Prime Minister's declaration of "scrapping of the planning commission", on his maiden independence day speech is a welcome initiative and it is in tandem with his ideology of strong cooperative federalism including in fiscal matters.
To begin with, let me give a comprehensive insight into the history of the planning commission in brief. On the eve of independence, India was facing many challenges like chronic poverty, hunger deaths, maternal deaths, illiteracy, disguised employment, inadequate and inefficient infrastructure and service sectors, etc. Therefore Government of India felt setting up of permanent body to carry out development in a planned manner on a priority basis. And this led to establishment of Planning Commission in 1950 as an advisory body on the recommendation of K.C.Neogi. Over the years it emerged as a supreme organ in planning socio-economic objectives.
The functions of the Planning Commission as envisioned in the executive resolution mainly includes: assessment of resources of the country including human resources; drafting a national plan i.e. five year plans for the most effective and balanced utilization of the country's resources; appraisal of the plan and recommending appropriate actions to realize the plan objectives, etc.
Since its inception, Planning Commission had played a significant role in achieving country's socio-economic objectives. It is vindicated by the GDP growth rates and Per Capita Income growth rates. During British rule India's GDP growth rate is 0.5% i.e. mere stagnation. After the establishment of Planning Commission and implementation of five year plans raised to 3.5% by 1970s and to 5.5% before economic reforms. Further Liberalization, Privatization and Globalization policy coupled with continuous efforts of Planning Commission led to about 8% GDP rate per annum. In addition, the standard of living improved because of Per Capita Income raised from Rs.250 in 1950 to more than Rs.50, 000. In this context, it is highly relevant to examine the role of National Development Council and Finance Commission.
NDC was established in 1952 mainly to secure cooperation of states, to strengthen and mobilize the efforts and resources to execute the plan by ensuring balanced and rapid development of all parts of the country.
On the other hand, Article 280 of the Constitution of India provided establishment of Finance Commission to achieve fiscal federalism. Its functions mainly includes to recommend the President on the matters of the net proceeds of taxes to be shared between the Centre and the States, grants-in-aid to states by the Centre, measures needed to augment the consolidated fund of state, and other matters referred to it by the President of India.
But, over the years the very over-lapping of functions and responsibilities between the Planning Commission and the Finance Commission led to straining the Centre-States relations. This is evident from the grants-in-aid (statutory and discretionary) to States from Centre. Statutory grants under article 275 are given on the recommendations of the Finance Commission whereas discretionary grants under article 282 on the recommendations of the Planning Commission. These discretionary grants mainly meant to help the states financially to fulfill plan targets. Notably, discretionary grants contribute the larger parts than statutory grants. Hence, the advisory Planning Commission has assumed greater significance in financial matters.
Various commissions and committees has analyzed this unhealthy trend in fiscal matters and recommended measures but failed to achieve desired results. Administrative Reforms Commission observed that over the year the Planning Commission has emerged as a Parallel Cabinet. D R Gadgil, the former deputy chairman criticized and concluded that it has failed right from its composition to implementation, as its recommendations are only advisory and not binding. P V Rajamannar, the chairman of the Fourth Finance Commission highlighted the over-lapping of functions between the two bodies. K Santhanam, the eminent constitutional expert stated that the Planning Commission superseded the federation and our country is functioning like a unitary system in fiscal matters.
In addition, the Planning Commission has subverted the constitutional Finance Commission and emerged as a 'Economic Cabinet'. But it has its merits and played a imperative role in realizing the national objectives which have to be retained in the future and at the same time denouncing its demerits. The very failure of Finance Commission is due to devoid of permanent institutional mechanism.
To conclude, though the Prime Minister has tackled the demerits of the Planning Commission but left its merits in a quandary. The best way of tackling the situation is to institutionalize the Finance Commission by bringing the Planning Commission (as a pranalika sangam) within its ambit as a purely advisory expert body. This exercise would yield greater cooperative federalism in financial matters, a basic feature of the Constitution of India.