New plans please for India Incorporated

By Kaushik Basu Professor of economics, Cornell University

Why India needs a new kind of planning to defeat poverty.

Nehru - India's first prime minister - the force behind central planning

When India's Planning Commission was set up in March 1950, it was viewed as the engine that would drive the economy.

The first Five Year Plan was a muted affair since Prime Minister Jawaharlal Nehru's enthusiasm for it was partly neutralized by the scepticism of his deputy, Sardar Patel.

However, by the time of the second Five Year Plan, 1956-61, the Planning Commission had come to acquire a towering position. The dominance would last several decades.

But for some years now market principles have been on the ascendancy and the resources over which government has direct control in retreat.

The Planning Commission has become a virtual monument to history.

Excellent parking spot

As economic journalist TCA. Srinivasa-Raghavan noted recently, the commission's impressive building in New Delhi now has two other functions.

It is not the case that overall progress will make poverty go away automatically, as some market-fundamentalist economists suggest Your views on this column

It's a place for bureaucrats to cool their heels and an excellent parking spot for any one wanting to go shopping in Delhi's famous Connaught Place.

(This I can vouch for. All you have to do is sign in at the front desk, park your car in the premises, take the elevator up, ruffle your hair or put away your glasses, take the elevator down, and walk right past the front desk.)

But instead of letting the Planning Commission languish, it is time to reinvent it.

Engrossing

There are two kinds of work it could do.

One in three Indians live in 'harsh poverty'

One is to carry on with its present work - designing programmes for poverty alleviation and infrastructure development.

It could also do a new job - helping coordination among Indian manufacturers and corporations.

At the time of writing this, Indian Prime Minister Manmohan Singh was in the United States.

On 21 September he gave an engrossing 45-minute TV interview on the famous Charlie Rose show.

It was a remarkable interview - low-key and diplomatic, but, nevertheless, with some forthright assertions.

When asked, for instance, why India was not joining the Nuclear Non-Proliferation Treaty, his response was direct.

He thought it was an "unequal treaty", dividing the world between the already-there and the rest.

'Harsh poverty'

What was, however, most significant from an economist's point of view is that he made some very definite policy statements about poverty alleviation.

It is in no individual firm's interest to invest in promoting the national brand name, be it India Inc. or Bangladesh Inc

India's per capita income is currently just below $500 per year.

He argued that by the time India reached a per capita income of between $1,500 and $2,000 the country should have got rid of the "harsh edges of poverty".

If we use $1 a day of consumption as a cut-off, and treat those below this to be the ones facing "harsh poverty", we will find about 34% of India in this category.

Can this percentage be brought to zero by the time India reaches an income of $1,500-2000?

If we look at some countries, like Peru and Namibia, that have per capita incomes in this range, we find that the percentages of population below the harsh poverty line are, respectively, 18% and 34%.

It is therefore not the case that overall progress will make poverty go away automatically, as some market-fundamentalist economists suggest.

A different intervention

Hence, while pursuing the objective of market enterprise and a contract-based economy, instead of one dictated by fiat and law, the government must at the same time, design special market interventions to mitigate poverty.

PM Manmohan Singh needs to battle for 'India Incorporated'

This is where the Planning Commission comes in.

However, the interventions cannot be of the kind India had in the early days of planning. Those were heavy in their use of subsidies and the bureaucracy.

The interventions have to be crafted intelligently, in tune with the Finance Ministry's fiscal objectives and without damaging market incentives.

A new government should be able to bring in with it a fresh stock of talent-advisers and professionals. The Planning Commission, or at least a large part of it, should have this transitory feature.

This will bring in energy and enthusiasm of a kind that we have not seen in government before and will enable it to craft and implement new strategies for poverty alleviation.

India Incorporated

The other task is very different. What most ordinary people do not fully comprehend but what corporations thrive on is the role of reputation and brand-name effect.

This is true also at the level of nations.

Once a country becomes a brand name ("Japanese products are really dependable", "Korean goods are so sturdy"), its producers in diverse fields find it much easier to break into the global market.

The problem, however, is that it is in no individual firm's interest to invest in promoting the national brand name, be it India Inc. or Bangladesh Inc.

At times one gets some of this benefit as a by-product of one's success in one field.

India's success with software is helping Indian pharmaceuticals to cash in on this reputation a little.

But to achieve this properly requires marketing, advertisement and quality control.

An organisation like the Planning Commission can be made to work with the Confederation of Indian Industries to take on this responsibility.

Just as corporations can live or die on reputations, so can nations.

National reputation is a kind of infrastructural investment.

It is not as visible as a dam but as useful.

If the Planning Commission were to do this job well, it would pay for itself many times over.

And there would be plenty of savings to build an underground car park for shoppers in Connaught Place.

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I agree with Mr. Basu's observations about the Planning Commision. But what I fail to see in the commision's objectives is a response to the 'social' problem of corruption. The problem is with the whole mindset of Indian bureaucracy that hampers even the possibility of such plans to work or to be put into practice. How can that be dealt with? Corruption is a major problem affecting not only citizens, but also potentially socio-economic developments. Is that something worth discussing?
Aash Shah, USA

A timely and well done article.
David Franks, India

The suggestion by the author is too cosmetic. I suggest that Planning Comm should do more concrete work in articulating poverty alleviation programs and ENSURING BETTER IMPLENTATION. Its role should also be upgraded to being more than just an advisory authority. We always have great plans, but sadly speaking very poor implementation. Secondly, the planning comm should have long-term tenure. The hats should not change with the change in govt. That is the biggest drawback. Our govt, overseas Diplomatic offices and Indian Trade associations should develop a cohesive effort for building the India Inc. brand, which is critical as mentioned by author. Everybody talks of IT as a leader in software, one should have seen the canvassing done by NASSCOM followed by govt. to achieve this.
Farrukh Khan, Moscow, Russia

It is good to hear Kaushik Basu talk about a new direction for the planning commission. Tthe fashionable view today is that a centralised planning commission is an anachronism in today's world. But this country still needs strong governmental push to help the poor,for which planning commission is central. The recent reaction of the industry honchos to the idea of reservation in the private sector proves that only firm governmental action can address inequalities in society. I wonder what Mr Basu thinks of the recent controversy over foreign consultants. Personally I am disappointed by the left. It's always a pleasure to read Mr Basu's columns. Please keep up the good work!!!
Srinivas, India

The poverty can be eliminated in India if the government should pay attention to it and reduce the defence spending like Pakistan. India can be a huge economy even more than UK and Australia if perfect planning is to be considered by the economist Prime Minister.
Malik Zaheer Abbas, Pakistan

Some times I wonder that these so-called experts on Indian economy really have any knowledge about the way it works. The problem with Indian economy is not the planning, it is the implementation. This so called "pro-poor" Congress has ruled India for 50 years out of 57 years of independence. Why there are so many poor people in India?. The answer is corruption, from top to bottom. Nearly 3% of india's GDP goes in to the pockets of politicians and bureaucrats every year (15 Billion US$). The Congress started this corruption process back in 1947. Congress has fooled the people of India with catchy slogans like "garibi hatao". It is absolutely amazing that so called educated people like Basu are hailing the come back of corrupt Congress party in power. I don't know whether to call you naive or plain stupid.
anand vaidya, UK

This is not an article. Looks more like a news report. Statistics and figures may hide a lot, India has a large middle class, more than 300 million people, larger than the entire US population. That doesn't mean anything , now does it. The problem it seems is not just in mitigating poverty, but also expecting social welfare in a cash stripped country, and subsidies for farmers even the ones that are well-off. Any plan would work, only so long as everyone is ready to put their shoulder to the wheel and push India forward.
harish, india

In the last part of the article, Mr Basu mentions the careful steps that India should take to protect the reputation of its goods and services. Unfortunately he fails to mention the concurrent steps to be taken to protect the Indian employee delivering these goods and services. Moreover, he himself admits that once India becomes "Incorporated" there is no assurance that Indian workers will benefit from this, such as in Peru and Nambibia. So exactly how will this "trickle-down" benefit method is supposed to help "alleviate poverty?" other than an increase in "enthusiasm?" Second, there is enough evidence from other South and Southeast Asian countries that shows administrations looking to charm foreign investors have seriously damaged their own environments, strained their natural resources to the future suffering of their own people, not to mention gruesome labor practices. All of this shows that an "incorporated India" is really going to benefit those who already have a substantial investment portfolio to begin with, and nothing is going to change for those people who are truly impoverished, except possible an extra blanket and a sandwich with their regular scrapings.
Sandip Basu, New Jersey, U.S.

Great article! Thank you.
Shekar Nilekani, USA

The is absolutely no doubt that planning is required in India to ensure that benefits of growth reach the poor. However, what plagues India is not necessarily lack of planning or ideas. We lack in execution. Virtually all the institutions that are supposed to work for public are corrupt babudoms. Do you think there are areas of "planning" that need to be looked into to improve the lack of poverty? Purely for my knowledge, I would like to know what kind of planning can be done for poverty alleviation in India that has not been done already. On the other hand, I do see some initiatives by private players - micro financing, ITC's eChaupal etc.- working a lot better than governments.
Nishit Rawat, India

Extending the argument on poverty reduction, I would like to point out that, trying to reduce poverty by focusing all the efforts on certain populistic ways (to appease the poor), that have been traditionally followed is just intuitive and not insightful. It would make a lot more sense to attempt to reduce poverty (in absolute terms and not relative figures) by trying to increase the overall "wealth" of the country and wait for the "trickling down" of the development into the rest of the community. But alas... the government has only a few years to show the effects of tis efforts... only if those at thwe top learnt to think a little altruistically.
Dr. Gaurav Arya, India

Indian economy needs a push from several directions not just from information and pharmaceutical technologies alone! We need to add value through other fields as well. While other nations build competition in these fields, we should diversify and strengthen herbal medicine by developing nutraceuticals using our knowledge-base in Ayurvedic medicine, offering quality allopathic medical treatment at relatively cheaper rates, and encouraging ecotourism. In these troubled times, there are not many peaceful destinations, like India, for the affluent to visit. The West is slowly discovering the merits of a number of Indian habits and traditions.
Jagdish Kumar, Canada

The mandate of the planning commission was balanced socio economic development of the country. Notwithstanding the progress in high tech India is still home to the worlds poorest of the poor. The author has provided a constructive critique of the institution. Since there is no sunset clause to dissolve the outmoded institution his suggestion to reinvent it is worth noting. Senior Policy Advisor Natural Resorces Government of Canada
J. Mathu, Canada

What an article!!! At times when Indian Politics is fighting whether to include private consultants in planning commission or not, this article actually reveals that fact that they should look at some tangible outcomes from hiring the expensive consultants. A third party view will definitely help the planning commission when a tangible outcome from the help is decided. Planning commission at the moment lacks direction and competence for development of the country.
Soumya, India

Mr Basu's exhortation of command economy and planning, will not wash with economic realities of India and will be grossly inadequate in alleviating poverty. These socialist policies have been tried and tested for the last 51 years, have failed to achieve any results. Break down the bureaucratic controls and unleash the stranglehold over free enterprise,then watch the space. Poverty will disappear like a puff of smoke.
Swapan, UK/USA

Professor Basu makes a wonderful case how the planning commission can strike a balance between India's economic policy of "market incentive" and "market intervention". For this the commission needs to be more dynamic and open up to new ideas. But the professor's advice of the commission having consultants to do this has already been turned down after an unnecessary political controversy.even then, without the official consulting panels it can discuss the issues with any expert - foreign or national - as the commission had always done since the time of Mahalanobis, its founder. But the suggestion of the commission creating the brand name "India Inc" is doubtful. It requires different communication skills which the commission never had and possibly never care to have.
Buroshiva Dasgupta, India

There are so many things that India has to ape from foreign nations for the success. The first and foremost amongst them is 'attitudenal change'. If the govt. officials and the offices would pay a better time for such a change, development would come automatically. There is no need for scyscrapers to show the pomp. You bet!
Rajesh, Kerala, India

Kaushik Basu makes a good point when he speaks of a national image. This takes many years of effort, and one hopes that India will make a mark in the manufacturing industry (automobiles, electronics) and other areas (as a tourist destination) as it has in software. In my view, the software industry is taking care of itself and needs little encouragement from the Govt to flourish. Perhaps the Planning Commission should really see in what areas the country needs to be active for the long-term health of the economy (manufacturing, preserving sites of tourist interest such as national parks and ancient temples, and places of historical interest). This needs a long-term vision of where the country needs to go, since the present Govt has been given a fresh chance, it would do well to make sincere efforts.
Arun Paramekanti, India (visiting the Us)

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