planning in india ignou

8/11/2019 Planning in India IGNOU

1/13

UNIT 18 PLANNING IN INDIA

Structure

18O

Objectives

18.1 Introduction

18.2 General Approach Towards Planning

18.3 Plan Objectives

18.4 Plan Strategy

18.4.1 The Early Phase (195 1-60)

18.4.2 Development Strategy in the Sixties

18.4.3 Development Strategy in the Seventies and Eighties

18.4.4 New Development Strategy

18.5 Resource Allocation in the Indian Plans

18.6 Let Us Sum Up

18.7 Key Words

18.8 Answers to Check Your Progress Exercises

, 18.0 OBJECTIVES

After going through this unit, you will be able to:

explain the approach to planning in India;

elucidate the strategy adopted during planning; and

appraise the allocation of resources under plans.

18.1 INTRODUCTION

When India attained independence in 1947, not only was its economy in a stagnant

condition but also sluggish one. A very important and economically developed

part had gone to West Pakistan and India literally had to start from the scratch.

Obviously the immediate solution to the otherwise dilapidated economy was not

to rely on the market mechanism and private enterprise alone and rather adopt

a combination of state and market forces, the roles of which were to be decided

by the economic planning as an instrumentof economic development. Consequently

PlanningCommission was set in 1950 to assess the re irements of the economyfor the proper utilization of resources. India opted central planningas an instrument

of economic development based on the experience of socialist countries, but

adapted to Indian democratic h e w o r k . The first plan was adopted in 1950-51.

Since 1950-51, India has completed ten five year plans till 2007, and also fiveannual plans first in 1966-69 and then in 1990-92. The Eleventh five year planis in progress at present since 2007.


2/13

18.2 GENERAL APPROACH TOWARDSPlanning in India

PLANNING

Why do we need planning? Plans are documents that ensure a systematic growth

in an economy. They provide a framework where all the sectors and regions are

integrated for the overall growth of the country. Indian plans also followed a

strategy where not only the immediate needs were recognised but a long term

perspective was given for overall growth of the economy.

India apted

for planning with exactly the same purpose even before independence.

Bothleft

wing and right-wing leadefs were equally vehenent supporters of planning

inpre-indpendent India

Their view was that if India is toindustrialise,

the planning

must have a strategy for (i) heavy engineering and machine making industry (ii)

research institutes and(iii) electirc

power or energy. Role of small scale industries

was also stressed. As a result, we saw famous Bombay Plan (1944) ernphasising

on industrialisation as a general approachtowords

planning.

HistoryofPlanning

On the eve of Independence, India had to confront three immediate problems:

influxof refuges, food shortages and mountingmilation.Accordingly the immediate

objective of the first five year plan was to rehabilitate the refugees. Rapid

agricultural development was envisaged as long-term strategy to give 'big push',to the economy, as per Rosentein

Rodan.

According to him,"an economy, if ithas stagnated for a long period, would not grow unless, a big push is given to it."

Abird's

eye view suggests that while earlier plans stressed more on economic

growth as the major objective, it was objectives like self-reliance, generation ofemployment and poverty alleviation that was given priority in the later plans. TheSeventh plan emphasized more on the modernisation of the economy. Since

1991, however, the entire concern of planning and hence of the government

shifted towards, implementation of apmgramme

of macro-economic stabilisation

and fiscal correction.h u s

from the Eighth Plan onwards the transition from aplanned economy to a market-led economy started and in the subsequent plansthe government policies on trade, industry and public sector' undermined the

system of economic planning. Eleventh plan look aturn towads

inclusivegrowth

and social justice to the poor and marginalised sectors of the economy.

18.3 PLAN OBJECTIVES

Planning in India has the features of mixed economy where public and private

sectq.

are assigned major and complementary roles. The basic objectives of

planningin India were envisagedasofeconomicgrowth, employment, self-relianceand social justice. Apart

rom

these basic objectives eachp m

had its own

specific objectives dependingupon the respective needs, possibilities and constraints

As given in the Second Five YearPlan

(FYP) document there are four basic

objectives of planning in India,viz.,

a sizeable increase in the national incomesoas to raise the level of living in the


3/13

onomic evelopment rapid industrialisationwith particular emphasis on the developmentofbasicand

heavyindustries;

a large expansion of employment opportunities; and

reduction of inequalities in income and wealth and a more even distribution ofeconomic power.

Ifwe observe closely we find that these objectives are inter-related. A significant

increase in national income and a marked improvement in living standads cannotbe securedwithout a substantial increase in production of goods and services. Toachieve thiswe need a lot ofinvestments.In the longrunan incre sein production

can be realised by promoting basicindustrieslike steel, machine building,coalandheavy chemicals. Because these are the industries, which have strong linkageswithother economic activities. For simultanewsdevelopment in all these directionsthe available natural resources and manpower have to be used. Further, thepattern of economic development should reflect certain basic social values and

puposes.Development should result inreductionof economicand social inequalities

While the above-mentioned objectives have been there in alltheFiveYearPlans,there havebeenvariations in emphasis on difffkent objectives crossPlans. While

earlierFYPs stressed more on economic growth as the major objective, objectiveslike self-reliance, generation of employment and poverty alleviation were givenpriorityin the laterPlans.TheSeventh Plan emphasised more on themodemisationof the economy. Since 1991, however, the entire concerns of planning andhence

of the government shifted towards stability in the economy.Thus the objective ofplanning hasbeen focussed on bringing down the rate of inflahon int r st rate,

subsidies, fiscal deficit and foreign debt;and improvements in balance of payment

position and fbreignexchange reserve.In theproces Indian economyhaswitnessed

a transition fiom a planned economy to a market economy.

An important aspect of Indian planning hasbeenemphasis on human development,whether through reduction of inequalitiesand poverty-alleviationmeasures inthe

earlier plans or throughrur l

development programmes in the later plans. For this

purpose the projection of the state was welfare state, this notion however waschanged and in the ninth and tenth plans the governmefit expected beneficiaries

to be the active participants in'the growth process as well.

CheckYour Progress1

Note: i Space given below for your answers.

i Check your answers with those given at the end of the Unit.

1) Outline the basic objectives of Indian planning.

....................................................................................................................

....................................................................................................................

....................................................................................................................

....................................................................................................................


4/13

Planning in India

....................................................................................................................

....................................................................................................................

....................................................................................................................

....................................................................................................................

....................................................................................................................

....................................................................................................................

3) State whether the following statementsaretrue or false.

a) Increase in inequality has beenanobjective of ndiimplanning.

b) Sovialjustice with economic growth was the objective of Indian plans.

c). So far India has seen ten five year plans and fiveannualplans.

18.4 PLAN STRATEGY

To achieve the Plan objectives mentioned above India has followed certain Planstrategy. Indian f ans followed a strategy where not only the immediate needswere recognised but a long term perspectivewasalso given for overall developmentof the economy.On the eve of Independence, lndia had to c o h n t three immediateproblems, viz., i) influx of refbgees, ii food shortages, and iii high inflation.Accordingly the immediate objective of First Five Year Plan (1951-56) was toconsolidate the economy.

In order to understand the strategy under different Plans in India, the process of

planning and development in India can bedivided into the following four phases:

The Early phase;

Development strategyin thesixties;

Development strategyin the se tzntiesandeighties;and

Newdevelopment strategy.

18.4.1 The Early Phase 1951-60)

During the early phase (1951-60) the emphasis was mainly on growth, that is, toraise the level of output in the economy. Therewere threemain aspectssuch asi) developing sound base for initiating the long term growthof the economy, ii acomparativelyhigh priorityto industridisation,and iii emphasison thedevelopment ,

You may recall that at that point of time Indiawas emerging h m the imbalances

created first by the Second World sirand subsequently by the partition of thecountry.In such an economic environment the top priority was to i overcome thefood shortages, ii) the development of infrastructure like energy, transport andcommunication,and ii provision of itrigation facilitiesso that gricul n lp w o n


5/13

conomic Development The Second Five Year Plan was built on a strategy of long term development of

the economy. Since the draft of this Plan was prepared by P. C. Mahalanobisand Nehru was the Prime Minister of the country this strategy is often called

Nehru-Mahalanobis growth strategy which emphasised on industrialisationof theeconomy, particularly heavy industries. The rationale for such a strategy was thatin an industrially backward economy with low productivity, the agricultural sectorcould not provide more employment. It was argued that development of theindustrial sector is a precondition for development of agricultural and other secton

Hence during this phase of planning, capital goods industry like iron and steel,heavy engineering, machine tools and heavy chemical industries were given highpriority. Secondly, it was visualised that heavy industries will induce developmentof small scale industries and growthwill 'trickle down'. Inotherwords, as a resultof the growth in heavy industries, growth will percolate below.

This strategy, however, had its limitations as it put more emphasis on capitalgoods, which resulted in scarcity of essential commodities. The problem becameacute in the later years of the Second

F W

when there was food scarcity due to

bad harvest. Consequently, in the subsequent Plans greater attention was given to

agriculture. As opposed to the emphasis on the role of capital goods, the emphasiswas on the role of consumer goods. Moreover, the strategy visualised that thec m t onsumption needs of the people would beadequately met through a l d yavailable productive capacity and if some shortages arise, the problem would beovercome by introducing 'state level controls'.

Government intervention, however, proved to be inadequate and the country hadto import foodgrains in large quantities. It put pressure on the already

difficult

'balance of payment' position of the country. Smndly , this strategy visualised fullemployment by realising 5% annual increase in national income, which was nottranslated in terms of actual projects, and expectati~nsdid not materialise. Thestrategy did not result in 'trickle down effects' and there was no reduction inincome

inequalities A supporting institutional framework was required to beadopted as a policy measure to redistribute the assets. Therefore, landreforms legislation was enacted for the redistribution of surplus land. The success

of such institutional measures, however, is a debatable issue.

18.4.2 Development Strategy in the Sixties

With the beginning of theThirdPlan (1% 1-66) it was felt that the Indian economyhas entered the 'take off stage and the first two F W s generated the necessaryinstitutional mechanism for rapid economic development. Consequently in theThird FYP a goal of 'self reliance' was set. Leaning from the experience of thefirst two F W s , the Third FYP accorded a high priority to agriculture along withthe emphasis on the development of the basic industries. During this period thedevc:lopment process ran into serious difficulties. The county had to import largequantity of

foodgrains

as a result of falling growth in agricultural output and rapidlyincreasing population. There was large trade deficit, as huge investment in heavyindustriesrequired large imports without matching increase in exports.Asa result,

there was decrease in savings rate, widespread unemployment particularly in ruralIndia and concentration of economic power in the hands of few urban industrialistsand rich farmers: At this juncture several research studies indicated that income

'inequality had increased in the country which indicatcd the failure of planning. Thisled

t

rethinking on the development strategy and h,dia observed a 'plan holidayduring 1966-69.


6/13

In1969

when the FYP was resumed the objective of economic growth and self Planning in India

reliance was not given up. But themainemphasis got shifted h m heavy industry

toquickyieldingp j e c t s and sm llscale indushy.Similarly creation of ihstructureincluding roads was given priority. For development of agricultural sector highyielding varieties HYV)of seeds and chemical

fertiliser

were given priority ascompared to community development. The Fourth

FYP

set before itself twoprincipal objectives: rapidgrowth n rossdomestic product (GDP)and p r o w i v eachievement of self-reliance.

18 4.3

Development Strategy in the Seventies and Eighties

The Fifth FYP (1974-79) was introduced at a time when India was in deepeconomic crisis due to global hike in crude oil prices. Since the planners wereinterested in the slogan of

garibi hatao

and attainment of self-reliance it was

envisagedtoachieve these objectives through betterdistribution of income, higherrates of growth and by direct attack on the problem of unemployment, under-

employment and acute poverty. The Fifth Plan was terminated by the new JanataParty government one year before its completion and the Sixth FYPwas adopted.

In fact, India had two Sixth FYPs practically (1978-83 and 1980-85).The SixthFYP adopted by the Janata Party (1978-83) was discarded in 1980 with thechange in government at the centre. The Sixth Plan (1978-83) admired theachievements of earlier Plans n India but aiticised theNehru-Mahalanobis growthstrategy holding it responsible for unemployment,

growing

poverty, concentrationof economic power in the hands of few and widening of income and wealthinequalities. The focus of the Sixth Plan (1978-83) was increasing the employmentpotential in agriculture and allied activities. When the new sixth FYP (1980-85)was introduced by the congress government, planners rejected the approach ofJanata Party and brought back the earlier model of growth. In order to tacklethe pmblem of poverty therewas direct attack on poverty by adopting programmeslike Integrated Rural Development Programme (IRDP) and National RuralEmployment kgramme

(NREP).

On the whole, the Sixth Plan undermined the role of public sector by reducing itsshare in total investment. This Plan was

criticised

on account of appeasing thepress groups like

h r s

by givingunsustainable

increase inagricultural pricesand industrialistsby relaxing licensingsystem and control. More open door policywas followed towards foreign capital and multinational

carporations.

Hence by

this period the policies were already swinging away and market started takingdominationovei

the state.

The Seventh YP (1985-1990) was introduced with a change in the developmentstrategy. It was envisaged to bring down the rate of population growth becausethe gainsof growth

often

gotneutralised

by fairly highgrowth rates of population.There were four basic elements that signitjl a change in the strategy in this Plan.

First, it gave importance toGgheragricultural production by relying more on newtechnology.Second,it undermined the role of public

sector

and induced promotionof private sector

through

indmhial

dsregulation lhd with Libadkitionofimports,

itaimedat raising efficiency in the manufacturing sector. Fourth, necessary changesin industrial and export-import policies were made so that the role of the statechanges

h m

a regulatory tofacilitatory

authorities. In totality this strategy was asJohn W. Mellor defines, a strategy of Agricultural Development-led Growth(ADLG). It was expected to show better results due to (i) strong domestic links

betweenagricultureand industry,(ii) less import intensityof investment in adculture,25


7/13

onomic evelopment(iii) greater employment potential in agriculture. ADLG strategy however did not

lead to favourable results and hence there was call for a strategy of balancedgrowthbetweenagricultureand industry.

18.4.4 New Development Strategy

During the late 1980s until 1990-91, the country faced severe financial crisis andthe year 1991 turned out tobe a difficult time for the economy. India had to face

serious foreign exchange problem and the government responded to the crisis intwo ways: (i) short t rm stabilisation measures,and (ii) long term structuralmeasures.The former measures were to restore the confidence of the government to managebalance of payment problem. The latter were, however, long term measureswhere government decided to introduce substantial economic reforms to bringdynamism to the economy. It took four major policy initiatives, viz., (i)rnacmemmmicstabilisation, (ii) tmde policy reforms, (iii) industrial policyreformsand (iv) public sectors reforms (details of these policy measures will be thesubject matter of the unit on economic reforms).

Since 1990-91, two annual plans (1990-91 and 1 991-92).and four FYPs havebeen adopted so far, FYPs i.e., the Eighth (1992-97), Ninth (1997-02), Tenth(2002-07) and Eleventh (2007-12) FYPs. The philosophy, approach and strategyhave been the same for eighth, ninth and tenth thethreeFYPs which are guided

by the measures of improving the performance and increasing the efficiency of theeconomy. The focus in these FYPs is different compared to earlier Plans, wherepeopleare not mere beneficiaries of development; they are activeparticipants in

the development process. Unlike earlier Plans where a centralized approach isfollowed, the Plans after 1990 have stressed more on decentralized and .participatory approach of development.

Eleventh plan envisions an economy and provides for an opportunity torestrictureexisting po.f icieswith inclusive growth. It aimed at putting the economy on asustainable grow the trajectory with as growth rate of the per cent. The keyelement of the strategy for inclusivegrowthis to provide access to basic facilitiessuch as health, education, clean drinking water.

Following points bring out the shift in the strategy of the Plans during this phase:

Greater flexibility in fiscal and monetary policies;

a Shift in the policyh m the focus on national targets to taking cognizance of theperformance ofdifferentstates in the country and efforts towardsbridging inter-stateinequality;

a Ensuring equity and social justice;

. a Bringing capacityutilisation in the manufacturing sector;

a Reduction in thegestationlagsof industrial and inhtructural investments;

aRationalisationof labour laws and regulations;

a Introducing financial sectorrefoms so that the viability and stability of financialinstitutions improves financial sector in India should be able to and willing tofinance a range of activities thatareof crucial importance both for growth and


8/13

Re-examination of the subsidies providedtoagriculturalsector, pl nning in In

Revivalofpublic

investment inirrigation

and water management;

Removal of thereservation

policy for small scaleindustries

in a phasedmanner,without adversely affecting employmentopportunities;

Development of telecommunications, energy, and housing sector on aprioritybasis;

Makingan decisive impacton thequalityofife ofthemajorityofpeopleespecially

poor

andmarginalised

and

Settlingsocio-economic

targets by makingsocialinterventions.

Check Your Progress2

Note: 3 Use the space given below for your answers.

Check your answers with those given at the end of the Unit.

1) Outline the changes in plan strategy in the Indian planningpmms.

2) Bring out the important aspectsofthenewdevelopment strategy.

....................................................................................................................

....................................................................................................................

3) State whether the followingstatementsaretrueorEalse

a) TheFirstFiveYear lan ondevelopment of inigation capacity.

b) Direct attack on poverty was a plan strategy during the1980s.

c) Trickle down effectvisualised

that richfarmers

would benefit fiomgr n

revolution

d) Mahalanobismodel formed the basis of the Second Plan.


9/13

onomicDevelopment18.5 RESOURCE ALLOCATION IN THE

INDIAN PLANS

Investment pattern of Indian Plans reflects the objectives and implementation of

actual planning strategy. Therefore, it is important to look at ther som

allocation

under various Plans. For a better view of resource allocation the economy can

be divided into three main se tor - ~ . e . ,agriculture, industry and infrastructure.Importance of agriculture is self-evident asmajority of population in India stilldepends on it. Economic development and modernization processare inter-related

as no country can develop without giving due emphasis to the development of

industry. Similarly, for sustaining the long t e rn development of an economyinfrastructure play a very significant role. Unless transport and communication

facilitiesareexpanded no industry or businesscan flourish, unless power genet tonis given due attention the whole programme of industrialisation can suffer; and

agricultural development cannot take place without expanding inigation facilities.

As mentioned earlier, the First Plan had the main objective of correcting thedisequilibrium and initiating the process of all round development. The investment

pattern was accordingly worked out with due regard to immediate and long t a mobjectives. The highest

alloc&on

was provided for transport and communication

followed by inigation and flood control. Since the First Plan did not visu liseany

large scaleind wtdisat ion programme; ind es

received only3%of totalresourceallocation.

As noted earlier the Second FiveYearPlan emphasised large scale industrialisation.Consequently, following a strategy of development of heavy and capital goodsindustries, a substantial change in the investment pattern took place. The share of

industry and minerals was raised to 20% of the total resource allocation, thesecond highest after transport and communication, which was allocated 27% of

the total resources. The Second FYP also gave importance to village and smallscale industries as compared to the First

FYP

and resource allocation was doubled

from 2% to 4% in this period. Agriculture and allied sectors were given lesspercentage of resources in the Second Plan compared to the First Plan (from

15% to 12%) because of the change in priority.

The Third FYP was almost double the size of the Second FYP as the total

expenditure increased h m Rs. 4,672 crore in the Second Plan to Rs. 8,577

crore inThird Plan. The expenditure on agriculture and allied activities were also

doubled in absolute t m s . The p&entage oftotal expenditure allottedto transportand communication though declined slightly from 27% to 24 , it was still the

highest in the Third Plan. The resource allocation to industryand minerals were

almost sameat20% of thetotal reso . Power(energy) received a comparativelyhigher percentage of resources (15%) in the Third Plan as against 9% in the

Second Plan.

Asmentioned earlier, subsequent to the Third FYP there was a plan holiday andthree annual plans during 1966-1969 were adopted. The total expenditure under

the three annual plans wasRs.6,625 crore. Almost one-fourth (23%) of the total

resources went to industry and minerals; 18% went to transport, cornmunicationand power sectors while 17% was allocatedtoagriculture and alliedsectors.The

p w i n g importance

of energy or power sector in the Indian p l h g was evidcntas the resources accorded to the development of power continuously increased


10/13

m 7.6% in the First Plan to18% in the three annual plans. This was particularly Planning in India

necessary under the condition of power shortages and its adverse effect on

industrial production in the country.

The actualexpenditure under the Fourth Plan wasRs.15,779 crore as against the

plan outlay of Rs 15,902 crore. In view of the growing concern of the plannerstowards emerging bottlenecks in the transport and communication sectors, it wasallocated the highest percentage of resources (19.5%). The second highest allocation

of resources (18.6%) was given to the power sector in the Fourth Plan. This wasin view of the realisation that futuredemand for power was going to increase.

'Moreover, it was important not only togenerate more capacity but the transmission

and distribution of power were also requiredto be expanded. Industrial sector

continued to receivehigh priority. Resource allocation under the Fourth Plan to

this sector was 18%; marginally lower than the transport and communication

sector as well as the power sector. Since the Third and annual Plans periodobserved slow and erratic industrial growth, it was imperative in the Fourth Plan

to adopt such policies. Moreover, despite recognising the importance of village

and small scale industries in generating employment, this sector was still getting

less and less proportion of resources. Agriculture and allied sectors were givenhigher proportion of resource allocation during the Fourth Plan because of the

high investmentdemands of the 'green revolution strategy' adopted since 196667.

Thus the planners rightly increased the resource allocation for agriculture as

compared to pr


11/13

onomic Development was also declining and in the Tenth Plan a clear picture emerged in favour of

enerm and t r a m o r t and communications sectors.

Eleventh plan (2007-12) recognised that overall financial system need to be

strengthened and developed through improved regulatory mechanisms.Thus theplan envisaged the growing role of private sector banks and foreign financial

institutions, Priorities shifted to agriculture and industry compared to services

sector. However, in both agriculture and industry many new areas were focused

keeping in mind the objective of inclusive growth and social justice to the poorand

rnarginalised

sections of society. In doing so, the significance of public-private

sector partnership was impressed upon.

heckyourProgress3

Note: i Use the space given below for your answers.

Check your answers with those given at the end of the Unit.

1) Which sector got the highest priority during the First and Second Five Year

Plans?

a) Transport and communication

b I n d w

c)Irrigation

and Flood Control

2) Third Five Year plan gave priority to which sector?

a) Transport and Communication

b) Power

c) Village and Small Scale Industries

3) Seventh Plan onwards, which sector got prominence by a sizeable percentage

of resource allocation?

a

nergy

b) Transport, industry and minerals

c) Agriculture and Allied services

18.6 LET US SUM -UP

In the present Unit, you learnt about the process of planning in India. Beginningwith theFirst Plan (1 951-56 , to the Eleventh Plan (2007-12) presently in operation,

the objectives, approach and strategy of the Plans have been explained. The unit

also introduced you to the sector-wise allocation of resources in each Plan., It .

explains that planning in Indiahascome a long way. Overall its objective has been

similar, but the strategy to achieve these objectives has been changihg depending

upon the need of the hour. India that startedwith a process of centralised planning

is now following a more open and decentralised approach.


12/13

Basic Industries


13/13

1) You have to emphasise major focus of concentrationin each plan. For examplehighlight whether focus was on industry or agriculture or services.

2) See Sub-section 18.4.4

3) a) true b)tru

c) false d) true.

CheckYour Progress 3

planning in india ignou

Documents