National Planning: Models and Empirical Research

The Planning Commission (PC) was established in March 1950 by a resolution of the Central Cabinet, very soon after the coming into force of a Constitution for India as a Union of States and Union Territories on January 26, 1950. Unlike the Finance Commission (FC) and the Office of the Comptroller and Auditor General (CAG), both of which are mandated by Articles of the Constitution, the PC is not mentioned in any article of the Constitution. For this reason, its jurisdiction and power from a constitutional perspective, de jure, are presumably subsumed under those of the central government in the constitution. Although the Cabinet Resolution designed the PC only as an advisory body, and there is, as far as I know, no explicit delegation to the PC of any of its powers by the Central cabinet. The PC has, however, defacto come to exercise enormous power in the decisions of resource allocation of the Central and State governments.

A consensus across the political spectrum on Planning for National Development with the state playing a major role in the Indian economy had emerged in the pre-independence era in anticipation of independence. This is clear from the pre-independence reports of the National Planning Committee of the Indian National Congress, appointed in 1938 by Subhash Chandra Bose, President of the Congress and chaired by Pandit Jawaharlal Nehru (IIAPR 1988), the group of Bombay businessman with their Bombay Plan (Thakurdas et al. 1944) and trade union leaders with their People’s Plan (Baneijee et al. 1944) have also played a vital role in this context. Notable exception from the consensus was the followers of Mahatma Gandhi. Their conception of planning was of a (largely self-sufficient) village-based process with industrial enterprises as mostly village-based labour-intensive handicrafts, cottage industries and the few large enterprises run as trusts, by the entrepreneurs as trustees of the capital they managed (Agarwal 1944). Even the Colonial Government had established a Planning Board to formulate economic plans after the end of the Second World War. The cabinet resolution establishing the PC in 1950 refers to the pre-independence consensus on planning.

The First Five-year Plan of the post-independence PC covered the fiscal years 1950-51 through 1955-56, consisting primarily of the projects that were being considered for implementation by the Colonial Planning Board. It is only in the Second Five-year Plan onwards that a forward-looking analytical foundation for planning was laid with an overall approach and a detailed strategy of targets for investment as well as production. This foundation and its Development Strategy were authored by Professor P.C. Mahalanobis. His independently formulated two sector analytical model, which had been originally derived by Grigori Feld’man in 1928 for the Soviet Union played an enormous role: It would be no exaggeration to say that the strategy of development articulated in the second five-year plan was followed until the reforms of 1991. Vestiges of it continue since the reforms did not abolish or replace the PC.

Mahalanobis was formally made a member of the PC in 1953. To assist him he established the Planning Unit of the ISI at New Delhi as mentioned earlier. At the same time there was a Planning Division at the main campus of the Institute in Kolkata. A series of Working Papers, if I remember right, with the title Studies in Planning for National Development was also started. There were several pioneering theoretical and empirical studies in the series including one on the first input-output table for India, and others, on empirical estimates of aggregate consumption function and also on household consumption expenditure patterns. Another feature of the empirical research at ISI emanated again from Mahalanobis, namely, the importance of cross-checking sources of data prior to their use in analysis. In particular cross checking of the consumption expenditure data from the National Sample survey with the corresponding estimates from the National Accounts Statistics (NAS) Division of the Central Statistical Organization (CSO) were part of the series of Working papers. Some of these papers have been reprinted in Deaton and Kozel (2005). The research of the planning units in Delhi and Kolkata served as inputs into the planning models that were put together, particularly at the planning unit in Delhi by the late Professors Ashok Rudra of ISI and Alan Manne of Stanford University, and others.

Mahalanobis’ emphasis on the cost-efficiency of well-designed sample surveys for estimating crop areas and output went back to the early days after the founding of ISI in 1931. After independence National Sample Surveys (NSS) had been established in ISI and a round of successive socioeconomic surveys was started by NSS. Mahalanobis was also involved in the establishment of CSO and also chaired the First National Income Committee. As chairman of the United Nation’s Statistical Commission, Mahalanobis was instrumental in the formulation of the UN System of National Accounts.

Initially both the design and field divisions of NSS were in ISI and later the field division was shifted to government as part of its National Sample Survey Organisation (NSSO). The Sampling Design Division of ISI and NSSO worked in close collaboration. The analytical contribution of ISI on design of and estimation from a large-scale sample survey is also very well known. Indeed the fact that India is recognized as the global pioneer in the design and execution of large scale socioeconomic Surveys and their analyses is largely due to Professor Mahalanobis and ISI founded by him.

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