COMMENTARY

Role and Functions of

NITI Aayog
M Govinda Rao

The architecture, engineering and

management aspects of the new
institution, NITI Aayog, will have
to be crafted carefully, if it is to
serve as an institution to impart
dynamism to the developmental
process in a harmonious manner.
Its effectiveness will depend on
how it charts out a course for
itself. An important question
is whether the Aayog will have
influence when it does not have
the power to give grants and does
not have the powers to make plan
allocations to different ministries
and departments.

M Govinda Rao (mgrao48@gmail.com)

was a Member of the Fourteenth Finance
Commission; he was earlier Director of the
National Institute of Public Finance and Policy.
Economic & Political Weekly

EPW

JANUARY 24, 2015

1 Demise of the Planning

Commission

here have been wide-ranging discussions on the role and remit of

the new institution to replace the
Planning Commission ever since the
prime minister in his 2014 Independence
Day address declared that the Planning
Commission would be replaced by a new
institution. In the cabinet resolution passed on 7 January, the government has
come out with the broad contours of the
new institution, National Institution for
Transforming India (NITI). The remit and
functioning of NITI Aayog will become
clearer as it evolves over time. This note
analyses the possible role it can take and
the challenges it is likely to face in carrying out remit assigned to it.
Not many will shed tears on the abolition of the Planning Commission. In
fact, the previous prime minister himself had called for redefining its role to
suit changing realities. The planning
exercise that was followed had hardly
any relevance for the market economy. It
did very little to plan and implement
even public sector investments for infrastructure and its role in promoting publicprivate partnership was mostly seen as
obstructive. The whole exercise of giving
approvals to state plans smacked of
dispensing patronage. The proliferation
of various centrally-sponsored schemes
(CSS) with one size fits all design and
conditionality contributed to severe distortions in public spending. Often, the
Planning Commission came up with discretionary transfers to states to meet
non-plan revenue deficits negating the
norms set by the Finance Commissions.
The presence of a member of the Planning
Commission as a part-time member of
the Finance Commission did very little
to correct this anomaly.
There were two contradictions between the Indian development strategy and
the institutional framework constraining

vol l no 4

economic environment over the years.

The first is the contradiction bet ween
the planning framework and the role of
the market. The initial years after Independence required a planning frame to
allocate the low levels of savings to invest
in much needed infrastructure and priority sectors to overcome severe infrastructure deficits and the lack of competitiveness of the economy. However,
the framework failed to adapt to the
transition after the liberalising reforms
were initiated. With fiscal constraints
becoming more and more binding and
political economy factors crowding out
infrastructure spending with subsidies
and transfers, the planning exercise lost
much of its relevance.
The second contradiction was between the centralised command over
resource allocation and the developmental role of the states in a federal polity. The end of single party rule and the
emergence of coalition governments
and regional parties as members of the
central coalition brought to the fore the
contradiction between centralised planning in a federal framework. The response of the central government was to
further centralise even by intruding into
the legislative domains of the states by
various means including the proliferation of CSS. The consequence of the
above was that the two important sources of economic dynamism, the private
sector and the states, had to function in
a constrained environment.
The architecture, engineering and management aspects of the new institution, NITI Aayog, will have to be crafted
carefully, if it has to serve as an institution to impart dynamism to the developmental process in a harmonious manner. First, economic liberalisation has
created a vibrant private sector and the
new institution should assist in policymaking to enable private entrepreneurs
to unleash their animal spirits and not
to constrain them. Second, horizontal
and vertical competition in a multilevel
fiscal system can be an important source
of economic dynamism so long as a certain measure of competitive equality
and cost-benefit appropriability are
ensured and predatory competition is
prevented. Laboratory federalism can
13

COMMENTARY

be a source of innovations, imitations

and learning and facilitating this is
important. Third, coordination costs
are higher when there are coalition governments and the parties in power in
the states are different from that of the
centre. There is an urgent need for an
institution to promote h
ealthy intergovernmental competition while preventing the race to the bottom. All these
underline the need for an institution to
promote Coasean bargains in the
spirit of cooperative federalism and
ensure resolution of issues when such
bargains fail.
2 NITI Aayog: Role and Remit
The cabinet resolution lists 13 different
tasks to it which may be grouped under
four major heads, namely: (i) fostering
cooperative federalism by providing
structured support to states on a continuous basis; (ii) formulation of a strategic
vision and long-term policies and programme framework both for the macro
economy and for different sectors;
(iii) acting as a knowledge and innovation hub and providing research inputs
by undertaking and accessing globally

available research; and (iv) providing a

platform for interdepartmental coordination. Each of these functions is discussed here in some detail.
(i) Cooperative Federalism: Platform
for Interface between the Centre and
States: The most important responsi
bility of NITI Aayog relates to promoting
cooperative federalism through struc
tured support initiatives and mechanisms with the States on a continuous
basis. The Seventh Schedule to the Constitution demarcates the legislative domains and functional responsibilities of
the union and states in terms of union,
state and concurrent subjects. However,
there is considerable overlap in the functions requiring coordination between the
union and the states and among the states
inter se. Carrying out stable and sustainable developmental agenda requires
fostering the spirit of cooperation and
cementing the federal structure.
The areas of coordination needed are
many and some of them may be listed
here. First, there is considerable overlap
in carrying out legislative and executive
functions in concurrent subjects. Recent

years have shown the need for cooperation in areas such as energy and environment, education and poverty alleviation where the need for coordinated action and speedy decisions are critical for
pursuing the developmental agenda.
Second the union government may have
to intervene in the national interest even
if they are in the State List or Concurrent
List. There may be some public services
in the State List, which, for reasons of
nationwide externalities or for redistribution require coordinated action to
ensure minimum standards throughout
the country. The examples include
healthcare, urban development and
poverty alleviation. In these cases, the
state governments are the partners in
achieving a common goal. Third, In the
case of union subjects too, the states
may be involved in implementation as
agencies due to their proximity to the
people. In addition, NITI can facilitate
exchange of information and experiences and promote heathy intergovernmental competition through monitoring
and regulation.
The most important issue which the
NITI Aayog will have to deal with is the

Higher Education in India

In Search of Equality, Quality and Quantity
Edited by

Jandhyala B G Tilak
India has a large network of universities and colleges with a massive geographical reach and the facilities for higher
education have been expanding rapidly in recent years. The story of higher education in India has seen many challenges
over the decades and has not been without its share of problems, the most serious being a very high degree of inequity.
Pp xiv + 538 Rs 745
ISBN 978-81-250-5131-2
2013

Drawn from writings spanning almost four decades in the EPW, the articles in this volume discuss, among other things,
issues of inclusiveness, the impact of reservation, problems of mediocrity, shortage of funds, dwindling numbers of
faculty, and unemployment of the educated young.

Authors: Andr Bteille Shiv Visvanathan Suma Chitnis Satish Deshpande K Sundaram Rakesh Basant, Gitanjali Sen Jayati Ghosh
Thomas E Weisskopf Lloyd I Rudolph, Susanne Hoeber Rudolph A M Shah Errol DSouza G D Sharma, M D Apte Glynn L Wood
D P Chaudhri, Potluri Rao R Gopinathan Nair, D Ajit D T Lakdawala, K R Shah Chitra Sivakumar Amrik Singh Jandhyala B G Tilak Anindita
Chakrabarti, Rama Joglekar Karuna Chanana Saumen Chattopadhyay Samuel Paul Deepak Nayyar V M Dandekar M Anandakrishnan
Thomas Joseph

Orient Blackswan Pvt Ltd

www.orientblackswan.com
MumbaiChennaiNew DelhiKolkataBangaloreBhubaneshwarErnakulamGuwahatiJaipurLucknowPatnaChandigarhHyderabad
Contact: info@orientblackswan.com
14

JANUARY 24, 2015 vol l no 4 EPW Economic & Political Weekly

COMMENTARY

rationalisation of CSS as there is considerable resentment by the states on them.

In 2011, there were over 147 schemes
which have since been consolidated into
66, but a close examination shows that
these have been retained as sub-schemes
even in the new arrangement. The onesize fits all design of the schemes do not
take account of varying local conditions
and institutions, The large counterpart/
matching fund requirements distort priorities of the states, conditionalities in
availing the grants make them restrictive and the final distribution of transfers is very different from the original
design. Finally, when the schemes are
discontinued, they leave large committed liabilities on the states.
There is certainly a case for having
specific purpose transfers for ensuring
minimum standards of services which
are considered to be of national importance. Given the collaborative nature of
such schemes, they should be designed
and implemented in the spirit of cooperative federalism. The schemes should be
holistic with scope for flexibility in implementation depending on the varying
local conditions and they should be limited in number (not more than 10). They
should have considerable scope for flexibility in implementation. The new institution could provide a platform for designing the schemes, implementation
systems, monitoring and evaluating
them in a collaborative framework.
In order to enable NITI Aayog to play a
constructive role in fostering cooperation, it is necessary to place the InterState Council, properly empowered under Article 263 of the Constitution, in
the Aayog. This institution should be the
nodal agency for negotiation, discussion, bargaining and resolution of all
major issues. It should have the required
expertise on intergovernmental relations,
fiscal federalism and constitutional law.
(ii) Strategic Planning: One of the major tasks assigned to NIti Aayog is strategic planning at both macro and sectoral
levels. Perspective planning helps to
make projections on the macro variables
and keep the policy perspective in view.
The strategy and policies required to
improve the standard of living of the
Economic & Political Weekly

EPW

JANUARY 24, 2015

projected population and improve

human development to empower the
people to productively engage them in
economic activities over a long-term
horizon are important. These should be
constantly revisited to ensure their
relevance.
The cabinet resolution also speaks
about planning at the grass-roots level
which implies that the exercise of medium-term planning could be continued,
but in a different manner. It could be indicative planning to provide satisfactory
levels of social and physical infrastructure for meeting the growing needs of
the economy, with the roles of public
and private sectors clearly defined.
Grass-roots planning entails building up
of the plan right from the village level
based on the resource envelop, with
each higher level aggregating the plans
and adding the investment requirements for the category. In other words,
the planning should be built right from
the village, block and district levels and
these should be harmonised with planning at the state level. Similarly, national planning should be the consolidation
of state-level plans along with the planning infrastructure and service requirements for the country as a whole worked
out at the union level. NITI can provide a
framework for preparing the plans to
the states and the latter, in turn, to the
lower levels of government. It should
also have a unit to advise and guide if
any state is in need of such assistance.
(iii) Innovation and Knowledge Hub:
Closely aligned to strategic planning is
the role of NITI Aayog as a think tank
facilitating partnerships between the
stakeholders. Formulation of strategic
vision and policies and programmes
aligned to it as well as initiating and
monitoring them requires state of the
art research, technology upgradation
and capacity building. As a major think
tank of the government working on various developmental policies, it should
not only have basic research capabilities
but also should access and outsource research on relevant subjects globally. It
should have a strong data bank consolidating data and information on economic, demographic, geographic and
vol l no 4

social variables relevant for research

and policy. Among other functions,
the institution should also provide a
platform for experience sharing among
the states.
(iv) Coordination: The fourth important task of the Aayog is to ensure intergovernmental and interdepartmental
coordination. The disastrous consequences of lack of coordination between the
infrastructure, including environmental,
ministries on economic growth were
clearly evident in the last years of the
previous government.
3 Conclusions
The cabinet resolution lays down only
the broad framework for the Aayog. The
effectiveness of the NITI Aayog in transforming India will depend upon the clarity in the functions assigned, the status
and power given and the quality of the
people who will steer the institution. In
fact, the first Aayog will have a tremendous responsibility of carving out a
niche for itself, setting the pace and
steering the transformation.
Thus, the effectiveness of NITI will depend on how it charts out a course for itself. Despite the claims of a marked departure from the past, the institution has
to function in the prevailing milieu and
deal with the burden of legacy. The important question is whether the Aayog
will have influence when it does not
have the power to give grants and when
it does not have the powers to make plan
allocations to different ministries and
departments.
The abolition of the Planning Commission paves the way for restoring the
role of the Finance Commission to assess the total requirements of the states
in the revenue account without making
a distinction between plan and nonplan spending. However, the Finance
Commission does not have a comparative advantage in recommending specific purpose transfers unless it is made
a permanent body. Of course, the constitutional provision does not require
it to be a temporary body Article 280
simply states that the commission should
be appointed every five years or earlier;
the appointed commission can continue
15

COMMENTARY

until the new commission is appointed.

However, so long as the Finance Commission continues to be a temporary
body, the NITI Aayog will have a role
in designing and implementing these
programmes.
The legacy issues do not end merely
with the abolition of the Planning Commission. There are parallel institutions
in the states and it is important to transform them to meet the new requirements. Similarly, the Constitution
requires the establishment of district

16

planning committees and metropolitan

planning committees. Their role in the
new environment needs to be specified.
Although the cabinet resolution states
that NITI Aayog will facilitate grassroots planning, how exactly this will be
carried forward needs to be seen.
The success of the institution in achieving interministerial, interdepartmental coordination will depend on the trust
and cooperation it receives from them
and the harmony with which the Aayog
and various ministries work. There could

be tensions between the technocrats in

the Aayog and various ministers on the
one hand, and between the technocrats
and bureaucrats on the other. There is
also the danger of bureaucratisation of
the Aayog. Similarly, success in fostering
cooperative federalism will depend on
the trust of and cooperation from the
states. In particular, the first Aayog will
have a tremendous task of shaping the
character and charting a course to make
it an important institution in Indian federal polity to transform India.

JANUARY 24, 2015

vol l no 4

EPW

Economic & Political Weekly