Planning in India

Economic planning is the process by which the government sets economic objectives and formulates policies and programmes for the effective utilisation of available resources to achieve economic and social development.

Types of Economic Planning

• Imperative Planning: A form of centralised planning in which the government determines production targets, allocates resources and directly controls the implementation of economic plans. It is generally associated with socialist economies, where the state exercises complete control over economic activities.
• Indicative Planning: A form of decentralised planning in which the government establishes broad economic objectives and provides guidelines and incentives to influence economic activities. The government supports and guides the private sector without directly controlling its decisions.

History of Planning in India

Although planned economic development formally began in India with the First Five-Year Plan in 1951, several initiatives for economic planning emerged before Independence.

Beginning of Five-Year Planning in India

• Origin of Five-Year Plans: The Soviet Union introduced the first Five-Year Plan under Joseph Stalin in 1928. Subsequently, several socialist and capitalist countries adopted Five-Year Plans for economic development.
• Beginning of Planning in India: Inspired by the Soviet model of centralised planning, India established the Planning Commission in March 1950 and launched its First Five-Year Plan in 1951 under the socialist influence of first Prime Minister Jawaharlal Nehru.
• Planning Commission: The Planning Commission was constituted by a resolution of the government with the Prime Minister as its Chairperson. It was charged with the responsibility of making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilisation of resources and determining priorities.

Objectives of Economic Planning in India

• Economic Growth: The first and the foremost objective of Indian planning was the growth of the economy as rapidly as possible within a democratic framework.
• Modernisation: Adoption of new technologies along with a change in social outlook.
• Self-Reliance: The third major objective of Indian economic planning was to make the economy self-reliant. This implies progressively reduction and ultimately elimination of dependence on foreign aid and imports for certain critical commodities. This requires import substitution, i.e. producing the same commodities at home instead of importing them. This necessitates expansion and diversification of exports so that we are in a position to pay from our own earnings of foreign exchange.
• Equity: Ensure that the benefits of economic growth reach all sections of society, particularly the poor.

Planning Commission

• The Planning Commission was established on 15 March 1950 through a resolution of the Government of India on the recommendation of the Advisory Planning Board constituted in 1946, under the chairmanship of K.C. Neogi.
• Nature: Non-constitutional and non-statutory body.
• Chairperson: Prime Minister of India.
• Functions of the Planning Commission
  • Assessment of Resources: Assess the country’s material, capital and human resources, including technical personnel, and investigate the possibilities of augmenting them.
  • Formulation of Plans: Formulate a Plan for the most effective and balanced utilisation of the country’s resources
  • Determination of Priorities: Determine priorities and define the stages in which the plan should be carried out.
  • Identification of Obstacles: Identify factors hindering economic development and determine the conditions which, in view of the current social and political situation, should be established for the successful execution of the Plan
  • Determine the nature of the machinery which will be necessary for securing the successful implementation of each stage of the Plan in all its aspects;
  • Monitoring and Evaluation: Periodically assess progress in plan implementation and recommend necessary policy adjustments.
  • Make appropriate recommendations for facilitating the discharge of its duties, or on a matter referred to it for advice by Central or state governments
• Replacement: Replaced by NITI Aayog on 1 January 2015.

Five-Year Plans (Overview)

• Beginning of Five-Year Plans: India launched its First Five-Year Plan in 1951, followed by the Second and Third Five-Year Plans.
• Plan Holiday (1966–1969): The planning process was disrupted by the Indo-Pakistani War of 1965, successive droughts, currency devaluation, rising prices and resource shortages. Consequently, three Annual Plans were implemented between 1966 and 1969, before the Fourth Five-Year Plan began in 1969.
• Annual Plans (1990–1992): Political instability at the Centre delayed the Eighth Five-Year Plan. Consequently, 1990–91 and 1991–92 were treated as Annual Plans. The Eighth Five-Year Plan was launched in 1992, following the introduction of economic reforms in 1991.
• Shift in Planning Approach: For the first Eight Plans the emphasis was on a growing public sector with massive investments in basic and heavy industries. From the Ninth Five-Year Plan (1997) onwards, the emphasis on the public sector declined, and planning increasingly became indicative, with greater reliance on private-sector participation and market forces.
• Discontinuation of Five-Year Plans: After the 12th Five-Year Plan in 2012-17, Govt. did not bring any new plan.
• The Planning Commission was abolished and NITI Aayog was established in January 2015.

First Five-Year Plan (1951-56)

Target Growth Rate: 2.1% | Achieved Growth Rate: 3.6%

• It was based on the Harrod-Domar Model. According to this model economic growth depends on Capital Formation (Investment Rate), Capital-Output Ratio and Savings Rate.
• The focus was on agriculture, price stability, power and transport.
• Its major initiative was to launch the Community Development Programme (1952) to promote rural development through agricultural expansion, irrigation, and social infrastructure.
• Many irrigation projects were initiated including Bhakra Dam and Hirakund Dam.
• It was a successful plan primarily because of good harvests in the last two years of the plan.
• Objectives of rehabilitation of refugees, food self sufficiency & control of prices were more or less achieved.
• The target growth rate was 2.1%, however, the achieved growth rate was: 3.6%.

Second Five-Year Plan (1956 - 61) (Mahalanobis model)

Target Growth Rate: 4.5% | Achieved Growth Rate: 4.3%

• It was developed by Prof. P.C. Mahalanobis.
• The second plan was conceived in an atmosphere of economic stability. It was felt agriculture could be accorded lower priority.
• The Plan focussed on rapid industrialization - heavy and basic industries. It advocated huge imports through foreign loans.
• The Industrial Policy of 1956 was introduced. It was based on the establishment of a socialistic pattern of society as the goal of economic policy.
• Acute shortage of forex led to pruning of development targets, price rise was also seen (about 30%) vis a vis decline in the earlier Plan & the 2nd FYP was only moderately successful.
• The Target Growth rate was 4.5% actual growth rate was 4.3%.

Third Five-Year Plan (1961 - 66)

Target Growth Rate: 5.6% | Achieved Growth Rate: 2.84%

• At its conception, it was felt that the Indian economy had entered a “takeoff stage”. Therefore, its aim was to make India a 'self-reliant' and 'self-generating' economy.
• Based on the experience of the first two plans (agricultural production was seen as a limiting factor in India’s economic development), agriculture was given top priority to support exports and industry.
• The Plan was a thorough failure in reaching the targets due to unforeseen events - Chinese aggression (1962), Indo-Pak war (1965), severe drought 1965-66.
• Due to conflicts the approach during the later phase was shifted from development to defence & development.
• The Targeted Growth rate was 5.6% whereas the actual Growth rate was 2.84%.

Three Annual Plans (1966- 69)/ Plan holiday

• Failure of Third Plan, Devaluation of Rupee (to boost exports) along with Inflationary Recession led to postponement of Fourth FYP. Three Annual Plans were introduced instead.
• The prevailing crisis in agriculture and serious food shortage necessitated the emphasis on agriculture during the Annual Plans.
• Important Development: During these plans a whole new agricultural strategy was implemented. It involved wide-spread distribution of high-yielding varieties of seeds, extensive use of fertilizers, exploitation of irrigation potential and soil conservation.
• During the Annual Plans, the economy absorbed the shocks generated during the Third Plan

Fourth Five-Year Plan (1969 - 74)

Target Growth Rate: 5.7% | Achieved Growth Rate: 3.3%

• The Plan was based on the Gadgil strategy.
• Objectives: Refusal of supply of essential equipment and raw materials from the allies during the Indo-Pak war resulted in twin objectives of Growth with Stability and Progressive Achievement of Self-reliance for the Fourth Plan.
• Focus: The main emphasis was on the growth rate of agriculture to enable other sectors to move forward. The first two years of the plan saw record production. The last three years did not measure up due to poor monsoon.
• The Fourth Five-Year Plan (1969–1974) aimed to reverse the growing concentration of wealth and economic power and promote a more equitable distribution of economic resources.
• Bank Nationalisation: Nationalisation of 14 banks expanded institutional credit to agriculture and small industries.
• Family Planning: Implementation of Family Planning Programmes were amongst major targets of the Plan.
• Challenges: Influx of Bangladeshi refugees before and after 1971 Indo-Pak war was an important issue along with the price situation deteriorating to crisis proportions.
• Outcome: The plan is considered a big failure.

Fifth Plan (1974-79)

Target Growth: 4.4% | Actual Growth: 4.8%

• The final draft of the fifth plan was prepared and launched by D.D. Dhar in the backdrop of economic crisis arising out of run-away inflation fuelled by hike in oil prices and failure of the Government takeover of the wholesale trade in wheat.
• Objectives: The Fifth Plan proposed to achieve two main objectives: 'Removal of Poverty' (Garibi Hatao) and 'Attainment of Self Reliance'.
• Promotion of a high rate of growth, better distribution of income and significant growth in the domestic rate of savings were seen as key instruments.
• Inflation: Due to high inflation, cost calculations for the Plan proved to be completely wrong and the original public sector outlay had to be revised upwards.
• Poverty Alleviation: Recognized that the 'trickle down approach' of economic growth was not working for the poor. It focused on directly reducing poverty through various poverty alleviation programmes.
• The Indian National Highway System was introduced.
• Minimum Needs Programme: The Minimum Needs Programme introduced in the first year of this plan, aimed to provide basic minimum needs. MNP was prepared by D.P. Dhar.
• Twenty-Point Programme: After promulgation of emergency in 1975, the emphasis shifted to the implementation of Prime Ministers 20 Point Programme.
• Termination: FYP was relegated to the background and when Janta Party came to power in 1978, the Plan was terminated.

Sixth Plan (1980 - 85)

Target Growth: 5.2% | Actual Growth: 5.7%

• The Plan focussed on increase in national income, modernization of technology, ensuring continuous decrease in poverty and unemployment through schemes for transferring skills (TRYSEM) and providing slack season employment (NREP), controlling population explosion etc.
• Establishment of NABARD: On the recommendation of the Shivaraman Committee, the National Bank for Agriculture and Rural Development was established.
• Performance: Broadly, the Sixth Plan could be taken as a success as most of the targets were realised even though during the last year (1984-85) many parts of the country faced severe famine conditions and agricultural output was less than the record output of previous year.

Seventh Plan (1985 - 90)

Target Growth: 5.0% | Actual Growth: 6.0%

• The Plan aimed at accelerating food grain production, increasing employment opportunities & raising productivity with focus on ‘food, work & productivity’.
• Performance: The plan was very successful as the economy recorded 6% growth rate against the targeted 5% with the decade of the 1980s struggling out of the’ Hindu Rate of Growth’.

Eighth Plan (1992 - 97)

Target Growth 5.6 % | Actual Growth 6.8%

• Delayed Implementation: The eighth plan was postponed by two years because of political uncertainty at the Centre.
• Economic Background: Worsening balance of payment position, rising debt burden widening budget deficits, recession in industry and inflation were the key issues during the launch of the plan
• The plan undertook drastic policy measures to combat the bad economic situation and to undertake an annual average growth of 5.6% through introduction of fiscal & economic reforms including liberalisation under the Prime Minister ship of Shri P V Narasimha Rao.
• Performance: Some of the main economic outcomes during the Eighth Plan period were rapid economic growth (Highest Annual Growth Rate so far – 6.8 %), high growth of agriculture and allied sector, and manufacturing sector, growth in exports and imports, improvement in trade and current account deficit.
• The High growth rate was achieved even though the share of the public sector in total investment had declined considerably to about 34 %.

Ninth Plan (1997- 2002)

Target Growth: 6.5% | Actual Growth: 5.4%

• The Plan prepared under the United Front Government focussed on “Growth With Social Justice & Equality”.
• Private Sector Participation: The Ninth Plan aimed to depend predominantly on the private sector – Indian as well as foreign (FDI)
• Role of Government: State was envisaged to increasingly play the role of facilitator & increasingly involve itself with social sector viz education, health etc and infrastructure where private sector participation was likely to be limited.
• Agriculture and Rural Development: It assigned priority to agriculture & rural development with a view to generate adequate productive employment and eradicate poverty

Tenth Plan (2002 - 2007)

Target Growth 8 % | Actual Growth 7.6 %

• Development Targets: Recognising that economic growth can't be the only objective of the national plan, the Tenth Plan had set ‘monitorable targets’ for few key indicators (11) of development besides 8 % growth target.
• The targets included reduction in gender gaps in literacy and wage rate, reduction in Infant & maternal mortality rates, improvement in literacy, access to potable drinking water, cleaning of major polluted rivers, etc.
• Governance: Governance was considered as a factor of development.
• Agriculture: Agriculture was declared as the prime moving force of the economy.
• Decentralised Planning: The State's role in planning was to be increased with greater involvement of Panchayati Raj Institutions. State wise break up of targets for growth and social development sought to achieve balanced development of all states.

Eleventh Plan (2007 - 2012)

Target Growth 9 % | Actual Growth 8%

• Theme: Towards Faster & More Inclusive Growth
• India had emerged as one of the fastest growing economies by the end of the Tenth Plan. The savings and investment rates had increased, the industrial sector had responded well to face competition in the global economy and foreign investors were keen to invest in India. But the growth was not perceived as sufficiently inclusive for many groups, specially SCs, STs & minorities as borne out by data on several dimensions like poverty, malnutrition, mortality, current daily employment etc.
• The broad vision for 11th Plan included several inter related components like rapid growth reducing poverty & creating employment opportunities, access to essential services in health & education, specially for the poor, extension of employment opportunities using National Rural Employment Guarantee Programme, environmental sustainability, reduction of gender inequality etc.

Twelfth Plan (2012-2017)

Target Growth: 8%

• The Twelfth Plan was the last five-year plan implemented in India.
• Its theme was Faster, Sustainable, and More Inclusive Growth.
• Inclusiveness was to be achieved through poverty reduction, promoting group equality and regional balance, reducing inequality, empowering people etc whereas sustainability includes ensuring environmental sustainability, development of human capital through improved health, education, skill development, nutrition, information technology etc and development of institutional capabilities, infrastructure like power telecommunication, roads, transport etc