First of all, the idea of planned economy was crystallized in 1930s when our national leaders came under the influence of socialist philosophy. India’s Five Year plans were very much impressed by the rapid strides achieved by the USSR through five years plans.
In 1934, Sir M. Visvesvaraya had published a book titled “Planned Economy in India”, in which he presented a constructive draft of the development of India in next ten years. His core idea was to lay out a plan to shift labor from agriculture to industries and double up National income in ten years. This was the first concrete scholarly work towards planning.
The economic perspective of India’s freedom movement was formulated during the thirties between the 1931 Karachi Session of Indian National Congress, 1936 Faizpur session of India National Congress.
National Planning Committee (1938)
The first attempt to develop a national plan for India came up in 1938. In that year, Congress President Subhash Chandra Bose had set up a National Planning Committee with Jawaharlal Nehru as its president. However, the reports of the committee could not be prepared and only for the first time in 1948 -49 some papers came out.
Bombay Plan (1944)
In 1944, Eight Industrialists of Bombay viz. Mr. JRD Tata, GD Birla, Purshottamdas Thakurdas, Lala Shriram, Kasturbhai Lalbhai, AD Shroff, Ardeshir Dalal, & John Mathai working together to prepare“A Brief Memorandum Outlining a Plan of Economic Development for India”. This is known as “Bombay Plan”. This plan envisaged doubling the per capita income in 15 years and tripling the national income during this period. Nehru did not officially accept the plan, yet many of the ideas of the plan were inculcated in other plans which came later.
People’s Plan (1945)
People’s plan was drafted by MN Roy. This plan was for ten years period and gave greatest priority to Agriculture. Nationalization of all agriculture and production was the main feature of this plan. This plan was based on Marxist socialism and drafted by M N Roy on behalf of the Indian federation of Lahore.
Gandhian Plan (1944)
This plan was drafted by Sriman Nayaran, principal of Wardha Commercial College. It emphasized the economic decentralization with primacy to rural development by developing the cottage industries.
Sarvodaya Plan (1950)
Sarvodaya Plan (1950) was drafted by Jaiprakash Narayan. This plan itself was inspired by Gandhian Plan and Sarvodaya Idea of Vinoba Bhave. This plan emphasized on agriculture and small & cottage industries. It also suggested the freedom from foreign technology and stressed upon land reforms and decentralized participatory planning.
Planning and Development Department
In August 1944, The British India government set up “Planning and Development Department” under the charge of Ardeshir Dalal. But this department was abolished in 1946.
Planning Advisory Board (1946)
In October 1946, a planning advisory board was set up by Interim Government to review the plans and future projects and make recommendations upon them.
Planning Commission (1950)
Immediately after independence in 1947, the Economic Programme Committee (EPC) was formed by All India Congress Committee with Nehru as its chairman. This committee was to make a plan to balance private and public partnership and urban and rural economies. In 1948, this committee recommended forming of a planning commission.
In March 1950, in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community, the Planning Commission was set up by a Resolution of the Government of India as an advisory and specialized institution.
Planning Commission was an extra-constitutional body, charged with the responsibility of making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities. Jawaharlal Nehru was the first Chairman of the Planning Commission.
National Development Council (1952)
Government of India could take the initiative to set up the planning commission only by virtue of provision in the constitution which made Economic & Social planning an item in Concurrent list. The Resolution to set up a planning commission was actually based upon the assumption that the roots of Centre- State cooperation should be deeper. Later, in 1952, the setting up of the National Development Council was in fact a consequence of this provision.
The National Development Council (NDC) or the Rashtriya Vikas Parishad is the apex body for decision making and deliberations on development matters in India, presided over by the Prime Minister.
It was set up on August 6, 1952 to strengthen and mobilize the effort and resources of the nation in support of the Plan, to promote common economic policies in all vital spheres, and to ensure the balanced and rapid development of all parts of the country.
The Council comprises the Prime Minister, the Union Cabinet Ministers, Chief Ministers of all States or their substitutes, representatives of the union territories and the members of the Commissions.
The first meeting chaired by Prime Minister, Jawaharlal Nehru on November 8–9, 1952 . So far 55 meetings had been held. The 55th Meeting of National Development Council was held on 24 July 2010 at VigyanBhavan, New Delhi.
Objectives
It has been set up with three objectives:-
Functions
The functions of the Council are:-
Composition
The National Development Council is presided over by the Prime Minister of India and includes all Union Ministers, Chief Ministers of all the States and Administrators of Union Territories and Members of the Planning Commission. Ministers of State with independent charge are also invited to the deliberations of the Council
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Concept of Democratic Socialism Pandit J.L. Nehru was greatly influenced by the achievements of Soviet Planning; however he also viewed democratic qualities of capitalism as indispensable for complete economic and social growth. He wished to take advantage of both and thus came out his vision of “Democratic Socialism” for new India. The idea was to not only check the growth of monopolistic tendencies of the private sector but also provide freedom to the private sector to play for main objective of social gain rather than economic gain. |
Five-Year Plans
When India became an independent country, many questions had arisen in front of the country’s leaders at that time. The British had left the Indian economy handicapped; leaders had the challenges to make country’s economy strong. A formal model of planning was adopted.
The Planning Commission was established on 15th March 1950, with Former Prime Minister Jawaharlal Nehru as the Chairman. The Planning Commission used to directly report to the Prime Minister of India. The planning commission was replaced by NITI Aayog (National Institute for Transforming India Aayog) which was established by Prime Minister Narendra Modi on 1st January 2015.
Planning Commission was assigned the task of formulating plans for the most effective and balanced utilisation of resources and determining priorities. Since then the Planning Commission frames the centralized and integrated national economic programs at the
interval of every five years, thereby known as the Five-Year Plans.
History of Five Year Plan
Five-Year Plans (FYPs) are centralized and integrated national economic programs. Joseph Stalin implemented the first Five Year Plan 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.
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 First Five-Year Plan of India was presented by Pandit Jawaharlal Nehru in 1951.
The Main Features of Twelfth Five Year Plan (2012-2017)
The basic components are to enhance the capacity for rapid growth in various sectors of the economy.
The main objectives of the plan -:
Growth Rates during Five Year Plans
|
Particulars |
Target growth rate |
Actual growth rate |
|
First plan |
2.1% |
3.6% |
|
Second plan |
4.5% |
4.2% |
|
Third plan |
5.6% |
2.8% |
|
Annual plan |
NA |
3.9% |
|
Fourth plan |
5.7% |
3.3% |
|
Fifth plan |
4.4% |
4.7% |
|
Annual plan |
NA |
-5.2% |
|
Sixth plan |
5.2% |
5.7% |
|
Seventh plan |
5.0% |
5.8% |
|
Annual plan |
NA |
3.4% |
|
Eighth plan |
5.6% |
5.8% |
|
Ninth plan |
6.5% |
5.5% |
|
Tenth plan |
8.1% |
7.8% |
|
Eleventh plan |
8.1% (MYR) |
7.9% |
|
Twelfth plan (initial) |
9-9.5 % (Approach paper) |
8.0 % (plan document) |
Economic Planning Strategy in India
In order to achieve the long-term and short-term objectives set in the each five year, specific strategies are required. It involves allocation resources across different sectors of the economy in tandem with the specified objectives. It involves selection choices like development of agricultural sector or industrial sector, public sector or private sector involvement, closed economy or open economy model. Indian planning strategies can be split into two phases: pre-1991 phase and post – 1991 phase.
Pre 1991 Phase or Pre-reform Phase
During pre – 1991 phase (1951 to 1990), India followed the strategy of planning with greater reliance on the public sector along with a regulated private sector. Following strategies are followed during 1951-91 phase:
Heavy Reliance on Public Sector: Greater reliance was placed on public sector compared to private sector. As private sector was not able to invest in large amount for development of heavy industries, government turned towards public sector for provision of essential and basic needs for the people. At the same time private sector was not willing to provide the services in backward regions of the country.
Regulated Expansion of Private Sector: Private sector was restricted to few areas of activities. New legislations were created for the restriction for the restriction of private sector.
Development of Heavy Industries: Government invested heavily in development of Heavy industry like iron industry.
Protection of Small Scale Industry: Small scale industry was protected by means of establishment of boards for different small scale industries and reserving few areas of production exclusively for the small scale industry.
Inward Looking Trade Strategy: Domestic industry was protected from competition in the international
market. Heavy import duty was imposed to curb competitive imports, while domestic industries were encouraged to produce domestic substitutes of essential imports.
Thrust on Savings and Investment: Promotion of savings and investment was the undisputed objective of monetary and fiscal policies of the government. Savings are induced through high rate of interest. Tax concessions were to mobilise savings.
Restriction on Foreign Capital: Several types of restrictions were imposed on foreign direct investment. To control and regulate it, Foreign Exchange Regulation Act (FERA) was enforced.
Adherence to Centralized Planning: State level plans were aligned in sync with the over all objectives and strategy of growth as specified in Five Year Plans.
Post 1991 Phase (Post-reform Phase)
Strategy of planning in India witnessed a marked shift in the year 1991. Following are main changes observed under NEP (new economic policy):
Recently, the concept of Sustainable Development is included as main feature of the strategy of planning in India. Sustainable development refers to the development of present generation by taking into consideration of the future generations.
Reasons to Change Economic Policy
Three Principal Components of New Economic Policy
Liberalization of the economy means freedom of the economy from restrictions of the Government. Liberalization was expected to break the deadlock of low investment by exposing the economy to the forces of supply and demand.
Privatization refers to allowing private sector to enter in those areas of production which were previously reserved for the public sector. Also, existing public enterprises are either wholly or partially sold to private sector. It was considered to be the fittest option to stave off problems of public sector enterprises.
Globalization means integrating domestic economy with rest of the world under conditions of free flow of trade and factors of production across borders. Globalisation results in flow of capital and technology from developed countries into the Indian economy.
Abolition of Planning Commission
From its establishment in 1950 till it was abolished recently, the Planning Commission stayed and stood tall amid all policy making institutions of the country for 65 years. On 15 August 2014, India’s Prime Minister Narendra Modi declared to replace the Planning Commission by a new body. On January 1, 2015, the government by a resolution established the NITI Aayog to work as a policy think-tank of Union Government and to involve the states in economic policymaking.
Why Planning Commission was Established
Planning commission was a brainchild of Nehru and it was descendant of the National Planning Committee set up by Subhash Chandra Bose. Planning Commission was set up by a Government of India Resolution in 1950 as an advisory and specialized institution.
The planning commission emerged as an intellectual hub with distinguished scholars and economists as its members. It was such as a respectable body, that it became a role model for planning commissions and boards of many developing countries in those times.
How Planning Commission Lost Relevance
Gradually, both planning as well as planning commission lost rationale. It actually begun from 1960s, when successive droughts and poor harvests led the government to abandon planning for an interregnum of three years (plan holiday). These plan holidays were early signals of decline of planning commission. Slowly and steadily, the administrative fiat eroded its role and the spirit with which its original writer Nehru had launched it, was never revived later.
Due to administrative fiat, it was transformed into a government department without any proper function or mandate. Its functions collided with Finance Commission as well as Finance Ministry.
A few examples are:
However, despite no legal or constitutional backing, the Planning Commission continued to preside over the allocation of central funds meant for the “Plan” both for the centre and the states. There was a one-way flow of policy and for the state governments, the practice of requiring them to come to Delhi for their “plan approval” every year also continued. But, the focus was shifted to crisis management and academic exercises rather. If there is any other notable work of planning commission in recent times, it had been various committees and the ritual of preparing five-year plan documents, mid-term reviews etc. A few nice ideas that had been incubated in the planning commission included Direct Benefit Transfer, Financial Inclusion and Banking Correspondent models etc. The other specific factors that led to loss of its relevance wer as follows:
Globalization, Liberalization and Privatization
When the planning commission was launched, India was on the path of Nehru’s socialistic economy. Today, India is largely a market driven economy where three fourths of investments flow from the private sector. The planning in a largely market-driven economy which cannot be similar to an economy that is heavily controlled by the state. Thus, there was a need of shift in the focus of planning in current times in comparison to the past.
Shortcoming in the Planning Process
The planning process in India, particularly after liberalization, had become erratic due to several reasons such as:
Formation of NITI Aaayog
The National Institution for Transforming India, also called NITI Aayog, was formed via a resolution of the Union Cabinet on January 1, 2015. NITI Aayog is the premier policy ‘Think Tank’ of the Government of India, providing both directional and policy inputs. While designing strategic and long-term policies and programmes for the Government of India, NITI Aayog also provides relevant technical advice to the Centre and States.
An important evolutionary change from the past, NITI Aayog acts as the quintessential platform of the Government of India to bring States to act together in national interest, and thereby fosters Cooperative Federalism.
At the core of NITI Aayog’s creation are two hubs – Team India Hub and the Knowledge and Innovation Hub. The Team India Hub leads the engagement of states with the Central government, while the Knowledge and Innovation Hub builds NITI’s think-tank capabilities. These hubs reflect the two key tasks of the Aayog.
NITI Aayog is also developing itself as a State of the Art Resource Centre, with the necessary resources, knowledge and skills, that will enable it to act with speed, promote research and innovation, provide strategic policy vision for the government, and deal with contingent issues.
Aims and Functions of Niti Aayog
The key objectives to establish NITI Aayog were as follows:
On the basis of above, functions of NITI Aayog can be divided into four categories:
Plan and Non-Plan Expenditures
Government of India has now scrapped the plan and non-plan expenditures in budget exercise and their place has been now taken by capital and revenue spending classifications. The classification of plan and non-plan was a major exercise in India during planning era. Under this, all expenditures which were done in the name of planning were called plan expenditures while all other expenditures were placed under non-plan expenditures. Further, generally (not always), the plan expenditure produced some tangible assets related to economic development. This was the reason that plan expenditures were also called “development expenditures”.
Important non-plan revenue expenditures included the following:
Non-Plan Capital Expenditure included the following:
One of the most important headings under the non-plan revenue expenditures is “Interest payments on the loans taken by Government of India”. The plan components were related to items dealing with long-term socio-economic goals as determined by the ongoing plan process. They often relate to specific schemes and projects. Furthermore, they are usually routed through central ministries to state governments for achieving certain desired objectives. These funds are generally in addition to the assignment of central taxes as determined by the Finance Commissions. In some cases, the state governments also contribute their own funds to the schemes.
