Planners' Punch

A quiet revolution could be brewing in the unlikeliest of places in the government: the dour, dormant, and viewed-as-eminently-discardable Planning Commission. After a frustrating and unfinished Eighth Plan, the Ninth Plan (1997-2002) draft document proves not only highly ambitious and growth-oriented, but shows a refreshing new approach towards tackling deep-seated problems of the economy—agriculture, employment and poverty, infrastructure, which are also its high-priority areas .

The question is: will most of it remain on paper? Between its release within the Government till its approval by the Cabinet on December 23, the approach draft has been greeted with a volley of doubt and apprehension, with many academics re-raising the question of the usefulness of planning. Says a former Commission member and highly-placed government official: "Planning is irrelevant to the needs of the country. The ability of planners to foresee is limited. The economy grows not by what Yoj-ana Bhavan tells it, but by the people working hard for it." Counters Dr Yoginder K. Alagh, planning minister: "Planning is not just a question of changes, it is an attempt to assess the strengths and weaknesses of the economy, and improve upon them."

On the centrestage of criticism are the Plan targets: 7 per cent annual average GDP growth, 26.2 per cent (of GDP) savings rate, 28.6 investment rate, 2.4 per cent current account deficit, and 4.08 per cent incremental capital-output ratio (ICOR; the amount of new capital needed to obtain more output). Says Dr Raja Chelliah, chairman, NIPFP: "The need to cut the fiscal deficit means you can't have higher capital formation at the government level financed out of deficits. So you can't have more than 2.4 per cent ICOR. With infrastructure deficiencies and the reluctance to cut government expenditure, savings rate can't be more than 22 per cent and GDP growth, around 6 per cent." But, says Dr Bimal Jalan, member-secretary of the Commission: "We have the skills, the necessary base, the advantages of recent economic changes. There's no reason we can't step it up to 7 per cent."

The growth target is under a cloud because of the high assumed savings rate. Most experts consider India's private savings rate (household and corporate), at 22 per cent, already quite high. The Ninth Plan wants to not only raise it to 24.4 per cent but almost double public sector savings from 1.6 per cent to 2.8 per cent. Says Alagh: "We need a turnaround in government savings, in the productivity of its capital. Not to say 7 per cent is not to make that extra effort."

There doesn't seem to be any other way out of past mistakes, especially of the criminal one of neglecting public investment in infrastructure, social sectors and agriculture in the Eighth Plan. Food prices have risen steadily, rural employment has shrunk and real per capita income of some states has either gone down or remained stagnant. Forced to shrink the fiscal deficit, the planners depended only on private investment in infrastructure, which never came. As a result, at the end of the Eighth Plan, irrigation potential was 10.6 million hectares, national highway network built was only 609 kms, and power generation capacity 17,667 MW, all far less than even Seventh Plan achievements. Says Alagh: "If you have a 10 per cent energy deficit, with a peak level deficit of 25 per cent, you are in big trouble. Nothing can be more inflationary than a power shortage."

Critical, therefore, to high growth is an improvement in efficiency and better price realisation of the five infrastructure sectors—irrigation, mining, railways, power and communications—where the target is to raise tariffs, phase out subsidies and raise capital productivity.

For instance, the Ninth Plan links power investment to recasting state electricity boards and raising tariffs to end their losses. Or, to bring petrogoods prices up to global levels. Says Alagh: "To ask the people of an energy-deficient country to pay global prices is not harsh. But without fiscal and policy reforms, it's not possible to do what we want to do. The crux of the problem is to turn around the revenue deficit." Agrees Chelliah: "If the revenue account is balanced, the borrowing or foreign capital can go to the capital account."

There's also the question of a possible gap in budgetary support of about Rs 70,000 crore indicated by the Finance Ministry. The second counterbalancing factor is the states, on whom much of the responsibility of taking these hard decisions fall. The heat is expected to be turned on at the National Development Council meeting on January 16, though both Alagh and Jalan maintain that increasingly, states do seem to have a perception of the problem.

In the past, the Planning Commission's main task has been to fix state shares in public programme implementation. In the first four years of the Eighth Plan, states' share in resource mobilisation fell to 36 per cent from the expected 42 per cent. There's no guarantee that it won't happen again. "The only answer to this is decentralisation," says Jalan. "For the first time in the approach document, there's a chapter on cooperative federalism. The responsibility of the development of states has to be on the states. We have to accept that different states will grow differently. The present system has to be reversed. For instance, in centrally-sponsored schemes like primary education, states always come up with their objections. Now, we'll give them the money and a target—how they spend the money or achieve the target is their business."

Jalan thinks it's time for a grassroots approach towards planning, to ensure that the benefits reach the target. For that, a large part of the burden is on the administration. Says he: "Our policies are right, programmes are even better, but implementation is abysmal. In primary education, we have a school but no teachers. The Commission has done a survey and come up with 'best-practice examples'. In some states, with the help of ground-level NGOs and panchayats, things are working well. So we have to depend on direct action."

Many have criticised this as indicative planning, more loose guidance than concrete action. Perhaps, in this era of privatisation and free markets, the Commission is in search of a role. Perhaps, to justify its bloated existence, it's extending to things which should ideally be done by individual ministries. But that's the role it was born with, one that's eroded over time and different governments with unidentified priorities. The East Asian miracles, after all, did not happen without consistent and direct state intervention.