Seven Decades of Independent India

by Vinod Rai

  The Eighth Plan was overtaken by the foreign exchange crisis of 1991 triggered by the Gulf War, and the economic reforms that came in its wake. The dramatic events and policy initiatives of the two-year plan holiday period between 1990 and 1992 demanded a full reappraisal of the planning methodology. The Eighth Plan represents the first efforts at planning for a market-oriented economy. Although the shift in planning did not entirely take place, the economy performed unexpectedly well, recording an average annual growth rate of 6.7 per cent.10 However, the Planning Commission could claim little credit for this performance.

  The growth momentum could not be maintained in the Ninth Plan, even though the planning methodology had adjusted to reflect the new conditions. It recognized that private investment was central to attaining Plan targets and was driven by the functioning of the financial sector of the country. For the first time in Indian planning, the financial sector became an integral part of the Plan. This added a fourth constraint —the financial constraint—which is quite distinct from the savings constraint. It recognizes that weaknesses in the financial sector can potentially prevent the economy from absorbing investible resources available.

  The other critical point about the Ninth Plan is that again, for the first time in the Indian planning history, it recognized the possibility that demand rather than investible resources could be the main constraint to growth and, as a consequence, fiscal policy needed to be brought into the planning framework rather than being left entirely to the finance ministry.11 The warning was not heeded by the economic administration in the country. Pressures of fiscal rectitude following implementation of the Fifth Pay Commission award led to a sharp reduction in public investment for the Centre and states, precipitating a cyclical economic downturn. Agricultural failure in three out of the five years exacerbated the problem with tight monetary measures for checking inflation adding to fiscal pressures.

  Recovery and Relapse

  The Tenth Plan marked the return of visionary planning to India after a long period of incrementalism. It sought to double national per capita income and create a hundred million jobs in the next ten years. These targets were largely motivated by the emerging demographic pattern. The single biggest challenge to Indian planners and policymakers at least for the next two decades would be to provide employment to a labour force growing faster than ever before. Demographic projections indicated that although there might be a reduction in the rate of population growth, the growth rate of the working-age population had peaked during the Ninth Plan period at about 2.4 per cent per annum and would decline only gradually thereafter. The growth rate of the labour force, however, was likely to be slower at 1.8 per cent per annum, but this needed to be seen against the past record in creation of work opportunities. During the eighties and early nineties, the average rate of growth of employment—a proxy for work opportunities—had been around 2 per cent per year, but dropped sharply to around 1 per cent during the latter part of the nineties. Therefore, if the immediate past trends in work creation continued into the future, the country faced the possibility of adding about 2.5 million people to its unemployed each year. Such a situation was clearly insupportable.12

  It was further realized that creation of work opportunities in the macro sense in itself may not solve unemployment and poverty. Since the growth of the labour force was regionally uneven, the spatial pattern of creation of work opportunities became extremely relevant. It would have been naïve to believe that there were no barriers or costs to large-scale internal migration. This confluence was a planning issue, which could not be left entirely to markets. It was noted that there would always be a tendency for private investment to move to developed regions, which would accentuate regional disparities. Unless public intervention, particularly in infrastructure, could redress the initial imbalance, matters would become progressively worse.13 Therefore, the Tenth Plan emphasized regional balance and for the first time had a separate plan document on states.14

  The Eleventh Plan too was visionary in a different way: it introduced the concept of ‘inclusive growth’.15 Along with concerns on employment and infrastructure,16 it focused on human resources, especially health and skill-development. The prescience of this became evident during the course of the Plan. As the economy accelerated to a 9 per cent growth trajectory, skill shortages emerged in almost all sectors other than agriculture. By the middle of the Plan it was clear that skills, and not investible resources, had become the binding constraint on the economy, and would remain so for the foreseeable future. On the other hand, underemployment of the unskilled or semi-skilled labour continued to pose challenges. Thus, increasing alternative work opportunities in rural areas was a key element of the Plan.17 But the objectives also led to a sizeable increase in the Centre’s involvement in state matters. The Plan was also overtaken by global events. The global financial crisis of 2008–09 and the severe drought of 2009 took their toll. Although the economy recovered fairly rapidly, the growth momentum had been damaged. In addition, the success of the Tenth and the early years of the Eleventh Plan in raising the growth rate of the economy and incomes of the rural poor led to a sharp increase in demand for non-cereal foods. Since the supply response was inadequate, food inflation accelerated and continued to remain in double digits.

  Therefore, the Twelfth Plan was not framed under favourable circumstances. The global economy was slow in recovering and the Indian economy too had lost its momentum. Corporate investment, which had led the high growth performance of the Tenth and Eleventh Plans, was floundering for several reasons, including tight monetary policy and regulatory bottlenecks. By now it was clear that the Indian economy was substantially integrated with the global economy and its growth path could no longer be viewed independently of international developments. The Plan, therefore, was less about new initiatives and more about bringing coherence in the development policy environment. Its basic premises remained more or less the same as that of its predecessor with focus on the measures necessary to improve the impact of initiatives.

  The Path to the End

  The national planning experience in India is most instructive in terms of the processes that were employed and their impact on the resentment that built up across a range of stakeholders. The Second and Third Plans had very little by way of consultations, but that did not really affect ownership or accountability since there was a very high level of decentralization. The plans scrupulously stayed away from areas in the domain of the states. They were also not overly prescriptive with regard to the domains of most Central ministries other than laying down the broad contours of policy. In view of the limited coverage of these plans, both the information and the feedback needs were relatively modest and could be obtained without any great information flow from the subordinate units.

  The downside of this hands-off approach was that since each state was left to its own devices without any real central guiding principle, they formulated their own plans independent of each other. The net result was a wide array of development experiences across the states of the country, leading to increasing divergence between them. The second problem was that there was no rational basis for the Centre to determine the amount of central funds to be allocated to each state for their development needs. This led to a certain degree of resentment among states that accused the Centre of allocating funds on a political basis rather than on any objective economic or development criteria. This was despite the fact that the Centre and almost all states were governed by the same political party until the early seventies. Matters worsened subsequently as more states came under other parties.

  This arms-length arrangement began to change from the Fourth Plan and gained momentum from the Fifth. In the forty years since, the encroachment of the Centre into domains of the states has increased progressively from agriculture to social protection (anti-poverty programmes) to a wide variety of social services. As a consequence, the national plan increased steadily in both scope and level of detail.18 Correspondingly, the
planning process too became increasingly elaborate and complex. In particular, formal political consultations became necessary. This was carried out through meetings with state governments usually led by the chief ministers. The main consultation was on ‘the Approach Paper to the Plan’. The Approach Paper and the final plan document were placed before the National Development Council (NDC)—headed by the prime minister and including the Union Cabinet and all state chief ministers—for approval, at which time the political leadership in principle could demand changes in these documents.

  This procedure could have elicited a fair degree of buy-in, provided that the follow-up processes were better. As things stood, state-level consultations were meticulously documented, but no feedback was ever provided on which suggestions were accepted and which were not, along with appropriate justification. States, quite rightly, felt the consultation was merely a façade for the Centre to do as it pleased. The NDC meetings were even more pro forma with the states convinced that their views did not count. The decentralization process progressively worsened over the years and steadily eroded the degree of buy-in, first among states and then even among the ministries. Its effects on accountability were even worse. Originally, the Centre transferred a block grant to states for development purposes, which was used by the latter to fund programmes designed and implemented by them.19 Later, carve-outs were made from the total state allocations for specific purposes of national importance, with the design and implementation left to the discretion of the state governments. Up to this point, there was considerable ownership of the Plan by the states despite reservations on consultation. This began changing from the Fifth Plan with Central ministries becoming more involved in matters belonging to the domain of the states through Centrally Sponsored Schemes (CSS) implemented by the states but partially funded by the Centre.20

  Initially, the CSS were designed by the Central ministries. The unified designs were then imposed on all participating states. States resented the imposition and had little accountability for failure of the CSS. To make matters worse, the CSS reduced funds available for states from the Central allocations, as well as the amount available from their own funds. This was yet another blow to ownership by the states and a source of even greater resentment. Given the complexity that was introduced by the CSS, which at their peak numbered more than 350, the state governments, usually led by their chief ministers, had to come to the Planning Commission to finalize the state plans. This was quite rightly considered humiliating by state politicians and gave rise to a deep-seated anger amongst them.

  During this period, the Planning Commission did not interfere with the design and implementation of the CSS, except to undertake cost-benefit appraisal of the proposed project. This approach ensured that there was full ownership and accountability of the schemes, at least in the Central ministries. Later, however, the Planning Commission also began interfering with the design of the CSS. This was the kiss of death, since it removed both ownership and accountability among not only the states but also the Central ministries. To a large extent, the eventual demise of the Planning Commission was probably the outcome of this over-reach, since it led to widespread resentment in all other tiers of government.

  Rise of the Phoenix

  One of the earlier acts of Prime Minister Narendra Modi, who carried his resentment as a state chief minister to New Delhi, was to announce the dissolution of the Planning Commission and its replacement with a new entity—the NITI Aayog.21 The intent was made amply clear—old-style Central planning was out; a new-style reforms agenda was in. With this step, India, supposedly the world’s last surviving bastion of Central planning, would join the rest of the world in embracing a market-led process of growth and development. It was, however, quite clear even at the outset that the NITI Aayog would eventually have to be mandated to develop a formal strategic plan for the country, even though the nomenclature may be changed.22

  The NITI Aayog has been entrusted with developing a fifteen-year vision, a seven-year strategy and a three-year implementation framework. Although the term ‘plan’ is scrupulously avoided, it is quite obvious that planning is back. This is a good thing. After all, the principal function of planning is to evolve a shared commitment to a common vision and an integrated strategy among all stakeholders. No development strategy can be successful unless each component of the system works towards a common purpose with the full realization of the role that it has to play within an overall structure of responsibilities.23 The NITI Aayog mandate meets this requirement, but the devil is in the details.

  IX

  Will India Ever Be a Great Power?

  Sumit Ganguly

  Since its emergence as an independent state from the collapse of the British Indian Empire, many of India’s policymakers have harboured the hope that the country will eventually achieve the status of a great power. This chapter will first provide a brief historical overview of India’s quest for a great power status, and then take stock of the country’s current domestic institutional capabilities. Finally, it will conclude with a brief discussion of India’s prospects as a great power.

  Nehru’s Quest

  There is little or no question that the country’s first prime minister, Jawaharlal Nehru, entertained this aspiration. Nehru, of course, did not seek this pathway through the acquisition of military capabilities but instead focused on building the sinews of heavy industry at home and through the pursuit of an ideational world order abroad.

  His emphasis on industrialization stemmed from his admiration of the Soviet Union’s success with forced-draught industrialization albeit without its highly repressive features. The pursuit of a global order based on multilateralism and a rejection of power politics can be traced to two different sources. At one level there is little or no question that Nehru was convinced that a new global order, one that eschewed the use of force, promoted decolonization and reduced global inequalities, was a moral imperative. At another level, it can also be traced to a concern about the opportunity costs involved in diverting the scarce resources of a poor country to military expenditures. Furthermore, he had genuine fears about the possibility of Bonapartism—a hardly unreasonable misgiving given the fate of so many states that emerged from the end of colonialism, including Pakistan.

  Nehru’s emphasis on industrialization laid the foundations for a modern Indian economy.1 However, it abjectly failed to promote significant economic growth or dramatically reduce poverty. His internationalist focus, especially under the aegis of the Non-Aligned Movement (NAM), did raise India’s profile in global affairs. More to the point, the country played a significant role in promoting international peacekeeping, in placing nuclear disarmament on the global agenda and in promoting decolonization. None of these were trivial achievements given India’s lack of material power.

  Sadly, the significance of material capabilities was underscored when the country faced a military onslaught from the People’s Republic of China (PRC) in 1962 and confronted a complete rout. Few, if any members of the NAM, came to India’s assistance. The great powers, which had been subject to India’s stinging criticisms at various international forums on a range of issues, expressed no great sympathy for India’s plight. For example, both the United Kingdom and the United States only provided modest amounts of military assistance. Worse still, they exerted pressure on India to settle the Kashmir dispute with Pakistan on terms favourable to India’s adversary.

  India after Nehru

  In the aftermath of the 1962 war and Nehru’s death, India’s great power aspirations were effectively set aside. The most important change that the war engendered was the much-needed modernization of the Indian military. However, even as this process was belatedly under way, the country had to cope with another war of aggression as Pakistan launched a second war in 1965 over the disputed state of Kashmir. Nehru’s successor, Prime Minister Lal Bahadur Shastri, ably coped with the crisis. He also took the decision, shortly after the 1964 Chinese nuclear test, to authorize the
Subterranean Nuclear Explosions Project (SNEP) that eventually culminated in the first Indian nuclear test of 1974. However, Shastri was not in office long enough to pursue any other significant initiatives at home or abroad. Those tasks fell to Nehru’s daughter, Indira Gandhi, who inherited his mantle of leadership following Shastri’s demise in 1966.

  It is possible that Indira Gandhi shared her father’s vision of establishing India as a great power. However, more pressing domestic issues, including the possibility of a looming famine in 1966, consumed most of her energies in the initial years in office.2 Subsequently, especially after orchestrating a dramatic military victory over Pakistan in 1971 she did try to raise India’s global profile. To that end, India became one of the most vocal exponents of the New International Economic Order (NIEO). This effort, which was launched at the United Nations General Assembly (UNGA), sought to bring about a radical redistribution of global resources and to restructure the global economy for addressing extant North–South disparities.3 In the end, despite its grandiloquent goals, it accomplished little. Indeed its effects had perverse consequences for both growth and equity in the global south and certainly did little to enhance India’s stature in international affairs.

  Indeed, during much of her tenure and that of her son and successor, Rajiv Gandhi, India could neither address critical problems of domestic poverty nor assert itself as a significant global presence. At home, the country witnessed mostly anaemic economic growth and abroad, its role was largely confined to grand rhetorical flourishes. Its failure to address domestic poverty, its limited significance in the global economic order and its lack of substantial military capabilities effectively reduced its status to that of a marginal actor in global affairs. India’s policymakers may have chafed at the country’s limited role in international politics but they lacked the wherewithal to make a meaningful difference.