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Planning in India | Indian Economy for UPSC CSE PDF Download

Genesis and Meaning of Planning

Planning in India | Indian Economy for UPSC CSE

  • The system of a Laissez-faire economy based on a free market economy has failed to promote the economic welfare of people all over the world. 
  • The concept of planning gained popularity after the economic depression of 1930 when the weaknesses of capitalism based on a free market economy were exposed. 
  • When capitalism was flourishing the inherent weaknesses of the system could be overlooked but with the collapse of capitalism, the defects of the system were revealed. 
  • The free market-based economy of capitalism led to mass unemployment, poverty, inequalities of income, and complete disregard for social ends. 
  • The society was convinced that this could be remedied by proper state action through planning. 
  • Thus the concept of planning became popular and more acceptable than a free market economy. 
  • Moreover, the achievements of planning in Russia, Japan, Italy, Sweden, Germany, etc., have been very impressive justifying the need of economic planning for the economic development of countries.
  • The concept of economic planning cannot be stated precisely as it has assumed different forms in different countries. 
  • However, broadly economic planning is a conscious and carefully carried out process for the best use of existing resources to meet well-defined objectives. 
  • In simple words, planning means the achievement of certain economic targets in different sectors of the economy within a specified period with a view to making the best possible use of the limited available resources.

Backdrop

  • In India ideas on planned economy crystallized in the 1930s, when the nationalist leaders came under the influence of socialists. 
  • In 1934 M. Visveswarayya wrote "A Planned Economy for India" Jawaharlal Nehru, the architect of planning in India, set up National Planning Committee (NPC) in 1938. 
  • The committee submitted its report as late as in 1948. 
  • Meanwhile, our country witnessed the disturbing spectacle of World War II and abnormal political development. Besides NPC, eight leading industrialists of Bombay prepared 'A Plan of Economic Developments' in 1948 which was known as the 'Bombay Plan'. M.N. Roy's 'People's Plan' was prepared around the same time. 
  • There was a Gandhian Plan too which was prepared by Shriman Narayan. All these plans were only paper plans which were never implemented. 
  • The government of India also set up a Department of Planning and Development in 1944. It drew up both short-term and long-term plans, the former for restoration and the latter for the country's economic reconstruction and development. 
  • After independence, the India Planning Commission was appointed in March 1950 with Jawaharlal Nehru as its Chairman
  • The Commission, in July 1951, presented the draft outline for the First Five Year Plan covering the period 1 April 1951 to 31 March 1956.
  • Planning in India is based on a mixed economy (characterized by the coexistence of private and public sectors) with an emphasis on macroeconomic planning. In other words, while giving due importance to the state-owned enterprises, Indian planning does not do away with the private sector. 
  • Its ideals are based on democratic socialism, which essentially means socialism with democratic values.

Question for Planning in India
Try yourself:What was the catalyst for the popularity of economic planning after the economic depression of 1930?
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The ideals of Indian planning are: 

  • removal of poverty and enhancing national income; 
  • reduction in the inequalities of income and wealth; 
  • faith in the mixed economy; 
  • basic criteria of the economic decision is not private  but social gains;  
  • cherishing democratic values for the enrichment of individual and community life as well as the provision of equal opportunities to all.

Objective of Indian Planning

Planning in India | Indian Economy for UPSC CSE

  • Indian planning derives its objectives and social premises from the Directive Principles of State Policy given in our Constitution. 
  • The planning process in this country has been based on long-term objectives though the short-term objectives have varied from plan to plan.

The main long-term objectives of the planning in India are: 

  1. economic growth, 
  2. self-reliance, 
  3. removal of unemployment, 
  4. reduction of income inequalities 
  5. elimination of poverty, and 
  6. modernization.

Economic Growth

  • Economic growth measured in terms of national income and per capita income, has remained the main objective of plans. 
  • It has been assumed that the gains of economic growth would percolate downwards and thus bring about a decline in inequalities and poverty. 
  • An average annual growth rate of 5 percent of national income and 3 percent of per capita income has been the target throughout the planning period.
  • However, two positive aspects of growth performance during the plan period have been 
    • the growth rate at 6 percent is much higher than the pre-independence growth rate of 1.2 percent during 1901-1946 — thus a shift forward from stagnating Indian economy; and
    • the economy has been much strengthened, with gross capital formation at around 33.4 percent leading to an increase in productive capacity.

Self Reliance

  • On the eve of the First Plan, India depended upon foreign countries for at least three things, 
    • import of large amounts of foodgrains; 
    • import of transport equipment, machine tools, heavy engineering goods, electrical plants and machines, and many other capital goods, since basic industries were virtually non-existent in India; and
    • foreign aid, since the savings rate was very low.
  • Self-reliance in these three spheres was seen as an imperative goal of planning so as to ensure a more equal relationship with the world economy and to reduce our vulnerability to international pressures and disturbances. 
  • The first two plans did not emphasize self-reliance explicitly. 
  • The third plan did it by stressing that the nation would endeavor to become self-reliant over a decade or so.
  • There has been some movement towards self-reliance as is evident from the following : 
    • the country is self-sufficient in food not just because of a sudden increase in foodgrain production but because it has built a large amounts of buffer stocks to be able to tide over drought years; 
    • lesser dependence on foreign aid 
    • Gross Capital Formation at current prices is estimated as Rs. 33.7 lakh crore for the year 2011-12.
    • large import substitution in many critical products such as steel, machinery, and other capital equipments, fertilizers etc.; 
    • Exports during March 2015 were valued at US $23951.16 million (Rs. 149574.53 crores).

Removal of Unemployment

  • Elimination of poverty is directly proportional to the removal of unemployment. 
  • Removal of unemployment has been one of the objectives of planning but has never been given high priority.
  • It has been a pet belief of the planners that employment and investment are co-related. The thesis was that as investment grew employment would also increase. 
  • In the Third Plan document, the Planning Commission explicitly said that as the national income grows in response to increased investment and development outlay, the demand for labor rises and employment expands. 
  • No attempt was made to match job creation with the influx of labor force. 
  • Consequently, at the end of each Plan period, the unemployment backlog increased. 
  • In rural areas, the unemployment rate is 4.7% percent whereas in urban areas, the unemployment rate is 5.5 percent under the UPS approach in 2013-14.

Question for Planning in India
Try yourself:What is one of the main long-term objectives of Indian planning?
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Reduction in Income Inequalities

  • Reduction of income inequalities is an objective of economic planning in India, but has always got very low priority. 
  • An idea of the scale of priority may be gathered from the fact that no Plan document or any other document of the Planning Commission ever provided estimates of inequalities in income and wealth distribution. 
  • The neglect arises out of a conviction among the planners that economic growth would automatically make a dent in income inequalities.
  • In fact, inequalities in India have their roots in the ownership pattern of agricultural land and the concentration of economic power in the industrial sector. 
  • To mitigate these inequalities, the government's measures like land reforms and the Monopolies and Restrictive Trade Practice (MRTP) Act have been found to be ineffective. 
  • Also, the tax structure of India is regressive and has encouraged further concentration of economic power.

Removal of Poverty 

  • The first two decades of planned development (i.e. until the completion of the Fourth Plan), encouraged not only economic concentration but also failed to curb inflation. 
  • This adversely affected the poor, whose standard of living continued to be as wretched as it was at the time of independence. 
  • Till the late 1970s, policy planners and the Planning Commission expected that the trickle-down effects of growth would alleviate poverty in the coming years.
  • Poverty removal as an objective of economic planning was mentioned explicitly for the first time in the draft Fifth Five-Year Plan. The Sixth Plan document called for specific policy measures for the removal of poverty. 
  • The subsequent plans have laid great emphasis on the eradication of poverty. The proportion of poor below the poverty line has no doubt declined over the years. 
  • It was 39.8 percent in 1994-95 according to Expert Group Methodology.
  • 29.5 percent of the Indian population lives below the poverty line as defined by the Rangarajan Committee, as against 21.9 per cent according to Tendulkar.

Modernization

  • Keeping in view the heavy national dependence on foreign technology, the planners from the very beginning stressed the importance of research and development, until the Sixth Plan modernization was never on the agenda.
  • In the Sixth Plan, it was explicitly mentioned and the entire concept of modernization was explained as a variety of structural and institutional changes in the economic activities that can change the feudal and colonial economy, into a progressive and independent economy. 
  • Modernization thus implied a shift in the sectoral composition of production, diversification of activities, advancement of technology, and institutional innovations. 
  • In the Seventh Plan, the concept of modernization was narrowed down. It now refers to primarily technological advances. 
  • In agriculture, it implies increased use of fertilizer and HYV seeds, an extension of irrigation facilities, improvement in water management, change in the pattern of energy utilization and so on. 
  • It is hoped that these measures will spread the green revolution to uncharted areas.
  • Success in modernization during the plan period is evident from 
    • structural changes such as a steady change in the composition of national income with the manufacturing sector constituting a major share and considerable diversification of industries; 
    • technological advances such as the use of the most modern and sophisticated technologies in industries and use of high yielding variety of seeds and chemical fertilizers in agriculture; 
    • institutional changes such as the existence of the public sector in some areas, the establishment of financial institutions for term finance, a support system to help various sectors, changes in agrarian relations in favor of actual tillers of the soil, improved facilities for skill development, etc.

Question for Planning in India
Try yourself:Which factor has been identified as a major contributor to income inequalities in India?
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Plan Formulating Organisations

Planning Commission

Planning in India | Indian Economy for UPSC CSE

  • Economic and social planning is in the concurrent list of the Constitution. The Planning Commission was set up as an extra-constitutional and non statutory body in 1950 by government resolution. The Prime Minister is its ex-official chairman. 
  • The commission acts as an advisory body to the Union Government in formulating plans. 
  • The Commission's activities have been gradually extended over the entire sphere of administration except for defence and foreign affairs.
  • The Commission's function is to prepare a plan for the most effective and balanced utilization of the country's resources which would initiate a process of development that will raise the living standards and open out to a more varied life. 
  • Implementation of the plan rests with the states, development being mostly a state subject. 
  • The Commission vis-a-vis states are only advisory, but they are obliged to Commission since they depend on the financial resources of the Centre.

State Planning Board

Planning in India | Indian Economy for UPSC CSE

  • Apex Planning Board at the State level is generally s State Planning Body comprising the Chief Minister as chairman Finance and Planning ministers of the state and some technical experts as members. 
  • The Department of Planning in State Government provides Secretariat for the Board. 
  • In most of states, there is a district Planning Committee or District Planning Council Comprising both official and non-official members.

National Development Council (NDC)

Planning in India | Indian Economy for UPSC CSE

  • NDC was set up in 1952 as an adjunct to the Planning Commission to associate the states at the Plan formulation stage. NDC, too, is an extra-constitutional and extra-legal body. 
  • It consists of the Prime Minister, chief ministers of States, members of the Planning Commission, and, since 1967, all members of the Union Territories. 
  • The function of the NDC is to strengthen and mobilize the efforts and resources of the nation in support of the Plan, to promote common economic policies in all vital spheres, to ensure balanced and rapid development of all parts of the country, to review the working of the National Plan from time to time, and to recommend measures for the achievement of the targets set out in National Plan.

Question for Planning in India
Try yourself:Which body in India is responsible for formulating plans and advising the Union Government on economic and social development?
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Criticism of Planning In India

The Indian planning process has been criticized for the following reasons:

  1. Plan modeling has been perceived to be weak.
  2. III defined the role of planning and market 
  3. Undue importance to investment in the overall planning process. 
  4. Unrealistic targets in the plan
  5. Inability in devising a set of instruments that would be adequate to meet targets 
  6. Absence of link between priorities and policies.
  7. Absence of link between priorities and policies.
  8. Absence of financial strategy
  9. Flaws in  industrial strategy 
  10. Neglect of social justice
  11. Absence of employment strategy
  12. Implementational failures
  13. Misplaced faith in self-reliance objectives.

Revitalization Measures

  • Despite some disillusionment with the planning process, public opinion remains committed to planning as a desirable tool of socio-economic development. 
  • To meet people's expectations, it is imperative to give planning a new direction, in the light of past experience, as
  1. Planning must aim at bridging the rural-urban dichotomy and the increasing difference between the consumerist lifestyle of the affluent minority and that of the poor majority. The strategy for addressing this must include not only a universalized Basic Needs Programme but also equal opportunities in education and income generation activities. 
  2. The emphasis in target fixation should shift from financial targets to manifest physical ones. Moreover, a proper linkage between financial and physical targets needs to be projected in each Plan. Efforts should be made to determine realistic targets.
  3. The targets should deal not only with GDP or  NDP  and the size of the Plan outlays but also with the distribution of expected additions to the NDP  among the principal economic categories by both industrial origin and income classes. 
  4. Targets should also cover per capita income as this would clearly bring out the effectiveness and inadequacies of the plan policies and programs on population growth.
  5. They should include the desired changes in the consumption pattern of the planned output in addition to the national output of goods and services during the Plan period. 
  6. The best possible opportunities and facilities should be extended for the promotion of science and technology and essential inputs of economic development.
  7. Population policy needs to be given a higher priority since rapid population growth adversely affects developmental output. 
  8. For effective action on the population front, it is important to break up the macro picture into component sectors with a differing magnitude of birth rates.
  9. Concentrating our strategy of arresting population growth on the areas and socio-economic classes with the highest breeding rates is the need of the hour.
  10. The Plan should mention the strategy proposed for policy implementation, taking account of the new advances in management technology and the experience of other countries faced with similar developmental problems. 
  11. Decentralization and participation at the grassroots level would go a long way in securing efficient implementation of the programs and policies.
  12. High Priority needs to be given to an integrated and nationally extended comprehensive program for human resource development. 
  13. This should bring together the Plan programs for education, health, family planning, women and children, welfare, and basic needs. 

Question for Planning in India
Try yourself:What is one criticism of the planning process in India?
View Solution

The document Planning in India | Indian Economy for UPSC CSE is a part of the UPSC Course Indian Economy for UPSC CSE.
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