Do more money transfers through Finance Com
With the government not appointing new members to the Planning Commission (PC), this adds another first to finance minister Arun Jaitley’s maiden budget—apart from being the first to be readied without a chief economic advisor, it is also going to be the first without a PC to advise on the transfer of funds to states through various Plan schemes. Since the interim budget presented by the UPA government has already gone through the exercise for FY15 that in itself won’t present too much of a challenge since, by and large, Jaitley’s budget can stick to the interim budget’s suggestions—if there is some tinkering to be done, it can be done by the finance ministry bureaucrats, though the lack of continuity here also presents its own level of challenge.
Part of the reason for the government not being in a hurry to appoint a new PC, of course, stems from not just prime minister Narendra Modi’s discomfiture with the body, but that of various BJP chief ministers as well. In several meetings of the National Development Council, Rajasthan chief minister Vasundhara Raje has flagged the issue of ‘tied aid’, where the PC decides on various schemes—if the states want access to the funds under a roads scheme, for instance, they simply have to build roads; and, usually, on the basis of a uniform centrally-directed format as well; the formats, it has to be said, are less to do with the PC as they are to do with line ministries that want to retain control. In addition, given how so many Plan targets have fallen by the wayside, it is easy to argue that, since planning has achieved little, it is better to give it up.
Seductive as the statements are, they need to be tempered. There is, of course, a case for stopping tied aid via the PC—as Modi has said during his campaign, if states want to spend on irrigation, why should the Centre release funds only for roads? Estimates are around 25-30% of Central net tax revenues are transferred to states via conditional transfers. Why not let the allocation be flexible? The best way to give states more flexibility is to transfer more funds on an automatic, or Finance Commission-basis, and that is already happening. From 45% in FY96, over 60% of all funds transferred from the Centre to the states are based on the Finance Commission (FC) formula—Modi can easily ask the current FC to hike this. But since there is a need to take a longer look at issues like energy security, for instance, there is a need for a PC-type perspective planning body that does this on an ongoing basis, and examines ongoing projects across ministries. To the extent Plan targets get missed, that is more a problem of governance—not opening up the coal sector, for instance—and less a problem of poor planning. In other words, a Planning Commission is required, but of a very different type.