Economic Planning in India

Economic planning involves the development of policy measures designed to manage and optimize a country’s resources to achieve pre-determined objectives. The Planning Commission, now replaced by the NITI Aayog, defined economic planning as the strategic use of a country’s resources for development activities, prioritizing national objectives. This process is conducted in a conscious and prudent manner to maximize the use of existing resources for achieving specific goals.

Learning Outcomes:

1. Comprehend the meaning and objectives of economic planning in India.
2. Understand the historical background and strategies of various Five-Year Plans.
3. Identify the differences between NITI Aayog and the Planning Commission.
4. Recognize the types and classifications of economic planning.

Objectives of Economic Planning in India

India’s Five-Year Plans were established with broad objectives designed to shape the country’s development. The main goals include:

1. High Growth Rate: Aimed at improving the standard of living through economic expansion.
2. Modernization of Economy: Involves adopting new technologies and evolving social perspectives.
3. Economic Self-Reliance: Reducing dependence on imports by producing goods domestically.
4. Equitable Distribution of Wealth: Promoting social justice through balanced wealth distribution.
5. Economic Stability: Managing inflation and unemployment to maintain a stable economy.

Strategies of Economic Planning

The strategies adopted in India’s Five-Year Plans have evolved over time:

1. Harrod-Domar Strategy: The first Five-Year Plan (1951-56) focused on capital accumulation, emphasizing its dual role in boosting national income and increasing production capacity. It suggested that the economic growth rate depends on the level of savings and the capital-output ratio.
2. Nehru-Mahalanobis Strategy: This strategy, adopted in the second Five-Year Plan (1956-61), emphasized investment in heavy industries for rapid economic development and aimed at making India self-reliant. It followed the Russian model and prioritized capital goods over consumer goods.
3. Gandhian Strategy: Introduced by Acharya Shriman Narayan Agarwal in 1944, this model aimed to enhance both the material and cultural standards of the masses, focusing on agriculture and the growth of cottage and village industries.
4. LPG Strategy: Implemented under the 1991 economic reforms, this strategy emphasized Liberalization, Privatization, and Globalization. Introduced by Dr. Manmohan Singh, it aimed to end the ‘license-permit-raj’ and open sectors previously reserved for the public sector to private investment, including foreign direct investment (FDI).

History of Economic Planning in India

1. 1934: M. Visvesvaraya’s Planned Economy for India laid the foundation for economic planning.
2. 1938: The National Planning Committee was established under Jawaharlal Nehru by the Indian National Congress. Its recommendations were shelved due to World War II.
3. 1944: The Bombay Plan, proposed by leading industrialists including JRD Tata and GD Birla, emphasized textiles, consumer industries, and state intervention.
4. 1945: MN Roy proposed the People’s Plan.
5. 1950: The Sarvodaya Plan, formulated by Jai Prakash Narayan, introduced ideas that were partially accepted by the government.

Important Note: The first official economic planning attempt in India was marked by the establishment of the Planning Commission in 1950 under Jawaharlal Nehru.

Types of Economic Planning

1. On the Basis of Government’s Role:

• Imperative Planning: Centralized planning, where a single authority decides all aspects, usually practiced in socialist economies.
• Planning by Inducement: Relies on market incentives, where the state regulates the private sector to meet set targets.

2. Based on People’s Participation:

• Centralized Planning: Decisions are made by a central authority, formulating objectives, targets, and priorities.
• Decentralized Planning: Associated with capitalist economies, this empowers people as planning flows from bottom to top.

3. Based on Time-Period:

• Short-Term Plan: Known as a controlling plan, it typically lasts one year, aiming at revenue generation and economic stability.
• Medium-Term Plan: Spanning 3 to 7 years, its goals include increasing per capita income, employment, and self-sufficiency.
• Long-Term Plan: Also known as a Perspective Plan, lasting 10 to 30 years, it focuses on structural changes in the economy.

4. Based on Resource Allocation:

• Physical Planning: Involves the allocation of physical resources to balance investment and output.
• Financial Planning: Aims to establish equilibrium between demand and supply, reflecting the economy’s size in monetary terms.

5. On the Basis of Flexibility/Rigidity:

• Rolling Plan: Introduced by Gunnar Myrdal, it involves annual revisions to maintain a certain number of years in planning.
• Fixed Plan: Outlines fixed objectives within a fixed period.

National Institution for Transforming India (NITI) Aayog

NITI Aayog replaced the Planning Commission to provide strategic and technical advice to both the Central and State Governments. Headed by the Prime Minister, it comprises:

1. Governing Council: Includes Chief Ministers of states and Union Territories.
2. Regional Councils: Formed to address region-specific issues, including local Chief Ministers and Lieutenant Governors.
3. Full-Time Members: Composed of 7-8 members, with specialists from research organizations and academia.
4. Ex-Officio Members: Four Union Ministers appointed by the Prime Minister.

Important Note: The Planning Commission, set up in 1950, was a non-political, advisory body tasked with formulating development plans.

Comparison: NITI Aayog vs. Planning Commission

15-Year Vision Document

The Modi government discontinued the Five-Year Plans and replaced them with a 15-Year Vision Document starting from 2017-18. It focuses on poverty eradication and includes a 7-year National Development Agenda for achieving long-term goals. This document operates within a rolling three-year framework for regular review.

National Development Council (NDC)

The NDC, established in 1952, is an advisory body concerned primarily with the approval of Five-Year Plans. It is headed by the Prime Minister and includes Union Ministers, State Chief Ministers, Lt. Governors, and Planning Commission members.

Functions of NDC:

1. Reviewing the implementation of plans periodically and recommending corrective measures.
2. Ensuring national policies’ alignment with development.
3. Suggesting programs for the upliftment of underdeveloped regions.
4. Assessing resources and means for achieving national targets.
5. Setting guidelines for formulating national plans.

Implementation of Five-Year Plans

Formulation: The Five-Year Plan process starts with an Approach Paper, outlining the strategies, objectives, and macroeconomic dimensions. This paper is developed by NITI Aayog and presented to the NDC for approval.

Execution: The plans are executed through Annual Plans, detailing allocations between the Center and States and defining sector-specific activities. Public sector projects and budgetary expenditures are sanctioned annually by Parliament.

Overview of Select Five-Year Plans

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Important Concept: The Hindu Growth Rate refers to the sluggish economic growth (around 3%) India experienced until the 1970s, attributed by some to a fatalistic outlook. This theory was disproved with the onset of higher growth rates in the 1990s.

Economic Reforms

1. First Generation Reforms (Post-1991): Introduced to enhance economic growth, focusing on macro variables like exchange rate liberalization, FDI, and disinvestment. These reforms were easier to implement as they did not involve legislative changes.

2. Second Generation Reforms (Late 1990s): Introduced by Yashwant Sinha, these reforms targeted labor laws, pension reforms, VAT, GST, and FDI liberalization. These changes directly impacted daily life and aimed to deepen the initial reform process.

India Vision 2020

India’s Vision 2020, outlined in 2003, projected future economic progress. Key targets included:

1. Achieving a 9% annual growth rate.
2. Eliminating unemployment, illiteracy, and poverty.
3. Doubling per capita income by 2020.
4. Full registration of children in schools (age 6-14).
5. Creating 200 million new jobs, reducing agricultural employment share to 40%.

Important Note: The Vision 2020 document predicted that the environment situation would remain unbalanced by 2020.

Multiple Choice Question:
What was the primary focus of the Nehru-Mahalanobis strategy in India’s economic planning?

1. Development of agriculture.
2. Investment in heavy industry.
3. Promotion of cottage industries.
4. Globalization and privatization.
   Correct Answer: 2. Investment in heavy industry.