13 Recent Trends in Economic Planning

Monica Bansal

1. Learning Outcome:

After completing this module the students will be able to:

Understand the concepts of economic planning in India.

Understand the Salient Features of India’s Five Year Plans.

Understand the Trends in Indian Economic Planning. Learn the review of five year plans from its initiation. Understand the new concept of NITI Aayog

2. Introduction

Economic planning is taken as the most systematic and structured tool for redressing all economic ills and evils. Different countries in the world have already used or experienced the successful implementation of economic planning in the mean while. Eulogizing this experience of economic planning in various countries of the world, India has adopted the process of economic planning in order to remove different economic ills that are faced by the nation during the middle-part of the twentieth century.

In India the first structured and systematic attempt of economic planning was made in 1934 when M.Visvesyaryya published his book named Planned Economy for India. Again in 1937 Indian National Congress established the National Planning Committee with Pt. Jawaharlal Nehru as Chairman or the Director. Mean while eight leading industrialists of Bombay submitted the ‘Bombay Plan’ in 1943. Moreover, Shri M N Roy also released simultaneously his ’10 year people’s plan’. Various reports and books had been published. After that the National Planning Committee submitted its long awaited report in 1948.

A Department of Planning and Development in 1944 was established by the Government of India and it introduced short-term and long-term plans for restoration of normalcy after war and for economic growth, reconstruction and development. But in India the real beginning of Planning was made on March 1950 when the Indian Planning Commission was set up. In July, 1951 the Commission submitted its draft outline or the synopsis of the First Five Yeas Plan to be effective from 1951-52 to 1955-56. At the time we have completed almost twelve Five Year Plans.

3. Salient Features of India’s Five Year Plans

In India, the Five Year Plan is a deep rooted system. Although systematic effort of planning was initiated in 1951 but in the mean time, the Eleventh Five Year Plan has already been completed. It would now be better to study the salient features of India’s Five Year Plan. Following are some of these salient features which we are discussing here:

Ø Democratic: The foremost and first characteristic of Indian planning is that it is purely democratic in nature. India is considered to be the largest democratic country in the world and has been planning to maintain such a type of planning set up where every basic issue related to its Five Year Plan is determined and constituted by a Government which is democratically elected by the people of India. Further, when a Five Year Plan is determined, different options of various tiers of Government planning, business enterprises, different institutions, various experts etc. are being given greater significance.

Ø Decentralized Planning: From the initiation of the First Plan, the importance of decentralized planning system was focused so as to attain participation of working or active in the planning process, but the real start up of decentralized planning was made in India for the very first time in the period of the Seventh Plan. Therefore, decentralized planning is a type of planning at the grass root level or planning from bottom level. Under the system of decentralized planning in India, focus has been made on the introduction of district level planning, sub-divisional level planning and block-level planning so as to reach finally the village level planning successfully and in a proper manner.

Ø 3. Regulatory Mechanism: One more significant feature of Indian planning is that it is being directed by a central planning authority, i.e., the Planning Commission of India, which has been replaced by NITI aayog now, which plays the role of regulatory mechanism, so as to give supportive direction and regulation over the planning system. Therefore under the current regulatory mechanism, every planning decision in India originates from the Planning Commission and being finally approved by the National Development Council. Moreover, the Planning Commission of India is also having adequate regulatory mechanism over the successful implementation of planning system.

Ø 4. Existence of Central Plan and State Plan: There is the co-existence of both the Central Plan and State Plans in the country. In every Five Year Plan of the nation, separate outlay plan is earmarked both for the Central Level Plan as well as for the State Level Plans. Central Plan is under the exclusive control of the Planning Commission and the Central Government, whereas the State Plan is under the exclusive control of State Planning Board and State Government which also requires usual approval from the Planning Commission. The state governments are free to make their own plans.

Ø 5. Public Sector and Private Sector Plan: In each plan, a separate outlay is earmarked both for public sector undertakings and the private sector units. In each five year plan of the nation, the amount of public sector investment and the amount of private sector investment is separately fixed, which comprises the total investment in each plan. India, being a mixed economy, it is quite natural that a separate investment outlay for public as well as the private sector is being maintained in each plan and these institutions are free to invest in their own way.

Ø 6. Periodic Plan: India has adopted or planning to implement a periodic plan of 5-year period having five depurate Annual Plan components included in that. This type of periodic plan approach is quite suitable for realizing its pre-defined targets or goals.

Ø 7. Basic Objectives: Each and every plan is influenced by certain basic or fundamental goals which are almost common in most of our five year plans. Basic goals considered to be included in economic planning in India are:

(a) Achieving of higher rate of economic growth in the nation.

(b) Decrease in the economic inequalities specially in the backward areas.

(d) Achieving the concept of economic self reliance.

(e) Making modernization of various sectors of the economy.

(f) Removing the regional and economic imbalances in the economy.

Broadly, Growth with social justice is the basic aim of economic planning.

Ø 8. Unchanging Priorities: In the five year plans in India that was determining its priorities considering the requirements of the nation. We see that Indian Five Year Plans have been giving too many preferences on the development and growth of industry, power and agriculture with minor modifications or changes. Therefore there have been no noticeable amendments in the preference pattern of Indian planning, although in the last few years enhancing preferences are also being laid on poverty eradication programmes and on employment generating schemes.

Ø 9. Balanced Regional Development: Five year plans stressed on balanced regional development. Growth and development of rural and backward regions is one of the significant aims of Indian planning. Planning system in India has even isolated some states under the category of special states so as to channelize additional resources to these rural and backward states for their rapid growth and development. Special provisions in the budget has been made to give the relief in the form of tax holiday or tax relief for setting up industries into back-ward regions of the nation.

Ø 10. Perspective Planning on Basic Issues or Problems: Planning in India has adopted the system of perspective planning on some basic issues or problems of the nation, for a period of 15 to 20 years on the basis of mandatory forecasting provisions.

Ø 11. Programme Implementation and Evaluation: The system of Indian planning is basically supported by programme implementation machinery that plays a very significant role. Programme implementation machinery comprises different departments of the Government which are usually involved for the implementation of the plans. There is an evaluation and adjudication machinery which usually conducts pre-project evaluation and post-project evaluation of every planning project of the economy.

Ø 12. Shortfalls in Target Realization: There was a shortfall in target/aim realization in the five year plans. No doubt the targets are fixed for every plan in respect of rate of growth of national income, increase in employment opportunities, decreasing the rate of population growth, increasing the production of some necessity based items etc. But in maximum cases these targets/aims are not fulfilled to the greatest extent, excluding certain specific cases. Such shortfalls in target realization lead to the problems of spill over of projects into next five year plans and cost over-runs. Therefore we realize that salient features of India’s Five Year Plans, although numerous but some of these are quite common to that of other nations in the world while some are very much uncommon.

4. Trends in Indian Economic Planning

We are discussing the trends in the five year plans of India as under:

Ø First Plan (1951 – 56): This plan focused on basic agriculture activities, price stability promotion, power and transport facilities and moreover it was a successful plan mainly because of the increased harvests in the last two years of the plan i.e. 1954-55 and 1955-56. During this plan a Community Development Programme was launched in 1952 and this plan was based on Harrod-Domar Model.

Ø Second Plan (1956 – 61): During this plan the main focus was on rapid industrialization and has advocated huge imports through foreign loans. There was a main shift from agriculture to industrialization in India with the target growth of 4.5 per cent and the actual growth rate during that period was 4.27 per cent which was very significant. This plan was also called Mahalanobis Plan that was named after the well known economist. During this plan, prices increased by 30 per cent, against a decline of 13 per cent in the mean time of this plan report.

Ø Third Plan (1961 – 66): During the initial stage it has been realized that Indian economy has entered a take-off stage. Thus, its aim was to make India a ‘self-reliant’ and ‘self-generating’ economy. It was based on the experience of first two plans, agriculture was given top priority to support the exports and industry. There was a Complete failure in reaching the targets due to unforeseen events – Chinese aggression (1962), Indo-Pak war (1965), severe drought 1965-66. The target for growth was 5.6 per cent but it had achieved only 2.84 per cent.

Ø Three Annual Plans (1966-69): In the mean time of these plans a whole new agricultural strategy was formulated and implemented. This policy consists of greater-spread distribution and arrangement of high-yielding varieties of seeds, increase in the use of fertilizers, more and more exploitation of irrigation potential and also soil conservation. Prevailing crisis in agriculture and serious food shortage necessitated the emphasis on agriculture in the period of the Annual Plans. In the mean time of these Plans, the economy absorbed the shocks generated during the Third Plan. It has planned the path for the planned growth and development in the coming times.

Ø Fourth Plan (1969 – 74): The plan has focused on growth rate of agriculture sector to enable other sectors to move forward at a faster rate. First two years of the plan saw record production in every field. The last three years did not measure because of the poor monsoon. Influx of Bangladeshi refugees before and after 1971 Indo-Pak war was also a significant reason. The growth target was 5.7 per cent but achieved only 3.30 per cent.

Ø Fifth Plan (1974-79): The responsibility to formulate and launch the fifth plan was of D.D. Dhar. The plan had proposed to attain two main goals i.e. the removal of poverty named asGaribi Hatao and the second one is the attainment of self reliance concept. Enhancing the high rate of growth, much better distribution of income and magnificant growth in the domestic rate of savings were seen as key instruments. The plan was abolished in 1978 instead of 1979 when Janta Party Govt came into the power. The growth target was 4.4 per cent but achieved only 3.8 per cent.

Ø Rolling Plan (1978 – 80): Two Sixth Plans were formulated. Janta Government prepared a plan for the period of 1978-1983. However, the Janta government stayed/ruled for only two years. The Congress Government came in to power in 1980 and launched a different plan in the country.

Ø Sixth Plan (1980 – 85): In the sixth plan main emphasis was given on an increase in national income of the country, modernization of technology in every field, stressing on continuous decrease in poverty and unemployment, more and more population control through family planning, etc. The growth target was 5.2 per cent during this plan and there was an enhancement in it to 5.66 per cent.

Ø Seventh Plan (1985 – 90): During this plan the main stress was on noticeable growth in food-grains production, increased employment opportunities and productivity within the framework of basic tenants of planning. The growth target was 5.0 per cent during this plan and there was an enhancement in it to 6.01 per cent. That is why the plan was very successful.

Ø Eighth Plan (1992 – 97): The eighth plan was postponed by two years because of political uncertainty at the Centre. The plan undertook drastic policy measures to combat the bad economic situation and to undertake an annual average growth of 5.6 per cent. Due to adverse Balance of Payment position and inflation during the period of 1990-91 were the significant concerns during the implementation of the plans. The important economic outcomes during eighth plan period were huge economic growth, increase in the growth rate of agriculture and allied sector e.g. sugar industry, and manufacturing and production industrial sector, enhancing the rate of exports and imports, improvement in trade and current account deficit etc.

Ø Ninth Plan (1997- 2002): This plan was developed in the direction of four significant dimensions i.e. the quality of life and standard of living, generation of productive employment opportunities, regional balanced development and self-reliance growth. The growth target was 6.5 per cent but achieved only 5.35 per cent.

Ø Tenth Plan (2002 – 2007): The objectives of this plan were to achieve 8 per cent Gross Domestic Product rate for growth , decrease in the reduction of poverty ratio by 5 percent by 2007. Providing gainful high quality employment to the addition to the labour force over the tenth plan period, Universal access to primary education by 2007, Reducing the gaps in gender literacy and wage rates by atleast 50 per cent up to the time of 2007, Reduction in decadal rate of population growth between 2001 and 2011 to 16.2 per cent, Increase in literacy rate to 72 per cent within the plan period and to 80 per cent by 2012, Reduction of Infant Mortality Rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012, Increase in forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012, All villages to have sustained access to potable drinking water by 2012, Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012

Ø Eleventh Plan (2007 – 2012): The goals of this plan were to Accelerate GDP growth from 8 per cent to 10 per cent. Increase agricultural GDP growth rate to 4 per cent per year, to Create 70 million new work opportunities and reduce educated unemployment to below 5 per cent, to Raise real wage rate of unskilled workers by 20 percent, to Reduce dropout rates of children from elementary school from 52.2 per cent in 2003-04 to 20 per cent by 2011-12, to Increase literacy rate for persons of age 7 years or above to 85 per cent, to reduce dropout rates of children from elementary school from 52.2 per cent in 2003-04 to 20 per cent by 2011-12. Increase literacy rate for persons of age 7 years or above to 85 per cent, to Lower gender gap in literacy to 10 percentage point. Increase the percentage of each cohort going to higher education from the present 10 per cent to 15 per cent, Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births, to Reduce Total Fertility Rate to 2.1, to Provide clean drinking water for all by 2009. Reduce malnutrition among children between 0-3 years to half its present level and to reduce anemia among women and girls by 50 per cent, to Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17, to Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children, to 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, to Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012, to Increase forest and tree cover by 5 percentage points, to Attain WHO standards of air quality in all major cities by 2011-12, to Treat all urban waste water by 2011-12 to clean river waters and to Increase energy efficiency by 20 percentage points by 2016-17.

5. The National Institution for Transforming India Aayog : NITI Aayog

NITI Aayog is an Indian Government re think-tank constituted by Prime Minister Narendra Modi to order to replace the Planning Commission. Main objective behind the establishment for NITI Aayog’s creation is to increase the participation and involvement of the state governments in the economic policy-making process. It has adopted a flow of information approach i.e. “bottom-up” approach in planning which is totally opposite to the Planning Commission’s traditional approach of “top-down” decision-making. Significant mandates of NITI Aayog are to bring cooperative competitive federalism. It is depicted well when Indian Prime Minister appointed three sub-groups of chief ministers for making suggestions in three key areas (centrally sponsored schemes, skill development and Swachh Bharat ). NITI Aayog will give opportunities, which the old Planning Commission structure lacked, to represent the economic interests of the State Governments and Union Territories (UTs) of India. The Prime Minister will serve as Chairperson for NITI Aayog.

The Union Government of India announced formation of NITI Aayog on 1 January 2015, and the first meeting of NITI Aayog was held on 8 February 2015. NITI Aayog consists a group of people with authority entrusted by the government to formulate/regulate policies in social and economic issues with experts in it.

6. Major Highlights of NITI Aayog

Ø NITI will consist leaders from all the 29 states of India and seven union territories. Prime Minister of the country will act as a chairman and all the full time staff members a deputy chairman, Chief Executive Officer and experts of the states will be answerable directly to the Prime Minister of India, who will be chairman.

Ø The new National Institution for Transforming India (NITI) will work more just like a think tank or forum and implement and execute programs by taking the advice from the States along with them. This is in sharp contrast with the defunct Planning Commission which imposed five-year-plans and allocated resources while running roughshod over the requests of the various States.

Ø The NITI Aayog will also put an end to slow and tardy execution or implementation of policy, by fostering better Inter-Ministry coordination and better Centre-State coordination. It will help evolve a shared vision of national development priorities, and foster cooperative federalism, recognizing that strong states make a strong Nation.

Ø The opposition Congress IS mocked the launch as a cosmetic relabelling exercise – the new body’s acronym-based name means ‘Policy Commission’ in Hindi, suggesting a less bold departure than the English version does. Several believe that is consistent with the negativism that has become the hallmark of the Congress.

Ø The commission had remained powerful over the decades because it had emerged as a sort of parallel cabinet with the Prime Minister as its head.

Ø Despite being blamed by critics for the slow growth that long plagued India, the Commission survived the market reforms of the early 1990s, riling Mr Modi with its interventions when he was Chief minister of industry and investor friendly Gujarat.

Ø Mr Modi, elected by a landslide last year on a promise to revive flagging growth and create jobs, had vowed to do away with the Planning Commission that was set up in 1950 by Congressman and Prime Minister Jawaharlal Nehru.

Ø In 2012, the Planning Commission was pilloried for spending some Rs. 35 lakh to renovate two office toilets, and then it was lampooned for suggesting that citizens who spent Rs. 27 or more a day were not poor.

Ø The Commission’s power in allocating central funds to states and sanctioning capital spending of the central government was deeply resented by states and various government departments.

Summary

Niti Aayog has totally replaced the Planning Commission of India which was implemented from the last 60 years. In this module we have discussed the economic planning and the various characteristics of five year plans in the first section. Then the trends in the Indian economic planning are discussed in detail. In the last section new economic policy of Indian government is explained. Indian government has introduced the concept of NITI Aayog which was a new concept of participative decision making.

Learn More

Few important sources to learn more about the Recent Trends in Economic Planning are:

Shaikh Saleem (2009). Business Environment. New Delhi-110017: Pearson Education.
Bagchi Amaresh (2011). Readings in Public Finance. New Delhi-110020. Oxford University Press.
Jha Praveen (2011). Progressive Fiscal Policy in India. New Delhi-110044. SAGE Publications India India Pvt. Ltd.
Kapila Uma (2007). India’s Economic Development Since 1947. New Delhi-110002. Academic Foundations.
Datt & Sundharam (2011). Indian Economy. New Delhi-110055. S. Chand & Company Ltd.
Agrawal A.N. (2007). Indian Economy-Problems of Development and Planning. New Delhi-110002. New Age International (P) Limited.
Paul Justin (2009). Business Environment-Text and Cases. New Delhi-110008. Tata McGraw Hill Education Private Limited.
Agrawal Raj (2006). Business Environment. New Delhi-110028. Excel Books.
cpe.oxfordjournals.org/content/3/1/1.full.pdf
www.ideasforindia.in/article.aspx?article_id=340
https://en.wikipedia.org/wiki/Economy_of_India

Points to Ponder

The Government of India also set up a Department of Planning and Development in 1944 and it introduced short-term and long-term plans for restoration of normalcy after war and for economic reconstruction and development.

The foremost and first characteristic of Indian planning is that it is total democratic in nature.

The Union Government of India announced formation of NITI Aayog on 1 January 2015, and the first meeting of NITI Aayog was held on 8 February 2015.

NITI will consists leaders from all the 29 states of India and seven union territories.