22 January 2015


Shakti Sinha 

Intro: The NITI Aayog has been designed keeping all the different aspects of ‘Good Governance’ in mind. The government resolution on a rare piece of public document is a model of transparency, clear cut thinking and effective communications. It has a good beginning and is expected that the NITI Aayog would facilitate India's transformation by getting it back on the rails of ‘Good Governance’ and rapid economic growth. 

With the appointment of noted economist and public policy thinker, Arvind Panagariya as the Vice Chairman and leading scientist VK Saraswat and of Bibek Debroy, another acclaimed economist, the NITI (National Institution for Transforming India) Aayog has been launched. Far from being a revamped Planning Commission, the Aayog has been conceived as a wholly new institution that will function as the government's think tank with State governments as equal partners. The NITI Aayog, as its name suggests, is about adapting governing institutions, policies, strategies and processes in keeping with the changed, and changing, circumstances. The Planning Commission had outlived its utility as will be clear in this narrative.

Unlike 1950, when the Planning Commission, was set-up based on the presumption that the government should be at the 'commanding heights of the economy', economic growth in India is now driven primarily by the private sector. The farmer in his field, crafts-person in her shed, the street vendor, the self-employed motor mechanic, the corner kirana shop owner, and the multi-billionaire factory owner—the economy is driven by their decisions to invest, to borrow, to hire. This raises the question—does a government have a role in economic growth? The answer is most certainly but not in the way the UPA acted.

The Planning Commission, like all bureaucracies, gradually kept expanding its jurisdiction and yet failed to keep up with the times. The Constitution mandates that the Finance Commission shall lay down the principles on which taxes collected by government of India for itself and on behalf of the land states, are to be distributed between it and the states. However, former Prime Minister Indira Gandhi's government decided to take out flow of plan funds to states from such fiscal transfers. Initially, the plan funds were allocated to states based on a formula, with certain changes over time. Gradually a large discretionary element crept in, particularly when central ministries started developing their own schemes, called Centrally Sponsored Schemes (CSSs) even in subjects that constitutionally belonged to states. This reduced the State governments to becoming supplicants with chief ministers having to line before the Planning Commission seeking funds that were legitimately theirs to begin with. In the process, the Planning Commission moved away from its key role in developing policies and sorting out inter-sectoral issues that span beyond a single ministry. It started concentrating on approving not just the overall five-year and annual plans of states, but also their individual schemes as also CSSs.

Coming to the role of the government in the economy, we must recognise that the spirit on entrepreneurship lies in the individual. Empowering and enabling the individual to take the decision to invest is where the government comes in. It must uphold and enforce the rule of law so that all get equal treatment before law. It must enforce property rights, and do it quickly and decisively. Protecting property rights is not about protecting the rich and the powerful. It is the weak, the oppressed that needs the protection of law, the daily wage labourer who is not paid the minimum wage by her employer, and the small and marginal farmer whose dues are held up, the micro-entrepreneur who has to pay bribes to get his bills passed in government departments. 

Governments also need to ensure that all citizens have the opportunity to be educated, gain employable skills and have good health facilities. Over time, it is clear that it is not necessary that it is the government that should be providing such facilities itself. There are various models which work in different circumstances. In some, government provides the services, in others it lays down policies including standards. Here non-state actors include the private sector are the actual service provider. In all cases you need independent and professional regulators to ensure that users are able to avail the services provided, of appropriate quality and at fair prices. 

For an economy to grow, for poverty to be eliminated, for people to get productive employment, India would need to 'Make in India' a success. The days of the government setting up factories and hotels is over as our experience is that by and large these public sector enterprises have not delivered. The private sector with its ability to make informed decisions, keeping in mind risks, opportunities has to step in. 

But it can only do so if the investment climate is attractive. Good transport networks, reliable power supply, a sound banking sector are some minimum requirements. Here too government has a critical role in either providing it or in creating an environment where these can be provided.

Unfortunately in the soft and hard infrastructure, governments in India have been found wanting. Some of these are the responsibility of the Union Government, rest of the State governments. Unfortunately, in the recent past, when states like Gujarat worked hard to promote investment and growth, the Union Government acted as roadblocks. It frequently used the Planning Commission to hold up initiatives of State governments because of its ‘control’ over the planning process. 

India has also suffered from an excess of 'centralisation of ideas', that all wisdom lies within the government, particularly Government of India. The whole-approach of development has been a top-down one. This had to be corrected at three levels. One, states are rightfully to be seen as equal partners in development. Most of the action in facilitating investment and economic growth is to be done on the ground, with the State government taking the lead. Its agencies working with local bodies like municipalities and panchayats are the cutting edge where services like roads, power, land, trained workforce, etc are delivered. Two, the village is the basic unit of governance. Its needs should be assessed, and then aggregated at the District and State level. Top-down approach fails to do justice to actual needs and potential. Hard data has to flow upwards to avoid distortions in planning, in allocations and in implementation. Three, we needed to abolish the notion that all wisdom lies only within the government. A platform was required where subject experts from universities, research institutions, etc could be consulted, and their expertise actually utilised where needed. 

Governance, particularly growth, should lead to equitable outcomes. This would come if it is participatory so that the focus is having pro-people policies. It must empower all stakeholders. Governance must be flexible and nimble and be ready to face changed circumstances, so must be pro-active, anticipating and facilitating desirable outcomes. Governance cannot get bogged down in inter-ministerial disputes based on out-of-date procedures and mind-sets. The net result of the failure to do was that there was nobody left to develop a national vision, sectoral policies and strategies. As mentioned, the Planning Commission that could perform this participatory, bottoms-up thinking exercise became an executing agency that blocked initiatives of states. The essential unity of purpose has to be established keeping in mind that the role of the government is to serve the people, not administer them. 

The NITI Aayog has been designed keeping all these different aspects in mind. The government resolution on it is a rare piece of public document that explains why the National Institution for Transforming India (NITI Aayog) has been set up, what are its challenges, its mandate, its responsibilities and its way of functioning. It is a model of transparency, clear cut thinking and effective communications. It has a good beginning. It is expected that the NITI Aayog would facilitate India's transformation by getting it back on the rails of good governance and rapid economic growth. 

Shakti Sinha (The writer is a retired IAS officer)

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