Lessons from China

Santosh Mehrotra
September 4, 2014 

The HinduON THE TABLE: Abolishing the Planning Commission and creating a new institution in its place requires a redefinition of the old organisation’s functions. Picture shows former Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, addressing a meeting in Guwahati. Photo: Ritu Raj Konwar

In contrast to China, India remains one of the most fiscally centralised federal systems in the world with a one-size-fits-all design of the Centrally Sponsored Schemes

The new government is to abolish the Planning Commission and create a new institution in its place. This requires a redefinition of the functions of the old organisation. Transferring the project appraisal function and the erstwhile Planning Commission staff to line ministries would be good moves. However, the following new functions for the new Planning Commission should be considered in the light of concerns expressed by the new government.

The Planning Commission has barely managed to perform the function of systematically collecting best practices in policy or programme design from States and replicating successful models. The new body and not line ministries would be the appropriate body for this purpose. Even without a major financial allocation function (which is likely to go to the Ministry of Finance), the new government can change the design for centrally sponsored programmes that have not performed despite decades of being in place (such as sanitation, Integrated Child Development Services) if the Prime Minister wishes to take this role seriously, by mandating solutions on the line ministries and following up with incentive funds for the purpose. Leaving the task of programme redesign to line ministries if they have historically not delivered outcomes is risking continuation of unreformed programmes. On the other hand, encouraging redesign of programmes through fund allocations would especially encourage States to make significant programme readjustments within broad parameters laid down by the new Planning Commission/line ministry.

Reforms after experiments

Second, in China, Five Year Plans continued to be prepared after the economic reforms just as they had been prepared before 1979. They did not move to a mere long-term perspective plan. A long-term perspective plan has little practical value other than laying out a vision. It is not a usable document. Of course, the current Five Year Plans may also be criticised for not being used for practical purposes. However, that can be changed if the new National Democratic Alliance government so decides. It would then become an important tool in the hands of the Prime Minister, as Chair of the new body, to monitor progress (well beyond the mere collection of data that is put on the Prime Minister Office’s Delivery Monitoring Unit) and go beyond the Results-Framework Document currently agreed by each Ministry with the Cabinet Secretariat’s Performance Management Division. Since the Prime Minister (and consequently the PMO) can instruct the line ministry to either redesign the programmes that are not delivering or scrap them, this role is consistent with the transfer of the Planning Commission’s annual Plan financial allocation function to the Ministry of Finance (together with the much-awaited distinction between Plan and non-Plan funds).

There is another lesson for India from the Chinese system. In contrast to China, India remains one of the most fiscally centralised federal systems in the world. The one-size-fits-all design of the Centrally Sponsored Schemes (CSS) — the source of much resentment of State governments for long — has only recently begun to be loosened with the share of “untied funds” rising under each CSS. Unfortunately, we have had a fiscally centralised Centre on the one hand and a Planning Commission that has historically promoted one-size-fits-all CSSs on the other. The new Planning Commission should change the latter, and work towards changing the former.

There is another big difference between China and India. The Chinese have the tradition of carrying out nationwide reforms only after experiments to pilot reform. In India, on the other hand, experimentation of this kind is an exception, not the rule. Programmes are devised with top-down designs where the Centre provides funds and the States implement them. Decades of experience demonstrate that this method of planning or programme design does not work. The new reformed body must conduct pilot programmes using alternative design elements before they are rolled out at the national level. In this context, now that the newly created Independent Evaluation Office, an office attached to the Planning Commission, is likely to be eliminated, there is a case for a division in the new body that should be entrusted with experimenting and piloting programmes. In fact, the roll-out of the insurance component of the Jan Dhan Yojana, that is only due to commence a year from now, must undergo a pilot before taking it to scale. Similarly, an evaluation of the bank accounts that were opened hurriedly under the second term of the United Progressive Alliance government for the Mahatma Gandhi National Rural Employment Guarentee Act payments must be conducted rapidly, before more no-frills accounts are opened under the Jan Dhan Yojana as they risk remaining dormant.

The Planning Commission has long played a role in interacting with the States. State governments come every year to the Planning Commission in the last quarter of the financial year to discuss both their economic and social performance and annual plan allocations. However, this role has been a source of resentment between the Centre and the States. The National Development Council (NDC) is an appropriate forum for the voice of the States but has not met frequently enough — this is one problem. The second problem is that there is no systematic discussion forum in consultation with the States for policy reform in specific sectors.

One role of the new body should be to bring together the 17 sectors identified in the manufacturing chapter of the 12th Plan and the relevant stakeholders (State governments, industry, labour, academics) on a regular basis so that industrial policy does not remain the preserve of the Department of Industrial Policy and Promotion. This would be similar to the role the National Development and Reform Commission (NDRC) plays in China.

Need for sectoral expertise

The previous Planning Commission had additional suggestions for sector expertise development: education and skill development, health, nutrition (none of which are NDRC priorities in China), agriculture and rural development, water, energy policy, transport and logistics. All these have externalities that a line ministry alone cannot address. This sectoral focus should be the raison d’etre of the new body.

Here, the problem is that the Planning Commission is staffed by generalist Indian Administrative Service and Indian Economic Service officers, mostly at senior levels. Staff move in and out of the Planning Commission like in any other Ministry. By contrast, in China, the staff of the NDRC spend their entire careers in it and develop professional expertise.

Expertise could be sourced from within the government. But a widespread programme of lateral entries at different levels would have to be encouraged, with the remuneration/overall package to them matching what they might command in the market.

(Santosh Mehrotra is professor of economics, Jawaharlal Nehru University. He headed the research institute of the Planning Commission.)

http://www.thehindu.com/opinion/op-ed/lessons-from-china/article6376891.ece

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