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'There will be social unrest in India'

By Shobha Warrier/
Last updated on: February 06, 2015 15:15 IST
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'Growth is predicated on the misery of large sections of people.'

'Maybe Hindutva will be used to suppress any such unrest. Maybe this is the agenda of rising fascism in India.

'Modi wants the market to take care of social sector problems. He has already cut the health budget and is seeking to undermine MNREGA.'

A past demonstration against price rise.


Dr T M Thomas Isaac, a well known economist with a PhD from the Centre for Development Studies, Thiruvavananthapuram, was finance minister in Kerala's Left Democratic Front government from 2006 to 2011.

A professor at the Centre for Development Studies before he joined the LDF government, he is currently a member of the Communist Party of India-Marxist's central committee member

Dr Isaac tells Shobha Warrier/ why the NITI Ayog won't help India.

Do you agree that the Planning Commission had lost its relevance in the post reforms era?

It all depends upon your ideological perspective. Those who believe in the market economy and want the market to be the supreme, unquestioned decision maker, and expect it to produce optimal outcomes, would say the Planning Commission had to be done away with.

But there is an equally important opposite view. Now that neo-liberal reforms are taking place, it is important to have certain control over the market forces. There has to be at least some social concerns built into the process.

Dismantling the Planning Commission is tantamount to giving up even the modicum intervention in the decision making process.

That is because there are many social objectives which the market does not take into consideration like regional inequalities, inter-sectoral and intra-sectoral inequalities, rural-urban inequalities and so on.

All these inequalities have been worsening ever since reforms began. These are issues that market cannot take care of.

You spoke of inequalities. As representatives from all the states are on the NITI Ayog, they say planning relevant to each state would happen.

This is simply a governing council of an institution and do not have binding decision making power. The actual power lies with the finance ministry which controls the money.

Earlier, the Planning Commission was linked to the National Development Council, in which all states are represented.

Our demand has been that this bond must be strengthened and the Planning Commission made accountable to NDC. Now, the NDA (National Democratic Alliance government wants to constitute a council where states will get representation in turn, which I don't think, will address the concerns of the states in anyway better.

The criticism earlier was that the Planning Commission was more centralised. When I interviewed Kerala Finance Minister K M Mani he said though the priorities of each state are different, the decisions taken by the Planning Commission never reflected that.

It has always been the criticism of the Left that the Planning Commission's decisions do not correspond to the spirit of the federal structure of the country, and the priorities of each state are not given much attention.

That is why we wanted the NDC to play a key role in the Planning Commission. Now, the Planning Commission is dismantled and a new body has come. In what sense this is going to be more decentralised?

Merely by saying the needs of each state are different and one hat will not fit everyone, will not make the new council different as long as arbitrary powers remain with the finance ministry and objective norms are done away with.

In the new situation, the finance ministry is going to be the decision maker in allocating funds to different states.

Earlier, at least there was a body that was to an extent, independent of the finance ministry. I feel this new set up is going to be even more centralised.

Why do you feel so when there are representatives from each state on the NITI Ayog?

There may be representatives from the states, but their decisions are not binding.

Who takes the final decision on the financial matters? It is the finance ministry. So there will be more centralisation in the allocation of funds.

Generally the allocation of funds for the state governments are through three routes: The Finance Commission, the Planning Commission and the discretionary allocation made by the finance ministry.

All the studies have shown that the discretionary allocations have mostly been arbitrary and iniquitous while the Finance Commission is more equitable and less arbitrary.

Given this experience, the reasonable conclusion that we can draw is that greater powers to the finance ministry is going to make resource devolution from the Centre more arbitrary and iniquitous.

After Independence, long term planning for a young country was necessary. Today, in the globalised economy, when the economic scenario and markets change almost everyday, are long term planning commissions redundant?

I, for one, am opposed to the unfettered market economy. What is demanded is total freedom for business houses with respect to natural resources and investment decisions.

The recent global crisis and the deepening global environment crisis underlines the need for long term planning and the relevance social intervention.

A whole lot of studies in the post liberalisation period on global economy have shown that inequality has increased to frightful proportions, so much so that even the liberalised economies have understood the need to have market intervention either through redistribution of taxation to the poor and other such measures.

I would argue that in India, it is much more relevant because of the diversity of the Indian subcontinent and the regional differences. There is a renewed relevance of social intervention.

So there is relevance for an institution like the Planning Commission that has gained certain reputation and established certain norms. Therefore, what is required is a major overhaul making it autonomous under the NDC.

So, disbanding the Planning Commission was not a right decision?

Definitely not. It is a move to give global investors unfettered freedom in their decisions and access to the natural resources of the country.

The change that is taking place in the Planning Commission is an additional fillip to the globalisation process.

We should not forget the experience of centuries of colonialism. The objective of national movement was precisely for having a national say in the development process.

What will be the ideal decision making body that a country as diverse as India needs?

We need a Planning Commission that is more democratic, and in tune with the federal nature of the country. Therefore, it must be made an adjunct of the NDC. If you want to change the name, change it.

There must be greater scope for decentralised planning; there must be a multi-level planning structure going down to the local level.

The Planning Commission should have this perspective and ensure that there is planning at different levels.

Why were states ruled by parties opposed to the party at the Centre always unhappy with the Planning Commission?

That was because the Planning Commission never took the states into confidence. Its autonomy was imaginary. In reality it was an institution under the central government.

You will see that all the Planning Commissions reflected the thinking of the central government.

Yes, many states were unhappy because certain decisions were made without consultations with them. The demand was not to disband the Planning Commission, but to make it more responsive to the demands of each state.

Prime Minister Narendra Modi says he decided to disband the Planning Commission because he felt it was discriminatory to many states. He felt the same when he was chief minister of Gujarat...

The facts speak otherwise. The larger states got better deals from the Planning Commission. In fact, the Finance Commission was fairer to the poorer states.

What makes the prime minister think his new body will not be discriminatory to non-BJP (Bharatiya Janata Party) states?

With the concentration of power in the finance ministry, the central government's decisions are going to be even more arbitrary.

The Congress says the NITI Ayog may lead to a strained relationship between the Centre and the states. Do you feel so?

Definitely. If the prime minister is serious about creating a right balance between the Centre and the states, which is his reason for doing away with the Planning Commission, then he should ensure greater share of revenues for the states.

All the states are unitedly demanding 50 per cent of tax revenues while at present it is only 37 per cent.

Let him design a goods and service tax system which will ensure a higher rate for the states than the rates of the central government.

It is true that the same hat will not fit everyone, but then who will decide the size of the hat?

If it is left to the finance ministry, it will lead to serious conflict between the Centre and the states and between the states.

My fear is this (Niti Aayog) is going to be used as a political tool by the BJP.

On the other hand, a former IIM (Indian Institute of Management) director said NITI Ayog had a unique innovative framework to facilitate the states's participation in policy making...

See, when you have institutions like the NDC which had not been allowed to play a role at all, and made it into an ornamental forum, what is the chance for NITI?

What they have done is brought in a new management institution. It is a governing council of a think-tank headed by the prime minister. I don't think there is any great innovation in it.

When you were the finance minister of Kerala, what kind of problems did you face?

To start with, in Kerala, we have followed a different development path by focussing on redistribution and social expenditure. We have benefitted from this strategy, not only in higher social welfare but also more recently higher than the national average growth rate.

The biggest problem I faced was the Centre's refusal to accept our alternative path of development and attempt to straightjacket Kerala into a universal uniform all India pattern.

With our heavy emphasis on social sector expenditure, it was near impossible to reach the all India target for revenue deficit elimination.

I have repeatedly argued that expenditure on education and health should be considered as capital investment in human resources. Nobody paid any heed. This was the major problem I faced as finance minister.

The 3 per cent fiscal deficit ceiling has nothing sacrosanct about it; it is just an arbitrary number. It could very well be 4 or 5 per cent.

In fact, the UDF (United Democratic Front) government in Kerala, in a fit of reform fervour, legislated for a 2 per cent ceiling for fiscal deficit. I don't understand why they put a ceiling on how much a state can borrow when whatever I borrow, if it accepts zero revenue deficit and the borrowed money, is for capital expenditure.

This used to be my fundamental difference with the central policy. I pursued all possible methods of off-budget borrowing to push up the capital expenditure in Kerala.

Another issue that cropped up in my tenure was the formulation of GST (Goods and Services Tax). It is a unique moment in Indian fiscal history that states could get a better deal if it is properly designed.

While Asim Dasgupta was chairman of the empowered committee of finance ministers, we collectively moved towards this objective.

But the current thinking is far away from the ideal and controversial issues related to treatment of petroleum products have been brought in and the destination principle challenged. Kerala should never accept these new suggestions.

In Kerala, we have been providing one third to one fourth of the plan outlay as untied funds to local governments for preparing their local plans. This can be maintained only if the central government also provide higher level of untied funds.

Unfortunately, the share of centrally sponsored programmes and tied project funds has been increasing. So we had our tiffs with the central government and the Planning Commission on this count also.

K M Mani said the Constitution has to be amended so that states get more power especially in planning. Do you feel it is high time we look at the Constitution?

Absolutely. The fiscal autonomy of the state governments in budgetary policies is being undermined because the Centre is making a fiscal devolution conditional upon the state government adhering to certain norms which the central government has adopted, and it is unconstitutional.

The Constitution doesn't envisage any conditional transfers between the Centre and the state.

Also, India is a quasi federal country. It was at a peculiar situation of Partition that our Constitution was framed and now it is high time to restructure it by making necessary amendments to the Constitution.

The position of all states has been that they should get high allocation of funds. It is high time we restructure Centre-state fiscal relations.

The new institution the prime minister is bringing in is not going to contribute to this outcome at all.

How do you look at the people who are heading NITI Ayog?

The choices he has made make the ideological position of Modi amply clear. Arvind Panagariya is an extreme neo-liberal and a votary of the so-called Gujarat development model. In fact, he took the funny position of challenging Kerala's social sector achievements.

Modi has chosen him for his ideological stand. That is another reason to be sceptical of the outcome of the new exercise.

The chief of NITI may not be charitable to a state like Kerala that has chosen an alternative path of development.

Prime Minister Narendra Modi with state chief ministers at a meeting on replacing the Planning Commission. Photograph: Press Information BureauDo you think the NDA is following the economic policies adopted by the Manmohan Singh government?

The NDA is more aggressively following the economic policies of the UPA (United Progressive Alliance) in terms of foreign investment and structural reforms of the economy.

The UPA was handicapped by the fact that the Congress did not have majority in Parliament. It was amenable to pressures from various quarters.

Now Modi has a relatively greater autonomy because of the good majority his party has in the Lok Sabha. Therefore, he can follow the reform policies more aggressively.

Image: Prime Minister Narendra Modi with state chief ministers at a meeting on replacing the Planning Commission. Photograph: Press Information Bureau

In the Left-supported first UPA version, the UPA had greater focus on the social sector. Modi wants the market to take care of social sector problems. He has already cut the health budget and is seeking to undermine MNREGA (the Mahatma Gandhi National Rural Employment Guarantee Act).

Various rating agencies look at India with more positively now. They expect high growth to take place in India. What do you have to say about that?

No one can deny that there has been an acceleration in the growth rate when compared to the first three decades after Independence. But there are three caveats.

Firstly, the acceleration of growth started in the 1980s. There was some churning already taking place in India before the reforms were announced in the 1990s.

Secondly, there has been deceleration in the growth rate at the end of the global recession in the 2000s. Nevertheless, India has been doing better than the world economy and correctly identified as an emerging economy.

Major phases of global crisis have witnessed new economies breaking out and forging ahead. Such global restructuring have taken place in the past also. I do not want to make any predictions. But one outcome is certain and that is the third caveat.

The majority of the people will not benefit from this growth. Anybody who thinks there will be trickling down should read Thomas Piketty, the French economist.

Empirically, it has been proved that inequalities have been widening in a frightening manner between the developing and developed countries. So this acceleration of growth will not distribute wealth.

Where do you see India in the next few years?

There will be social unrest in India. Growth is predicated on the misery of large sections of people. So one cannot predict what kind of social condition India will have in the future.

Maybe Hindutva will be used to suppress any such unrest. Maybe this is the agenda of rising fascism in India.

Is that why we see Maoism on the rise in many parts of India?

Workers agitations, resistance by the Left political parties and certainly Maoist resistance also should be seen in a larger context of widening inequality in the country.

They reflect the growing inequality and alienation of large section of people. I see very little scope for armed struggle at this present stage.

What is required is a broad united front of Left and democratic forces. See the changes that are taking place in Latin America during the past decade. I am more inspired by Latin America of the 21st century.


Main Image: A past demonstration against price rise.

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Shobha Warrier/ in Thiruvanathapuram
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