COMMENTARY

From the Planning

Commission to the NITI Aayog
Prabhat Patnaik

The transition from the Planning

Commission to the Niti Aayog
reflects the completion of the
transition from a state professing
anti-imperialism to a neo-liberal
state. Niti Aayog will oversee a
greater centralisation of powers
in the central government,
and with the abolition of the
National Development Council
and its replacement by regional
councils, the limited say the states
had on policies and the flow of
funds stands further eroded. In
short, the constraints on state
governments will be tightened
rather than loosened in the Niti
Aayog era.

he idea of national planning

had been in the air long before
independence. Indeed, the Planning Commission established in the Nehru
era was the descendant of the National
Planning Committee that Subhas Chandra Bose had set up at the suggestion of
Meghnad Saha when he was the president of the Congress, with economist
K T Shah at its head.
One of K T Shahs outstanding intellectual contributions had been an estimate, together with K J Khambatta, of
the annual drain of surplus from British India to the home country (a figure
later used by Paul Baran in his classic
work, The Political Economy of Growth),
which gives an inkling of Shahs worldview. The idea of planning, in short, was
closely linked to overcoming colonial
exploitation and to redeeming the pledge
of the anti-colonial struggle to the people
of India (expressed inter alia through
the Karachi Congress Resolution of 1931).
Legacy of Anti-Colonial Struggle

Prabhat Patnaik (prabhatptnk@yahoo.co.in)

is Professor Emeritus, Centre for Economic
Studies and Planning, School of Social
Sciences, Jawaharlal Nehru University,
New Delhi.

10

It is a travesty, therefore, to see the Planning Commission as a relic of the Soviet

era, a sort of ideological baggage borrowed from the Soviet Union that has
outlasted the Soviet Union. Only a person unaware of and unconnected with
the anti-colonial struggle can make such
a claim. Though the Soviet achievements of the time may have inspired the
particular course that planning took
after its inception, the process itself was
embedded in the formation of the postcolonial state; it was a necessary legacy
of the anti-colonial struggle. It is not surprising that such planning came into
vogue not just in India but in a whole
range of countries that were newly liberated from colonialism.
The Planning Commission was meant
to oversee a break of the economy from

the inherited pattern of colonial division

of labour, which had entailed the export
of a range of raw materials, including agricultural materials in raw or processed
form (cotton and jute textiles), and the
import of a range of manufactured goods
from the metropolis. Since the cultivable
land-mass was limited and could not be
augmented because the state pursued a
policy of sound finance, which excluded any significant investment in landaugmenting practices (such as irrigation
or yield-raising research and development in publicly-funded institutions),
pushing out more exports of the existing
kind necessarily meant jeopardising
food security, a fact evident from the
massive (over 25%) decline in per capita
foodgrain availability in British India
in the last half-century of colonial rule.
Not only were the countrys natural resources to be brought back under national control (which was the economic essence of decolonisation, and necessary
for mobilising all available means for
the nations development, without any
drain on account of the dominance of
foreign capital), and the production pattern altered from what had been dictated
by the colonial division of labour, but the
benefits of all these measures were to accrue to the people at large by ensuring
that wealth and income inequalities
were kept in check. The point here is not
whether planning actually achieved
these objectives (it obviously did not);
the point is that this was the perception
which informed planning and it was in
keeping with the promise of the anticolonial struggle.
Extinction the Result
of Neo-liberalism
The fact that neo-liberalism entails a
break with this perception, the fact that
the neo-liberal state is qualitatively different from the postcolonial dirigiste
state (even when both promote capitalism in different ways), underlies the extinction of the old Planning Commission. Its extinction is not linked per se to
the collapse of the Soviet Union (though
it is obviously not unrelated to the change
in the international scenario following

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COMMENTARY

this collapse); it is linked directly to the

abandonment by the Indian state of any
anti-colonial, or more generally any
anti-imperialist, agenda, and to its embrace of international capital with which
the domestic corporate-financial oligarchy is closely integrated.
It is not just the policy direction of the
neo-liberal state that precludes a planning body of the type that the Nehruvian
era had envisioned; the very structure of
a neo-liberal state, where the Ministry of
Finance is elevated to a domineering status
above all other official organs and is in turn
peopled by employees of the World Bank,
the IMF (International Monetary Fund)
and other institutions of finance capital,
who are thereby basically put in charge
of the economy, has little room for any
such autonomous Planning Commission.
The Manmohan Singh government,
committed to neo-liberalism but wary of
being accused of deviating from its
Nehruvian ancestry, sought an amusing
way out of this impasse: it retained a
Planning Commission, but neo-liberalised its key personnel. Narendra Modi
has gone one step further and has dismantled it altogether, making India join,
quite openly, the ranks of several other
third world countries, where, basically,
global financial bureaucrats get entrusted
with the task of running the economy.
The transition from the Planning Commission to the Niti (National Institution
for Transforming India) Aayog thus reflects a transition from a state professing
anti-imperialism to a neo-liberal state.
NITI Aayog and Centralisation
of Power
All this, though important, is too well
known to merit much discussion. What
does need discussion, since it has received little recognition as yet, is the
tremendous centralisation of economic
power that the transition to Niti Aayog
entails. The old Planning Commission
had two serious failings. The first, an
obvious one, was that in an economy in
which the means of production were
largely privately owned, there were no
effective mechanisms for the realisation of the plans formulated by it. And it
was not even the case that plans could
be realised only in the public sector
Economic & Political Weekly

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JANUARY 24, 2015

but not in the private sector; the

non-realisation of plans in the private
sector also entailed in a resource-constrained system (whose being resourceconstrained was in fact the sign of a
good plan, since it meant the absence
of any slack) the non-realisation of
plans in the public sector.
Various instruments were tried, such
as a licensing policy, to make the private
sector conform to the overall plan. But
these, as is well known from a host of
official committees, were ineffective,
which also resulted in a significant trend
towards centralisation of capital, and
hence an increase in wealth and income
inequalities. This fact had so alarmed
Jawaharlal Nehru that he had set up in
the late 1950s the Mahalanobis Committee on inequalities. In short, planning in
India was hamstrung from the beginning, by being at best what Amiya Bagchi
has called partial planning.1
There was however a second flaw of
the plan process. The Planning Commission, though it was meant to effect
national economic planning, was a
central government entity with no representation from the states. It thus went
against the spirit of federalism, and gave
expression to that strand of thinking
within the Constituent Assembly which
saw the central government as the continuation of the British imperium. While
neo-liberal economists have gone to
town over the constricting of private
initiative that planning in India involved (though the private sector itself
had asked in its 1944 Bombay Plan for
substantial public investment, to be
financed not by taxing capitalists but
through deficit financing and to be
handed over to capitalists after the
teething troubles were over), not much
is ever heard about the constricting of
state government initiatives under
Indian planning, notwithstanding Ashok
Mitras strenuous efforts.2 And the crucial point here is this: the constraints on
state governments will be tightened rather than loosened in the Niti Aayog era.
To be sure, only the outline of the Niti
Aayog is available till now, but the indications are already quite clear. There are,
as is well known, three main channels
through which funds get devolved from
vol l no 4

the centre to the states: through the

Finance Commission, through the Planning Commission and through discretionary transfers. Barring the Finance
Commission which is a onstitutional
body, the other two channels basically
express the discretion of the central government; and even in the case of the
Finance Commission, since the centre
appoints its members and ultimately fixes its terms of reference, the central writ
is all powerful, a fact that had caused
Amaresh Bagchi to submit a dissenting
note to the Eleventh Finance Commission when it laid down conditionalities
(in keeping with the neo-liberal predilections of the centre) for making available to states even such resources as
were constitutionally their due.
Likewise the proliferation of centrallysponsored schemes handed down to
the states where they have to contribute
a certain share, which is itself arbitrarily
fixed by the centre, has further taken
away the freedom of state governments
to make their own state plans.
Further Control over States
Even so, however, the three bodies, the
Finance Commission, the Planning Commission, and the Ministry of Finance, can
be ranked in that order in terms of the
looseness of the restrictions they impose
on the transfers effected through them
from the centre to the states. The disappearance of the Planning Commission,
which would mean that what used to be
plan transfers would now be doled out
through the finance ministry, would entail both a possible reduction in the total
magnitude of transfers, and a definite
increase in the centres control over
states plans.
There is a second reason for believing
this to be so, and that has to do with the
abolition of the National Development
Council (NDC), where the state chief

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COMMENTARY

ministers were represented. This, though

not a constitutional body, had a commanding presence, where the states, deriving strength from one another, made a
definite impact. Since its decisions,
which included the ultimate approval of
plans, were taken through a consensus,
the centre was often forced to yield on
certain matters (though this did not prevent it from flouting the unanimous
views of chief ministers on some occasions, such as the funding of the Sarva
Shiksha Abhiyan). The elimination of
the NDC is a major blow to the power of
the states. While the governing council
where chief ministers are to be represented is likely to be a purely formal
body concerned with the governance
of the Niti Aayog, rather than with basic
development issues, the meetings of the
regional councils are likely to be occasions where the states supplicate to the
centre for this or that favour. The regional consultations that are supposed
to replace NDC meetings are more likely
to be occasions where the states supplicate to the centre for this or that favour,
rather than serious challenges to central schemes and programmes.

I should make one point clear here. It

may be argued that the Niti Aayog will
entail neither a reduction in the amount
of resources available to the states, nor
any increase in the centres control over
state plans, since it will be open to the
states to tie up with capitalists, both domestic and foreign, to work out investment projects of any description and any
amount. But that is precisely what I mean
by an increase in central control over state
plans. The centres forcing states to go in
for public-private partnerships (which
the Manmohan Singh government had
tried to do unsuccessfully), the centres
forcing states to vie with one another to
attract private capital to their territories,
the centres imposition of the neo-liberal
model on all states by ensuring that resources available to each state, which
the concerned state government can
spend on a plan of its own choice rather
than on a plan in keeping with what the
centre considers development, are minuscule: all this is precisely what I mean
by the centralisation of economic powers.
The Niti Aayog era will mean that states
will not be allowed to go their own ways,
not even to the extent that the Planning

Commission era had allowed. Centralisation will be the mechanism for imposing
neo-liberalism on the country at large.
This may appear odd at first sight. The
dominant capitalist powers imposing
neo-liberalism on the world have in the
past been accused of breaking up large
countries, Yugoslavia being a prime example. Should not India, by analogy, be
the sort of country that they would be interested in breaking up rather than centralising? The answer is no, because in
India neo-liberalism has made greater
inroads into the central government than
into the state governments. Its sweep
over the country as a whole therefore requires centralisation. The fiscal crisis of
state governments engineered deliberately by the centre through its Shylocklike usurious interest rate loans in the
1990s was an effort in this direction. The
Niti Aayog will continue that effort.
Notes
1

Amiya Kumar Bagchi, Private Investment and

Partial Planning in India 1951-60, doctoral dissertation at the University of Cambridge, UK, 1963.
For an early presentation of his views see
Ashok Mitra, Growth and Diseconomies, Kale
Memorial Lecture, Gokhale Institute of Politics
and Economics, Pune, 1975.

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