What is the use of Planning Commission now?

I don’t know whether people have noticed the speeches page of Montek Singh Ahluwalia at Planning Commission’s website. It has some excellent speeches on India’s growth history, economic issues, policy challenges, Indian economic history etc etc

In one such speech he looks at the role of Planning Commission (PC) then and now. Though, it is not discussed anymore now the issue of relevance of PC in these times was a raging debate in early 2000s.

First a bit of history:

Amartya Sen’s article, which is reprinted in this volume but which first appeared in the Seminar issue on Freedom and Planning almost fifty years ago, provides a flavour of the earlier approach. Sen argued then that planning was necessary not only to achieve distributional objectives – which he points out is a traditional and much discussed basis for state intervention – but also to achieve a high rate of growth. He recognized that the industrialized world had achieved industrialization without planning and acknowledged that we could also follow this path, but warned that if we did, it would take us more than a hundred years to industrialize whereas the experience of the socialist economies showed that a much faster transition was possible with socialist planning.

The superiority of socialism in achieving rapid growth was attributed to two reasons. First, since capitalists seek profit maximization, growth in a capitalist economy is only a by-product of this process, and therefore need not occur at the fastest possible rate. Second, even if capitalists want to maximize growth, they would be less efficient at doing so because individual entrepreneurs do not have all the information necessary to achieve the best results whereas a ‘national coordinating planning organization’ would have much more information and therefore achieve better ground outcomes.

 Sen also warned that planning as practised in India, without a really socialist economy, with a private sector responsible for producing consumer goods and a public sector concentrating on producer goods, was unlikely to achieve results. The model suffered from internal contradictions – the ‘middle path’, as he put it, had run out and it was necessary to take a stand on whether we really wanted a socialist economy. The case for planning was essentially a case for more comprehensive socialism, and was in his view a strong case, but we would need to move to a socialist economy.

 Wow! This is great insights. PC got a thumbs up from Dr Sen but not the Indian economic model. He would have preferred a completel state control to acheive desired results. Dr Sen got the first prediction wrong and second one right:

Things have changed enormously in fifty years and not surprisingly attitudes to planning have also changed. The greatest change in perceptions that has occurred since Sen’s Seminar article of fifty years ago is the discrediting of the technical argument that a centralized planning system, led by a ‘a coordinating national planning organization’ would be more able to achieve faster growth. The costs of a centralized system of decision-making, relative to a decentralized approach of ‘letting a hundred flowers bloom’ are now much better appreciated. Centralization is of course particularly dangerous where governance is poor but even when governance is not a serious problem, centralization is likely to be inefficient because bureaucratic decision-making….

Sen proved prescient, however, in the doubts he expressed in 1959 about the effectiveness of planning as practised in India and his misgivings were largely borne out over the next twenty years. Indian planning did not succeed in achieving even moderate targets of five per cent growth set in the early five year plans. Doubts also began to be aired about whether such growth as was taking place was reaching the poor. Prime Minister Jawaharlal Nehru himself, while introducing the Third Plan in Parliament in August 1962, said that per capita income had increased but ‘a legitimate query is made. Where has this gone?’ He went on to observe that he could see that people were better fed and clothed but ‘that does not apply to everyone. Some people have hardly benefited. Some people may even be experiencing various difficulties.’

Some things have hardly changed. W estill face the same problem now. Despite 9% growth rate in last 4 years, we still ask – “Where has this gone”?

Anyways, now back to the original question. What is the use of PC now? He says it is for indicative planning purpose:

By indicative planning, I mean defining broad national goals and objectives, and presenting an internally consistent picture of the evolution of the economy in a manner which achieves these national over a defined time horizon. In India, for example, if we could set the goal of achieving some target level of per capita income over a specified period – say increasing our per capita income from $1000 today to $5000 over 20 years combined with corresponding improvements in the access of the population to a basic minimum level of living over this period. Indicative planning can then be used to outline broad challenges in achieving this goal.

He then lists areas where indicative planning is useful. Read the rest for details.

2 Responses to “What is the use of Planning Commission now?”

  1. Transparency in Central Banks – A Norway perspective « Mostly Economics Says:

    […] Frisch was the first Nobel Prize winner in 1969. Amartya Sen had similar ideas as well. The issue of Govt vs Markets is an evergreen point of […]

  2. Politics in economics departments « Mostly Economics Says:

    […] in economics departments By Amol Agrawal I wrote a blogpost a while ago covering Montek Ahluwalia’s speech. He pointed to the role Amartya Sen played […]

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