Dr. Y. V. Reddy, former governor of the Reserve Bank of India, speaks during the Indian Banking Conclave Bancon ‘06 in Hyderabad, India. (Photographer: Namas Bhojani/Bloomberg News)

Need To Reinvent NITI Aayog, Says Former RBI Governor YV Reddy

The NITI Aayog suffers from a "wide mandate" and "diffused focus" and there is a need to reinvent the organisation in the context of fiscal federalism, former Reserve Bank of India’s Governor YV Reddy said.

There is a need to upgrade the NITI Aayog and empower it to perform functions of centre and state coordination, he said. "Now, there is an institutional vacuum in regard to non-finance commission transfers in terms of expenditure... Each ministry has its own centrally sponsored schemes. So, there are no coordinated discussions between the centre and the state on the developmental thrust," Reddy told PTI in an interview.

In a book titled 'Indian Fiscal Federalism' authored by the former governor and co-authored by GR Reddy, the authors noted that the NITI Aayog should ideally be the focal point for all transfers from the centre and states outside the recommendations of the Finance Commission.

"As a continuing body, it could also ensure implementation of the Finance Commission's recommendations. In order to achieve this, it requires significant technical support from experts and at the same time substantial political support," he said.

The latter requires an institutional arrangement and this should ideally be in the ambit of the Inter-State Council, he said quoting from the book published by Oxford University Press.

The erstwhile Planning Commission played a crucial role in fiscal federalism, he said adding that its replacement by the NITI Aayog in 2015 raises more questions than answers about its contribution.

"It is advisable to specify the tasks of NITI Aayog that are most relevant for centre-state relations: identifying the sectors in state that should be eligible for grants from the Union; indicating criteria for inter-state distribution; helping design schemes with appropriate flexibility accorded to states regarding implementation; and identifying and providing areas specific grants," he said.

In brief, he said, wisdom lies in refocussing the scope of the Finance Commission to maintain the trust of all in the institution as the pillar of fiscal federalism. "To fill the existing institutional vacuum for other central transfers to states and related matters, it is necessary to reinvent NITI Aayog. This organisation should be endowed with appropriate stature and expertise and have the benefit of constitutional legitimacy possibly by linking it to the ISC," he said.