Unit 10 Planning Goals and Strategies PDF

UNIT 10 PLANNING GOALS AND STRATEGIES Objectives The objectives of this unit are : To study the long-term goals of planning; To understand the strategies adopted in various plans keeping in view the short-term objectives and long-term goals; and To briefly outline the ma...

UNIT 10 PLANNING GOALS AND STRATEGIES Objectives The objectives of this unit are : To study the long-term goals of planning; To understand the strategies adopted in various plans keeping in view the short-term objectives and long-term goals; and To briefly outline the main trends of the strategies adopted. Structure 10.1 Introduction 10.2 Long-term Goals of Planning 10.3 Planning Strategies Adopted in Various Plans 10.4 Three Major Strategies Adopted Since 1956 10.5 Summary 10.6 Key Words 10.7 Self-Assessment Questions 10.8 Further Readings 10.1 INTRODUCTION During the freedom struggle, the Indian National Congress had made a commitment that after the attainment of independence, the country would work on a planned model of development. With this end in view, the Government of India set up the Planning Commission in 1950 to assess the human and material resources of the country so as to formulate a plan for their balanced and effective utilisation. The main purpose of planning was to initiate the process of Industrialisation and development which had remained inhibited due to an alien government. The national government was committed to raising the level of living of the Indian people by pursuing the task of development. This task cold not be completed during the short period of five years: it required sustained efforts spread over a number of plans. Neither was it possible to achieve all the objectives in one go. Each five year plan can, therefore, be viewed as a milestone towards our progress to achieve the long-term objectives of planning. 10.2 LONG-TERM GOALS OF PLANNING During the freedom struggle, there was a commitment made by our national leaders that soon after the attainment of independence, they would embark on a programme for the planned development of the country. In pursuance of this commitment, the Government of India set up the Planning Commission in 1950 which was assigned the task of assessing the resources of the country and thus formulate a plan. The Planning Commission, therefore, laid down the long-term goals of planning. They were : (i) To increase production to the maximum possible extent so as to achieve higher level of national and per capita income; (ii) To achieve full employment; (iii) To reduce inequalities of income and wealth; and (iv) To establish a socialist based on equality and socialist justice and absence of exploitation. The First Five Year Plan released in 1952 stated the long-term economic goals of planning in the following words : “Maximum production and full employment, the attainment of economic equality or social justice which constitute the accepted objectives of planning under present day conditions are not really so many different ideas but a series of related aims which the country must work for. None of these objectives can be pursued to the exclusion of others, a plan of development must place balanced emphasis on all of them:. Planning Commission, The First Five Year Plan, p. 28. Genesis of Mixed Economy Framework in India For the attainment of these objectives, it was necessary to specify the socio-economic framework in which the Indian economy was to function. One choice was to move to a complete transformation to socialism in which all the means of production will be owned by the state (Society model). This required total natioanlisation of all the spheres of economic and social life. The other choice was to follow the capitalist mode of production providing total freedom to private enterprise to undertake the task of national development. The nation, under the leadership of Prime Minister Jawaharlal Nehru, rejected the Soviet Model because it led to the emergence of totalitarian state which stifled democratic freedoms. Since Indian society did not favour the idea of dictatorship of a party or of an individual or placing absolute power in the hands of an elite group, it rejected the `command model’ of Soviet society which is popularly described as `Dictatorship of the Proletariat; - an euphemism for dictatorship of a political party. At the same time private property symbolize which is a basic tenet of the capitalist mode of production helped exploitation of the peasant and workers by the capitalist classes in their unbridled effort towards profit maximization. The Directive Principles of the Indian Constitution laid it down in very clear terms : “The State shall, in particular, direct its policy towards securing –  a) that citizens, men and women equally, have the right to an adequate means of livelihood; b) that the ownership and control of the resources of the community are so distributed as best so sub serve the common good; c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.” The Government of India, therefore, also rejected the free capitalist mode of development. It opted for the framework of mixed economy in India in which private enterprise and public enterprise were to co exit. It could be argued that in every economy, capitalist or socialist public and private sectors do exit side by side. But this was a very narrow view of the co-existence of the public and private sectors. The distinguishing feature of the Indian mixed economy model was that it emphasised that the private enterprise should reconcile the element of self-interest with social interest and in case, it fails to do so, the government would be left with no option but to take over the control of such sectors of the economy. This implied that in such areas where either the private enterprise fails to subordinate its self-interest, the government would deliberately extend the area o the public sector. The state, therefore, decided to limit ownership in areas wherein it was felt that such ownership came in conflict with social ownership. In agriculture, for instance, the zamindari system was abolished and surplus lands acquired by the state were transferred to farmers or landless labourers. The legislation also provided a ceiling on holdings. The whole purpose was that land being the principal source of livelihood in the rural areas its ownership be more evenly distributed. The state did not favour “collectivesiation” in the form of big farms, but worked on the principle of “peasant proprietorship” with a ceiling on holdings. In small enterprises, private ownership was accepted. To direct investment in the desired lines of production, the state decided to control the “commanding heights” of the economy, viz., banking and insurance. Left to the private sector, investment would be driven by market forces based on profit motive. But areas of profit maximization may not be areas of maximizing social welfare. For instance, private sector was not willing to invest in economic infrastructure such as multipurpose hydro-electro projects, irrigation, roads and communications. Similarly, private sector may not provide adequate investment in education and health facilities so that access to education and health facilities becomes available to the poor and deprived sections of the society. The state, therefore, decided to undertake the development of the economic infrastructure - energy, irrigation, transport and communication – in the public sector. It also south to provide social infrastructure in the form of education and health so that the poor are enabled to acquire these facilities either free or at a very low and affordable cost. The network of schools colleges, technical training centres, primary health centres, dispensaries, hospitals etc. had to be planned in the public sector. Moreover, during the British period, defence and heavy and basic industries were not allowed to be developed. But to have an independent industrial base for the Indian economy so as to make it self-reliant, it was considered necessary that the public sector should undertake investment in defence, heavy and basic industries. Since these industries required lump sum investment and had a long gestation period, public enterprise which sought investment in areas of short gestation and maximum profit was unwilling to undertake investment in these areas. The state, therefore, planning the development of defence, heavy and basic industries in the public sector. The mixed economy framework in India was particularly marked with the deliberate development of the public sector in (a) Defence, heavy and basic industries, (b) the development of economic and social infrastructure and (c) in controlling the commanding heights of the economy, viz., banking and insurance. The deliberate enlargement of the public sector was symbolized by the phrase `the development of socialist pattern of society’ in the early period of planning, which was later replaced by the phrase `democratic socialism’. The basic philosophy of democratic socialism entailed a programme of maximizing production with maximum employment and along with this a programme of action towards reducing economic and social disparities, thus ensuring a national minimum level of living for all. In other words, growth with social justice within the framework of a democratic society were the tasks to be accomplished under democratic socialism. Dr. M. S. Minhas rightly states : “Securing rapid economic and growth and expansion of employment, reduction of disparities in income and wealth, prevention of concentration of economic power and creation of values and attitudes of a free and equal society have been among the objectives of all plans.” (Minhas B. S., Planning and the Poor, P. 8). 10.3 PLANNING STRATEGIES ADOPTED IN VARIOUS PLANS As indicated earlier, the planning goals were long-term objectives. It is not possible to achieve them the mobilization efforts of a single plan. Rather, planning required continuous efforts for several plans to achieve these goals. Moreover, during the process of implementation, some powerful political factors may require change of strategy and thus, new priorities may require change in the Prioritisation of the objectives. Since all the objectives cannot be achieved in one go, every plan has to specify the strategy and thus indicate the priority of the objectives. In this way, as the planning process gathers momentums, in every subsequent plan a recording of the priorities may become necessary. It would be of interest to study the strategies adopted in the various plans. 10.3.1 Strategy in the First Five Year Plan(1951-56) The First Five Year Plan (1951-56) was faced with three major problems : (i) Influx of refugees from Pakistan and their rehabilitation; (ii) Severe shortage of food as a result of the partition of the country and a major part of irrigated areas going over to Pakistan; and (iii) mounting inflation due to the prevalence of shortages in economy as a result of disequilibrium caused due to the Second World War and subsequently the partition of the country. The strategy of the First Five Year Plan was to achieve food self-sufficiency in the shortest possible time and to control inflation. The Plan, therefore, aide at rapid extension of irrigation so that the output of food grains and agricultural raw materials like cotton and jute improves. This strategy helped to boost agricultural production, especially of food grains and, thereby, control inflation. The First Plan, in its strategy, accorded the highest priority to agriculture. The First Plan rightly mentioned : “We are convinced that without substantial increase in the production of food and raw materials needed for industry it would be impossible to sustain a higher tempo of industrial development.” Planning Commission, The First Five Year Plan, p. 44. The major aim of the strategy of the First Plan was to rehabilitate the economy ravaged by war and partition. The plan did help to remove shortages that existed in the economy. By the end of the Plan, food grain imports became negligible. The general price level declined by 13 per cent, food prices also fell. Consequently the economy was stablised and in this atmosphere of confidence generated by success of the First Plan, it was possible to move to a programme of rapid Industrialisation. 10.3.2 Strategy during the Second Five Year Plan (1956-57 to 1960-61) For the Second Plan it was felt that economy had reached a stage at which agriculture could be assigned a low priority and a forward thrust made in the development of heavy and basic industries for a more rapid advance in future. The basic element of the strategy of the Second Plan was to give a “big push” to the economy to build an industrial base in terms of rapid expansion of iron and steel, non-ferrous metals, coal, cement, heavy chemicals and other industries of basic importance. The Second Plan clearly stated : “Investment in basic industries creates demands for consumer goods, but it does not enlarge the supply of consumer goods in the short run; nor does it directly absorb any large quantities of labour. A balanced pattern of Industrialisation, therefore, requires a well-organised effort to utilise labour for increasing the supplies of much-needed consumer goods in a manner which economizes the use of capital.” (Planning Commission, The Second Five Year Plan, p. 25). The Second Plan, while emplacing a big push for heavy industry, was conscious of the fact that it would cause shortages of consumer goods. It was therefore, felt that if was imperative to simultaneously, develop cottage and small scale industries which are labour intensive so that on the one hand, employment could be enlarged and on the other, the shortages of consumer goods could be taken care of. Since the Second Plan accorded a relatively low priority to agriculture, it registered unsatisfactory progress in agriculture. There was a shortfall in the achievement of targets in food grains, jut, cotton and oil seeds. Prices of food grains rose all over the country. While three public sector steel plants were erected, their production was much behind schedule. This was the case with many industries, too. Shortages of power were experienced in every state and as a result, progress towards Industrialisation remained slow. 10.3.3 Strategy during the Third Five Year Plan (1961-62 to 1956-66) The working of the Second Plan indicated the had reality that without a sharp increase in agricultural production, it was not possible to push for a faster rate of economic development. Thus, instead of following a one-legged policy of emphasizing Industrialisation via heavy industry, it was desirable to have a two-legged strategy of development to emphasize agriculture on the one hand and heavy industry on the other. The strategy of the Third Plan therefore emphasised that agriculture should be expanded as far as possible and rural economy may be diversified so as to reduce the pressure of population on agriculture. While giving top priority to agriculture, the Third Plan also laid equal stress on the development of heavy and basic industries such as steel, fuel and power, machine building and chemicals vitally needed for rapid economic development. The Third Plan strategy set as its goal the establishment of a self-reliant and self generating economy. Three major factors seriously jolted the implementation of the Third Plan. They were : (i) The Chinese invasion of India in 11962, (ii) The armed conflict with Pakistan in 1965, and (iii) Exceptionally bad monsoons in 1965-66 leading to serious draught which reduced food grains production by 20% in a single year. Implementation of the Third Plan was seriously jeopardized by the abnormal factors which interrupted the smooth working of the Plan. Serious shortfalls in targets of agricultural and industrial production occurred. Shortfall in agricultural output particularly in raw materials led to cutback in production of consumer goods industries, especially cotton textiles. Shortages of consumer goods as also a fall in the production of food grains led to a sharp increase in prices. Price index of food articles rose by 48 per cent during the Third Plan and of industrial raw material and manufactures by 33 percent and 22 percent respectively. Since the rate of growth of the economy suffered a setback and as against 5 per cent growth of national income per annum, actual achievement was barely 2.5 per cent per annum, there was an increase in unemployment. The backlog of unemployment which was around 7 million at the end of the Second Plan increased to about 9 to 10 million at the end of the Third Plan. The setback to the credibility of planning was so strong that the country shifted to a period of three annual plans(1966-67 to 1968-69) which is described as the period of “Plan Holiday”. It was only when the economy recovered from the recession which was witnessed during 1966-67 and thereafter, that the country launched the Fourth Plan. 10.3.4 Strategy during the Fourth Five Year Plan (1969-70 to 1973-74) The Fourth Plan set before itself two objectives, viz., “Growth with Stability” and “Progressive Achievement of Self-Reliance”. To achieve the objective of growth with stability, efforts were to be made to stablised prices of foodgrains and the price level in general. For this purpose, the Plan adopted the Intensive Agricultural Development Programme (IADP) which emphasized the application of good quality seeds with adequate doses of fertilisers in areas of assured irrigation. This was intended to bring a start increase in agricultural production to stabilize prices of food grins and agricultural raw materials. To achieve the objective of self-reliance, the financing of the Fourth Plan was to be managed by a large additional mobilization of internal resources which would not give rise to inflationary pressures. It was planned that PL480 imports of foodgrains would be done away with by the year 1971. Besides this, foreign aid net of debt charges and interest payments was to be reduced to half by the end of the Fourth Plan. The strategy adopted in the Fourth Plan did not yield the desired results. National income measured at 1960-61 prices increased by an average by 3.3 per cent per annual and the increase in per capita income was merely 1.2 per cent per annum. Consequently, the attainment of a national minimum with this record of performance was wishful thinking. The Plan failed to bring about 5.5% increase in national income – the target fixed for the Plan. Equally disturbing was the situation on the agricultural front. The actual growth rate of agricultural production was much less as compared to the anticipated growth of 5 per cent per annum. While evidence of a break-through in wheat crop was available, success of high yielding varieties in ice was only marginal. In respect of June, cotton fibres as well as pulses, success could not be achieved in any meaningful manner. Growth rate of industrial production was much les than the targeted growth of 8 percent per annum. The major factors responsible for this situation were : (i) shortages and irregular supplies of raw materials, components, (ii) shortage of poor, (ii) transport bottlenecks (iv) disturbed industrial relations. Fourth Plan did not achieve the objective of growth with stability because the achieved growth rate was far short of the target. The wholesale price dines (WPI) rose by 57.3 per cent during the Plan period (1969-70 to 1973-74) and the WPI for food grains increased by 47.3 per cent. These developments adversely affected the welfare of the poor section of the society. However, the performance of the Plan on the self-reliance front was better. For the entire plan period, exports as a percentage of imports accounted for about 92 per cent. Export growth averaged at the rage of 12.3 per cent per annum as against import growth rate of 11.2 per cent. 10.3.5 Strategy during the Fifth Five Year Plan (1974-75 to 1979-80) Two major objectives of the Fifth Plan were : “Removal of poverty and attainment of self-reliance.” For this purpose, the main elements of the strategy were : (i) 5.5% over-all average growth rate of GDP.. (ii) A national programme of Minimum Needs covering elementary education, drinking water, medical care in rural areas, nutrition, home sites for landless labour, rural roads, rural electrification and slum improvement. (iii) Emphasis on agriculture, key and basic industries and industries producing goods for mass consumption. (iv) An adequate public procurement and distribution system for assured supply of essential consumption goods, at least to poorer sections, at reasonably stable prices. (v) Vigorous export promotion and import substitution. (vi) Rigorous restraint on inessential consumption. At the conceptual level, the strategy of the Fifth Plan was to shift the focus from the heavy industry model of the Second Plan to wage goods model so that the welfare of  the masses, more especially the poor could be taken care of. This explain its shift of emphasis to Minimum Needs Programme to provide basic necessities such as elementary education, drinking water, medical care, home-sites for the homeless population. But a review of the Fifth Plan indicates that the Fifth Plan allocation pattern did not result in a higher growth rate of wage goods. In fact, the Plan document did not even provide a rough estimate of employment generation under the various schemes. A review of the Fifth Plan indicates a 3.9 percent increase in national income but the performance of the Plan in increasing the supply of food grains and other wage goods has not been commensurate with general price level which rose by 33.5 percent during 91973-74) to 1977-78) the first four years of the Fifth Plan. The consumer price index shot by 33.2 percent during the same period. Thus although the Fifth Plan conceptualized to increase the supply of wage goods so that it could make a serious dent on poverty and unemployment yet it did not work out in allocation pattern and implementation mechanism to achieve the objective. Consequently, real income of the poor did not show an increase. Neither did unemployment decline. 10.3.6 Strategy outlined in Janata’s Sixth Five Year Plan (1978-83) The Planning Commission under C. Subramanian in the document “Towards an Approach to the Fifth Plan” asserted way back in 1972 : “The elimination of object poverty will not be attained as a corollary to a certain acceleration in the rate of growth of the economy alone.” The Approach paper suggested a strategy that was “to launch a direct attach on the problems of unemployment, under-employment and massive low-end poverty.” Following this approach the Janata’s Sixth Plan (1978-83) adopted the following strategy : a) enlargement of the employment potential in agricultural and allied activities; b) encouragement to household and small industries producing consumer goods of mass consumption; c) fostering area planning for integrated rural development; and d) raising the income of the lowest class through a revised minimum need programme. Janata’s Sixth Plan by enlarging employment in agriculture, household and small industries intended to lower the capital-intensity of production and increase the supply of wage goods needed by the masses. In the conceptual frame, it was akin to the strategy outlined in the Fifth Plan. The Janata Party Government started the implementation of the Plan in 1978 but after hardly a year and half of its functioning, fell and was replaced by the Congress (I) Government which abandoned the Janata Plan and reformulated the Sixth Plan. 10.3.7 Strategy of the Congress (I) during Sixth Five Year Plan (1980-85) Congress (I) Sixth Plan outlining its strategy stated : “The strategy adopted for the Sixth Plan consists essentially in moving simultaneously to strengthen the infrastructure for both agriculture and industry as to create conditions for an accelerated growth in investment, output and exports and to provide through special programmes designed for the purpose, increased opportunities for employment especially in the rural areas and unorganized sector and meet the minimum basic needs for the people.” Planning Commission. The Sixth Five Year Plan (1980-85), p.34. The main emphasis of the planners was to strengthen the infrastructural base of the economy. The planners were conscious of the weaknesses of the Nehur-Mahalanobis strategy adopted from the Second Plan onwards. They, however, attempted to remedy it by suggesting special programmes for poverty removal. The Sixth Plan, therefore, mentioned: “The attack on the problem of poverty is most effective only in the condition of an expanding economy. Since growth by itself may not, however, suffice, other programmes and policies will need to be adopted.” Ibid., p. 34. The strategy of the Sixth Plan of strengthening infrastructure facilities on one hand and by special programmes to remove poverty on the other was quite successful during 1980- 85. National income increased on an average by 5.2 per cent during the Sixth Plan and per capita income rose by about 3.1 per cent per annum. The number of unemployed which was around 12 million at the beginning of the Plan came down to 9.2 million at the end of the Plan. The proportion of population below the poverty line declined from 48.3 per cent in 1977-78 to about 37.4 per cent in 1983-84 and further to 35.0 per cent at the end of the Sixth Plan. The country was moving towards self-reliance by reducing its dependence of imports in strategic commodities viz., food grains, petroleum products and fertilisers. Thus the Sixth Plan enabled the country to make faster progress towards the objectives of growth, self-reliance and social justice. 10.3.8 Strategy of Seventh Five Year Plan (1985-90) The development strategy of the Seventh Plan aimed at a direct attach on the problem of poverty, unemployment and regional imbalances. The Seventh Plan emphasised policies which would accelerate the growth in foodgrains production, increase employment opportunities and raise productivity. These three objectives were central to the Seventh Plan. Thus the focus of the Plan was on Food, Work and Productivity. The progress of the Seventh Plan revealed that the net national product (NNP) grew at the rate of 5.5 per cent annual, and the per capita NNP at 3.5 per cent per annum. The Indian economy thus crossed the proverbial barrier of the Hindu rate growth of about 3-3.5 per cent as indicated by Professor Raj Krishna. This was a heartening development. Agricultural production grew at an annual average rate of 3.9 per cent and industrial production a t the rate of 8.6 per cent. Both the targets were fulfilled. However, balance of payment on current account continued to be under sever staring. In 1988-89, current account deficit as a percentage of GDP went up to the high level of 3 percent and in 1989-90, it was 2.4 per cent. This was much higher than the target of 1.6 per cent fixed for the Plan. It was feared that if by suitable policies of import substitution and import restriction, the balance of payments deficit was not reduced, the country would be caught in a debt trap. Although Wholesale Price Index rose on an average by 6.6 per cent, the consumer price index rose by 9.4 percent on an average much higher than WPI. This affected the welfare of the weaker sections of society. Although modernization and productivity upgrdation are laudable objectives, yet their impact on reducing unemployment was not discernible. Obviously, the choice of technologic did not enlarge employment commensurate with the needs of the economy. 10.3.9 Planning Strategy during the Eighth Five Year Plan (1992-97) Janata Dal Government which came to power in November 1990 fell after a short span of less than a year. It was followed by the Chandrasekahr Government which also fell in 1991 after the Congress (I) withdrew its support. In June 191, the government headed by Shri P. V. Narasimham Rao reconstituted the Planning Commission with Mr. Pranab Mukherjee as the Deputy Chairman and a new document eighth Five Year plan (1992-97) was finalised in May, 1992. The country at the time of the formulation of the Eighth Plan was faced with the problem of growing fiscal deficit and sudden depletion of foreign exchange reserves which created a serious balance of payments crisis. Due to the paucity of foreign exchange, imports had to be drastically cut. As a consequence, growth rate slumped to a low level of 2.5 percent in 1991-92. The major challenge before the government was to initiate recovery of the economy and provide it a new dynamism. Eighth Plan set before itself the task of correcting major imbalances facing the Indian economy which are : (i) Increasing fiscal and budgetary deficits, mounting public debt had to be restructured. (ii) Current account deficit of the balance of payments had to be brought down from the high level of an average of 2.4 percent reached in the Seventh Plan. (iii) A high rate of inflation had to be controlled. Besides meeting these challenges, the Eighth Plan targeted to achieve a growth rate of 5.6 per cent on an average and to achieve other goals, viz., improvement in the level of living, health and education of the people, full employment, elimination of poverty and planned growth of population. Since the process of economic reforms was initiated by the government, the strategy of achieving these goals underwent basic shift in the development paradigms. Firstly, as against the Nehru model of development assigning a major role to the public sector, the Eighth Plan redefined the role of the public sector to the following areas : (i) the public sector should make investment only in areas where investment is of an infrastructural nature necessary for facilitating growth. (ii) The public sector will concentrate on meeting social needs of the society like education, health, population control or to undertake public distribution of essential commodities to protect the interests of the weaker sections of the society. The private sector supported by market mechanism was assigned a bigger role to build a culture of high productivity and cost efficiency. The process of planning has to be indicative and the government through an appropriate mix of policy instruments should influence the decisions of various economic agencies both in the public sector and private sectors to achieve desired goals. Outlining its strategy, the Eighth Plan stated : “Planning and market mechanism should be so detailed that one is complementary to the other. Market mechanism must serve as an “efficiency promoting device”, while planning will be the larger guiding force, keeping the long-term social goals in the perspective.” Planning Commission, (1992), The Eighth Five Year Plan (1992-97), p. 30. A review of the progress of the first 4 years of the Eighth Plan reveals that the economy has now turned the corner and the growth rate of NNP which had slumped to 2.5 percent in 1991-92 went up to 6.3 percent in 1995-96. This is a welcome trend. It is also gratifying to note that foreign exchange reserves which had reached a level $ 21 billion by May 1995 were around US $ 17 billion in May 1996. The position as yet is comfortable. There is no doubt that exports account for about 92 per cent of imports in the year 1995-96. These are healthy trends. But on the front of social justice, the situation is not encouraging. Firstly, consumer price index for agricultural labourers has shown an annual average rise by 11.6 per cent and that for industrial workers by 10.3 per cent. This has adversely affected the welfare of the poor. Secondly, the number of poor which was 298 million in 1990-91 has increased to 346 million in 1993-94 – an increase of 48 million during 3 year period. The proportion of the poor which was 35.5 per cent in 1990-91 has gone up to 39.0 per cent in 193-94. The target of employment growth fixed for the Eighth Plan was 2.6 per cent per annum, but the achievement is only 2.0 per cent. During the first 4 years of liberalisation, target of employment has lagged behind by over 9 million. This is due to the capital intensive pattern of investment pushed up by the corporate sector in the post-liberalisation period. Agricultural growth has stagnated despite the availability of seven continuous good monsoons. Besides, production of food grains grew by only 1.5 per cent per annum during the first 4 years of the Eighth Plan. Less than one-third of the food grains provided by the public distribution are available to the poor, the rest are appropriated by the better – off sections. Multinationals, which have been permitted indiscriminately even in the consumer goods sector are displacing labour in traditional consumer goods and are following a highly capital-intensive pattern of production. It may, therefore, be concluded that the record of the Eight Plan may be considered as satisfactory on the growth front, but the market-oriented strategy has failed the people on the front of social justice. 10.4 THREE MAJOR STRATEGIES ADOPTED SINCE 1956 The three major strategies that have been adopted in India since the beginning of the Second Plan are : Nehru-Mahalanobis Model of Growth Gandhian Model of Growth Rao-Manmohan Model of Growth 10.4.1 Nehru-Mahalanobis Model of Growth Prof. P. C. Mahalanobis under the guidance of Prime Minister Jawaharlal Nehru developed the heavy industry model based on the Soviet experience. This model popularly known as Nehru-Mahalanobis Model formed the basis of the Second Plan. This model continued to be the principal strategy of the various Plans with minor modifications till 1977 when the Janata Party Government conceived the Gandhian Model. The chief features of the “heavy industry:” model were : 1. The model emphasised the rapid development of heavy industry with the aim of creating an industrial base of the economy as also to make it more self- reliant into arms father capital-goods sector. The Second Plant outlining the rationale of the heavy goods strategies stated : “In long run, the rate of Industrialisation and the growth of the national economy would depend upon the increasing production of coal, electricity, iron and steel, heavy machinery, heavy chemicals and heavy industries generally – which would increase the capacity for capital formation. One important aim is to make India independent as quickly as possible of foreign imports of producer goods so that the accumulation of capital would not be hampered by difficulties in securing supplies of essential producer goods from other countries. The heavy industry must, therefore, be expanded with all possible speed.” Planning Commission, The Second Five Year Plan – The Framework. The main arguments providing justification for heavy industry model were : a) The British rule deliberately denied the development of heavy industry and kept India, primarily an agrarian economy as an appendage of the British Colonial System. b) Indian industrial structure had a narrow base mainly dependent on consumer goods industries. It was necessary to enlarge this base by the development of  heavy industries and infrastructure. A diversified industrial structure, it was argued, could absorb a large population of labour and raise labour productivity. This would also reduce dependence of excessive population for this livelihood on agriculture. c) Productivity of labor being higher in manufacturing than in agriculture, an Industrialised economy promised to bring about a rapid increase in national and per capita income. d) Raid Industrialisation was essential not only for the development of agriculture, but also for the development of all other sectors of the economy. Role of Public and Private Sector Since the private sector was not likely to undertake investments in heavy industry sector which had a long gestation period, but had low profitability, the government decided to give this responsibility to the public sector. The government conceived of the public sector as the engine of growth to carry forward the establishment and expansion of heavy industries and infrastructural facilities. The role of the private sector was complementary to public sector in expanding the production of consumer goods and such other areas in which public sector investment was not directed. Role of foreign aid Mahalanobis model admitted the use of foreign aid facilitate the growth of capital goods and infrastructure sectors, but it emphasised the fact that the major burden of development shall have to be borne by domestic savings. Since foreign aid would largely come in the form of loans, it is essential that export growth be emphasised so that bulk of imports are paid for by the increase in exports. Role of Small industries Nehru Mahalanobis model was conscious of the fact that massive investments, though very essential in the heavy industry sector, would not enlarge employment significantly, since such investments are capital-intensive. It would, therefore be necessary that in order to encourage the production of consumer goods and generate more employment, investment be made in small industry. The planners clearly stated : “The test of a country’s advance in Industrialisation is heavy industry – not the small industries that may be put up. This does not mean that small industries should be ignored. They are highly important in themselves for production and for employment.” (Government of India, Problems in the Third Plan – A Critical Miscellany, p. 51) Role of agriculture Nehru-Mahalanobis model clearly understood the role of agriculture in the process of development. Nehru, Recognising the important role of agriculture mentioned : “: We shall find that this industrial progress cannot be achieved without agricultural advance and progress… Everyone knows that unless we are self-sufficient in agriculture we cannot have the wherewithal to advance in industries. If we have to import food, then we are doomed so far as progress is concerned. We cannot import both food and machinery.” Ibid., pp. 35-36.  Evaluation of Nehru-Mahalanobis Strategy The main achievements of the strategy followed during first six plans, but for the short period of two yeas rule of the Janata Party (1977-78 to 1979-90) are as under : There has been a vast expansion of the capital goods sector via the heavy industry model. Sixth Draft Plan of the Janata Party Government accepted this achievement in the following words : “It is a cause of legitimate national pride that over this period a stagnant and dependent economy has been modernized and made more self-reliant” (Planning Commission, Draft Five Year Plan (1978-83), p.1.) There was a vast expansion in economic infrastructure in the form of irrigation, energy, transport and communications etc. There was an expansion of the social infrastructure in the form of health and education facilities – schools, colleges, universities, primary health centres, dispensaries and hospitals. A smart rise in saving and investment rates was witnessed in the country. However, there were certain shortcomings noticed in the process of implementation : 1. Although agriculture did progress, but with relatively small allocation for agriculture, the progress cold not be considered adequate. Development of  agriculture required much greater investment in irrigation, electricity, fertilisers, implements, pesticides etc. 2. Heavy industry model was heavily dependent on imports of capital goods. It therefore developed a capital-intensive pattern of development. This resulted in a relative neglect of small industries and industries producing consumer goods. Thus, heavy industry model created balance of payment difficulties on the one hand and failed to absorb the rapidly growing labour, on the other. This resulted in a failure to enlarge unemployment adequately. 3. The public sector expansion led to the emergence of high cost economy with much less emphasis on efficiency. Both the undertakings of the central government and those the State Government like state electricity boards, roads transport undertakings and irrigation works etc. incurred losses year after year and the state exchequer was required to pay these losses out of the general tax revenues of the government. 4. Failure of exports to rise commensurate with the increase in imports (necessitated by the expansion of the capital goods sector), resulted into eh persistence of trade deficit and these deficits increased in magnitude with every successive plan. 10.4.2 Gandhian Model of Development Janata Party Draft Five Year Plan (1978-83) noted a number of weaknesses of the Nehru- Mahalanobis model : The model failed to provide a national minimum level of living despite four decades of planning. Nearly 40 per cent of the population lived below the poverty line. The number of unemployed and under-employed continued to remain high and increased with every successive plan. Inequalities of income and wealth had grown between the rural and urban areas. The country failed to overcome shortages of food grains and consumer goods and suffered due to inflationary pressures. Gandhian model of development was emphasised by the Janata Party. The model emphasised the rapid development of agriculture and small industries. Village and small industries were emphasised from the point of view of production as well as employment. The model necessitated the following changes in the pattern of planning : (i) Employment-oriented planning to replace production-oriented planning _ Nehru model by over-empathizing a capital-intensive pattern of development failed to generate enough employment. But unemployment and under-employment are at the root of the problems of poverty and inequality. There is a strong need to demarcate areas with high employment potential and investment should be directed in such areas so that the pattern of investment becomes employment-orated and the economy increases its absorptive capacity of labour. (ii) Emphasis on development of agriculture as a means of enlarging employment – Char an Singh, an ardent advocate of the Gandhian model brought out the hard reality that while in India only 39 workers were employed per 100 acres in 1971, in Japan, South Korea and  Egypt, the number of workers employed per 100 acres ranged between 87 and 71. In case, intensive cultivation is done, India can enlarge employment by 50 to 60 million in agriculture alone. It is, therefore, necessary that agricultural development be taken as the foundation of the development process. The experience of the development in the states of Punjab and Haryana also corroborates the view that these states were able to achieve high growth rates via agricultural development and thus bring about a sharp reduction of population below the poverty lien as well as unemployment. (iii) Emphasis on small industries as against large industries – The Gandhian model emphasised that “no medium or large-scale enterprise shall be allowed to come into existence in future which will produce goods or services that cottage or small-scale enterprises can produce.” The main aim of following this path was to enlarge employment, have a decentralsied pattern of production which would ensure reduction in regional disparities in income and wealth. (iv) Heavy and basic industries to be developed by the public sector – The Gandhian model did recognise the need for the development of heavy and basic industries and assigned this role for the public sector. Gandhian model intended to tackle the problem of distribution of income at the production end and not at the level of consumption of fiscal measures. It did emphasize employment as the principal means of providing national minimum and removal of poverty. 10.4.3 Rao-Man Mohan Model of Development Rao-Man Mohan Model of Development was introduced in 1991. It emphasised privatisation and globalisation of the economy. Firstly, areas hitherto reserved fro the public sector were to be opened to the private sector. Although the government failed to transfer the ownership of public sector undertakings to the private sector in view of the strong opposition by the workers and left parities, it did liberate the economy and opened areas of heavy industry and economic infrastructure to the private sector – both domestic and foreign. Secondly, the government abolished licensing in all industries except a small list of 10 industries. In other words, it removed bureaucratic shackles on investment. Thirdly, it free the MRTP companies from the ceiling on assets. This implied that even big business, was allowed to invest without any ceiling being prescribed by the Monopoly and Restrictive Trade Practices (MRTP) Commission. Obviously, considerations of growth dominates more with the government than those of monopoly control. Fourthly, foreign direct investment was facilitated. Automatic approvals for direct foreign investment upto 51 per cent in high priority areas were granted. Government was even prepared to consider proposals involving more than 51 per cent equity on a case- by-case basis. Fifthly, performance of the public sector undertakings was to be improved by granting them greater autonomy. For this the Memorandum of Understanding (MOU) was devised and PSUs managements and boards were made more professional. Lastly, to globalise the economy the government followed a policy of reducing import barriers and also one of encouraging export promotion. Such a course would facilitate the free flow of foreign capital and technology and thus help to modernise our economy. Rao-Manmohan Model of development has also been the subject of criticism. The main points of criticism are : (i) The model was by passed agriculture and agro-based industries which are the major sources of employment generation. (ii) The model has a very narrow focus since it emphasises the corporate sector growth which accounts for only 10 per cent of GDP. (iii) Although in the Industrial Policy of 1991, Multinational Corporation (MNCs) were to be permitted in high priority areas, the government has been indiscriminately permitting them even in consumer goods industries. Need it  be emphasised that MNCs follow a highly capital intensive pattern of production and have thus restricted the growth of employment. (iv) MNCs after entry in various joint venture raise their equity to 51 per cent level or even more and thus push out the Indian partners. This has led to the Indian industry asking for protection against the onslaught of multinationals. MNCs after entry in various joint ventures raise their equity to 51 per cent level or even more and thus push out the Indian partner. This has led to the Indian industry asking for protection against the onslaught of multinationals. To sum up, Rao-Manmohan model has succeeded on growth by raising GDP growth rate to more than 6 per cent level, but it has failed on equity, employment and poverty removal. 10.4.4 Reconciliation of the Models of Development The three models of development have been addressed to solving the problems of growth, employment, removal of poverty and self-reliance by emphasizing a strategy at a particular stage of development. Nehru-Mahalanobis Model was successful in laying down the foundations of an industrial economy in India. The Gandhian Model emphasised reconciliation of the production and employment objectives. Rao- Manmohan Model emphasised the role of private sector – Indian and foreign – in the process of development. It therefore emphasised privatisation, liberalisation and globalisation. But in the ultimate analysis, the stage of development of a society has to be measured by three parameters – (i) Impact of development on poverty removal, (ii) impact on unemployment and (iii) impact of reducing inequalities and providing social justice. Societies have to harmonies the priorities to achieve growth, employment and equity in the long-run. IN the short-run, there may be different strategies. 10.5 SUMMARY The long-term goals of planning an enunciated by the Planning Commission are : (i) to increase production to the maximum possible extent so as to achieve higher level of national and per capital income; (ii) to achieve full employment; (iii) to reduce inequalities of income and wealth; and (iv) to establish a social society based on equality and social justice and absence of exploitation. To achieve these objectives, mixed economy framework was accepted in preference to either the `Command Model’ of the Soviet society or the pure capitalist mode of the private enterprise. The distinguishing feature of the Indian model was that it deliberately pushed the expansion of the public sector to build infrastructure and heavy industry and it subordinated the private sector to reconcile the element of self-interest with social interest. The various measures taken in social interest to establish a socialist pattern of society included : 1. Abolition of Zamindari System with compensation. India did not favour collectivization, but promoted peasant proprietorship. 2. Commanding heights of the economy viz., banking and insurance were brought under state control. 3. Education and health facilities which were denied to the people were extended by developing and social infrastructure. 4. Self-reliance in defence and heavy industry. Planning Strategies Adopted in Various Plans Strategy indicates laying down of priorities within the overall objectives at a print of time. The strategy changes with progress towards the long-term goals as also depends on the prevailing situation demanding immediate action. Strategy in the First Plain (1951-56) The basic strategy was to achieve food self-sufficiency in the shortest possible time and to control inflation. The highest priority was, therefore, given to agriculture and irrigation. The strategy was successful in increasing self-sufficiency in food grains as also controlling inflation. Strategy during the Second Plan (1956-61) The strategy of the First Plan intended to give a big push to `heavy industry’ and relatively low priority to agriculture. However, the plan was conscious about increasing the supply of consumer goods via. Small and cottage industries. Strategy during the Third Plan The planners realised that without a sharp increase in agricultural production, it was not possible to push a programme of Industrialisation with emphasis on heavy industry. A two –legged strategy of development with emphasis on agriculture on the one hand and heavy industry on the other, was adopted. Third plan gave top priority to agriculture with eh development of heavy and basic industries. Main aim of the Plan was establishment of self-reliant and self-generating economy. This strategy was given serious jolts by (i) Chinese ingestion of India in 1962, (ii) armed conflict with Pakistan in 1965, and (iii) a serious drought in 1965. The rate of growth of the economy suffered a serious setback, prices rose sharply and unemployment assumed high proportions. Serious setback to the credibility of planning. Government abandoned five year plans and a period of `Plan Holiday’ with three annual plans (1966-67 to 1968-69 began. After recovery of the economy in 1968-69, the Fourth Plan was launched. Strategy during the Fourth Plan (1969-74) Two objectives : `Growth with stability’ and Progressive achievement of self-reliance. To achieve growth with stability seed water fertilizer technology was started to boost production in assuredly irrigated areas. To achieve self-reliance, a greater dependence on internally generated resources was to be achieved for financing the plan. The strategy was : to control inflation, and to reduce dependence on foreign aid. Fourth Plan did not achieve the objective of growth with stability. Wholesale price index of food grains rose by 47.3 per cent during the plan. However, performance on the self- reliance front was better, since exports as a percentage of imports accounted for about 92 per cent during the plan period. Strategy during the Fifth Plan (1974-79) Main objectives : removal of poverty and attainment of self-reliance. Main elements of the strategy : (i) 5.5% average growth rate of GDP, (ii) National minimum needs programme, (iii) Emphasis on agriculture, key and basic industries producing goods for mass consumption, (iv) A good public distribution system (PDS) to supply essential commodities to the poor at reasonable prices, (v) Vigorous export promotion and import substitution, and (vi) Restraint on inessential consumption. The Fifth Plan did not success in its objectives. No serious dent could be made on poverty and unemployment. Supply of wage goods could not be adequately increased. Strategy during Janata Party’s Sixth Plan (1978-83) Direct attack on the problem of unemployment, under-employment and massive poverty. Elements of strategy adopted : (i) Enlargement of employment in agriculture and allied activities; (ii) Encouragement to household and small industries; (iii) Fostering area planning for integrated development; and (iv) Revised minimum needs programme. Janata’s Plan abandoned after the fall of the Janata Government in 1980. Strategy of the Congress (I) Sixth Plan (1980-85) To strengthen infrastructure facilities on the one hand and to remove poverty by special anti-poverty programmes on the other. The Sixth Plan was largely successful. There was a movement towards self-reliance by reducing dependence on imports of strategic commodities. Poverty ratio was reduced from 48.3% in 1977-78 to 37.4% in 1983-84. There was an average rate of growth of GDP by 5.3% and per capital GDP by 3.1% during the plan. Strategy of Seventh Plan (1985-90) Direct attack on poverty, unemployment and regional imbalances. Food, work and productivity – the focus of the Plan. GDP growth rate (average) was 5.5% per annum and GDP per capita by 3-3.5% per annum. Agricultural production grew at an annual average rate of 3.9% and industrial production at 8.6%. But this strategy failed on the following counts : a) Current account deficit rose to a high figure of 3% of GDP in 1989-90 b) Consumer Price Index rose at an annual average rate of 9.4%. c) Productivity did increase, but without a commensurate increase in employment. Planning Strategy during Eight Plan (1992-97) Planning Strategy redefined the role of the public sector. a) public sector investment to be limited toad reaps of infrastructure development for facilitating growth; and  b) public sector to concentrate on areas to meet social needs like health and education as also to undertake public distribution system to protect the weaker sections of the society. Strategy of the Eighth Plan was judicious use of market mechanism and planning to meet social goals. Growth rate of the economy picked up and was around 6.3% in 1994-95. Foreign exchange reserves peaked to $21 billion. With these welcome developments, the situation from the point of view of social justice was not comfortable. a) Consumer Price Index rose by 11.6% on the average. b) Number of poor and population below the poverty line did not show a marked decline. c) Employment target lagged behind. Eighth Plan record may be satisfactory on the growth front, but the market-oriented strategy has failed the people on the front of social justice. THREE MAJOR STRATEGIES ADOPTED SINCE 1956 A. NEHRU-MAHALANEOBIS MODEL OF GROWTH The model emphasised rapid development of heavy industry so as to create an industrial base so that India becomes self-reliant in the capital goods sector. Reasons fro adopting this strategy : a) British rule deliberately denied the development of heavy industry; b) Indian industrial structure had a narrow base mainly dependent on consumer goods industries; c) An industrial economy will raise per capita productivity; and d) Rapid Industrialisation was essential for agricultural development as well as the development of other sectors of the economy. Public sector was given responsibility to develop it since private sector was not willing to invest in heavy industry which required lumpy investment, had a long gestation period and low profitability. Role of foreign aid – Foreign aid essential for development, but to reduce the burden of foreign aid, it was essential to increase exports so as to pay for the bulk of the imports. Role of small industries – To mitigate the effects of capital-intensive heavy industry, it was essential to encourage the production of consumer goods and generate more employment by making investment in small industry. Role of agriculture sector – The Model recognised the importance of agriculture. It stated : unless we are self-sufficient in agriculture, we cannot have the wherewithal to advance in industries. Achievements of Nehru-Mahalanobis Strategy 1. Legitimate pride in the development of capital goods sector via heavy industry; 2. Expansion in economic infrastructure in the form of irrigation, energy, transport and communication; and 3. A sharp rise in savings and investment. Shortcoming noticed in the process of implementation 1. Agricultural progress was inadequate due to insufficient investment in irrigation, electricity, fertilizer, implements etc. 2. Relative neglect of small industries and industries producing consumer goods 3. Failure to abort rapidly growing labour resulted in unemployment. 4. Public sector expansion created the emergence of a high cost economy. 5. Failure to raise exports commensurate with import requirements led to balance of payments difficulties. B. GANDHIAN MDOEL OF DEVELOPMENT Nehru-Mahalanobis Model failed to : 1. Provide a national minimum level of living, despite three decades of planning. Nearly 40% of the population lived below the poverty line in 1978. 2. Unemployment and under-employment remained at high levels and increased with every successive plan. 3. Rural-urban disparities increased. 4. Inflationary pressures could not be checked. Gandhian Model emphasises : 1. Employment-oriented planning to replace production oriented planning. 2. on agriculture as a means of enlarging employment – experience of Punjab and Haryana a shinning example. 3. On small industries as against large industries 4. that heavy and basic industries to be developed by the public sector. Gandhian model intended to tackle the problem of distribution of income at the production and not at the consumption level. C. RAO-MANMOHAN MODE OF DEVELOPMENT i) Initiated in 1991, it emphasised privatisation and globalisation of the economy. ii) Although the government failed to transfer ownership of public sector undertakings, it did success in opening hitherto reserved areas to the private sector. ii) It abolished licensing in all industries except a small list of 18 industries. iii) It freed MRTP companies from the ceiling limit of assets iv) Foreign direct investment was facilitated. Automatic approvals upto 51 per cent of equity. Proposal requiring more than 51% equity could be considered on a case-by-case basis.  v) Functioning of public sector companies to improve by granting more autonomy and making management more professional. vi) Reducing imports barriers to globalise the economy. Criticism of Rao-Manmohan Model i) It has by passed agriculture ii) It has a narrow focus, limited to corporate sector only. iii) There has been indiscriminate entry of multinationals, thus generating a highly capital-intensive pattern of development, and iv) Multinationals have started the process of swallowing Indian firms by raising their equity level above 51%. Rao-Manmohan Model has succeeded on growth but failed on equity, employment and poverty removal. D. RECONCILITIN OF THE MDOELS OF DEVELOPMENT The three models have been emphasizing different strategies at different stages of development to solve the problems of growth, employment, removal of poverty and self- reliance. Societies have to harmonies the priorities to achieve growth, employment and equity. 10.6 KEY WORDS Capitalist Model of Development : Refers to the system in which all the means of production rate under the ownership and management of a class known as capitalists and who use these means of production with the sole aim of profit maximization. Command Model : Refers to the Society type of planned development where all decisions about production and distribution are centralized in a supreme authority. It is only on the dictates of the centralized supreme authority that the system operates, irrespective of the market signals. Commanding Heights of the Economy : The term was used with reference to control of `banking and insurance’. Left to the market forces, investment will be directed by market forces, but in case banking and insurance are nationalized, the control of investment decisions in socially desirable channels can be exercised by the State. Democratic Socials : Economic growth with social justice within the framework of a democratic society, thus ensuring minimum level of living for all and a programme of maximum employment, along with a programme of action reducing economic and social disparities. Plan Holiday : A term coined to describe the period in which the country abandoned the formulation of the five year plans and shirted to a system of annual plans. The period referred to is 1966-67 to 1968-69. Public Distribution System : Refers to the system of fair price shops to distribute article of essential consumption to the poor at reasonable prices. The Government takes the responsibility to procure and distribute essential commodities. Economic Infrastructure : Indicate creation of infrastructure in the form of irrigating, energy, transport and communications Social Infrastructure : Indicates infrastructure in the form of schools, colleges, technical training institutes, primary health centres, hospitals, family planning and welfare centres etc. 10.7 SELF ASSESSMENT QUESTIONS 1. Give the principal long-term objectives of planning as accepted by the Government of India. 2. Discuss the planning strategy adopted in the Second Plan. Why was it necessary to change it in the Fourth and Fifth Plan ?  3. Discuss the main elements of the Nehru-Mahalanobis Model of Development. What are its shortcomings ? How did the model get distorted during the process of implementation ? 4. Discuss the main features of Roa-Manmohan Model of Development. Do you agree with the statement that while the model succeeded on growth, it failed on equity ? 10.8 FURTHER READINGS Planning Commission : The First Five Year Plan Planning Commission : Second Five Year Plan Planning Commission : Problems in the Third Plan Planning Commission : Problems in Third Plan – A Critical Miscellany Planning Commission : Draft Five Year Plan (1978-83) Planning Commission : The Seventh Five Year Plan (1985-90) Planning Commission : The Eighth Five Year Plan (1992-97) Daft Rudder & Sandarac K P M, Indian Economy, (36th Edition), S. Chand & Co., Chapters 8, 9, 17, 18 and 19 Chakravarty S, Development Planning – The Indian Experience