Economic Planning in India PDF

Economic Planning in India An overview of 65 years of planned economic growth in India -Dr. Kalyani Bondre Types of Economic Planning ⚫ Directive planning v/s Indicative planning (Imperative planning v/s planning by incentives or inducements) ⚫ Authoritarian v/s Demo...

Economic Planning in India An overview of 65 years of planned economic growth in India -Dr. Kalyani Bondre Types of Economic Planning ⚫ Directive planning v/s Indicative planning (Imperative planning v/s planning by incentives or inducements) ⚫ Authoritarian v/s Democratic Planning ⚫ Short term, Medium Term, Long Term Planning (perspective planning) ⚫ Fixed plan v/s Rolling Plan ⚫ Physical v/s Financial Planning Background of Economic Planning in India ⚫ Planning: A Socialist Principle ⚫ Five year plans implemented in Russia in the 1920s (Stalin) ⚫ Important for India to have planned economic development after independence. ⚫ Basic objectives: Growth, Self Reliance and Social Justice First Five Year Plan (1951-1956) ⚫ Background: WWII and Partition of the Country. ⚫ Problems: Influx of refugees, severe food shortage and mounting inflation. ⚫ Immediate Objectives: Rehabilitation of refugees, food self-sufficiency, rapid agricultural development. ⚫ A modest target growth rate of 2% Second Plan (1956-61) ⚫ Mahalanobis Model ⚫ Atmosphere of economic stability, good agricultural growth in the 1st plan, price level registered a fall. ⚫ Big push to the economy (in the industrial sector) so that it enters the take-off stage. ⚫ Industrial policy resolution of 1956 accepted a socialistic pattern of society. ⚫ Goal of Rapid Industrialization with particular emphasis on the Basic and Heavy Industries  Third Plan (1961-66) ⚫ Planners felt India had reached the Take-Off stage; goal now was self-reliant and self-generating economy. ⚫ Top priority to agriculture, but also emphasized the need for basic and heavy industries. ⚫ State Education Boards, Electricity Boards, and Transport Corporations were set up. ⚫ War with China in 1962 and Pakistan in 1965, shifted the focus from development to defence. Plan Holiday (1966-69) ⚫ Drought, devaluation of the Rupee, inflationary recession, pressures on the economy due to war. ⚫ Three annual plans from 1966 to ’69 ⚫ Bitter lesson learnt during the war when allies refused to supply raw material and essential equipment. Fourth Plan (1969-74) ⚫ Two principal objectives: Growth with stability and progressive achievement of self-reliance. ⚫ Aimed at 5.5% growth rate and provision of national minimum for the weaker sections of the society (Garibi Hatao). ⚫ Nationalisation of Banks in 1969 ⚫ Green Revolution ⚫ War with Pakistan in 1971 and Bangladesh War took away funds ear-marked for development. ⚫ Nuclear Tests in 1974 Fifth Plan (1974-79) ⚫ Problems of Inflation, fuelled by the Petroleum shock of 1973 ⚫ Removal of poverty and growth with social justice: main problem of unemployment ⚫ Self-reliance in Agricultural Production ⚫ Emergency: 1975-77 ⚫ Janata Govt. under Morarji Desai terminated the fifth plan in 1978. Janata Govt. Sixth Plan (1978 to 83) ⚫ Praised the achievements of planning, but criticised the Nehru model for growing unemployment and concentration of economic power. ⚫ Rolling Plan (Perspective planning) ⚫ Higher production with greater employment ⚫ Employment potential in agriculture and allied activities, household and small scale industries. Congress Govt. Sixth Plan (1980-85) ⚫ Terminated the Janata Govt. sixth plan and brought back the focus to poverty alleviation and Nehru model of growth ⚫ Establishment of NABARD in 1981 ⚫ Period of the beginning of liberalisation world over. ⚫ Surpassed the target growth rate of 5.2% with an actual growth rate of 5.4% Seventh Plan (1985-90) ⚫ On the background of successful sixth plan; the emphasis was now on increase in productivity, accelerating foodgrains production and increasing employment ⚫ Emphasis on modern technology, energy production, primary education ⚫ Thrust areas: agricultural development, anti-poverty programmes, food security, increasing productivity of small and large-scale farmers, and making India an independent economy. ⚫ Surpassed the target of 5% by an actual growth rate of 6% Eight Plan (1992-97) ⚫ The eight plan could not take off in 1990 as planned due to political changes at the centre. ⚫ Background of 1991: Forex crisis, free market reforms, LPG: Rao-Manmohan Model of Development ⚫ India joined the WTO in 1995 ⚫ Critical examination of the role of the public sector, emphasis on modernisation of industries, strengthening infrastructure. ⚫ Population control, safe drinking water, primary education for all. Ninth Plan (1997-2002) ⚫ Coincided with 50 years of India’s independence. ⚫ Ninth plan of the Vajpayee Govt. aimed at: Structural transformations and development in the Indian economy. Efficient use of scarce resources to ensure rapid growth. Combination of public and private support to increase employment. Enhancing high rates of export to achieve self-reliance. Providing services like electricity, telecommunication, railways, primary education, etc. Tenth Plan (2002-2007) ⚫ Attain 8% GDP growth per year. ⚫ Reduction of poverty rate by 5% ⚫ Providing gainful and high-quality employment ⚫ Reduction in gender gaps in literacy and wage rates by at least 50% ⚫ The tenth plan was expected to follow a regional approach rather than sectoral approach to bring down regional inequalities. ⚫ Importance to sustainable development, organic farming, eco-friendly technologies and green agriculture Eleventh Plan (2007-12) ⚫ Rapid and inclusive growth.(Poverty reduction) ⚫ Emphasis on social sector and delivery of service therein. ⚫ Empowerment through education and skill development. ⚫ Reduction of gender inequality. ⚫ Environmental sustainability. ⚫ To increase the growth rate in agriculture, industry and services to 4%,10% and 9% respectively. ⚫ Reduce Total Fertility Rate to 2.1 ⚫ Provide clean drinking water for all by 2009. Twelfth Plan (2012-2017) ⚫ Post recession period, consolidation ⚫ Target growth rate of 8% ⚫ Reduction in poverty by 10% during the plan period ⚫ Reduction in subsidy burden and fiscal deficit ⚫ The Modi Govt elected in 2014, announced the dissolution of the Planning Commission, and its replacement by a think tank called the NITI Aayog (an acronym for National Institution for Transforming India). Planning Commission and Finance Commission ⚫ The Federal Structure of Govt. in India provides independent financial control to the Centre and the States to perform their exclusive functions. ⚫ The Constitution of India has made provisions to recommend to the President, certain measures relating to the distribution of finance between the centre and the states. ⚫ It finds out revenue gaps and also recommends grants-in-aid for the states. ⚫ Meanwhile, to promote the process of planning, an additional body, the Planning Commission, was formulated. Planning Commission and Finance Commisssion ⚫ The Planning Commission played a vital role in the process of determining central assistance to the states, as all developmental plans, programmes and projects were within its purview. ⚫ All grants, loans or aid given to the states by the centre for developmental work were dependent upon the recommendations of the Planning Commission. ⚫ In India, the responsibility of mobilising resources for economic planning was given to the Planning Commission. ⚫ The effective responsibility, though finally rests on the Finance Ministry Financing of Five Year Plans ⚫ Domestic Budgetary Resources Including Taxation ⚫ Other sources of Government Revenue ⚫ Domestic Capital ⚫ Foreign Assistance ⚫ Deficit Financing ⚫ With the enactment of the Industrial Policy of 1970, the Government decided in favour of including private capital also in the process of planned development Appraisal of Planning in India Major Achievements ⚫ Higher Rate of Growth ⚫ Growth of Economic Infrastructure ⚫ Development of Basic and Capital Goods Industries ⚫ Faster Growth of Agriculture ⚫ Economic Self-Reliance ⚫ Increasing Employment Opportunities ⚫ Increased Life Expectancy and Reduced Infant Mortality Appraisal of Planning in India Major Failures: ⚫ Regional Imbalance ⚫ Inequality of Income ⚫ Inflation ⚫ Inadequate Growth of Agriculture ⚫ Problem of Poverty Persists NITI Aayog ⚫ An empowered role of states as equal partners in national development; operationalising the principle of Cooperative Federalism. ⚫ A knowledge hub of internal as well as external resources, serving as a repository of good governance best practices, and a Think Tank offering domain knowledge as well as strategic expertise to all levels of the government. ⚫ A collaborative platform facilitating Implementation; by monitoring progress, plugging gaps and bringing together the various ministries at the Centre and in states, in the joint pursuit of developmental goals. Changes in the last 65 years ⚫ The government agrees that the Planning Commission has served India well. ⚫ However, India has changed dramatically over the past 65 years at multiple levels and across varied scales. ⚫ These transformatory forces have changed the very contours of India—highlighted by the government document in the five areas: ⚫ Demographic Shift ⚫ Economic Shift ⚫ Shift in the Private Sector ⚫ Globalisation ⚫ Technology Background ⚫ The changes like demographic Shift, economic Shift, shift in the private Sector, globalisation, technology, changing role of the states, have been recognised by the experts for years now. ⚫ The Government quotes such instances when appropriate changes were advised in the Planning Commission by the experts, committees, even the PC, among others: ⚫ (i) The 8th Plan (1992–97) document (the very first after the reform process commenced in 1991) categorically stated that, as the role of the government was reviewed and restructured, the role and functions of the PC too needed to be rethought. The PC also needed to be reformed to keep up with changing trends, relieving itself of the old practices and beliefs, which had lost relevance, and adopting new ones based on past experiences of India as well as other nations. Specifically, the PC needed to be in tune with the process of economic reforms. Background ⚫ (ii)The Standing Committee on Finance of the 15th Lok Sabha observed in its 35th Report on Demand for Grants (2011–12) that the “PC has to come to grips with the emerging social realities to re-invent itself to make itself more relevant and effective for aligning the planning process with economic reforms and its consequences, particularly for the poor”. This was the need of making the planning process relevant to the process of economic reforms. ⚫ (iii) The former Prime Minister, Dr. Manmohan Singh, in his farewell address to the PC (April 2014), also urged reflection on ‘what the role of the PC needs to be in this new world. Are we still using tools and approaches which were designed for a different era? What additional roles should the Planning Commission play and what capacities does it need to build to ensure that it continues to be relevant to the growth process?” This observation has quite high relevance, as Dr. Singh is himself a “noted” economist. Main principles of NITI Aayog ⚫ The government quotes Mahatma Gandhi before going for the change: “Constant development is the law of life, and a man who always tries to maintain his dogmas in order to appear consistent drives himself into a false position”. ⚫ The government adds further, keeping true to this principle our institutions of governance and policy must evolve with the changing dynamics of the new India, while remaining true to the founding principles of the Constitution of India, and rooted in our Bharatiyata or wisdom of our civilizational history and ethos. ⚫ It was, in every sense, a kind of pledge to devise India’s own means, methods, tools and approaches to promote development. For the government, the NITI Aayog is to be the institution to give life to these aspirations (discussed above). ⚫ The Aayog is being formed based on extensive consultation across a spectrum of stakeholders, including inter alia state governments, relevant institutions, domain experts Functions of the NITI Aayog ⚫ With the process of maturity and deepening in Indian nationhood, the country has embraced a greater measure of pluralism and decentralisation. This necessitates a paradigm shift in Central government’s approaches to the governments in the state, as well as at the local levels. ⚫ The state governments and the local bodies must be made equal partners in the development process through the following changes: (i) understanding and supporting their developmental needs and aspirations, (ii) incorporating varied local realities into national policies and programmes with the required flexibility Functions of the NITI Aayog ⚫ Cooperative and Competitive Federalism: It will be the ‘primary platform’ for operationalising cooperative federalism, enabling states to have active participation in the formulation of national policy, as well as achieving time-bound implementation of quantitative and qualitative targets through the combined authority of the Prime Minister and the Chief Ministers. It would mark the replacement of the one-way flow of policy from centre-to-state, with a genuine and continuing Centre-State partnership. Functions of the NITI Aayog ⚫ Shared National Agenda: It will ‘evolve’ a shared vision of national development priorities and strategies, with the active involvement of the states. This will provide the framework ‘national agenda’ for the Prime Minister and Chief Ministers to implement. ⚫ State’s Best Friend at the Centre: It will support states in addressing their own challenges, as well as building on strengths and comparative advantages. This will be through various means, such as coordinating with ministries, championing their ideas at the Centre, providing ‘consultancy’ support and ‘building capacity’ Functions of the NITI Aayog ⚫ Decentralised Planning: The new body is to ‘restructure’ the planning process into a ‘bottom-up model’, empowering states, and guiding them to further empower local governments in developing mechanisms to formulate credible plans at the village level, which are progressively aggregated up the higher levels of the government. The maturing of India’s governmental institutions has enabled increasing the specialisation of their functions. There is, thus, a need to separate as well as energise the distinct ‘strategy’ element of governance from the usual ‘process’ and ‘implementation’ element. As a dedicated ‘Think Tank’ of the government, NITI Aayog will carry out this ‘directional’ role, strategically charting the future of the nation. It will provide specialised inputs— strategic, functional and technical—to the Prime Minister and the government (Centre as well as the state), on matters critical to the fulfillment of the national development agenda. It means, the new body is to function like a ‘think tank’. Functions of the NITI Aayog ⚫ Vision & Scenario Planning: To ‘design’ medium and long-term strategic frameworks of the big picture vision of India’s future—across schemes, sectors, regions and time; factoring in all possible alternative assumptions and counterfactuals. These would be the ‘drivers of the national reforms agenda’, especially focussed on identifying critical gaps and harnessing untapped potentialities. ⚫ Domain Strategies: To ‘build’ a repository of specialised domain expertise, both sectoral and cross-sectoral; to assist ministries of the Central and state governments in their respective development planning, as well as problem solving needs Functions of the NITI Aayog ⚫ Knowledge and Innovation Hub: The body to be an ‘accumulator’ as well as ‘disseminator’ of research and best practices on good governance, through a state-of-the art Resource Centre which identifies, analyses, shares and facilitates replication of the same. ⚫ Harmonisation: To ‘facilitate harmonisation’ of actions across different layers of the government, especially when involving cross-cutting and overlapping issues across multiple sectors through: communication, coordination, collaboration and convergence among all stakeholders Functions of the NITI Aayog ⚫ Conflict Resolution: To provide a ‘platform’ for mutual resolution of inter-sectoral, inter-departmental, inter-state as well as centre-state issues ⚫ Internal Consultancy: It will offer an internal ‘consultancy’ function to Central and state governments on policy and programme design—providing frameworks adhering to basic design principles such as decentralisation, flexibility and a focus on results. Functions of the NITI Aayog ⚫ Capacity Building: To enable ‘capacity building’ and ‘technology up-gradation’ across governments, benchmarking with latest global trends and providing managerial and technical knowhow. ⚫ Monitoring and Evaluation: It will ‘monitor’ the implementation of policies and programmes, and ‘evaluate’ their impact; through rigorous tracking of performance metrics and comprehensive programme evaluations STRUCTURE OF THE NITI AAYOG ⚫ Chairman: the Prime Minister of India ⚫ Governing Council: will comprise the Chief Ministers of all states and Lt. Governors of union territories. ⚫ Regional Councils: will be formed to address specific issues and contingencies impacting more than one state or region. ⚫ Special Invitees: It will have experts, specialists and practitioners with relevant domain knowledge as special invitees nominated by the Prime Minister. Full-Time Organizational Framework ⚫ In addition to PM as its Chairman it will comprise: (a) Vice-Chairperson—to be appointed by the PM. (b) Members: all as full-time. (c) Part-time Members: maximum of 2, from leading universities, research organisations and other relevant institutions in an ex-officio capacity. Part time members will be on a rotational basis. (d) Ex-Officio Members: maximum of 4 members of the Union Council of Ministers to be nominated by the PM. (e) Chief Executive Officer: to be appointed by the PM for a fixed tenure, in the rank of Secretary to the Government of India. (f) Secretariat: as deemed necessary