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Planning Commission Vs. Niti Aayog – A Paradigm Shift

Planning Commission

India, since long, had a separate, centralised institution for planning and policy formulation i.e. Planning Commission (1950-2014). However, in 2014, it was scrapped. Subsequently, the Niti Aayog was formed in 2015. There has been little discussion on the paradigm shift this has brought in. Let us see the what and why of the two institutions.

Planning Commission

Planning Commission was an institution that was established in 1950 with an aim to formulate five year plans (FYP) for the country outlining the policies and programs that were to be followed by the centre and states towards the objective of all-around development. India saw 12 FYPs developed by the Planning Commission. It functioned under the overall guidance of the National Development Council (NDC).

  • Policies were first developed by the Planning Commission and states were consulted at the stage of allocation of funds.
  • Held the power of allocation of plan funds to ministries and states.
  • States along with Union Government formed part of National Development Council to which Planning Commission reported.
  • Followed the ‘top-down’ model, deciding from the perspective of the whole nation and then trickling it down.
Niti Aayog

Niti Aayog was set up by the government in 2015 replacing erstwhile Planning Commission with changed objective of indicative policy formulation and development of “National Development Agenda” broadly outlining policy initiatives for union or states government to work on. Niti Aayog does not develop five-year plans anymore and instead of NDC, it is governed by a governing council.

  1. To act as a think tank for the government.
  2. To develop indicative plans and policies after due consultation with states at the stage of policy formulation itself rather than at the stage of allocation of funds.
  3. States along with Central Government form part of Governing Council which is a platform much similar to erstwhile NDC but with a difference that all stakeholders like experts from Niti Aayog, Union government and states governments participate in its meeting for a coordinated strategy of development as equal partners.
  4. Does not have the power to allocate plan funds to ministries and states.
  5. Follows the ‘bottom-up’ model, as opposed to the highly centralised Planning Commission.
A Shift in Policymaking
States to have larger say in the policy formulation

With states becoming partners in policy formulation and not just approver of allocation of funds, policies have started becoming state specific. Moreover, consensus building is the norm.

Power of allocation of funds restored to where it belongs

Internationally, the power of allocation of government funds rests with the Ministry of Finance. In India, it was exceptionally given to the Planning Commission. States were part of national development council along with Central Government and Planning Commission reported to it.

As discussed above, the Planning Commission consulted states only at the time of allocation and not at the time of policy formulation. Due to this, states could not provide inputs into planning for their specific needs. Some critics even held that Planning Commission was used by the Central Government as a rubber stamp to prioritise development in states which were ruled by the political party that was also in power at the centre.

With the power of allocation of funds getting transferred to the Ministry of Finance, an institution meant for planning like Niti Aayog is expected only to generate the new ideas and roadmaps for their implementation. States along with Central Government are now part of the governing council of Niti Aayog where both are duly consulted at the time of policy formulation itself. This leads to more focused planning. Even in this, Niti Aayog does not have the power of the allocation of funds which makes it an independent institution to formulate policies and suggest feedback to states without political interference.

Co-operative federalism

One of the famous political commentators, K.C.Wheare remarked India as an example of quasi-federalism i.e. India is neither completely Unitary nor completely federal. Yet another commentator Granville Austin held the Indian constitution as an example of co-operative federalism, meaning, constitution focusses on both union and the states and there is a synergetic attempt to weave all units in a co-operative manner into one nation.

Planning commission as already discussed was not able to keep up with the spirit of co-operative federalism.

Niti Aayog has been tasked with the same vision, “To foster cooperative federalism through structured support initiatives and mechanisms with the States on a continuous basis, recognizing that strong States make a strong nation”.

Competitive federalism

Not only the co-operative federalism, ushering in a new era of inspiring and rewarding the states on the basis of their performance in different sectors, Niti Aayog since its inception has developed some indexes to assess the states. This has helped in bringing in the competition between the states. Moreover, this is a big departure from a patronage system to an objective criterion.

  • School Education Quality Index (SEQI)
  • Composite Water Management Index (CWMI)
  • Health index (HI)
One Size Fits All approach scrapped

Earlier, Planning Commission was criticised for formulating plans that applied to states uniformly without weighing in for states specific inputs.

For an example, Kerala has already achieved 100 per cent literacy whereas Bihar is hovering around 60 per cent. Their priorities or plans can’t be the same. Similarly, Maharashtra or Gujrat are industrially developed states whereas north-eastern states do not have that many industries. Natural factors apart, the focus of planning should ideally be more on such north eastern states at least in terms of government efforts and funds. Niti Aayog fulfils this purpose.


Thus, it is not only about left or right or about coming out of Nehruvian legacies. There were valid issues and concerns with Planning Commission which has been well reported by the scholars across the spectrum. Niti Aayog is an institution that is in tune with the changing socio-economic complexities of the country.

  • krishna chaithanya

    Thanks for the article. i was looking for this information. I however want to know more details of negative impact of 12 FYP’s & how NDA would have helped if implemented in 1950 & how different the country would have been now. Thanks