Decentralized Planning in India

The Gandhian Plan

Economic Planning in India was mainly centralized, i.e. almost all the major economic plans were formulated at the Central Level, for example, the Five Year Plans. So, due to this centralized nature of planning, there was no direct link between development and democracy. The Centralized nature of planning had its own implications, considering that, the Government has taken various steps to allow economic planning at the lower levels of administrative strata, and by setting up the NDC (National Development Council), paving the way for decentralized planning in India.

So, after discussing the Bombay Plan, the Gandhian Plan, the Multi-Level Planning, and the Member of Parliament Local Area Development Scheme (MPLADS), today we’d be continuing our discussion on Economic Planning in India, by discussing in detail, the way to decentralized planning in India.

Decentralized Planning in India
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Decentralized Planning in India

As discussed earlier, after Independence, India adopted a centralized nature of economic planning, and all the planning for India’s socio-economic development was made by the Central Government. And due to the top-down approach of planning, there were some problems such as the ignorance of local problems, needs, and aspirations; non-inclusive development; insensitivity towards local environmental issues, etc

Panchayati Raj Institutions and Local Level Planning

But it was soon realized that the development of the lowest strata of our Indian society is not possible without democratizing the planning process. And it was established that development and decentralization are complementary, i.e. without achieving decentralization, the development would not occur.

And finally, the Panchayati Raj Institutions (PRIs) were given constitutional status in 1973, and planning became a constitutional exercise at the local level, which finally paved the way for multi-level planning in India. In multi-level planning, planning was done at various levels such as the Central Level, State Level, District Level, Block Level, and finally the local level. This ensures the participation of the local people in the planning process and takes into consideration their problems, needs, and aspirations which ultimately makes the planning process more effective and sensitive to the local needs. In this system, the higher-level regional plans, i.e the plans at the national or state level, provide a framework for the plans at the local level, i.e. at the district or block level.

Multi-level Planning
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Through the 73rd amendment act, the Panchayat/Gram Sabha has been authorized to formulate plans for socio-economic development at the local level and look after the implementation of these plans. The 11th Schedule of the Indian Constitution exclusively mentions the subjects over which the Panchayati Raj has powers of planning and implementation. However, the actual transfer of subjects from the State List to the 11th Schedule depends upon the discretion of the State.

And in order to ensure the systematic and adequate flow of funds, the 73rd Amendment has provided for the setting up of the State Finance Commission (SFC). The State Finance Commission reviews the financial position of the Panchayats every 5 years. Moreover, the commission also makes recommendations about the principle governing the distribution of revenues between the State and the Panchayats, and the determination of the grants-in-aid to the Panchayats from the Consolidated Fund of India.

Hurdles to Decentralized Planning in India

Even after granting constitutional status to the planning at the local level, the decentralization of the planning process is still not complete, and there are still various hurdles in its way.

  • The financial status of the Panchayati Raj Institutions is still not stabilized.
  • Which taxes the PRIs can impose are still not clear.
  • The State Legislative Assemblies have been procrastinating in delegating timely and needful powers to the PRIs. (as the actual transfer of subjects from the State List to the 11th Schedule depends upon the discretion of the State Legislative Assembly)
  • Lack of awareness among the local level people regarding their Right to Information and the right functioning of the Panchayati Raj Institutions.
  • Continous use of money and muscle power in the local level elections.
21 Point Memorandum

In the all-India Panchayat Adhhyaksha Sammelan, held in 2002 in New Delhi, the Panchayat Adhaykshas handed a ’21 Point Memorandum’ to the Government. The Memorandum was especially focused on the financial status of the Panchayati Raj Institutions.

Decentralized Planning in India
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The demand for financial autonomy of the PRIs was finally addressed by the then Prime Minister Atal Vihari Vajpayee who promised, in 2002 itself, that he’d provide financial autonomy to the PRIs, which would’ve been a milestone for the Decentralized Planning in India. However, unfortunately, the NDA(National Democratic Alliance) failed to retain power in the 2004 general elections.

But the new UPA Government was nonetheless serious about this issue and took robust steps to strengthen the PRIs, ensure their financial autonomy and ultimately enhance the decentralized planning in India. In 2006, the Planning Commission (now NITI Aayog) wrote letters to all the Chief Ministers in India and stated that they should duly delegate the functional powers of planning to the Panchayati Raj Institutions. Moreover, the letter also warned that if the demand is not met, the funds kept for local development would not flow to the States.

NITI Aayog’s approach to decentralized planning
Decentralized Planning in India
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NITI AAYOG (National Institution for Transforming India), India’s think tank, has a new approach to decentralization and decentralized planning in India:

  • The NITI Aayog is to design the development policies keeping in mind the needs of the nation, states, and the Panchayati Raj Institutions, and have a fully integrated planning process.
  • It would promote the idea of ‘Team India’ which would work on a common national agenda.
  • It would have a bottom-up approach to planning, rather than a top-down approach which is followed in the process of centralized planning.
  • All the stakeholders would have a say in matters related to the finalization of plans and the required funds.
  • The NITI Aayog would promote the idea of ‘cooperative federalism’ to promote the decentralization of development planning.
Cooperative Federalism and funding requirements of the States

The Central Government’s approach towards the funding of the States has changed over the years:

  • States are now getting 42% of the total pool of taxes from the Centre, on the recommendation of the 14th Finance Commission.
  • One of the main reasons for the introduction of the GST regime is the strengthen the internal financial capacity of the States, as the new tax regime would enhance the gross tax collections of the States.
  • States are now allowed to go for higher financial borrowings without the Centre’s permission. For example, under the UDAY (Ujjwal Discom Assurance Yojna), launched in 2015-16, the Central Government allowed the States to issue UDAY bonds up to 75% of the dues of the electricity distribution companies of the States.
Finance Commission and its role in Decentralized Planning in India
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As we know that Indian Constitution adopted the principle of Federalism and has laid a clear-cut distribution of powers between the Centre and States in the 7th Schedule of the Constitution. So, it is a prerequisite to provide financial autonomy to the States and provide them with the financial resources necessary so that they could function independently of the Centre. (Click here to read about the financial relations between the Centre and States).

So, the Constitution of India, for fulfilling this objective, has provided for the establishment of a Finance Commission of India. The main function of the Finance Commission is to recommend to the President of India the measures relating to the distribution of financial resources between the Union and the States. However, the powers of the Finance Commission have been limited to finding out revenue gaps of the Staes and recommending the grants in aid to the States from the Centre. The Finance Commission cannot determine the capital-related issues of the States.

Planning Commission and its role in Decentralized Planning in India

The Planning Commission was set up as an extra-constitutional body, even before the First Finance Commission. All the development plans and programs of the States are within the purview of the Planning Commission of India, so it played a major role in determining capital assistance to the States. The grants or loans given by the  Centre to the States for the implementation of development works are based on the recommendation of the Planning Commission.


Interested in Economics?

The Gandhian Plan

Multi-level Planning: Planning in India

The Member of Parliament Local Area Development Scheme (MPLAD)

The Bombay Plan: The Plan for India’s economic resurrection

Second Generation Reforms: Economic Reforms in India

Financial Sector Reforms: Narasimham Committee I

Types of Disinvestment: India’s Disinvestment Policy

Structure of the Indian Capital Market

Important Terms in Stock Market: Terms to know before investing

Washington Consensus: Reforming or Ruinous?

Non-Market Economy: Best system for social development?

Mixed Economy: The Perfect Economic System?

Market Economy : Origins and The Great Depression

Bad Bank : Reconstructing the Reconstructors

National Income : GDP, GNP, NDP and NNP

NPA: Causes and Effects

Bad Bank : Solution to the banking crisis?

Bond Yield : Factors influencing the yields

Shell Companies: Are Shell Companies the Future?

Fiscal Deficit: Implications and Benifits

Changes in Cropping Patterns: Different patterns in India





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