission's consultative bodies has been received well by the people. But it has met with uninformed and motivated criticism from sections of the media.

At the outset, it must be made clear that the Left is not opposed to foreign experts being consulted by the Commission. There is no xenophobia. In the past, the Commission has benefited from the advice of internationally-renowned economists such as Rangar Nurkse, Ryszard Lange and Nicholas Kaldor.

What is being objected to is the representation given to the World Bank and other foreign agencies in the formal mechanisms of the Commission.

The Planning Commission is an institution of the Indian state. It is entrusted with the responsibility of finalising the Five-Year Plan that is approved by the National Development Council. It also plays a pivotal role in allocating resources to the states based on the Plan outlays.

As such, it is an important instrument in economic policy-making, planning and federal relations in the Indian state. Unlike many of its critics, the Left believes national sovereignty is a basic issue and is directly related to the nature of democracy. Economic policy is not something that can be divorced from politics.

The suggestion that economic policies must be unchanging while government and ruling parties change is an undemocratic idea propagated by agencies like the International Monetary Fund (IMF) and the World Bank.

The people included in the consultative groups are still serving in the World Bank and other international/foreign agencies. As individuals, they may be highly competent and knowledgeable, but they are bound by the official position of their employing institutions. For instance, one cannot conceive of  a World Bank official giving advice that goes against the basic precepts of the bank.

The Commission has, in the past, too, set up consultative bodies for the mid-term appraisal of the plan. The functions of these consultative groups are not just to air different views but they are more in the nature of committees whatever nomenclature is used. The Commission has spelt out the terms of reference of the groups.

They would "provide guidance in the selection of the key issues and emerging problems" and "review the draft material to be prepared by the Planning Commission on the subject and to give critical advice and directional inputs for further improvement".

Further, the group will also have the powers to set up sub-groups/steering committees of officials both from Central and state governments as well as non-officials to finalise its views on specific issues. The question is whether these functions should have the participation of the World Bank and similar agencies.

The Left and the CPI(M), in particular, is being accused of adopting double standards. In West Bengal and Tripura, the state governments run by the Left are taking loans or assistance from the World Bank, the Asian Development Bank and other agencies for specific projects and programmes.

The state governments hold consultations with personnel from these institutions for this purpose. But their representatives are not given any representation in the bodies/committees of the government, including the state planning boards.

It should not be difficult to understand the difference between what these state governments are doing and the steps taken by the Planning Commission.

In West Bengal, even while resorting to such finances from these agencies, the state government is mindful of questions of sovereignty and accepting conditionalities that can subvert the nature of the policies pursued by the state government.

Finally, it will be good if the verdict of the recent Lok Sabha elections are kept in mind. It was a manifestation of popular disapproval of those very policies that were dictated by the World Bank and similar agencies. Andhra Pradesh being the best example.

MUKESH BUTANI
Consultant and former partner,
Andersen and Ernst & Young

The past few days have been full of controversy over the role of foreign agencies in general, and foreign consultants in particular, in India's economic policy decision framework.

India was insulated from the world trading system for almost four decades. We pursued an inward-oriented development strategy and, with an almost hostile attitude towards foreign trade, technology and investment, were pushed to the brink of bankruptcy.

We saved our pride in the early 1990s only by pledging gold with the Bank of England and undertaking structural reforms that were coupled with rescue packages from several international agencies. Where were the critics then?

It is, therefore, important to understand the roles and responsibilities of foreign agencies and consultants. Take, for instance, the International Monetary Fund (IMF), which was formed in 1944 to provide international monetary cooperation, expansion and balanced growth of international trade, exchange stability and so on.

India's current quota in the IMF is Special Drawing Rights (SDR) worth $ 4,152 million, giving it a shareholding of 1.96 per cent, and its relative position on the quota is 13. India's relationship with the IMF has been excellent and currently all repayment of loans has been completed.

As part of its mandate for international surveillance under the articles of agreement, the IMF conducts what is known as Article IV consultations to review the economies of the member countries, normally once a year.

During the course of its review, it is customary to hold discussions with the Reserve Bank of India and key ministries. It is an interactive process and as part of the process, suitable recommendations are made. Are the critics now suggesting that we should review the entire process?

If the role of consultants is irking the critics, we should question the wisdom of the Central government and various state governments in engaging consultants and seeking their counsel on reforms in infrastructure, particularly in the electricity sector, development of industrial townships and so on.

For a consultant, the cardinal principle is that your job is to advise the client, who will make the final decision. It is amply clear in this situation that the experts were invited as part of the consultative and not the decision-making process.

Regarding the decision-making authority of the Planning Commission, the Commission is charged with the responsibility of making assessments of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilisation of resources, and determining priorities.

Hence, the decision making is with the concerned administrative ministry and, of course, the ministry of finance. Lately, with the emergence of severe constraints on the available budgetary resources, the resource allocation system between the states and the Centre has been under strain.

This requires the Planning Commission to play a mediatory and facilitative role to help in creating a culture of high productivity and efficiency. As a matter of fact, the Commission's official website says that in the area of efficient utilisation of resources, it attempts to provide "consultancy" to the government.

I think we have to overcome the hangover of "colonisation" and the fear of being ruled by an "outsider". There have been recent attempts to revive the role of the Planning Commission, including invitations to experts for consultations in various fields.

These experts have proven experience and possess core competencies in their respective areas and inviting them by no means suggests bankruptcy of national talent or intellectual subservience.

It is a pity that politics is dominating economics and the recent events are nothing but a ploy to embarrass the two Sikh gentlemen from the South Block and Yojana Bhawan.
(The views expressed are personal)