Economic Planning in India: Notes, Objectives, Achievements & Shortcomings

In this article we will discuss about:- 1. Notes on the Concept of Planning 2. Objectives of Planning 3. Five Year Plans 4. Achievements 5. Shortcomings.

Notes on the Concept of Planning:

Planning is a continuous process that involves choices and decision making about allocation of available resources with the objective of achieving effective and efficient utilisation and growth of these resources. In India, planning is done both at the center as well as the state level. Economic planning is done by the central authority after a complete survey of the economic situation. The policy objectives are designed based on the future development goals of the country.

In India, until 2014, planning was the responsibility of the National Planning Commission that was established on March 15, 1950. The first five-year plan was prepared by the Planning Commission for the period 1951-56. The first Prime Minister of India, Pandit Jawaharlal Nehru was the first chairman of the Planning Commission. The Prime Minister was always the ex-officio chairman of the Planning Commission. The Deputy Chairman who was nominated by commission held the rank of a cabinet minister.

In 2014, the government led by Prime Minister Narendra Modi dissolved the Planning Commission and replaced it by the think tank called NITI Aayog. NITI here, stands for National Institution for Transforming India.

Objectives of Planning:

Planning plays a very significant role especially in a developing country like India.

The following are some of the objectives of economic planning in India:

1. Economic Growth and Development:

Every five-year plan had a growth target that had to be achieved by the end of the planning period. In order to bring about an improvement in standard of living of the people, the per capita income has to rise. A rise in per capita income is necessary to overcome the problems of poverty and its effects.

2. Increase in Employment:

The developing economies generally suffer from open unemployment and disguised unemployment. India is no exception to it. Slow growth of the agricultural sector and lack of investments in the industrial sector are major causes for high levels of unemployment in the country. Measures have been taken in every five- year plan to create employment opportunities, thereby, increasing labor productivity.

3. Increase in Investment:

Economic growth cannot be achieved unless adequate investments are made to bring about an increase in output capacity. Investments help in creating employment opportunities. One of the objectives of planning is, thus, to push up the rate of investment to ensure smooth flow of capital to various sectors of the economy.

4. Social Justice and Equity:

The five-year plans also focused on reducing inequalities in the distribution of income in order to ensure social justice. Prevalence of inequalities in the economy results in exploitation of the poor wherein the rich become richer and the poor become poorer.

5. Balanced Regional Development:

In India, there exists a wide gap in the development of different states and regions. While Gujarat, Tamil Nadu, Maharashtra etc., enjoy high levels of development, there are states like Bihar, Odisha, Nagaland etc., which remain backward. Planning aims at bringing about a balanced regional development by diverting more resources to the poor and backward regions.

6. Modernisation:

Modernisation refers to a shift in the composition of output, innovation and advancement in technology. Modernisation helps an economy to advance at a faster pace and compete with the developed nations of the world. The objective of planning is to encourage and incentivise investments into various sectors of the economy, especially the industrial sector, to help them adopt new technologies and thus, increase efficiency.

An Overview of the Five Year Plans in India:

First Five-Year Plan:

It was formulated for the period 1951-56, when India was confronting the problems of huge influx of refugees, food shortage and severe inflation. The plan, thus, focused on the primary sector, that is, the agricultural sector to increase the food production in India to overcome the crisis.

The monsoon was favorable to agriculture in those years and therefore, the production increased. The first five-year plan was quite successful as the targeted growth rate was 2.1 percent and the achieved growth rate was 3.6 percent.

Second Five-Year Plan:

It was formulated for the period 1956-61 and it focused on rapid industrialisation. The plan aimed at the development of heavy and basic industries and conceived that agricultural sector could be given lower priority as it has been able to achieve its targets in the previous plan. The second plan achieved only a moderate success due to the severe shortage of foreign exchange on account of huge imports to meet the requirements of the industrial sector. The actual growth rate achieved in the plan was 4.3 percent against the target of 4.5 percent.

Third Five-Year Plan:

It was formulated for the period 1961-66. The third five- year plan was prepared with the mindset that India has entered the ‘take-off stage’ and it is time for it to become a self-reliant and self-generating economy. The plan gave priority to both agriculture as well as the industrial sector.

However, the Indo-China conflict in 1962 and the Indo-Pakistan conflict in 1965 made the plan a complete failure as huge amount of expenditure had to be allocated to meet the defence requirements. The actual growth rate achieved in the plan was 2.8 percent as against the target of 5.6 percent.

The failure of the third plan led to the formulation of three annual plans for the years 1966-67, 1967-68 and 1968-69, before the launch of the fourth plan. The period from 1966 to 1969 was, therefore, termed as “Plan Holiday”. It was during this period that green revolution was introduced to overcome the food crisis. Green revolution advocated the use of high-yielding variety of seeds, fertilizers, pesticides and extensive use of irrigation.

Fourth Five-Year Plan:

It was formulated for the period 1969-74 and had two basic objectives growth with stability and progressive achievement of self-reliance. It stressed upon the growth of the agricultural sector and it was during this period that various family planning measures were introduced to control the rising population.

While the plan aimed at a highly ambitious growth rate of 5.7 per cent, it could achieve only 3.3 percent. This failure could be attributed to the huge influx of refugees from Bangladesh and the Indo-Pakistan war in 1972.

Fifth Five-Year Plan:

It was formulated for the period 1974-79 and proposed two main objectives removal of poverty and attainment of self-reliance. The plan aimed at achieving its objectives by achieving high growth rate, equitable distribution of income and increase in domestic savings. However, the plan was an utter failure due to high levels of inflation.

With the Janta Government taking over the power, the plan was terminated in 1978. The growth rate achieved during this period was 4.8 percent as against the target of 4.4 percent.

The Janta Government formulated the sixth five-year plan for the period 1978-83 with the objective of creating employment opportunities. The Janta Government, to its misfortune, lasted only for two years and was replaced by the Congress Government that came up with a different plan.

The Planning Commission, in the meanwhile, introduced the ‘Rolling Plan’ in 1978, which is said to incorporate three kinds of plans first plan for the current year, second plan for a specific period of 3, 4 or 5 years, according to the needs of the Indian economy and the third plan, for a longer term like 10, 15 or 20 years.

The rolling plan was, however, subjected to many criticisms and was later abandoned with Congress Government coming up with the sixth five-year plan.

Sixth Five-Year Plan:

It was introduced by the Congress Government for the period 1980-85. It was based on Nehru’s model of growth and aimed at a direct attack on the problem of poverty by creating conditions for increasing employment opportunities. Many employment generation schemes such as Training of Rural Youth for Self Employment (TRYSEM) and Integrated Rural Development Programme (IRDP) were introduced.

Though the plan progressed as perceived by the planners during the first four years, a severe famine occurred in the fifth year i.e., 1984-85. Therefore, the agricultural output declined drastically. However, the economy still managed to grow at 5.7 percent as against the target of 5.2 percent.

Seventh Five-Year Plan:

It was formulated for the period 1985-1990 and it aimed at accelerating food grain production, creating employment opportunities and raising labor productivity. The focus of the plan was on ‘food, work and productivity’. The plan was quite successful and recorded a growth rate of 6 per cent as against the targeted growth rate of 5 per cent.

Eighth Five-Year Plan:

This plan could not be formulated in 1990 due to uncertain political situation at the centre. Therefore, two annual plans for the years 1990-91 and 1991-92 were formulated. During 1991, India had to face severe balance of payment crisis. The debt burden was mounting and the fiscal deficit was widening.

The inflation level was rising and the industrial sector was going through a recession. Because of this crisis and the pressure from International Organisations such as IMF, the government led by P.V. Narasimha Rao introduced the economic reforms in 1991, post which the eighth plan was launched in 1992 for the period 1992-97 reflecting the reforms with various structural adjustment policies.

The role of the private sector increased and several liberalisation measures were introduced. As a result, the growth rate was the highest as compared to the previous plans. The eighth plan achieved a growth rate of 6.8 percent as against the targeted growth rate of 5.6 percent.

Ninth Five-Year Plan:

It was formulated for the period 1997-2002 and its aim was to achieve “growth with social justice and equality”. The plan recognised the critical role of the state in the social sectors such as health care, education and infrastructure, since the market forces, by themselves, may not make these areas attractive to the private sector.

The plan stressed upon the need for public investment in these areas. The ninth plan aimed at a GDP growth rate of 7 percent. However, due to poor performance of the economy during 1997-98, the growth target was revised to 6.5 percent. Yet, the target could not be achieved and the economy grew only at a rate of 5.4 percent.

Tenth Five-Year Plan:

It was formulated for the period 2002-2007. It was realised that the development goals cannot be achieved by targeting the economic growth alone. Therefore, the tenth five year plan set forth measurable targets on development indicators such as infant mortality rate, literacy, access to electricity, sanitation facilities, sustainable food production and environment.

The tenth plan targeted a growth rate of 8 percent. Further, it laid down targets for each state to ensure balanced development. The tenth plan was, however, not successful in terms of poverty reduction, generating employment opportunities and performance of agricultural sector. Many poor states faced decelerating growth.

Thus, the plan was not successful in bringing about balanced regional development as well. The plan also failed to achieve its target on infant mortality and maternal mortality rate. The tenth plan recorded a growth rate of 7.6 percent as against the targeted growth rate of 8 percent.

Eleventh Five-Year Plan:

It was formulated for the period 2007-2012 and the plan document was titled “Towards faster and more inclusive growth”. With the objective of achieving fast and inclusive growth, the eleventh plan had set targets for various socio-economic indicators.

It aimed at achieving a GDP growth rate of 9 percent, agricultural growth rate of 4 percent, generating 58 million employment opportunities, increase in wages of unskilled laborers, reduction in poverty by 10 percent, reduction in drop-out rate, increasing literacy to 85 percent, reducing gender gap, infant mortality rate and total fertility rate, reducing malnutrition among children, provision of safe drinking water, improvement in sex ratio, development of infrastructure and communication.

It also had measurable targets for environmental protection such as increase in forest and tree cover by 5 percent, improving air quality and increasing energy efficiency.

The eleventh plan had an ambitious target of achieving a growth rate of 9 percent. Though, the economy took off well achieving a growth rate of 9.3 percent during the first year, it had a drastic fall to 6.7 percent in 2008-09 due to the global financial crisis. The economy, however, managed to achieve a growth rate of 8 percent during this plan due to expansionary measures taken by the government.

Twelfth Five-Year Plan:

It was formulated for the period 2012-2017 and it focused on achieving faster, inclusive and sustainable growth. It aimed at achieving an inclusive growth by reducing poverty, reducing inequality, empowering people and by bringing in balanced regional development. The goals towards sustainable development focused on environmental sustain ability, improvements in health and education sector and development of physical infrastructure such as transport, telecommunication, power etc.

It had set a growth target of 8 percent and had set monitor able targets for poverty, education, health, infrastructure, environment and sustainability. It also aimed at providing banking services to 90 percent of the households and introduced Adhaar based direct cash transfer of subsidies and welfare payments.

The Planning Commission was replaced by the think tank called NITI Aayog (National Institution for Transforming India). The appraisal of the twelfth five year plan is now the responsibility of the NITI Aayog. Further, it has also been stated by the Vice Chairman of the NITI Aayog, Mr. Arvind Panagariya that the five year plans would now terminate with the end of the twelfth five-year plan and would be replaced by three documents.

The documents are said to cover the short-term by the formulation of a three-year Action Plan, the medium-term by the conceptualisation of a seven-year strategy and the long-term by laying down a 15 year Vision Document. The Vision document is said to express what India would achieve in 2022-23. India is, thus, all set to experience the new action plans of the NITI Aayog.

Achievements of Economic Planning in India:

Economic planning in India, formally conceived in 1951, has come a long way in helping the economy to tackle the challenges in various sectors and has enabled it to achieve rapid economic progress.

Some of the major achievements of planning in India are as follows:

1. Economic Growth:

Economic planning in India has been successful in increasing the national income and the per capita income of the country resulting in economic growth. The net national income at factor cost increased from Rs. 4393.45 billion in 1966- 67 to Rs.45, 733 billion in 2011-12 (at 2004-05 prices). The per capita income increased from Rs.8876 to Rs.38, 048 during the same period (at 2004-05 prices).

The average growth rate has increased from 3.5 percent during 1950 to 1970 to about 5.5 percent after 1990’s. The economy recorded a growth rate of 7.8 percent during the eleventh five- year plan.

2. Progress in Agriculture:

The first five-year plan focused on agricultural development. However, agricultural sector did not receive priority in the subsequent plans. Yet, with various initiatives implemented in the agricultural sector such as the green revolution and agricultural pricing policies, there has been a considerable increase in the output of the agricultural sector.

The index of agricultural production increased from 85.9 in 1970-71 to 165.7 in 1999-2000 (Base year- 1981-82). The production of major food grains which includes rice, wheat, coarse cereals and pulses has increased from 77.14 million tons in 1958-59 to 252.22 tons in 2015-16. With the introduction of green revolution, the yield per hectare of food grains has increased from 662 kg in 1959-60 to 2056 kg in 2015-16.

Similarly, the production of commercial crops has also recorded an increasing trend. Various reforms in the agricultural sector such as the Rashtriya Krishi Bima Yojana and Kisan credit cards during the ninth plan and National Food Security Mission and Rashtriya Krishi Vikas Yojana during the eleventh plan have been quite successful in improving the performance of the agricultural sector.

3. Industrial Growth:

Economic planning has also contributed to the progress of the industrial sector. The index of industrial production increased from 54.8 in 1950-51 to 152.0 in 1965-66 (Base year- 1960-61) which is about 176 percent increase in production during the first three five-year plans.

It went up from 109.3 in 1981-82 to 232.0 in 1993-94 (Base year- 1980-81). Taking 2004-05 as the base year, the index of industrial production recorded an increase from 108.6 in 2005-06 to 181.1 in 2015-16. The introduction of reforms in 1991 relieved the industrial sector from numerous bureaucratic restrictions that were prevalent earlier.

This has led to the rapid growth of the industrial sector in India. India has made remarkable progress in cotton textiles, paper, medicines, food processing, consumer goods, light engineering goods etc.

4. Public Sector:

The public sector played a predominant role in the economy immediately after the independence. While there were only 5 industrial public sector enterprises in 1951, the number increased to 244 in 1990 with an investment of Rs.99, 330 cores. However, the number of public sector enterprises fell to 217 in March 2010.

Yet, the cumulative investment went up to Rs.5, 79,920 cores. The ratio of gross profit to capital employed increased from 11.6 percent in 1991-92 to 21.5 percent in 2004-05. Heavy engineering and transport equipment industries recorded a 117 percent and 111 percent growth respectively in 2006-07 over the previous year.

Very high profits were recorded by petroleum, telecommunication services, power generation, coal and lignite, financial services, transport services and minerals and metal industries. The government has eliminated a number of restrictions on the operational and financial powers of the Navaratnas, Miniratnas and several other profit making public sector enterprises.

5. Infrastructure:

Development of infrastructure such as transport and communication, power, irrigation etc., is a pre-requisite to rapid economic growth and development. Expansion of transport facilities enables easy movement of goods and services and also enlarges the market. Irrigation projects contribute significantly to rural development.

Power projects help in meeting the growing demand for power by both industrial and household sector. The total road length increased from about 400,000 km in 1951 to about 4.7 million km in 2011. India has the second largest road network in the world with about 5,472,444 kilometers of road, as on March 31, 2015.

The route length of the Indian railway network has increased from about 53,596 km in 1951 to about 64,450 km in 2011. The investment in infrastructure as a percentage of GDP was about 5.9 percent during the tenth plan and increased to about 7.2 percent during the eleventh plan.

6. Education and Health Care:

Education and health care are considered as human capital as they contribute to increased productivity of human beings. Considerable progress was achieved in the education as well as health sector during the five-year plans. The number of universities increased from about 22 in 1950-51 to 254 in 2000-01. There were about 22 central universities, 345 state universities, 123 deemed universities and about 41,435 colleges in 2016.

The number of institutions in higher education has increased to over 100 percent since 2008. With the growth in the number of institutions, the literacy rate in India has increased from 16.7 percent in 1950-51 to 74.04 percent in 2011. With improvements in the health infrastructure, India has been able to successfully control a number of life threatening diseases such as small pox, cholera, polio, TB etc.

As a result, there has been a fall in the death rate from 27.4 per thousand persons in 1950-51 to 7.3 per thousand persons in 2016. The life expectancy has increased from about 32.1 years in 1951 to 68.01 years in 2014. The infant mortality rate has declined from 149 per thousand in 1966 to 37.42 per thousand in 2015.

7. Growth of Service Sector:

Service sector is the key contributor to the economic growth of India. The service sector contributed to about 53.2 percent of the gross value added growth in 2015-16. The contribution of the IT sector to India’s GDP increased from about 1.2 percent in 1998 to 9.5 percent in 2015. The service sector has recorded a growth rate of about 138.5 percent in the last decade.

Financial services, insurance, real estate and business services are some of the leading services that have been recording a robust growth in the past few years. The rapid growth of the service sector in India could be attributed to the inflow of huge amount of FDI in this sector. India’s share of service exports in the world service exports has increased from 0.6 percent in 1990 to 3.3 percent in 2011.

8. Savings and Investment:

Savings and Investments are major driving forces of economic growth. The gross domestic savings in India as a proportion of GDP has increased from 8.6 percent in 1950-51 to about 30 percent in 2012-13. The gross capital formation has increased from 8.4 percent in 1950-51 to 34.70 in 2012-13. Capital accumulation is the key to economic development. It helps in achieving rapid economic growth and has the ability to break the vicious circle of poverty.

9. Science and Technology:

India is the third most preferred destination for technology investments. It is among the top most countries in scientific research and space exploration. India is also making rapid progress in nuclear technology. ISRO has made a record of launching 104 satellites in one go on a single rocket. India today has the third largest scientific manpower after U.S.A and Russia.

The government has undertaken various measures such as setting up of new institutions for science education and research, launching the technology and innovation policy in 2013, strengthening the infrastructure for research and development in universities, and encouraging public- private partnership etc.

10. Foreign Trade:

On the eve of independence, India’s primary exports were agricultural commodities and UK and US were its major trading partners. India was largely dependent on other countries for various capital and consumer goods. However, with the development of heavy industries during the five-year plans, India has been able to reduce its dependence on other countries and was able to achieve self-reliance in a number of commodities.

With the liberalisation of trade, India now exports about 7500 commodities to about 190 countries and it imports about 6000 commodities from about 140 countries. The exports of the country increased from Rs. 54.08 billion in 1977- 78 to Rs. 17,144.24 billion in 2015-16. And imports have increased from Rs. 60.20 billion in 1977-78 to Rs. 24, 859.27 billion in 2015-16.

Shortcomings of Economic Planning in India:

1. Slow Growth:

The planning process in India has been able to achieve considerable increase in the national income and per capita income. Yet, the rate of increase has been slow as compared to developing countries like China, which have been able to achieve more than 10 percent growth rate consistently. India was able to achieve a growth rate of only about 4 to 5 percent during the pre-reform period. It was only during the post reform period that is after 1991, that the country could experience a growth rate of over 7 percent.

2. Neglect of Agriculture:

The five year plans failed to pay attention to the agricultural sector except for the first five-year plan. As a result, the agricultural growth rate declined from 3.62 percent in 1991-92 to 0.81 percent during 2009-10. And the share of agriculture in GDP declined from about 50 percent during 1950-51 to about 16 percent of the GDP in 2015.

3. Unemployment:

The plans have failed to address the problem of unemployment which is a cause of many social evils. The unemployment rate has marginally reduced from 8.35 percent during 1972-73 to about 6.53 percent in 2009-10. It was about 4.19 percent in 2013. The growth rate of employment has recorded a decline from 2.61 percent in 1972-73 to 1.50 percent during 2009-10. The employment in primary sector recorded a negative growth rate of 0.13 percent in 2009-10.

4. Widespread Poverty:

Failure to address the problem of unemployment has resulted in widespread poverty in the country. The first four plans failed to address the problem of poverty. It was only during the fifth five-year plan that measures were taken to tackle poverty directly by introducing various poverty alleviation programmes. These programmes, however, have achieved only limited success. The poverty rate in India declined from about 26.1 percent in 2000 to 21.9 percent in 2011.

5. Inflation:

Poverty is aggravated under the situation of inflation. The five-year plans have not been able to stabilise the prices due to which there has been a steep rise in the general prices. The inflation rate was around 10 percent in 2012.

6. Rising Inequality:

With rapid economic growth, the country has been witnessing a rise in the level of inequality. It has been estimated that the richest 1 percent own about 58 percent of the country’s wealth. Poor performance of the agricultural sector and lack of investments in rural infrastructure are cited as the primary reason for such rising inequalities.

7. Political Instability:

Political instability and inefficient administration are the major hurdles in successful implementation of the plans. Though the plans are formulated after complete analysis of the economic situation, most of the plans fail to achieve the targets due to inefficient administration, corruption, vested interests and red tapism.

The achievements and failures of the economic planning in India, thus, reveal the underlying gaps in the process of planning. It is an undeniable fact that the current level of growth and development that the country has achieved could not have been possible without planning.

Yet, systematic and efficient implementation of the plans and strategic policies to tackle the problem of unemployment and poverty could take the country to greater heights. It is strongly believed that the NITI Aayog would address these gaps that existed in the planning process in India and would strive to build a vibrant economy over the years.