Indian Economy | Planning in India Download PDF
Planning in post-Independence India has been driven by the five-year plans which is a horizon of five years with a mid-term review and then the next five-year plan. In exceptional years of wars and other such situations, India has also opted for annual plans, also known as ‘plan holiday’, a break from the five-year plans.
There was also a concept of rolling plan which also has a horizon of five years, but allowing for corrections mid-term or even annually depending on the performance under various heads. However, primarily in India, it has been the five-year plans with each plan having a mid-term review.
Planning in India is centralized, which provides a macro framework of developmental and investment needs, mobilization of resources to achieve desired levels of growth. The responsibility of planning in India vests with the Planning Commission which is not a statutory body, headed by a Deputy Chairman and the Prime Minister as the Chairman of Planning Commission. The plans are formulated by the Planning Commission and are approved by the National Development Council (NDC) with the Prime Minister as its Chairman.
More fundamentally, it also seeks to balance demand on public resources leaving sufficient for future generations to come and at the same time the present requirements are also met. Market economy does not allow for these, as a market economy is restricted to decisions taken by the market for efficiency in production activities and does not allow focus on national priorities and needs. As a market economy, there is still a need for direction which is what planning is able to provide.
India and Five-Year Plans
Directed Planning (P1-P6)
India’s five-year plans commenced with the first-five year plan spanning 1951-1952 to 1955-1956, with a modest overall growth target of 2.1 per cent. With just having becoming an independent country, objective was on increasing agricultural sector growth and balance development while keeping inflation under check. Being the first plan, targets were fairly modest and emphasis was on consolidation.
It was from the second five-year plan (1956-1957 to 1960-1961) that planning in the true form acquired shape of vision of India, need for an industrial base and the resultant initiation of industrialization. This was also known as the Mahalanobis model, used in the second five-year plan, which was creating significant capacities in both capital as well as core industries by the government.
The emphasis of this model was on achieving self-reliance and also the ability to meet the needs of the domestic economy. This plan is known for a top-down industrialization of the big industries creating a base for the growth of medium and small-scale industries and going down to village and cottage industries. It also gave birth to the concept of public sector of state run enterprises based on the Russian model of industrialization. Public sector was also envisioned as to meet broad socio-welfare objectives in the economy.
Most of the public sector in India was set up during this plan period and also known as the industrialization or the public sector plan. With the first plan target for overall growth surpassed the second plan which had set out an ambitious target of 4.5 per cent for the five-year period, but managed only an average growth of 3.9 per cent during the plan period.
The third five-year plan (1961-1962 to 1965-1966) had proposed a larger thrust on industrialization but the war with China and subsequently Pakistan, quite destabilized the third plan because of the changing priorities of the war, and resulted in a plan holiday from 1966-1967 to 1968—1969. Towards the end of the third plan, the plan holiday had a great contribution in ushering in the green revolution which increased the productivity of crops like wheat by using high-yielding varieties of seeds.
The fourth plan (1969-1970 to 1973-1974) was rebuilding the economy with the scarce resources that had got diverted towards war and aimed at growth with stability, greater self-reliance especially in defence, as a fall out of the war and increased vulnerability of more such wars in the fixture.
The fifth plan (1974—1975 to 1978-1979) for the first time actually addressed the issue of removal of poverty as a prime objective.
However, it was sixth plan (1980-4981 to 1984-1985), it was realized that the growth by itself was not sufficient, for one, they were not sufficiently high enough to address the larger issues of poverty in the country and the other being that there were structural rigidities. This plan made a frontal attack on poverty, when the then Prime Minister, late Smt. Indira Gandhi gave the slogan of ‘ Garibi Hatao.
It marks the transformation from allocating scarce resources in the economy, to welfare orientation with focus on specific programs for poverty alleviation. These were not new schemes, however, all different schemes were combined as one scheme and known as the Integrated rural development programme (IRDP). It was the first plan to focus on gender issues, women empowerment and the growing inequalities amongst the states and also intra-regional imbalances.
From PI to P6 five-year plan, they were directed plans as there was a large role of public sector and substantially larger investment by the government or the government could ensure investment in specific areas as it was the major investor. The general overtone in these five-year plans was towards industrialization, setting up of the public sector, self¬reliance and establishing India as a self-generating economy, to provide employment and meeting the needs of the economy, rather than they being provided directly by the government. Towards P5 and more in P6, poverty and welfare orientation of the plans became visible.
Indicative Planning (P7 onwards)
The seventh plan (1985-1986 to 1989-1990) had two important aspects, one that of, larger agricultural sector orientation of increasing production and productivity and the second that of, a steady decline in the public sector investment falling to below 50 per cent of the total outlay, implying a larger contribution from private sector in the total ouday of the plan.
It was the plan which recorded the highest ever agricultural and overall growth of 10.4 per cent in 1988-1989; however, this was largely due to the lower base of the previous ( year with a growth of only 3.8 per cent. It has experienced for the first time, a problem of imports outstripping the exports resulting in a balance of payment crisis in the country requiring India to seek loan from the International Monetary Fund (IMF). This is further discussed in detail in a separate section on the same subject.
These adverse developments again forced the government to opt for a plan holiday from 1990 to 1992. As in the previous plan period, even this resulted in the launch of economic reforms also known as the New Economic Policy 1991, which has been discussed earlier in the section on public sector. Each successive plan after P7 has seen a phased reduction in public sector outlay and larger levels of private sector, changing planning from ‘directed to indicative’, which is, indicating which sectors require investment in terms of priorities and private sector expected to make that investment.
The eighth plan (1992-1993 to 1996-1997), besides the objectives of increasing growth, agricultural production mentioned the need for attaining ‘self-sufficiency’ in food grains. It, for the first time, brought the need for strengthening infrastructure especially in the areas of energy, transport, communications and energy.
It was the first plan to have universal elementary education and eradication of illiteracy in the age group of 15—35 years as a major objective. This plan was also the first to have people initiative and participation in education, literacy, family planning, land development, irrigation, etc., also the need to tap voluntary agencies for meeting the needs of the social sector. The private sector investment was increased to 55 per cent, playing a larger role in mining, communication, electricity and gas. The role of public sector was seen now as selective.
The ninth plan (1997-1998 to 2001-2002), was only a further extension of the earlier plan, but besides the focus on growth also to provide for social justice and equity in the economy.
The tenth plan (2002—2003 to 2006-2007) became more ambitious in terms of wide-ranging objectives addressing each and every aspect of the economy but for one difference it gave a time frame for poverty reduction, elementary education, literacy and other such issues. It is in this plan that the Fiscal Responsibility Budget Management Act was enacted which set out time frame for reduction in fiscal and revenue deficit as part of fiscal consolidation.
The eleventh plan (2007-2008 to 2011-2012) has coined the concept of Inclusive growth which means the benefits of growth should be benefiting the masses. It has set out monitorable and quantifiable targets both for the centre as well as the states and has grouped the priority areas to be addressed by the government.
It was concerned with the growing divide across the economy and a specific mention of drawing the NE states into mainstream development of the economy. The eleventh plan saw the lowest ever public sector outlay of 25 per cent with a private sector outlay of 75 per cent as against the previous policies having over 60 per cent outlay from the public sector.
It has also brought out the need for neo-liberal policies given the changing global dynamics and a changed face of the ecpnomy. It gave thrust to the public—private sector partnership model for infrastructural development in the economy. The mid-term appraisal has, however, scaled the original-targeted rate of growth because of the global recession during 2008-2009. It has also mentioned that moSt sectors were on track as visualized and by the end of the plan there should be performance of an increased all round performance including the farm sector.
Challenges Before Twelfth Plan (2012-2013 TO 2016-2017)
The twelfth plan would have the following challenges: .
(1) A bigger challenge than Pll of providing for inclusive growth or the ability to provide broad-based benefits to the masses.
(2) Planning would increasingly become indicative with larger role of private sector in the total outlay.
(3) The challenge will be on improving agricultural production and productivity given the near stagnation levels. Their commercialization, adoption of biotechnology, access to finance, land reforms, etc., have all remained a challenge in the previous plans, but a larger challenge before twelfth plan, especially as it falls within the domains of the state government with limited central government interventions.
(4) Infrastructure investment and the requirement of long-term resources are the more important needs for coordinated and an effective infrastructure.
(5) Poverty continues to be the major issue and also a major limitation of not having the actual number especially in recent times. This does not allow an understanding of the impact of schemes like Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and other social sector programmes of recent times. There is also a need to leverage technology in this area, for appropriate corrections in policies.
(6) The need for labour sector reforms cannot be more than the present because of their links with creating employment opportunities with increased growth in future.
(7) Panchayati Raj Institutions (PRI) would be acting as an important role not only for decentralized planning but also in implementation of various programmes. The challenge will be in evolving them as ‘effective’ institutions for better delivery in the economy.
(8) The eleventh plan had mentioned about the growing ‘divide’ across regions of increased inter- and intra-regional divides and also exclusivity of the NE states in overall development process. Strategies for bridging this divide would also be a challenge.
(9) Skill formation has engaged the attention of the central government but would require greater thrust as actionable targets and sensitizing the state governments of their larger role in skill formation.
(10) All the plans since eighth plan can be seen as more or less as a five-year ‘ritual’ unlike the earlier plans which were intellectually stimulating.
Hope the twelfth plan will be path-breaking, different from the earlier plans, forcing the government and the others to think and provide a greater credibility and respect to the five year plans and also Planning Commission.
Role of Planning Commission in Future
With economy changing, role of the government changing, it is also imperative for the Planning Commission to reorient and play its due role, separate from the government of providing an ‘economic’ perspective rather than a ‘political’ perspective of the economy.
All the previous plans have had multiple objectives but not prioritized in terms of which need to be addressed first. Addressing then concurrently only dilutes the focus and the impact. Many of the objectives can be a part of the main objective.
What it requires is ‘few and focused’ objectives with specific time frames for achieving them and broken down yearly for monitoring the performance. All the earlier plans have been preoccupied with ‘flagging’ of issues, their conversion as objectives, outlays required, but not gone a step deeper of actionable strategies for the government.
For example, the objective of reducing poverty levels by 15 per cent points by the end of the plan period is fine but then how to execute it? The overall growth rate set as a residual figure resulting out of the expected levels of savings, investments and Incremental Capital Output (ICOR) and the other broad parameters, rather than fixing the growth rates first and then looking at the other parameters.
It should prepare sector-specific perspective plan or a blue print addressing each and every facet, such as project evaluation, resources required, cost-benefit analysis, for roads, airports, ports and other such areas of infrastructure say for 2050. The perspective plans then need to be broken down as five-year plans and then annually for the levels of investments in various sectors.
It is like seeing India’s infrastructure through a future bioscope and then each successive government working towards to meet the vision. It should provide inputs to the government, advisory in nature, on creation of an enabling environment by the government and playing the role of a facilitator in the economy.
The key aspect of the Planning Commission is not to ‘interfere’ in operations of the government or as a tier in approving or disapproving the projects, which are all in the domain of the government. All coordination of integrated large project should be with the government as otherwise there would be diffused responsibility and accountability.
Their role has to be seen as more advisory in nature or giving opinion on matters referred and developing a vision of the economy and also as a watchdog to advise the government if projects are not going as scheduled or there is a difference in priorities as envisaged by them.
Their role does not diminish with the indicative character of planning but only alters from how to ‘increase’ growth to how to ‘manage’ growth in the future. Their role of providing the challenges of tomorrow, today to the government so that it is better placed to address them proactively.