Machinery of Planning | Public Administration Optional for UPSC (Notes) PDF Download

Introduction

• Upon gaining independence, India established itself as a republic and chose to pursue a path of social and economic development through planning. This approach meant that the state would play an active role in determining the direction and scope of economic and social activities while still respecting private property and market institutions. The Indian Constitution allowed for the market to function but also called for state intervention when necessary.
• India adopted a mixed economy model, where both public and private sectors coexisted and played complementary roles in the development process. The country focused on democratic planning with the goal of achieving high and sustained growth, improving living standards, eradicating poverty and unemployment, and building a self-reliant economy. However, since the 1990s, the planning strategy has shifted towards a greater emphasis on the market.
• In this discussion, we will explore the objectives and strategies that were initially envisioned after independence and how they have evolved over time. We will also examine the performance of the Indian economy. To begin, let's provide some context on the background of India's planning approach.

Post-Independence Developments

• In the late 1930s, a series of plans were developed for India's economic growth, including the National Planning Committee, led by Jawahar Lal Nehru, and the Bombay Plan, formulated by prominent industrialists. However, these plans were never implemented, and it wasn't until after India gained independence that significant progress was made. In 1948, a resolution of Industrial policy was announced, followed by the establishment of the Planning Commission in 1950 as an extra-constitutional body, tasked with formulating development programs and ensuring their execution.
• The Planning Commission was initially asked to prepare a six-year development plan for the Colombo Plan, which aimed at cooperative economic development in South and Southeast Asia. However, the Indian government later decided to create an independent Five Year Plan, which began in April 1951. The Draft Outline of this plan, published in July 1951, aimed to spark a nationwide debate, involving intellectuals, industrialists, politicians, and the public. This democratic approach to planning also led to the suggested formation of the National Development Council (NDC), which was eventually established in August 1952.
• The NDC, chaired by the Prime Minister and comprised of Chief Ministers, is responsible for approving the Approach Paper and the Plan itself. The Plan is then presented to the Houses of Parliament for discussion and adoption. This process reflects the democratic nature of India's planning system, emphasizing the importance of broad-based participation and discussion in shaping the country's economic development.

Planning Machinery

The Planning Commission and the National Development Council are the two main bodies responsible for planning and development at the national level in India. The Planning Commission is appointed by the Union Government and formulates plans for the entire country, incorporating the plans of individual states. The National Development Council comprises the Chief Ministers of all states, members of the Planning Commission, and some Union Ministers. This council provides approval for the Planning Commission to formulate specific plans and also reviews and approves these plans before they are presented to the Parliament.

• The Prime Minister serves as the Chairman of the Planning Commission, while the Deputy Chairman oversees the day-to-day operations of the Commission. The Commission also includes ministerial members, such as the Ministers for Finance and Planning, and several full-time members, who are responsible for various subject areas.
• The Planning Commission is divided into several divisions, including general divisions (such as perspective planning, policy, and financial resources), subject divisions (such as agriculture, industry, housing, education, health, labor, science and technology, social welfare, trade, project appraisal, etc.), area divisions (for states or zones like hill areas), and service divisions (related to administration, accounts, and general services like computer service division, publicity, etc.).
• Subject divisions collaborate with relevant ministries, state governments, and other official/non-official agencies, and organize research studies either independently or through external institutions/organizations. The Program Evaluation Organization undertakes specialized evaluation studies to assess the impact of selected plan programs.
• There is only one National Plan, which encompasses all State Plans. Although state budgets are independent, state plans are not. State Planning Boards exist to facilitate the transfer of resources from the Union for State Plans based on a specific formula. The Planning Commission coordinates the development programs of the Union Ministries with those of the State Governments and integrates them into a single national plan.
• In addition to the public sector component, the planning process also includes the private sector, making it a comprehensive planning system. This involves forecasting and policy-induced projections of economic activities. The implementation of the plan requires resources, and specific financing schemes are developed for the Union and each of the States, with efforts made to mobilize additional resources. These funds are then integrated into the overall flow of funds for the economy.
• Working Groups and Task Forces, comprising economists, experts, and administrators, are appointed to provide input on various sectors, sub-sectors, and subjects for each plan. While the implementation of plan programs is the responsibility of various levels of government, the Planning Commission (and State Planning Boards) is mainly responsible for formulating five-year and annual plans, appraising their progress, and recommending policy adjustments as needed. Alongside each five-year plan, a perspective plan for a longer period (e.g., 15 years) is also prepared to account for investments with longer gestation periods and to initiate new policy measures that support structural changes.

Plans Prepared by the Planning Commission

Finally, the five-year plan is implemented through annual plans only, which are a part of respective annual budgets. With changes in conditions assumed, adjustments and adaptations are made during the course of implementation. Annual Plans thus introduce the needed flexibility.

Planning Objectives

The basic objectives of Indian planning revolve around four guiding principles: economic growth, modernisation, self-reliance, and social justice. Within this framework, each development plan outlines specific priorities based on immediate needs and constraints. However, these priorities must align with the four fundamental objectives.

• Economic Growth: The Primary Objective: The foremost objective of Indian planning is to achieve rapid economic growth within a democratic framework. Given the country's low per capita income and poor living standards for the majority of the population, raising national income is a critical goal of development planning. The target growth rate for national income is usually set at around 5%, with some variations across different plans. The focus is on enhancing the economy as quickly as possible while maintaining democratic values.
• Modernisation: The Second Objective: Modernising the economy is another crucial objective. This involves structural and institutional changes that lead to a more progressive and modern economy. Modernisation efforts span across agriculture, industry, and service sectors, with an emphasis on diversifying the economy and producing a wide variety of goods, including capital goods. Technological advancements and innovation are key components of modernisation as they improve efficiency, upgrade product quality, and increase resource productivity.
• Self-reliance: The Third Objective: Until the 1980s, self-reliance was a major objective of Indian economic planning. This meant reducing and eliminating dependence on foreign aid and imports for critical commodities by focusing on import substitution and expanding exports to pay for necessary imports with domestic foreign exchange earnings. However, since 1991, with the globalisation and liberalisation of the Indian economy, this focus has shifted towards outward orientation.
• Social Justice: The Fourth Objective: Social justice is another important objective, aimed at improving the living standards of disadvantaged groups such as landless agricultural laborers, artisans, scheduled castes and tribes, women, and children. This includes reducing income and asset inequalities, implementing welfare schemes for the poor, land reforms for small farmers, and providing subsidized goods for both production and consumption.

In summary, the primary objectives of India's development planning are to ensure rapid economic growth, modernisation, self-reliance, and social justice. While these objectives may sometimes conflict, the plans aim to strike a balance between them. Long-term objectives remain consistent across plans, while short-term objectives may differ based on specific circumstances. Ultimately, these objectives serve as a roadmap for India's economic growth and development.

Planning Policy Framework

• In the past, the developed world seemed to be divided into two major blocks: one that was market-oriented and capitalistic in nature, with the state intervening for course correction, and the other that pursued socialistic goals through socialistic means, using the state as the primary instrument of change. While state-run programs and projects were launched in the capitalistic world to address larger interests, the socialistic world adopted a comprehensive approach that prioritized the state sector.
• In this context, India chose a mixed economy policy framework, allowing for the coexistence of public and private sectors in business enterprises, such as industrial, commercial, and financial operations. The idea was that public sector enterprises would primarily be guided by public interest, while private sector enterprises would not solely focus on profit. Both sectors were expected to cooperate and support each other in boosting the country's economic potential.
• It is important to note that no economy has ever been purely market-based or purely socialist; all economies have been mixed to some extent, with the state playing a role in regulating market functions. The concept of a mixed economy has evolved over time, with economies in the West being labeled as mixed enterprises until the 1960s and now being called mixed economies.
• However, in the early 1990s, there was a significant shift in the role of planning in India, largely due to the foreign exchange crisis the country faced in 1991 as a result of the Gulf War. Within the mixed economy framework, planning was now to be guided by market fundamentalism. In areas such as the environment, forests, rare minerals, land, and water, where markets fail to allocate resources effectively, planning would continue to play an important role.
• For the public sector, the guiding principle changed to only entering areas where they could perform better than the private sector. Instead of focusing on resource allocation or investment planning primarily through public sector investment, planning began to shift towards the development of social infrastructure, addressing the balance between societal needs and private supply where market forces may fail. Long-term perspectives still require planning, but with this change in approach, planning has become more indicative and less prescriptive.

Planning Strategies

Over the past fifty years, planning strategies have evolved and can be broadly divided into two phases: the phase of control and the phase of regulation. Each phase has its own distinct features and strategies.

1. Phase of Control
This phase, which lasted from the early 1950s to the late 1980s, focused on the expansion of the public sector, industrialization, import substitution, self-sufficiency in food grains, state control on financial resources, control on foreign capital, protection of small scale industries, regulation of large scale industry, curb on monopolistic practices, security to labor in the organized sector, provision of public health measures, and spread of education and literacy. The dominant features during this time were an interventionist state, expansion of the public sector, development of heavy industries, and emphasis on import substitution.

• Interventionist State: The state intervened in market processes to secure the livelihood of the poor and reduce disparities among classes. It created institutions to promote agriculture, industry, and trade and adopted fiscal and monetary policies that promoted growth and social justice.
• Expansion of Public Sector: The public sector was given the responsibility of developing heavy and basic industries, as well as social and economic infrastructure. This was done to initiate and accelerate the process of development, as the private sector was believed to be focused on quick-yielding, less risky industries.
• Development of Heavy Industries: The development of industries such as engineering, machine-making, electricity, cement, heavy chemicals, and metallurgy was given priority to promote self-reliance and reduce dependence on imports.
• Import Substitution: The strategy focused on replacing imported goods with domestically produced goods, both for capital and consumer goods. This was done to conserve foreign exchange and reduce vulnerability to external pressures.

2. Phase of De-regulation
This phase, which began in the mid-1980s, was characterized by economic reforms aimed at stabilization, structural adjustment, liberalization, privatization, and globalization (LPG model). These reforms led to a shift in policy and strategy, moving away from the earlier interventionist and inward-looking approach.

• Liberalization: The government began relaxing controls on various sectors, allowing for more freedom for the private sector to operate. This included import liberalization and export promotion, which were implemented through various policies and reforms over the years.
• Privatization: During this phase, the government began reducing its role in certain industries and sectors, allowing the private sector to take on a more prominent role. This included the nationalization of various industries, such as coal mining, oil exploration, and banks.
• Globalization: With the growing interconnectedness of the world economy, the government began to focus on integrating India into the global market. This involved opening up the economy to foreign investment, as well as promoting exports and expanding the country's trade network.

In conclusion, planning strategies in India have evolved over the past fifty years, transitioning from a focus on control and intervention to a more market-oriented approach characterized by deregulation and economic reforms. This shift has had significant implications for India's economic growth and development, as well as its integration into the global market.

Performance of the Economy

• The performance of an economy is often evaluated based on the achievements and failures of its planning strategies. However, it is essential to acknowledge that the results cannot be solely attributed to these strategies, as they may have been altered along the way. It is also challenging to categorize the outcomes as either entirely successful or unsuccessful, as the reality is often a mix of both achievements and shortcomings.
• To assess the performance of an economy, it is useful to consider the overarching objectives that have been set, such as maximizing production, ensuring full employment, reducing income inequality and wealth disparity, and preventing the concentration of economic power. These goals encompass various sectors and fields of activity, both economic and social.
• In evaluating the performance of an economy, it is essential to adopt a comprehensive perspective that takes into account the various aspects of planning and the changes that may have occurred over time. By doing so, a more accurate and nuanced understanding of the economy's achievements and limitations can be achieved, recognizing that the outcomes are often a blend of successes and failures.

Production

• During the 1950s, 1960s, and 1970s, the long-term growth rate of the Indian economy did not exceed 3.5% per annum. The growth targets set for each plan period were usually over 5% per annum, but they were never met. It's challenging to determine whether the potential was fully exploited or if the targets were realistic and reasonable.
• For instance, the First Plan set a modest growth target of 1.8% per annum, which was doubled due to favorable monsoon conditions. In the Second Plan, although the growth rate increased compared to the First Plan, it still fell short of the 5.0% per annum target, reaching only 4.2% per annum.
• The Third Plan witnessed a significant failure, with the economy achieving an average annual growth rate of only 2.4% (at 1980-81 prices) and 2.8% (at 1993-94 prices) against the target of 5.0% per annum. This disappointing performance can be attributed to the wars with China in 1962 and Pakistan in 1965, as well as poor monsoon conditions in 1965-66.
• From the mid-1970s onwards, particularly after 1979-80, the Indian economy's growth trajectory shifted from a 3.5% per annum path to a 5.5% per annum path, although there were occasional setbacks. This can be observed in the plan-wise growth rates.

In summary, the growth rates of the Indian economy during the 1950s, 1960s, and 1970s varied due to factors such as monsoon conditions and political conflicts. The targets set for each plan period were often not met, but the growth trajectory improved from the mid-1970s onwards, with the economy experiencing higher growth rates.

Plan-wise Growth Rate

Conclusion

In conclusion, India's planning approach since gaining independence has evolved from an interventionist and control-focused phase to a more market-oriented and deregulated phase. The primary objectives of economic growth, modernisation, self-reliance, and social justice have guided the planning process, and the mixed economy model has facilitated the coexistence of public and private sectors. While the performance of the Indian economy has experienced ups and downs, with growth targets often not being met, the growth trajectory has improved from the mid-1970s onwards. Overall, the planning strategy in India has played a significant role in shaping the country's economic development and progress.