Planning in Indian Economy| Different Types of Economic Planning, History of Economic Planning in India, Planning Commission
Concept of Economic Planning
Definition of Planning by H.D Dickinsion: The making of major economic decisions—what and how much is to be produced and to whom it is to be allocated by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economic system as a whole.
Planning commission of India: Planning involves the acceptance of a clearly defined system of objectives in terms of which to frame overall policies. It also involves the formation of a strategy for promoting the realisation of ends defined. Planning is essentially an attempt at working out a rational solution of problems, an attempt to coordinate means and ends; it is thus different from the traditional hit-and-miss methods by which reforms and reconstruction are often undertaken.
Different Types of Economic Planning
Planned Economy: In planner economy, the state owns the economy directly or Indirectly. Most of the economy is planned.
Command Economy: In command Economy, state owns economy fully. Private properties and enterprises are not allowed. State will decide prices and distribution of economy. It is one form of planned economy. Such type of economy was followed by China and USSR in mid -20th century. Command economy is used in state economy. Command Economy is followed in Cuba and North Korea.
Difference between Planned Economy and Command Economy
Planned economy can be state economy as well as mixed economy. Every command economy is planned economy.
Indicative Plan: It is another part of planned economy. There is concept of mixed economy. There is role of both state and market. State plays the role of regulator. There are both public and private enterprises.
The identifying features of indicative planning may be summed up as under:
(i) Every economy following the indicative planning were mixed economies.
(ii) Unlike a centrally planned economy (countries following imperative planning) indicative planning works through the market (price system) rather than replaces it.
History of Economic Planning in India
Sir M.Visvesvaraya, a civil engineer and dewan of Mysore state published a book named the Planned Economy of India in 1934. His ideas of state planning were an exercise in democratic capitalism. He emphasized on industrialization. He gave the idea shift of labour from agricultural to industries, targeting to double the national income in one decade. He gave the idea that Industries and trade do not grow of themselves but needed to be planned systematically. British government did not consider his plan. But, the plan was considered for national planning among the educated citizens of the country.
Federation of Indian Chambers of Commerce and Industry (FICCI), the leading organisation of Indian capitalists. Its President N.R. Sarkar proclaimed that the days of undiluted laissez-faire, means complete market economy.
NR Sarkar was voice of the capitalist class in India, he further called for a high powered ‘National Planning Commission’ to coordinate the whole process of planning so that the country could make a structural break with the past and achieve its full growth potential.
The economic thinking of the nationalists leaders such as M.G. Ranade and Dadabhai Naroji) favored State economy, that means state handling most of the economy.
Keynesian ideas, which helped in overcoming great depression, were followed by Indian Capitalists. These ideas were reflected in FICCI Planning.
Congress Plan of 1938
The Indian National Congress established a National Planning Committee (NPC) under the chairmanship of Jawaharlal Nehru. It was initiative of then Congress President Subhas C. Bose. It (1938) stated the objective of planning for development “was to ensure an adequate standard of living for the masses, in other words, to get rid of the appalling poverty of the people”. It advocated heavy industries that were essential both to build other industries, and for Indian self-defence; heavy industries had to be in public ownership, for both redistributive and security purposes; redistribution of land away from the big landlords would eliminate rural poverty.
The NPC was conference of the Ministers of Industries of the Congress-ruled States (though other states were also invited to participate) where M. Visvesvaraya, J.R.D. Tata, G.D. Birla and Lala Sri Ram and many others including academicians, technocrats, provincial civil servants, trade unionists, socialists and communists, etc., were also invited.
The 15-member NPC consisted 29 sub-committees and a total of 350 members produced 29 volumes of recommendations. The work of the committee was interrupted when the Second World War and the Quit India Movement. Many of its members including the chairman were arrested, and between 1940 and 1945 the Committee had only a nominal existence.
The final report of the NPC could only be published in 1949, But, many developments related to planning took place during the Interim Government up to 1946.
Mahatma Gandhi was not a professional economist and did not develop a formal model of economic growth. But he advocated certain policies with regard to the development of Indian agriculture, small-scale industries etc. A Gandhian Plan incorporating these policies was prepared by Shriman Narayan and Acharya S.N. Agarwala in 1944. This model forms the basis of Gandhian planning, sometimes also referred to as ‘the Gandhian model of development’.
The Planning process formally started in India after the attainment of Independence when Government of India set up the Planning Commission in March, 1950. The responsibility for overall economic planning was given to this. Prime Minister was chairman of Planning commission. The vice chairman enjoyed the status of Cabinet Minister.
Commissions made following mandate
a) to assess the country’s need of material capital and human resources and to formulate plan for their more balanced and effective utilisation;
b) to review all important programmes and projects before they are approved for implementation;
c) to determine the pool of resources to be devoted to development and the allocation of this pool between various uses and users; and
d) Monitoring and evaluation of their progress.
The basic objectives and issues of economic development in India have been growth, modernisation of the economy, self-reliance and social justice (mainly reduction in economic inequalities and removal of poverty).
Functions of Planning Commission as per 1950 Resolution:
– Making assessments for materials, capitals and human resources
– Determining priorities for socio-economic planning and allocating resources
– Nature of machinery
– To look after progress of planning
– Check the nature of machinery required for various plans
The Plans which are formulated by the Central Government and financed by it for the implementation at the national level are known as Central Plans.
Over the years, the Centre has launched three such plans and the governments have maintained continuity in their
implementation. The three central plans are:
A. Five-Year Plans,
B. Twenty-Point Programme, and
C. Member of Parliament Local Area Development Scheme.
Changing role of planning commission in India
Initially, India adopted policy of centralized planning. Planning commission had veto over most of the socio-economic matters. It played an integrative role for planning national economy. It used to decide how the economy should move forward.
After 1991, the planning commission nature changed from integrative to indicative. Most of the autonomies shifted to ministries and private firms. This was the time of introduction of Liberalization and Globalization in Indian economy. The government intended to make Planning commission to Advisory body. On 1st January 2015, NITI Aayog was formed replacing Planning commission. NITI Aayog is advisory body also known as think tank of Government.
The Five Year Plans
1st Five Year Plan
Period of Plan – 1951-56
– The focus was more on agriculture as India was food insecure. India was facing problem of food grains import.
– ideas of socio-economic development was proposed
– K.N. Raj was Renowned economist who died in 2010. He was said to be architect of first five year plan.
– Targeted Growth Rate of 3.61%
2nd Five year Plan
Period of Plan – 1956-61
– The strategy of growth laid emphasis on rapid industrialization with a focus on heavy industries and capital goods.
– The plan was developed by Professor Mahalanobis.
– Targeted Growth rate of 4.32%
– Rate of investment was targeted to raise from 7% to 11%
– The model was known as Nehru – Mahabolis model.
3rd Five Year Plan
Period of Plan – 1961-65
– Specific toward Agricultural development
– Aim was to develop self-sustaining economy
– Failed due drainage of economy in wars with China in 1962 and Wars with Pakistan in 1965.
Annual Plans or Plan Holiday
– Fourth plan could not get started in 1966 due economic inflation caused due to wars and natural calamities.
– 3 annual plans were framed – 1966-67, 1967-68, 1968-69
– The period (1967-1969) is also called as Plan Holiday.
4th Five Year Plan
Period of Plan – 1965-1969
– Objective was growth with stability
– Improving condition of under privileged and weaker section
– The Plan was based on the Gadgil strategy
5th Five year Plan
Period of Plan – (1974-79)
– Focused on poverty alleviation
– Twenty-point Programme (1975) with a marginal importance being given to the objective of ‘growth with stability’
– Targeted growth rate was 4.4% and 4.8%
– The plan was cut short by Janta Party Government which came in power in 1977
A fresh Plan, the Sixth Plan for the period 1978–83 was launched by the Janta Party government which called it the ‘Rolling Plan’.
In 1980, there was again a change of government at the Centre. Congress Government which abandoned the Sixth Plan of the Janata Government in the year 1980 itself.
Unofficial Sixth Plan (1978-83)
– It has emphasis on some of the highly new economic ideas and ideals with almost a complete no to foreign investment;
– new thrust on price control
– rejuvenation of the Public Distribution System (PDS)
– emphasis on small-scale and cottage industries;
– new lease of life to Panchayati Raj Institutions (PRIs) (i.e., the 2nd Phase of the revival of the PRIs);
Sixth Plan (1980-1985)
– Launched with slogan ‘Garibi Hatao’
– emphasis on socio-economic infrastructure in rural areas;
– eliminating rural poverty and reducing regional disparities through the IRDP (1979)
Seventh Five Year Plan (1985-1990)
– emphasised on rapid foodgrain production, increased employment creation and productivity in general.
– growth, modernisation, self-reliance and social justice remained as the guiding principles
– Jawahar Rojgar Yojna was launched in 1989
– The Plan failed due to its unplanned financial strategy
– Indian economy got into crisis
Eighth Five Year Plan (1992-1997)
– Economic reformation and reconstruction implementation was aim
– Adverse balance of payment scenario was to be maintained.
– Improvement in trade and current account deficit
Ninth Five Year Plan (1997-2002)
– Emphasized on domestic saving and determines
– Sustainable development
10th Five Year Plan
– Attain 8% GDP growth per year
– Reduction of poverty rate of 5% points by 2007
– Providing gainful and high quality employment
11th Five Year Plan
– It aimed at 9% GDP growth rate in first four years in 10% growth rate in 2011-12.
– Total Plan expenditure was of Rs 36,44,718 crore , double than previous 10th five year plan.
– Gross Budgetary Support (GBS) for the plan expenditure was fixed for Rs 14, 21, 711 crore were it was Rs 8,10,400 for 10th plan.
– 11th five year was for ‘faster and Inclusive’ Growth
– Confederation of Indian Industry (CII) and World Bank expressed doubts in the Eleventh Plan realizing the ambitious 10 per cent growth.
Major challenges were
(i) A higher inflation (above 6 per cent) which led to the tightening of the credit policy, thus lower expending which lead to lower productions
(ii) A stronger rupee led export earnings very less
(iii) Food Grains were getting costiler
(iv) Costlier oil prices became a burden for the national exchequer
• GDP growth in the Eleventh Plan 2007-08 to 2011-12 was 7.9 per cent which 0.3 percent more than previous 10th five year plan.
• The growth rate of 7.9 per cent in the Eleventh Plan period is one of the highest of any country.
• Net enrolment rate at the primary level rose to a near universal 98.3 per cent in 2009 -10 .Dropout rate (classes I—VIII) also showed improvements.
Issues regarding 11th five Year Plan
• The issue of Price Stability remained resonating for more than half of the Plan period.
• Several tax concessions were announced and government would not have been able to go with rising price rise.
12th Five Year Plan
Period of Plan: 2012-17
It aims to achieve annual average economic growth rate of 8 per cent.
During the 11th Plan (2007-12), India has recorded an average economic growth rate of 7.9 per cent. This, however, is lower than the 9 per cent targetted in 11th Plan.
12th Plan seeks to achieve 4 per cent agriculture sector growth during 2012-17. The growth target for manufacturing sector has been pegged at 10 per cent.
The total plan size has been estimated at Rs.47.7 lakh crore, 135 per cent more that for the 11th Plan (2007-12).
As regards to poverty alleviation, the Commission aims to bring down the poverty ratio by 10 per cent. At present, 30 per cent of the population is below poverty line.
Growth Performance in the Five Year Plans (percent per annum)