A new National Development Council: PM Modi could keep the bird in hand and still net two more from the bush.

Modi piegeons.theunrealtimes.com

(photocredit: unrealtimes.com)

In inimitable style, Prime Minister Modi freed the nation from the “stifling” control of the Planning Commission (PC) on August 15-India’s Independence Day.  Not many are likely to mourn its passing.

But bureaucracies dislike a power vacuum and it is not clear who inherits the mantle of work the Commission used to do. Of primary concern is the need to co-ordinate the allocation and use of public resources, mostly though not exclusively, as investment for sustainable development. The amounts involved are huge, amounting to 11 % of GDP, of which Central government resources comprise 60% whilst the residual 40% are state government resources.

India’s quasi federal structure creates governments at three levels with varying and mismatching levels of functional assignments and resource allocations and a spaghetti bowl of mandated and discretionary, inter-government transfers. Whilst a good long term strategy would be to work at aligning responsibilities with resources, there is little hope of these issues being sorted out in the next five years.

The need of the hour is to find practical near-term solutions to three key issues which would remain unresolved if the PC is wound up.

One, which government entity could be empowered to realize the PMs vision of “cooperative development” between the Union government and the states?

Two, which government entity could have the capacity and the mandate to take an integrated and a technically informed view on development priorities and evaluate options and their tradeoffs?

Three, which government entity could be structured to bring together the best brains in the business of development to assist the “combined team of the PM and the Chief Ministers of state governments” to take informed and optimized decisions which simultaneously reduce poverty, create productive jobs and ensure sustainability?

This is not to assert that the PC did any of the three very well. But it did provide a forum for all three issues. The fact that it was not used to that purpose is a reflection of its leadership rather than its substance.

The PM, whilst announcing the demise of the Planning Commission (an institution, which the PM heads, created in 1950 by executive order), also said it would “soon” be replaced by another institution but no details were shared. Speculation abounds that this may be a lean, high power, government “Think Tank”.

It is unclear however why the government needs another in-house think tank when it has so many aided “Think Tanks” already at its disposal. The National Institute of Public Finance and Policy (NIPFP); Indian Council of International Economic Research (ICRIER); National Council of Applied Economic Research (NCAER); Institute of Economic Growth (IEG), just to name a few, which are all part of the Delhi Durbar.

Others include highly specialized ones like the Center for Policy Research (CPR); The Energy Resource Institute (TERI) and the Center for Science and Environment (CSE) in Delhi. There are scores more of such “knowledge institutions” in other metros and the state capitals. All of them are already able and engaged in providing research and knowledge support to governments, state owned enterprises and the private sector.

Why spend new public money on establishing yet another sarkari (government) or quasi sarkari knowledge institution, which will likely be bedeviled by the same constraints as its predecessor? All sarkari institutions suffer from the problem of low remuneration levels, which are insufficient to attract the best from the domestic private sector or to attract the many qualified Indians working abroad. Lateral entries are mostly “fixed” on the basis of exploiting networks, not on the basis of assessed merit. Lastly, and most importantly, their processes and systems are stiflingly bureaucratic, which puts-off most experts.

In any case, even the best “Think Tank” cannot achieve all the three objectives cited above. Even International Development Institutions, like the World Bank, IMF and UNDP find it hard to sell their admittedly “high quality thoughts” if they are not backed by money power to implement them. A Think Tank is not the solution.

The erstwhile Commission discharged several functions. It coordinated the allocation of vast public investment resource and monitored implementation and expenditure. It provides the secretariat for the National Development Council (NDC; an entity created in 1952 by executive order for interaction between political heads of the Union and state governments). In fact unfettered “thinking’ and “knowledge generation” was never a major part of the Commission’s job. It was more a hands on “applied knowledge” generator which navigated political economy constraints to suggest commonly acceptable, technically suitable options for allocating development resources. This role remains vital.

The notion that the Ministry of Finance, Department of Expenditure, Plan Finance Division can perform the investment management; resource allocation and monitoring role is laughable, given the limited human resources available to it.

Why not then simply assign the entire existing Planning Commission staff to the Plan Finance Division; upgrade this to a Department and let it do the job? This solution would be even worse than the existing arrangements. It would extract whatever independent “non-government” knowledge capital, which existed in the Planning Commission, plus embed the entire process in the traditionally (possibly necessarily), non-transparent functioning in the “forbidden fortress” of the Ministry of Finance even further, with no hope of efficiency improvements in return.

Can the PM retain the bird in hand- the virtues of the PC- whilst still netting two more birds (state leadership participation and enhanced human capital) in the bush?

This post outlines a proposal to this effect:

  1. The PC already provides the secretariat for the National Development Council. Unfortunately, meetings of this entity have been reduced to a mere formality, where no meaningful co-operation takes place. The reason is that it is not empowered to do more than talk. This can change dramatically if it is empowered to “approve” the medium and long term invest plan of the Union and State governments. This “symmetric sharing” of fiscal power, between the state and union governments would be unprecedented. It could energise the NDC into a business like agency.
  2. What we call “the Five Year Plan”, in India, is very similar to what more modern governments call the “Medium Term Fiscal and Expenditure Framework (MTFEF)”. This is an internationally accepted “good practice” as a guide. The Plan can be tweaked into becoming this modern avatar.

In essence the MTFEF requires the setting of aggregate fiscal deficit, revenue and expenditure targets; assessing the fiscal resources and then painting in allocations for different sectors and projects, within these broad fiscal envelops.

This is already done by different agencies independently; RBI, MOF, line ministries, state governments and the PC. Each entity has vested institutional interests which are at variance. The RBI would like to constrain debt and regulate money supply since it targets inflation. The MOF traditionally exaggerates revenue and borrowing potential while targeting growth. The line departments and state governments exaggerate expenditure needs to “grab” the highest allocations. The interplay between these entities is expected to reach an optimised equilibrium which the PC presents to the PM and the NDC. We still need an entity to perform this vital function.

  1. This could be a new “empowered” NDC which would operate much like the Governing Board of a multilateral development institution. The Governing Board would consist of the Prime Minister as chair; a designated central minister as Dy. Chair; chief ministers of state governments or their alternates, key central government ministers and the RBI Governor as members. The Governing Body would ensure pan-India political leadership and “buy-in”.
  2. Technical governance could be provided by an Executive Board, chaired by the Secretary of the new NDC Secretariat. Other members would be of Chief Secretary level from each state government and key Secretaries of the Union government. The Executive Board would mirror, at the bureaucratic level, the composition of the “political” Governing Board. It would be the function of the Executive Board to coordinate and clear documents formulated by the Secretariat, before circulation to the Governing Board for decision.
  3. The new Secretariat would be designed for independence and competence. This requires that only the best talent is selected. To ensure merit all appointments to the secretariat would be outside the central staffing pool which is operated by the Department of Personnel, GOI and draws officers from the All India Services and Central Services based on pre-determined proportions from each service and then allocates the officers to vacant positions in the union government; a cumbersome and non-transparent mechanism of ever there was one.

All positions in the NDC secretariat would be open to external competition. Government officers would be expected to compete with external experts for appointment to specific positions, each of which would have defined job descriptions and eligibility criteria. Secondly, all appointments would be contractual. This simple device will give more flexibility to the NDC to pay for merit. The fear of competition and the need to temporarily step out of the “comfort zone” of service regulations (like the payment of house rent at market rates rather than allocation of a government house; payment of car and driver allowance at market rates rather than allocation of a government car) will automatically ensure that only those competent in and committed to pursue specialized technical work would apply.

All recruitments would be processed by the Union Public Service Commission (UPSC) to ensure that the highest fiduciary standards in selection are maintained.

Despite the liberalized compensation, the operational cost would be lower than in the case of the PC by limiting the number of employees to 100 or around one half of the staff presently employed; enhancing the teeth to tail ratio and aggressively adopting technology to reduce cost.

The proposed new NDC can meet the PMs objectives of introducing “co-operative federalism” by building “a common team” of leaders from state and the union governments.

It bridges the gap between state and the union government, at the bureaucratic level, by bringing high level government representatives together in an empowered Executive Board with real time “shared” powers and functions.

It ensures that the best available human capital is made available to inform the deliberations of the NDC and yet minimizes the institutional dislocation from the demise of the Planning Commission.

The bath water is drained, the “baby” remains, to be nurtured into an image of inclusive, federal, technologically empowered, institutionally integrated, India.



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