By Professor Satya Narayan Misra in Bhubaneswar, May 31, 2025: Planning for the State’s citizens began with full vigour by the erstwhile USSR in 1921 through GOS PLAN, based on a model developed by the Soviet economist Grigory Feldman. The model focuses on allocating investment between the capital goods sector and the consumer goods sector to achieve rapid economic growth.

Fredrick von Hayek in his widely read book “The Road to Serfdom (1944) warned about the dangers of government control over economic decision-making through central planning, arguing that it inevitably leads to state tyranny and loss of individual economic freedom. It was a clash of ideology, one plumping for State control and distribution of resources, the other a free market economy, where the individual was at the centre of economic decision-making.

Nehru, the Fabian socialist, opted for the Soviet experiment and set up the Planning Commission in 1950 as a Cabinet decision. The Second Plan in 1956 witnessed the unfolding of the Feldman & Mahanobis model, by prioritizing investment in heavy industry. The Planning Commission was supplanted by a Think Tank, NITI AYOG, in 2015, to foster cooperative federalism, provide strategic and technical advice.

The Changing Contours

From top-down planning of the Planning Commission, the thrust of NITI AYOG is bottom-up. The Planning Commission used to allocate 30% of the government budget among state governments for various centrally sponsored schemes, which were part of a five-year Plan. Niti Aayog does not have such fiscal devolution powers. It facilitates the sharing of best practices, provides support for capacity development at the state level, serves as a think tank, promotes inclusive growth, and monitors SDG goals in India. Most importantly, it strongly believes in decentralized planning, a model followed by countries like the USA, Canada & Germany. In Latin America, the thrust is on greater urban self-government.

State, Constitution & Citizens

Adam Smith, the high priest of the free market, believed that the role of the state is to provide public goods and services that the private sector would not provide, like infrastructure and education. Prof Richard Musgrave extended the scope to include all merit goods like primary education, clean water, sewage, and basic health care, as the benefits flowing out of spending on these goods are more to society than to the individual.

Ivor Jennings had observed “The ghosts of Sidney & Maurice Webb stalk through the pages of the Indian Constitution “. He was referring to the Directive Principles of State Policy which set before the goals of social and economic justice, provide adequate means of livelihood, improve the levels of nutrition and distribute community resources to subserve the common goal. These ideas of “Fabian Socialism” clearly stalked Nehru as he embarked upon the abolition of Zamindar and putting in place a centralised planning mechanism to promote distributive justice.

Post economic liberalization in 1991, the Planning Commission had become a sort of anachronism. However, the role of a state to promote distributive justice and inclusive growth has remained salient, while creating conducive environment for private entrepreneurs to conduct business and promote growth.

The 73rd & 74th amendments to the Constitution in 1993 have created the footprints for grassroots democracy at the Panchayat & Urban levels. As against the earlier approach of top-down planning, the district planning boards are the new driving boards for planning. However, in most states there is a mismatch between these local bodies in terms if their constitutional mandate &funds generated at the local level and inadequate support from the states to fill up the funding gaps.

Raghuram Rajan believes that in our pursuit of growth, the state and the market have left out the critical third pillar, the” local community”. Jeffrey Sachs, the driver of the MDG, firmly believes that future development programs should be led “jointly by the State, Private sector and the community”, rather than being” state-led”

Need For Synergy

The mother of micro credit Ela Bhat, who created the SEWA organisation, promoted the idea of cooperative production & marketing of products. She mooted the idea of a 100-mile community in her book Anubandh, where food, clothing, housing, health, education and banking are largely sourced and utilized locally, and fostering economic and political balance. This will empower women in community building and believing they are key to creating stable and peaceful communities.

Bunker Roy’s Barefoot College in the district of Tilonia in Rajasthan which has demonstrated how pioneering work can be done by uneducated locals as paramedics and for harnessing solar power. It has trained 3 million people in various skills, including solar engineering, health care, and education. Both Ela Bhatt & Bunker Roy have been hugely influenced by the Gandhian idea of community living in Tolstoy Farm in South Africa, founded in 1910, where the thrust was focused on agriculture, self-sufficiency, and community living and self-sufficiency. There is a need to emulate these best practices for living in a sustainable framework.

The Way Forward

Jeffrey Sachs had poignantly observed in his book ‘The Price of Civilisation”: Our greatest illusion is that a healthy society can be built around mindless pursuit of wealth’. In our pursuit to climb up the ladder of global GDP, we are paying lip service to several disturbing development deficits like poor learning outcomes despite having a marquee SSA program (AESR Survey), dismal levels of anaemia among adolescents (57%) (NFHS Survey), IMR of 28.3% (SDG Dashboard) and very high levels unemployment (9.2% in June 2024: CMIE).

Many discerning observers believe that the erstwhile Planning Commission performed a very critical role in setting up macro targets for growth, employment, and inclusion. With all its warts and moles, it set a template for monitoring, public discourse on policy priority, and concomitant accountability.

By throwing the baby with the bath water, Mr Modi seems to have abdicated the responsibility of the Centre to ensure balanced growth between states, and dispense political favours through the budget to states politically aligned to the BJP. In the process, democratic accountability about promises and performance has become a serious casualty. All the same, there are several development decentralised models which can foster more equitable growth and sustainable development. Successful development planning requires better synergy between the state, private sector, and citizens at large.