NCERT Summary: Economy Planning- 2 | Indian Economy for UPSC CSE PDF Download

National Development Council & its Functions
The National Development Council is not a Constitutional body n or a statutory body (not set up by an Act of the Parliament). Union Cabinet set up the NDC in 1952 with the following functions:

• To prescribe guide lines for the formulation of the national plan.
• To consider the national plans formulated by the Planning Commission.
• To assess the resources for the plan and recommend a strategy for mobilizing the resources.
• To consider important questions of socio - economic policy affecting development of the nation.

To review the progress of the five year plan mid- course and suggest measures for achieving the original targets. NDC is headed by the Prime Minister of India and comprising of all Union Cabinet Ministers, Chief Ministers of all the States and Administrators of Union Territories and Member soft he Planning Commission.

Ministers of State with independent charge are also invited to the deliberations of the Council. The National Development Council (NDC) has a special role in our federal polity. It is the apex body for decision making and deliberations on development matters. It has the explicit mandate to study and approve the Approach Plan to the Five year Plans and the Five Year Plan documents . The mid-term reviews of the Five year Plans are considered by the NDC. In fact, with out the NDC approving, the Five Year Plan does not come into effect. The CMP of the UPA Government (2004) says that NDC will meet at least three times in a year and in different state capitals. It will be developed as an effective instrument of cooperative federalism.

Mixed Economy
A mixed economy combining features of both capitalist market economies and socialist command economies. Thus, there is a regulated private sector (the regulations have decreased since liberalisation) and a public sector controlled almost entirely by the government. The public sector generally covers areas which are deemed too important or not profitable enough for the private Sector.

Financial Resources for the Five year Plans
The resources for the Plan come from

• Central budget
• State Budgets
• PSEs
• Domestic private sector and
• FDI

Resources of the Centre consist of both budgetary resources including external assistance routed through the budget and the Internal & Extra Budgetary Resources (IEBR) of Central Public Sector Enterprises (CPSEs).

The quantum of budgetary resources if the Centre which is available for providing overall budgetary support to the plan is divided into two parts viz, budgetary support for Central Plan (including U.Ts without Legislature) and central Assistance for States’ Plans (including U.Ts with Legislature). A part of the budgetary resources allocated as budgetary support for the Central Plan isused for providing necessary support to CPSEs. GBS is the a mount from the central Budget that goes to fund the plan investments during the plan period.

Achievements of Planning
In the last about 60 years since India became a Republic, the National Income has increased m any times. Today, India is the third largest economy in Asia with about $1.4 trillion GDP after China and Japan is the 11th largest economy in the world. India is the fourth largest in the world as measured by purchasing power parity (PPP), with a gross domestic product (GDP) of about $4 trillion USA, China, Japan, India. In the face of global recession, India posted 6.7% rate of growth in 2008-09 and 7.6% in 2009- 10 and is the second fastest growing major economy after China. The first half of 2010-11 saw the growth rate at 8.9%.

Poverty dropped to about 20% of the population- the criterion used is monthly consumption of goods valued less than Rs. 211.30 per capita for rural areas and Rs. 454.11 for urban areas (2006) Social indicators improved though there is a long way to go IMR, MMR, literacy, disease eradication etc. The industrial infrastructure is relatively strong — cement, steel, fertilizers, chemicals, etc Agricultural grow this also gaining momentum with food grains production at 233 mt in 2010. Forex reserves are $292.8 b (January 2012) which is a dramatic turnaround from 1991 when we had a billion dollars. More than 1.7 lakh MW of power capacity is installed by the end of 2010.

India has emerged as a back-office of the world arid its prowess in software is growing. India ranks fourteenth world wide in factory output. India ranks fifteenth world wide in services output. There has been considerable expansion of higher education. At the time - of Independence there were 20 universities and 591 colleges, while today, there are almost 500 universities and 21, 000 colleges. Literacy levels are 75% (2011).

Indicative Planning
Indicative planning was adopted since 8th five year plan (1992-97). It is characterized by an economy where the private sector is given a substantial role. State would turn its role into a facilitator from that of a controller and regulator.

It was decided that trade and industry would be increasingly freed from government control and that planning in India should become more and more indicative and supportive in nature. In other words, the remodeling of economic growth necessitated recasting the planning model from imperative and directive (‘hard’) to indicative (soft) planning. Since the Government did not contribute the majority of the financial resources, it had to indicate the policy direction to the corporate sector and encourage them to contribute to plan targets. Government should create the right policy climate- predictable, irreversible and transparent to help the corporate sector contribute resources for the plan fiscal, monetary, forex and other dimensions.

Indicative planning is to assist the private sector with information that is essential for its operations regarding priorities and plan targets. Here, the Government and the corporate sector are more or less equal partners and together are responsible for the accomplishment of planning goals. Government, unlike earlier, contributes less than 50% of the f in an ci al resources. Government proved the right-type of policies and creates the right type of milieu for the private sector-including the foreign sector to contribute to the results.

Indicative planning gives the Government an opportunity to give the private sector encouragement to achieve grow thin areas where the country has inherent strengths. It is known to have brought Japan results in shifting towards microelectronics In France, too indicative planning was in vogue. Planning Commission would work on building a long-term strategic vision of the future. The concentration would be on anticipating future trends and evolving strategies for competitive international standards.

Planning will largely be indicative and the public sector would be gradually with drawn from areas where no public purpose is served by its presence. The new approach to development will be based on “a re-examination and re-orientation of the role of the government” This point is particularly stressed in the development strategy of the Tenth Five Year Plan (2002-2007). Indicative planning was not contemplated at the beginning of fifties as there was hardly any corporate sector in India and Government shouldered almost the entire responsibility of socio - economic planning.

Rolling Plan
It was adopted in India in 1962, in the after math of Chinese attack on India.
Professor Gunnar Myrdal (author of famous book’ Asian Drama’) recommended it for developing Countries in his book – Indian Economic Planning in Its Broader Setting.

In this type, every year three new plans are made and implemented annual plan that includes annual budget; five year plan that is changed every year in response to the economic demands; and perspective plan for 10 or 15 years into which the other two plans are dovetailed annually . Rolling plan becomes necessary in circumstances that are fluid.

Financial Planning
Here, physical targets are set in line with the available financial resources. Mobilization and setting expenditure pattern of financial resources is the focus in this type of planning.

Physical planning
Here, the output targets are prioritized with inter- sectoral balance. Having set output targets, the finances are raised.

Nehru-Mahalanobis Model of Economic Growth
Indian economy at the time of Independence was characterized by dependence on exports of primary commodities, negligible industrial base; unproductive agriculture etc.

Thus, the turning point in India’s planning strategy came with the second five year (1956-61) plan. The model adopted for the plan is known as the Nehru Mahalanobis strategy of development as it articulated by Jawahar Lal Nehru’s vision and P.C.

Mahalanobis was its chief architect. The central idea underlying this strategies well-conveyed by re calling the following statement from the plan document. ‘ If industrialization is to be rapid enough, the country must aim at developing basic industries and industries which make machines to make the machines needed for further development.’ The Mahalanobis model of growth is based on the predominance of the basic goods (capital goods or investment goods are goods that are used to make further goods ; the goods that make up the industrial market like machines, tools, factories, etc). It is based on the premise that it would attract all round investment and result in a higher rate of growth of output. That will develop small scale and ancillary industry to boost employment generation, poverty alleviation, exports etc. The emphasis was on expanding the productive ability of the system, through forging strong industrial linkages, as rapidly as possible.

Other elements of the model are

• Import substitution: Protective barriers against foreign competition to enable Indian companies to develop domestically produced alternatives for imported goods and to reduce India's reliance on foreign capital.
• A sizeable public sector active in vital areas of the economy including atomic energy and rail transport.
• A vibrant small-scale sector driving consumer goods production for dispersed and equitable growth and producing entrepreneurs.

In terms of the core objective of stepping up the rate of growth of industrial production, the strategy paid off. Rate of growth of overall industrial production picked up. The strategy laid the foundation for a well-diversified industrial structure within a reasonably short period and this was a major achievement. It gave the base for self-reliance.

However, the strategy is criticized for the imbalances between the growth of the heavy industry sector and other spheres like agriculture and consumer goods etc that resulted. It is further criticized as it relied on 'trickle down effect- benefits of growth will flow to all sections in course of time. This approach to eradication of poverty is slow and incremental. It is believed that frontal attack on poverty is required. The criticism is one sided as in the given context, the Mahalanobis model was connect for growth and self-reliance.

Rao-Man Mohan Singh Model of Growth
The launching of economic reforms by the government, in 1991 is driven by the Rao-Manmohan model - Mr. Narasimha Rao, the PM in 1991 and Finance Minister Dr. Man Mohan Singh. Its essence is contained in the New Industrial Policy 1991 and extends beyond it too. The model has the following contents.

• Reorient the role of State in economic management. State should refocus on social and infrastructural development, primarily.
• Dismantle, selectively controls and permits in order to permit private sector to invest liberally.
• Open up the economy and create competition for PSEs- for better productivity and profitability. 
• External sector liberalization in order to integrate Indian economy with the global economy to benefit from the resource inflows and competition.

Its success is seen in the more than 6.5% average annual rate of growth of economy during the 8th Plan (1992-1997). Forex reserves accumulated leaving the BOP crisis in history, taming of inflation, and the foreign flows- FDI' and FII increased.

Economic Reforms in India

Since July 1991, India has been taking up economic reforms, to achieve higher rates of economic growth so that socio-economic problems like unemployment, poverty, shortage of essential goods and services, regional economic imbalances and so on can be successfully solved. The force behind the reforms is

• Indian economy reached a level of growth and strength to benefit from an open market economy.
• Private sector in India had come of age and was willing and capable of playing a major role.
• Indian economy needed to integrate with the world with all the advantages like capital flows, technology, higher level of exports, state of art stock markets, Indian corporates can raise finances abroad and so on.

The country under the leadership of Dr. Manmohan Singh, Union Finance minister (1991-1996 and Prime Minister since 2004) converted the economic crisis — caused by , domestic cumulative problems of economy, political instability and gulf crisis-into an opportunity to initiate and institutionalise economic reforms to open up the economy.

The deep crisis in 1991 could not be solved by superficial solutions. Therefore, structural reforms were taken up. It was realized that by closing economy to global influences, the country was missing on technology developments and also gains from global trade. India needed exports, FDI and FII for stability on the balance of payments front and higher growth rates for social development. Worldwide, countries were embracing market model of growth, for example China, with proven results. So, India could make the historic shift from centralized planning to market-based model of growth.

What are the targeted areas of reforms?

• Reforms mainly targeted the following areas:
• Dismantling the licence raj so that private sector and government were on a level playing field
• Drive public sector towards sustainable profitability and global play by dereservation; disinvestment; professionalization of management etc.
• Fiscal reforms for stabile economic growth.
• Banking sector is deregulated and made to conform to stringent reforms for higher competitive strength and performance globally.
• Move towards free float of rupee and relaxation of controls on convertibility; aggressive export promotion; FDI and FII inflows etc.

Reforms were prioritized and sequenced in such a way as to make them sustainable and render further reforms feasible. For example, first generation reforms involved essentially non-legislative government initiatives- reduce SLR and CRR for the banking sector. Disinvestment of the PSEs. Deregulation of the rupee gradually and later make exchange rate of the rupee market-driven and so on. The second generation reforms involve legislative reforms and touch a wider section of the society- labour reforms; GST, FDI expansion etc. The former prepares the economy for the latter.

Positive Impact of Reforms in India
The reforms gained consensus and showed positive results as can be seen below.

• Rates of growth went up
• BOP crisis has been solved in the first few years and today the country has about $300b forex reserves (2011 January)
• Services sector (tertiary sector) has grown in importance and today contributes almost 57% of GDP (2010) emerging as a global player-India being the global back office.
• Exports have performed well and have recovered handsomely even while the world continues to be trapped in near recession conditions. It accounting for many jobs and quality Indian products
• Resilience of the economy in the face of Great Recession which is still not resolved
• Consumer choice has increased
• Tax-GDP ratio is at 11% of GDP (20l0)
• Nature of external debt has changed and the short term component is less
• Indian companies are listed on Nasdaq and New York Stock Exchange and raised billions of dollars for investment
• FIIs and FDI has picked up.
• Indian corporates have acquired global majors like Jaguar and Anglo-Dutch steel maker Corus; Bharati bought Zain's African telecom operations (2010).

Second Generation Reforms (In Indian Context)
Having begun with the reforms in all the above sectors and seen the economy benefit from them, the second generation reforms were initiated by the end of 1990's. The reason for calling the latter set of reforms SGR is that they followed the initial reforms which laid the foundation for the reform process to deepen. It is a matter of sequencing in line with prioritization; economic preparation; consensus-building and so on. In fact, unless the success in material and human terms of the initial reforms was demonstrated, the next round of 'difficult' reforms would not be possible. In 2001, the Economic Advisory Council of the Prime Minister advised on the second generation reforms- labour law flexibility, pension reforms based on employee contribution and the pension funds being deployed in the stock market; value added tax and GST; liberalized FDI including FDI in retail etc.

Second generation reforms are difficult as they are directly involved with the daily lives of people like

• User charges need to be rationalized to make these utilities viable but there are bound to be protests
• Man power rationalization in banks and PSUs through VRS faced resistance.
• Labour law flexibility will make TUs agitate.
• Interest rate cut, for example, for small savings will mean less returns for the middle class etc.
• Agroreforms may mean small and marginal farmers' resistance.

However, unless the SGRs are carried out, investment and growth will suffer with long term adverse consequences for poverty alleviation and employment generation. As the long term benefits of the reforms are bound to show in terms of higher growth rates and more social welfare, consensus needs to be built for successful legislation and implementation of SGRs.

Main Objective of 12th Five Year Plan
The twelfth plan has the following objectives:

• Basic objective: Faster, More inclusive, and Sustainable growth
• is 10% growth feasible? Realistically, even 9% will need strong policy action. Could aim at 9.0 to 9.5 percent
• Energy, Water and Environment present major sectoral challenges. Can we address them without sacrificing growth?
• Can we find resources to create a world class infrastructure?
• For growth to be more inclusive we need:
• Better performance in agriculture
• Faster creation of jobs, especially in manufacturing
• Stronger efforts at health, education and skill development
• Improve effectiveness of programmes directly aimed at the poor
• Special programmes for socially vulnerable groups
• Special plans for disadvantaged/ backward regions

Agriculture and Rural Development
Target at least 4% growth for agriculture. Cereals are on target for 1.5 to 2% growth. We should concentrate more on other foods, and on animal husbandry and fisheries where feasible Land and water are the critical constraints. Technology must focus on land productivity and water use efficiency. Farmers need better functioning markets for both outputs and inputs. Also, better rural infrastructure, including storage and food processing States must act to modi1 APMC Act/ Rules (exclude horticulture), modernize land records and enable properly recorded land lease markets. RKVY has helped convergence and innovation and gives State governments flexibility. Must be expanded in Twelfth Plan MGNREGS should be redesigned to increase contribution to land productivity and rain-fed agriculture. Similarly, FRA has potential to improve forest economies and tribal societies. But convergence with NRLM required for enduring rural livelihoods.

Water
Revisit India's water balance estimates basin-wise. Must map all aquifers over next five years to facilitate aquifer management plans AIBP is not achieving its objectives. It must be restructured to incentivise irrigation reform and efficiency of resource use. Setting of Water Regulatory Authority must be a precondition. Strong case for higher priority to watershed management Separation of electricity feeders for agriculture can improve quality of power availability Proportion of water recycled by urban India and industry to be raised to protect water levels, and improve surface and groundwater quality

Rational water use may Need
New Groundwater Law reflecting Public Trust Doctrine New Water Framework Law (as in the EU)
Need to evolve political consensus. Perhaps discuss in a special NDC
Need National Water Commission to monitor compliance with conditionalities imposed in the investment clearance of important projects

Industry (1)
Manufacturing performance is weak. Need to grow at 11-12% per year to create 2 million additional jobs per year. Growth in 11th Plan is in 8% ballpark Indian industry must develop greater domestic value addition and more technological depth to cater to growing domestic demands and improve trade balance Tune-up FDI and trade policies to attract quality investment in critical areas Improve business regulatory framework: cost of doing business', transparency incentives for R&D, innovation etc. Land and infrastructure constraints are a major problem. States should develop 'special industrial zones' with good connectivity and infrastructure 'Clusters' need to be supported to enhance productivity of MSMEs Better consultation and co-ordination in industrial policy making

Industry (2)
Some sectors should be given special attention because they contribute most to our objectives eg:
Create large employment: textiles and garments, leather and footwear; gems and jewelry; food processing industries Deepen technological capabilities: Machine tools; IT hardware and electronics. Provide strategic security telecom equipment; aerospace; shipping; defence equipment Capital equipment for infrastructure growth: Heavy electrical equipment; Heavy transport and earth-moving equipment. Sectors with global competitive advantage: automotive; pharmaceuticals and medical equipment MSMEs: innovation, employment and enterprise generation Sectoral plans are being prepared for each of the above with involvement of industry associations and the concerned Ministries

Education and Skill Development
Must aim at universalisation of secondary education by 2017
Must aim at raising the Gross Enrolment Ratio (GER) in Higher Education to 20 percent by 2017 and 25 percent by 2022. Must focus on quality of education (11th Plan emphasis was on quantity). Must invest in faculty development and teachers' training Must aim at significant reduction in social, gender and regional gaps in education. Targets to be set for this purpose Major curriculum reforms in vocational/ skill development to ensure employability in response to changing market needs Development and operationalisation of PPP models in School and Higher Education in accordance with the needs of a fast growing economy
Research and innovation in higher education must be encouraged with cross linkages between institutions and industry.

Health
Better health is not only about curative care, but about better prevention Clean drinking water, sanitation and better nutrition, childcare, etc. Convergence of schemes across Ministries is needed Expenditure on health by Centre and States to increase from 1.3% of GDP to at least 2.0%, and perhaps 2.5% of GDP by end of 12th Plan Desperate shortage of medical personnel. Need targeted approach to increase seats in medical colleges, nursing colleges and other licensed health professionals. Improve quality of NRHM services vs. quantity of NRHM infrastructure. Structured involvement of PRIs/CSOs can help

• Role of PPP in secondary and tertiary healthcare must be expanded
• Health insurance cover should be expanded to all disadvantaged groups
• Focus on women and children; ICDS needs to be revamped

Energy (1)
Commercial energy demand will increase at 7% p.a. if GDP grows at 9%. This will require a major supply side response and also demand management Energy pricing is a major issue. Petroleum and Coal prices are significantly below world prices and world prices are unlikely to soften. 

Power Sector Issues

• We must set a target of 100,000 MW capacity in 12th Plan (against likely achievement of 50,000 MW in Eleventh Plan)
• Coal availability will be a major constraint
• Long term health of power sector seriously undermined (losses '70,000 crore per year). AT&C losses are coming down, but too slowly. State governments must push distribution reform
• Hydro-power development seriously hindered by forest and environment clearance procedures. Himalayan States complain strongly
• Electricity tariffs not being revised to reflect rising costs. Regulators are being held back from allowing justified tariff increases
• Open access is not being operationalised

Energy (2)

Coal Production

• On optimistic assumption about Coal India production, we will need to import 250 million tonnes in 2017-18
• Must plan for corresponding expansion of rail and port capacity
• Coal India must become a coal supplier and not just a mining company. Should plan to import coal to meet coal demands. This requires blending of imported and domestic coal as supplied by Coal India
• Environment and forest clearances of coal mining projects, including few private sector captive projects, will be critical. GoM is examining this 

Petroleum and Natural Gas

• Need further expansion of new NELP blocks. Stable and clearer production sharing contracts will incentivise exploration and encourage investment
• Pipeline network for transportation of natural gas and LNG is limited. Need quick expansion

Energy (3)
Other Energy Sources

• Nuclear power programme must continue with necessary safety review
• Solar Mission is seriously under funded. Is bidding sufficiently competitive?
• Need longer term energy solution for cooking in rural areas. Expand LPG network (with cash subsidy for the deserving, not subsidised prices). Also use off grid solar and bio-mass energy
• Wind power development, including off shore wind power, needs to be encouraged

Demand Side Management
Expansion in supply will need to be supported by demand side management
Rational energy pricing will help. Energy standards for high energy consuming industry, electrical appliances, energy efficient buildings or enhanced use of electric! hybrid vehicles
Transport Infrastructure

• Railways' Western and Eastern Dedicated Freight Corridors (DFC) must be completed by the end of the Twelfth Plan
• High Speed Rail link between Delhi-Mumbai and Delhi-Kolkata in the Twelfth Five Year Plan
• Use more PPP in railways and state highways to complement government investment. Capital intensive transport projects should rely on private investment to release resources for other priorities
• Complete the linkages between the ports and the existing road and rail network. Need to deepen existing ports. Increase bulk/container capacity.
• Ensure sufficient provision for maintenance of the already-built roads
• Invest in unified tolling and better safety on highways
• Improve bus services/public transport in smaller cities, towns and districts.
• Metros in urban areas through PPPs wherever feasible

Managing Urbanisation

• India's urban population is expected to increase from 400 million in 2011 to about 600 million or more by 2030
• Critical challenges are basic urban services especially for the poor: water, sewerage, sanitation, solid waste management, affordable housing, public transport
• Investment required in urban infrastructure is estimated at '60 lakh crore over the next 20 years
• We need to develop and propagate innovative ways of municipal financing, through Public-Private Partnerships (PPPs)
• Land management strategies key for good urban development as well as financing urban infrastructure development
• Need training and capacity building for urban planning and urban services management; for corporators and municipal officials
• Reform of JNNRUM for the next phase, and convergence with RAY for an integrated approach

Resource Allocation Priorities in 12th Plan

• Health and Education received less than projected in Eleventh Plan. Allocations for these sectors will have to be increased in 12th Plan
• Health, Education and Skill Development together in the Centre's Plan will have to be increased by at least 1.2 percent point of GDP
• Infrastructure, including irrigation and watershed management and urban infrastructure, will need additional 0.7 percentage point of GDP over the next 5 years
• Since Centre's GBS will rise by only 1.3 percentage points over 5 years, all other sectors will have a slower growth in allocations
• 'Must reduce the number of Centrally Sponsored Schemes (CSS) to a few major schemes. For the rest, create new flexi-fund which allow Ministries to experiment in other CSS areas
• Use of PPP must be encouraged, including in the social sector, i.e. health and education. Efforts on this front need to be intensified
• Distinction between plan and nonplan being reviewed by Rangarajan Committee

Issues for Special Category States

• Large number of Government employees means very limited scope for States' own resources for the Plan
• Private Sector investment relatively subdued — implies greater role for public investment
• Infrastructure gaps lead to higher cost of goods and services: Accelerated efforts are required to develop infrastructure
• High proportion of forest cover and mountain eco-systems become constraints on rapid development. Forest clearances are difficult to get and States have to pay NAV. They demand monetary compensation for providing "eco services" to the nation
• States' share for Centrally Sponsored Schemes is not uniform

North Eastern States contribute only 10% share for most CSS

States such as J&K, HP and Uttarakhand have to contribute normal state share under many CSS

Governance and Empowerment

• Citizen feedback reveals general dissatisfaction with state of public service delivery. Total Quality Management needs to be introduced at all levels. Delivery and policy functions need to be separated in Government Ministries
• Social Mobilisation: People should be active agents of change. Flagship programmes need to provide human and financial resources for social mobilisation, capacity building and information sharing
• Professionally managed delivery organisations are needed with clear mandates and accountability. We need much better mechanisms for convergence of government departments on systemic issues
• Devolution can be effective only if the autonomy of PRIs/ULBs is increased and their human resource capabilities improved. How can the Centre help?
• Mechanisms need to be created at all levels to understand the needs of vulnerable sections of the society and inform policy-makers
• Diagnostics of Failure and Mainstreaming of Success: horizontal linkages need to be created for exchange of information and best practices
• Institutional mechanisms for conflict resolution, particularly for land and water.

Increase bulk/container capacity

• Ensure sufficient provision for maintenance of the already-built roads
• Invest in unified tolling and better safety on highways
• Improve bus services/public transport in smaller cities, towns and districts.
• Metros in urban areas through PPPs wherever feasible