Even though Planning Commission was able to fulfil its role and promote all round development of economy, it suffered from inherent problems:
- More suited to Pre-1991 Era: Planning Commission was set up in 1950 under the socialistic model wherein the Government used to act as Planner, Financer and Implementer. The Government used to make plans, allocate finances for plans and then execute such plans. There was limited role of the private sector. However, the LPG reforms in 1991 required the private sector to play more proactive role of financer and implementer and hence Planning Commission was considered to be unsuitable for Post-1991 planning.
- One Size Fits all approach in terms of Planning at the National level led to neglect of regional and local problems and needs. The role of the states was limited to approval of Five year plans.
- Hurt Fiscal Federalism: The Planning Commission enjoyed the power to allocate finances to the states and hence it led to loss of States' financial and operational autonomy.
- Overlapping Functions with Finance Commission: Both Planning Commission and Finance Commission used to transfer finances to the states. The Finance commission grants used to be untied grants, while the Grants given by the Planning commission used to be tied grants.
- Limited role: The Planning commission focussed more on formulation of Five year plans and failed to undertake critical evaluation of Government schemes and policies. Hence, the policy making in India was reactive and a kind of "Fire Fighting" exercise.
- Financial and Political clout enjoyed by the Planning Commission led to concentration of power and undermined the role of Finance Ministry.
Differences between Planning Commission and Niti Aayog
| Criteria | Planning commission | Niti aayog |
| Set up as | Non-Statutory body | Non-Statutory Body |
| Nature of Planning | Imperative Planning Five year plans | Indicative Planning 15-year Vision; 7 year Strategy; 3 Year Action Agenda |
| More suited to? | Pre-1991 Era | Post-1991 Era |
| Power to allocate finances? | Yes. | No. |
| Nature of Role played by Government | Planner, Financer and Implemented for example. Government plans construction of Highways (Planner), allocates money (Financer) and NHAI builds Highways (Implemented | Coordinator, Enabler and Facilitator For example, Government plans construction of Highways and then creates conducive ecosystem so that Private sector finances and builds highways. |
| Role of Private Sector | Limited | Enhanced role |
| Role of States | Limited to Approval of Five Year Plans | Participative planning and hence promotes cooperative Federalism |
| Acts as Think Tank? | No | Yes. Carries out critical review of Government schemes/Polictes/lnitiatives and tracks progress through indicators such as SDG India Index, Health Index etc. |
| Role Vis-a-vis Ministries | Top-down model | Collaborative and cooperative approach. For example, Aspirational Districts programme implemented by NITI Aayog ensures convergence of schemes implemented by different ministries. |