General Approach Towards Planning
Why do we need planning? Plans are documents that ensure a systematic growth in an economy.
They provide a framework where all the sectors and regions integrated for the overall growth of the country.
Indian plans also followed a strategy where not only the immediate needs recognized but a long term perspective given for overall growth of the economy.
India apted for planning with exactly the same purpose even before independence.
Both left wing and right-wing leaders equal vehement supporters of planning in pre-independent India their view that if India is to industrialise,
the planning must a strategy for (i) heavy engineering and machine making industry
(ii) research institutes and (iii) electric power or energy. Role of small scale industries also stressed.
As a result, we saw famous Bombay Plan (1944) emphasizing industrialization. general approach towards planning.
History of Planning:
On the eve of Independence, India had to confront three immediate problems: influx of refuges, food shortages and mounting inflation.
According the immediate objective of the first five year plan to rehabilitate the refugees.
Rapid agricultural development envisaged as long-term strategy to give hard effort , to the economy, as per Rosentein Rodan.
A small view suggests that while earlier plans stressed more on economic growth as the major objective,
it objectives like self-reliance, generation of employment and poverty alleviation that given priority in the later plans.
General Approach Towards Planning
The Seventh plan emphasized more on the modernization of the economy. Since 1991, however, the entire concern of planning and
hence of the government shifted towards, implementation of a program of macro-economic stabilization and fiscal correction.
Thus from the Eighth Plan onward the transition from a planned economy to a market-led economy started
and in the subsequent plans the government policies on trade, industry and public sector’ undermined the system of economic planning.
Eleventh plan look a turn towards inclusive growth and social justice to the poor and marginalized sectors of the economy.
General Approach Towards Planning
Plan Objects
Planning in India has the features of mixed economy where public and private sector assigned major and complementary roles.
The basic objectives of planning in India envisaged as of economic growth, employment, self-reliance and social justice.
Apart from these basic objectives each plan had its own specific objectives depending upon the respective needs, possibilities and constraints in the economy.
General Approach Towards Planning
As given in the Second Five Year Plan (FYP) document there are four basic objectives of planning in India, viz.,
- a sizable increase in the national income so as to raise the level of living in the country;
- rapid industrialization with emphasis on the development of basic and heavy industries;
- a large expansion of employment opportunities; and
- reduction of inequalities in income and wealth and a more even distribution of economic power.
If we observe close we find that these objectives a inter-related. A significant increase in national income and a marked improvement in living standards.
It cannot secured without a substantial increase in production of goods and services.
To achieve this we need many of investments. In the long run an increase in production realized by promoting basic industries like steel, machine building,
coal and heavy chemicals.
General Approach Towards Planning
Because these are the industries, which strong linkages with other economic sensitivities.
For simultaneous development in all these directions the available natural resources and manpower used.
Further, the pattern of economic development should reflect certain basic social values and purposes.
Development should result in reduction of economic and social inequalities.
General Approach Towards Planning General Approach Towards Planning
While the above-mentioned objectives been there in all the Five Year Plans, there been variations in emphasis on different objectives across Plans.
While earlier FYPs stressed more on economic growth as the major objective.
objectives like self-reliance, generation of employment and poverty alleviation given priority in the later Plans.
The Seventh Plan emphasized more on the modernization of the economy.
Since 1991, however, the entire concerns of planning and hence of the government shifted towards stability in the economy.
General Approach Towards Planning
Thus the objective of planning focused on bringing down the rate of inflation, interest rate, subsidies, fiscal deficit and foreign debt;
and improvements in balance of payment position and foreign exchange reserve.
In the process, Indian economy witnessed a transition from a planned economy to a market economy.
General Approach Towards Planning General Approach Towards Planning
An important aspect of Indian planning been emphasis on human development,
whether through reduction of inequalities and poverty-alleviation measures in the ‘ earlier plans or through rural development programmes in the later plans.
CV For this purpose the projection of the state welfare state, this notion however changed.
and in the ninth and tenth plans the government expected beneficiaries to be the active participants in the growth process as well.
General Approach Towards Planning
Plan Strategy
To achieve the Plan objectives mentioned above India followed certain Plan strategy.
Indian flans followed a strategy where not only the immediate needs recognized but a long term perspective given for overall development of the economy.
On the eve of Independence, India had to confront three immediate problems, viz., i) influx of refugees, ii) food shortages, and iii) high inflation.
According the immediate objective of First Five Year Plan (1951-56) to consolidate the economy.
In order to understand the strategy under different Plans in India, the process of planning and development in India divided into the following four phases:
General Approach Towards Planning
- The Early phase;
- development strategy in the sixties; General Approach Towards Planning
- Development strategy in the seventies and eighties; and General Approach Towards Planning
- New development strategy. General Approach Towards Planning
The Early Phase ((1951-60)
During the early phase (1 95 1-60) the emphasis main on growth, that is, to raise the level of output in the economy.
There three main aspects such as i) developing sound base for initiating the long term growth of the economy,
ii) a comparative high priority to industrialization, and iii) emphasis on the development of capital goods.
You may recall that at that point of time India emerging from the imbalances created first by
the Second World War and subsequent by the partition of the country. In such an economic environment the top priority to
i) overcome the food shortages, ii) the development of infrastructure like energy, transport and communication, and
iii) provision of irrigation facilities so that agricultural production increase.
General Approach Towards Planning
The Second Five Year Plan built on a strategy of long term development of the economy.
Since the draft of this Plan prepared by P. C. Mahalanobis and Nehru the Prime Minister of the country this strategy often
called Nehru-Mahalanobis growth strategy which emphasized on industrialization of the economy, particularly heavy industries.
The rationale for such a strategy that in an industrial backward economy with low productivity, the agricultural sector could not provide more employment.
It argued that development of the industrial sector is a precondition for development of agricultural and other sector.
General Approach Towards Planning
Hence during this phase of planning, capital goods industry like iron and steel, heavy engineering, machine tools and heavy chemical industries given high priority.
Second, it visualized that heavy industries will induce development of small scale industries and growth will trickle down.
In other words, as a result of the growth in heavy industries, growth will percolate below.
This strategy, however, had its limitations as it put more emphasis on capital goods, which resulted in scarcity of essential commodities.
The problem became acute in the later years of the Second FYP when there food scarcity due to bad harvest.
Consequently, in the subsequent Plans greater attention given to agriculture.
As opposed to the emphasis on the role of capital goods, the emphasis on the role of consumer goods.
General Approach Towards Planning
Moreover, the strategy visualized that the current consumption needs of the people would be adequate met through already available productive capacity and if some shortages arise,
the problem would be overcome by introducing state level controls.
Government intervention, however, proved to be inadequate and the country had to import food grains in large quantities.
It put pressure on the already difficult trade gap position of the country.
Second, this strategy visualized full employment by realizing 5% annual increase in national income,
which not translated in terms of actual projects, and expectations did not materialize.
The strategy did not result in leak and there no reduction in income inequalities a supporting institutional framework required to ‘ adopted as a policy measure to redistribute the assets.
land reforms legislation enacted for the redistribution of surplus land. The success of such institutional measures, however, is a debatable issue.
Development Strategy in the Sixties
With the beginning of the Third Plan (1961 – 66) it felt that the Indian economy entered the ‘take off stage and the first two FWs generated the necessary institutional mechanism for rapid economic development.
Consequently in the Third FYP a goal of self ability set.
Leaning from the experience of the first two FWs, the Third FYP accorded a high priority to agriculture along with the emphasis on the development of the basic industries.
During this period the development process ran into serious difficulties.
The county had to import large quantity of food grains as a result of falling growth in agricultural output
and rapid increasing population.
There large trade deficit, as huge investment in heavy industries required large imports without matching increase in exports.
General Approach Towards Planning
As a result, there decrease in savings rate, widespread unemployment particularly in rural India
and concentration of economic power in the hands of few urban industrialists and rich farmers:
At this juncture several research studies indicated that income ‘inequality increased in the country which indicated the failure of planning.
This led to rethinking on the development strategy and India observed a plan holiday during 1966-69.
In 1969 when the FYP resumed the objective of economic growth and self reliance not given up.
But the main emphasis get shifted from heavy industry to quick yielding projects and small scale industry.
Similar creation of infrastructure including roads given priority.
For development of agricultural sector high yielding varieties (HYV) of seeds and chemical fertilizer given priority as compared to community development.
The Fourth FYP set before itself two principal objectives: rapid growth in gross domestic product (GDP) and progressive achievement of self-reliance.
Development Strategy in the Seventies and Eighties
The Fifth FYP (1974-79) introduced at a time when India in deep economic crisis due to global hike in crude oil prices.
Since the planners interested in the slogan of garibi hatao and attainment of self-reliance it envisaged to achieve these objectives through better distribution of income,
higher rates of growth and by direct attack on the problem of unemployment,
under-employment and acute poverty.
The Fifth Plan terminated by the new Janata Party government one year before its completion and the Sixth FYP adopted. In fact, India had two Sixth FYPs practical (1978-83 and 1980-85).
The Sixth FYP adopted by the Janata Party (1978-83) discarded in 1980 with the change in government at the center.
The Sixth Plan (1978-83) admired the achievements of earlier Plans in India but criticized the Nehru-Mahalanobis growth strategy holding it responsible for unemployment, growing poverty,
concentration of economic power in the hands of few and widening of income and wealth inequalities.
General Approach Towards Planning
The focus of the Sixth Plan (1978-83) increasing the employment potential in agriculture and allied activities.
When the new sixth FYP (1980-85) introduced by the congress government,
planners rejected the approach of Janata Party and brought back the earlier model of growth.
In order to tackle the problem of poverty there direct attack on poverty by adopting programmes like Integrated Rural Development Programme (IRDP) and National Rural Employment program (NREP).
On the whole, the Sixth Plan undermined the role of public sector by reducing its share in total investment.
This Plan criticized on account of appeasing the press& groups like hers by giving unsustainable increase in agricultural prices.
And industrialists by relaxing licensing system and control.
General Approach Towards Planning
More open door policy followed towards foreign capital and multinational corporations.
Hence by this period the policies already swinging away and market started taking domination over the state.
The Seventh FYP (1985-1990) introduced with a change in the development strategy.
It envisaged to bring down the rate of population growth because the gains of growth often get neutralized by fair high growth rates of population.
There four basic elements that signify a change in the strategy in this Plan.
First, it gave importance to higher agricultural production by relying more on new technology.
Second, it undermined the role of public sector and induced promotion of private sector through industrial de-regulation.
General Approach Towards Planning
Third, with liberalization of imports, it aimed at raising efficiency in the manufacturing sector.
Fourth, necessary changes in industrial and export import policies made so that the role of the state changes from a regulatory to facilitatory authorities.
In totality this strategy as John W. Mellor defines a strategy of Agricultural Development-led Growth (ADLG). It expected to show better results due to
(i) strong domestic links between agriculture and industry, (ii) less import intensity of investment in agriculture,(iii) greater employment potential in agriculture.
ADLG strategy however did not lead to favorable results and hence there call for a strategy of balanced growth between agriculture and industry.
New Development Strategy
During the late 1980s until 1990-91, the country faced severe financial crisis and the year 1991 turned out to be a difficult time for the economy.
India had to face serious foreign exchange problem and the government responded to the crisis in two ways:
(i) short term stabilization measures, and (ii) long term structural measures.
The former measures to restore the confidence of the government to manage balance of payment problem.
The latter , however, long term measures where government decided to introduce substantial economic reforms to bring dynamism to the economy.
It took four major policy initiatives, viz.,
General Approach Towards Planning
(i) macroeconomic stabilization, (ii) trade policy reforms, (iii) industrial policy reforms, and
(iv) public sectors reforms (details of these policy measures will be the subject matter of the unit on economic reforms).
Since 1990-9 1, two annual plans (1 990-9 1 and 1 99 1 -92).and four FYPs adopted so far, FYPs i.e.,
the Eighth (1992-97), Ninth (1997-02), Tenth (2002-07) and Eleventh (2007-12) FYPs.
The philosophy, approach and strategy the same for eighth, ninth and tenth the three FYPs which guided by the measures of improving the performance and increasing the efficiency of the economy.
General Approach Towards Planning
The focus in these FYPs different compared to earlier Plans, where people are not mere beneficiaries of development;
they are active participants in the development process.
Unlike earlier Plans where a centralized approach followed,
the Plans after 1990 stressed more on decentralized and participatory approach of development.
Eleventh plan envisions an economy and provides for an opportunity to restricture existing policies with inclusive growth.
It aimed at putting the economy on a sustainable grow the trajectory with as growth rate of the per cent.
The key element of the strategy for inclusive growth is to provide access to basic facilities such as health, education, clean drinking water.
General Approach Towards Planning
Following points bring out the shift in the strategy of the Plans during this phase:
- Greater flexibility in fiscal and monetary policies;
- Shift in the policy from the focus on national targets to taking cognizance of the performance of different states in the country and efforts towards bridging inter-state in equality;
- Ensuring equity and social justice;
- Bringing full capacity utilization in the manufacturing sector;
- Reduction in the gestation lags of industrial and infrastructural investments;
- Rationalization of labour laws and regulations;
General Approach Towards Planning
- Introducing financial sector reforms so that the viability and stability of financial institutions improves financial sector.
- In India should be able to and willing to finance a range of activities that are of crucial importance both for growth and development;
- Re-examination of the subsidies provided to agricultural sector, planning in India: Revival of public investment in irrigation and water management;
- Removal of the reservation policy for small scale industries in a phased manner, without adverse affecting employment opportunities;
- Development of telecommunications, energy, and housing sector on a priority basis;
- Making an decisive impact on the quality of life of the majority of people especially poor and marginalized, and Settling socio-economic targets by making so.