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Mainstream, VOL LIV No 26 New Delhi June 18, 2016

From Planning Commission to NITI Aayog: End of Nehruvian Legacy Challenges Ahead

Saturday 18 June 2016




However expensive and expansive a building may be, it gets old and dilapidated with the passage of time, with the plaster peeling off and the roof on the verge of carving in, endangering the lives beneath it. The same was the case with the Planning Commission or Yojana Aayog, the prestigious institution that stood tall amid all policy-making institutions for a long period of 65 years. Indeed, the Planning Commission was the brainchild of Pandit Jawaharlal Nehru, and it was the descendant of the National Planning Committee that Subhas Chandra Bose had set up at the suggestion of Meghnad Saha when he was the Congress President in 1938. Nehru was made its President. Two subsequent plan proposals were floated, one the Bombay plan prepared by the city’s industrialists and the People’s Plan modelled after the Soviet plan by M.N. Roy. The influence of Fabian collectivism and Soviet-style planning were writ large when independent India adopted a formal model of planning by establishing the Planning Commi-ssion on March 15, 1950 with the Prime Minister as its Chairman. The first of the Five-Year Plans was launched in 1951. Despite the economic liberalisation in 1991, the Planning Commission continued but since 1997, there was the realisation that planning ought to be indicative in nature.

However, in line with the Government of India’s approach of less government and a move away from centralised planning, the NITI Aayog with a new structure and focus on policy, will replace the old Planning Commission, that has seen the ups and downs of the Indian economy. Nevertheless, while the working of the earlier plan body showed up shortcomings from time to time, it did sterling work from bottom up. It mapped the resources available in the country and pointed to the need for developing the physical and social infrastructure in an extremely poor society by sending resources in the direction in which they were needed.

The replacement of the Planning Commission with a new institution, more relevant and responsive to the present economic needs and climate in the country, had long been demanded and expected. This is not the first time that a government has been dismissive of the Commission. In fact, the utility and relevance of the Planning Commission had been questioned for long. Once Rajiv Gandhi had called the Commission members ‘a bunch of jokers’. But, he stopped short of dismantling it. On the other hand, former Deputy Chairman of the Planning Commission K.C. Pant and even Dr Manmohan Singh made some attempts to explore changes. It was in 2009 that Dr Singh had alluded to the Planning Commission having outlived its utility and lost relevance in the present-day require-ments of the country in the global context and asked the members to consider changes to make it more relevant. A year later, Arun Maira, a former member of the Planning Commission, recommended the changes in its structure, role, functions and resources. Maira, who headed the Boston Consulting Group (BCG) in India, reveals that in 2012, a Parliamentary Standing Committee also gave a report which said that it was time for an independent evaluation of the functioning of the Planning Commission. From a highly centralised planning system, the Indian economy is gradually moving towards indicative planning, since the advent of the Eighth Five-Year Plan, where the Commission’s role is changing gradually.

Side by side, it is well known that the Prime Minister, Narendra Modi, was at loggerheads with the erstwhile Yojana Aayog when he was the Chief Minister of Gujarat—a leading industrialised State of India. He has always criticised the role of the Yojana Aayog for its high-handedness in disbursing grants to the States. Invoking the words of national and spiritual leaders, including Mahatma Gandhi, Swami Vivekananda and B.R. Ambedkar, Modi tweeted on January 1, 2015 wherein he announced: ‘‘Through the NITI Aayog, we bid farewell to a ‘one-size-fits-all’ approach towards development. The body celebrates India’s diversity and plurality. The Aayog will foster a sprit of ‘cooperative federalism’ with the sole principle of developing a pro-people, pro-active and participative development agenda stressing on empowerment and equality.” His dissent was also echoed by the Chief Ministers of other States from time to time though largely from the Opposition-ruled States. But with the new structure and role as evident so far, it appears that the creation of the NITI Aayog is more of the old wine in a new bottle with some cosmetic changes.

Section —I

NITI Aayog : Conceptual Understanding

In Sanskrit, NITI can mean morality, behaviour, guidance, politics, management and a dozen of other things. But, in the present context it means policy. On August 13, 2014 the Union Cabinet approved the repeal of the Cabinet resolution dated March 15, 1950 by which the Planning Commission was set up. NITI stands for National Institution for Transforming India. In countries such as the USA, think-tanks that function independently of the government have a major role in policy-making. In India, too, there is a great deal of economic activity that happens outside the government set-up, and there is a need to design policies for them as well.

The government plans to adopt a ‘Bharatiya’ approach to development. India needs an administration paradigm in which the govern-ment is an enabler rather than a provider of the first and last resort. The institutions of gover-nance and policy have to adapt to new challenges and must be built on the founding principles of the Constitution. There is a need to separate the planning process from the strategy of gover-nance. Transforming India will involve changes of two types like consequences of market forces and those that would be planned. The maturing of our institutions and polity also entails a diminished role for centralised planning, which itself needs to be redefined. A state-of-the-art resource centre for good governance practices is also proposed.

The reborn and rechristened entity will be the ‘Policy Commission’ for India to achieve its economic potential. This is where the role of the Vice-Chairperson—who will carry the Cabinet Minister’s rank—is crucial. The Vice-Chairperson of NITI Aayog will have access to the Prime Minister, its Chairperson, and may thus have a realistic possibility of helping to shape the agenda. The name NITIAayog has both institution and commission in it. While Aayog stands for ‘commission’, one of the ‘I’s in NITI is for institution. The penchant for catchy abbre-viations seems to have overlooked the oddity. Now, either it is a commission or an institution. Though, both terms can be interchangeable, yet in that case, one of them would be redundant.

Section — II

Rationale for Setting up the NITI Aayog 

According to the Cabinet resolution passed on January 7, 2015, the rationale for setting up the NITI Aayog is that the people had great expectations for progress and improvement in governance through their participation. This required institutional reforms in governance and dynamic policy-shifts that could seed and nurture large-scale change. The destiny of our country, from the time we achieved Indepen-dence, is now on a higher trajectory. The argu-ments for setting up the new body are as follows:


the centralised planning concept can- not work in the changed circumstances as the Commission is losing its relevance. Times have changed and issues have changed and Nehru himself would have been the first to say that the Commission needs a relook had he been alive. When private investment far exceeds public investment and Centre-State relations have changed considerably in a market economy, the planning process needs a different orien-tation and outlook. This is, of course, another way of saying that it is the market that will determine priorities and the allocation of resources to various sectors, and not any planning authority.


according to Bhaskar Dutta, quite apart from the growing irrelevance of the Planning Commission is the fact that there have been serious charges against its actual functioning. Perhaps the most important allegation is that the Commission has strayed a long distance away from the role that was initially visualised for it. There has been little attempt to ground the planning process within a consultative framework in which the States and the Central Government are equal partners. The Planning Commission has become increasingly autocratic and typically enforced its diktat over different States. ‘We know best’ may well have become the slogan of the Commission. Not surprisingly, state inputs into Five-Year Plans have become perfunctory. Another equally serious charge is that the Commission has become an agent of the ruling political party or coalition at the Centre. In this context, Bhaskar Dutta has observed that there is overwhelming evidence that the Planning Commission has allowed itself to become an agency of the ruling party or coalition at the Centre, as a disproportionately large fraction of such discretionary grants went to those States that were politically aligned with the ruling party in New Delhi.


in the changed scenario, the States want more say in a federal set-up. It is impossible for the nation to develop unless the States develop. The process of policy-planning also has to change from ‘top to bottom’ to ‘bottom to top’. The new body will adopt a ‘bottom up’ approach, where decisions will be taken at the local level and then endorsed at the Central level. The new body is envisaged to follow the norm of ‘cooperative federalism’, giving room to States to tailor the schemes to suit their unique needs rather than be dictated to by the Centre. This is meant to be a recognition of the country’s diversity. The needs of a State such as Kerala with its highly developed social indicators may not be the same as those of, say, Jharkhand, which scores relatively low on this count. If indeed the body does function as has been envisaged now, the States will, for the first time, have a say in setting their own development priorities. This is also reflected in one of the approaches which says, ‘to develop mechanisms to formulate credible plans at the village level and aggregate these progressively at higher levels of Government’. The States would have a key role in the new body with an effective mechanism to address inter-State disputes. The NITI Aayog aims to foster ‘cooperative federalism’ through structured support initiatives and mechanisms with the States on a continuous basis, recognising that strong States make a strong nation. It promises to promote the spirit of federalism in both planning and the Centre’s disbursal of funds to the States.


the new institution needs to work in tandem with constitutional institutions such as the Finance Commission and the Inter-State Council if a new federal culture has to evolve. The former decides how national revenue, collected as tax revenue through Central taxes, should be shared with the States. With no strings attached, the Inter-State Council can be a deliberative body that sorts out the bargaining issues between States that are at different levels of development or have different economic structures. The NITI Aayog should plug into these discussions as an influential advisory body. The NITI Aayog can be a successful innovation as long as such details are tackled.


, the new India, for which the NITI Aayog has been set up, is a radically different country. The old assumptions about low domestic savings, foreign exchange constraints and shallow financial markets have withered away. The private sector had replaced the public sector as the main engine of investment many decades ago. The markets have a far greater role to play in mobilising savings and channelling them towards productive investments. The Planning Commission stared irrelevance in the face, even though it did try to reinvent itself as a manager of social sector schemes.


the NITI Aayog will be better placed to be an adviser. The new institution should identify the binding constraints on economic development on a national scale: infrastructure, energy, water, education, environment and food production, for example.


it is important to overcome institutional weaknesses that crept into the Yojana Aayog. The Niti Aayog should be given a specific time-bound mandate and direction for economic, social and political transformation of the country over the next two decades. It has to facilitate India’s transition into a developed nation while strengthening her federal structure, her unique socio-cultural diversity and setting a global example of sustainable resource-use strategy. There is a need to make the Aayog into a Commission for development and governance reforms, with a mandate to bring about the required institutional reorganisation and policy reforms in public service delivery, including in areas of law and order, administration of justice, electoral reforms to deepen democracy, health, education, energy and environment management.

The body, rightly informed by the principle of the government being an ‘enabler rather than provider of first and last resort’, has other messes to sort out. The paternalism of the Planning Commission has outlived its time. The NITI Aayog must live up to its name of handing out an even deal to all. The niyati of the NITI Aayog hinges vitally on how some of these concerns are addressed in the coming months/years.

Section — III

Attitude of the Opposition Parties towards the NITI Aayog

The government’s move to replace the Planning Commission with a new institution called the NITI Aayog was criticised by the Opposition parties of India. These parties were not impressed, and called it ‘‘fluff’’ and ‘‘gimmickry’’. They said the new body cannot fulfil the Centre’s promise of ‘cooperative federalism’ and they feared that States will be discriminated by the new set-up. They also expressed their apprehension that the new body will pave the way for discrimination, as ‘‘corporates will call the shots’’ in policy-making in the country.

The Congress said “anti-Nehruvianism” and “anti-Congressism” were behind the govern-ment’s decision to rename the Planning Commission as the NITI Aayog. It is not objectionable if it is coupled with real reform, the party averred. Otherwise, it will be purely cosmetic like the earlier naming ceremonies. According to Congress leader Manish Tewari, “If the government wants to greet people with fluff and not substance on the first day of 2015, then there is nothing more that can be said... If the North Block or the Finance Ministry has a very short-term view of both fiscal and monetary objective, it is going to be the final arbiter between the States and the Centre. It being the stakeholder in the process, I am afraid, is going to discriminate against the State.” He also said that “it’s not a question of fighting a war, it’s a matter of principle. The Opposition BJP used to go to extra lengths talking about federalism and how the sanctity and sacrosanct of federalism has to be maintained. And how they are doing exactly the reverse.”

Side by side, regional parties urged the Centre to ensure that the new panel will have members specifically for States. It being a stakeholder in the process is going to discriminate against the States. The CPI-M Polit-Bureau member and MP, Sitaram Yechury, termed the renaming of the Planning Commission as aniti our durnity (no policy and bad policy). He also said just a change of nomenclature and gimmickry does not serve any purpose. Let us see what the government plans to do with it.

Veteran CPI leader and former MP Gurudas Dasgupta said that “dismantling of the Planning Commission and bringing in a new body in its place will lead to an unregulated economy. It is not a change of name. The Planning Commission is being abolished because they (government) don’t believe in planning.” Dasgupta alleged that the BJP Government was out to dissolve the Planning Commission as it is more interested in giving importance to full-market economy, but that will create hurdles in the national economic development. If this becomes the policy of the government to not help advance the country, control inflation and create job opportunities, it will not be good for the country. The CPI leader felt that such a move would be detrimental to the country’s overall development. It is noted that a section of the Opposition is still blinkered by the socialist ideology and that is long past its ‘best before’ date.

However, the NITI Aayog is long on generalities and short on specifics. The working of a new institution can be judged only after it has functioned for a sufficiently long time. The ideas which are claimed to guide the NITI Aayog are sound, but it has to implement them well, and disprove criticism that it is a gimmick. The Opposition, especially the Congress, termed its formation a ‘dangerous’ idea and ‘an attack on the federal structure’ of India’s polity, while the CPI-M said that this would spur ‘privatisation’.

Section —IV

Challenges Ahead

The new body might represent a turn towards genuine and comprehensive policy-reform. However, the government has been woefully short of solid technocratic advice. The Prime Minister’s Economic Advisory Council was disbanded early on, and not reconstituted. Even the think-tank element of the Planning Commission itself has not really been functional since the new government took over. Altogether, the economic policy advisory capacity within the government has been severely limited for some time. This has perhaps had an effect on some of the government’s decisions. For example, there is an urgent need for coherent thinking on the subject of natural resources pricing. It is in such areas that the new NITI Aayog will have to make its mark. Much will depend on the personal relationship between the head of the revamped Commission and the Prime Minister. In this context, a few aspects regarding the new body need to be addressed. It is relevant to mention here the following:

I. The overall efficacy of the NITI Aayog will depend crucially on the quality of experts it can round up to be its members, and also the headroom and space the Prime Minister gives it to allow it to operate effectively.

II. The Aayog’s structure will also be relevant. Any enhanced participation from the State Chief Ministers may help the government achieve the Prime Minister’s stated goal of ‘cooperative federalism’ but for that to happen the new Governing Council has to be more active, with regular consultations. The earlier equivalent federal consultative body was the National Development Council, and its meetings were far too infrequent.

III. Dr Bibek Debroy has raised seven questions about the new institution. He has questioned the multiplicity of the new body’s objectives. There is a secretariat function for the National Development Council (NDC) and Inter-State Council (ISC). There is something akin to a National Advisory Council (NAC), in the so-called think-tank role. By bundling all of these together, the proposed structure of the NITI Aayog seems to have become unnecessarily cumbersome and complicated. He wanted to know who would lobby with the Finance Ministry to protect Plan expenditure (in the backdrop of lack of clarity on widening the role of the Finance Commission), determine transfers to Centrally sponsored schemes or assign special category status to some States in the absence of the Planning Commission. Who would now determine the special category status of States, as the Aayog has no such role? Another question was: whether the Commission factors Reserve Bank Governor Raghuram Rajan’s report in determining the special category status of States.

IV. The NITI Aayog, like the Planning Commission, is not a constitutional body, which means it too is not accountable to Parliament. The Aayog is set up executively, rather than through a specific piece of legislation. The Vice-Chairman of the NITI Aayog is the executive head of the body, which also includes a Secretary-level position for a Chief Executive Officer.

V. Financial decentralisation to the lowest tiers of the government for improved efficiency in public goods delivery is essential. The question is: should this role be kept outside the purview of the NITI Aayog? The success of the NITI Aayog lies in restoring the balance between the technical and political (federal) drivers of the planning process. The allocative role that continues to be relevant for a federal entity cannot be entirely divorced from the political process. Planning cannot be reduced to a mechanical exercise of earmarking public expenditure across competing needs. It has to respond to the evolving needs and concerns, especially for a society in transition. By divorcing the allocative role from the agency’s policy advisory functions will make that agency a toothless tiger.

VI. While doing away with the Five-Year Plans, the new body should focus on the micro-economics of specific sectors. There is a clear lack of information on this count, which has led to industry over-reaching itself in sectors such as coal, power, roads and aviation, and banks making wrong judgement calls. Resource allocation is an important function of the Planning Commission. The main problem is grants under Section 382. Who will administer that function?

VII. Like its predecessor, the NITI Aayog does not have any constitutional status and has been envisaged to function only as a think-tank of the government. In reality, however, it will operate as a political entity of the ruling dispensation. The lack of constitutional legitimacy, the absence of an accountability structure and the inherent political nature of the Aayog may impede its functioning. Arvind Panagariya will be expected to ensure that the NITI Aayog transcends these limitations and is truly perceived as an institution for generating ideas and innovations necessary for transforming a lower middle-income country into an upper middle-income one within the next decade. The bloated bureau-cratic machinery, that it has inherited from the Planning Commission, may prove to be dysfunctional unless trimmed.

VIII. There is no clarity or indication about how the objectives of the new body will be achieved and the nature of the institutional mechanisms necessary or the changes that need to be effected in order to achieve the goals. The only mechanism that has been hinted at is a Governing Council comprising Chief Ministers and Lieutenant-Governors of Union Territories. The proposed entity will automatically render the existing National Development Council (NDC) defunct. Regional Councils will be the more appropriate forum for evolving a consensus-based policy.

Given the complexity of the country, its federal structure, multi-party political system, the growing challenge of minority management and the issue of poverty before caste, religion, region and domicile considerations, it will be rather too early to predict Panagariya’s ability to profile a Central policy framework that will create an effective roadmap to guide the political executives of the government. Eminent non-government economists, including Nobel Laureate Amartya Sen, and critics among social scientists strongly doubt the usefulness of a blatant application of the principles of market economy at India’s current level of development that require more attention to poverty alle-viation, gender inequality, education, healthcare, social justice and support to the old and handicapped. In this context, some questions arise in the minds of countrymen. These are as follows:

Firstly, will Panagariya’s reputation as a staunch market economist who grew up under the shadow of Jagdish Bhagwati stand in the way of creating an effective Niti (policy) that will do Nyaya (justice) to the hitherto neglected foundation of development?

Secondly, will the Aayog be able to show the way to creating 100 million jobs by 2019 that the government has promised?

Thirdly,will the new Vice-Chairman of the supreme policy-making body be able to help the government implement its promises?


will Panagariya and his whole-time team members be able to chalk out a blueprint for the promised administrative reforms?


, the government had said that the hallmarks of its governance model would be ‘people-centric, policy-driven, time-bound delivery, minimum government, maximum governance’. Will the NITI Aayog be able to create such a non-partisan model?

It would be unfair to the NITI Aayog to answer these questions and address its critics’ concerns at this moment of time. Experts say that more clarity is needed to understand the role of the new body. Political analyst Pratap Bhanu Mehta has observed that ‘a lot will depend on what use the Prime Minister, who heads the organisation, will put it to. We will also need to see what the new body does and how it relates to other parts like the role of the Finance Commission.’

Section — V

Concluding Comments

We are about to witness the launch of the second generation reforms, because we are now ready to make a break with the past. The end of the Planning Commission and the beginning of the NITI Aayog mark this departure. The Yojana Aayog’s performance in the past two decades is, at best, a mixed one. There are several questions which need clarity. Once answers to these emerge, then the new body could function smoothly. But, care must be taken to ensure the independence of the new body. It should also remain apolitical to win the trust of the Chief Ministers. With the Prime Minister’s weight behind it, it should be able attract the highest talents in the country. How far the government accepts its recommendations also depends on the Prime Minister. In short, the new body should be able to function smoothly and effectively without interference from the political class. What works out and what doesn’t remains to be seen.

The biggest danger before us is not the allegedly ‘slow’ rate of growth. The biggest danger is the potential disaffection of the people with the policies of the Central Government leading to the country’s descent. The govern-ment’s errors affect millions of people for no fault of their own, and hence must be avoided as far as possible. Churning the issues amongst thoughtful people is a way of identifying such errors, as also a way to achieving the objectives more quickly and economically. It is under-standable that the government wants to perform, achieve and leave a mark. It will need to look ahead and allocate scarce resources; some professional advice in doing so may make a better government. The main challenge would be to articulate the vision of the NITI Aayog and in a manner that it becomes relevant to changing times.

However, the success of this proposed structure lies in the implementation. It will need people who are good at designing partici-pative processes and practising them; else we will be back to square one. As in all such matters the devil lies in the detail. What sounds good does not always work out that way. What precisely will the new mechanism mean ‘on the ground’? The role of ‘professionals’ would require careful monitoring: while it would be incorrect to automatically assume an approach favouring the corporate sector (crony capitalism?), any abandoning of a commitment to uplift the weaker sections could prove disastrous. A related worry would be whether the Prime Minister is taking on too much on himself. Efficient delegation of authority is not just critical to good governance, it is a hallmark of an inspirational leadership.

It is much too early to think or talk in terms of administrative capacities. Unless it trickles down, achche din will hardly be felt by the common man. Still, not to change is to decay and a fair chance should be given to prove that the government’s initiatives will deliver. Niyat and niti are inextricably intertwined. The best that can be said for it, as for many other initiatives of the present regime, is that we should give it time to reveal itself and the out-comes contingent on it. The Aayog’s functioning could make or break the economic development of India in future.


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2. “Anti-Nehruvianism behind rejig : Congress” in The Times of India, January 2, 2015, p. 1.

3. “Assessing Impact of NITI Aayog vs. Planning Commission”, accessed from http:// on March 10, 2015.

4. Badrinath, K.A. (2015). “NITI Aayog replaces Nehru era plan panel” in The Financial Chronicle, January 2, pp. 1 and 8.

5. “Bharatiya governance model unveiled” in The Hindu, January 2, 2015, p. 10.

6. Bhattacharjee, Govind (2015), “Planning techniques” in The Statesman, January 31, p. 6.

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8. “Landmark change in Policy Making: Modi Sarkar Puts Bharat First with Plan Panel Heir” in The Economic Times, January 2, p. 1.

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, January 2, 2015, pp. 1 and 6.

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28. Sharma, Sanjeev (2015), “NITI Aayog replaces plan panel: PM to be Chairman” in The Tribune, January 2, pp. 1 and 11.

29. Singh, Mahendra (2015). “PM :End of one-size-fits-all approach” in The Times of India, January 2, p. 8.

30. The Gazette of India, Extraordinary, part-1, section-1, Cabinet Secretariat Resolution, January 1, 2015, published by the Government of India, New Delhi, pp. 6-9. Accessed from http :// Read Data/2015/162317.pdf. Retrieved on March 12, 2015.

Dr Jayanta Kumar Dab is an Assistant Professor of Political Science, Tamralipta Mahavidyalaya, Purba Medinipur (West Bengal). He can be contacted at e-mail:

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