Need for Economic Planning in India

In September 2014, the NDA government in power in New Delhi abolished the Planning Commission of India, which had been set up in the early 1950s, largely inspired by the Soviet central planning experiment. Calls to do so had been growing ever since India embarked on the course of market-oriented reforms, as the Commission had begun to be viewed as being out-of-touch with the liberalised, globally-connected economy. But now that the step has been taken, it might not be a bad idea to take a step back and look at what economic planning has meant for India, and what form it might take going forward.


Firstly, it is important to bear in mind that the Planning Commission of India never had the kind of powers that were given to its counterpart in the USSR. While the latter was a micro-level planner with the power to impose quotas, the former operated more at a macro-level, striving to match availability of Financial capital and physical capital to its uses through preparation of long-term vision roadmaps. At best, the Planning Commission determined the allocation of resources between States, to the various entities comprising the ‘public sector’ in such a way as to maintain a balance between sectors to ensure availability of goods and services required in the economic. A secondary function for the Commission was acting as a think-tank to be consulted by the government on economic issues.

Post-liberalisation, the importance of fund allocation reduced drastically. The dismantling of the command economy and license-raj along with freeing of import quotas meant that any imbalances could theoretically be fulfilled through imports. As for continuing to function as a think-tank, the Commission had become, like so many other institutions, a sinecure for those who had earned favours from the Government and as such had limited use as an intellectual force.

But the fact is, that even today, the country’s infrastructure and availability of skilled labour continues to be scarce. Another issue was that a blind faith in the efficiency of markets is misplaced. The importance of taking a long-term view of the economy has not diminished, and it needs a body with a mandate like or similar to the original Planning Commission to be able to fulfil it.

The following issues could also be devolved on such a body :

1. It could also have an additional mandate to represent the Government’s interests in interfacing with industry bodies to try to push planned economic goals.

2. It could have a dedicated research arm with a mandate to compile detailed forecasts on macroeconomic indicators with a view to directing investments to sectors where such investment is lacking. Presently only the RBI performs a comparable function and it’s forecasts are limited to fiscal indicators in the short term.

3. Finally, given that climate change and environmental destruction are a reality, as well as the need to balance development with poverty alleviation, such a body could plan with a focus on sustainable development.

From these points, we may conclude that though the role of economic planning as originally envisaged may have become obsolete, the underlying need for planning still exists. The newly-constituted Niti Ayog would do well to try and fulfil these duties as a part of its broader mandate.


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