Ramesh Singh Summary: Economic Planning | Indian Economy for UPSC CSE PDF Download

In this introduction, we're diving into the world of economic planning—a big deal in how countries manage their money and resources. India's been at it since it gained independence, and we're going to explore what it's all about. We'll break down the basics, like why countries do it and how it works. Plus, we'll use examples from India and other major economies to help make sense of it all. Think of it as laying the groundwork for understanding how planning shapes India's path forward

Definition 

1. Definition of Economic Planning:

   • H.D. Dickinson's Definition: Economic planning involves making major economic decisions, like what and how much to produce, and to whom it should be allocated, by a specific authority. These decisions are based on a thorough understanding of the entire economic system.
   • Definition by the National Planning Committee: Planning, especially in a democratic setup, is the technical process guided by experts. It covers consumption, production, investment, trade, and income distribution, aligning with social objectives determined by representative bodies. It emphasizes not just economic aspects but also cultural, spiritual, and human values.

2. Evolution of Economic Planning in India:

   • In the late 1930s, there was a consensus in India that it would adopt a planned economy after gaining independence.
   • The Planning Commission of India, established in the early 1950s, defined planning as setting clear objectives and forming strategies to achieve them. It emphasized rational problem-solving and coordination of means and ends.

3. Purpose and Process of Economic Planning:

   • Economic planning aims to achieve well-defined goals by efficiently using available resources.
   • The government sets developmental objectives and coordinates economic decision-making over time to influence and control various economic variables like income, consumption, employment, saving, investment, and trade.

4. Types of Economic Plans:

   • Comprehensive Plans: Cover all major aspects of the economy.
   • Partial Plans: Focus on specific sectors like agriculture, industry, or the public sector.
   • Plans set specific targets and strategies to achieve them within a defined period.

5. Evolution of Planning:

   • The concept of planning originated from practical experiences in different countries, which were later theorized.
   • Planning evolved over time and varied from country to country based on experiences and changing needs.

As per our working definition, we may observe the following things about planning:

1. Planning as a Process:

   • Planning is an ongoing process, not a one-time event. It involves setting goals and objectives for our lives or for the economy. These goals may change over time as our needs evolve. Just like how life's direction can change, so can the course of planning.

2. Well-Defined Goals in Planning:

   • Countries started planning after World War II to overcome economic challenges. They realized that planning must have clear goals to guide decision-making. This ensures that the government's involvement in the economy is transparent and justified, even in non-democratic nations like the USSR, Poland, and China.

3. Optimum Utilization of Resources:

   • Planning focuses on using resources efficiently. Initially, the goal was to maximize resource exploitation. However, with the emergence of sustainability concerns in 1987, planners shifted towards utilizing resources at their best. This approach aims to minimize environmental damage and ensure resources for future generations.
   • Resources can be indigenous (from within a country) or exogenous (from outside). Most countries prefer using their own resources, but some also tap into external resources through diplomacy. For instance, the Soviet Union leveraged resources from East European countries, and India used external resources for development where necessary and feasible.

By the 1950s, planning had emerged as a method or tool of utilising resources to achieve any kind of goals for policy makers, around the world:

• Family Planning: This involves efforts by individuals and governments to control the size of families through contraception and other methods. It's about making choices regarding when to have children and how many to have.
• Urban Planning: This is about organizing and developing cities and towns to ensure they have the necessary infrastructure and amenities for residents. It involves decisions about things like housing, transportation, parks, and public services.
• Financial Planning (Budgeting): This is the process of managing money effectively, whether it's for individuals, businesses, or governments. It involves setting goals, creating a plan to achieve those goals, and then monitoring and adjusting the plan as needed.
• Other Types of Planning: There are many other types of planning, such as agricultural planning, industrial planning, and infrastructure planning. These involve making decisions about how to use resources like land, labor, and capital to achieve specific goals in those areas.
• Everyday Planning: Even in our daily lives, we engage in planning without always realizing it. For example, when students from different places manage to arrive at school on time, they're planning their schedules to coordinate with each other.
• Conscious vs. Unconscious Planning: Some countries formally announce plans to manage their economies (like the Soviet Union and China), while others do not (like the United States and Canada). However, even in countries without formal plans, there's still a process of planning happening, whether it's acknowledged or not.

Origin and Expansion of Planning

Planning is a method of achieving faster economic progress. It has been tried by different countries at different times and at different levels. We may see them as follows:

1. Regional Planning: This began in the United States with the establishment of the Tennessee Valley Authority (TVA) in the 1930s. The TVA focused on regional development, including industrialization, conservation, and infrastructure projects like dams and electricity generation. Its success served as a model for future regional planning efforts worldwide.

2. National Planning (Soviet Union): National planning emerged in the Soviet Union under Joseph Stalin in the late 1920s. This involved centralized economic planning, with the government setting targets for industrialization and agriculture. Stalin's policies included collectivization of agriculture and rapid industrialization through Five-Year Plans, aiming for quick economic growth.

3. Influence on Other Countries: The Soviet model of economic planning influenced other nations, including India and East European countries. India adopted aspects of Soviet planning, prioritizing heavy industries and emphasizing state control over the economy. East European countries also implemented similar centralized planning systems.

4. Expansion of Planning: France adopted national planning in the early 1940s, showcasing how even capitalist economies could embrace planning strategies. This marked a shift towards mixed economies, where the government played a significant role in economic planning alongside market forces.

Overall, planning, whether at regional or national levels, involves governments directing economic development through strategies like infrastructure projects, industrialization, and resource allocation, often influenced by political ideologies and historical contexts.

Types of Planning

After the first national planning was started by the Soviet Union, many more countries followed it, but with variations in their methods and practices. Though there are many variants of planning, the most important one is on the basis of the type of economic organisation (i.e., state economy, mixed economy). During the course of evolution, planning, based upon the type of economic system prevalent in the country. has been classified into two types. 

1. Imperative Planning (Command Economy):

   • Used in state economies like socialist or communist systems.
   • Centralized control by the government over all economic decisions.
   • Targets for growth and development are set quantitatively by the government.
   • Limited role for the market; economic decisions made centrally.
   • No private participation; the state dominates the economy.
   • Examples include the Soviet Union, China, and other centrally planned economies.

2. Indicative Planning:

   • Used in mixed economies where both the government and market play roles.
   • Economic decisions influenced by market forces rather than directed by the government.
   • Targets are set but with more flexibility, allowing for adjustments based on market conditions.
   • Encourages private sector involvement in economic activities.
   • Examples include France and Japan, where planning is more flexible and market-oriented.

3. Transition from Imperative to Indicative Planning:

   • Some countries shifted from imperative to indicative planning due to economic challenges or ideological changes.
   • China decentralized economic control in the late 20th century, embracing elements of market socialism.
   • The Soviet Union and East European countries initiated economic reforms in the late 20th century, moving towards market-oriented economies.
   • Today, most countries follow indicative planning, with governments focusing on setting broad goals and policies while allowing the market to play a significant role in achieving them.

Overall, imperative planning involves centralized control by the government, while indicative planning allows for more flexibility and market influence. Many countries have transitioned from imperative to indicative planning over time, adapting to changing economic conditions and ideologies.

Some Other Types

Territorial View:

• Planning can be categorized as regional or national, depending on the geographic scope.
• Regional planning focuses on a specific area or region, while national planning covers the entire country.

Political View:

• Planning can be central, state, or local, based on the level of government involvement.
• Central planning is directed by the national government, state planning by regional governments, and local planning by municipal or local authorities.

Participatory View:

• Planning can be centralized or decentralized, depending on the degree of citizen involvement.
• Centralized planning involves decision-making by a central authority, while decentralized planning allows for greater input from local communities or stakeholders.

Temporal View:

• Planning can be long-term or short-term, depending on the time horizon of goals and strategies.
• Long-term planning focuses on achieving objectives over an extended period, while short-term planning addresses immediate needs or issues.

Sectoral and Spatial View:

• Sectoral planning emphasizes specific sectors of the economy, such as agriculture, industry, or services.
• Spatial planning focuses on the distribution of people and activities within a geographic area, aiming to influence spatial development patterns.

Systems and Normative Planning:

• Systems planning is value-neutral and prioritizes economic aspects of development, often overlooking socio-cultural factors.
• Normative planning is value-based and aligns with the values and norms of the target population, considering socio-cultural diversity in development strategies.

Trends in Planning:

• Normative planning, which considers societal values and norms, gained traction with the rise of behavioral economics.
• International reports like the World Happiness Report and the World Development Report emphasized the importance of incorporating behavioral dimensions into public policies, leading to increased acceptance of normative planning approaches.

Overall, planning varies based on geographical, political, participatory, temporal, sectoral, and value-based considerations, with trends shifting towards more inclusive and value-driven approaches in modern times.

The Case of India

The Economic Survey 2010-11 emphasized the need for a normative approach to planning in India.

Normative planning considers the customs, traditions, and ethos of the population, aiming for greater acceptability of government programs among the target population.

Establishing an Empathic Relationship:

• Connecting government programs with the values and beliefs of the people is crucial for their success.
• Establishing an empathic relationship between programs and the target population is now considered an important aspect of planning and policymaking.

Replacement of the Planning Commission with NITI Aayog:

• In January 2015, the Government of India replaced the Planning Commission with NITI Aayog, a policy think tank.
• NITI Aayog is tasked with following a development model that is all-round, all-pervasive, all-inclusive, and holistic, reflecting a move towards normative planning.

Employment of Behavioral Insights:

• The government is using behavioral insights, such as 'nudge' techniques, to modify people's behavior and achieve socio-economic outcomes.
• These actions exemplify normative planning, which considers societal values and norms in framing economic policies.

Atmanirbharta (Self-Reliance) Push:

• The government's push for Atmanirbharta (self-reliance) is value-laden, with a focus on local empowerment and reducing dependency on global supply chains.
• This push is guided by normative insights, aiming to position India as a leader in pharmaceuticals and explore alternatives to global supply chains.

In summary, normative planning in India emphasizes aligning government programs with the values and beliefs of the population, as seen through initiatives like NITI Aayog and the Atmanirbharta push, which aim to foster self-reliance and reflect local values and aspirations.