Definition of Economic Planning, History of Economic Planning, Objectives of Economic Planning, Types of Planning, Achievements of Planning, and Financial resources for 5-year plans.
Definition: Economic planning is a process to achieve set objectives of economic development of a country in a given period of time. Key economic decisions are made or influenced by the Government in line with approved planning.
History of economic planning in India:
In 1934, Bharat Ratna Sir M. Vishveshvaraiah had published a book titled “Planned Economy in India”, in which he presented a constructive draft of the development of India in next ten years. The central idea envisaged by Sir M.Vishveshvaraiah was to lay out a plan to shift labour from agriculture to industries and double up National income in ten years. This was the first concrete scholarly work towards planning.
The first attempt to develop a national plan for India came up in 1938. In that year, Congress President Subhash Chandra Bose had set up a National Planning Committee with Jawaharlal Nehru as its president. The report could not be finalized; however, some of the papers related to the report came out in 1948-49.
In 1944, the group of eight Industrialists of Bombay viz. Mr. JRD Tata, GD Birla, Purshottamdas Thakurdas, Lala Shriram, Kasturbhai Lalbhai, AD Shroff , Ardeshir Dalal, & John Mathai prepared “A Brief Memorandum Outlining a Plan of Economic Development for India”. This memorandum is known as “Bombay Plan”. This plan predicted doubling the per capita income in 15 years and tripling the national income during this period. Despite Pandit Nehru was not very keen in full agreement with the plan, many of the ideas of the plan were instilled in five-year plans which came later.
In August 1944, The British colonial government also set up the “Planning and Development Department” under the charge of Ardeshir Dalal. But this department was abolished in 1946.
After independence, in 1950 Economic planning in India started. The Government of India thought it was deemed necessary for the economic growth and development of the nation and established Economic planning in India. The objective of India’s development strategy has been to establish a socialistic pattern of society through economic growth with self-reliance, social justice, and alleviation of poverty. These objectives were to be achieved within a democratic political framework using the mechanism of a mixed economy where both public and private sectors co-exist. India initiated planning for national economic development with the establishment of the Planning Commission.
To learn more read: Evolution of Indian Economy
Establishment of Planning Commission:
The Planning Commission of India was established In March 1950, to achieve the government resolution to improve the standard of living for Indians by effectively utilizing the nation’s resources, boosting production, and offering employment opportunities to all sections of India. Jawaharlal Nehru was the first Chairman of the Planning Commission.
Implementation of five-year plans:
Five-Year Plans (FYPs) were centralised economic and social growth programs. Joseph Stalin, president of the erstwhile USSR, implemented the first Five-Year Plan in the late 1920s. India too followed the socialist path but here the planning was not as comprehensive since the country had both public and private sectors. The planning in India was only about the public sector. The first Five-Year Plan was launched in 1951. The idea was to plan public spending for equitable growth rather than leaving expenditure to the market forces.
The idea of five-year plans is simple-
- The Government of India prepares a document with all its income and expenditure for five years.
- The budget of the central government and all the state governments is divided into two parts: non-plan budget and plan budget.
- The non-plan budget is spent on routine items yearly. The planned budget is spent on a five-year basis as per the priorities fixed by the plan.
Five-year Plan model which is often considered as the Nehruvian-Socialist economic approach ended with the 12th five-year plan in 2017 (1951-2017).
Establishment of NITI Aayog:
The Planning Commission was replaced by a think tank called NITI AAYOG in 2015. The Niti Aayog has come out with three documents — 3-year action agenda, 7-year medium-term strategy paper, and 15-year vision document.
Significant achievements of Five Year Plans;
- Growth of agriculture output: India became self-sufficient in food grains. Due to increase in farm output during the First Plan helped to end inflation, stabilized the economy, and paved the way for a higher rate of development during the Second Plan. Many irrigation projects were initiated during this period, including the Bhakra, Hirakud, and Damodar Valley dams. Institutional and technical advancements in agricultural planning have significantly contributed to the growth of agriculture in our nation. The plan accorded priority to the spread of HYV cultivation, and greater use of fertilizer, pesticides, and insecticides to increase agricultural production. The average annual growth rate of agricultural output was 2.8% during the planning period.
- Reduction in Infant mortality: The World Health Organization (WHO), with the Indian government, addressed children’s health and reduced infant mortality, indirectly contributing to population growth.
- Growth of National Income: Before the implementation of five-year planning India’s national income was growing at 0.5%. During the planning period, India’s average growth has been around 5%.
- Growth of per capita income: The rise in national income during the First Five Year Plan period, 1951–52 to 1955–56, is estimated at 18.4 per cent, and that in per capita income at 11.1 per cent. The rapid growth in population slowed down the growth in the per-capita income. The target growth rate was 4.5% and the actual growth rate was 4.27%.
- Establishment of heavy industries: The Government thought that industrialization provided greater opportunities for employment in small and large-scale industries. In an industrial economy, industry absorbs underemployed and unemployed farmworkers, thus increasing community income. However, such industries require huge investments. There was no wealthy private person/company to invest in it. The profitability of such ventures was doubtful due to delay. Therefore, importance was given to the establishment of heavy industries only, the main thrust of industrial development was on iron and steel, heavy engineering, and fertilizer industries. Three new iron and steel plants were located in Bhilai, Durgapur, and Rourkela. Industries like sugar, cotton, jute, vanaspati, metal-based, and chemical industries were given much importance, and during this planned period, much progress was made in alloys, tools aluminum, automobile tires, electronic goods, Machine Tools, Tractors, and special steel. During the planned period, the growth rate of industrial production was roughly 7% annually. Industries producing capital and essential goods have expanded significantly. The nation is now independent in the consumer products sector. The industrial sector has evolved and been modernized.
- Economic and social infrastructure: During the planning period, financial and insurance infrastructure, as well as transportation and communication infrastructure, irrigation, and power infrastructure, has grown significantly. Facilities for health and education have seen a tremendous increase.
- Foreign trade: India’s trading abroad has also expanded astronomically. The value of international commerce in 1948–1949 was Rs. 792 crores. India’s merchandise exports are projected to hit USD 450 billion this fiscal, overcoming challenges like the Red Sea crisis. FIEO President Ashwani Kumar emphasized the need for marine insurance, reasonable freight charges, and easy credit for MSMEs, and concluded free trade agreements to boost exports. In the fiscal year 2021-22, India’s overall exports (Merchandise and Services) are estimated at USD 676.5 billion, with merchandise contributing USD 422 billion and service exports USD 254.5 billion. Overall imports for the same period are estimated to be USD 495.83 billion.
Financial resources allocated for the Five-Year Plans: The financial resources allocated for the Five-Year Plans in India were drawn from various sources such as Gross Budgetary Support (GBS) to fund the plan investments throughout the five-year plan, State Government Budgets contributing to achieve the plan objective, Public sector enterprises and private sector enterprises contributing a portion of their profits or funds towards plan investments and foreign entities (FDIs) investing capital in India to establish or expand businesses that produce goods and services. This inflow of foreign investment is utilized to support various projects within the scope of the five-year plans.