The principal task of the Planning Commission is to formulate the five-year plans. In this context, proper planning procedure is followed for the most effective and balanced utilisation of the material, capital, and human resources.
Special emphasis is given to appraisal of the progress in the implementation of the plan from time to time, and to recommend adjustments of policy and measures that are considered to be necessary in the light of such appraisal.
The Planning Commission also oversees the development programmes of the central ministries and the state governments with a view to achieve coordination at the highest level.
At the Union level, the role of Planning Commission is crucial. In investment planning, it provides an objective method of resource allocation reconciling the competing claims of various departments and agencies, taking into account the broad national objectives and priorities.
A national plan in India comprises of the plans of a central government, the state governments, the central and state public-sector undertakings, and the private sector of the economy.
In the five year plan document, the amount of money, which is proposed to be invested under various plan heads during the1 specific period, is broken down into public sector outlay and private sector plan outlay.
The public sector outlay is the more important part in the plan as the government has direct control over the investment of this sector during a five-year plan period. It is further divided into the central plan and state plans, earmarking the projects and schemes to be launched.
In this plan, specific schemes of financing are worked out for the Union and each state, indicating clearly the additional resources, and mobilisation efforts that would need to be undertaken. These are integrated with the overall scheme of flow of funds for the economy.
Thus, preparation of the five-year plan for the nation’s economy is a mammoth exercise involving many multiple constitutional authorities and statutory agencies. The national plan must have the involvement and consent of the parties concerned.
The formulation of each plan is preceded by considerable amount of technical work, prolonged consultations and intense lobbying to arrive at consensus, especially on the various parameters of state plans.
The need for building a consensus arises as India is a federal and democratic polity. The constitution provides for the demarcation of subjects between the Union, the State, and the Concurrent lists in the seventh schedule of the Constitution so as to conform to the notions of a federal polity.
Moreover, planning falls under the concurrent list. Therefore, it is the responsibility of both the Union and state governments. The national plan must be able to carry along the central ministries and state governments on a generally accepted course of action.
Even the democratic structure requires that the national plan should be formulated through consensus. Thus, it involves wide-ranging discussions and participation of non- departmental agencies also.
In addition to the involvement of specialised institutions, such as, the Reserve Bank of India, the Central Statistical Organisation, etc. The political leaders, business and industry groups, etc. are also involved at various stages.
Public opinion is also sought on the important aspects of the plan. The Planning Commission seeks’ to ensure through the annual plans, which are the operational plans, that the sum total of outlays of the centre and the state tallies with the estimates of available resources.
In the process of plan formulation there are three clearly distinguishable stages. The first step and the preliminary stage involve the preparation of a paper on ‘approach to the plan’.
It is a brief document, broadly outlining the goals to be achieved during the proposed five-year plan period. It is based on documents prepared by various working groups and a steering committee.
For preparing an Approach paper; Steering Committee Working Groups are set up for reviewing the progress in the implementation of the five-year plans, and for making recommendations regarding policies, programmes, projects, and schemes as also for outlays and targets for the various sectors and sub-sectors.
Members of the steering committee and working groups are drawn from officials in the Planning Commission, central ministries/departments, academic institutions, state governments and specialists from business and industry, and experts from relevant fields. For the Tenth Five-Year Plan, 27 Steering Committees and 98 Working Groups were setup.
The approach paper is prepared on the basis of preliminary exercises undertaken in the Planning Commission, projecting the growth profile of the economy over a period of 15-20 years including the ensuing five-year plan period.
The draft of the approach paper is first considered and discussed in the meeting of the full Planning Commission, and then by the union Cabinet and finally by the NDC. After the approval of the NDC, it is placed before the Parliament. After final approval on the approach paper the broad five-year targets are given as guidelines to a number of Working Groups.
These Groups are set up and work with assistance from the divisions of the Planning Commission. They are generally subject or area-specific, such as, Working Groups on Financial Resources of the Centre, which includes, inter alia, representatives of the Planning Commission, Ministry of Finance, and Reserve Bank along with other relevant organisations.
These Working Groups usually consist of economists, concerned technical experts, and administrators in the concerned central ministries and in the Planning Commission. The primary task of the Working Group is to work out the detailed plan for each sector on the basis of the preliminary guidelines.
They are expected to spell out the details of policies and programmes required for achieving the targets. The Working Groups are expected to use research studies in the specific areas.
In cases of gaps in knowledge and information, the concerned division promotes specific research studies or holds seminars, workshops etc. In the second stage of plan formulation, the state governments are encouraged to have their own Working Groups, and the Central Working Groups are also expected to interact informally with their state counterparts.
The recommendations of the State Plan Sectoral Working Groups are based on the plan proposals of a State Plan Adviser. He prepares a report making detailed recommendations on programmes, targets and outlays.
This report forms the basis of discussions between the Planning Commission and the state government concerned, for finalising the State’s Plan. The final position, especially regarding the states’ own resources, including market borrowings and additional resource mobilisation, the quantum of central assistance and programme content emerge after the above stated discussion.
In the Tenth Five- Year Plan, the Division concerned prepared a Background paper especially in the case of central plan taking into account the guidelines laid down in the approach paper, the recommendations of the Working Groups concerned, proposals from the various ministries, and the division’s own assessment of the development programmes.
The Background paper constituted the basis for discussion between the Planning Commission and the Secretaries of the central ministries/departments concerned. In the light, of the discussions and anticipated availability of the resources for the central plan, the Planning Commission took a view on the development programmes of each ministry/department and worked out tentative outlays. On the basis of such exercises done, the Planning Commission prepares the ‘draft’ five-year plan.
The central and state plans, together with the scheme of financing for these, are finally incorporated in the draft., Similarly, the draft plan is first discussed by the full Planning Commission and then by the Union Cabinet, before presenting it to the National Development Council.
After the NDC has approved the Plan, it is laid on the tables of both Houses of Parliament. The draft plan is subjected to public scrutiny in the final stage of plan formulation. It is discussed with and commented upon by the ‘central ministries and state governments. The draft plan is published for public discussions.
The draft plan is discussed by the Parliament in a general way, and then in greater detail through a series of parliamentary committees. Simultaneously, the Planning Commission also holds discussions on the plans of individual states.
The discussions are held at the experts level as well as at the political level culminating in a meeting with the Chief Minister of the state concerned. These meetings lead to an understanding between the Commission and the states.
On the basis of discussions at different levels, and on the basis of reactions from elected representatives, experts and the public, the Planning Commission prepares the final plan document.
The full Commission, the Union Cabinet, and the NDC scrutinise this document. Thereafter, it is presented to the Parliament, for its assent. The general approval of the Parliament is considered to be sufficient for the formulation of the Plan. In the case of implementation, no law is required for taking up the plan.
In the course of actual implementation, the annual plan is an effective instrument. Sometimes due to delays in the formulation of five-year plans or due to political or economic changes during the plan period, the annual plan becomes an integral part of the budgeting exercise, both at the centre and state levels.
The procedure for the formulation of the annual plan has been the same as for the five-year plan till 1993-94, especially in the case of the states. However, while formulating the Annual Plan 1993-94 the resource evaluation was made first on the basis of which the size of the plan was to be decided in the discussion between the Deputy Chairman and the Chief Ministers.
Thereafter, the detailed sectoral allocations were worked out. This approach in finalising the plan size has been highly appreciated. In the sectoral allocation, in the state sector, greater flexibility was provided (by limiting the earmarking of funds to about 50% of total outlay) to the states to meet the local requirements.
This practice was initiated in response to long-standing demand of the Chief Ministers in the NDC for greater flexibility in the State Plan. As the financial year in the government starts on I” of April and the budget is prepared by February end, work on the annual plan has to start a few months earlier, generally around September of the preceding year.
The Planning Commission indicates to the state governments the important objectives of the annual plan, and the tentative quantum of central assistance to enable the states to prepare their draft annual plans. These drafts are discussed in meetings, which are held in November- December every year, between the Planning Commission and state governments. In these meetings, the state annual plan outlays are decided along with the important items of the central plan assistance.
This channel of transfer of resources from the Union to the states, in practice, is outside the purview of the transfers recommended by the constitutional body, namely, the Finance Commission.
A fiscal transfer through the Planning Commission, which is a non-statutory and advisory body, has, therefore, been a subject of controversy. Despite widespread criticism from experts and political elites, this practice is continued.
The state budgets are dependent on annual plans. The Central ministries’ budget allocations are also dependent on their annual plans, which are worked out in consultation with the Planning Commission.
Thus, the Planning Commission in practice, is not merely an advisory body, it wields enormous power in the allocation of a substantial volume of financial resources to the states and between different departments of the Union government.
By going into the details of developmental schemes and projects, it exercises considerable discretion regarding their acceptance or substantial modification.
The Planning Commission has also been laying particular emphasis on the need for improving the planning process, and developing capabilities in this regard in the states.