Planning in the 20th Century and Beyond

Written by: Santosh Mehrotra


Planning in the 20th Century and Beyond both looks back and looks forward at the role of planning in the economic development of countries. We examine the history and experiences of planning in India, but in a global context. In the light of this history, it also looks forward, trying to evaluate, beyond ideologies, what role the practice of planning has in contemporary India. It then proposes that the National Institution for Transforming India (NITI) Aayog, the think tank founded on 1 January 2015 after the demise of the PC, could learn from this experience.

Starting 1980, the dominance of neo-liberal thinking gave the impression that economic planning as theory and practice was something of the past. The conditions imposed by the World Bank and the International Monetary Fund, resulted in the collapse of planning and planning institutions in many countries. Responding to pressure, the over-extended states of Latin America and Sub-Saharan Africa, which had over-borrowed either domestically or internationally, easily succumbed and reduced the role of state planning in their economies.

Then, planning fell completely in disregard with the end of the Soviet Union in 1991. Indeed, for many observers, this failure of the USSR was at least partly due to planning. How wrong this observation was shown very quickly. Several Western countries continued to plan (notably France). South Africa created a Planning Commission in 2010. But most importantly, most South-East Asian and South Asian countries also pursued the practice of economic planning. In India, the PC devised 12 five year plans between its creation in 1950 and its folding up in 2014.  Remarkably, most South Asian and East & SE Asian countries continued to grow between 1980 and 2000, just when in Latin America, in Sub-Saharan Africa, the post-Soviet republics and Russia, the remaining transition economies of East Europe – with the end of planning, in all of them GDP growth collapsed, per capita incomes fell and poverty increased.

Economies have sustained growth when they use planning judiciously. Every East Asian miracle economy, since 1945, has had an uninterrupted series of FYPs, managed by a planning institution. In China after the market oriented reforms began in 1979, the State Planning Commission became more powerful, not less. Similarly, in Japan, South Korea, and Taiwan, the successful examples of East Asian development, the state played a critical role in resolving what institutional economics calls ‘coordination failures’ by facilitating and complementing private sector coordination.

This book addresses three leading questions: ‘why planning economic development?’, ‘how to plan?’ (through which institutional settings), and ‘what exactly can/should be planned?’.

This book is structured in three parts: the first part addresses the history of planning and of the PC. It shows that the replies to our three questions have a history, linked notably with the history of ideas and more precisely with economic history.

So, while the early part of the book looks back, its later part looks forward to whether India, after the demise of the Planning Commission in 2014 (and its replacement by a much weaker and smaller think tank, the National Institution for Transforming India), can do without planning. It proposes that the NITI will need to reinvent itself.

First, it needs to reinvent itself by supporting ‘cooperative federalism’, as enjoined by the Indian Constitution, by making grants (as the Planning Commission used to do), but now focused on reducing the growing imbalances in development achievement of different states in the union, over and above the role of the Finance Commissions.

Second, it also needs to reinvent itself to become the source of an industrial policy, in the absence of which India has already allowed manufacturing share in gross domestic product (GDP) and employment to stagnate. Such a large and complex economy, already since 2014 the world’s third largest (in purchasing power parity terms), but still a developing country in the middle of its demographic dividend, needs a powerful and domain competent Planning Commission.

A planned economic development is not opposed to a market economy. Indeed, most modern economies are mixed economies incorporating various degrees of markets and planning. This was true of all the East Asian ones, as well as European ones that have been used to state intervention from the beginning of capitalism itself. As Karl Polanyi says: ‘While the laissez faire economy was the product of deliberate state action, subsequent restrictions on laissez faire started in a spontaneous way. Laissez faire was planned; planning was not’ (1944: 141).  

From 1950 to 1965 the Planning Commission played a critical role in India’s industrialization. Then, after an eclipse for over two decades, in the 1990s, the PC found a second life as an instrument of social policy. Its role was not industrialization any more – that was handed over to the private sector whose share in total investment rose – but filling the infrastructure and social development gap. In this period, it acquired at least as much significance for social development as it had for industry in the first 15 years after independence.

The focus of a new revamped planning institution for India in the 21st century, especially after the COVID pandemic must be: a. filling the social development gaps in India; b. reviving an industrial strategy; and c. and sectors where there are cross-sectoral or cross-state synergies: water; energy; infrastructure; and climate change.

The book makes theoretical and empirical arguments to show why India still needs planning even more than before. Based on the experience of being former insiders in the PC, many of us also recommend how the new planning function in India should be structured in terms of human resources for it to execute these functions effectively.

Edited by Santosh Mehrotra , Sylvie Guichard

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About the Author: Santosh Mehrotra

Santosh Mehrotra is a human development economist whose research and writings have had most influence in the areas of labour, employment, skill development, child poverty, and the economics of education. He was an economic adviser in the United Nations system in New York City, Italy, and Thailand (1991–2006), and technocrat in the government of I...

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