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Economic Planning in India
CONTENTS
1. Introduction….........................................................3 - 4
3. History…………………………………………………………………10 – 11
10. Conclusion……………………………………………………… 25
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Economic Planning in India
1. introduction
Since Independence, the Indian economy has been premised on the
concept of planning. This has been carried through the Five-Year Plans,
developed, executed, and monitored by the Planning Commission. With the Prime
Minister as the ex-officio Chairman, the commission has a nominated Deputy
Chairman, who holds the rank of a Cabinet Minister. Montek Singh Ahluwalia is
currently the Deputy Chairman of the Commission. The Eleventh Plan completed
its term in March 2012 and the Twelfth Plan is currently underway. [1] Prior to the
Fourth Plan, the allocation of state resources was based on schematic patterns
rather than a transparent and objective mechanism, which led to the adoption of
the Gadget formula in 1969. Revised versions of the formula have been used since
then to determine the allocation of central assistance for state plans. The
important views are considered before planning are:
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The First Five-Year Plan was one of the most important because it had a great
role in the launching of Indian development after the Independence. Thus, it
strongly supported agriculture production and it also launched the
industrialization of the country (but less than the Second Plan, which focused on
heavy industries). It built a particular system of mixed economy, with a great role
for the public sector (with an emerging welfare state), as well as a growing private
sector (represented by some personalities as those who published the Bombay
Plan. The format of outlay and progress of various plans is show in the table 1:
5 year plans
• First plan (1951-1956)- Jawaharlal Nehru
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The 1st five year plan was presented by Jawaharlal Nehru, who was the Prime
Minister during that period. It was formulated for the execution of various plans
between 1951 to 1956. The Planning Commission was responsible for working out
the plan
The primary aim of the 1st five year plan was to improve living standards of
the people of India
The target set for the growth in the gross domestic product was 2.1percent
every year.
The second five-year plan focused on industry, especially heavy industry. This plan
particularly focused in the development of the Public Sector.
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The main objectives of the 7th five-year plans were to establish growth in areas of
increasing economic productivity, production of food grains, and generating
employment.
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1989–91 was a period of economic instability in India and hence no five-year plan
was implemented. Between 1990 and 1992, there were only Annual Plans.
the country took the risk of reforming the socialist economy and launched India's
free market reforms.
Main objective was to prioritize agricultural sector and emphasize on the rural
development, to generate adequate employment opportunities and promote
poverty reduction, to stabilize the prices.
Accelerate growth rate of GDP from 8% to 10% and then maintain at 10% in
the 12th plan in order to double per capita income by 2016-17.
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EDUCATION
Increase the percentage of each cohort going to higher education from the
present 10% to 15% by the end of the 11th plan.
HEALTH
Provide clean drinking water for all by 2009 and ensure that there are no
slip-backs by the end of the 11th plan.
Reduce malnutrition among children of age group 0-3 to half its present
level.
Reduce anemia among women and girls by 50% by the end of the 11th Plan.
Ensure that at least 33% of the direct and indirect beneficiaries of all
government schemes are women and girl children.
Ensure that all children enjoy a safe childhood, without any compulsion to
work.
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Infrastructure
Ensure electricity connection to all villages and BPL households by 2009 and
round-the-clock power by the end of the plan.
Provide homestead sites to all by 2012 and step up the pace of house
construction for rural poor to cover all the poor by 2016-17.
Environment
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the 12th Plan, approved last year, talked about an annual average growth rate of
9%.
“When I say feasible... that will require major effort. If you don’t do that, there is
no God given right to grow at 8 percent. I think given that the world economy
deteriorated very sharply over the last year...the growth rate in the first year of
the 12th Plan (2012-13) is 6.5 to 7 percent.”
He also indicated that soon he would share his views with other members of the
Commission to choose a final number (economic growth target) to put before the
country’s NDC for its approval.
The government intends to reduce poverty by 10% during the 12th Five-Year Plan.
Mr. Ahluwalia said, “We aim to reduce poverty estimates by 9% annually on a
sustainable basis during the Plan period.”
Earlier, addressing a conference of State Planning Boards and Planning
departments, he said the rate of decline in poverty doubled during the 11th Plan.
The commission had said, while using the Tendulkar poverty line, the rate of
reduction in the five years between 2004–05 and 2009–10, was about 1.5%points
each year, which was twice that when compared to the period between 1993-95
to 2004-05.
1.2 History
Five-Year Plans (FYPs) are centralized and integrated national economic
programs. Joseph Stalin implemented the first FYP in the Soviet Union in the late
1920s. Most communist states and several capitalist countries subsequently have
adopted them. China and India both continue to use FYPs, although China
renamed its Eleventh FYP, from 2006 to 2010, a guideline (guihua), rather than a
plan (jihua), to signify the central government’s more hands-off approach to
development. India launched its First FYP in 1951, immediately after
independence under socialist influence of first Prime Minister Jawaharlal Nehru.
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2. Diversification of Economy
3. Price Stability
Increase in price level hits the poor and fixed income people very much, whereas
decrease in price reduces profit margins of the businessmen, which causes
reduction in investment. One economic planning is to maintain the price stability.
Through planning equal distribution of national wealth be made. The society
should not be divided between “Haves and Have-nots”
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Economic Planning should ensure that good education; technical training and
better medical facilities are available to all the people of the country. Every one
should be provided a reasonable accommodation. Thus policy should standard of
living of the masses.
All out efforts should be done under planning that balance of payments continues
to improve. Export oriented and import substitutions industries should be given
importance. Luxurious goods should be banned and small and agro-based
industries should be given concessions and facilities. Imports should be reduced
and export increased, in order to improve foreign exchange earnings.
Dependence on foreign aid and grants should be curtailed.
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actually starts. Hence under every type of plan there are certain well-
defined objectives which the planning authorities strive to attain. These
objectives, however, might be different under different circumstances. A
plan might have a single objective or there might be a number of objectives
placed in order of their priorities.
In a planned economy there are not only well defined objectives. In addition,
targets are fixed for the attainment of those objectives within a specified period
of time. The goals must, relate to a period of time. The time specified may be any
period. Planning has a time dimension. Consequently there may be short-term,
medium-term or long term plans. Plans may be for one, four, five or ten years. It
is not necessary that a country should always follow a plan of a certain time
period, say five years.
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In such a case the state has to come forward to develop the basic infrastructure of
the economy or to develop productive activities which require huge initial
investment or which have a long gestation period. Similarly, public investment
may be necessary for the fulfillment of certain socio-economic objectives like
reduction of economic inequalities, achieving a balanced rate of growth and so
on.
5. Comprehensive planning:
In the true sense of the term, planning means comprehensive planning of all
the sectors. In plan literature we may speak of planning through the market or
planning by each individual production unit, etc. In reality, however, planning
cannot be isolated and piece-meal. Planning implies a rational utilization of the
economic resources so that there should be proper harmony and coordination
among all the sectors of the economy. So piece-meal Government regulation to
improve the functioning of the market mechanism is not planning. Planning
should not be confused with mere economic directives and controls. It
encompasses the entire economy. Planning implies national economic planning
covering the whole of national life.
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change and other forms of economic activity. In such an economy, if there is any
control at all, it is "invisible". A planned economy, however, is-bound to take
recourse to controls with a view to achieve the predetermined objectives of
planning. Thus, there may be control of production and consumption. Similarly,
there may be control on prices, wages, import and export, savings and investment
and so on.
Before independence, increase in per capita income was almost zero. But
after the adoption of economic planning in free India, per capita income
has continuously been increased. In the first plan, it raised .by 1.8 per cent
and in Second Plan, it was 2.0 per cent.
During Third Plan, it declined to (-) 6.8 per cent. In Three annual plans,
growth of per capita income was registered at 1.5 per cent.
In Fourth Plan, it came down to 1.0 per cent. In Fifth Plan, it was 2.7 per
cent. During Sixth and Seventh Plan, it was 3.2 per cent and 3.6 per cent
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respectively. In Eighth Plan, it rose to 4.6 per cent. In 2000-01, its rise was
registered at 4.9 at 1993-94 prices.
3. Development in Agriculture:
Agricultural productivity has also marked an upward trend during the plan
period. The production of food grains which has 510 lakh tonnes in 1950-51
increased to 1804 lakh tonnes in 1990-91 and further to 212.0 million
tonnes in 2000-01.
Similarly, the production of cotton which was 21 lakh bales in 1950-51 was
expected to be 10.1 million bales in 2000-01. In the same period, the
production of sugarcane was expected to be 300.1 lakh tonnes in 2000-01
against the 69 lakh in 1950-51.
4. Development of Industry:
In the first five year plan much of the capital was invested to develop the
industry and defense. About fifty percent of the total outlay of the plan was
invested for their development.
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During the planning period, much attention has been paid towards the
development of transport and communication. In the first two plans, more
than one-fourth of the total outlay was invested on the development of
transport and communication.
6. Self Reliance:
During the last four decades, considerable progress seems to have been
made towards the achievement of self reliance. We are no longer
dependent on other countries for the supply of food grains and a number
of agricultural crops.
7. Employment:
During the planning period, many steps have been taken to increase the
employment opportunities in the country. In the first five year plan
employment opportunities to 70 lakh people were provided.
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In the fourth and fifth plans about 370 lakh persons got employment. In the
seventh five year plan, provisions have been made to provide employment
to 340 lakh people.
In the era of planning, India has made much progress in the field of science
and technology. In reality, the development is so fast that India stands third
in the world in the sphere of science and technology. Indian engineers and
scientists are in a position that they can independently establish any
industrial venture.
9. Capital Formation:
The rate of capital formation during Second, Third and Fourth plan was 12.7
per cent, 13.5 per cent and 14.5 per cent respectively. It was 24.1 per cent
in seventh plan and 26 per cent in Eighth plan and 24 percent in Ninth Flan.
10.Social Services:
As a result of these services: (i) Death rate reduced from 27 per thousand in
1951 to 8 per thousand in 2000-01. (ii) Average life-expectancy increased
from 32 years in 1951 to 638 in 2000-01. (iii) Several deadly diseases like
malaria etc. have been eradicated, (iv) The number of school going students
has increased three-fold and that of collegiate five-fold since 1951. The
number of annual admissions to degree courses in Engineering Colleges
increased from 7100 in 1950 to 1, 33,000 and the number of universities
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1. Stagnant Economy:
When India was freed, it had deep marks of stagnation. During the phase of forty
years of economic planning, its growth rate is zero or near zero.
According to one estimate, growth of national income was about 1.15 per cent
during 1950to 1980 per year and growth of per capita income was at less than 0.5
percent.
2. Poverty:
These five year plans have miserably failed to make a Denton poverty as 40 per
cent of population is still in tight grip of poverty. Poverty is greatly responsible for
poor diets, low health and poor standard of living.
Another failure of the planning is that the distribution of income and other assets
in rural and urban areas continues to be skewed.
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The bulk of increased income has been pocketed only by the rich few while
weaker section of the society lives from hand to mouth and lead a very miserable
life. There is no second opinion to say that 2 per cent people of this country
possessed 98 per cent wealth.
4. Mounting Unemployment:
In all plans, main objective was to check over-population but it has miserably
failed to bridge the galloping population. The rapid growth of population has
aggravated the situation to the worst. This problem gives birth to twin problems
of poverty and unemployment.
6. Inflationary Pressure:
Inflation has started with the onset of heavy doses of investment programmers
during different five year plan periods. Now, it turned to the gravity of the
problem as it has created serious imbalances in the socio-political and economic
relations.
Truly, the production of agricultural and industrial sector has increased manifold
but still we are dependent on imports. In our plans, we have stressed on export
promotion and import substitution to correct the adverse balance of payments
but no headway has been made in this direction.
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8. Unproductive Expenditure:
To mobilize the resources for different plans, government has absolutely failed to
manage from internal resources. The government at this time is left with no
alternative but deficit financing. At every successive plan, there is huge amount of
deficit finance. From 1950-51 to 1984-85 total amount of deficit financing in the
country was Rs. 24,440 crores. During Seventh Plan, it was proposed to be Rs.
14,000 crores and Rs. 18,000 crore in Eighteenth Plan.
Similarly, though onion prices have come down to Rs.25 per kg; they’re still
way above Rs.8 per kg that they used to quote just a couple of months
back. So, what is the government’s take on this? Price has moved up based
on a mix of internal and external circumstances – better change your
lifestyle and eating habits. Onion is not the only food article at your
disposal.
Though, fruit juices and onions do not affect India growth story by much;
it’s the same sorry tale in the price trend of all major commodities including
most of the food articles.
2. Slow reform movement: The reformist movement started off well during
the phase 1 of UPA ruling. Though, the pace of reforms was mired by
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3. Earnings slowdown: High inflation and rising interest rates scenario does
not impact individuals and tax-payers alone. It also affects corporate
profitability. Higher input costs leads to squeeze in corporate margins at
operating level or a spill-over to generalized inflation if the same is passed
on to final consumers. While the pure commodity players are likely to
benefit from the demand and supply mismatch, others involved in
processing of raw-materials and turning them into finished goods might see
an impact on the cost of goods sold and operating margins of the company.
4. Current account deficit: India’s current account deficit has surged to 4.1%
of GDP during second quarter of the fiscal as against 3.2% the previous
year. Merchandise trade deficit widened to $35.4 billion during Q2 FY11 as
against $31.6 billion in previous quarter as growth in imports far outpaced
the progress in exports.
its policy review, the RBI had warned that high current account deficit –
3.5% of GDP for the fiscal 2010-11 – is not sustainable. The central bank
had also indicated that soaring oil prices could have negative impact on the
trade balance going forward.
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2. Statistical Information:
For the fixation of priorities and targets it is absolutely
essential that there should be adequate and reliable statistical information
regarding the entire economy. Economic development is essentially a quantitative
concept. Planning in the underdeveloped countries is severely handicapped by
the absence of adequate satisfaction. There must be a comprehensive statistical
survey to elicit information about the existing and potential resources and also
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about the mode of operation of the economy in the past. This would enable the
authorities to fix goals, targets and priorities and make projections for the future.
6. An Educational Base:
A competent administration forms the backbone of
successful planning. Such an administrative structure can be built only on the
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Conclusion
Economic planning help in mobilizing and allocating the resources in
desired manner.
Each five year plan aims to achieving certain target. Five year plan
constitute the steps toward the fulfillment of objectives of economic
planning.
The 12th Plan has taken off; it is yet to be formally approved with the
aim of the growth rate at 8%.
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References
1. Jump up^ Planning Commission, Government of India: Five Year Plans.
Planningcommission.nic.in. Retrieved on 2012-03-17.
2. Jump up^ Planning Commission (24 February 1997). "A Background Note
on Gadget Formula for distribution of Central Assistance for State Plans".
Retrieved 2010-09-17.
3. Jump up^ Sony Pellissery and Sam Geall "Five Year Plans" in Encyclopedia
of Sustainability, Vol. 7 pp. 156-160
4. Jump up^ Jalal Alamgir, India's Open-Economy Policy: Globalism, Rivalry,
Continuity (London and New York: Routledge 2008), Chapter 2.
5. Jump up^ Baldev Raj Nayar, Globalization And Nationalism: The Changing
Balance Of India's Economic Policy, 1950–2000 (New Delhi: Sage, 2001)
6. ^ Jump up to: a b c d e f L. N. Dash (2000). World bank and economic
development of India. APH Publishing. p. 375. ISBN 81-7648-121-1.
7. Jump
up^ http://www.powermin.nic.in/indian_electricity_scenario/pdf/Historica
l%20Back%20Ground.pdf
8. Jump
up^ http://planningcommission.nic.in/plans/planrel/fiveyr/9th/vol1/v1c2-
1.htm
9. Jump up^ Agrawal, A N (1995). Indian Economy: Problems of development
and planning. Pune: Wishwa Prakashan. p. 676.
10.Jump up^ "National Development Council approves 12th Five Year Plan".
Indian Express. 2012-12-27. Retrieved 2013-07-10.
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