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Business News/ Opinion / An agenda for the Niti Aayog
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An agenda for the Niti Aayog

The Niti Aayog should notand cannotbe a resource allocator. It should be an adviser

Illustration: Shyamal Banerjee/MintPremium
Illustration: Shyamal Banerjee/Mint

The easy stuff has been done. The Narendra Modi government has put out a press release to announce the formation of a Niti Aayog to replace the old Planning Commission. The signage outside Yojana Bhavan in New Delhi has changed. The website of the Planning Commission has been archived.

And now comes the hard part: what should the new institution do and how should it operate?

The Planning Commission was set up in 1950 when India had just become an independent republic. The threat of political fragmentation had not completely gone away; it was a mere three years after the bloody partition of the country. Central planning was as much a political project as it was an economic one.

The early plans were drawn out when India was short of domestic savings and foreign exchange. The so-called “two-gap models" were common in the development economics of the time. The state was supposed to play the role of entrepreneur because it was assumed that private industry did not have the resources for large projects. Financial markets were shallow. The original focus of the Planning Commission was on resource allocation. It is no secret that the planning experiment was a failure after the first decade or so.

The India for which the Niti Aayog has been set up is a radically different country. The old assumptions about low domestic savings, foreign exchange constraints and shallow financial markets have withered away. The private sector has replaced the public sector as the main engine of investment many decades ago. The markets have a far greater role to play in mobilizing savings and channelling them towards productive investments. The Planning Commission stared irrelevance in the face, even though it did try to reinvent itself as a manager of social sector schemes.

The Niti Aayog should not—and cannot—be a resource allocator. It will be better placed to be an adviser. What does that precisely mean? The new institution should identify the binding constraints on economic development on a national scale: infrastructure, energy, water, education, environment and food production, for example. It should then advise the political system what can be done to address these constraints over the long term. And it should not try to micro manage government social sector schemes, as the previous denizens of Yojana Bhavan were wont to do in a failed bid to keep their organization relevant.

The style of functioning has to change as well. The press release announcing the formation of the Niti Aayog mentions cooperative federalism, a term that can be either meaningful or vacuous, depending on what is made of it. The Planning Commission treated elected chief ministers as courtiers who had to fly to New Delhi to ask for funds. Compare that with the Finance Commission, that goes to state capitals for meetings rather than summoning chief ministers to New Delhi. Modi has said that he wants chief ministers to be his partners. This belief should be reflected in the way the Niti Aayog functions.

But what beyond that? The new institution—which once again has no constitutional status—needs to work in tandem with constitutional institutions such as the Finance Commission and the Interstate Council if a new federal culture has to evolve.

The former decides how national tax collections should be shared with the states. The 14th Finance Commission under the chairmanship of Y.V. Reddy would do well to ask New Delhi to transfer money to states with no strings attached. The Interstate Council can be a deliberative body that sorts out the bargaining issues between states that are at different levels of development or have different economic structures. The Niti Aayog should plug into these discussions as an influential advisory body.

The Niti Aayog can be a successful innovation as long as such details are tackled. There is as yet no clarity on its purpose. We hope the Modi government clears the fog in the months ahead. The big danger would otherwise be that the Niti Aayog will become a Planning Commission by another name: outdated, imperious and meddlesome.

Will the Niti Aayog function differently from its predecessor? Tell us at

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Published: 04 Jan 2015, 07:05 PM IST
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