NCERT Summary: Economy Planning- 2

Table of Contents
1. National Development Council & its Functions
2. Mixed Economy
3. Financial Resources for the Five Year Plans
4. Achievements of Planning
5. Indicative Planning
6. Rolling Plan
7. Types of Planning: Financial and Physical
8. Nehru-Mahalanobis Model of Economic Growth
9. Rao-Manmohan Model of Growth (1991 Reforms)
10. Economic Reforms in India (Post-1991)
11. Second Generation Reforms
12. Main Objectives of the Twelfth Five Year Plan
13. Agriculture and Rural Development
14. Water
15. Industry
16. Education and Skill Development
17. Health
18. Energy
19. Transport Infrastructure
20. Managing Urbanisation
21. Resource Allocation Priorities in the Twelfth Plan
22. Issues for Special Category States
23. Governance and Empowerment
24. Transport and Logistics: Additional Emphases
25. Concluding Notes
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National Development Council & its Functions

National Development Council (NDC) is a non-constitutional and non-statutory apex body set up by the Union Cabinet in 1952 to strengthen and mobilise the nation's efforts in planning and development. It provides political and policy-level guidance for national planning and cooperative federalism.

The principal functions of the NDC are:

• To prescribe broad guidelines for the formulation of the national plan.
• To consider and examine the national plans formulated by the Planning Commission.
• To assess the resources available for the plan and recommend strategies for mobilising additional resources.
• To consider important questions of socio-economic policy affecting national development.
• To review the progress of Five Year Plans periodically, including mid-course reviews, and suggest measures to achieve plan targets.

The NDC is chaired by the Prime Minister of India and comprises all Union Cabinet Ministers, Chief Ministers of States, Administrators of Union Territories and members of the Planning Commission. Ministers of State with independent charge are also invited to its deliberations. The Council plays a special role in India's federal polity by providing a common platform for the Centre and States to approve the Approach Paper and the final documents of Five Year Plans; without NDC approval, a Five Year Plan does not normally come into effect. The Common Minimum Programme of the UPA (2004) specified that the NDC should meet at least three times a year and in different State capitals to strengthen cooperative federalism and decentralised consultation.

Mixed Economy

Mixed economy refers to an economic system that combines features of both capitalist market mechanisms and socialist planning or state control. In India's mixed economy:

• The private sector operates in many areas subject to regulation; regulatory constraints have been relaxed since liberalisation.
• The public sector (central and state public enterprises) is active in areas regarded as strategically important, or in activities deemed unprofitable for private firms.
• The State plays the role of planner, regulator and facilitator while the market determines prices and allocation in many other sectors.

Financial Resources for the Five Year Plans

Resources for plan implementation are mobilised from multiple sources:

• Central budgetary resources (including external assistance routed through the budget).
• State budgets.
• Public Sector Enterprises (PSEs) through their internal and extra-budgetary resources.
• Domestic private sector investment and savings.
• Foreign Direct Investment (FDI) and other foreign resource flows.

For the Centre, resources comprise budgetary resources and the Internal & Extra Budgetary Resources (IEBR) of Central Public Sector Enterprises (CPSEs). The quantum of central budgetary resources available for plan support is divided into two parts: (a) budgetary support for Central Plan (including Union Territories without Legislature), and (b) central assistance to States' plans (including Union Territories with Legislature). A portion of the budgetary support for the Central Plan may be used to support CPSEs. Gross Budgetary Support (GBS) denotes the amount from the central budget that funds plan investments during the plan period.

Achievements of Planning

Over the six decades since the Republic began, planning and reforms have yielded several measurable achievements:

• National income and aggregate output have grown substantially; India has become one of the larger economies in Asia and across the world.
• India sustained relatively high growth rates in several recent years: 6.7% (2008-09), 7.6% (2009-10) and an estimated 8.9% in the first half of 2010-11.
• Poverty has declined; using the consumption thresholds cited for 2006, poverty incidence was estimated at roughly 20% of the population (thresholds: Rs. 211.30 per capita per month for rural areas and Rs. 454.11 for urban areas, 2006).
• Social indicators have improved though important gaps remain: reductions in infant mortality rate (IMR), improvements in literacy and progress on disease control, even as maternal mortality and health access need further improvement.
• Industrial and agricultural production expanded: foodgrains production was around 233 million tonnes in 2010; installed power capacity exceeded 1.7 lakh MW by end 2010.
• External reserves increased dramatically from the crisis era of 1991 to reserves of about $292.8 billion (January 2012) and roughly $300 billion reported in 2011 statistics.
• India emerged as a global back-office and IT services provider; the country has significant factory and services outputs - the input indicates rankings such as 14th in factory output and 15th in services output worldwide.
• Higher education expanded from a few dozen universities and hundreds of colleges at independence to several hundred universities and many thousands of colleges; literacy rose to about 75% (2011 census figure cited).

Indicative Planning

Indicative planning became the prominent approach in India from the 8th Five Year Plan (1992-97). Under this model:

• The private sector is given a larger role while the State shifts from direct control to facilitation and regulation.
• Planning becomes 'soft' or indicative - the government indicates policy directions, priorities and targets to guide private investment rather than prescribing mandatory allocations.
• The government focuses on creating a predictable, transparent and irreversible policy climate (fiscal, monetary, trade and foreign exchange policies) so private and foreign investors can contribute resources to achieve plan objectives.
• Indicative planning supplies information to the private sector about priorities and targets, encouraging partnership between government and industry to meet national goals.

The approach draws lessons from successful indicative planning in countries like Japan and France and emphasises building long-term strategic vision, anticipating future trends and evolving strategies to meet international standards.

Rolling Plan

Rolling plans were adopted in India in 1962, in the aftermath of the Sino-Indian conflict, as a method to introduce greater flexibility. The idea is to prepare three overlapping plans that are revised annually:

• an annual plan (linked to the annual budget),
• a five-year plan that is updated each year in response to changing economic circumstances, and
• a perspective plan for 10-15 years into which the annual and five-year plans are dovetailed.

Professor Gunnar Myrdal (author of the book Asian Drama) recommended rolling plans for developing countries in his work referred to in the input as Indian Economic Planning in Its Broader Setting. Rolling plans suit fluid, rapidly changing circumstances where fixed multi-year plans could become irrelevant.

Types of Planning: Financial and Physical

Financial planning emphasises setting targets consistent with available financial resources. It focuses on mobilisation of funds and determining expenditure patterns to meet those financial constraints.

Physical planning prioritises output and physical targets-such as production quantities, infrastructure units or service coverage-and then raises the finances needed to achieve those physical targets. It emphasises inter-sectoral balance and resource allocation towards output priorities.

Nehru-Mahalanobis Model of Economic Growth

At independence, the Indian economy was largely agrarian with limited industrial base and dependence on primary commodity exports. The strategic shift in planning came with the Second Five Year Plan (1956-61), guided by the model commonly referred to as the Nehru-Mahalanobis strategy.

The plan reflected the vision of Jawaharlal Nehru and the statistical and planning insights of P. C. Mahalanobis, who was the chief architect of the model. The central idea was expressed clearly in the plan document: if industrialisation is to be rapid, the country must develop basic industries and industries that produce machines to make further machines.

Key features of the Mahalanobis model:

• Emphasis on expansion of heavy and capital goods industries (capital goods sector) to build the productive capacity of the economy.
• Promotion of a sizeable public sector in strategic and core industries (for example, steel, heavy engineering, railways, power, atomic energy).
• Import substitution through protective barriers to enable domestic industries to grow and reduce dependence on foreign capital and imports.
• A vibrant small-scale sector for consumer goods to promote dispersed and equitable growth and create entrepreneurial opportunities.

The strategy succeeded in building the industrial base, increasing industrial production growth and advancing self-reliance. Criticisms included the emergence of imbalances between heavy industry and agriculture or consumer goods, and reliance on trickle-down effects to alleviate poverty. Critics argued the approach was slow for direct poverty eradication, though defenders point to the contextual need for a strong capital goods base.

Rao-Manmohan Model of Growth (1991 Reforms)

The structural reforms launched in 1991 are often associated with the leadership of Prime Minister P. V. Narasimha Rao and Finance Minister Dr Manmohan Singh. The New Industrial Policy of 1991 embodied the core elements of this model. Its principal components were:

• Reorient the role of the State towards social and infrastructural development and away from direct control of productive activity.
• Dismantle selective controls and licences to allow the private sector greater freedom to invest and innovate.
• Open the economy to domestic and foreign competition to improve productivity and the performance of public sector enterprises.
• Liberalise the external sector to integrate India with the global economy and benefit from capital flows, technology transfers and export opportunities.

The impact of these reforms is visible in higher growth rates (for example, an average annual growth of over 6.5% in the early post-reform period), a resolution of the balance of payments crisis, accumulation of foreign exchange reserves, and increased inflows of FDI and FII.

Economic Reforms in India (Post-1991)

From July 1991 India began a sequence of economic reforms aimed at higher growth to address unemployment, poverty, shortages and regional imbalances. The principal drivers behind reform were:

• The Indian economy reached a stage where it could benefit from openness and global competition.
• The domestic private sector had matured and was ready to play a larger role in investment and growth.
• Integration with the world economy offered access to capital, technology, export markets and global financial markets.

Structural reforms were chosen because the 1991 crisis had deep structural roots. Reforms were intended to shift the economy from a closed, centrally controlled model to a market-oriented model while retaining a role for the State in social and strategic areas.

Targeted Areas of Reform

• End of the licence raj to provide a level playing field for private businesses and reduce administrative control on investment.
• Reorientation of the public sector through deregulation, disinvestment and professional management.
• Fiscal reforms aimed at fiscal consolidation and macroeconomic stability.
• Banking and financial sector reforms to improve competitiveness and resilience.
• Liberalisation of the exchange rate regime, progressive convertibility of the rupee, and promotion of exports, FDI and FII.

Reforms were sequenced: early, non-legislative measures (e.g. reductions in SLR/CRR, initial disinvestment) prepared the economy for more difficult legislative or sensitive reforms (e.g. labour law reform, GST, broader FDI liberalisation).

Positive Impacts of Reforms

• Sustained increases in growth rates and resilience in the face of global slowdowns.
• Resolution of the balance of payments crisis with large foreign exchange reserves (about $300 billion in 2011 figures cited).
• Growth of the services sector, contributing around 57% of GDP (2010 figure cited), and emergence as a global services supplier.
• Recovery and growth of exports, creating employment and promoting Indian products globally.
• Increased presence of Indian corporations on global capital markets and higher cross-border acquisitions (examples cited include Jaguar, Corus and Bharti's acquisition of Zain assets in 2010).
• Improved external debt profile with a smaller short-term component, and rising FDI and FII inflows.
• Higher tax revenues relative to GDP, with the input citing a Tax-GDP ratio of about 11% (2010).

Second Generation Reforms

Second generation reforms (SGR) followed the initial reforms of the 1990s and concern deeper and often politically sensitive changes. Examples include:

• Labour law flexibility to improve labour market dynamism.
• Pension reforms shifting to contributory pensions with investment of pension funds in markets.
• Indirect tax reform including introduction of VAT and the eventual objective of GST.
• Further liberalisation and expansion of permitted FDI, including consideration of FDI in retail.

These reforms are politically difficult because they affect daily lives: rationalising user charges, manpower rationalisation in public sector units, changes in interest rates for small savings, or agricultural reforms can provoke resistance from several stakeholders. Building consensus, sequencing reforms, and showing the gains from earlier reforms are crucial for successful implementation of SGRs.

Main Objectives of the Twelfth Five Year Plan

The Twelfth Plan's central objective, as reflected in the input, was: faster, more inclusive and sustainable growth. Specific concerns and targets included:

• Exploring the feasibility of high growth rates (noting that 9-9.5% might be a realistic aspirational range rather than an immediate 10% target without strong policy action).
• Addressing major sectoral challenges in energy, water and the environment while sustaining growth.
• Mobilising resources to build world-class infrastructure.
• Making growth more inclusive by improving agricultural performance, creating manufacturing jobs, strengthening health, education and skill development, improving programmes directly aimed at the poor, and targeting socially vulnerable groups and backward regions.

Agriculture and Rural Development

Key points and targets:

• Target at least 4% annual growth in agriculture.
• While cereal growth may be modest (1.5-2%), emphasise diversification into other foods, animal husbandry and fisheries.
• Address land and water constraints by prioritising technology for land productivity and water-use efficiency.
• Strengthen market access for farmers-both output and input markets-and improve rural infrastructure including storage and food processing.
• States should reform APMC Acts/Rules (with careful exclusions such as horticulture where appropriate), modernise land records and facilitate secure land-lease markets.
• Programs such as RKVY (Rashtriya Krishi Vikas Yojana) have helped state innovation and convergence and should be expanded.
• MGNREGS should be redesigned to increase contributions to land productivity and rain-fed agriculture.
• FRA (Forest Rights Act) can improve forest economies and tribal welfare but needs convergence with NRLM (National Rural Livelihood Mission) for sustainable livelihoods.

Water

Key priorities and institutional suggestions:

• Revisit India's water balance estimates on a basin-wise basis.
• Map all aquifers within five years to facilitate aquifer management plans.
• Restructure the AIBP (Accelerated Irrigation Benefit Programme) to incentivise irrigation reforms and efficient resource use, with the setting up of water regulatory mechanisms as a precondition.
• Consider a Water Regulatory Authority and explore a new groundwater law grounded in the Public Trust Doctrine.
• Debate and consensus building-possibly in a special NDC session-are needed for national water legislation and institutional arrangements like a National Water Commission to monitor compliance in major investments.
• Raise the proportion of water recycled by urban areas and industry to protect groundwater and surface water quality.

Industry

Industry policy in the Twelfth Plan emphasised two broad needs: (1) accelerate manufacturing growth to create employment and (2) deepen technological capabilities and domestic value addition.

Industry (1) - Broad Objectives

• Manufacturing must grow at about 11-12% per year to create roughly 2 million additional jobs a year.
• Promote greater domestic value addition and technological depth to meet expanding domestic demand and improve the trade balance.
• Tune FDI and trade policy to attract quality investment in critical areas.
• Improve the business regulatory environment by addressing the cost of doing business, transparency, and incentives for R&D and innovation.
• Address land and infrastructure constraints through state-led development of special industrial zones and support for industrial clusters to boost MSME productivity.

Industry (2) - Sectors Requiring Special Attention

• Sectors that create large employment: textiles and garments, leather and footwear, gems and jewellery, food processing.
• Sectors to deepen technological capabilities: machine tools, IT hardware, electronics, telecom equipment, aerospace, defence equipment.
• Capital equipment sectors needed for infrastructure growth: heavy electrical equipment, heavy transport and earth-moving equipment.
• Sectors with global competitive advantage: automotive, pharmaceuticals, medical equipment.
• Support for MSMEs for innovation, employment and enterprise generation.

Sectoral plans should be prepared with industry associations and concerned ministries to operationalise these priorities.

Education and Skill Development

• Aim to universalise secondary education by 2017.
• Raise the Gross Enrolment Ratio (GER) in higher education to 20% by 2017 and 25% by 2022.
• Shift focus from quantity to quality: invest in teacher training, faculty development and curriculum reform.
• Reduce social, gender and regional gaps through targeted measures and set specific targets to close these gaps.
• Major curriculum reforms in vocational and skill development to ensure employability in changing markets.
• Develop and operationalise PPP models in school and higher education as appropriate.
• Promote research and innovation in higher education with stronger linkages between institutions and industry.

Health

Health priorities emphasise prevention and primary care as well as curative services:

• Focus on clean drinking water, sanitation, nutrition, childcare and preventive health measures alongside curative care.
• Convergence across ministries and programmes is needed to improve outcomes.
• Increase combined Centre and State health expenditure from about 1.3% of GDP to at least 2.0%, and potentially 2.5% of GDP by the end of the Twelfth Plan.
• Address shortages of medical personnel by expanding seats in medical, nursing and allied health training institutions and improving quality of training.
• Enhance the effectiveness of NRHM (National Rural Health Mission) and involve PRIs/CSOs in structured delivery roles.
• Expand the role of PPP in secondary and tertiary healthcare, and broaden health insurance coverage for disadvantaged groups.
• Revamp ICDS with special focus on women and children.

Energy

Energy demand and supply present major challenges if high GDP growth is to be sustained:

• If GDP grows at 9% per annum, commercial energy demand could rise at about 7% per annum, requiring large supply and efficiency measures.
• Energy pricing is a critical issue since petroleum and coal prices are influenced by global markets.

Power Sector Issues

• Set an ambitious target of adding 100,000 MW capacity during the Twelfth Plan (versus about 50,000 MW likely in the Eleventh Plan).
• Coal availability will be a major constraint to thermal power expansion.
• Financial health of the power sector is weak with annual losses cited (the input refers to about 70,000 crore per year); Aggregate Technical & Commercial (AT&C) losses need faster reduction.
• Hydropower development faces delays due to forest and environment clearances, especially in Himalayan states.
• Electricity tariffs need periodic revision to reflect rising costs; independent regulators must be empowered to allow justified tariff increases.
• Operationalising open access is essential for competition and efficiency.

Coal Production

• On optimistic production assumptions for Coal India, the input projects India may need to import about 250 million tonnes of coal by 2017-18.
• Planning must include corresponding expansion of rail and port capacity to handle coal imports and domestic transport.
• Coal India needs to transform from purely a mining company to a broader coal supplier capable of blending domestic and imported coal to meet demand.
• Environment and forest clearances for coal mining projects (including private captive mines) are critical and politically sensitive.

Petroleum and Natural Gas

• Expand exploration through new NELP blocks and ensure stable, transparent production sharing contracts to incentivise investment.
• Rapidly expand the pipeline network for natural gas and LNG handling infrastructure.

Other Energy Sources and Demand Management

• Continue the nuclear power programme with rigorous safety oversight.
• Increase funding and competitive mechanisms for the Solar Mission and other renewables such as wind and biomass, including off-grid solutions for cooking and power in rural areas.
• Expand LPG distribution with targeted cash subsidies for deserving households rather than broadly subsidised prices.
• Promote demand-side management: rational energy pricing, standards for appliances, energy-efficient building codes and wider adoption of electric/hybrid vehicles.

Transport Infrastructure

• Complete the Western and Eastern Dedicated Freight Corridors (DFC) during the Twelfth Plan.
• Explore high-speed rail links (for example, aspirational links such as Delhi-Mumbai and Delhi-Kolkata mentioned in the input).
• Increase use of PPP in railways and state highways to leverage private capital for capital-intensive projects.
• Complete port-road-rail linkages and deepen ports to increase bulk and container capacities.
• Ensure adequate provision for maintenance of already built roads and invest in unified tolling and highway safety.
• Improve bus and public transport services in smaller cities and towns; promote metro projects through PPP where feasible.

Managing Urbanisation

• India's urban population is projected to rise from about 400 million (2011) to roughly 600 million or more by 2030, placing great demand on urban services.
• Critical challenges include provision of water, sewerage, sanitation, solid waste management, affordable housing and public transport, especially for the urban poor.
• Estimated investment in urban infrastructure over the next 20 years is about 60 lakh crore (as cited in the input).
• Innovative municipal financing through PPPs, better land management strategies and capacity building of municipal officials are needed.
• Reform and convergence of urban programmes such as JNNURM and RAY were considered necessary to create integrated urban development strategies.

Resource Allocation Priorities in the Twelfth Plan

• Health and education underperformed in the Eleventh Plan and will require increased allocations in the Twelfth Plan.
• Centre's plan allocations for health, education and skill development should increase by at least 1.2 percentage points of GDP in aggregate.
• Infrastructure (including irrigation, watershed management and urban infrastructure) will require an additional 0.7 percentage point of GDP over five years.
• Because the Centre's Gross Budgetary Support (GBS) may rise only modestly (about 1.3 percentage points over five years in the input), allocations to other sectors must be carefully prioritised.
• Reduce the number of Centrally Sponsored Schemes (CSS) to a few major schemes and create a flexible fund for experimental/state-specific initiatives.
• Accelerate use of PPP models, including in social sectors like health and education where appropriate.
• Review the distinction between plan and non-plan spending (as examined by the Rangarajan Committee mentioned in the input).

Issues for Special Category States

• Large numbers of government employees constrain these States' fiscal space, limiting scope for own-resource mobilisation for plan expenditure.
• Private sector investment tends to be relatively subdued, implying a greater role for public investment.
• Infrastructure gaps raise the cost of goods and services; accelerated infrastructure development is required.
• High forest cover and fragile mountain ecosystems constrain rapid development; obtaining forest clearances is difficult and States may demand compensation for providing ecological services.
• The State share requirement for Centrally Sponsored Schemes is often not uniform; North-Eastern States often contribute only about 10% share for many CSS as cited.
• Some States (for example, Jammu & Kashmir, Himachal Pradesh and Uttarakhand) face higher required State contributions under many CSS despite development constraints.

Governance and Empowerment

• Citizen feedback shows dissatisfaction with public service delivery; Total Quality Management (TQM) and separation of policy and delivery functions in government ministries are recommended.
• Social mobilisation should make people active agents of change; flagship programmes need to provide resources for mobilisation, capacity building and information sharing.
• There is need for professionally managed delivery organisations with clear mandates and accountability, and improved mechanisms for convergence across departments on systemic issues.
• Devolution will only be effective if PRIs/ULBs have increased autonomy and improved human resource capacity; the Centre can support capacity building and enabling frameworks.
• Create mechanisms to understand the needs of vulnerable sections and to inform policy makers; encourage diagnostics of failure and mainstreaming of success through horizontal linkages and best practice exchanges.
• Institutional mechanisms are required for conflict resolution, especially over land and water.

Transport and Logistics: Additional Emphases

• Increase bulk and container capacity at ports.
• Ensure provision for maintenance of existing roads.
• Invest in unified tolling systems and improve highway safety.
• Improve bus services and public transport in smaller cities and districts; develop metro projects through PPPs where feasible.

Concluding Notes

This chapter summarises institutional arrangements (such as the NDC), planning models (from Nehru-Mahalanobis to the post-1991 Rao-Manmohan reforms), resource mobilisation for multi-year plans, achievements of planning and the policy priorities emphasised in the Twelfth Plan. Key cross-cutting themes are the shift towards indicative planning, greater reliance on the private sector and global integration, the need for targeted public investments in social and physical infrastructure, and the balancing of rapid growth with inclusiveness and environmental sustainability.