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By Pradeep S Mehta
The Planning Commission will not respond to
tinkering. It needs to be disbanded for its replacement to
be effective
When Prime Minister Narendra Modi announced the scrapping of
the Planning Commission and establishing a new think tank,
many were astounded.
He
was responding to calls by many that the plan body has
outlived its utility in a market-driven economy, while it
was relevant and useful in our early years.
However, he recognised the need for a central think tank
which would work closely with the Union Government and our
states in pushing the reform and development agenda.
Plainly, Modi is a political entrepreneur who has marketed
himself brilliantly in the last general elections. He
aspires to see India become a developed country and will not
do it walking down a beaten path.
Avoiding the beaten path
One of the major institutional reforms that he has been
advocating is close interaction with the different states;
he has emphasised that it is the Prime Minister and the
chief ministers who govern the country.
That marked quite a change from the earlier pattern. One
major hurdle in moving ahead on this count was the Planning
Commission; it adopted an imperious, top-down approach to
all development schemes and financial allocations. This was
abhorrent to the heads of state governments. The constant
refrain was that the states were aware of their priorities
and how to allocate resources. The whole scheme of the Plan
body went against the spirit of federalism.
We
do need an overhaul of our institutional framework which
will allow new ideas and federalism to flower. Modi, the
entrepreneur, is willing to explore and experiment, though
that would need better and leaner ministries.
Let us examine his vision through the lens of economist and
political scientist Joseph Schumpeter, who said long ago
that ‘creative destruction’ is a process by which the old
ways of doing things are endogenously destroyed and replaced
by new ways.
Schumpeter coined the word ‘ Unternehmergeist ’,
German for entrepreneur-spirit, and asserted that “... the
doing of new things or the doing of things that are already
being done in a new way” stemmed directly from the efforts
of entrepreneurs.
A familiar idea
The creative destruction of institutions is not new even in
India. For example, when reforms were launched in 1991, the
Monopolies & Restrictive Trade Practices Act (MRTPA) was
amended to get rid of the albatross of size of firms, merger
regulation and so on, and create a level playing field by
extending its jurisdiction to the public sector.
But that was not enough to enable our firms to be able to
compete in a globalising and liberalising world,
particularly when faced with competition from foreign firms
manufacturing in India or exporting their goods to India.
In
February, 1999 the then Finance Minister, Yashwant Sinha,
following advocacy by CUTS announced the need to enact a new
and modern competition law, which came into being in 2002.
The same argument as in the case of the Planning Commission
were raised — that the MRTPA could be modernised rather than
a new law adopted.
But that would have been an impossible task. The MRTPA was
drafted and adopted in 1969 on the basis of the prevailing
trade and economic milieu, and growth was throttled by
imposing limits on investment and production. If a firm was
licensed to produce 10,000 widgets, it would be penalised
for any excess production.
Big was considered bad, and profit was a dirty word. In the
1990s, it was not only because of our own reforms but the
arrival of the WTO that the whole trade and economic
scenario underwent a sea change. All these changes meant
that we needed a new competition law. This necessarily
implied that one had to start with a clean slate.
Rejecting the old
Just after the new Competition Act, 2002 came into force,
though with a limited mandate due to a court restriction,
the old MRTPA went into a demise mode.
Even the staff of the MRTP Commission were not taken into
the new Competition Commission of India (CCI), except in a
very few cases. Most pending cases at the MRTPC were
transferred to the new CCI and its appellate tribunal.
A
large number of countries have scrapped their old
competition laws and adopted a totally modern and new
competition law.
In
the area of economic planning many countries have also
revised their approach based on the new realities of a
market economy. China is a notable example. It has shut down
its plan body and a couple of other institutions and created
the new National Development and Reforms Commission.
As Narendra Modi said from the ramparts of
Red Fort on Independence Day, one has to construct a new
building as one cannot repair or remodel the old building,
i.e. the Planning Commission. Ideas have also been invited
from people at large to suggest a new name and what they
think the new think tank should be doing. Let us get on with
this creative destruction process.
The writer is the
secretary-general of CUTS International
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