From centralized planning to indicative planning

Previous approach:
 Belief that planning was required not only to achieve distributive goals, but
also to achieve high rates of growth
 Capitalism left to its own devices will not achieve growth, as individual
entrepreneurs do not have access to complete information; thus, there is a
need for socialist-style development, via a ‘national coordinating planning
organization’
 Planning was done such that objectives specified took the form of
detailed output targets in different sectors, and models were made to
ensure the matching of supply and demand; imports were heavily controlled
 This led to a high-cost low-quality domestic production structure, and
promoted extensive corruption associated with running a highly complex
and discretionary import control system
 Centralized planning, however, proved to be inefficient because of
bureaucratic decision making, led to multiple levels of accountability,
and deterred risk-taking
 As a consequence, Indian planning did not succeed in achieving even
moderate targets of 5% growth in the early FYPs
 In 1961, it was decided that the sluggish growth wasn’t helping the poor- the
growth must be moved to 7% p.a. for 15 years till 1976; also, there was an
increased focus on special income transfer mechanisms to bring the poorest
two deciles to a defined minimum income level
 However, even these efforts didn’t bear fruit- average growth rate between
1960 and 1980 was only 3.5% (‘Hindu rate of growth’). Initially, the planners
just accepted that low growth was unavoidable, and increased their focus on
anti-poverty schemes. But this had little effect on poverty
 In the 1980s, Indian planners started taking heed of the transformation going
on in East Asian economies, started to liberalize, giving greater play the
market. The existing framework of controls wasn’t dismantled, but was
relaxed in certain areas

Post 1991:
 Much greater liberalization, gradual move to indicative planning
 Indicative planning means defining broad national goals, and outlining
broad steps that need to be taken to achieve these goals
 Instead of determining precise production requirements in different sectors,
indicative planning aims to examine broad areas of feasibility, in terms of
levels of domestic savings and investments needed, the financial structure, the
investment climate, nature of human and technological development etc.
 Indicative planning also tries to anticipate the challenges arising from the
broad goals- for example, how to tackle rapid urbanization that comes along
with rapid economic growth? How to generate resources to build critical
infrastructure that the private sector cannot provide?
 Under this kind of planning, the government doesn’t control the private sector
through explicit controls. Rather, it encourages private investment to flow in
certain directions, by use of ‘softer’ policy instruments such as access to easier
 credit, providing infrastructure such as land etc.
 Thus, policies pertaining to various sectors cannot be made the exclusive
responsibility of a single planning agency, but has to be developed through
interaction with many stakeholders (inter-ministerial interaction, rather than
a behemoth planning commission)
 In this regard, it is pertinent to study the new NITI Aayog and its
similarities and differences with the Planning Commission:
 http://indianexpress.com/article/opinion/columns/winning-over-the-
states/
 NITI Aayog will not be formulating central plans, but it will be responsible
for monitoring and evaluating the monitoring of programmes. Thus, while
the monitoring and advisory functions of the erstwhile Planning
Commission are retained, the executive function of framing plans and
allocating funds for plan-assisted schemes has been taken away
 A role of the Planning Commission was to lobby for the plan expenditure
not being slashed; now, with the responsibility for this not residing with
NitiAayog, no one will do this lobbying and the Finance Ministry will be
free to cut plan expenditure
 Earlier, devolution of plan expenditure to the states was done via
Planning Commission and non-plan by Finance Commission. What now?
Is the distinction between plan and non-plan expenditure to be abolished?
 Is GOI shirking its responsibility of planning and introducing new
schemes?
 Post-budget, it is clear that the government has, at least for now, chosen
to maintain the plan and non-plan distinction. It is still not clear about
who would be charged with ensuring that the distinction is implemented,
and to keep track of the devolution of funds. For now, it looks like NITI
Aayog is not all that dissimilar from the Planning Commission it replaced

Relation between planning and markets for growth

The move towards indicative planning post 1991 wasn’t a dismantling of

planning- it was, in fact, a recognition that good planning involves putting in
place policies that will allow the economy to perform to its full potential and a
private sector dominated economy needs to give much greater freedom to
private enterprise within the framework of a competitive economy.

This is not to say that reliance on markets will take care of all objectives. It will
not take care of distributional objectives since not everyone will benefit
sufficiently from exclusive reliance on markets.

It also does not take care of market failures, which warrant corrective action.
These problems need to be addressed through carefully crafted policies and
programmes involving suitably designed government intervention at multiple
levels.
Above all, the shift in focus should be such that government focuses on delivery
of essential services to the common citizens.

Decentralized planning: 73rd and 74th Constitutional amendments(do

various heads for situation of panchayats, such as finance, planning,
implementation etc.)

 Rajiv Gandhi Panchayat Sashaktikaran Abhiyan, the sorry state of

Ministry of Panchayati Raj under Modi etc.
 EPW article

73rd amendment (Constitution Part IX, Schedule 11)

Article 40 under Directives of State Policy says that the state should take steps to
establish PRIs as units of self-government. Though PRIs have existed for many
years, they haven’t evolved into responsive people’s bodies, due to:
 Absence of regular elections
 High frequency of supersessions (change of leadership)
 Insufficient representation of weaker sections
 Inadequate devolution of powers
 Lack of financial resources (local government revenues were only 3% of
total government revenues in 2001; 15% in USA; of this, only 4% were
generated internally)

Thus, 73rd amendment was brought in to define the relationship between state
legislatures and PRIs a little better, with regards to: regular elections for PRIs,
taxation and revenue sharing, providing for representation of weaker sections
etc.

Provisions of the Act

 Gram Sabha = all registered voters. It will play a role similar to state
legislature (Article 243A)

 ‘Village’ is specified by Governor via official notification

 3 tier-structure of panchayats: village level, intermediate (only for states

with population of more than 20 lakhs), and district level (Article 243B)

 Composition of Panchayats:
 Members should be elected directly via people living in villages under
the panchayat area, which will be divided into roughly equally sized
territorial constituencies
 All through the state, (population of a panchayat/ no. of seats in PRI)
must be roughly the same (i.e., each PRI member should represent the
same number of people)
 Mechanism of elections at village level can be specified by the state
  State will appoint a State Election Commission; members will be
appointed by Governor but will be subject to state laws in this regard
 For intermediate and district level, village-level elected members will
elect
 Even if Chairperson and some other members are appointed and not
elected, they can vote in PRI meetings
 Seats for SCs and STs to be reserved in accordance with their share in
population
 At least 1/3rd seats to be reserved for women (even among caste-
reserved seats)
 Office of chairperson: mechanism of reservation can be specified by
state (and can be extended for any backward class the state desires),
but population-proportionate seats should be held for SCs/ STs, and
allotted by rotation to different panchayats. A third need to be reserved
for women
 Reservations are period-specific (Article 334- 2020 currently, after
95th amendment)

 Term: Panchayats will have 5-year terms-

 The Panchayats can be dissolved by use of existing state laws
 However, they cannot be dissolved due to any state law amendment
made during their term
 Elections will be held within 6 months of its dissolution

 Members need to be at least 21 (not 25), and state can make laws for
disqualification (but can’t raise age bar to 25)

 State can determine what powers and responsibilities PRIs will have, and
can also define what taxes PRIs can levy/ collect, how much they get from
the state’s consolidated fund etc.

 State legislature is free to define composition and qualification of SFC

members, and how they will be selected; Governor will appoint them, and
SFC will recommend devolution of finances (distribution of net proceeds
of taxes, duties, tolls etc. between state and PRIs; taxation subjects;
grants-in-aid etc.)

 These provision will apply to UTs, with the Governor acting as the state
legislature for UTs that don’t have a legislative assembly

 Original amendment said that the provision above will not apply to
scheduled areas (as defined in ARTICLE 244), or the states of
Nagaland, Meghalaya, and Mizoram, and hill areas of Manipur, and for
Darjeeling in West Bengal (where District Councils exist); but if state
legislatures of the above states want to extend these provisions to such
areas, they can, with a 2/3rd majority in assembly
 However, the PESA Act of 1996 did away with this clause for
panchayats, and allowed Gram Sabhas in scheduled areas to manage
 their own natural resources and adjudicate their internal disputes.
Gram Sabhas are also to be consulted before land acquisition, before
giving away mining rights; Gram Sabhas in these areas will have
control revenues from minor forest produce, and will also be able to
enforce prohibition of certain intoxicants, regulate moneylending etc.,
and any higher panchayats will not be able to take up any functions of
panchayats in scheduled areas
 Criticisms: While the PESA act was enacted, it was considered
revolutionary; however, in practice, it hasn’t really empowered the
Gram Panchayats. CM sits at the head of Tribal Advisory Councils, and
Governors don’t say anything lest it annoys the CM. Repeated petitions
from Gram Sabhas in Scheduled Areas go unheeded
 Relevant state level acts have not been amended in many cases
 Provision regarding land acquisition only with the GS’s consent have
been rampantly violated in many states
 Amendments should be made to the Act, and words ‘recommendation’
should be replaced with ‘prior informed consent’ in case of land
acquisitions and mineral rights
 Any state laws that contravene PESA Act should be made null and void
 There must be an independent body to monitor the progress under
PESA

Eleventh Schedule Articles (responsibility of PRIs): (Agriculture, fisheries, forestry)

implementation of land reforms, (minor irrigation, watershed development,
water and sanitation), rural electrification, education (below tertiary), PDS,
poverty alleviation programmes etc.

74th amendment (Constitution Part IXA, Schedule 12)

Due to reasons similar to PRIs (listed above), ULBs aren’t functioning as effective
units of local self-government.

Provisions of the Act:

 Definitions: Metropolitan area means an area with 10 lakh+ population

(can cover one or more districts, but has to have two or more
Municipalities/ Panchayats; notified by Governor (different from
Municipal Area, which is the area covered by a single municipality)

 3-types of municipalities (note that unlike PRIs, this is not a tiered

structure): nagar panchayats (for transitional areas, between villages are
towns), municipal councils (for smaller urban areas), and municipal
corporations (for larger urban areas)
 What counts as transitional, small, or large can be defined by governor,
based on population, density, revenue generated, % of employment in
non-agri sectors etc.

 Municipalities do not need to be constituted in industrial townships

  ‘Wards’ will be smaller units in a municipality (like villages to a
panchayat). In municipalities with population over 3 lakh, ward
committees will be constituted (can cover more than one ward) (akin to
intermediate panchayats)
 All registered voters in all wards under a municipality will vote in
municipal elections
 State legislatures can define the composition and membership of ward
committees, but at least one member from within the constituent
wards should be a member

 State legislatures can make provision for representation of people with

special knowledge, MLAs, MLCs, MPs (both houses), and Chairpersons of
Committees etc. without direct election in ULBs (all of them can vote,
apart from people with special knowledge)

 Rest of the provisions, covering reservations, duration, SEC, SFC etc. are
same as in 73rd amendment. But, in addition, no election to any
municipality can be questioned in court, except by an election petition
presented to an authority mandated by the state legislature

 District Planning Committee: In every state at the district level, there

should be constituted a DPC, which will consolidate all plans made by
PRIs and ULBs in the district to prepare a DDP
 State legislatures can define the composition of the DPCs and also how
the seats will be filled etc., but 4/5th of the members should be elected
from within the elected members of District Panchayats and
Municipalities
 DPCs will cover areas overlapping between PRIs and ULBs, such as
spatial planning, water sharing, use of resources etc.

 Metropolitan Planning Committees

 Will have similar functions as DPCs
 Difference is that only 2/3rd of the members need to be from smaller
units within the Metropolitan Area

Twelfth Schedule Articles (responsibility of ULBs): urban planning, land-use

regulation, roads and bridges, water supply, public health, slum improvement,
fire services, urban amenities such as parks, playgrounds, slaughter houses,
tanneries etc.

Recommendations from ARC Report for Urban Local Governance:

 There should be a common 3-tiered structure for ULBs all across the
country-Municipal Council, Ward Sabhas, and Area Sabhas (in smaller
areas, no need for ward sabhas)
 Currently, the office Chairpersons of Municipal Councils varies from state
to state, as the 74th amendment lets states choose how to select
chairperson; in many cases, their role is merely ceremonial, and actual
executive authority resides in the Commissioner appointed by the state.
 The Chairperson should become the executive authority, and should be
directly elected, as should the council
 A major source of revenues for ULBs is property tax; levy and collections
should be better streamlined for this tax
 Octroi (levy on goods entering an area) should be abolished
 Fines for violations of civic laws should be imposed by the ULBs
 Land should be leveraged for revenue generation via competitive bids
(GIS mapping required)
 PPPs should be explored for urban service delivery

ARC Report 06

Weakness in the 73rd and 74th amendments:

 Given that local government is a state subject under the constitution’s 7 th

schedule, the implementability of the provisions of these 2 amendments
depends on the State Panchayati Raj Enactment
 So far, most PRIs and ULBs are simply treated as agents of the state
governments, rather than another autonomous level of governance
 The age-old office of Collector/ DM exists as an anachronistic appendage
 The state governments have also created umpteen parastatals for
specific functions such as water supply, waste disposal, sanitation etc.,
which impinge on functions of LSGs

As a result, PRIs and ULBs exist as over-structured but under-empowered

organizations, boasting of Constitutional status but suffering from lack of
effective devolution of powers, finances, and functions from the State
Governments.

Core Principles of decentralization:

 Principle of subsidiarity
 Clear delineation of functions (for example, states can set curricula, but
implementation should be a sole responsibility of LSGs)
 Democratic decentralization, by means of actual devolution of functions
from state level to local level
 Local governments should be effectively empowered to frame
regulations, take decisions and enforce their will within their
legitimate sphere of action
 Financial devolution should allow for ample untied funds to be used by
LSGs as per needs, and they need to be allowed to generate greater
own revenues
 Provisions in some state laws regarding the LSGs having to get budget
approvals from state legislatures should be abolished
 LSGs should be allowed to borrow from commercial banks as per their
own merits
 Flow of funds for all public development schemes in areas should be
exclusively routed through Panchayats
  State governments should not have the power to cancel any resolution
passed by LSGs

 Convergence: there must be greater institutional convergence between

rural and urban LSGs

Common Issues and Recommendations:

1. Provisions of Article 243G and W of the amendments have been taken by most
states as merely advisory in nature. These articles, dealing with articles of
decentralization, should be strengthened:
 There might be some merit to making Legislative Councils mandatory in
every state, and members of these LCs should be elected by LSGs
 Instead of the current scheme of separate DPCs and MPCs, there should be
a unified, directly elected, District Council

2. Elections:
 SECs should be further empowered. Currently, Governors, on the
recommendation of the ruling government, nominate SEC members. A
bipartisan collegium must be instituted, consisting of CM, LoP, and
Assembly Speaker for such nominations
 Currently, constituencies are fixed as per 2001 census populations. Urban
area populations have grown much faster, and hence these areas are now
under-represented in legislatures. Territorial adjustments of
constituencies should be carried out after each census (ARC report gave
this recommendation before the constituencies were re-drawn in 2008, so
this is useless)

3. Functions of Local Governments: There should be clear delineation of

responsibilities and appropriate devolution of functions. The SFC should
design transparent norms for devolution of funds based in indices such as
backwardness, level of civic amenities etc.

4. There should be efforts towards building up the capacity of LSGs, of

streamlining accounting and auditing procedures etc., and ICT should be
judiciously utilized so as to provide service delivery to citizens through the
use of a single-window system