Economic Planning

Economic planning is the making of major economic decisions—by the conscious decision of a determinate authority, on the basis of a comprehensive survey of a country’s existing and potential resources and a careful study of the needs of the people. The basis of socio-economic problems in India like poverty, unemployment, stagnation in agricultural & industrial production and inequality in the distribution of income and wealth can be solved with proper economic planning.

Recent Developments

Monetary Policy Committee

  • The Government of India set up a Monetary Policy Committee (MPC), a 6-member panel, to raise transparency in rate-setting decisions of the Central bank by featuring 3-members from the RBI (including the Governor) and 3-members selected by the Government.
  • Reason for Formation: The government’s decision to create the MPC was taken because the RBI had to consider multiple factors such as inflation, growth, employment, banking stability and exchange rate stability to make a rate decision. Moreover, the RBI had to juggle the Government’s demand for lower rates and consumer’s agitation over high inflation and ended up focusing on different issues at different points of time. Therefore, the MPC seeks to achieve monetary policies taking into account fiscal indicators as well.

Economic Planning

Planning is the process of achieving the goals for nation economic development by using resources in the well-planned way.

Types of Economy based on Planning:

  1. Planned economy: A planned economy is a type of economic system where investment and the allocation of capital goods are performed through economy-wide economic and production plans. A planned economy may be based on centralized, decentralized or participatory forms of economic planning.
  2. Command Economy: A command economy or administrative command economy is any of the nominally-planned economies of the former Soviet Union and Eastern Bloc, highlighting the central role of hierarchical administration in guiding the allocation of resources in these economic systems as opposed to planned coordination.

New Economic Reforms

  • De-reservation of the industrial sector: The industrial sector of the economy has been opened up to the private sector after the New Industrial Policy of 1991. Previously, the public sector has given reservation especially in the capital goods and key industries. Other operators- private sector and foreign investors were not allowed in these critical industries.
  • Industrial De-licensing Policy: The most important part of the new industrial policy of 1991 was the end of the industrial licensing or the license raj or red-tapism. Under the previous industrial licensing policies, private sector firms have to secure licenses to start an industry. This has created long delays in the startup of industries.
  • Opening-Up of the Economy to Foreign Competition: Another major feature of the economic reform measure was that it has given welcome to foreign investment and foreign technology. Opening up of the economy to foreign competition started a new era in India’s economic policy with permission to FDI up to 51% in selected sectors.
  • Liberalization of trade and investment: The economic reforms introduced extensive liberalization of foreign trade and foreign investment. The import substitution and import restriction policies were abandoned and instead import liberalization and export promotion policies were introduced. On the investment front, the economic reforms mark the era of capital mobility in the country.

Reforms related to the Public-sector enterprises

  • Reforms in the public sector were aimed at enhancing efficiency and competitiveness of the sector. The public sector will be concentrating in key and strategic sectors. Government has adopted disinvestment policy for the restructuring of the public sector in the country along with several other policies.
  • Abolition of MRTP Act: The New Industrial Policy of 1991 has abolished the Monopoly and Restricted Trade Practice Act.
  • Consequences: In 2010, the Competition Commission has emerged as the watchdog in monitoring competitive practices in the economy.
  • Financial Sector Reforms: On the financial sector the government is introducing numerous measures for the deregulation as well as liberalisation of the sector. Different banking sector reforms including removal of control on interest rate and branch licensing policy liberalization were launched. Capital market reforms and money market reforms were extensive after 1994. ww

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