Planning and the Public Sector in India

Independent India built two machines to carry its development ambition: a Planning Commission that decided where investment went, and a public sector that owned the places it went to. Neither was written into the Constitution; both acquired enormous power anyway, and both have since been dismantled or drastically shrunk. The interesting question is not whether planning “worked” but what an unelected body with a nation’s investment budget did to Indian federalism, what a state-owned commanding-heights economy did to Indian capitalism, and what survives of both now the institutions are gone.

Why a poor country decided to plan

Planning as a twentieth-century idea

Planning did not arrive in India as an Indian invention. It came as the most confident economic idea of its century, and India adopted it at the peak of that confidence.

• Soviet Gosplan was the demonstration effect. The First Soviet Five Year Plan (1928-32) appeared to show that a backward agrarian economy could be industrialised in a decade by state direction — and it did so while the capitalist world was collapsing.
• The Great Depression destroyed the authority of laissez-faire: markets had not self-corrected but produced a decade of mass unemployment. John Maynard Keynes justified state management of aggregate demand, and the colonial world drew the wider inference that the state could manage aggregate investment too.
• Wartime controls normalised the machinery: Britain, the United States and India itself ran rationing, price control and directed production between 1939 and 1945. The Department of Planning and Development (1944) and the Bombay Plan of the same year show the technique already internalised by Indian officials and industrialists.
• Post-colonial developmentalism made it near-universal. New states from Ghana to Indonesia to Egypt adopted plans, because planning promised what colonialism had denied them: a self-authored trajectory rather than a role assigned by an imperial division of labour.

Planning was the respectable orthodoxy of the 1940s, not a doctrinaire choice, and its Indian adoption was consensual across a spectrum that agreed on almost nothing else. The Congress left and right, the industrialists of the Bombay Plan, the socialists of the People’s Plan and the Gandhians of the Sarvodaya Plan differed on the plan’s content, not on whether there should be one.

The specific Indian case

The general argument for planning was global; the argument for planning in India rested on features of the Indian economy that the market, left alone, was not going to fix.

• Capital scarcity. Domestic savings were around a tenth of national income in 1950, and the small investible surplus had to be steered to its highest social rather than private return — private return in a poor economy pointing to trade, moneylending and land, not machine tools.
• Missing markets. There was no capital market able to finance a steel plant, no long-term industrial credit institution, no market for technical skills at scale. The state had to build the institutions a market economy assumes exist — which is why IFCI (1948), ICICI (1955), IDBI (1964) and the Unit Trust of India (1964) are as much products of planning as Bhilai.
• Coordination failure. A steel plant is worth building only if there is power, coal, a railway for the ore and a fabricator for the output: each investment is unprofitable alone and profitable together, and no private investor internalises the whole chain. This is the “big push” argument of Paul Rosenstein-Rodan and Ragnar Nurkse, and the core of Indian plan advocacy.
• Balanced regional development. Colonial investment had clustered in three port presidencies and a narrow industrial belt; left alone, capital would have agglomerated where infrastructure already existed. Siting public plants in Bhilai, Rourkela, Bokaro, Durgapur, Neyveli and Ranchi was deliberate geographic redistribution.
• Planning as social transformation, not only growth — the point most easily missed. The plans set targets for literacy, scheduled caste and tribal welfare, land reform and the removal of poverty. Planning was to be how a formally equal republic became a substantively equal one: the Directive Principles, particularly Articles 38, 39 and 46, given an implementing agency.

“The central objective of planning in India at the present stage is to initiate a process of development which will raise living standards and open out to the people new opportunities for a richer and more varied life.” — First Five Year Plan

Imperative, indicative, and where India actually sat

The single most common confusion about Indian planning is the assumption that it was Soviet-style. It was not, and the distinction determines almost everything else.

	Imperative (directive) planning	Indicative planning
Ownership base	State owns the means of production	Mixed or largely private ownership
Nature of targets	Binding commands on enterprises	Forecasts and signals to private decision-makers
Instrument	Physical allocation of inputs and outputs	Fiscal incentives, credit direction, public investment
Price formation	Administered throughout	Market, with selected administered prices
Classic example	USSR, China before 1978	France under Jean Monnet, Japan’s MITI era
Failure mode	Information failure — nobody knows true scarcities	Non-compliance — the private sector ignores the plan

• India ran a hybrid, and the hybrid was the problem. Public-sector targets were imperative; the private sector got an “indicative” plan it was free to ignore but was in practice bound by industrial and import licensing, capital-issues control, foreign-exchange allocation and the MRTP Act. The plan had the coerciveness of a command economy without the ownership base that makes command coherent.
• The result was not a socialist economy but a permit economy, in which the scarce commodity was official permission and the rent accrued to whoever could obtain it. The “licence-permit-quota raj” is the accurate name, and it names something distinct from either column above.
• Pranab Bardhan’s account of the state as captive to a coalition of dominant proprietary classes — industrial capitalists, rich farmers and the professional bureaucracy — explains why. A state that must accommodate all three cannot impose losses on any, so it hands out permissions instead of discipline.

Planning gave India the discipline of a command economy over its public firms and the rent-seeking of a licensing state over its private ones.

The Planning Commission: an executive body with a nation’s investment budget

The resolution of 15 March 1950

• The Planning Commission was created by a resolution of the Union Cabinet dated 15 March 1950. It was neither a constitutional body nor a statutory one — no article of the Constitution created it, and no Act of Parliament governed it. Every feature of its later history follows from that one fact.
• Because it rested on a Cabinet resolution, it could be created, restructured and finally abolished by executive decision alone, with no amendment and no legislation. That is exactly how it ended in 2014.
• Its ancestors were the Advisory Planning Board (1946) under K.C. Neogy, which recommended a permanent planning organ, and the Congress’s National Planning Committee (1938) chaired by Nehru himself, which had already accustomed the nationalist leadership to thinking in plan terms.
• The Prime Minister was ex-officio Chairman — the source of both its authority and its anomaly. Its recommendations carried the Prime Minister’s weight, so no ministry and few states could refuse them, while the Commission itself answered to no legislature.

Composition and functions

• Composition was never fixed by law: a Deputy Chairman of cabinet rank who did the actual work, full-time members who were economists, scientists and administrators, and ex-officio members including the Finance Minister and the Defence Minister. Members were nominated by the Prime Minister, not elected, not confirmed by Parliament, and not chosen with any state involvement.
• Its functions, as the 1950 resolution set them out: assess the country’s material, capital and human resources and the scope for augmenting them; formulate a plan for their most effective and balanced use; determine priorities and the stages of execution; indicate the factors retarding development; and appraise progress, recommending adjustments.
• To this must be added the function that mattered most and appeared in no resolution: the Commission allocated central plan assistance to the states, by the 1960s the largest single discretionary flow in Indian public finance.

The National Development Council

• The National Development Council was constituted by a Cabinet resolution in August 1952 to give the plans a federal endorsement the Commission itself could not supply.
• Composition: the Prime Minister as chairman, all Union Cabinet Ministers, the Chief Ministers of all States, the Chief Ministers or administrators of Union Territories, and the members of the Planning Commission — with the Commission’s own secretary serving as its secretary.
• Functions: to prescribe guidelines for the national plan, consider the plan the Commission formulated, assess resources, and review the plan’s working periodically. Formally, no Five Year Plan became operative until the NDC approved it.
• In practice the NDC ratified rather than deliberated. It met infrequently, considered documents circulated shortly before, and gave Chief Ministers a platform for grievance rather than a share in design. That its secretariat was the Commission’s own says which body served which.
• The First Administrative Reforms Commission recommended strengthening it — more frequent meetings, a standing committee, a real agenda role for states — and this was not implemented in substance.

The Gadgil formula and the arithmetic of allocation

Until 1969, central plan assistance was distributed by negotiation, scheme by scheme, which meant the politically well-connected state did better. The Gadgil formula, adopted by the NDC in 1969 on the initiative of D.R. Gadgil, then Deputy Chairman, replaced discretion with weights.

Criterion	Gadgil (1969)	NDC revision (1980)	Gadgil-Mukherjee (1991)
Population	60%	60%	60% (1971 census)
Per capita income	10%	20%	25%
Tax effort / fiscal performance	10%	10%	7.5%
Continuing irrigation and power projects	10%	—	—
Special problems	10%	10%	7.5%

• Special Category States — first Assam, Jammu and Kashmir and Nagaland, later eleven — were taken off the top before the formula applied and received assistance on 90% grant and 10% loan terms against 30:70 for the rest: the most valuable federal concession in the system, and fiercely competed for.
• The Gadgil-Mukherjee revision of 1991, adopted under Pranab Mukherjee’s chairmanship of the NDC committee, raised the per capita income share to 25%, of which 20 points went only to states below the national average.
• The formula covered a shrinking share of what the Commission actually moved. By the 2000s, formula-based normal central assistance was a minority of plan transfers; most flowed through centrally sponsored schemes and additional central assistance, which were not formula-bound at all. Replacing discretion with arithmetic in one channel shifted the discretion to another.

Plan and non-plan: the distinction that shaped Indian budgeting

• Every rupee of government expenditure was classified as plan (expenditure on schemes in the current Five Year Plan) or non-plan (salaries, pensions, interest, subsidies, defence revenue expenditure, and — crucially — the operation and maintenance of assets created by earlier plans).
• The distinction was meant to protect developmental capital spending from routine consumption. In one respect it did the opposite: a new school building was plan expenditure and a political achievement; the teachers, textbooks and repairs to keep it working were non-plan and chronically starved. Indian public services acquired a permanent bias toward construction over operation.
• It also distorted state incentives: central assistance was available for new schemes, but the recurring liability fell on state revenues thereafter. States accumulated committed non-plan burdens from schemes accepted because the initial money was free.
• The Rangarajan Committee on classification of expenditure (2011) recommended replacing it with a revenue-capital classification; it was abolished from the 2017-18 budget, the most consequential and least noticed effect of the Commission’s demise.

Article 282 and the leverage of discretionary grants

This is the constitutional hinge of the whole argument, and it is worth stating precisely.

• Article 275 provides statutory grants-in-aid to states in need, on the recommendation of the Finance Commission under Article 280 — constitutionally channelled and constitutionally scrutinised.
• Article 282 allows the Union or a State to make grants for any public purpose even where that purpose lies outside its own legislative competence. It was drafted as a residuary, occasional provision — for an emergency or an exceptional grant.
• The Planning Commission’s entire transfer apparatus was built on Article 282. Plan assistance, additional central assistance and centrally sponsored schemes were all discretionary grants for a public purpose. The occasional provision became the main road.
• The federal consequence: the larger flow of central money escaped the constitutional body designed to scrutinise transfers, because the Finance Commission’s mandate ran to revenue-gap grants under Article 275 while development grants ran through Article 282 to a body the Constitution never mentions.
• The Fourteenth Finance Commission, by raising tax devolution sharply and refusing to apply the plan/non-plan distinction in its own recommendations, resolved this dispute in the Finance Commission’s favour just as the Planning Commission was abolished.

Planning’s power was never constitutional. It was fiscal.

The plans themselves

The record, plan by plan

Plan	Period	Core idea and model	Target	Achieved	What happened
First	1951-56	Harrod-Domar; agriculture, irrigation, power, refugee rehabilitation	2.1%	3.6%	Over-fulfilled; good monsoons and a low base; Bhakra-Nangal, Hirakud and Damodar Valley launched
Second	1956-61	Mahalanobis four-sector model; heavy industry and capital goods first	4.5%	4.3%	Bhilai, Rourkela and Durgapur begun; ended in the foreign-exchange crisis of 1957-58, forcing import curbs and aid dependence
Third	1961-66	Self-reliant, self-generating economy; industry with agriculture	5.6%	2.8%	Wrecked by the 1962 war with China, the 1965 war with Pakistan and the droughts of 1965-66; the series’ most complete failure
Plan holiday	1966-69	Three annual plans; crisis management, agriculture first	—	~3.9%	Rupee devalued from ₹4.76 to ₹7.50 to the dollar in June 1966 under donor pressure; the Green Revolution package introduced
Fourth	1969-74	Growth with stability; Gadgil formula adopted; garibi hatao politics	5.7%	3.3%	Bank nationalisation, the Bangladesh war and ten million refugees, the 1973 oil shock
Fifth	1974-79	Removal of poverty and attainment of self-reliance; Minimum Needs Programme	4.4%	4.8%	Exceeded its growth target but terminated a year early in 1978 by the Janata government
Rolling Plan	1978-80	Annually revised plan on the Myrdal principle, under D.T. Lakdawala	—	—	Abandoned in 1980 on Congress’s return; India’s only rolling-plan experiment
Sixth	1980-85	Poverty removal through direct anti-poverty programmes — IRDP, NREP, TRYSEM	5.2%	5.7%	The first plan to accept that growth alone would not reach the poor, and the first to stress modernisation
Seventh	1985-90	Food, work and productivity; Jawahar Rozgar Yojana	5.0%	6.0%	Strongest pre-reform growth, financed by the borrowing that produced the 1991 crisis
Annual plans	1990-92	Two annual plans; no Five Year Plan possible	—	~3.4%	Three governments in two years and the balance-of-payments crisis made a medium-term plan impossible
Eighth	1992-97	The first post-reform plan; shift to indicative planning; human development as core	5.6%	6.8%	Planning redefined as creating an environment for private initiative, not directing investment
Ninth	1997-2002	Growth with social justice and equity; “seven basic minimum services”	6.5%	5.4%	Fell short; East Asian crisis, sanctions after Pokhran-II, coalition instability
Tenth	2002-07	Monitorable targets beyond growth — poverty, literacy, infant and maternal mortality, sex ratio, forest cover	8.0%	7.6%	Growth targets nearly met, social targets mostly missed — which was the point of monitoring them
Eleventh	2007-12	“Towards Faster and More Inclusive Growth” — 27 monitorable targets	9.0% (revised 8.1%)	~8.0%	Spanned the global financial crisis, yet the strongest growth decade in Indian history
Twelfth	2012-17	“Faster, More Inclusive and Sustainable Growth” — sustainability as a third pillar	8.0%	~7%	The last Five Year Plan, run to term on 31 March 2017 though its author was dissolved in 2015

What the plan record actually shows

• The plans failed less at growth than at their own arithmetic. Six of twelve missed their growth target, yet the average rate rose from roughly 3.5% over the era’s first three decades to over 6% after the Eighth — and the acceleration coincides precisely with planning ceasing to be directive.
• Pre-1980 target-setting was systematically optimistic: targets were the growth rate required to reach a poverty or employment goal, worked backwards into investment requirements, rather than what the economy could plausibly deliver.
• They succeeded in what they built, not in what they forecast: a capital-goods and machine-tool sector that did not exist in 1947; the IITs, the CSIR laboratories, the atomic energy and space programmes; trebled irrigation capacity; a national power grid. These are plan outputs, and they underwrite the services and technology economy of today.
• Where they failed is equally clear: agriculture was neglected until the food crises forced attention; primary education and public health were starved throughout — the era’s deepest failure, and why human development lagged growth; the anti-export bias kept the foreign-exchange constraint binding for four decades; and employment growth never matched output.
• Plan targets were rarely enforced against anyone. No minister lost office for missing one, no enterprise faced consequences, no state forfeited assistance. Targets without accountability for targets make a budgeting system with rhetoric attached.

Planning and the federal question

This is where the topic becomes political science rather than economics, and it is where the sharpest criticisms of Indian planning lie.

Entry 20 and the constitutional route

• The Constitution never mentions planning as a governmental function, but it does list “economic and social planning” as Entry 20 of the Concurrent List. That single entry is the constitutional doorway through which the Union entered subjects otherwise reserved to the states.
• This matters because agriculture (Entry 14), land (Entry 18), water (Entry 17), public health (Entry 6) and local government (Entry 5) are all State List subjects — precisely the sectors development planning targets. Planning could not proceed without the Union operating inside state jurisdiction.
• Entry 20 permits central legislation on planning. It does not create a Planning Commission, authorise an executive body to allocate funds, or subordinate state plans to a national plan — all of which happened by executive practice reinforced by money, not by law.
• Article 246 with Entry 20, Article 282 for the grants, and a Cabinet resolution for the institution: that is the entire legal foundation of the most powerful economic body in India for six decades.

The super-cabinet problem

• The Planning Commission became, in the standard criticism, a “super-cabinet” — an unelected body that determined not merely policy but the outlays attached to policy, thereby reducing Union ministries to implementing agencies for decisions taken elsewhere.
• Ashok Chanda, a former Comptroller and Auditor General who wrote closely on Indian federalism, argued that the Commission had grown into a parallel executive drawing its authority wholly from the Prime Minister’s chairmanship and correspondingly unaccountable to Parliament.
• The mechanism was straightforward: a ministry could propose a scheme, but the Commission decided whether it entered the plan and at what outlay. Control over the outlay is control over the policy, and the Commission had it without ministerial responsibility to a legislature.
• Members were hand-picked by the Prime Minister, served at his pleasure, and included no representative of any state — yet exercised more influence over state development priorities than the Rajya Sabha, the Inter-State Council or the Finance Commission combined.

The Commission against the Finance Commission

	Finance Commission	Planning Commission
Basis	Article 280 — constitutional	Cabinet resolution, 1950 — extra-constitutional
Appointment	By the President, every five years	By the Prime Minister, permanent body
Mandate	Tax devolution and grants-in-aid under Article 275	Plan formulation and development grants under Article 282
Nature of transfer	Formula-based, unconditional, revenue	Scheme-tied, conditional, capital and development
Accountability	Report laid before Parliament with an explanatory memorandum	No obligation to report to Parliament
Size of flow	Smaller through most of the plan era	Larger, and growing

• The division was never intended by the Constitution. Because the Commission already determined development outlays, successive Finance Commissions were instructed through their terms of reference to confine themselves to non-plan revenue expenditure. The constitutional body’s jurisdiction was narrowed by executive fiat to make room for the extra-constitutional one.
• The effect was to place the larger and more discretionary share of central transfers beyond the reach of the only transfer mechanism the Constitution actually designed. A body with no constitutional existence came to determine more of what states received than the body Article 280 created for exactly that purpose.
• The Sarkaria Commission recommended that the Planning Commission consult the Finance Commission, that terms of reference not be used to constrain the latter, and that plan assistance be made more formula-driven.
• The Punchhi Commission went further: integrate the two bodies’ work, sharply reduce centrally sponsored schemes and make them flexible for states, and discipline transfers under Article 282.
• The Fourteenth Finance Commission ended the dispute by absorbing the plan/non-plan distinction into its own recommendations and raising the states’ share of the divisible pool from 32% to 42% — the real institutional turn in Indian fiscal federalism, taken as the Commission was abolished.

Centrally sponsored schemes and the matching share

• Centrally sponsored schemes are Union-designed programmes in State List subjects, funded partly by the Centre and implemented by states, conditional on the state contributing a matching share and following central guidelines.
• The matching share is the coercive instrument. Decline a scheme and forfeit the central money entirely; accept it and divert scarce state resources to a priority you did not set. Neither is autonomy — which is why states call centrally sponsored schemes a federal problem even when they like the scheme.
• Their proliferation was the Commission’s real federal legacy: at their peak over 200 centrally sponsored schemes, individually trivial and collectively large enough to shape state development spending.
• The B.K. Chaturvedi Committee (2011) recommended consolidation; the Sub-Group of Chief Ministers on Rationalisation of Centrally Sponsored Schemes (2015) under Shivraj Singh Chouhan recommended reducing them to 30 umbrella schemes with greater state flexibility. Consolidation happened; the conditionality did not disappear.
• Rajiv Gandhi’s much-quoted observation that only a small fraction of each development rupee reached the beneficiary was a comment on this chain — Union scheme, state implementation, district administration — and it has never been answered.

The charge, and the honest reply

The 1991 formulation that planning “superseded the federation” and made India function almost as a unitary system is a strong claim, and it deserves a genuinely two-sided treatment.

• For the charge: an unelected central body set the priorities of elected state governments; state plans required Commission approval; discretionary grants rewarded political alignment; Entry 20 was used to enter State List subjects; and the NDC, the only forum for resistance, merely ratified.
• Against it: the transfers were real resources poorer states could not have raised, and their formula element was genuinely redistributive; balanced regional development was an objective no market process would have delivered; states retained control over implementation, where most policy is actually made; and the Commission could never legally compel a state, only pay it.
• The accurate verdict is that planning centralised the setting of priorities without centralising the exercise of power. States could not choose the agenda but could and did dilute or ignore its execution — which is why identical schemes produced radically different outcomes in Kerala and Bihar. Unitary in design, federal in performance, and that mismatch is the source of most of its inefficiency.

Planning from below: the decentralised alternative

Centralised planning had a critique from within almost from the start — not that India planned too much, but that it planned at the wrong level. A plan drafted in Delhi cannot know which village needs a well and which needs a road.

The committee lineage

Committee	Year	Core recommendation on planning below the state
Balwantrai Mehta	1957	Democratic decentralisation through three-tier panchayats; development functions and their plans transferred to elected local bodies, with the block as operating unit
Ashok Mehta	1978	Two-tier structure, the zila parishad the first point of decentralisation and the district the unit of planning; open participation by political parties
Dantwala	1978	Block-level planning — the block as the spatial unit at which sectoral schemes are integrated into an area plan, bridging village needs and district resources
Hanumantha Rao	1984	District planning — District Planning Bodies with technical cells, a plan integrating state schemes with locally identified needs, and a clarified role for the Collector
G.V.K. Rao	1985	Rural development had been bureaucratised and divorced from panchayati raj — panchayats were “grass without roots”; recommended the district as basic planning unit and a District Development Commissioner
L.M. Singhvi	1986	Constitutional status for panchayats, so decentralised planning could not be withdrawn at state discretion

The constitutional turn

• The 73rd and 74th Amendments (1992-93) converted the recommendation into constitutional obligation, but with a characteristic Indian caution: the obligation is on states to devolve, and its content is left to state legislation.
• Article 243G empowers state legislatures to endow panchayats to function as institutions of self-government, specifically including “the preparation of plans for economic development and social justice” and their implementation across the 29 subjects of the Eleventh Schedule. Article 243W does the same for municipalities and the Twelfth Schedule.
• Article 243ZD mandates a District Planning Committee in every district, to consolidate the plans of panchayats and municipalities into a draft development plan for the district. Not less than four-fifths of its members must be elected by and from the elected members of the district panchayat and municipalities, in proportion to rural and urban populations, and the chairperson forwards the plan to the state government.
• Article 243ZE mandates a Metropolitan Planning Committee for every metropolitan area of ten lakh population or more, with not less than two-thirds of members elected by and from among the elected members of municipalities and chairpersons of panchayats in the area, again in population proportion.
• This architecture is genuinely radical on paper. It requires that the district plan be built upward from local plans, by a body dominated by elected local representatives, in a country where planning had been an exclusively top-down exercise for forty years.

Kerala’s People’s Plan Campaign

• Launched on 17 August 1996 by the Left Democratic Front government under E.K. Nayanar, it was the only serious attempt anywhere in India to make Article 243G mean what it says.
• Its decisive move was fiscal: roughly 35-40% of the State’s plan outlay was devolved to local governments as untied funds, with panchayats and municipalities free to decide their own projects. Devolution of functions without funds is what had defeated decentralisation everywhere else; Kerala reversed the order.
• Its method was a sequenced mass campaign: gram sabhas to identify needs, development seminars to debate them, task forces to draft projects, consolidation at panchayat, block and district level, and technical vetting by volunteer expert committees of retired professionals.
• Its base was unusual and not replicable on demand: the Kerala Sasthra Sahithya Parishad, a mass science movement with tens of thousands of volunteers; the design work of T.M. Thomas Isaac; the groundwork of E.M.S. Namboodiripad; and a literate, mobilised population with a habit of collective action.
• Kudumbashree, the women’s neighbourhood-group and poverty-eradication network that grew alongside it, is the campaign’s most durable product and now reaches several million women.
• Its own architects concede the vitality has faded. Thomas Isaac has said so directly: gram sabha participation has thinned, allocations have shrunk in real terms, the productive-sector projects meant to follow the infrastructure ones did not arrive, and the bureaucracy has reasserted control over approvals. Thirty years on it shows that decentralised planning is possible, not that it is self-sustaining.

Why it failed nearly everywhere else

• Funds, functions and functionaries did not travel together. States transferred subjects on paper while keeping the budget lines, the staff and the scheme guidelines. A panchayat with a constitutional duty to plan for agriculture and no extension officer under its control plans in the abstract.
• The District Planning Committee was constituted late, or nominally, or not at all. In many states it met to approve a plan drafted by the district administration, inverting the constitutional design entirely.
• Parallel bodies bypassed the panchayats. Scheme-specific societies, mission directorates and district agencies, created because they were faster and more controllable, absorbed exactly the functions the Eleventh Schedule assigned to elected local bodies.
• Local governments have almost no own revenue. Panchayats raise around 1% of their resources from their own taxes; the rest is tied transfer. A body that raises nothing cannot prioritise, having nothing of its own to allocate.
• The political economy is against it. MLAs see district planning power as a threat to their patronage function and states see strong panchayats as rival centres of legitimacy. Decentralisation asks the level that must legislate for it to surrender the power it enjoys.
• The measured result is public and dismal: the national devolution index for panchayats rose only from 39.9% in 2013-14 to 43.9% in 2021-22 — fewer than half the powers contemplated, three decades on.

India constitutionalised decentralised planning in 1993 and then declined to fund it, which is how a mandate becomes a formality.

The public sector: building the commanding heights

Why it was built

The public sector was not an ideological indulgence bolted onto planning; it was the instrument without which the plan had no way of executing itself.

• Capital scarcity and gestation. Steel, power, coal, heavy machinery and fertiliser need enormous investment recovered over decades; Indian private capital in 1950 was neither large enough nor patient enough. The Bombay Plan of 1944, drafted by leading industrialists themselves, assumed a state-led investment programme for exactly this reason.
• Strategic autonomy. Defence production, atomic energy, space and later oil were held too important to national security for private or foreign owners. Import substitution was a sovereignty argument before it was an economic one: a country dependent on others for its machinery is dependent on them for its foreign policy.
• Socialist ideals. The Avadi session of the Congress in 1955 committed the party to a “socialistic pattern of society”, and Parliament adopted it as a national objective, with public ownership of the commanding heights as its operational meaning. Nehru’s argument was that major industries in public hands would distribute the surplus more equitably, prevent concentration of economic power and direct production toward social need.
• Employment. In a labour-surplus economy without social security, public enterprises were employers of first resort — an objective in permanent tension with efficiency, which it eventually defeated.
• Balanced regional development. Plants were sited in backward districts precisely because private capital would not have gone there. Bhilai, Rourkela, Bokaro, Durgapur, Neyveli, Bhopal, Ranchi and Sindri were acts of regional policy as much as industrial policy, and their townships changed the economic geography of central and eastern India.
• The plan needed an executor: the state could not direct an investment pattern it did not own, and public enterprises were how plan targets became factories.

IPR 1948 and IPR 1956

	Industrial Policy Resolution, 1948	Industrial Policy Resolution, 1956
Framing	Mixed economy accepted; state role limited and cautious	Socialistic pattern of society as the declared objective
State monopoly	Arms and ammunition, atomic energy, railways	Schedule A: 17 industries exclusively for the state
State initiative	Six basic industries where new units to be state-owned — coal, iron and steel, aircraft, shipbuilding, telecommunications equipment, mineral oils	Schedule B: 12 industries progressively state-owned, private sector supplementing
Private sector	Rest open, subject to regulation of 18 industries of national importance	Schedule C: everything else, but subject to licensing
Existing private units	Review after ten years — a threat of nationalisation later withdrawn	Existing units in Schedule A allowed to continue
Small industry	Encouraged	Actively protected; regional dispersal and cooperatives emphasised

• The 1956 Resolution was drafted alongside the Second Plan and is best read as its enabling instrument. It made public-sector expansion declared national policy rather than a case-by-case decision — which is how the sector grew from five enterprises with ₹29 crore of investment in 1951 to hundreds by the 1980s.

What was actually built

• Steel: Bhilai (Soviet), Rourkela (West German) and Durgapur (British) came on stream around 1959, followed by Bokaro (Soviet); Hindustan Steel Limited (1954) became the Steel Authority of India Limited (1973). Four plants built with three rival blocs’ help is non-alignment translated into industrial policy.
• Heavy engineering: BHEL (1964) for power equipment, HMT for machine tools, Heavy Engineering Corporation at Ranchi. India manufactures most of its own power generation equipment because of this decision.
• Energy: ONGC (1956), set up after the private oil majors declined to explore seriously; Indian Oil, Coal India (1975), NTPC (1975), NHPC (1975), Power Grid (1989).
• Aviation and defence: Hindustan Aeronautics, tracing to 1940 and reconstituted in 1964; Bharat Electronics (1954); the ordnance factories.
• Science and strategy: the Atomic Energy Commission (1948) and Department of Atomic Energy (1954) under Homi Bhabha; INCOSPAR (1962) becoming ISRO (1969) under Vikram Sarabhai, with the Department of Space (1972). These are the public sector’s most unambiguous successes and the least often counted as such.
• Finance and insurance: the Imperial Bank became the State Bank of India (1955); life insurance was nationalised in 1956, creating LIC from 245 insurers; general insurance in 1972, producing GIC and its four subsidiaries.
• The second wave: fourteen banks in July 1969 with deposits above ₹50 crore and six more in 1980 above ₹200 crore; coking coal in 1971-72 and the rest in 1973, consolidated into Coal India (1975); the foreign oil marketers taken over 1974-77 as HPCL and BPCL; Air India in 1953.
• Bank nationalisation had the widest effects of any single measure: branch expansion into unbanked areas, priority-sector lending targets and the directed credit that financed the Green Revolution all followed from it — and it was at once good development policy and superb electoral politics.

“Dams are the temples of modern India.” — Jawaharlal Nehru

The ratna classification

Operational autonomy was the standing complaint of public enterprise managers, and the ratna categories were the answer: graded delegation of financial powers to boards that had earned them.

• Miniratna Category-II: three consecutive profitable years and positive net worth; capital expenditure up to ₹300 crore or net worth, whichever is lower, without approval. Category-I additionally requires pre-tax profit of ₹30 crore or more in at least one year, and carries higher ceilings and powers over joint ventures and personnel.
• Navratna: a Schedule A, Miniratna Category-I enterprise with excellent or very good memorandum-of-understanding ratings in three of five years and a composite score of 60 out of 100 on six financial parameters; may invest far larger sums and form subsidiaries abroad.
• Maharatna: already Navratna, listed with minimum public shareholding, with three-year averages of turnover above ₹25,000 crore, net worth above ₹15,000 crore and net profit above ₹5,000 crore, and significant international operations. Hindustan Aeronautics became the fourteenth Maharatna in October 2024.
• The scheme is a revealing compromise: autonomy is granted as a reward for performance rather than as a matter of principle, which leaves precisely the weak enterprises that most need commercial freedom under the tightest supervision.

The record: what the public sector genuinely delivered

• An industrial base. India in 1947 could not make a machine tool, a power turbine, a modern locomotive or a ton of alloy steel; by 1980 it made all of them, and the capacity was overwhelmingly public.
• Infrastructure with no commercial case at the time. Power generation and transmission, coal, ports, telecommunications and the rail network were built where no private return justified them and the whole economy depended on their existing.
• Regional redistribution. Central and eastern India acquired industrial towns, technical institutions and skilled workforces that would not otherwise exist. Whatever the balance sheets say, Bhilai and Rourkela transformed districts.
• Employment on a large scale, with formal wages, provident fund, medical cover and reservation for scheduled castes and tribes — one of the few routes into industrial employment for communities excluded from private hiring networks.
• Financial inclusion. Rural branch expansion after 1969 is among the largest institutional achievements of Indian development, and the platform on which Jan Dhan accounts and direct benefit transfer later stood.
• Instruments of policy, not merely producers. They held down administered prices of steel, fertiliser and fuel, built in backward regions, kept strategic capacity alive and absorbed sick private units. Judging them on profitability alone judges them against an objective they were never given.

The record: where it failed

• Returns on capital were poor and often negative. Setting aside the oil, coal and power monopolies, whose profits reflect market position more than efficiency, much of the sector earned less than the government’s own cost of borrowing — the plan consuming national savings rather than compounding them.
• Overmanning. Employment being a stated objective, staffing followed political convenience rather than technical requirement, and once hired the workforce could not be reduced. The employment objective destroyed the efficiency objective, and enterprises could not choose between them because the state never did.
• The soft budget constraint. János Kornai’s term for a firm that cannot fail fits Indian public enterprises exactly: losses were met by budgetary support, loans never repaid, or arrears to other public bodies. A firm that cannot fail has no reason to improve.
• Political interference in pricing and location. Administered prices for steel, fertiliser, power and fuel were set politically and the resulting losses booked to the enterprise; plants were sited to satisfy regional demands rather than logistics; boards changed with governments.
• Administrative-ministry control. The Bureau of Public Enterprises (1965), later the Department of Public Enterprises (1990), issued guidelines on everything from wages to procurement, while each enterprise also answered to its administrative ministry, the Committee on Public Undertakings and the CAG. Multiple principals with conflicting objectives produce managers who optimise for compliance, not performance.
• Product quality and the failure of import substitution. Protected from imports and from domestic competition, public enterprises supplied substandard goods at high prices to captive buyers. Import substitution therefore never became export promotion: Indian manufactures were uncompetitive abroad because they had never competed at home, and India stayed an exporter of primary products long after building the factories.
• Sick units. The Sick Industrial Companies Act (1985) and the Board for Industrial and Financial Reconstruction built machinery to revive or wind up sick companies that in practice preserved them: BIFR became a shelter rather than a resolution, and was dissolved on 1 December 2016 for the Insolvency and Bankruptcy Code. The Board for Reconstruction of Public Sector Enterprises (2004-15) recommended revivals with little effect.
• A merit criticism that must be stated carefully. It is often argued that reservation in recruitment and promotion made public enterprises uncompetitive. The claim does not survive comparison: profitable and loss-making enterprises operated under an identical reservation regime, and the loss-makers are distinguished by product market, pricing freedom and debt, not hiring rules. Overmanning driven by political employment demands is a demonstrable cause of inefficiency; reservation is a separate question.
• The comparison usually offered is China, and it cuts both ways. China retains a very large state-owned sector and much of it is profitable — because loss-makers were closed, tens of millions were laid off in the 1990s, and firms were exposed to competition. India did none of that, which is why the same institutional form produced opposite results.
• The political-economy reading. Atul Kohli and Francine Frankel both trace the failure to the state’s dependence on the classes it was meant to discipline: a government needing industrialists for investment, rich farmers for votes and the bureaucracy for delivery cannot impose losses on any of them. Hamza Alavi’s term for the resulting apparatus — an over-developed state, inherited from colonial rule and larger than the society it governs — names what the licensing system entrenched.
• Bimal Jalan’s image for the position is the one that stuck: the public sector had become old family silver, on which the family spent more each year simply to keep it shining.

Disinvestment and privatisation, and what they did to planning

The committee lineage and the shift in doctrine

• Disinvestment began in 1991-92 not as privatisation but as a fiscal expedient: minority shareholdings in profitable enterprises were bundled and sold to public financial institutions to bridge the deficit. No management control changed hands and no rationale beyond revenue was offered.
• The Rangarajan Committee (1993) supplied the first doctrine: disinvestment up to 49% in industries reserved for the public sector and 74% or more in others, with majority state holdings retained only in a short strategic list — defence, atomic energy and railways. It also insisted that proceeds fund investment or debt reduction rather than current expenditure, advice ignored ever since.
• The Disinvestment Commission (1996) under G.V. Ramakrishna was the first standing body on the subject: it classified referred enterprises by strategic importance and recommended a mode for each — trade sale, offer for sale, strategic sale or closure — covering 58 enterprises across eleven reports. Its advice was largely not acted on; it was reconstituted in 1999 under R.H. Patil and wound up in 2004.
• The institutional home moved repeatedly: a Department of Disinvestment (1999), a full Ministry of Disinvestment (2001-04), and finally the Department of Investment and Public Asset Management (DIPAM) in April 2016. The renaming was substantive — it recast the state as manager of an asset portfolio rather than seller of companies, the language in which asset monetisation became possible.

Three phases of policy

Phase	Period	Approach	Landmarks
Fiscal disinvestment	1991-1998	Minority stakes sold in bundles for budgetary support; no control transferred	Sales to LIC, UTI and public financial institutions; targets routinely missed
Strategic sales	1999-2004	Transfer of management control to a strategic partner; the only genuine privatisation phase	Modern Food (1999), BALCO (2001), CMC, HTL, VSNL, IBP, IPCL, Hindustan Zinc, Paradeep Phosphates, hotels, Maruti (2002-03)
Minority stake route	2004-2014	No privatisation of profit-making enterprises; sale of small tranches while retaining 51%; proceeds partly ring-fenced	National Investment Fund (2005); the fund’s ring-fencing progressively diluted; CPSE ETF (2014) and later Bharat 22
Strategic sales resumed	2016-	Return to control transfers, plus asset monetisation as the parallel track	Air India (2022), Neelachal Ispat (2022), LIC IPO (2022), PSE Policy 2021, NMP

• The National Investment Fund (November 2005) was to hold proceeds in perpetuity, 75% of its annual income financing social-sector schemes and 25% recapitalising profitable enterprises. Successive relaxations from 2009 turned it into a routing account for the budget. The Rangarajan principle that proceeds should not fund current spending has been defeated in practice by every government that adopted it in principle.

The Public Sector Enterprise Policy, 2021

• Announced in the Union Budget of 1 February 2021 with guidelines issued in December 2021, this is the most far-reaching statement of intent since IPR 1956, and it inverts it.
• It defines four strategic sectors in which the state will retain a “bare minimum presence”:
  • Atomic energy, space and defence
  • Transport and telecommunications
  • Power, petroleum, coal and other minerals
  • Banking, insurance and financial services
• In these sectors the intention is to retain a small number of enterprises, with the remainder privatised, merged or brought under a holding company. In all non-strategic sectors, enterprises are to be privatised or closed.
• The parallel to IPR 1956 is exact and deliberate: the earlier resolution listed what the state would reserve to itself, this one lists what it will keep before withdrawing from everything else. The commanding heights doctrine has been reversed by a document of the same type that established it.

“The government has no business to be in business.” — Narendra Modi

What has actually been sold

• Air India returned to the Tata group on 27 January 2022 at an enterprise value of about ₹18,000 crore, of which roughly ₹15,300 crore was debt assumed. It is the only large strategic sale completed in over fifteen years, and it took four attempts across two governments.
• Neelachal Ispat Nigam Limited went to Tata Steel Long Products in 2022 for about ₹12,100 crore — a closed, loss-making steel plant, and the model case for transferring a genuinely sick unit.
• The LIC initial public offering of May 2022 sold 3.5% for about ₹20,557 crore, the largest Indian IPO to that date — a listing that imposed market disclosure on India’s largest institutional investor, not a transfer of control.
• The rest of the announced pipeline — BPCL, Container Corporation, Shipping Corporation, BEML, IDBI Bank — has produced no completed transfer.
• The IDBI Bank sale is the definitive case. The government holds about 45% and LIC about 49%; a combined 60.7% stake with management control was on offer. After bidding stretched across four years, the sale collapsed in March 2026 when bids came in below the reserve price, officially attributed to global uncertainty. A transaction announced in 2021 and repeatedly declared imminent has failed on valuation.
• Realisation has drifted from privatisation to portfolio management. Against a revised estimate of ₹33,837 crore for 2025-26, the government raised ₹45,306 crore under miscellaneous capital receipts — but only ₹16,886 crore was disinvestment against ₹28,420 crore of asset monetisation. The 2026-27 budgeted figure is ₹80,000 crore, and receipts so far come overwhelmingly from offers for sale in Coal India, LIC, NHPC, IRFC, Central Bank of India, GIC, NLC and Cochin Shipyard — minority tranches in enterprises the state means to keep controlling.
• A parliamentary standing committee reported in February 2026 that no non-strategic enterprise had been approved for disinvestment since the December 2021 guidelines, and described a gap between policy intent and implementation. From a committee under the governing party’s own chairmanship, it is the most authoritative statement of where the 2021 policy stands.

Asset monetisation as privatisation’s substitute

• The National Monetisation Pipeline of August 2021 offered a different route: lease brownfield public assets to private operators for a defined term while keeping ownership. Target ₹6 lakh crore over 2021-25, realisation about ₹5.3 lakh crore — coal, roads, ports and petroleum performing, railways, telecom and aviation lagging.
• NMP 2.0 was launched on 24 February 2026 with a target of about ₹10 lakh crore for 2025-26 to 2029-30 across twelve sectors — and, significantly, it was prepared by NITI Aayog, monitored by a core group of secretaries under the Cabinet Secretary.
• This is the most telling institutional development in the whole story. The body that replaced the Planning Commission is drawing up a five-year, sector-wise, target-bearing national pipeline. It is not called a plan and allocates no money, but a medium-term physical-targets exercise run by a central body is what a plan document was.
• Monetisation is politically easier for a revealing reason: ownership formally stays with the state, so the charge of selling national assets is harder to make stick and no employee’s status changes on day one. It is privatisation of operation without privatisation of title.

The political economy: why privatisation is announced more easily than done

• Losses are concentrated, gains diffuse. Employees, unions and the towns built around a plant know exactly what they lose; the taxpayer whose subsidy ends never learns what was gained. Concentrated losers organise; diffuse winners do not.
• Public-sector unions are among the best-organised in India, and every major central trade union — including those affiliated to governing parties — opposes strategic sales; reversal of privatisation is a standing demand of the joint union platform in general strikes.
• Federal and litigation friction. Enterprise land was often granted by a state on concessional terms, and states resist its passing to a private buyer: the BALCO sale drew a Supreme Court challenge and was contested by Chhattisgarh. Every large sale invites writ petitions, CAG comment and committee scrutiny.
• Valuation is a political trap. Sell at a price a buyer will pay and be accused of undervaluing the family silver; set a reserve high enough to defend and receive no acceptable bid — exactly what happened with IDBI Bank in 2026.
• A competitive democracy with frequent elections shortens the horizon. Privatisation imposes visible costs now for invisible gains later, in a system where a state election is always within eighteen months. Hence a record of two clusters — 1999-2004 and 2021-22 — separated by long periods of announcement.

What disinvestment did to planning

The 2001-vintage question about disinvestment’s impact on planning is a sharper question than it looks, because the two are connected through the mechanism of plan finance.

• It removed the plan’s principal instrument. Planning worked by directing public investment; a state selling productive assets rather than accumulating them has nothing left to direct. The Eighth Plan’s shift to indicative planning was less a change of doctrine than an acknowledgement of a change in instruments.
• It changed the state’s fiscal relation to the plan. Disinvestment proceeds are capital receipts financing current deficits: the state consumes the accumulated surplus of the plan era rather than reinvesting it.
• It transferred the investment decision to private and foreign capital, which answers to expected returns rather than plan priorities. Balanced regional development is the first casualty: private capital returns to corridors where infrastructure already exists, and the dispersal that plant location once achieved has reversed.
• It narrowed planning to what the state still finances directly — infrastructure, social schemes, defence — roughly what NITI Aayog now works on, and roughly the range of modern industrial policy anywhere.
• But it did not end state direction of the economy; it changed the instrument. Production-linked incentive schemes, the semiconductor mission, the National Infrastructure Pipeline, sovereign green bonds and NMP 2.0 are all central determinations of where investment should go, with targets and timelines. The state that disinvested from steel now underwrites chip fabrication.

From Planning Commission to NITI Aayog

The abolition

• The Prime Minister announced from the Red Fort on 15 August 2014 that the Planning Commission would be replaced. NITI Aayog — the National Institution for Transforming India — was established by a Cabinet resolution on 1 January 2015, by the same instrument and with the same legal standing as the body it replaced: neither constitutional nor statutory.
• The stated case had three strands: a body built for a closed, state-directed economy was anachronistic in a market one; an unelected body allocating funds to elected governments was a federal anomaly; and one national plan could not serve states at wildly different stages.
• The Twelfth Plan ran to term on 31 March 2017, so the last two years of Indian five-year planning were administered by an institution that did not believe in it.

Structure

• Chairperson: the Prime Minister, exactly as before.
• Vice-Chairperson of cabinet rank, appointed by the Prime Minister — Arvind Panagariya (2015-17), Rajiv Kumar (2017-22), Suman Bery (2022-).
• Full-time members of minister-of-state rank, and part-time members from universities and research institutions, rotating.
• Ex-officio members: up to four Union Ministers nominated by the Prime Minister; special invitees, ministers with domain expertise, also nominated.
• Chief Executive Officer, of Secretary rank, on fixed tenure — Sindhushree Khullar, Amitabh Kant, Parameswaran Iyer, B.V.R. Subrahmanyam. The post replaced the Commission’s Secretary and is deliberately administrative rather than political.
• The Governing Council is the structural innovation: the Prime Minister, the Chief Ministers of all States and of Union Territories with legislatures, and the Lieutenant Governors of the remaining Union Territories, with the vice-chairperson, members and special invitees. It is a standing body of the federation’s chief executives, which the Commission never had.
• Regional Councils may be convened by the Prime Minister for issues affecting more than one state, comprising the Chief Ministers concerned, for a specified purpose and tenure.
• Attached bodies include the Development Monitoring and Evaluation Office (DMEO) and the Atal Innovation Mission — evaluation and innovation arms the Commission lacked.

What it actually does

• Documents. The Three Year Action Agenda (2017-18 to 2019-20) replaced the Five Year Plan; a seven-year strategy and fifteen-year vision were contemplated, and what appeared in December 2018 was Strategy for New India @75, running to 2022-23. Viksit Bharat @2047 and state-level Viksit Rajya @2047 documents now occupy that space.
• Indices are its most distinctive instrument. The SDG India Index, whose fourth edition for 2023-24 scored India 71, up from 66 in 2020-21 and 57 in 2018, on 113 indicators across 16 goals; the Composite Water Management, School Education Quality, Health, India Innovation, Export Preparedness and Fiscal Health indices; and the National Multidimensional Poverty Index, recording 11.28% in 2022-23.
• Aspirational Districts Programme (January 2018): 112 districts chosen on composite backwardness, monitored on 49 key performance indicators across health and nutrition, education, agriculture and water, financial inclusion and skilling, and basic infrastructure, with quarterly delta rankings naming which districts improved fastest.
• Aspirational Blocks Programme (January 2023): the same method extended to 513 blocks in 27 states and 4 Union Territories on 40 indicators. Sampoornata Abhiyan, a saturation campaign on a short indicator list, ran in 2024 and again as Sampoornata Abhiyan 2.0, 28 January to 14 April 2026.
• Federal engagement machinery: the State Support Mission, helping states build their own transformation institutions; sub-groups and task forces of Chief Ministers on specific subjects; the NITI for States knowledge platform.
• Its declared philosophy is “Team India” and a bottom-up approach: states are to join policy formulation from inception rather than be handed a finished plan, working groups form around the states that want a subject, and business, academics and civil society are treated as participants rather than objects of policy.
• The method underneath all of it is competition, not command: rank states and districts publicly and let electoral incentive do what plan targets could not. A real innovation in Indian administration — and one that works only where a government is embarrassed by comparison.

The decisive change

	Planning Commission	NITI Aayog
Legal basis	Cabinet resolution, 15 March 1950	Cabinet resolution, 1 January 2015
Core power	Allocated plan funds to states	Allocates nothing; advises
Who allocates now	The Commission itself	The Finance Ministry, on Finance Commission devolution
State participation	None in the body; NDC met rarely	Governing Council of all Chief Ministers; regional councils; sub-groups
Planning horizon	Five Year Plans	Action agenda, strategy, vision documents
Expenditure classification	Plan and non-plan	Revenue and capital; plan/non-plan abolished from 2017-18
Approach	Directive, then indicative	Advisory, evaluative, competitive
Relation to states	Vertical; states petitioned for assistance	Horizontal in form; states negotiate a formula share elsewhere

• The single most important fact about NITI Aayog is that it does not allocate money. Everything that is better about it and everything that is weaker about it follows from that.
• What that gains. Removing an unelected body from resource allocation is a real federal improvement: states receive a formula-based share of the divisible pool set by a constitutional body rather than negotiating discretionary assistance with a Commission answerable to the Prime Minister alone. The Fourteenth Finance Commission raised devolution to 42%; the Sixteenth, for 2026-31, held it at 41%, discontinued revenue-deficit, sector-specific and state-specific grants, and awarded ₹7,91,493 crore to local bodies. Untied money is the substance of fiscal autonomy.
• What that loses. Nothing now performs medium-term resource planning — projecting resources five years out and matching them to sectoral requirements — or inter-sectoral coordination across ministries with authority to make it stick. Abolishing the plan/non-plan distinction removed a protected category for capital expenditure, which now competes with everything else annually; and states lost a forum in which a national plan could be invoked for resources.

The critiques

• The advisory-body problem. A think tank cannot compel implementation: NITI Aayog can rank a state’s health system last of twenty-eight, but cannot require it to act and has no money with which to induce it.
• The “imperfect clone” charge. Balveer Arora has described NITI Aayog as an imperfect copy of the institution it was created to abolish: the same Prime Ministerial chairmanship, Cabinet-resolution basis, nominated membership and premises, with the one power that made the original consequential removed. On this reading the reform was institutional theatre attached to a genuine fiscal change made elsewhere.
• Cooperative federalism as an asymmetry. The Governing Council meets roughly annually, is chaired by the Prime Minister and has a centrally set agenda; several Chief Ministers have boycotted it over devolution and scheme design. A forum in which states are consulted is not a forum in which states decide, and opposition-ruled states have consistently said so.
• The evaluation function is under-resourced. DMEO’s output-outcome frameworks improve on plan-era monitoring, but evaluation without budgetary consequence changes little — the Commission at least controlled the next tranche.
• The counter-argument deserves equal weight. The Commission’s power flowed from a discretionary channel the Constitution never contemplated, exercised by nominees of one office over elected governments. Removing it was a federal improvement whatever replaced it; the honest complaint is not that the Commission was abolished but that the functions worth keeping were reassigned to nobody.

NITI Aayog is more federal than the body it replaced and less consequential, and those are the same fact stated twice.

What survives of planning

The institution is gone and the technique is gone; a surprising amount of both remains embedded in how India is governed.

• Centrally sponsored schemes remain the principal vehicle of national development policy in State List subjects — consolidated into umbrella schemes, still conditional, still matching-share funded, still central in design. This is the Planning Commission’s most complete survival, and it survives in the ministries rather than in a planning body.
• National missions with targets and timelines are the Five Year Plan’s method applied to a single sector: Swachh Bharat, Jal Jeevan, Ayushman Bharat, the National Education Policy’s implementation architecture, the semiconductor and green hydrogen missions. Targets, monitorable indicators, a central mission directorate and state implementation — the plan’s grammar without the plan’s document.
• The public-sector footprint is still enormous. The latest enterprises survey covers 289 operating central public sector enterprises — 226 profitable, 63 loss-making — with aggregate net profit of about ₹3.09 lakh crore against losses of about ₹18,055 crore in 2024-25. Profits concentrate in coal, financial services, crude oil, power and refining: Coal India, ONGC, NTPC, Power Finance Corporation, REC, Power Grid, Hindustan Aeronautics. Losses concentrate in BSNL, MTNL, Rashtriya Ispat Nigam and NMDC Steel. Four decades of announced withdrawal have left the state owning the commanding heights of energy and finance.
• The statistical and evaluation apparatus — the National Sample Survey, national accounts, the poverty and consumption series, output-outcome frameworks, the index architecture — was built to serve planning and now serves everything else. Its lapses cost too: no official consumption-poverty line has been set since the Tendulkar and Rangarajan methodologies, leaving the poverty series with a discontinuity that planning-era statistical discipline would not have permitted.
• Finance Commission transfers now carry the load plan assistance once did, and the shift from tied plan grants to untied formula devolution is the largest change in Indian fiscal federalism since 1950.
• The underlying assumption survives everything. That the state sets development priorities, publishes targets, funds them and is judged on the result is contested by no significant Indian political formation. India abandoned planning as a technique while keeping it as a theory of the state’s purpose.

What the planning function is still needed for

• Strategic vision and long-term goals. Someone must say where the country intends to be in fifteen years and what must happen for it. Viksit Bharat @2047 occupies this space; whether a vision with no resource projection behind it is a plan or a slogan is the open question.
• Sustainability, which growth targets do not capture. Emissions intensity, groundwater, soil, air quality and the energy transition are inter-generational trade-offs that annual budgets systematically discount. Planning’s long horizon is exactly the instrument such trade-offs require.
• Policy coordination across levels and sectors. In a federation of 28 states with 29 devolved local subjects, aligning central and state policy is itself a task no market performs.
• Data-driven allocation. The index architecture, output-outcome frameworks and evaluation are planning’s evidentiary function outliving its directive one — and what makes competitive federalism possible at all.
• Innovation and competitiveness. Identifying sectors where the country should build capability — semiconductors, batteries, green hydrogen, space — and backing them with incentives is planning under another name.
• Crisis management and resilience. The Covid-19 pandemic made the case at its starkest: vaccine procurement and rollout, foodgrain distribution to 800 million people and emergency fiscal support were centrally planned operations executed at speed, and no decentralised process would have produced them.

And three limits it must respect

• It must not crowd out the private sector. In a market economy the state sets direction while private capital supplies most investment and nearly all innovation; a plan that reserves activity to the state now forecloses more than it creates.
• It must be flexible and decentralised. Globalised supply chains and rapid technological change punish five-year commitments; the unit of planning should be as close to the problem as the problem allows.
• It must be enabling, not restricting. The lesson of the licensing decades is that a planning apparatus holding discretionary permissions becomes a rent-generating apparatus. Reducing procedural obstruction is now a planning objective, not an alternative to one.

The case for a new planning body, and against

• For. Medium-term resource planning has no institutional home: ministries plan in annual budget cycles and nobody reconciles them. Inter-sectoral trade-offs — irrigation against power, health against nutrition — are settled implicitly by budget allocation rather than explicitly by analysis. Climate transition, demographic ageing and the energy shift are exactly the long-horizon problems planning was invented for. Several state governments and a strand of economists press for a statutory body with a resource-projection mandate.
• Against. The economy is overwhelmingly private, so a body projecting public investment plans a shrinking share of the total; the information problem that defeated central planning has not gone away; a funded planning body would recreate the anomaly of an unelected allocator; and the coordination function can be discharged by a stronger Finance Ministry capital-budget process without reviving the transfer power.
• The realistic middle position, on which most reform proposals converge, is a statutory NITI Aayog: fixed mandate, secure tenure, an obligation to publish a medium-term resource and investment projection, and a reporting relationship to Parliament — the advisory and evaluative model, with independence and a duty the executive cannot quietly drop.

Conclusion

Indian planning was a political settlement before it was an economic technique — a capitalist economy directed by a socialist state under a party of Gandhians. Each of its three elements then failed in its own distinct way.

• The Commission failed constitutionally, exercising over elected state governments a power no article of the Constitution gave it.
• The public sector failed commercially, because a firm charged at once with efficiency, employment, regional balance and price restraint, and guaranteed against failure in all four, has no criterion by which to choose.
• The plans failed at their own arithmetic while succeeding at what they are rarely credited for — building the industrial, scientific and institutional base on which everything since has stood.
• NITI Aayog is the more federal institution and the less consequential one.
• Asset monetisation is privatisation that dares not use its name.
• Centrally sponsored schemes reproduce inside the ministries precisely the conditionality that made plan transfers a federal grievance.

What replaced planning is therefore honest about the loss of instruments and evasive about the loss of function. The Planning Commission has been abolished twice over — once as an institution in 2015, and once as a technique when the state stopped owning what it wished to direct. The assumption that gave rise to it, that development in India is something the state must consciously bring about rather than await, has never been abolished at all.