At Large

Goodbye to All That Central Planning

India’s prime minister takes on Big Government.

By 8.26.14

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What can you say about a sixty-four year old central planning apparatus that died? That it was vestigial? One may look to India on how to try to dismantle Big Government.

In a bold move, India’s new prime minister, Narendra Modi, recently fired the Planning Commission, a central planning body established in 1950 by then Prime Minister Jawaharlal Nehru. Replacing it, he envisions a think-tank that would engage in free market philosophy and strengthen the role of India’s many states. He has created an on-line forum asking for suggestions on what the replacement should look like.

The Planning Commission, chaired by the prime minister, had consisted of various cabinet officials and experts, many of whom were economists. Its mission was principally to allocate resources to foster Indian development, formulate Five-Year Plans, and assess progress against those plans. The Wall Street Journal’s India Real Time reports that the current Five-Year Plan comprises over 1,000 pages.

Over the years, the Planning Commission came to symbolize an archaic relic of the central planning adopted from the former Soviet Union, when India was a self-avowed non-aligned nation, nonetheless sponsored by the Soviets and the Eastern Bloc, which assisted in agricultural and industrial development, and provided military hardware for several decades after independence from Great Britain in 1947.

In the view of its opponents, the Planning Commission was an unwieldy part of a government known for massive bureaucracy. The spirit of the times was the government’s desire to impede and punish the private sector, viewing capital as a social evil to be ferociously regulated, and seeking to license anything it could. Even small businesses were watched for fear of monopolies, and the Government of India could dictate to companies where they had to place manufacturing and sourcing assets — regardless of proximity to demand and supply. Following the nationalization of banks in 1969 by then Prime Minister Indira Gandhi, credit was meticulously allocated to different sectors of the economy, regardless of risk and practical considerations. The Fabian socialist movement of the early 20th century had found its way to India from Great Britain and provided a philosophy for the economic model of a new nation, which prevailed until 1991 when drastic free market reforms were first initiated during an economic crisis.

Now enter Narendra Modi, who was previously chief minister of the industrialized state of Gujarat since 2001. In a country where there are brilliant diagnostics that often fade away in bureaucratic corridors or are pulled apart by ethnic, linguistic, religious, regional, and caste differences, Mr. Modi has an impressive record in implementation. Gujarat is widely recognized as a state friendly to private enterprise that attracts indigenous and foreign investment — a place where by reputation, things work well.

The statement that Mr. Modi is making is an important one, at least in form and possibly in substance: the Government of India should no longer be the center of attention — no longer considered as chic as it once was in socialist times. Further, the old rules of the game are changing: it will not be so easy for some high level bureaucrats, skilled in the art of preservation of privilege, to perpetuate their grip.

Moreover, Mr. Modi is attempting to decentralize certain authorities to the many states — and empowerment is a recurrent theme in India when it comes to modernizing education, public health, agriculture, and urban planning. Planning should now be seen as something that states do, rather than something that is done for them at the Centre, as the government is known.

Mr. Modi, who has been philosophically likened to Ronald Reagan, is trying to get the Government of India off the people’s backs — although it will take much more than dissolution of the Planning Commission to end entrenched resistance to free markets and promote the devolution of power. His new government has development challenges on many fronts, and one of them is moderating its Hindu nationalism in a country that is a tapestry of many religions.

We should wish Mr. Modi well in his endeavor. Were he invited to Washington, he might even be able to advise a future Republican administration on how to dismantle Obamacare and Dodd-Frank — and put the federal government on a crash diet.

Frank Schell is a business consultant and former international banking executive. He serves on the Dean’s International Council of the Harris School of Public Policy Studies, University of Chicago where he is a lecturer.

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About the Author
Frank Schell is a business consultant and former international banking executive. He serves on the Dean’s International Council of the Harris School of Public Policy Studies, University of Chicago where he is a lecturer.