'Planning Commission should be reconstituted'

New Delhi, Aug 30: Former special advisor to the Development Research Centre at the World Bank Dr T N Srinivasan has recommended reconstitution of the Planning Commission as a Public Investment Bank and creation of a Fiscal Review Council.

Dr Srinivasan says that the Fiscal Review sould have representation at the highest level by the Centre and States for Indian fiscal system.

Delivering a talk on ''Economic reforms in India and China'' at Management Development Institute in Gurgaon today, he said the new system would be a forum in which States would have an opportunity, not only to review each other's fiscal policies but also those of the Centre.

Dr Srinivasan is a Senior Research Fellow in Stanford Centre for International Development and a professor of Economics in Yale University in the United States.

He held that rationale for the traditional five-year and annual plans no longer exists though the need for public investment by the Centre, States and even local bodies in crucial sectors remains.

He stated that the economic and political environment of India in 2007 is vastly different from that in 1950 when the constitution was adopted and the Planning Commission was established.

For example, coalition governments at the centre and caste/region-based parties did not exist then. The consensus then on the need for planning a dominant economic role of the states and insulation from world markets no longer exists.

The constitutionally specified system of political and economic management has become anachronistic and has to be reformed, he said.

Prof Srinivasan observed that India and China have been the two fastest growing major economies of the world. In both these countries, growth acceleration has been along with economic reforms and external openings, aided by the global economic environment in terms of falling world interest rates, inflation and growth volatility.

Comparing the two countries' economic progress patterns, Dr Srinivasan said, in India rapid growth was never viewed as having an intrinsic value in and of itself, but only as the primary instrument for elimination of mass poverty.

The growth envisaged was always inclusive. However, the failure of planning did not lie in not having a vision of inclusive growth but of delivering it.

During 1950-80, planning did not deliver rapid growth - per capita GDP grew at 1.25 per cent per year - and did not make any dent on national poverty.

In China, economic development was largely driven by Communist ideology till the economic reforms of 1978. India's per capita income was around 25 per cent higher than China in the early 1950s.

It was Deng Xiaoping who had a vision of a Xiaokong Society where widely shared economic well-being went hand in hand with social harmony. Inclusiveness as exemplified in the Xiaokong society seems to be the buzzword now in both India and China.

India had no obvious economic pressure for reforms from any part of the polity or society during the period from 1950 to 1980. Even the severe macroeconomic and balance of payments crisis in 1966 failed to bring about any long-standing reform.

Although former Prime Minister Rajiv Gandhi experimented with relaxing a few restrictions on trade and investment, there were no systemic reforms but only ad-hoc piecemeal ones, he said.

It was only in 1991 that Indian policy-makers realised the importance of systemic reforms. There are two possible reasons for this.

First, the bankruptcy of Soviet-style economic planning which was India's model since the 1950s, had formally been revealed by the collapse of the Soviet Union in 1991.

The second was the phenomenal growth of China since its reforms of 1978. The fear of being permanently left behind by China with whom India had fought and lost a border conflict in 1962 was extremely unpalatable.

Thus, the reforms of 1991 were born.

Dr Srinivasan said, the major challenges facing the Indian economy are to revive the reform process in areas where it appears to be stalled, and complete it in others.

Among the latter, fiscal consolidation is extremely important.

Trade barriers need to be brought down significantly, and better management of SEZs is also required. A major challenge is to transform India's poor investment climate into a more salubrious one.

Reforming the agricultural sector, achieving rapid growth of the manufacturing sector and improving infrastructure are other challenges that the country faces.

UNI