Plans And Priorities In Public Administration – Paper II

Plans And Priorities In Public Administration

Planning and prioritising in public administration are quite important elements in understanding and formulating various policies in Indian public administration. The two different types of planning in Indian administration. Read on to know more about plans and priorities in public administration and issues relating to different types of planning.

Imperative Vs Indicative Planning

The process of economic planning can be classified into two broad heads: Imperative planning and Indicative planning. Under ‘Imperative Planning’, practised by countries of the former Soviet bloc, there is an element of compulsion. This type of planning is characterized by administrative machinery that wields effective powers to dictate investment and production decisions to ultimate economic units. Private enterprises and free-market mechanisms have little role to play in this type of planning, as the crucial decisions regarding investment, production, distribution, pricing and resource allocation are taken by the central planning authority. Imperative planning is incompatible with a democratic society where individual economic agents enjoy a considerable degree of freedom. Indicative planning (as opposed to imperative .) has for long been regarded by many as the most important feature of the French Planning System. ( Under this style of planning, the direction in which the economy ought to go is shown rather than providing specific targets). In free societies, therefore, the indicative version of planning is practised in preference to imperative planning. Under indicative planning, the planning body. sets the broad goals for the economy in terms of GDP growth rates, sectoral growth rate, and investment rate. The realization of the objectives of the Plan calls for an integrated set of macroeconomic policies on the part of all concerned – the government, public and private sector enterprises and financial institutions. Indicative planning also seeks to evolve a consensus and fruitful cooperation among all the “Social partners” in development, namely, the government, farmers, industry, trade unions business enterprises, etc. An indicative, democratic plan is thus a joint endeavour in national development. The success of indicative planning depends on the active participation of all economic agents in the planning process. The role of the government is to create opportunities and enabling conditions for the process of peoples involvement in developmental activities.

Indicative Planning in India – A few Issues

1. Role Of Planning In A Market Economy

Can there be a role for centralized planning in a market economy such as India’s after liberalization ?

The question was debated at some length in the wake of the reforms launched in the 1990s to liberate the economy from licensing and controls. It was realized that after liberalization, planning in the way it was practised in the first four decades after independence was no longer tenable. In due recognition of this reality the Eighth Plan (1992-1997), the first to come out after the initiation of the reforms, stated in its preface: “The Fan is indicative in nature”. That planning now has to be primarily indicative’ and the state can best be a ‘facilitator’ for the private enterprise was reiterated in the two plans that followed, the Ninth and the Tenth.

Following liberalisation, the role of the public sector in the Indian economy has considerably shrunk and is shrinking further. Three-fourths of investments in the economy are now flowing from the private sector. Financial constraints emanating from the Fiscal Responsibility and Budget Management law coupled with inefficiency and waste in service deliveries have led to demand for the state to vacate even areas hitherto regarded as the responsibility of the government, like education and health. “Public-Private Partnership” or PPP is now emerging as the preferred vehicle for initiatives in development, wherever possible. Given this background can or should there be any role for planning?

The answer has to be in the affirmative. The reason is twofold. One, when resources happen to be limited-and that lies at the heart of the economic problem of objectives, actions must be guided by a well-designed plan. Planning is necessary to provide me with the information necessary as a guide to action and that applies to both the public and the private sectors. In other words, planning has a very useful “indicative” role. Two, it has to be recognised that even in a market economy the state has to play a vital role not only as a facilitator but also as a provider of basic infrastructure, physical, social and financial. In the Indian context, even after the emergence of the private sector as the bigger player in the economy, the public sector plays and will continue to play in the foreseeable future-a vital role as a major investor in several critical areas, particularly infrastructure.

Not only there has to be a plan of action to achieve desired objectives, but a central agency with the requisite expertise is also needed to draw up the plan and set the parameters to guide action in all sectors. An agency is needed also to harmonise and/or coordinate the plans of different ministries and government agencies and monitor results. The Planning Commission was created in 1950 to perform precisely these tasks.

Another function of planning is “prescriptive”, that is, influencing the behaviour of both public and private agents to serve public goals through “prescription”, such as by suggesting appropriate tax policy and measures to create incentives for economic agents to save and invest, to protect the environment, promote employment, ensure the smooth functioning of the common market, and so on. Our Five Year Plan documents are replete with “prescriptions” embracing almost all fields of social and economic policy. That they have not always been heeded is another matter. But the Planning Commission can make a valuable contribution in this regard, such as by spelling out the choices in critical policy issues like in goods and services tax.

That planning can be helpful in a market economy by providing “indication, coordination and prescription” has been acknowledged even in countries avowedly market-oriented, like Korea and France. However, there can be no gain-saying that planning in a largely market-driven economy cannot proceed on the same footing as in an economy that is heavily controlled by the state. In the Indian context, this implies that there has to be a clear shift in the focus of planning now as compared to the past.

The three Five Year Plans that have come out in the post-reform era, i.e., ( the Eighth. Ninth and Tenth), especially the last two, took cognizance of the changing environment and sought to evolve a new method of investment planning for the public sector. The sectoral investment targets for the economy were worked out based on the targets of output growth and Incremental Capital-Output Ratios (ICORS), but the targets for the government’s sectoral investments were derived residually from the desired investment programme after estimating the likely pattern of private investment and assessing the likely investment by the states (Tenth Plan). The exercise had its limitations and this was duly acknowledged in the text of the Plan but it was believed to serve a useful purpose as an indicator of the likely investment requirements of various sectors and the gaps in resources sector wise. This indeed is akin to “indicative planning” and retains its value even in a market economy.

To sum up, if public resources are to be used optimally to advance the growth and welfare of citizens, planning is needed even in a market economy. However, as already stated the function of planning in a predominantly market-driven economy has to be indicative, coordinative and prescriptive. There is also a need for a central agency to perform these functions. That justifies

for India’s Planning Commission to engage in the task of preparing development plans for the economy periodically even after liberalisation. However, with control over investment in the private sector beyond its purview, such planning can at best be indicative.

Planners in India seem to be well aware of this reality. The Five Year Plans now drawn up seek to provide an indicative path of development by setting out the imperatives for alternative growth scenarios in terms of macro variables like saving and investment (broken down under public and private), current account balance, projected government revenue and expenditure, and so on. However, the plans also provide requirements of investment for the centre sectorally worked out through elaborate exercises done by working groups set up specifically for the purpose. Even if these exercises are left to be undertaken by the ministries, it would still be necessary for an agency like the Planning Commission to integrate and coordinate the plans of different ministries and undertakings of the central government and bring them in line with the medium and long-term goals while keeping within the budget constraint. However for coordination to be meaningful, budgets must be tailored to the Five Year Plan by appropriate yearly phasing of outlays planned. That calls for moving over to a system of multi-year budgeting on a rolling basis. This has acquired urgency in the context of resource constraints imposed by the fiscal responsibility laws.

The Planning Commission also performs a prescriptive function by making recommendations covering a wide area of public policy. There are several other agencies as well to make policy recommendations to the government, like the Reserve Bank of India, the Economic Advisory Council to the Prime Minister, and the think tanks’ financed by the government. Even so, there can be a prescriptive role for the Planning Commission but there should be better networking among these agencies. The interface between the Planning Commission and the Ministry of Finance, in particular, should be strengthened if the Five Year Plans are to be made operational.

2. Redefining The Role Of State

Redefining the role of the Government to reflect the changed circumstances facing the economy must be an important aspect of future strategy. This redefinition is necessary both at the Central Government level and also at the State Government level.

According to Kaushik Basu, “there is need now for India to move more strongly forward with the reforms, allow private firms to enter sectors earlier kept reserved for state-owned enterprises (this is more important than privatisation), open the economy further, and, in particular, allow Indian companies to go for larger acquisitions abroad. But one must be aware that there are no panaceas in economic policy. One has to be prepared for flexibility, to experiment with policy but be ready to adjust, alter, and on occasion even do a V-turn, depending on the evidence coming in. To stick with one policy, unbendingly, is to make the same mistake of policy stubbornness that led India to its present predicament.”

3. The Government, The State And The Market

Although the competing virtues of the market mechanism and governmental action have been much discussed, the comparative merits of the two forms of economic decision are so thoroughly context-dependent that it makes little sense to espouse a general ‘pro state’ or ‘pro market’ view. For proper understanding, the distinction between the state and the government may be of some significance. The state is, in many ways, a broader concept, which includes the government – the legislature that votes on public rules, the political system that regulates elections, the role that is given to opposition parties, and the basic political rights that are upheld by the judiciary. A democratic state makes it exceedingly difficult for the ruling government to be unresponsive to the needs and values of the population at large.

There is close interdependence between markets and governance. In practice and successes of the market, the mechanism can be deeply influenced by the name deeply influenced by the nature of governance arrangements and actions that go with it As Basu puts it “there is no escape purposive, intelligent action from government. Government or good governance, is a concomitant of efficient markets, not a substitute”.

‘Markets can hardly function in the absence of legal provisions and justifiable rights to properly and contractual entitlements. The disastrous results of indiscriminate liberalisation and wholesale privatisation in Russia in the 1990s illustrate the penalties of ignoring the basic recognition that the effective functioning of the market mechanism is highly contingent on adequate institutional foundations.

Also, the government may have a major role in initiating and facilitating market-reliant economic growth. We have examples of such successful capitalist countries as Germany and Japan. More recently, the role of the government has received much attention in interpreting the so-called ‘East Asian miracle’ -the remarkable economic success of the newly industrialising countries in East Asia (in particular South Korea, Taiwan, Hong Kong, Singapore, and more recently China and Thailand). 

Public debates-in India as well as elsewhere-are often dominated by one-sided presentations, reflecting either uncritical faith in the market or blind opposition to it. Indeed, there are signs of both ‘market mania’ and ‘market phobia’ in the sharp exchanges that characterise debates on this subject.

Market mania involves complete faith in the efficiency and other virtues of the market, regardless of context. It calls for indiscriminate deregulation and privatisation. Market mania played a role in Russia’s rush towards a market economy in the 1990s with its catastrophic results.

In India, a common form of market mania is the notion that radical deregulation is all it would take to ‘kick-start the economy. This belief according to Dreze’ and ‘Sen’is naive in several ways. First, it is based on a narrow reading of the impediments that are holding the Indian economy. The relevant failures go much beyond a lack of market incentives, and also include widespread. illiteracy and undernourishment, inadequate infrastructure, the paralysis of the legal system, endemic corruption, dismal public services, to cite a few concerns. Market mania overlooks the lack of preconditions in the Indian economy for the kind of take-off that has followed market-oriented reforms in countries such as China and Vietnam.

There is a deep complementarity between market efficiency and State action. The performance of the market is highly contingent on various forms of State action, from the provision of an adequate legal framework to redistributive policies, One implication of these complementarities is that liberalisation does not necessarily diminish the importance of state action:

This applies even to the regulation itself, in so far as a relaxation of one type of rules often calls for developing new rules of a different type. For instance, allowing private entry into new sectors (such as medical insurance or electricity distribution), which may be considered as a form of deregulation, calls for an adequate overseeing framework, especially if these sectors have features (e.g. economies of scale, information asymmetries, pervasive externalities) that interfere with the efficiency of the market mechanism. Even in western ‘market economies, including the United States, this necessity is well recognised.

4. Cooperative Action

Besides State intervention and the market mechanism, there is the third alternative way of coordinating economic activity i.e. cooperative action.

The development itself opens up new opportunities for social cooperation. The recent expansion of cooperative action on a global scale (involving concerns such as environmental protection, the debt crisis and world peace) is one example of this process.

Just as the State and the market are highly complementary institutions (even though they are often seen in antagonistic terms), a similar relation holds between cooperative action on the one hand and the State or the market on the other. In a democratic society, the priorities and actions of the State depend on organised public demands and other aspects of a broad political process in which cooperative action plays a crucial part. Conversely, what cooperative action can achieve depends to a considerable extent on the opportunities created through State action, e.g. the level of education in the community, the accountability of government institutions, and the legal framework of civic associations.

Thus, cooperative action and market institutions are often compatible or even complementary. For instance, the efficiency of the market mechanism can be greatly enhanced by cooperative social norms that reduce so-called ‘transaction costs. Indeed, markets can flourish more easily when contracts are not typically broken and do not have to be rescued by litigation.

According to Dreze and Sen, the tendency to concentrate on the negative roles of government has contributed to another bias in the liberalisation debate, namely, the neglect of what can be achieved through cooperative action. This neglect is particularly serious if we acknowledge the wide-ranging nature of the reforms that are required in India, not only in economic matters but also in the social and political domains. There is an urgent need not only for more efficient and equitable economic institutions but also for uprooting corruption, protecting the environment, eradicating caste inequalities, preventing human rights violations, restoring the credibility of the legal system, halting the criminalisation of politics (to cite a few major concerns). These different fields of reforms are no less important than the kinds of ‘economic reforms’ that have captured most of the attention in the 1990s. They are indeed best seen in an integrated perspective, where the promotion of human freedoms (rather than just the acceleration of economic growth) is the overarching goal. In that perspective, cooperative action acquires new importance, in so far as it has a major bearing on many of these broader fields of economic and social life where reform is needed. To illustrate, eradicating corruption or protecting the environment are not just matters of sound government policy; they also involve cooperative action of various kinds e.g. public vigilance against bribery and community management of local environmental resources.

According to Dreze and Sen, the liberalisation debate in India in its present form is too narrow in at least three respects:

  1. over-concentration on the negative roles of government,
  2. over-preoccupation with narrowly ‘economic’ reforms, and 
  3. neglect of the role of cooperative action in economic and social reform.

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