Nepal’s Obsession with Central Planning

-John Manandhar

Mr. Manandhar ​​is a research intern at Samriddhi Foundation, an economic policy think tank based in Kathmandu. The views expressed in this article are the author’s own and do not represent the views of the organization. Author can be reached at John Manandhar [email protected].

Under the ‘Long-Term Vision 2043’ section of its Fifteenth Plan, the National Planning Commission (NPC) set a goal for the Per Capital Income (PCI) of Nepalese to reach $12,100 by the year 2043 B.S. In order to realize this target, the PCI of Nepalese needs to continuously grow by 10.5% over the course of 25 years. No country ever has ever managed to achieve this miracle, let alone Nepal, where the PCI is still below the required criteria for graduating to a developing country.

This is but one example of the over ambitious target set by NPC, the central planning body of the nation, which has been devising periodic plans for the nation for almost seven decades. During this period, it has completed 10 five-year plans and 5 three-year plans. However, all them have consistently failed to achieve their targets. But why? If you ask the NPC, it will likely point out the inability of the government bodies to translate its plans into action, or blame external factors like the earthquake, blockade, pandemic, Russia-Ukraine war etc. But what if the problem lies in the very nature of central planning itself? This critical question hasn’t nearly received the attention it deserves.

Critical Assumptions

The effectiveness of central planning relies on two crucial assumptions. Firstly, the central planner must have the ability to accurately aggregate information for effective planning. Secondly, it should be motivated enough to plan for the collective benefit. But it can be argued that in Nepal central planning falls short in both fronts.  

In its periodic plans, the NPC not only outlines the vision and overarching objectives for the nation. It also establishes targets, strategies, working policies, and expected outputs for every sector and level of Government. For example, it dictates the production quantities of eggs, fish, and wheat; the length of new roads to be built; the number of new industries to register, and so forth. But there are valid concerns about the ability of NPC to formulate a meaningful national vision, let alone such highly detailed targets. First of all, in the context of the underdeveloped status of research in the country, NPC lacks accurate and up-to-date empirical data that is required for evidence-based planning. It also doesn’t have the required expertise and technology to optimally collect and process the available information to develop meaningful targets.  However, the problem extends beyond strengthening the institutional capacity of NPC. Even with all the experts and technology at its disposal, it is an impossible task for a central planner to grasp the ever-changing and diverse needs, priorities, and interests of millions of people. As a result, central planning by nature is a futile endeavor. 

The formulation of periodic plans by a central authority like the NPC is perhaps the last surviving relic of the Panchayat dictatorship. Historically, the origin of central planning can be traced back to 1929, when Joseph Stalin conceived the idea to maintain utmost control over fiscal resources within the Soviet Union. While many countries initially embraced the idea with enthusiasm, most eventually abandoned it due to its unequivocal failure to spur economic growth. But Nepal is an exception. We still haven’t been able to get rid of our fatal attraction to central planning, even amid paradigm shifts in our political landscape. Instead the NPC has gained substantial authority over time. But despite the very idea of central planning being antithetical to the devolution of power under Federalism, why does our political leadership insist on dragging it? 

Taking a page out of Stalin’s book, our leaders have used the authority of the central planning body to prioritize developmental projects that further their political interests but are out of sync with the economic needs of the nation. This practice is evident during the budget formulation process, when the NPC receives incredible pressure from political leaders at the centre to include and separate budget for their pet projects. Regrettably, the NPC appears helpless to resist the political pressure. This is largely because the NPC itself is a political body whose members are selected not based on merit but on political considerations of the Prime Minister. Consequently, the political leadership can steer the NPC’s planning decisions to suit their interests.

Alternative

So, what’s the alternative? Should we discard planning altogether and become a society without any clear direction? Not necessarily. A more effective approach would instead involve decentralizing planning to the respective bodies in the provincial and local levels. This is because sub-national planning bodies are closely connected to the people they serve. This enables them to customize plans to better tackle challenges and meet developmental priorities of their respective regions.

But it is worth noting that sub-national planning bodies were only institutionalized in 2017 and thus lack the seven-decade planning experience of the NCP. But the centre should not use their lack of experience as an excuse to withhold planning opportunities. It must recognize with time and autonomy in the planning, project selection and budget formulation process, they will eventually learn from both their failures and successes to develop more effective plans in the long-run.