A news report last week went almost unnoticed as most of us were glued to the Assembly elections taking place in four States and one Union Territory. The news item spoke of the Five-Year Plans being replaced by a 15-year vision document that will be formulated by the NITI Aayog. This quiet burial of Five-Year Plans snapped the last tenuous link that the Indian economy had with Jawaharlal Nehru, our first Prime Minister.
The scrapping of planning was imminent after the Modi government wound up the Planning Commission and replaced it with the NITI Aayog, headed by Columbia University Professor Arvind Panagariya. Though the NITI Aayog is still a work in progress it differs in one crucial aspect from the Planning Commission in that it does not have the powers to allocate funds to the various Ministries and government departments. So the powers of allocating funds are now solely vested with the Finance Ministry. But, unlike the Planning Commission, the NITI Aayog will cover such subjects as internal security and Defence.
The history of economic planning in India is almost as old as its independent existence. Jawaharlal Nehru visited the Soviet Union with his father Motilal Nehru in the late 1920s at the invitation of the Soviet government. During this trip the young Nehru was impressed with the rapid strides Soviet society was making towards emerging as an industrial power, a country which, till the October revolution of 1917, was seen as a backward and predominantly agrarian society. Nehru’s economic vision for an independent India was formed during this trip, a vision which was in stark contrast to Gandhiji’s ‘village republic’ model.
The Nehruvian stamp
Soon after Independence, Nehru formed the Planning Commission and the first Five-Year Plan was formulated in 1951. Though this Plan gave some broad directions on the shape of industrial development and agricultural growth in the coming years, it was the second Five-Year Plan (1956-61) which bore the real Nehruvian stamp, with its distinct Soviet influence.
It was in this Plan period that the public sector was to reach the commanding heights of the economy and a rapid push was given to create capital-intensive heavy industries — iron and steel, chemicals, railways etc. It was a little ironic that India, where labour was in abundant supply, was going for a capital-intensive form of industrialisation. PC Mahalanobis, the eminent statistician and close friend of Nehru, was the key architect of this Plan and his intellectual inputs to this policy document were vital.
The Indian planning experiment evoked a great deal of interest from the international economists community, many of whom were invited by Nehru to work with the Planning Commission. These included Ragnar Frisch, Jan Tinbergen, Oskar Lange, Nicholas Kaldor and Joan Robinson. In the 1960s, MIT had collaborated with the Planning Commission and it included reputed economists such as Sukhamoy Chakravarthy, Richard Eckhaus, Henri Lefebvre and Alan Mann but this initiative was shut down after it came under the CIA’s scanner!
Wage-goods model
Though the ‘big-push’, heavy industry policy thrust had a surprising degree of consensus among the economists then, it wasn’t without its critics. PR Brahmananda and CH Vakil from Bombay University formulated an alternative ‘wage-goods’ model, where they argued that, for a labour-surplus economy like India’s, it would make more sense to produce more wage goods which would require less capital and more labour. But it was the Nehru-Mahalanobis model which carried the day. It was in the Second Five-Year Plan that big dams were given a major push. To paraphrase political scientist Sunil Khilnani’s remark from his book The Idea of India, 1950s was a decade where India fell in love with concrete!
The Third Five-Year Plan carried on the same vein but, by the mid-1960s, the economy was in serious trouble, with the country facing severe food shortage and a balance of payments crisis. India then was heavily reliant on food aid and, in 1966, devalued the rupee for the first time to deal with the balance of payments crisis. So, Five-Year Plans were temporarily suspended under a ‘Plan holiday’ and were resumed in 1969 after India became self-sufficient on the food, owing to the Green Revolution. So, from 1969 till 2014, Five-Year Plans continued with some minor interruptions during the change of governments at the Centre.
By the 1980s the Planning Commission had lost much of the intellectual heft it enjoyed during the Nehru era, though in the 1970s it had eminent economists like Sukhamoy Chakravarty and BS Minhas as members and, in the 1980s, it was headed by eminent economists like Manmohan Singh (1985-87).
How will NITI Aayog shape up?
The Planning Commission was an important body even in the early 1990s when India undertook the crucial economic reforms and liberalised the economy. How far the Planning Commission had evolved is evident when Montek Singh Ahluwalia, Deputy Chairman of Planning Commission, perhaps for the first time appointed a consultant from the private sector — Arun Maira from Boston Consulting Group, a move that was deeply resented by the Left and by sections of the Congress Party.
Though it is too early to say how the NITI Aayog will shape up, Abhijit Sen , an ex-Planning Commission member, didn’t seem too enthused by the scrapping of economic planning. In a recent news report he was quoted as saying, “The Five-year Plans were backed by 15-20 years of vision. Now, they will talk in generality on all issues without taking a medium-term plan.”
Bibek Debroy, Member of NITI Aayog, was also quoted in news reports as seeking more time for the NITI Aayog before it could be judged.
Maybe the time for Five-year Plans is up but, having read about them in some detail during my bachelor’s and master’s courses in Indian Economy, it’s quiet burial left me with a tinge of sadness.