The question ‘Does India need central planning?’ should be answered at both theoretical and empirical levels. This question requires to be answered because, when the Indian Planning Commission (PC) was disbanded and its concomitant five-year plans abandoned at the end of 2014, there was little substantive reasoning why this was done.

Economists who have some sense of the historical evolution of institutions (for example, the market and the state) in the now industrialized countries (all capitalist) know that laissez-faire in the economy/society never really existed anywhere, ever. There actually is no economy in the world that is not ‘planned’, to a smaller or greater degree (see Chapter 1 in this volume for more on this argument).

This chapter has three sections. The first section addresses the question above and discusses the theoretical and empirical arguments why planning is still needed in India. The next section discusses the functions that the erstwhile PC performed, what the current National Institution for Transforming India (NITI) does, and what should be the possible functions of a planning institution in a country the size of India in a rapidly globalizing economy. The final section examines how the planning function in India should be structured in terms of organization and human resources for effective functioning.

Why Planning? The Theoretical and Historical Argument

The market economy in the currently industrialized countries would not have come into existence but for the state; the state was critical in establishing key institutions of the market economy – land and labour were two such factors of production (Polanyi 1944). In the United Kingdom, the state was responsible for bringing land into the market economy through its programme of enclosing common land; thereby, it also set in motion a process which ultimately led to the creation of a national market for labour (Moore 1968).

While the Industrial Revolution began in England in the last quarter of the 18th century, it can hardly be said that an integrated national economic system existed until the second quarter of the 19th century. No market economy was conceivable that did not include a market for labour; but to establish such a market, especially in England's rural civilization, a complete transformation of the traditional fabric of society was needed.