The Bombay Plan of 1944, which became the inspiration for independent India’s first Five-Year Plan in 1951, was the brainchild of several businessmen led by J.R.D. Tata, G.D. Birla and John Mathai. Purshottamdas Thakurdas, then head of the East India Cotton Association, edited the second volume a year later. The main objectives of the plan, outlined for a period of 15 years, were to double the output of the agricultural sector and quintuple those of the industrial sector with an investment of ₹ 10,000 crore ($18 billion at the time). The Bombay Plan proposed a significant role for the yet to be formed government in deficit financing, protecting domestic industries from competition, setting up of public sector industrial units and in ensuring a fair distribution of income.



Many experts believe that the Plan suggested a substantial role for government to forestall a full tilt towards socialism and nationalization of private property. Be that as it may, the Plan served as the broad, if unacknowledged, template for nearly three Five-Year-Plans thereafter.

The architecture of institutions involved in economic planning, centre-state financial relations, and resource mobilization and usage was created in the early 1950s. The Planning Commission was the first out of the gate, conceived as an agency of government. The Finance Commission came a year later, established under Article 280 of the Constitution. The National Development Council (NDC) was created in 1952 as a mechanism to mobilize resources in support of the five-year plans and to ensure the fair and balanced development of the country. The Planning Commission and Finance Commission are technocratic bodies, and the NDC, a political one. The NDC is made up of the entire Union cabinet, chief ministers of all states, heads of Union Territories and members of the Planning Commission.

Elsewhere in the world, economic planning has had a mixed ride. The National Development and Reform Commission (NDRC) of China was conceived as a Soviet-style planning agency. It has been through many restructurings and a rise and fall in importance. After having peaked in impact during the Hu Jintao-Wen Jiabao era, the NDRC has lost a step under the current President Xi Jinping. In its heyday, the NDRC was called the “number one ministry" in contrast the Planning Commission has been described by some as the worst ministry in government. In South Korea, former president Park Chung-hee used Five-Year Plans to build the industrial capacity of his country into a formidable force. Korea abandoned economic planning in 1996 after it became a full-fledged market economy.

Should the Planning Commission be reformed or junked?

The Planning Commission is charged with creation of Five-Year Plans and implementation of the financial interaction between the Union government and the states. Over the years, the Planning Commission has grown into a large organization which functions as a think-tank on economic matters, coordinates the centre-state financial relationship and acts as the first gateway for access on economic matters with the government. It has also become the employer of choice for officers of the Indian Economic Service (IES) and the India Statistical Service (ISS). The Planning Commission has tried a few times to reform itself. Manmohan Singh, then deputy chairman, tried first to reform it in the mid-1980s. Another attempt was made by its member secretary, N.C. Saxena in 2000 and more recently, Montek Singh Ahluwalia and Arun Maira gave it a go. To little avail. Maira’s investigations with several eminent persons revealed an organization that, far from leading the country in terms of bold ideas to be explored, was mired in a Jurassic past.

India is evolving and maturing as a country and can learn lessons from other developing countries that have transformed themselves and created prosperity for their citizens. One lesson is that resource allocation—particularly capital allocation—is better left to the market. The government should focus on creating an enabling environment and concern itself with fewer and fewer areas of capital allocation in the economy. The role of think-tanks will be to push the government further into the future in its thinking and to suggest alternative methods of enablement that increase convenience and adoption.



It is better to allow many think-tanks to compete rather than stick with one agency that is granted a monopoly on new ideas. In a fast federalizing India, the other function of the Planning Commission—implementation of the Finance Commission’s allocation—is better housed in a new secretariat organized under a revitalized NDC. Economic ideation and a more politically credible process for financial devolution should therefore be separated. While technically this can be achieved by reforming the Planning Commission and breaking it up into two or more parts, practically it would be much better to junk it and start afresh.

P.S. “To be, or not to be: that is the question: Whether ‘tis nobler in the mind to suffer

The slings and arrows of outrageous fortune, Or to take arms against a sea of troubles,

And by opposing end them?" said Shakespeare, in Hamlet, Act 3, Scene 1

Narayan Ramachandran is chairman, InKlude Labs.

Comments are welcome at narayan@livemint.com. To read Narayan Ramachandran’s previous columns, go to www.livemint.com/avisiblehand

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