Economic Planning in India - Economic Environment, Business Environment Video Lecture | Business Environment - B Com

hello everyone I am uncle Chaudhary from
Red Bull joy calm and in this video I'll
be explaining a little bit about
economic planning in India its various
components a bit of it historical
background and its current context so
let's understand what how economic
planning in India came about
so Planning Commission was an
extra-constitutional body and
non-statutory body which was set up in
the year 1950 the word
extra-constitutional means that there
are no provisions provided for the
establishment of a body like Planning
Commission and it is a non statutory
body this means that there was no law
passed by the Union Parliament to set up
this body for example we have the RBI
act the SEBI act so any body that is
established by a specific law or act
that is called a statutory body however
for Planning Commission no provisions
were made in the Constitution uh neither
any law was passed so Planning
Commission performed the following
functions it formulated an integrated
five-year plan for economic and social
development so it was a recommended tree
body right which was responsible to
formulate the five-year plans for Indian
economy the objective of these five-year
planning was to ensure effective and
balanced utilization of country's
resources so it would be responsible for
allocating certain funds to various
states to various projects to various
government schemes etc right so the plan
as far as the Planning Commission is
concerned the Prime Minister of India
was right since the Planning Commission
is no is has been abolished by the new
government supply Prime Minister of
India was the ex officio chairperson of
the Planning Commission so similar a
question that has been asked in the
previous year paper let us take a look
at one such question from which country
did India border the concept of economic
planning Russia or erstwhile USSR
is the correct answer however there was
a one major difference between USSR and
India's concept of planning right the
ussr's
as you would remember from one of the
previous video lectures USSR was a
communist Society right so model of
planning that they adopted was highly
regimented however India adopted an
indicative model of planning that is the
planning targets for erstwhile USSR were
very strict and they had to be followed
however in case of India these targets
given in the five-year plans were
indicated or merely guidelines and not
necessarily binding on various state and
union governments so let us take a
overview of the targets fixed for
economic growth in various five-year
plans along with the actual rates that
were achieved so this is a table that
depicts these data so you would see if
you look at it carefully there are
certain gaps like one we have of three
years between the third and the fourth
year plan that is the year 1966 to 1969
and as far as v plan is concerned this
is I'm sorry this is 78 so as far as the
fifth plan is concerned there was a gap
of two years between 1978 and 1980 then
further moving on we had another gap of
two years between 1990 and 1992
so over here we had what is called
annual plans and with plans
so the concept of five-year plan was
abandoned for some time because we
sought two major wars that India had to
face first against China in 1962 and
then against Pakistan in 1965 because of
this a lot of financial resources were
diverted towards our war effort so that
is why it targets fixed in the third
plan were abandoned for
some point in time so that is why we had
targets only for one year and we had
three such years back to back as far as
the fifth plan is concerned this was a
period of political instability and
turmoil in the country so this is when
Indira Gandhi was defeated and a first
non-congress government was formed at
the center led by the Delta Party so
janta party had new visions of
development for the country they
abandoned the idea of 5-year plans
however they introduced a new concept
that is of rolling plants an annual plan
would be formulated and it would
automatically roll over to the next year
this was two years of rolling plants
that we saw however this was
discontinued in 1980 as he junta party
government was defeated and indra Gandhi
came back as the prime minister with a
resounding majority so the five year
plan came back into the Indian economy
next we have the period between 1990 and
1992 so over here the Indian economy
faced a huge balance of payment crisis
our forex reserves were down to an
all-time low so due to that reason we
again abandoned the five-year plan and
for two years again we had annual plans
so we'll be talking about this balance
of payment crisis later in the
presentation so currently we are in the
twelfth five-year plan and these are the
targets for this particular plan this
period is of course 2012 to 2017 let us
take a look at another question before
we move on so which of the following is
associated with the 12th five-year plan
plan with a human face so these are
nothing but the mottos or slogans of
different five-year plans so plan with a
human face Caribe had a faster and more
inclusive growth faster sustainable and
or inclusive growth so the answer for
this particular question is faster
sustainable and more inclusive growth as
far as talking about the other options
that we saw learn with a human face this
is from the eight five-year plan right
curry we had out the slogan given by our
prime minister of misandry Gandhi was
associated with the sixth five-year plan
of 1980s faster and more inclusive
growth was the slogan from the previous
plan that is eleventh five-year plan so
the Indian planning history can be
divided into two parts one that is pre
reforms that is reforms of 1991 LPG
reforms again I'll be talking about them
a little later and the plans which have
existed after the 1991 reforms so as far
as pre reform plans planning is
concerned there are two plants which are
very important for your examinations
point of view the second five-year plan
that is from 1956 to 1961 this period
can be called as the period in which
planning in India actually took place
the plan the first plan that is free
before this had a very minimal budget
reallocation and it was just a starting
point so the actual strategic planning
started as far as India is concerned in
the second five-year plan so it was
based on the Mahalanobis model
Mahalanobis was a very famous
statistician and also known as the
father of indian planning this
particular model suggested that planning
in India should focus on heavy and basic
industries now you might be knowing that
when we got independence we were a very
poor country and most of the population
almost 95 to 99 percent of our
population was involved only in
agriculture so agriculture was a very
low productive job secondly there was a
lot of employment a lot of people
already involved in the agricultural
field right and were very poor
so Manitoba suggested that rather than
targeting poverty at this point in time
we're in most of the country would be
the beneficiaries it would be wise to
focus right now on heavy and basic
industries like textile steel etcetera
paper as well so that these when these
industry is developed the demand of the
products produced by these farmers that
increases and naturally the income of
these farmers also increase so it had
opted a trickle-down strategy of
development so when you talk about
trickle-down strategy on the top on the
bottom rather we have the Indian farmers
which constituted as I said almost 90 to
90 95 to 99 percent of our population on
the top he conceptualized worthy heavy
industries right so he said that rather
than focusing on farmers right so if we
do this then it would be very difficult
to ensure economic growth in the country
so Marlon over suggested that we should
focus on developing heavy industries
like textile paper steel etc when this
happens then the demand for the products
produced by our farmers will increase
their incomes will also increase right
so by focusing on the top the growth
will in fact trickle down from top to
the bottom so this is the basic idea
behind the trickle-down theory next we
talk about the fifth five-year plan from
74 to 1978 so during this 1970s it was
realized that the trickle-down strategy
proposed in the second five-year plan
was not really working what was
happening as a result was there was a
huge concentration of wealth on the top
right and the benefits were not really
trickling down to the farmers so in this
plant we saw a huge strategic shift of
Indian economy and focus now became
removal of poverty right for this plan
as I spoke about earlier was suspended
prematurely in 1978 so not much
could be achievement night in the fifth
five-year plan however it is important
that the property was understood to be
the biggest problem in India only in the
fifth five-year plan so the second
five-year plan and the fifth five-year
plan are very important as far as pre
deform planning is concerned so moving
on to the first reform planning period
so by the end of the 1980s the
government's debt became very high now
you may be remembering that before 1991
most of the industries were government
controlled however these industries were
highly susceptible to corruption firstly
and secondly they were very inefficient
because they were government-run so due
to this reason their losses sort of
piled on and government debt became very
high as these companies were not
generating profits right so the
government's that went high now when
obviously when your debt is high you
cannot take more loans from other bodies
right so it became very difficult for
India to borrow funds from organizations
like World Bank and the IMF so as a
result going back and I am have
suggested that India should reform its
economic structure to get more loans
because they felt that if India still
does not reform and they still end up
giving us loans it will be very unlikely
that India will be able to pay these
loans back so eight five-year plan is
historical in the sense that it
introduced three major reforms
liberalization privatization and
globalization so there was shift from
induced to indicative planning so in
this earlier the government never
incentivize the private sector to be
getting or investing in certain
industries
however in indicated planning approach
government takes the private sector as
its partner and introduces certain
benefits like tax in
offensive incentives to invest in
certain industries right so we saw a
shift from induced to indicative
planning again the emphasis changed from
humans to human capital and
infrastructure development for the
government realized that even though
India has a huge population right but a
lot of Indians were not highly skilled
so they tried to develop human resources
by establishing various engineering
colleges medical colleges and other
institutions and also focused on more
investments in development of
infrastructure like power railways roads
etcetera right so that is why it is
called a plan with a human face later
and most more importantly increasing
role was assigned to the private sector
so earlier the government sector enjoyed
a monopoly over a large number of
industries so but after eight five eight
five year plan only six industries were
left to the monopolies of the government
all other in all other industries
private companies could invest and work
in so let's now try and understand what
induced the government to make such
far-reaching reforms so first we had the
balance of payment crisis of 1991 so as
I said earlier the government debt was
rising so we what went out to get loans
from IMF and World Bank however these
loans were rejected then we were forced
to reform our economic structure so
these reforms were initiated in 1991
July of 1991 and it introduced these
following far-reaching changes he
licensing now earlier if I was a
businessman and I wanted to set up a
company or set up a factory - let us say
manufacture puts so I had to take
permissions from the government later if
I wanted to increase my capacity so for
example if I producing 100 coats today
in a day and if I want to increase my
capacity to producing 200 coats in a day
I had to take another license or a
permission for the government and
thirdly if I today I am producing only
Goods and tomorrow I want to I plan to
produce trousers as well again I had to
take a license from the government
however this particular process of
over-regulation was thought to be
discouraging to the private sector
so these licenses were on so many
permissions were removed from the
manufacturing sector deregulation so
over here again a lot of inspections
were mandatory for any producer so you
will be getting inspections from the
income tax department the excise tax
ation Department environmental
department etc etc so a lot of people
inspecting so that was resulting in a
load of corruption of course and
discouraging the private investment so
these were also reduced then we talked
about liberalisation not till 1991 the
Indian economy was pretty closed right
so it was self sensor centered or inward
looking however this strategy was not
working and India had to liberalize its
trade regime so in order to stop trade
there are two measures that are employed
tariff barriers and non-tariff barriers
so today barriers are nothing but
imposing very high import duty on the
goods that are coming into your economy
and when you talk about non-tariff
barriers these are in the form of quotas
right so they will be fixing that India
can import only let us say 100 tons or
100 million tons of steel in a
particular year right so those are
non-tariff barriers liberalization
implied that these barriers to trade
would be removed then we talked about
privatization
as I said a large number of industries
were privatized or permissions given to
the private industry to invest in a lot
of industries and then of course
globalization India allowed for foreign
capital to be coming into the country
so we allowed foreign direct investments
as well as foreign institutional
investments to be investing in right
economy so that we get more foreign
exchange from other resources so these
are certain facts about the latest
five-year plan that is it that is still
in operation 12 five-year plan that is
from 2012 in 2007 so you will do well to
memorize these facts and these are very
important as far as any objective type
paper is concerned
ever since the coming in of the new
government in 2014 we have seen a large
shift from the earlier planning strategy
in the Indian economy so the Planning
Commission has been abolished and has
been replaced by a new organization or a
body called neeti I owed neepy is an
acronym for a short form for National
Institute for transforming India and
nithi itself is the Hindi word for
policy so it is nothing but policy
Commission right
this happened mainly because of
conflicts between Planning Commission
and the Finance Commission so Planning
Commission was also allocating central
funds to state governments and Finance
Commission was also distributing the
taxes collected by the center or the
shareable pool between the center and
the states so there was an overlapping
of functions however it was felt that
since Finance Commission enjoys
constitutional authority right so it
should be more powerful as compared to
Planning Commission however Planning
Commission being a non statutory or non
constitutional body was enjoying more
powers so that is why Planning
Commission was abolished right so it is
a coming back - nithya yoga it is a
policy think-tank of the Government of
India it would recommend the kind of
policies that the Government of India
should be following
again it tends to involve states and
economic policy making in India so it is
talking about increasing cooperative
federalism right so in this is nothing
but the increasing the economic
cooperation between the state government
and the Union government Israel right it
will provide strategic and technical
advice to central and state governments
so it can be having a large number of
experts which would be specially coded
for let us say to formulate a policy of
science in India science in technology
in India right so they would be
providing advice to the government again
Prime Minister is the ex officio
chairperson of the nithi IO and this is
same as it was in case of the Planning
Commission is man so the composition
composition again this is very important
for your objective papers prime minister
at the top Governing Council which
includes all chief ministers and lifting
governance or of United ut's right
regional councils for specific issues
and 10 yours right so if there is a
particular region which is having a
specific problem for example the
Northeast states you can beneath the IO
would have specific councils for that
region and expert specialists and
practitioners with relevant domain
knowledge as special invitees so if
there is any specific problem right to
those to solve that problem specialists
from that field might be called in for
temporary basis and also it would have a
full-time organizational framework okay
before ending this lecture let us take a
look at a final question so which of the
following statements are true in the
context of nathie ioq first is in the
shareholder is the CEO of nithi ioq this
one is not true because sindhu
shareholder while she was the first CEO
of nithi I owe
here has been recently replaced because
she retired by Amitabh Khan right so the
statement is wrong Prime Minister is the
ex officio chairperson of neeti IO well
this of course is true we just saw it in
the last night it is it's
conditions are binding on the government
these are not it is purely a recommend
entry body the government can reject its
recommendations and it will formulate
the 5-year plans for India so this is
also not true because that was the job
of the Planning Commission so that
brings us to the end of this particular
video lecture thank you very much