Economic policy: Modes of State intervention in the context of Centre's Budget (2013-14)
- Part 1 -

Dr L Krishnamangol Singh *

In this short article, we may consider some of the critical issues and prospects of policy framework for economic management, growth and development in the country (India). And, we shall conclude with a brief suggestion for an efficient economic policy for the country in the context of the current budget (2013-14) of the Centre.

It is now well known that there are different modes of state intervention. There are also outstanding or long established theories, which lend support to or which explained the necessity or the need for state intervention in the economic system.

Coming directly to the case of modern economic systems, it is found that the states have the political power and policies to regulate the functioning of an economy in an efficient way. Here, it would be relevant to consider some basic criteria or principles for guiding the economic policy or public policy of a state or nation.

The theory of economic policy suggests two guiding principles, which merit critical examination in order to help in the formulation of an efficient economic policy for developing countries like India.

The first principle or criterion relates to the question on "what are the rational policies?"

The second principle relates to the question on "Who are interested in implementing those policies" (Cf. Amit Bhaduri, p.261). The theory of economic policy seeks to examine these two interrelated aspects, which have distinct analytical and policy frameworks.

It is well known that rational economic policies have been formulated from time to time to address the various development issue in the country.

In fact, there has been a paradigm shift in policy action in the country (India) since 1991 from the model of a virtually command eco-nomy or controlled economy towards a liberalized eco-nomy or a reforming economy.

Even in education and health care services, there has been major changes in the policy initiatives. Thus, it is now generally known that the country has been moving towards the path to economic liberalisation and reforms in many fields or sectors since 1991.

In fact, it is the responsibility of the Central Government to frame or formulate the economic policies of the country. Therefore, the nation's economic policies aso guide the States or the State governments. And the detailed programmes of development of the states are subject to the approach of Central Government through the budgets, which are dovetailed in the Five Year Plans and Annual Plans of the states.

India's Five Year Plan also provided for launching a series of development programmes for the States under the nomenclature of Centrally Sponsored Schemes, and Central Government Institutions, which are necessary in a federal structure or federal form of Government that the country has been following since Independence.

Thus, the existence of a strong Centre or Central Government fills up many development gaps in many parts of the country. And, the States are also involved in the formulation of the Nation's Five Year Plans. Thus, in a sense, India has been following the practices of democratic planning.

However, it is high time that more power and functions need to be given to the State Governments for launching a wide range of development programmes in order to strengthen the responsibility of the State Governments in their exercise for the formulation of economic policies suitable to the specific states are areas within the states.

This requires a thorough restructuring of the current practice of planning at the Centre and State levels. In fact, the Centre and State Governments need to take active roles in the formulation of economic policies for the nation.

This suggests that the opinions or the views of the State Governments need to be systematically integrated in the formulation of the Nation's economic policies and development programmes that need to address various development issues within their own respective states.

Indeed, the Nation and the State Governments are responsible for conducting economic policies.

In India, the Central Government is mainly responsible for the formulation of economic policies as the main instruments or policy tools of economic policies are in the hands of the Centre as per the devolution of powers and functions between the Centre and States, which are enshrined in the constitution of the country.

Indeed, the basic tenets or principles of India's Constitution is that a strong Centre or Central Government is necessary for the existence of the Nation or country.

However, the State Governments also have power and functions as per the provisions of the Constitution and they are also engaged in the preparation and formulation of the Five Year Plans for development of the States.

But this way of looking at the formulation of economic policies is perhaps an old and conventional approach, which cannot effectively address the emerging development issues in their own states.

It is high time that the State Governments can be empowered in formulating or conducting economic policies for promoting rapid economic growth, structural di- versification of the economy and all-round or comprehensive development of their States. In fact, there is the need for State-level reforms for economic development in the states, which call for political support of the Centre.

This approach will also help in Nation building and development of the entire country (i.e. India). For example, there is the need for re-examination of the present system of State Five Year Plans, in which there should be wider scope for people's participation in development.

The State Governments also need to be given more active role to make the public, State and private sectors more effective and efficient in their working or activities. While there is the need for State-level Planning Commissions in the model of State-level reforms suggested here, there is also the urgent need for decentralisation of Five Year Plans at the district and grass-root levels.

In fact, there is the need for identification of the factors for establishing a new system of Five Year Plans both at the State, District and Block levels with the Central Government assuming the responsibility for regulating the entire system of Five Year Plans or planning for the nation.

In fact, there should be well-knit system of Nation building and Nation development in this new paradigm shift in the exercise or preparation of economic policies of the State Governments for economic development of their own States.

And such economic policies should also be in conformity with the national economic policies. Thus, the standard theory of economic policy suggests that the States or modern Governments should take more active role in the preparation and formulation of economic policies and in implementing them for economic growth, development and welfare of the people.

To be continued..