Chapter 2 - Economic Planning in India
What we will learn ?
- Definition of Economic Planning
- History of Economic Planning
- Objectives of Economic Planning
- Types of Planning
- Achievements of Planning
- Financial resources for 5-year plans
- Definition of Economic Planning
- Economist H. D. Dickinson defines economic planning as “the making of major economic decisions–what and how much is to be produced and to whom it is to be allocated by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economic system as a whole.”
- The National Planning Committee, set up in 1938 by the Indian National Congress defined planning in India as “Planning, under a democratic system, may be defined as the technical coordination, by disinterested experts of consumption, production, investment, trade, and income distribution, in accordance with social objectives set by bodies representative of the nation. Such planning is not only to be considered from the point of view of economics, and raising of the standard of living, but must include cultural and spiritual values, and the human side of life.”
- History of Economic Planning
- By early 1950s, India had begun economic planning. In post-independence India, socioeconomic planning has been directed by five-year plans, with a mid-term review.
- In 2015, the Government of India (GOI) established the NITI (National Institution for Transforming India) Aayog, to substitute the Planning Commission
The Five-Year Plans are the most significant components of central planning, and they are constantly executed to obtain the intended results. The accomplishments of the five-year programmes are listed below.
Five-Year | Plan Objectives | Assessment |
First Plan 1951-1956 | Rehabilitation of refugees, quick agricultural growth to attain food self-sufficiency, inflation management, and prioritisation of irrigation and power projects. | • The plan aimed for a 2.1 per cent growth rate and attained a 3.6 per cent growth rate. • The government was given an active role in all economic area. • Five Indian Institutes of Technology (IITs) were established, as premier technological institutes. |
Second Plan 1956-1961 | • The policy emphasised fast industrialisation, with a concentration on heavy industries and capital goods. | • The target growth rate was 4.5 per cent, whereas the actual rate was 4.27 per cent. • It could not be fully executed due to inadequate availability of foreign exchange. • Hydroelectric power plants and five steel plants were built in Bhilai, Durgapur, and Rourkela. |
Third Plan 1961–1965 | • The plan’s key goals were boosting national income, by more than 5 per cent per annum. • Increasing agricultural productivity and achieving self-sufficiency in food grains. • Expansion of basic industries. | • The third five-year plan’s projected growth rate was 5.6 per cent, while the actual growth rate was 2.4 per cent, owing to the wars and the drought conditions.
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Plan Holidays – Annual Plans 1966-1969 | • The larger objectives of these Annual Plans were integrated into the Fourth Plan. • A new agricultural strategy was implemented, including the distribution of high-yielding seed varieties, extensive fertiliser usage, irrigation potential exploitation, and soil conservation measures. | • An annual plan, also known as a plan holiday, is a time in which the government abandons normal five-year planning in favour of yearly plans. • The government may choose for annual plans because it does not have enough resources to allocate according to the five-year plan. |
Fourth Plan 1969-1974 | • The Plan was based on the Gadgil strategy, with a special emphasis on the ideas of growth with stability and progress toward self-reliance. • Growth with stability and progressive achievement of self-reliance were major objectives of the fourth five year plan. | • Droughts and the Indo-Pak War of 1971–72 compelled the economy to diversify capital, causing a financial crunch for the Plan. • The fourth five-year plan’s target growth rate was 5.6 per cent, while the actual growth rate was 3.3 per cent. |
Fifth Plan 1974-1979 | • The plan’s emphasis has been on poverty reduction and self-reliance. • The plan emphasised agriculture. | • The Indira Gandhi administration nationalised 14 major Indian banks, and the Green Revolution in India boosted agriculture. • The targeted growth rate was 5.2 per cent, while the actual growth rate was 5.5 per cent. |
Sixth Plan 1980-1985 | • The strategy was established under the phrase ‘Garibi Hatao’, and family planning was broadened to combat population growth. | • The plan began with a ‘target group’ strategy, as well as the implementation of many national level programmes and schemes addressing specific problems and areas of development. Most objectives were met with 5.5 per cent growth. |
Seventh Plan 1985-1990 | • The plan’s major objective was to improve growth in areas such as boosting economic productivity, increasing food grains, and creating jobs through social justice. | • The Jawahar Rojgar Yojana (JRY) was begun in 1989 with the goal of creating wage employment for rural impoverished people. • The target growth rate was 5 per cent, while the actual growth rate was 6 per cent.
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Annual Plans 1989-1991 | • The Eighth Plan could not take off due to the ‘fast-changing political environment at the Centre. • The primary focus was on increasing employment and social reform. | • It marked the start of privatisation and liberalisation in India. |
Eighth Plan 1992-1997
| • Rapid economic growth, rapid expansion in agricultural and associated industries, rapid growth in the manufacturing sector, increased exports and imports, reduction in trade and current account deficits were the objectives of the plan. | • It introduced the indicative planning concept in India. • To bring about economic reform, LPG policies (Liberalisation, Privatisation, and Globalisation) were implemented. • The target growth rate was 5.6 per cent, while the actual growth rate was 6.7 per cent. |
Ninth Plan 1997-2002 | • The ninth five-year plan’s primary objective was “growth with justice and equity.” • There was an emphasis on the seven identified Basic Minimum Services (BMS), with additional Central Assistance for these services with the vision of attaining complete coverage of the population in a timebound manner. | • The issue of fiscal consolidation became a top priority of the governments for the first time. • Was introduced during an overall ‘slowdown’ in the economy caused by the Southeast Asian Financial Crisis (1996–97). • The ninth plan’s target growth rate was 7.1 per cent, whereas the actual growth rate was 6.8 per cent. |
Tenth Plan 2002 –2007 | • The top priorities were to achieve strong growth rates, reduce poverty rates by 5 per cent (by 2007), provide gainful and high-quality employment, and eliminate gender inequalities in literacy and wage rates by at least 50 per cent by 2007. | • The actual growth rate was 7.7 per cent, compared to the target of 8.1 per cent. |
Eleventh Plan 2007-2012 | • The primary objectives were to achieve quicker and more inclusive growth. | • The Planning Commission expressed worry about meeting growth expectations as a result of the Fiscal Responsibility and Budget Management Act. • It achieved 7.5 per cent GDP growth, which was less than the target of 9 percent. |
Twelfth Plan 2012-2017 | • “Faster, more inclusive, and sustainable growth” was the underlying theme. • Increasing agricultural production by 4 per cent, manufacturing sector growth by 10 per cent, and increasing over 88,000 MW of electricity generation capacity. | • This plan’s target was 8 per cent, while the actual achievement was 6.7 per cent.
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- Objectives of Economic Planning
- Economic Growth: It aims for a sustainable growth in the economy’s output levels. Sustained growth in economic output, is one of the primary goals of planning in India.
- Poverty Alleviation: One of the goals of Indian planning is to alleviate poverty. Several programmes aimed at alleviating poverty have been introduced in India, by all governments, till date.
- Employment Generation: One of the most fundamental goals of planning has been to reduce unemployment. Employment generation in India has therefore been an integral aspect of poverty alleviation programmed in India.
- Social justice and reducing the inequalities: Economic disparities have far-reaching negative consequences in any society, and there were visible economic inequalities in India at both the interpersonal and intra-personal levels. By the time India started planning, economic planning was widely acknowledged, as a technique for addressing all types of economic inequities and injustices.
- Self-reliant economy: Self-reliance was characterised as an endeavour, to combat a subservient position in the global economy, not as autarchy.
- Modernisation of the economy: India’s plans prioritised the industrialisation of the conventional sector. It began with agriculture, a traditional sector that necessitated the quick integration of modern farming, dairying, and other practices. Modernisation also refers to changes in social outlook such as the recognition that women should have the same rights as men.
- Types of Planning
Planning is a vital component of every economy and is carried out at many levels. Depending on the goal, planning may be categorised into several types.
- From a territorial standpoint, planning may be regional or national.
- From a political standpoint, planning might be federal, state, or local.
- From the standpoint of participation, It might be classified as centralised or decentralised planning
- From a temporal standpoint, planning might be long-term or short-term.
Similarly, planning may be sectoral as well as geographical. While sectoral planning focuses on a single sector of the economy, spatial planning focuses on development in the geographical context (which aims at influencing the distribution of people and activities in places).
Some of the key forms of planning that are a part of the Indian planning process are as follows:
- Regional Planning: The United States was the first country to begin regional planning in 1916, and it was a huge success in achieving its well-defined goals. Planning is implemented at the regional level and is targeted to a wide geographical area (i.e., a region consisting of rural and/or urban communities), guaranteeing optimal space utilisation and human activity distribution.
- National Planning: It all started with the Soviet Union, which implemented its first five-year plan from 1928 to 1933, giving the world its first taste of national planning. It was certain from the start that India needs national planning. The government sought national strategy in order to take an active
- Achievements of Planning
- To recap, the fundamental goal of India’s five-year plans was to raise national income as well as per capita income. However, both national and per capita income growth were quite modest during the planning era.
- Seven of the twelve five-year plans experienced lower growth rates than expected.
- Growth rates were modest during the first three decades of planning, but then picked up. Massive fluctuations were another aspect of growth story. Negative per capita income growth has recorded in times such as 1971–72 and 1991–92.
- Agriculture growth has indeed been highly volatile, due to the change in environmental factors. The green revolution of the 1960s and the government’s efforts to promote agriculture via different programmes have worked splendidly for the country.
- Today, India, has not only attained self-sufficiency in food grains production, but also a leading exporter of many agricultural products.
- With the expansion of the iron and steel, machine tool, and heavy engineering industries, India has made major strides toward capital equipment self-sufficiency. Engineering items account up a significant portion of India’s exports, contributing for around 86 per cent of overall merchandise exports.
- Financial resources for 5-year plans
India, there are three key sources of funds available for funding Economic Plans:
I. Domestic Budgetary Sources
II. Deficit Financing and
III. Foreign Assistance
I. Domestic Budgetary Sources
Domestic budgetary resources contributed the most to plan financing among the three primary sources.
- Taxation is among the most significant domestic budgetary resources for channelizing funds for planning.
- Aside from revenue, additional domestic fiscal resources such as public borrowing, small savings, and public enterprise surplus also contribute significantly to supporting our programmes. This is the amount allocated from the federal and state budgets to fund the programmes involving investments during the plan period.
- It is the central share in the five-year plan, as well as assistance provided to states for their five-year plans and additional funding for the national government.
II. Deficit Financing
- Deficit Financing can happen when the total income of the government (revenue account + capital account) falls below its total expenditure.
- The government resorts to withdrawing money from its cash deposited in the RBI or orders the RBI to print new currency notes or borrows money from the public in the form of bonds and other securities.
- The deficit is financed by borrowing loans from the central bank, commercial banks, and even state governments through Ad-hoc Treasury Bills.
- The deficit financing is the second most important source of plan financing. Since revenue and borrowing have limits, deficit financing has been viewed as an important source of funding, for planning in our country.
- In deficit financing surplus money of the taxpayer is lent to the government and hence it does not bother the taxpayer.
- The different types of deficit financing are: o Borrowing from Public and Foreign Governments. O Withdrawing Cash Balances held with the Reserve Bank of India o Borrowing from the Reserve Bank of India (RBI)
III. Foreign Assistance
- External or foreign assistance contributes greatly to India’s financing strategies. The five sectors receiving highest Foreign Direct Investment (FDI) equity inflow during FY 2021-22 are computer software and hardware, services sector (finance and banking, insurance, non- finance/business, etc.), automobile industry, trading, and construction activities.
- India has been accessing funds from the World Bank mainly through IBRD and IDA for various development projects.
- IBRD loans though non-concessional are offered relatively on favorable terms compared to commercial sources. IBRD Sovereign loans are primarily utilized for infrastructure, poverty alleviation, rural development and human resource development projects. IBRD aims to reduce poverty by promoting sustainable development, through loans, guarantees and non-lending services.
- As India is developing and modernizing, the Indian government is also lending a helping hand to poorer nations across the world, both towards ending poverty and improving living standards. India has emerged as a benevolent donor for her immediate neighbours with total foreign assistance, including technical and economic cooperation, and loans to foreign governments, increasing dramatically over the past years.
The National Institution for Transforming India (NITI Aayog)
- The National Institution for Transforming India, known as NITI Aayog, was established on January 1, 2015, by a resolution of the Union Cabinet.
- NITI Aayog is the Government of India’s top policy “Think Tank,” offering both directional and policy suggestions.
- NITI Aayog gives relevant technical assistance to the Centre and States in designing strategic and long-term policies and programmes for the Government of India.