ECONOMIC PLANNING IN INDIA | JAIIB IE&IFS IMPORTANT TOPIC | MODULE A
To understand the Indian economy & Indian financial system, it’s important to have absolute knowledge of economic planning in India.
This article will take you through the definition, History, objectives, types, and achievements of economic planning and assessment the of Five-year plans performance.
Definition of economic planning
The national planning committee established by INC (Indian national congress) described planning as “Planning, under a democratic system, may be defined as the technical coordination, by disinterested experts of consumption, production, investment, trade, and income distribution, by social objectives set by bodies representative of the nation. Such planning must take into account cultural and spiritual values, as well as the human side of life, in addition to economic considerations and enhancing the standard of living.
Types of planning
Planning is a vital component of every economy at many levels. Depending on purpose it may be categorised into the following types:
Following are some forms of the Indian planning process
The first country to utilise this kind of planning was the United States in 1916. It was successfully used in fulfilling the goals set to achieve.
This kind of planning is implemented at the regional level to target a wide geographical area (i.e., a region consisting of rural and/or urban communities), guaranteeing optimal space utilisation and human activity distribution.
This kind of planning was implemented in the Soviet Union, in the year 1928-1933.
In 1944, a group of industrialists collaborated to create a blueprint for India’s planned economy. The Bombay Plan is the illustrious name for it.
Due to extreme poverty, the government required a national strategy to actively participate in resource mobilisation and allocation for fair growth and development.
On the other hand, decentralised planning is economic planning in which Sub-national entities like state governments and local governments participate. In other words, decentralised planning guarantees that people are involved in local development.
Objectives of economic planning in India
It’s not possible to list all primary goals here. Here are some of these.
Social justice and reducing the inequalities
Modernisation of economy
History of economic planning in India
- India has a centralised planning procedure that offers a broad framework for the economy’s developmental and investment requirements.
- It also aims for equal resource mobilisation to accomplish targeted socioeconomic progress. The Planning Commission has been in charge of planning in India since 1950.
Government prepares a document stating all of its expenditures and income for the Five years. India has launched a series of a 5 years plans to build its economy and attain progress and development.
In effect from 1951 until 1956.
During this period India faced challenges of large-scale food grain imports (1951) and price increases.
To counter this, the strategy prioritised agriculture, irrigation and electricity developments to achieve food self-sufficiency in the shortest possible time and Control inflation.
The public sector received 44% of plan outlay (PSUs)
Also, Plan aimed to Rehabilitate the refugees.
By the time 1956 arrived, five IITs were established.
The achieved growth rate was 3.6% while the target growth rate was 2.1%.
In effect from 1956 to 1961.
During this period due to the assumption of a closed economy, India faced food and capital shortages.
The key focus was on fast industrialisation, with a concentration on heavy industries and capital goods.
Under this plan, to protect domestic industries government-imposed tariffs on imports.
The lack of foreign currency prevented the plan from being fully carried out. At Bhili, Durgapur, and Rourkela, however, five steel mills and hydroelectric power projects were developed.
While the target growth was 4.5%, the actual growth rate could achieve a little less than expected which is 4.27%.
Plan spanned from 1961 to 1965.
During this period, India had to face significant drain and diversion of finance since it fought two wars (one with China in 1961-62 and the other with Pakistan in 1965-66) which led to drought-led famine.
Panchayati elections introduced.
State bodies for secondary education and electricity were established..
The target growth rate was 5.6% while the actual growth rate achieved was only 2.4%.
Establishment of a self-reliant and self-generating economy
Three Annual Plans
Despite the fact, the fourth plan was ready to be executed in 1966, the government chose an annual plan for 1966-67, due to the country’s financial condition following the wars.
Three successive plans extended from 1966 to 1969.
The key objective of these annual plans was to design the fourth plan, which would’ve been executed for 1966-71.
It was named a ‘plan holiday’ for the reason being discontinuity in the planning process.
The key assessment of this period is as follows:
To combat the agricultural crisis and severe food shortage, it was necessary to implement a new agriculture plan that included the distribution of high-yielding seed varieties, substantial use of fertilisers, exploitation of irrigation capacity, and soil conservation measures.
Plan lasted from 1969 to 1974.
Indian faced financial constraints of money, frequent double-digit inflation, unrestricted increase in fiscal banks, and subsidy-induced higher non-planned expenditures due to diverting of money caused by droughts and the Indo-Pak war of 1971-72.
A lot of focus was placed on growth that was stable and progressing towards self-reliance using the Gadgil Formula.
The Green Revolution helped agriculture, and the government nationalised 14 significant Indian banks. Also started was the Drought Prone Area Program.
While 5.6% was the desired growth rate, 3.3% was achieved.
Plan spanned from 1974 to 79.
Increased employment and the reduction of poverty were emphasised (Garibi hatao).
The Electricity Supply Act was revised in 1975, allowing the federal government to engage in power transmission and generating. It was first used to introduce the Indian National Highway System.
In the first year of this strategy, the Minimum Needs Program was launched to meet the bare necessities. When compared to the target growth rate of 4.4%, which was 4.8%.
Rolling plans include both the creation of a new plan the following year and an annual evaluation of the plan’s effectiveness. As a result, throughout this plan, both the allocation and the targets are changed.
Janta party rejected the five-year plans and introduced a new sixth five-year plan which was rejected by INC upon re-election. These incidents caused instability during this period.
This period marked the beginning of economic liberalisation and the end of Nehruvian socialism by eliminating price control.
The National Bank for Agriculture and rural development was founded on the Shivaram committee’s advice.
Actual growth (5.7%) surpassed the targeted growth (5.2%) this time, implying that the plan was a success.
The period for this plan was from 1985 to 1990.
Although the plan provided a robust base for the success of the seventh five-year plan and the economy experienced higher growth rates during the 1980s, particularly in the later half (it did so, at the expense of severe fiscal imbalances) by the end of the Plan, India’s balance of payments condition had deteriorated significantly. The government borrowed money from abroad frequently.
The plans had the following key objectives:
Rapid food grain production
Greater job creation
Productivity in general
Maintain the essential tenets of expansion, modernisation, self-reliance, and social justice
The Jawahar Rojgar Yojana (JRY) was introduced in 1989, with employing the rural poor. Some existing programmes, such as the IRDP, CADP, DPAP, and DDP, were re-oriented.
Under this plan too, the actual growth (6.01%) surpassed the expected growth (5%)
Two annual plans
1990 didn’t witness the eighth five-year plan. The years 1990–1991 and 1991–1992 were handled as Annual Plans.
During this period India faced a crisis of Forex reserves to counter which LPG (Liberalisation, Privatisation, Globalisation) reforms were introduced.
The plan was in effect from 1992-1997.
Following are some key objectives of the Eighth plan.
- Rapid economic growth
- Rapid Expansion in agriculture and associated industries
- Rapid growth in the Manufacturing sector
- Increased exports and imports
- reduction of the current account and trade imbalances
Whereas the Assessments are as under:
- It introduced the indicative planning concept in India
- To bring about economic reform, LPG policies (Liberalisation, Globalisation, Privatisation) were implemented.
- The targeted growth was 5.6% while the actual growth was 6.7%.
Plan spanned from 1997 to 2002.
The ninth five-year plan’s primary objective was “growth with justice and equity”.
There was an emphasis on seven identified Basic minimum services (BMS), with additional central assistance for these services with the vision of attaining complete coverage of the population in time bound manner.
For the first time issue of fiscal consolidation became a top priority of GOI.
This plan was introduced during an overall ‘slowdown’ in the economy caused by the Southeast Asian financial crisis (1996-97).
The target growth rate was 7.1%, whereas the actual growth rate was 6.8%.
Plan spanned from 2002 to 2007.
The top priorities included were to achieve strong growth rates, reducing the poverty rate by 5% (by 2007), provide gainful and high-quality employment and eliminate gender inequalities in literacy and wage rates by at least 50% by 2007.
The actual growth rate was 7.7% compared to the target of 8.1%.
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% GDP growth, which was less than the target of 9%.
In effect from 2012 until 2017.
“”Faster, more inclusive, and sustainable growth was the main goal..
4% growth in the agriculture sector, 10% growth in the manufacturing sector, and an increase in energy generation capacity of over 88,000 MW.
This plan’s target was 8%, while actual achievement was 6.7%.
Five-year plan performance assessment
To recap, the fundamental goal of India’s five-year plans was to raise national income as well as per capita income. Yet, both national and per capita income growth was mediocre during the planning era.
Seven Of the twelve five-year plans experienced lower growth rates than expected. Over the first thirty years of planning, growth rates were moderate, but they later increased. Another element of the growth story involved enormous fluctuations.
Due to the shifting environmental circumstances, agriculture growth has been extremely erratic. Today, India has not only attained self-sufficiency in food grains production but is also a leading exporter of many agricultural products.
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