Planning - Economics, UPSC, IAS. | Indian Economy (Prelims) by Shahid Ali PDF Download

Planning

MEANING AND TYPES OF PLANNING IN INDIA

Meaning: There is no agreement among economists with regard to the meaning of the term ‘economic planning’. According to Prof. L. Robbins economic planning is “collective control or suppression of private activities of production and exchange.” To Hayek, planning means, “the direction of productive activity by a central authority.”

Even though there is no unanimity of opinion on the subject, yet economic planning as understood by the majority of economists implies deliberate control and direction of the economy by a central authority for the purpose of achieving definite targets and objectives within a specified period of time.In developing countries we can identify two main features of economic planning:

1. The governments mobilize domestic resources and also raise foreign finance to carry out such projects which are expected to induce productive activities in the private sector. This involve the development of infrastructure and heavy industries.
2. The governments adopt certain monetary and fiscal policies to stimulate private economic activity and to ensure harmony between the social objectives of the government and the behaviour of the private producers and businessmen.

From the above characteristics of planning in mixed developing economy, it is clear that the market and economic planning are complementary to one another.

Types of Planning: There are various types of planning which are discussed below.

Perspective Planning and Annual Planning:

Perspective planning refers to long-term planning in which long range targets are set in advance for a period of 15, 20, or 25 years. A perspective plan, however, does not imply one plan for the entire period of 15 or 20 years. In reality, the broader objectives and targets are to be achieved within the specified period of time by dividing the perspective plan into several short-period plans of 4, 5 or 6 years.

Not only this, a five year plan is further broken up into annual plans so that each annual plan fits into the broad framework of the five-year plan. Plans of either kind are further divided into regional and sectoral plans. Regional plans pertain to regions, districts and localities and sectoral plans pertain to plans for agriculture, industry, foreign trade etc.

Indicative Planning and Imperative Planning:

This is the French system of planning which is based on the principle of decentralization in the operation and execution of the national plans. This type of planning is not imperative but flexible. In indicative planning the private sector is neither rigidly controlled nor directed to fulfill the targets and priorities of the plan. Even then, the private sector is expected to fulfill the targets for the success of the plan. The state provides all types of facilities to the private sector but does not direct it, rather indicates the areas in which it can help in implementing the plan.

On the other hand, under imperative planning all economic activities and resources of the economy operate under the direction of the state. There is complete control over the factors of production by the state. The entire resources of the country are used to the maximum in order to fulfill the targets of the plan. There is no consumers’ sovereignty in such planning. What and how much to produce – such decisions are taken by the managers of firms and factories on the direction of the planning commission or a central planning authority. Since the government policies and decisions are rigid, they cannot be changed easily.

Democratic Planning and Totalitarian Planning:

In totalitarian or authoritarian planning there is central control and direction of all economic activity in accordance with a single plan. There is planning by direction where consumption, production, exchange, and distribution are all controlled by the state. In totalitarian planning, the planning authority is the supreme body. It decides about the targets, schemes, allocations, methods and procedures of implementation of the plan. There is absolutely no opposition to the plan. People have to accept and rigidly implement the plan.

In democratic planning, the philosophy of democratic government is accepted as the ideological basis. People are associated at every step in the formulation and implementation of the plan. Cooperation of different agencies, and voluntary groups, and associations plays a major role in the execution of the plan. Democratic planning respects the institution of private property. Price mechanism is allowed to play its due role. The government only seeks to influence economic and investment decisions in the private sector through fiscal and monetary measures. The private sector operates side by side with the public sector. Democratic planning aims at the removal of inequalities of income and wealth through peaceful means by taxation and government spending on social welfare and social security schemes. Individual freedom prevails and people enjoy social, economic and political freedoms.

Rolling and Fixed Plans:

In a rolling plan, every year three new plans are made and acted upon. First, there is a plan for the current year which includes the annual budget and the foreign exchange budget. Second, there is a plan for a number of years, say three, four or five. Third, a perspective plan for 10, 15 or 20 or even more years is presented every year in which the broader goals are stated and the outlines of future development are forecast. The annual one-year plan is fitted into the same year’s new three, four or five year plan, and both are framed in the light of the perspective plan.

In contrast to the rolling plan, there is a fixed plan for four, five, six or seven years. A fixed plan lays down definite aims and objectives which are required to be achieved during the plan period. For this purpose, physical targets are fixed along with the total outlay. Physical targets and financial outlays are seldom changed except under emergencies. Planning in India (Five-Year) and Russia (Seven-Year) is of the fixed type.

Centralised and Decentralised Planning:

Under centralized planning, the entire planning process is under a central planning authority. The authority formulates a central plan, fixes objectives, targets, and priorities for every sector of the economy. The principle problems of the economy – what and how much to produce, how and for whom to be produced etc, are decided by this authority. The entire planning process is based on bureaucratic control and regulation. Naturally, such planning is rigid. There is no economic freedom and all economic activities are directed from above.

On the other hand, decentralized planning refers to the execution of the plan from the grass roots. Under it, a plan is formulated by the central planning authority in consultation with the different administrative units of the country. The central plan incorporates plans under the central schemes, and plans for the states under a federal set-up. The state plans incorporate district and village level plans. Under decentralized planning, prices of goods and services are determined by the market mechanism despite government control and regulation in certain fields of economic activity.

History of Planning in India

• First attempt to initiate economic planning in India was made by Sir M. Visvesvarayya, a noted engineer and politician, in 1934 through his book, ‘Planned Economy for India’.
• In 1938, ‘National Planning Commission’ was set – up under the chairmanship of JL Nehru by the Indian National Congress. Its recommendations could not be implemented because of the beginning of the Second World Warand changes in the Indian political situation.
• In 1944, ‘Bombay Plan’ was presented by 8 leading industrialists of Bombay.
• In 1944, ‘Gandhian Plan’ was given by S N Agarwal.
• In 1945, ‘People’s Plan’ was given by M N Roy.
• In 1950, ‘Sarvodaya Plan’ was given by J P Narayan. A few points of this plan were accepted by the Government.

The Planning Commission of India

• The Planning Commission was set – up on March 15, 1950 under the chairmanship of JL Nehru, by a resolution of Union Cabinet.
• It is an extra – constitutional, non – statutory body.
• It consists of Prime Minister as the ex – officio Chairman, one Deputy – Chairman appointed by the PM and some full time members.
• The tenure of its members and deputy chairman is not fixed. There is no definite definition of its members also. They are appointed by the Government on its own discretion. The number of members can also change according to the wishes of the Government.

Functions Economic System

•    Assessment of material, capital and    human Resources of the country.                    
•   Formulation of plans for the most effective and balanced utilization of country’s resources. 
•   To determine the various stages of planning and to propose the allocation of resources on the priority basis. 
•   To act as an advisory body to the Union Government. 
•   To evaluate from time to time the progress achieved in every stage of the plan and also to suggest remedial measures. 
•   To advise the Centre and the State Governments from time to time on special matters referred to the Commission. 

National Development Council India

•    All the plans made by the Planning Commission have to be approved by National  Development Council first. It was constituted to build co – operation between the States and the Planning Commission for economic planning.

•    It is an extra – constitutional and extra – legal body. 

•    It was set – up on August 6, 1952, by a proposal of the Government. The PM is the ex – officio chairman of NDC. Other members are Union Cabinet Ministers, Chief Ministers and Finance Ministers of all States, Lt. Governors of Union Territories and Governors of Centrally – ruled States.

State Planning Board India

• Apex planning body at State level is generally a State Planning Body comprising the Chief Minister as Chairman, Finance and Planning Ministers of that State and some technical experts.
• District Planning Committee is also there comprising both official and non – official members.

5 essential objectives of economic planning in India

• Planning without an objective is like driving without any destination. There are generally two sets of objectives for planning, namely the short-term objectives and the long-term objectives. While the short-term objectives vary from plan to plan, depending on the immediate problems faced by the economy, the process of planning is inspired by certain long term objectives. In case of our Five Year plans, the long-term objectives are:
• (i) A high rate of growth with a view to improvement in standard of living.
• (ii) Economic self-reliance;
• (iii) Social justice and
• (iv) Modernization of the economy
• (v) Economic stability

(i) High Rate of Growth

• All the Indian Five Year Plans have given primary importance to higher growth of real national income. During the British rule, Indian economy was stagnant and the people were living in a state of abject poverty. The Britishers exploited the economy both through foreign trade and colonial administration. While the European industries flourished, the Indian economy was caught in a vicious circle of poverty. The pervasive poverty and misery were the most important problem that has to be tackled through Five Year Plan.
• During the first three decades of planning, the rate of economic growth was not so encouraging in our economy Till 1980, the average annual growth rate of Gross Domestic Product was 3.73 percent against the average annual growth rate population at 2.5 percent. Hence the per-capita income grew only around 1 percent. But from the 6^th plan onwards, there has been considerable change in the Indian economy. In the Sixth, Seventh and Eight plan the growth rate was 5.4 percent, 5.8 percent and 6.8 percent respectively. The Ninth Plan, started in 1997 targeted a growth rate of 6.5 percent per annum and the actual growth rate was 6.8 percent in 1998 - 99 and 6.4 percent in 1999 - 2000. This high rate of growth is considered a significant achievement of the Indian planning against the concept of a Hindu rate of growth.

(ii) Economic Self Reliance

• Self reliance means to stand on one’s own legs. In the Indian context, it implies that dependence on foreign aid should be as minimum as possible. At the beginning of planning, we had to import food grains from USA to meet our domestic demand. Similarly, for accelerating the process of industrialization, we had to import, capital goods in the form of heavy machinery and technical know-how. For improving infrastructure facilities like roads, railways, power, we had to depend on foreign aid to raise the rate of our investment.
• As excessive dependence on foreign sector may lead to economic colonialism, the planners rightly mentioned the objective of self-reliance from the third Plan onwards. In the Fourth Plan much emphasis was given to self-reliance, more specially in the production of food grains. In the Fifth Plan, our objective was to earn sufficient foreign exchange through export promotion and important substitution.
• By the end of the fifth plan, Indian became self-sufficient in food-grain production. In 1999-2000, our food grain production reached a record of 205.91 million tons. Further, in the field of industrialization, now we have strong capital industries based on infrastructure. In case of science and technology, our achievements are no less remarkable. The proportion of foreign aid in our plan outlays have declined from 28.1 percent in the Second Plan to 5.5 percent in the Eighth Plan. However, in spite of all these achievements, we have to remember that hike in price of petroleum products in the inter national market has made self-reliance a distant possibility in the near future.

(iii) Social Justice:

• Social justice means to equitably distribute the wealth and income of the country among different sections of the society. In India, we find that a large number of people are poor; while few lead a luxurious life. Therefore, another objective of development is to ensure social justice and to take care of the poor and weaker sections of the society. The Five-Year Plans have highlighted four aspects of social justice. They are:
• (i) Application of democratic principles in the political structure of the country;
• (ii) Establishment of social and economic equity and removal of regional disparity;
• (iii) Putting an end to the process of centralization of economic power; and
• (iv) Efforts to raise the condition of backward and depressed classes.
• Thus the Five Year Plans have targeted to uplift the economic condition of socio-economically weaker sections like scheduled caste and tribes through a number of target oriented programmes. In order to reduce the inequality in the distribution of  landed assets, land reforms have been adopted. Further, to reduce regional inequality specific programmes have been adopted for the backward areas of the country.
• In spite of various efforts undertaken by the authorities, the problem of inequality remains as great as ever. According to World Development Report (1994) in India the top 20 percent of household enjoy 39.3 percent of the national income while the lowest 20 percent enjoy only 9.2 percent of it. Similarly, another study points out that the lowest 40 percent of rural household own only 1.58 percent of total landed asset while the top 5.44 percent own around 40 percent of land. Thus the progress in the field of attaining social justice has been slow and not satisfactory.

(iv) Modernization of the Economy:

• Before independence, our economy was backward and feudal in character. After attainment of independence, the planners and policy makers tried to modernize the economy by changing the structural and institutional set up of the country. Modernization aims at improving the standard of living of the people by adopting a better scientific technique of production, by replacing the traditional backward ideas by logical reasoning's and bringing about changes in the rural structure and institutions.
• These changes aim at increasing the share of industrial output in the national income, upgrading the quality of products and diversifying the Indian industries. Further, it also includes expansion of banking and non-banking financial institutions to agriculture and industry. It envisages modernization of agriculture including land reforms.

(v) Economic Stability:

• Economic stability means to control inflation and unemployment. After the Second Plan, the price level started increasing for a long period of time. Therefore, the planners have tried to stabilize the economy by properly controlling the rising trend of the price level. However, the progress in this direction has been far from satisfactory.
• Thus the broad objective of Indian plans has been a non-inflationary self-reliant growth with social justice.

Five Year Plans in India

First Five Year Plan (1951 – 56)

• It was based on Harrod – Domar Model.
• Community Development Program was launched in 1952.
• Two – fold objectives were there :
• To correct the disequilibrium in the economy caused by 3 main problems – influx of refugees, severe food shortage and mounting inflation.
• To initiate a process of all – round balanced development to ensure a rising national income and a steady improvement in living standards.
• Emphasized on Agriculture, Price Stability, Power and Transport.
• It was more than a success, because of good harvests in the last two Years.

Second Five Year Plan of India ( 1956 – 61 )

• Also called ‘Mahalanobis Plan’ after its chief architect PC Mahalanobis. It was based on 1928 Soviet Model of Feldman.
• Its emphasis was on economic stability. Agriculture target fixed in the first plan was almost achieved. Consequently, the agriculture sector got low priority in the second five Year plan.
• Its objective was Rapid Industrialization, particularly basic and heavy industries such as iron and steel, heavy chemicals like nitrogenous fertilizers, heavy engineering and machine building industry.
• Besides, the Industrial Policy of 1956 emphasized the role of Public Sector and accepted the establishment of a socialistic pattern of the society as the goal of economic policy.
• Advocated huge imports which led to emptying of funds leading to foreign loans. It shifted basic emphasis from agriculture to industry far too soon. During this plan, price level increased by 30%, against a decline of 13% during the First Plan.
• At its conception time, it was felt that Indian economy has entered a take – off stage. Therefore, its aim was to make India a ‘Self – Reliant’ and ‘Self – Generating’ Economy.
• Also, it was realized from the experience of first two plans that agriculture should be given the top priority to suffice the requirements of export and industry.
• The other objectives of the plan included the expansion of basic industries, optimum utilization of country’s labor power and reducing the inequalities of income and wealth.
• Relied heavily on foreign aid ( IMF ).
• Complete failure due to unforeseen misfortunes, vizard Chinese aggression ( 1962 ), Indo – Pak war (1965), severest drought in 100 Years ( 1965 – 66 ).
• Prices increased by 36% in 5 – Years.
• Hence, third plan failed in every respect.

Three Annual Plans ( 1966 – 69 )

• Plan holiday for 3 Years.
• The prevailing crisis in agriculture and serious food shortage necessitated the emphasis on agriculture during the Annual Plans.
• During these plans a whole new agricultural strategy involving wide – spread distribution of High – Yielding Varieties ( HYVs ) of seeds, the extensive use of fertilizers, exploitation of irrigation potential and soil conservation was put into action to tide – over the crisis in agricultural production.
• During the Annual Plans, the economy basically absorbed the shocks given during the Third Plan, making way for a planned growth.

Fourth Five Year Plan India (1969 – 74 )

• The Fourth Plan set before itself the two principal objectives – growth with stability and progress towards self – reliance.
• Main emphasis on agriculture’s growth rate so that a chain reaction can start.
• Fared well in the first 2 Years with record production, last 3 Years failure because of poor monsoon.
• Had to tackle the influx of Bangladeshi refugees before and after 1971 Indo – Pak war.
• During the planning period, prices increased by about 61%.

Fifth Five Year Plan of India ( 1974 – 79 )

• The Fifth Plan prepared and launched by DD Dhar proposed to achieve two main objectives vizard, ‘Removal of Poverty’ ( Garibi Hatao ) and ‘Attainment of Self Reliance’, through promotion of high rate of growth, better distribution of income and a very significant growth in the domestic rate of savings.
• National Program of Minimum needs was initiated in which Primary Education, Drinking Water; Medical facilities in rural areas, Nourishing Food, Land for the Houses of Landless Laborers, Rural Roads, Electrification of the Villages and Cleanliness of the dirty suburbs were included.
• The plan was terminated in 1978 ( instead of 1979 ) when Janta Government, came to power.

Rolling Plan in India ( 1978 – 80 )

• There were 2 Sixth Plans – One by Janta Government ( for 78 – 83 ) which was in operation for 2 Years only and the other by the Congress Government when it returned to power in 1980. The Janta Government Plan is also called ‘Rolling Plan’.
• The focus of the plan was enlargement of the employment potential in agriculture and allied activities, encouragement to household and small industries producing consumer goods for consumption and to raise the incomes of the lowest income classes through minimum needs program.

Sixth Five Year Plan (1980 – 85)

Objectives :

Increase in National Income, Modernization of Technology, Ensuring continuous decrease in Poverty and Unemployment, Population Control through Family Planning, etc.

Seventh Five Year Plan ( 1985 – 90 )

• The Seventh Plan emphasized policies and programs which aimed at rapid growth in food – grains production, increased employment opportunities and productivity within the framework of basic tenants of planning.
• It was a great success, the economy recorded 6% growth rate against the targeted 5%.

Eighth Five Year Plan of India ( 1992 – 97 )

• The Eighth Plan was postponed by 2 Years because of political upheavals at the Centre and it was launched after a worsening Balance of Payment ( BoP ) position inflation during 1990 – 91.
• The plan undertook various drastic policy measures to combat the bad economic situation and to undertake an annual average growth of 5.6%.
• Some of the main economic performances during Eighth Plan period were rapid economic growth, high growth of agriculture and allied sector, and manufacturing sector, growth in exports and imports, improvement in trade and current account deficit.
• The most notable feature of the Eighth Plan period was that the GDP grew at an average rate of 6.8% exceeding the target growth rate of 5.6%.

Ninth Five-Year Plan (1997–2002)

Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim of attaining objectives like speedy industrialization, human development, full-scale employment, poverty reduction, and self-reliance on domestic resources.

Background of Ninth Five Year Plan India: Ninth Five Year Plan was formulated amidst the backdrop of India's Golden jubilee of Independence.

The main objectives of the Ninth Five Year Plan of India are:

• to prioritize agricultural sector and emphasize on the rural development
• to generate adequate employment opportunities and promote poverty reduction
• to stabilize the prices in order to accelerate the growth rate of the economy
• to ensure food and nutritional security.
• to provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy
• to check the growing population increase
• to encourage social issues like women empowerment, conservation of certain benefits for the Special Groups of the society
• to create a liberal market for increase in private investments

During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower than the target GDP growth of 6.5 per cent. ^[10]

Tenth Five-Year Plan (2002–2007)

• Attain 8% GDP growth per year.
• Reduction of poverty ratio by 5 percentage points by 2007.
• Providing gainful and high-quality employment at least to the addition to the labour force.
• Reduction in gender gaps in literacy and wage rates by at least 50% by 2007.

• Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015
• Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012
• Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016–17

6. Environment

• Increase forest and tree cover by 5 percentage points.
• Attain WHO standards of air quality in all major cities by 2011–12.
• Treat all urban waste water by 2011–12 to clean river waters.
• Increase energy efficiency by 20%

Target growth:8.33% Growth achieved:7.9%