8 Roles of Planning and State in the Post-Reform Period

Here we detail about the eight roles of planning and state in the post-reform period. 

1. Creating Social Infrastructure and Promoting Human Development:

The first and foremost, planning is needed even after the policy of liberalisation and privatisation for creating the social infrastructure and for human development which are of crucial importance for promoting economic development.

We need to build schools, colleges, hospitals, institutions of technical education and scientific research. We have to impart skills to the youth so that they can be employed in productive activities.

These can be built better through planning by the state. Private sector participation in creation of social structure and human development is not capable of taking care of the entire needs of the society, particularly of the poor and weaker sections of the society. Market mechanism which is driven by private profit motive will not be able to bring an equilibrium between the ‘need’ and ‘supply’ in this regard. Therefore, planning in this area will remain important.

2. Poverty Alleviation and Employment Generation:

Planning has to play an important role in poverty alleviation and employment generation. Poverty exists because the poor people and downtrodden have little asset endowments with which to engage themselves in productive activities to earn sufficient incomes. Lack of adequate number of jobs on wage basis is another important cause of poverty and unemployment.

It is through planning that the assets for the poor can be built. For example, adequate credit supply to the poor farmers is necessary if they have to make improvements in their land, build irrigation facilities and other assets to increase their productivity. Private sector and market mechanism cannot be expected to build and provide assets to the poor.

3. Special Anti-Poverty Schemes:

Besides, due to various factor price distortions such as relatively low price of capital due to various fiscal concessions, over-valued exchange rate of rupee, private sector has a tendency to use more capital-intensive techniques and therefore will not create sufficient employment opportunities.

It is due to increasing capital-intensity of the production processes that employment elasticity of output in the industrial and agricultural sectors of the Indian economy has greatly fallen in the last two decades. This has significantly reduced the employment potential of the Indian economy. Planning and State intervention is needed to provide disincentives to the use of capital-intensive technique and to give incentives to use labour-intensive techniques of production.

Further, plans can provide for special anti-poverty schemes and special employment programmes for the poor and unemployed. Anti-poverty programmes such as Food for Work Programme, Employment Guarantee Programme to provide one person of a household living below the poverty line employment for 100 days in a year will be of great help for the poor and unemployed.

If the poor and unemployed are used to build durable assets, it will enhance the productivity of the economy. It is through planned actions by State that such anti-poverty programmes can be effectively implemented.

4. Building Physical Infrastructure:

It is now well known that private sector is least interested in building physical infrastructure such as power, communication, roads, ports, highways as private benefits are less than social benefits in their case. This is because building of infrastructure generates external economies.

It is now well-recognized that economic growth is impeded by the lack of these infrastructural facilities. Past experience also shows that except in the field of telecommunication, private sector in India does not feel attracted to make adequate investment in the infrastructure projects.

Therefore, to achieve 8 per cent annual growth rate in GDP on a sustained basis, which is the new goal set for the Indian economy, public investment in economic infrastructure in the framework of a well-designed plan is of paramount importance.

5. Investment in Agriculture:

Whereas economic reforms initiated since 1991 had a focus on accelerating industrial growth through liberalisation and privatisation, investment in agriculture was neglected. Much of the resources of the government were spent on providing subsidies to farmers. As a result, capital formation in agriculture has substantially slowed down since the early nineties.

The average rate of agricultural growth has been extremely low in the last one decade and a half. This has worsened the employment opportunities in agriculture and in some States, especially Andhra Pradesh, Karnataka and Orissa, several fanners have committed suicide.

Agriculture needs adequate investment for which access to credit to farmers at low interest rates is needed. Besides, to enhance the productivity in agriculture investment in irrigation is essential. Only the State in a planned framework can make adequate investment in expanding irrigation facilities and in undertaking flood-control projects.

6. Regional Balance:

Planning is also necessary to remove large disparities in development between regions. The removal of the regional disparities in economic development requires flow of investible resources across regions. With greater freedom and choice of location that is now available to the private sector, it is more likely that some States would be able to attract more private investment than others.

As a matter of fact, the past experience has shown that market forces do not work in a way to achieve regional balance in economic development. Therefore, planning is needed to manage the flow of resources across regions for rapid removal of regional disparities. For this plan formulation has to ensure that public investment in infrastructure must be reoriented in favour of the less well-off States.

At present plans do provide for special area programmes such as the Hill Area Development Plan, Tribal Area Plan, Plans for development of North East area and Jammu and Kashmir. While these programmes help in development of basic infrastructure in these areas, the backlog of development is large. Therefore, considerable planned efforts and resources are needed for integration of such backward regions into the mainstream of development process in the country.

It may be further noted that the focus regarding the issue of backwardness and regional balance has traditionally been on industrialisation. The evidence, however, suggests that reduction in regional disparities, particularly in average standards of living, may be better achieved through greater focus on agriculture and other rural activities. For this plan formulation should be such that provides for increasing the productivity of agriculture in backward areas. Besides, planned efforts are needed to improve connectivity of these areas in terms of transport and communication with the rest of the country.

7. Protecting Environment and Ecology:

Finally, there are areas such as protection of environment, forests and ecology in which markets cannot play an efficient allocative role. The intervention of the State is essential to regulate private sector operations and working of market mechanism in respect of activities which adversely affects environment, forest and ecology of the economy.

Similarly, working of market mechanism works in a way that leads to the excessive depletion of scarce natural resources like rare minerals, land and water. This harms the prospects of sustainable growth. Proper planning for their optimal use is therefore necessary. In this regard, the observations of the Eighth Five Year Plan are worth quoting. “Market mechanism is never adequate for protecting environment, forests and ecology. Nor is it adequate in giving guidance about the use of scarce resources like rare minerals, land and water. A long term perspective, and hence planning is needed in these areas.”

8. Allocation of Resources among States:

India is a federal state. Both the Centre and States have distinct areas of operation. Investment for development requires resources. Resources from certain taxes levied by the Centre are distributed among the States by the Finance Commission which is appointed every five years to review the situation. Non-tax resources are allocated among the states by the Planning Commission according to their developmental needs and projects submitted by them in this regard.