Friday, February 26, 2010

Indian Economic Planning

Indian Economic Planning

Planning Commission in India


The Planning Commission was set up by a Resolution of the Government of India in March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community. The Planning Commission was charged with the responsibility of making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilisation of resources and determining priorities. Jawaharlal Nehru was the first Chairman of the Planning Commission.
The first Five-year Plan was launched in 1951 and two subsequent five-year plans were formulated till 1965, when there was a break because of the Indo-Pakistan Conflict. Two successive years of drought, devaluation of the currency, a general rise in prices and erosion of resources disrupted the planning process and after three Annual Plans between 1966 and 1969, the fourth Five-year plan was started in 1969.
The Eighth Plan could not take off in 1990 due to the fast changing political situation at the Centre and the years 1990-91 and 1991-92 were treated as Annual Plans. The Eighth Plan was finally launched in 1992 after the initiation of structural adjustment policies.
For the first eight Plans the emphasis was on a growing public sector with massive investments in basic and heavy industries, but since the launch of the Ninth Plan in 1997, the emphasis on the public sector has become less pronounced and the current thinking on planning in the country, in general, is that it should increasingly be of an indicative nature.

The 1950 resolution setting up the Planning Commission outlined its functions as to:
  1. Make an assessment of the material, capital and human resources of the country, including technical personnel, and investigate the possibilities of augmenting such of these resources as are found to be deficient in relation to the nation’s requirement;
  2. Formulate a Plan for the most effective and balanced utilisation of country's resources;
  3. On a determination of priorities, define the stages in which the Plan should be carried out and propose the allocation of resources for the due completion of each stage;
  4. Indicate the factors which are tending to retard economic development, and determine the conditions which, in view of the current social and political situation, should be established for the successful execution of the Plan;
  5. Determine the nature of the machinery which will be necessary for securing the successful implementation of each stage of the Plan in all its aspects;
  6. Appraise from time to time the progress achieved in the execution of each stage of the Plan and recommend the adjustments of policy and measures that such appraisal may show to be necessary; and
  7. Make such interim or ancillary recommendations as appear to it to be appropriate either for facilitating the discharge of the duties assigned to it, or on a consideration of prevailing economic conditions, current policies, measures and development programmes or on an examination of such specific problems as may be referred to it for advice by Central or State Governments.

The Prime Minister is the Chairman of the Planning Commission, which works under the overall guidance of the National Development Council. The Deputy Chairman and the full time Members of the Commission, as a composite body, provide advice and guidance to the subject Divisions for the formulation of Five Year Plans, Annual Plans, State Plans, Monitoring Plan Programmes, Projects and Schemes.
The Planning Commission functions through several Divisions, each headed by a Senior Officer.

Evolving Functions

From a highly centralised planning system, the Indian economy is gradually moving towards indicative planning where Planning Commission concerns itself with the building of a long term strategic vision of the future and decide on priorities of nation. It works out sectoral targets and provides promotional stimulus to the economy to grow in the desired direction.

Planning Commission plays an integrative role in the development of a holistic approach to the policy formulation in critical areas of human and economic development. In the social sector, schemes which require coordination and synthesis like rural health, drinking water, rural energy needs, literacy and environment protection have yet to be subjected to coordinated policy formulation. It has led to multiplicity of agencies. An integrated approach can lead to better results at much lower costs.

The emphasis of the Commission is on maximising the output by using our limited resources optimally. Instead of looking for mere increase in the plan outlays, the effort is to look for increases in the efficiency of utilisation of the allocations being made.

With the emergence of severe constraints on available budgetary resources, the resource allocation system between the States and Ministries of the Central Government is under strain. This requires the Planning Commission to play a mediatory and facilitating role, keeping in view the best interest of all concerned. It has to ensure smooth management of the change and help in creating a culture of high productivity and efficiency in the Government.

The key to efficient utilisation of resources lies in the creation of appropriate self-managed organisations at all levels. In this area, Planning Commission attempts to play a systems change role and provide consultancy within the Government for developing better systems. In order to spread the gains of experience more widely, Planning Commission  also plays an information dissemination role.

  1. Agriculture Division
  2. Backward Classes Division
  3. Communication & Information Division
  4. Development Policy Division
  5. Education Division
  6. Environment & Forest Division
  7. Financial Resources Division
  8. Health, Nutrition & Family Welfare Division
  9. Housing, Urban Development & Water Supply Division
  10. Industry & Minerals Division
  11. International Economic Division
  12. Infrastructure Division
  13. Labour, Employment and Manpower Division
  14. Multi-level Planning Division
    • Border Area Development Programmes
    • Western Ghat Development Programme
  1. Monitoring Division
  2. Perspective Planning Division
  3. Programme Outcome & Response Monitoring Division
  4. Plan Coordination Division
  5. Power & Energy Division
  6. Programme Evaluation Organisation
  7. Project Appraisal & Management Division
  8. Rural Development Division
  9. Science & Technology Division
  10. Social Development & Women’s Programme Division
  11. Social Welfare Division
  12. State Plans Division
  13. Transport Division
  14. Village & Small Enterprises Division
  15. Water Resources Division
  16. Administration & Services Division
  17. Socio-Economic Research Division
Office Memorandum: Changing the name of 'Village & Small Industries Division' to "Village & Small Enterprises Division" dated 8/3/04

First plan (1951-1956)

The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the Parliament of India on December 8, 1951. The first plan sought to get the country's economy out of the cycle of poverty. The plan addressed, mainly, the agrarian sector, including investments in dams and irrigation. Agricultural sector was hit hardest by partition and needed urgent attention.[1] The total plan budget of 206.8 billion INR (23.6 billion USD in the 1950 exchange rate) was allocated to seven broad areas: irrigation and energy (27.2 percent), agriculture and community development (17.4 percent), transport and communications (24 percent), industry (8.4 percent), social services (16.64 percent), land rehabilitation (4.1 percent), and other (2.5 percent).[2]
The target growth rate was 2.1 percent annual gross domestic product (GDP) growth; the achieved growth rate was 3.6 percent. During the first five-year plan the net domestic product went up by 15 percent. The monsoon was good and there were relatively high crop yields, boosting exchange reserves and the per capita income, which increased by 8 percent. National income increased more than the per capita income due to rapid population growth. Many irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud Dam. The World Health Organization, with the Indian government, addressed children's health and reduced infant mortality, indirectly contributing to population growth.
At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as major technical institutions. University Grant Commission was set up to take care of funding and take measures to strengthen the higher education in the country.[3]
Contracts were signed to start five steel plants; however these plants did not come into existence until the middle of the next five-year plan

[edit]Second plan (1956-1961)

The second five-year plan focused on industry, especially heavy industry. Domestic production of industrial products was encouraged, particularly in the development of the public sector. The plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximise long-run economic growth . It used the prevalent state of art techniques of operations research and optimization as well as the novel applications of statistical models developed at the Indian Statiatical Institute. The plan assumed a closed economy in which the main trading activity would be centered on importing capital goods.[4][5]
Hydroelectric power projects and five steel mills at BhilaiDurgapur, and Rourkela were established. Coal production was increased. Morerailway lines were added in the north east.
The Atomic Energy Commission was formed in 1957 with Homi J. Bhabha as the first chairman. The Tata Institute of Fundamental Researchwas established as a research institute. In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power.

[edit]Third plan (1961-1966)

The third plan stressed on agriculture and improving production of rice, but the brief Sino-Indian War in 1962 exposed weaknesses in the economy and shifted the focus towards defence. In 1965-1966, The war led to inflation and the priority was shifted to price stabilisation. The construction of dams continued. Many cement and fertilizer plants were also built. Punjab begun producing an abundance of wheat.
Many primary schools were started in rural areas. In an effort to bring democracy to the grassroot level, Panchayat elections were started and the states were given more development responsibilities.
State electricity boards and state secondary education boards were formed. States were made responsible for secondary and higher education. State road transportation corporations were formed and local road building became a state responsibility.

[edit]Fourth plan (1969-1974)

At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalised 14 major Indian banks and the Green Revolution in India advanced agriculture.. In addition, the situation in East Pakistan (now independent Bangladesh) was becoming dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place.
Funds earmarked for the industrial development had to be used for the war effort. India also performed the Smiling Buddha underground nuclear test in 1974, partially in response to the United States deployment of the Seventh Fleet in the Bay of Bengal to warn India against attackingWest Pakistan and widening the war.

[edit]Fifth plan (1974-1979)

Stress was laid on employmentpoverty alleviation, and justice. The plan also focused on self-reliance in agricultural production and defence. In 1978 the newly elected Morarji Desai government rejected the plan. Electricity Supply Act was enacted in 1975, which enabled the Central Government to enter into power generation and transmission.[citation needed]

[edit]Sixth plan (1980-1985)

When Rajiv Gandhi was elected as the prime minister, the young prime minister aimed for rapid industrial development, especially in the area ofinformation technology. Progress was slow, however, partly because of caution on the part of labour and communist leaders.
The Indian national highway system was introduced for the first time and many roads were widened to accommodate the increasing traffic.Tourism also expanded.
The sixth plan also marked the beginning of economic liberalizationPrice controls were eliminated and ration shops were closed. This led to an increase in food prices and an increased cost of living.
Family planning also was expanded in order to prevent overpopulation. In contrast to China's harshly-enforced one-child policy, Indian policy did not rely on the threat of force. More prosperous areas of India adopted family planning more rapidly than less prosperous areas, which continued to have a high birth rate.

[edit]Seventh plan (1985-1989)

The Seventh Plan marked the comeback of the Congress Party to power. The plan lay stress on improving the productivity level of industries by upgradation of technology.
The main objectives of the 7th five year plans were to establish growth in the areas of increasing economic productivity, production of food grains, and generating employment opportunities.
As an outcome of the sixth five year plan, there had been steady growth in agriculture, control on rate of Inflation, and favourable balance of payments which had provided a strong base for the seventh five Year plan to build on the need for further economic growth. The 7th Plan had strived towards socialism and energy production at large. The thrust areas of the 7th Five year plan have been enlisted below:
  • Social Justice
  • Removal of oppression of the weak
  • Using modern technology
  • Agricultural development
  • Anti-poverty programs
  • Full supply of food, clothing, and shelter
  • Increasing productivity of small and large scale farmers
  • Making India an Independent Economy
Based on a 15-year period of striving towards steady growth, the 7th Plan was focused on achieving the pre-requisites of self-sustaining growth by the year 2000. The Plan expected a growth in labour force of 39 million people and employment was expected to grow at the rate of 4 percent per year.
Some of the expected outcomes of the Seventh Five Year Plan India are given below:
  • Balance of Payments (estimates): Export - Rs. 33 thousand crore, Imports - (-)Rs.54 thousand crore, Trade Balance - (-)Rs.21 thousand crore
  • Merchandise exports (estimates): Rs. 60,653 crore
  • Merchandise imports (estimates): Rs. 95,437 crore
  • Projections for Balance of Payments: Export - Rs.60.7 thousand crore, Imports - (-) 95.4 thousand crore, Trade Balance- (-) Rs.34.7 thousand crore
Seventh Five Year Plan India strove to bring about a self-sustained economy in the country with valuable contributions from voluntary agencies and the general populace.

[edit]Period between 1989-91

1989-91 was a period of political instability in India and hence no five year plan was implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India faced a crisis in Foreign Exchange (Forex) reserves, left with reserves of only about $1 billion (US). Thus, under pressure, the country took the risk of reforming the socialist economy. P.V. Narasimha Rao) (28 June 1921 – 23 December 2004), also called Father of Indian Economic Reforms, was the twelfth Prime Minister of the Republic of India and head of Congress Party, and led one of the most important administrations in India's modern history overseeing a major economic transformation and several incidents affecting national security. At that time Dr. Manmohan Singh (currently, Prime Minister of India) launched India's free market reforms that brought the nearly bankrupt nation back from the edge. It was the beginning of privatisation and liberalisation in India.

[edit]Eighth plan (1992-1997)

Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January 1995.This plan can be termed as Rao and Manmohan model of Economic development. The major objectives included, containing population growth, poverty reduction, employment generation, strengthening the infrastructure, Institutional building, Human Resource development, Involvement of Panchayat raj, Nagarapalikas, N.G.OSand Decentralisation and peoples participation. Energy was given prority with 26.6% of the outlay. An average annual growth rate of 6.7% against the target 5.6% was achieved.

[edit]Ninth Plan (1997 - 2002)

Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim of attaining objectives like speedy industrialization, human development, full-scale employment, poverty reduction, and self-reliance on domestic resources.
Background of Ninth Five Year Plan India: Ninth Five Year Plan was formulated amidst the backdrop of India's Golden jubilee of Independence.
The main objectives of the Ninth Five Year Plan India are:
  • to prioritize agricultural sector and emphasize on the rural development
  • to generate adequate employment opportunities and promote poverty reduction
  • to stabilize the prices in order to accelerate the growth rate of the economy
  • to ensure food and nutritional security
  • to provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy
  • to check the growing population increase
  • to encourage social issues like women empowerment, conservation of certain benefits for the Special Groups of the society
  • to create a liberal market for increase in private investments
During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower than the target GDP growth of 6.5 per cent. [6]

[edit]Tenth plan (2002-2007)

The main objectives of the 10th Five-Year Plan were:
  • Providing gainful and high-quality employment at least to the addition to the labour force;
  • All children in India in school by 2003; all children to complete 5 years of schooling by 2007;
  • Reduction in gender gaps in literacy and wage rates by at least 50% by 2007;
  • Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2%;
  • Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to 2007);
  • Reduction of Infant mortality rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012;
  • Reduction of Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007 and to 1 by 2012;
  • Increase in forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012;
  • All villages to have sustained access to potable drinking water within the Plan period;
  • Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012;
  • Economic Growth further accelerated during this period and crosses over 8% by 2006.

[edit]Eleventh plan (2007-2012)

The eleventh plan has the following objectives:
  1. Income & Poverty
    • Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016-17
    • Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits
    • Create 70 million new work opportunities.
    • Reduce educated unemployment to below 5%.
    • Raise real wage rate of unskilled workers by 20 percent.
    • Reduce the headcount ratio of consumption poverty by 10 percentage points.
  2. Education
    • Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12
    • Develop minimum standards of educational attainment in elementary school, and by regular testing monitor effectiveness of education to ensure quality
    • Increase literacy rate for persons of age 7 years or above to 85%
    • Lower gender gap in literacy to 10 percentage points
    • Increase the percentage of each cohort going to higher education from the present 10% to 15% by the end of the plan
  3. Health
  4. Women and Children
    • Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17
    • Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children
    • Ensure that all children enjoy a safe childhood, without any compulsion to work
  5. Infrastructure
    • Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power.
    • Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015
    • Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012
    • Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016-17
  6. Environment
    • Increase forest and tree cover by 5 percentage points.
    • Attain WHO standards of air quality in all major cities by 2011-12.
    • Treat all urban waste water by 2011-12 to clean river waters.
    • Increase energy efficiency by 20 percentage points by 2016-17.

What is the economic planning what are the general objectives of Indian planning explain the effect of planning in Indian economy?

Economic Planing is the making of major economic decisions what and how much is to be produced and to whom it is to be allocated by the conscious decisions of a determining authority on the basis of a comprehensive survey of economic system as a whole. Main Objectives of Economic Planing is
1) Increase in National Income and Per capita Income.
2) Reduction of Inequality in Income.
3) Reduction in Regional Inequalities.
4) Price Stability
5) Economic Development
6) Full Employment
7) Full Utilization of Available Resources
8) Self Sufficient
9) Reconstruction 

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