Lecture 3 - Economic Planning in India | Indian Economy - In Depth Analysis - Economics PDF Download

 Page 1


Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Lesson: Economic Planning in India 
Lesson Developers: Taruna Rajora, 
Research Scholar,CCS University 
Reviewer: Prof. M. M. Goel 
Page 2


Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Lesson: Economic Planning in India 
Lesson Developers: Taruna Rajora, 
Research Scholar,CCS University 
Reviewer: Prof. M. M. Goel 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
Table of contents 
1) Learning outcomes. 
2) History and meaning of planning. 
3) Need for planning. 
4) Types of economic planning-: 
? Planning by direction. 
? Planning by inducement. 
? Perspective planning. 
? Indicative planning. 
? Democratic planning. 
? Fixed planning. 
? Centralized planning. 
? Decentralized planning. 
5) Planning under capitalism, socialism and mixed economy. 
6) History of Indian planning-: 
? Bombay plan. 
? Gandhian plan. 
? People’s plan. 
? Sarvodaya plan. 
 
7) Planning commission and its functions. 
8) National development council (NDC). 
9) Objectives and functions of national development council. 
10) Five year plans. 
11) Growth rate of five year plans in tabular form. 
12) Exercises. 
13) References. 
14) Multiple choice questions (MCQs) 
 
 
 
Learning outcomes 
After reading this chapter you will be able to know about -: 
I. History, meaning and need of planning. 
Page 3


Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Lesson: Economic Planning in India 
Lesson Developers: Taruna Rajora, 
Research Scholar,CCS University 
Reviewer: Prof. M. M. Goel 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
Table of contents 
1) Learning outcomes. 
2) History and meaning of planning. 
3) Need for planning. 
4) Types of economic planning-: 
? Planning by direction. 
? Planning by inducement. 
? Perspective planning. 
? Indicative planning. 
? Democratic planning. 
? Fixed planning. 
? Centralized planning. 
? Decentralized planning. 
5) Planning under capitalism, socialism and mixed economy. 
6) History of Indian planning-: 
? Bombay plan. 
? Gandhian plan. 
? People’s plan. 
? Sarvodaya plan. 
 
7) Planning commission and its functions. 
8) National development council (NDC). 
9) Objectives and functions of national development council. 
10) Five year plans. 
11) Growth rate of five year plans in tabular form. 
12) Exercises. 
13) References. 
14) Multiple choice questions (MCQs) 
 
 
 
Learning outcomes 
After reading this chapter you will be able to know about -: 
I. History, meaning and need of planning. 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
II. Different types of planning. 
III. Planning commission and its functions. 
IV. National development council (NDC), its objectives and functions. 
V. Important features of five year plans and their growth rates 
History  
The very idea of Planning is deeply rooted in Indian context as we have centuries old 
civilization Like mohanjadaro and Indus valley  which were well planned and structured in 
their growth . The present thought of economic planning is fairly new somewhat embedded 
in Marxian Socialism. In 19th century, intellectuals, theorist, thinkers, from Europe has put 
idea of state involvement to stop capitalism and inequality of the society. Soviet Union has 
idea of economic planning for the first time in 1928 which was given to transform the 
country in industrial super power. Idea of Economic Planning got strength during period of 
great depression in 1930 and Keynes writing also advocated worth of economic planning. 
The occurrence of Second World War also necessitated the proper an d efficient planning of 
economic resources for the successfully handling aftereffects of war. 
Meaning of Planning  
It is somewhat complicated to give specific definition of “Economic Planning” which may be 
satisfactory to all. Different perspectives are their which give different connotation and 
contents to Economic Planning. Planning is the process of achieving the goals for nation 
economic development by using resources in the well planned way. 
Need of Planning  
1. To Increase the rate of Economic Development. In underdeveloped countries 
increase in the rate of economic development is the basic objective of planning. 
Income, saving and investment should be increased, to enhance the level of capital 
formation which helps in raising the rate of economic development. People in 
underdeveloped countries are poor. There income level is low which reduces the 
capacity of the people to save. Low saving results in lower level of capital formation. 
Due to scarcity of capital and lower productivity the rate of investment is low. In this 
situation two methods can be used one is planned development by importing capital 
from out of the country which Zweig Calls “Supported industrialization” and the other 
is by enforced saving which he characterizes as “Self Sufficient Industrialization.’’ 
2.  To eradicate Unemployment. The need for planning is more stressed by need for 
eradicating the unemployment in economies. In underdeveloped countries problem 
of unemployment arises because of Capital being limited and labor being abundant. 
Due to excess labor available there arises involuntary unemployment in the 
economy. It can be solved by placing well powerful authority at central level and 
giving more power to this authority can solve this problem. 
3. To Improve and Strengthen Market Mechanism. The need for planning is there 
to improve and strengthen market mechanism .The market mechanisms works 
improperly in underdeveloped countries because of the lack of knowledge and 
unfamiliarity with it. The major parts of economy of under developed country consist  
of non-monetized sector. The production factors, money are not organized properly. 
The price system exist only at very basic level .Therefore planning is required bring a 
match between demand and supply side of the economy and other resources. 
4. Fair progress of the Economy. In absence effective efficient planning there is a 
greater need of setting up institution which is dedicated to only planning of economy. 
Page 4


Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Lesson: Economic Planning in India 
Lesson Developers: Taruna Rajora, 
Research Scholar,CCS University 
Reviewer: Prof. M. M. Goel 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
Table of contents 
1) Learning outcomes. 
2) History and meaning of planning. 
3) Need for planning. 
4) Types of economic planning-: 
? Planning by direction. 
? Planning by inducement. 
? Perspective planning. 
? Indicative planning. 
? Democratic planning. 
? Fixed planning. 
? Centralized planning. 
? Decentralized planning. 
5) Planning under capitalism, socialism and mixed economy. 
6) History of Indian planning-: 
? Bombay plan. 
? Gandhian plan. 
? People’s plan. 
? Sarvodaya plan. 
 
7) Planning commission and its functions. 
8) National development council (NDC). 
9) Objectives and functions of national development council. 
10) Five year plans. 
11) Growth rate of five year plans in tabular form. 
12) Exercises. 
13) References. 
14) Multiple choice questions (MCQs) 
 
 
 
Learning outcomes 
After reading this chapter you will be able to know about -: 
I. History, meaning and need of planning. 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
II. Different types of planning. 
III. Planning commission and its functions. 
IV. National development council (NDC), its objectives and functions. 
V. Important features of five year plans and their growth rates 
History  
The very idea of Planning is deeply rooted in Indian context as we have centuries old 
civilization Like mohanjadaro and Indus valley  which were well planned and structured in 
their growth . The present thought of economic planning is fairly new somewhat embedded 
in Marxian Socialism. In 19th century, intellectuals, theorist, thinkers, from Europe has put 
idea of state involvement to stop capitalism and inequality of the society. Soviet Union has 
idea of economic planning for the first time in 1928 which was given to transform the 
country in industrial super power. Idea of Economic Planning got strength during period of 
great depression in 1930 and Keynes writing also advocated worth of economic planning. 
The occurrence of Second World War also necessitated the proper an d efficient planning of 
economic resources for the successfully handling aftereffects of war. 
Meaning of Planning  
It is somewhat complicated to give specific definition of “Economic Planning” which may be 
satisfactory to all. Different perspectives are their which give different connotation and 
contents to Economic Planning. Planning is the process of achieving the goals for nation 
economic development by using resources in the well planned way. 
Need of Planning  
1. To Increase the rate of Economic Development. In underdeveloped countries 
increase in the rate of economic development is the basic objective of planning. 
Income, saving and investment should be increased, to enhance the level of capital 
formation which helps in raising the rate of economic development. People in 
underdeveloped countries are poor. There income level is low which reduces the 
capacity of the people to save. Low saving results in lower level of capital formation. 
Due to scarcity of capital and lower productivity the rate of investment is low. In this 
situation two methods can be used one is planned development by importing capital 
from out of the country which Zweig Calls “Supported industrialization” and the other 
is by enforced saving which he characterizes as “Self Sufficient Industrialization.’’ 
2.  To eradicate Unemployment. The need for planning is more stressed by need for 
eradicating the unemployment in economies. In underdeveloped countries problem 
of unemployment arises because of Capital being limited and labor being abundant. 
Due to excess labor available there arises involuntary unemployment in the 
economy. It can be solved by placing well powerful authority at central level and 
giving more power to this authority can solve this problem. 
3. To Improve and Strengthen Market Mechanism. The need for planning is there 
to improve and strengthen market mechanism .The market mechanisms works 
improperly in underdeveloped countries because of the lack of knowledge and 
unfamiliarity with it. The major parts of economy of under developed country consist  
of non-monetized sector. The production factors, money are not organized properly. 
The price system exist only at very basic level .Therefore planning is required bring a 
match between demand and supply side of the economy and other resources. 
4. Fair progress of the Economy. In absence effective efficient planning there is a 
greater need of setting up institution which is dedicated to only planning of economy. 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
For faster growth of an economy the agriculture and industrial sector need greater 
investment ,attention, effective policies from the government Import and Export 
needs to be kept on checked condition there should be a effort to balance both 
import and export so that foreign exchange can be managed effectively. For fair 
progress of the economy the following all the sectors are required to grow. 
(i) Progress of Agricultural and Industrial sectors. The necessity for developing the 
agricultural sector with industrial sector arise from the fact that agriculture and 
industry are dependent on each other .Reorganizing the agriculture sector will 
release excess man power which can be taken into system by industrial sector. 
Growth of agricultural sector will provide plentiful and required raw material 
industries. 
(ii) Progress of Money and Capital Market. Growth of trade depends not only on 
agricultural and industrial sector along with stable growth of other financial 
institutions. Capital & money markets are undeveloped in countries all the 
countries .The growth of these markets depend on international markets and 
world economic conditions. 
(iii) Progress in Infrastructure. For the growth of Agricultural and industrial sector 
the infrastructure need drastic improvements at very high pace to match the 
growth of agriculture and industrial sector. lf the Infrastructure lags behind it will 
impact the growth of other sectors. For achieving high growth rate in 
infrastructure in countries like public private model can be used more extensively 
for faster completion of infrastructure projects. 
Types of Economical planning  
(i) Directional planning  
Countries, which believe in socialism, followed the directional type of planning. The targets 
of plans are pre-determined and executed with the help of the government in power. In this 
form of planning all the important position and decision are taken by the state. In this type 
of planning all things are under control of state including, financial institutions, industrial 
sector, transport, and infrastructure. 
Faults of Planning by direction  
a) It involves bureaucratic system, which is time consuming, and there is lack of clarity. 
b) People are not allowed to job of their choice and are not even allowed to spend and 
consume as per their wish.  
c) Markets are under controls of state. 
d) Planning by direction is very rigid process and there is very less flexibility because of 
absence of accountability towards consumers and producers.  
e) Planning by direction is goal oriented which state wants to achieve at any cost due to 
which it becomes very tough and sometimes there is exploitation of resources and 
manpower which can lead to unrest. 
f) Planning by direction can lead to standardization of process, which can result into 
similar production capacities and processes which diminish innovation. 
 
(ii) Planning by inducement 
Planning by inducement is independent planning. Process of production, forming the 
enterprise and various patterns of consumption by the people are regulated and controlled 
by the state. The government in power forms various monetary and fiscal policies to 
Page 5


Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Lesson: Economic Planning in India 
Lesson Developers: Taruna Rajora, 
Research Scholar,CCS University 
Reviewer: Prof. M. M. Goel 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
Table of contents 
1) Learning outcomes. 
2) History and meaning of planning. 
3) Need for planning. 
4) Types of economic planning-: 
? Planning by direction. 
? Planning by inducement. 
? Perspective planning. 
? Indicative planning. 
? Democratic planning. 
? Fixed planning. 
? Centralized planning. 
? Decentralized planning. 
5) Planning under capitalism, socialism and mixed economy. 
6) History of Indian planning-: 
? Bombay plan. 
? Gandhian plan. 
? People’s plan. 
? Sarvodaya plan. 
 
7) Planning commission and its functions. 
8) National development council (NDC). 
9) Objectives and functions of national development council. 
10) Five year plans. 
11) Growth rate of five year plans in tabular form. 
12) Exercises. 
13) References. 
14) Multiple choice questions (MCQs) 
 
 
 
Learning outcomes 
After reading this chapter you will be able to know about -: 
I. History, meaning and need of planning. 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
II. Different types of planning. 
III. Planning commission and its functions. 
IV. National development council (NDC), its objectives and functions. 
V. Important features of five year plans and their growth rates 
History  
The very idea of Planning is deeply rooted in Indian context as we have centuries old 
civilization Like mohanjadaro and Indus valley  which were well planned and structured in 
their growth . The present thought of economic planning is fairly new somewhat embedded 
in Marxian Socialism. In 19th century, intellectuals, theorist, thinkers, from Europe has put 
idea of state involvement to stop capitalism and inequality of the society. Soviet Union has 
idea of economic planning for the first time in 1928 which was given to transform the 
country in industrial super power. Idea of Economic Planning got strength during period of 
great depression in 1930 and Keynes writing also advocated worth of economic planning. 
The occurrence of Second World War also necessitated the proper an d efficient planning of 
economic resources for the successfully handling aftereffects of war. 
Meaning of Planning  
It is somewhat complicated to give specific definition of “Economic Planning” which may be 
satisfactory to all. Different perspectives are their which give different connotation and 
contents to Economic Planning. Planning is the process of achieving the goals for nation 
economic development by using resources in the well planned way. 
Need of Planning  
1. To Increase the rate of Economic Development. In underdeveloped countries 
increase in the rate of economic development is the basic objective of planning. 
Income, saving and investment should be increased, to enhance the level of capital 
formation which helps in raising the rate of economic development. People in 
underdeveloped countries are poor. There income level is low which reduces the 
capacity of the people to save. Low saving results in lower level of capital formation. 
Due to scarcity of capital and lower productivity the rate of investment is low. In this 
situation two methods can be used one is planned development by importing capital 
from out of the country which Zweig Calls “Supported industrialization” and the other 
is by enforced saving which he characterizes as “Self Sufficient Industrialization.’’ 
2.  To eradicate Unemployment. The need for planning is more stressed by need for 
eradicating the unemployment in economies. In underdeveloped countries problem 
of unemployment arises because of Capital being limited and labor being abundant. 
Due to excess labor available there arises involuntary unemployment in the 
economy. It can be solved by placing well powerful authority at central level and 
giving more power to this authority can solve this problem. 
3. To Improve and Strengthen Market Mechanism. The need for planning is there 
to improve and strengthen market mechanism .The market mechanisms works 
improperly in underdeveloped countries because of the lack of knowledge and 
unfamiliarity with it. The major parts of economy of under developed country consist  
of non-monetized sector. The production factors, money are not organized properly. 
The price system exist only at very basic level .Therefore planning is required bring a 
match between demand and supply side of the economy and other resources. 
4. Fair progress of the Economy. In absence effective efficient planning there is a 
greater need of setting up institution which is dedicated to only planning of economy. 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
For faster growth of an economy the agriculture and industrial sector need greater 
investment ,attention, effective policies from the government Import and Export 
needs to be kept on checked condition there should be a effort to balance both 
import and export so that foreign exchange can be managed effectively. For fair 
progress of the economy the following all the sectors are required to grow. 
(i) Progress of Agricultural and Industrial sectors. The necessity for developing the 
agricultural sector with industrial sector arise from the fact that agriculture and 
industry are dependent on each other .Reorganizing the agriculture sector will 
release excess man power which can be taken into system by industrial sector. 
Growth of agricultural sector will provide plentiful and required raw material 
industries. 
(ii) Progress of Money and Capital Market. Growth of trade depends not only on 
agricultural and industrial sector along with stable growth of other financial 
institutions. Capital & money markets are undeveloped in countries all the 
countries .The growth of these markets depend on international markets and 
world economic conditions. 
(iii) Progress in Infrastructure. For the growth of Agricultural and industrial sector 
the infrastructure need drastic improvements at very high pace to match the 
growth of agriculture and industrial sector. lf the Infrastructure lags behind it will 
impact the growth of other sectors. For achieving high growth rate in 
infrastructure in countries like public private model can be used more extensively 
for faster completion of infrastructure projects. 
Types of Economical planning  
(i) Directional planning  
Countries, which believe in socialism, followed the directional type of planning. The targets 
of plans are pre-determined and executed with the help of the government in power. In this 
form of planning all the important position and decision are taken by the state. In this type 
of planning all things are under control of state including, financial institutions, industrial 
sector, transport, and infrastructure. 
Faults of Planning by direction  
a) It involves bureaucratic system, which is time consuming, and there is lack of clarity. 
b) People are not allowed to job of their choice and are not even allowed to spend and 
consume as per their wish.  
c) Markets are under controls of state. 
d) Planning by direction is very rigid process and there is very less flexibility because of 
absence of accountability towards consumers and producers.  
e) Planning by direction is goal oriented which state wants to achieve at any cost due to 
which it becomes very tough and sometimes there is exploitation of resources and 
manpower which can lead to unrest. 
f) Planning by direction can lead to standardization of process, which can result into 
similar production capacities and processes which diminish innovation. 
 
(ii) Planning by inducement 
Planning by inducement is independent planning. Process of production, forming the 
enterprise and various patterns of consumption by the people are regulated and controlled 
by the state. The government in power forms various monetary and fiscal policies to 
Economic Planning in India 
Institute of Lifelong Learning, University of Delhi 
effectively regulate the economy. If the authority want to promote any industry it can 
subsidy to that industry and its ancillary industries. If authority finds that there is black 
marketing or scarcity of a particular commodity in market they can take measures to control 
price and starting rationing of that commodity. For increase the capital it can take up 
investment and encourage private investors. It can adopt a suitable monetary policy and 
can fine tune taxation in the system to increase or decrease consumption. 
Faults in planning by Inducement 
a) As in this type of planning market forces are free therefore situation of scarcity of 
commodity arises and measures of rationing and price control taken by authority. 
b) Monetary and fiscal policies are insignificant to induce development of the economy 
by raising the rate capital formation. In an under developed country rate of capital 
formation is low due to level of income and saving. 
 
(iii) Perspective planning  
Perspective planning contains plans for longer period of time 20 to 25 years. A perspective 
plan is an outline of development to be undertaken over a longer period in a phased 
manner. A perspective plan does not mean a single plan will take place for entire period of 
20 years. In this planning targets are framed for particular time period for example five 
years like five years plan in India they are also known as short period plan. They can further 
divided into annual plans. These five-year plans generally maintain continuity. They can be 
further bifurcated as regional plan which pertains to state and districts.  
Faults of Perspective planning  
(a) In perspective type of planning plans are made for long period so they are quite rigid 
that it is very tough to do necessary adjustment for advancement of the plan. 
(b) Administrative problems are main concern for this kind of planning as perspective 
planning highly efficient bureaucracy to implement the plans. 
 
(iv) Indicative Planning  
Indicative planning is a flexible kind of planning. It is also known as soft planning as it 
different from comprehensive or imperative planning. It works decentralized principles in 
the completion target plans. There is minimum rigidity in this structure of planning. 
In Indicative planning the targets for public sector are mandatory while for private sector 
they are only indicative. But it does not mean that government cannot use its power to 
influence the private sector in desired direction .It was initially used in countries like France 
and Japan. 
Fault of Indicative Planning  
As indicative planning can only influenced the players involved economic planning and if all 
player concerned are not performing as per the expectations the Indicative can turned out 
to be disaster .As in this planning there is not much of a authority some monopolistic 
players can go for personal benefit without caring about over all system which can cause 
inflation in the economy. 
(v) Imperative Planning