Any tract on Indian planning begins with Jawaharlal Nehru. A core of interrelated economic ideas underlay his economic thinking. Modern technology for development was one of the few economic choices he made. For Nehru, “the economy that bases (itself) on the latest technical achievements of the day must necessarily be the dominating one”. Concern for national self-sufficiency led Nehru to focus on industrialization to avoid being drawn into what he called economic imperialism.
Most recent critiques of Nehru’s planning—Montek Singh Ahluwalia’s Tarlok Singh lecture or Manmohan Singh’s JRD Tata Lecture—don’t deal with his arguments.
In the mid 1950s, we got the Mahalanobis Plan. It was a logical exercise and was used by many to feather their nests. By almost a religious commitment, a third of the investment was to go into capital goods. Even a decade-and-a-half later, my teachers at home and abroad were fascinated. The causal chain algebra was the opiate. Consumer goods could not be traded to buy machines and wages were not to be spent. I revered the professor for his statistics, inter-penetrating network sampling and the National Sample Survey, but how would people eat? Ashok Rudra showed that if people started eating and consuming, the model will lead to inflation. I found that even in the version where the state taxed savagely there was not enough food.
In my first stint in the Planning Commission in the mid 1970s, heading its all-powerful perspective planning division, I was mandated to build a plan for food self-reliance. We did it with zeal. The original green revolution of the late 1960s had petered out and we did the work which earlier plans had ignored. We looked into the conditions under which the farmer in Haryana, Andhra and Bihar grew grain and built it into our plan models. Those models succeeded and Indira Gandhi never had to beg for grain again. Her critics often forget that the money she put into agriculture—for completing irrigation projects, groundwater and seeds—is unsurpassed in real terms in the last century. She listened to the planners even if the finance ministry and development institutions stood in opposition. The 1970s also saw the first oil shock. India was the first country to come out of the energy crisis and finance minister C. Subramaniam used the deliciously Indian double negative, a negative rate of inflation, rather than saying that prices were falling to describe it all. What was wrong with all this? It was left to I.G. Patel, the former Reserve Bank governor, to tell me over masala chai and bhajia at our frequent meetings that the problem was our lack of a strategic plan for our import substitution and export promotion-led growth model.
He was disturbed that we ignored the Japanese ministry of international trade and industry’s experiments, since the East Asian Tigers were then still cubs. The gap between plans and implementation, which would have used markets as a part of strategic policy, was big and growing. He was right and today I accept I was wrong in my feeling that the Japanese were an appendage to imperialism.
In the late 1980s, Rajiv Gandhi sent me to South Korea, where I met the architect of their reforms and the then governor of their central bank. I asked him how to manage comparative advantage in global trade. He said South Korea did what it wanted to do, but did it well. “If we followed comparative advantage and World Bank advice, we would never plan steel, shipbuilding and heavy machinery.” In their quest to overtake Japan, South Korea had actually followed Mahalanobis, but export promotion and import substitution were two sides of the same coin.
By the end of 1980s, reforms had begun in India and as Raja Chelliah showed, two-thirds of the industry was decontrolled from firm-level price and output controls. The road map was outlined by the Narasimham Committee. It emphasized domestic reforms and preparing Indian industry for global competition. Tariff reform was harmonized so that in a partially liberalizing global economy, efficient Indian industries do not suffer from “negative protection”. Rajiv Gandhi, in a very powerful speech in 1989 on the draft Eighth Plan outlined this harmonization of reform with a strategic plan.
The Eleventh Plan saw the revival of agricultural planning with Abhijit Sen building the Rashtriya Krishi Vikas Yojana (RKVY), which revived the concept of agro-climatic planning, which Rajiv Gandhi and I had sought. While the economists working with P.V. Narasimha Rao had put it in moth balls, the first United Progressive Alliance (UPA) government oversaw the revival of agriculture as a planning effort, with the growth rate reviving. But today RKVY is crippled for funds.
Ahluwalia, in his Tarlok Singh lecture, is unnecessarily severe in saying that in the 1980s, policy was out of the plan. I think the attack on planning came from elsewhere. C. Rangarajan’s 12th Finance Commission abolished the Gadgil-Mukherjee Formula for assistance to the states and federal grants became a dispensation by the bureaucracy. In another report, Rangarajan argued that the plans should be finalized by the finance ministry with the subject ministry and not the Planning Commission.
Now we have a 12th Plan which is a non-readable, preachy document with little operational detail. It also underestimates the urban shift in its models on account of ignoring the 2011 census results on census towns in their projections.
The Plan has failed to set the strategic framework for the 2013 budget, which has led to a savaging of allocations in the 2012-13 revised figures and in 2013-14. The Economic Survey’s rehash of the demographic dividend doesn’t excite much.
Though it begins by quoting Joseph Stiglitz, the budget increases public capital formation by 12% (say, 5% in real terms), which will play no role in kick-starting a virtuous cycle of investment. The Plan’s message should have been more investment in agricultural diversification, supply chain infrastructure and skill development, but with plan expenditure drastically cut in 2012 and 2013, all this is for the future. Meanwhile, enjoy your hard landing until a new government is sworn in.
The author was member, Planning Commission, and also a former minister of state with independent charge for planning.