5-yr plans not possible in Market Economy: Panagariya-GS-3

  • Arvind Panagariya has been busy giving sha pe to the NITI Aayog, which was set up last year. In a free-wheeling chat with TOI, he discusses the way forward and suggests that five year plans may not be as relavent today. But he makes it clear that this is his personal view and a final decision on the 13th five year plan will be taken by PM Narendra Modi. Excerpts:

Is NITI Aayog’s separation from the erstwhile Planning Commission complete?

  • We have made good progress during this first year but a lot remains to be done.We need to take forward initiatives introduced in 2015 and launch new ones in the coming year. On the organisational front, we had inherited about 1,250 positions from the erstwhile Planning Commission. We have now right sized it to about 500 and reallocated the extra employees to other parts of the government. But, we still need to induct new, outside talent to strengthen our think tank function. We have divided the staff of the institution in to two large hubs. One is called the Knowledge and Innovation hub and the other the Team India hub. The former has the responsibility to create, accumulate and disseminate knowledge, while the latter serves as the link between states and ministries at the Centre. The Knowledge and Innovation hub will have 12-14 verticals and they would develop expertise in different sectors such as trade and macro, health, agriculture, rural development, education and skill development.

What is the future of the five-year plans?

  • Right now we are almost ready with the mid-term appraisal of the 12th Plan and we are seeking the advice of the PM for the next steps. Regarding the future of five-year Plans, the PM has not taken a call yet. Some thought will need to be given to what should be our next step, particularly if we are not going to have the 13th five year plan.

Do you think five-year plans are relevant today?

  • In my personal professional opinion (and therefore not to be seen as the view of the government or NITI Aayog), we have now moved to a market economy and in a market economy it is not possible to plan the way we have been doing in the five-year plans. This was recognized even by the former Prime Minister Manmohan Singh who, in his parting speech to the Planning Commission, had said, “Are we still using tools and approaches which were designed for a different era? Have we added new functions and layers without any restructuring of the more traditional activities in the Commission?“ As long as there was investment and import licensing and distribution and prices were also partially controlled, you could plan for both public and private sectors. You had the means to determine the allocation of investment, imports and final commodities across sectors and economic agents. For example, we could plan how many scooters and cars would be produced, who would get them and at what price.But now entrepreneurs and consumers are empowered to make these decisions. You can no longer plan even the total quantity of investment let alone its allocation across various sectors.

Some states complain that there is no entity that they can approach to resolve their problems with the Centre after the abolition of the Planning Commission?

  • It is true that the NITI Aayog does not distribute money among states the way the Planning Commission did.But in terms of representation of interests of the states to the central government, the complaint is plain wrong.Not only do states come to us when they face issues with central ministries, in a departure from the general practice under the Planning Commission, we have pro-actively gone to the states to consult with them.

The mid-year review has ignited the debate on the need to relax the fiscal target to ensure that the growth momentum is sustained. What are your views?

  • We have to stay with fiscal consolidation. It is one thing to lobby for more relaxed fiscal targets and longer timetable to reach the final deficit target, which I admit to having done, but quite another to deviate from the path that has been chosen. Absent crisis, such deviations undermine the credibility of the government. Having committed to a fiscal consolidation plan just this past year, we must not risk the loss of credibility yet again.

The mid-year review paints picture of an economy which is not so much in good health. How do you assess the state of the economy?

  • I still maintain that by the time we get to the fourth qu arter of this year we should be touching 8%. The general signs that I see are positive There have also been reports stating that public invest ment and urban demand are now on more solid ground.

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