By Dhrubasattwata Roy Choudhury
The Center has decided to remove the distinction between plan and non-plan budget, while ending the 92 year legacy by unifying the Railway and General Budget.
The idea of the Planning Commission was to ensure a pattern of state sponsored, socialist way of development. This is not relevant to the kind of development India is currently seeking. At the time of independence, the private sector in India had zero development, agriculture sector was technologically backward, and the country was ridden with failing industries and famines. Without the government intervening on a large scale, it was impossible for the economy to thrive. Hence, the 5 year plans were formulated.
Now that our economy has matured, and is one the largest in the world, we are in competition with private entrepreneurship in almost all sectors. It is high time that the government nurtures and facilitates its citizens to indulge in them.
Fall of the mighty: Where did the Planning Commission go wrong?
[su_pullquote]With the PM as the chairman, the Planning Commission became more powerful granting money to states and deciding their spending. It became more of a Unitary form of policy rather than Federal.[/su_pullquote]
The Planning Commission gradually became very centralized. The revenue generating subjects went under the Union List. The States List had the kind of subjects that were more responsibility oriented than revenue generating. This created tensions in the State-Center relationship. With the PM as the chairman, the Planning Commission became more powerful granting money to states and deciding their spending. It became more of a Unitary form of policy rather than Federal. The 5-year plans failed to achieve their targets and were redirected with every changing government. The Planning Commission was reduced to granting funds to the nation, and eventually to a body predicting growth of the country.
Corruption and partiality at the center also made the dismantling of the Planning Commission inevitable. Private organizations became major players in the growth of the economy, providing necessary technology and knowledge, thus developing infrastructure.
Corruption and partiality at the center made the dismantling of the Planning Commission and the need for NITI Aayog inevitable | Picture Courtesy – Planning CommissionIndia has changed radically over the last few decades. The age-old assumptions about low domestic savings, foreign exchange constraints and shallow financial markets are no longer valid. The private sector has replaced the public sector as the main source of investment. The markets have a greater role to play in mobilizing savings and channeling them towards productive investments. The Planning Commission stared at irrelevance in the face as it failed on this front.
NITI Aayog: Striding into the present
In line with the governments idea of less government, more governance, NITI Aayog replaced the Planning Commission. The replacement of the old Planning Commission with a new structure, a structure more suited to the present needs had long been demanded.
NITI Aayog, still headed by the PM, will have a different functional structure. It will have full time and part time employees, as well as industry experts in the economic policy reform boards. Its function will be reduced to that of a think tank: evaluation and monitoring of a project. The allocation of funds will be under a different committee under the Finance Ministry. The process of policy-planning will change from top to bottom to bottom to top. The new body will adopt a bottom to top approach, where decisions will be taken at the local level and then endorsed at the Central level.
NITI Aayog is envisaged to follow the norm of cooperative federalism, giving room to the states to tailor the schemes to suit their unique needs. This is meant to be a recognition of the countrys diversity.
For example, the needs of a state such as Kerala are different from those of Uttar Pradesh. If the body does function as predicted, the states will, for the first time, have a say in setting their own development priorities.
NITI Aayog is envisaged to follow the norm of cooperative federalism | Picture Courtesy – PMOClearing the balance sheet: How the accounting approach will help
[su_pullquote align=”right”]The government is trying to follow a model of distinction in expenditure classifying them as Revenue and Capital.[/su_pullquote]
The government is trying to follow a model of distinction in expenditure classifying them as Revenue and Capital. This model was initially proposed by C. Rangarajan, Chairman of the Economic Advisory Council to then Prime Minister Dr. Manmohan Singh. This would establish an effective link between the governments earnings, spending and income. Earnings will mainly come from taxes and shares from profits of the PSUs.
Revenue Expenditure will include expenses which do not add to the capital/assets of the government. This mainly consists of subsidies, interest payments, wages, pensions and others. Capital Expenditure will be the converse of Revenue Expenditure, i.e., it will include every expenditure creating liability/asset. It will consist of loans to private enterprises, States and UTs, foreign governments and acquisitions.
With the Planning Commission, the major focus was on planned expenditure. Now, the center of attention has been shifted to a balance sheet type of expenditure, thus giving a much more transparent linkage and a clearer picture about the financial condition of the State.