Union Budget

The Union Budget is an annual financial report of India. It contains the Government’s
revenue and expenditure for a fiscal year, which runs from April 1 to March 31.
According to Article 112 of the Indian Constitution, the Union Budget, also referred to as the
annual financial statement, is a statement of the estimated receipts and expenditure of the
government in respect of every financial year.
It is presented by the government every year before the start of the financial year. It is the
most extensive account of the Government’s finances, in which revenues from all sources
and expenditures on all activities undertaken are enumerated.
It comprises of the revenue budget and the capital budget. It also contains estimates for the
next fiscal year.

REVENUE BUDGET:
● Revenue Budget consists of the revenue receipts of the government (tax revenues
and other revenues) and the expenditure met from these revenues.

REVENUE RECEIPTS:
● Those receipts which neither create any liability nor cause any reduction in the assets
of the government.
● They are regular and recurring in nature and the government receives them in the
normal course of activities.
 ● Revenue receipts include the proceeds from taxes and other duties levied by the
Centre; the interest and dividend it receives on its investments; and the fees and
charges the government receives for its services.
For the government, there are two sources of revenue receipts — tax revenues and non-tax
revenues.
Tax Revenues:
● It gives a detailed report on revenue collected from different items like corporation
tax, income tax, wealth tax, customs, union excise, service, taxes on Union Territories
like land revenue, stamp registration, etc.
● Taxes collected from both direct and indirect tax are considered in Tax Revenue.
Non-tax Revenues:
● Non-Tax Revenue is the recurring income earned by the government from sources
other than taxes.
Direct tax:
● A direct tax is a tax an individual or organization pays directly to the imposing entity.
● Direct taxes include income tax, property tax, corporate tax, estate tax, gift tax,
value-added tax (VAT), sin tax, and taxes on assets.
Indirect tax:
● An indirect tax is collected by one entity in the supply chain and paid to the
government, but it is passed on to the consumer as part of the purchase price of a
good or service.
● The consumer is ultimately paying the tax by paying more for the product.
● Example: GST
Revenue Expenditure:
● Part of government expenditure that does not result in the creation of assets.
Payment of salaries, wages, pensions, subsidies, and interest fall in this category as
revenue expenditure examples.
Capital Budget:
● The capital budget consists of capital receipts and payments.
● It also incorporates transactions in the Public Account.
Capital Receipts:
● Those receipts that create liabilities or reduce financial assets. They also refer to
incoming cash flows.
● Capital receipts can be both non-debt and debit receipts.
● Capital receipts are loans taken by the government from the public, borrowings from
foreign countries and institutes, and borrowings from the RBI.
Non-debt capital receipts
● Non-debt receipts are those which do not incur any future repayment burden for the
government.
● Examples of non-debt capital receipts: Recovery of loans and advances,
disinvestment, issue of bonus shares, etc
Debt capital receipts
● Debt Receipts have to be repaid by the government. A reduction in debt receipt (or
borrowing) can be a big leap for the economy’s financial health.
● Examples of debt capital receipts: Market loans, issuance of special securities to
public-sector banks, issue of securities, short-term borrowings, etc. are all examples
of debt capital receipts.
Capital Expenditure:
● It is the money spent by the government on the development of machinery,
equipment, building, health facilities, education, etc.
● It also includes the expenditure incurred on acquiring fixed assets like land and
investment by the government that gives profits or dividends in the future.
Capital expenditure includes money spent on the following:
● Acquiring fixed and intangible assets
● Upgrading an existing asset
● Repairing an existing asset
● Repayment of loan

Budget Terms and Definitions

1. Annual Financial Statement
It is a statement of estimated receipts and expenditure of the government in respect of
every financial year (April 1-March 31). It is divided into three parts, the Consolidated Fund,
Contingency Fund, and Public Account. The government must present a statement of
receipts and expenditure for each of these funds.
2. Appropriation Bill
It is a bill that gives power to the government to withdraw funds from the Consolidated Fund
of India for meeting the expenditure during the financial year.
3. Bearish Trend
It is defined as a downward trend in the prices of an industry’s stocks or the overall fall in
broad market indices in financial markets. The bearish trend is characterized by heavy
investor pessimism about the declining market price scenario. A fall in the prices of about
20% is identified as a bearish trend.
4. Budgetary Deficit
It is the difference between all receipts and expenses in both revenue and capital accounts
of the government. If revenue expenses of the government exceed revenue receipts, it
results in a revenue account deficit. Similarly, if the capital disbursements of the government
exceed capital receipts, it leads to a capital account deficit. Budgetary deficit is usually
expressed as a percentage of GDP.
5. Bullish Trend
A trend in financial markets can be defined as a direction in which the market moves.
‘Bullish Trend’ is an upward trend in the prices of an industry’s stocks or the overall rise in
broad market indices, characterized by high investor confidence. A bullish trend for a certain
period of time indicates the recovery of an economy.
6. Capital Account
The capital account can be regarded as one of the primary components of the balance of
payments of a nation. It gives a summary of the capital expenditure and income for a
country. This account comprises foreign direct investments, portfolio investments, etc. It
gives a summary of the net inflow of both private and public investment into an economy.
7. Capital Budget
It consists of capital receipts and payments. It also incorporates transactions in the Public
Account. Capital receipts are loans raised by the government from the public, borrowings by
the government from the Reserve Bank and other parties through the sale of treasury bills,
loans received from foreign bodies and governments, and recoveries of loans granted by the
Central government to state and Union Territory governments and other parties.
Capital payments consist of capital expenditure on acquisition of assets like land, buildings,
machinery, and equipment, as also investments in shares, loans, and advances granted by
the Central government to state and Union Territory governments, government companies,
corporations, and other parties.
8. Capital Market
It is a market where buyers and sellers engage in the trade of financial securities like bonds,
stocks, etc. The buying/selling is undertaken by participants such as individuals and
institutions. The capital market consists of primary markets and secondary markets. Primary
markets deal with the trade of new issues of stocks and other securities, whereas secondary
market deals with the exchange of existing or previously-issued securities.
9. Consolidated Fund
Consolidated Fund of India is the most important of all government accounts. Revenues
received by the government and expenses made by it, excluding the exceptional items, are
part of the Consolidated Fund.
10. Consumer Price Index
It is a comprehensive measure used for the estimation of price changes in a basket of goods
and services representative of consumption expenditure in an economy. Inflation is
measured using CPI. The percentage change in this index over a period of time gives the
amount of inflation over that specific period, i.e. the increase in prices of a representative
basket of goods consumed.
11. Contingency Fund
It is created as an imprest account to meet some urgent or unforeseen expenditure of the
government. This fund is at the disposal of the President.
12. Core Inflation
An inflation measure excludes transitory or temporary price volatility as in the case of some
commodities such as food items, energy products etc. It reflects the inflation trend in an
economy.
13. Corporation Tax
It is a tax imposed on the net income of the company.
14. Countervailing Duty
Duties that are imposed in order to counter the negative impact of import subsidies to
protect domestic producers are called countervailing duties.
15. Credit Rating
It is an analysis of the credit risks associated with a financial instrument or a financial
entity. It is a rating given to a particular entity based on the credentials and the extent to
which the financial statements of the entity are sound, in terms of borrowing and lending
that has been done in the past.
16. Customs Duty
It is a tax imposed on imports and exports of goods.
17. Deflation
When the overall price level decreases so that the inflation rate becomes negative, it is
called deflation. It is the opposite of the often-encountered inflation. Deflation is different
from disinflation as the latter implies a decrease in the level of inflation whereas on the
other hand deflation implies negative inflation.
18. Demand for Grants
It is the form in which estimates of expenditure from the Consolidated Fund, included in
the annual financial statement and required to be voted upon in the Lok Sabha, are
submitted in pursuance of Article 113 of the Constitution. The demand for grants includes
provisions with respect to revenue expenditure, capital expenditure, grants to State and
Union Territory governments together with loans and advances. Generally, one demand for a
grant is presented in respect of each ministry or department. However, for large ministries
and departments, more than one demand is presented.
19. Depreciation
The monetary value of an asset decreases over time due to use, wear and tear, or
obsolescence. This decrease is measured as depreciation.
20. Direct Tax
It is a type of tax where the incidence and impact of taxation fall on the same entity. These
are largely taxes on income or wealth. Income tax, corporation tax, property tax, inheritance
tax, and gift tax are examples of direct tax.
21. Education Cess
It is an additional levy on the basic tax liability.
22. Excess Grants
It is the grant in excess of the approved grants for meeting the requisite expenses of the
government. The Demand for Excess Grants is made after the actual expenditure is incurred
and is presented to the Parliament after the end of the financial year in which the expenses
were made.
23. Expenditure Budget
It shows the revenue and capital disbursements of various ministries/departments.
24. External Debt
It refers to money borrowed from a source outside the country. External debt has to be
paid back in the currency in which it is borrowed.
25. Finance Bill
It is a Money Bill as defined in Article 110 of the Constitution. The proposals of the
government for levy of new taxes, modification of the existing tax structure, or continuance
of the existing tax structure beyond the period approved by Parliament are submitted to
Parliament through this bill.
26. Fiscal Deficit
The difference between total revenue and total expenditure of the government is termed
as fiscal deficit. It is an indication of the total borrowings needed by the government. While
calculating the total revenue, borrowings are not included.
27. Gross Domestic Product
GDP is the final value of the goods and services produced within the geographic
boundaries of a country during a specified period of time, normally a year. GDP growth rate
is an important indicator of the economic performance of a country.
28. Index of Industrial Production
The Index of Industrial Production (IIP) is an index that shows the growth rates in different
industry groups of the economy in a stipulated period of time. The IIP index is computed and
published by the Central Statistical Organisation (CSO) on a monthly basis.
29. Indirect Tax
It is a type of tax where the incidence and impact of taxation do not fall on the same entity.
Customs duty, central excise, service tax, and value-added tax, GST are examples of indirect
tax.
30. Non-Tax Revenue
It is the recurring income earned by the government from sources other than taxes. The
most important receipts under this head are interest receipts (received on loans given by the
government to states, railways, and others) and dividends and profits received from public
sector companies.
31. Primary deficit
Gross Primary Deficit is Gross Fiscal Deficit minus interest payments. Net Primary Deficit is
Net Fiscal Deficit minus net interest payments. The net interest payment is interest paid
minus interest receipt.
32. Privatization
The transfer of ownership, property, or business from the government to the private sector
is termed privatization. The government ceases to be the owner of the entity or business.
33. Property Tax
It is the annual amount paid by a landowner to the local government or the municipal
corporation of his area. The property includes all tangible real estate property, his house,
office building, and the property he has rented to others.
34. Public Account
Public Account of India accounts for flows for those transactions where the government is
merely acting as a banker.
35. Public Debt
Public debt receipts and public debt disbursals are borrowings and repayments during the
year, respectively, by the government.
36. Purchasing Power Parity
The theory aims to determine the adjustments needed to be made in the exchange rates of
two currencies to make them on par with the purchasing power of each other. The
expenditure on a similar commodity must be the same in both currencies when accounted
for the exchange rate. The purchasing power of each currency is determined in the process.
Purchasing power parity is used worldwide to compare the income levels in different
countries. PPP thus makes it easy to understand and interpret the data of each country.
37. Real Economic Growth Rate
It is the rate at which a nation’s Gross Domestic Product (GDP) changes/grows from one
year to another. GDP is the market value of all the goods and services produced in a
country in a particular time period. Real Economic Growth Rate takes into account the
effects of inflation.
38. Receipts Budget
It shows a detailed summary of the revenue and capital receipts of the government.
Receipts Budget forms a part of the Annual Financial Statement. It gives a summary of tax
revenue, non-tax revenue, and capital receipts. It also gives a detailed analysis of tax and
non-tax receipts together with the trends.
39. Regressive Tax
Under this system of taxation, the tax rate diminishes as the taxable amount increases. In
other words, there is an inverse relationship between the tax rate and taxable income. The
rate of taxation decreases as the income of taxpayers increases.
40. Securities Transaction Tax
It is a kind of turnover tax where the investor has to pay a small tax on the total
consideration paid or received in a share transaction.
41. Subsidy
It is a transfer of money from the government to an entity. It leads to a fall in the price of
the subsidized product. The objective of subsidy is to bolster the welfare of society.
42. Subvention
It refers to a grant of money in aid or support, mostly by the government. The term finds a
mention in almost every Budget.
43. Supplementary Grants
The additional grant required to meet the required expenditure of the government is
called Supplementary Grants. When grants, authorized by the Parliament, fall short of the
required expenditure, an estimate is presented before the Parliament for Supplementary or
Additional grants. These grants are presented and passed by the Parliament before the end
of the financial year.
44. Surcharge
A surcharge is an additional charge or tax.
45. Tax Revenue
Tax Revenue forms part of the Receipt Budget, which in turn is a part of the Annual Financial
Statement of the Union Budget. It gives a detailed report on revenue collected from
different items like corporation tax, income tax, wealth tax, customs, union excise, service,
taxes on Union Territories like land revenue, stamp registration, etc. Taxes collected from
both direct and indirect tax are considered in Tax Revenue.
46. Union Excise Duty
It is a type of indirect tax on goods manufactured in India.
47. Ways and means advance (WMA)
One of RBI’s roles is to serve as banker to both central and state governments. In this
capacity, RBI provides temporary support to tide over mismatches in their receipts and
payments in the form of ways and means advances.
This was all from us in this blog of Budget Terms and Definitions. Budget terms should now
be clear to you and you should be able to comprehend the upcoming Budget well. We hope
that you like it and prove to be helpful in understanding and learning when you read the
upcoming budgets.
 Economic Survey 2020-2021 Key Highlights

1. Factors Affecting India’s Road to a $5 trillion economy

The Survey posits that India’s aspiration to become a $5 trillion economy depends critically
on:

● Strengthening the invisible hand of the market.

● Supporting it with the hand of trust.
● Survey suggests that policies must empower transparency and effective
enforcement using data and technology.

2. Entrepreneurship and Wealth Creation at the Grassroots

India ranks third in number of new firms created, as per the World Bank. With a 10 percent
increase in registration of new firms in a district yields a 1.8 % increase in Gross Domestic
District Product (GDDP). It was also observed that –

● 12.2 % cumulative annual growth rate of new firms in the formal sector
during 2014-18, compared to 3.8 % during 2006-2014.
● About 1.24 lakh new firms created in 2018, an increase of about 80 % from
about 70,000 in 2014.

3. Pro-business versus Pro-markets

Survey says that India’s aspiration of becoming a $5 trillion economy depends critically on:

● Promoting ‘pro-business’ policy that unleashes the power of competitive

markets to generate wealth.
● Weaning away from ‘pro-crony’ policy that may favour specific private
interests, especially powerful incumbents.
● Before liberalisation, a Sensex firm expected to stay in it for 60 years, which
decreased to only 12 years after liberalisation.
● Every five years, one-third of Sensex firms are churned out, reflecting the
continuous influx of new firms, products and technologies into the
economy.

4. Undermining Markets
Here are few of the undermining markets and the outcomes –

● The regulation of prices of drugs, through the DPCO 2013, led to increase in
the price of the regulated pharmaceutical drug vis-à-vis that of an
unregulated but similar drug.
● Emergence of Government as the largest procurer and hoarder of rice and
wheat.
● Burgeoning food subsidy burden
● Inefficiencies in the markets, affecting the long run growth of agricultural
sector.

5. Creating Jobs and Growth by Specializing in Network Products

By integrating “Assemble in India for the world” into Make in India, India can:

● Raise its export market share to about 3.5 % by 2025 and 6 % by 2030.
● Create 4 crore well-paid jobs by 2025 and 8 crore by 2030.
● Exports of network products can provide one-quarter of the increase in value
added required for making India a $5 trillion economy by 2025.

6. Impact of India’s trade agreements on overall trade balance

● India’s exports increased by 13.4 % for manufactured products and 10.9 % for
total merchandise
● Imports increased by 12.7 % for manufactured products and 8.6 per cent for
total merchandise.
● India gained 0.7 % increase in trade surplus per year for manufactured
products and 2.3 % per year for total merchandise.

7. Ease of Doing Business in India

India secured a jump of 79 positions to 63 in 2019 from 142 in 2014 in World Bank’s Doing
Business rankings.

Suggestions for further Ease of Doing Business in the survey report:

● Close coordination between the Logistics division of the Ministry of

Commerce and Industry, the Central Board of Indirect Taxes and Customs,
Ministry of Shipping and the different port authorities.
● Individual sectors such as tourism or manufacturing require a more targeted
approach that maps out the regulatory and process bottlenecks for each
segment.

8. Golden Jubilee of Bank Nationalisation: Taking stock

● Survey observes 2019 as the golden jubilee year of bank nationalization
● India has only one bank in the global top 100 – same as countries that are a
fraction of its size: Finland (about 1/11th), Denmark (1/8th), etc.
● The onus of supporting the economy falls on the PSBs accounting for 70 % of
the market share in Indian banking.

9. Financial Fragility in the NBFC Sector

Survey investigates the key drivers of Rollover Risk of the shadow banking system in India in
light of the current liquidity crunch in the sector. The survey computes a diagnostic (Health
Score) by quantifying the Rollover risk for a sample of HFCs and Retail-NBFCs (which are
representative of their respective sectors). The analysis of the Health Score has the following
findings:

● The HFC sector exhibited a declining trend post 2014 and overall health of the
sector worsened considerably by the end of FY2019.
● The Score of the Retail-NBFC sector was consistently below par for the period
2014 -19.
 ● Larger Retail-NBFCs had higher Health Scores but among medium and small
Retail- NBFCs, the medium size ones had a lower score for the entire period
of 2014-19.

10. Privatization and Wealth Creation

● Strategic disinvestment of Government’s shareholding of 53.29 per cent in
HPCL led to an increase of around Rs. 33,000 crore in national wealth.
● Survey presents an analysis of the before-after performance of 11 CPSEs
which underwent strategic disinvestment from 1999-2000 to 2003-04.
● Financial indicators such as net worth, net profit, return on assets (ROA),
return on equity (ROE) etc of the privatized CPSEs, on an average, have
improved significantly.
● Privatized CPSEs have been able to generate more wealth from the same
resources.

11. India’s GDP Growth

● Models that incorrectly over-estimate GDP growth by 2.7 % for India
post-2011 also misestimate GDP growth over the same period for 51 out of
95 countries in the sample.
● Correctly specified models that account for all unobserved differences and
differential trends in GDP growth across countries fail to find any
misestimating of growth in India or other countries.

12. Thalinomics: The Economics of a Plate of Food in India

Post 2015-16:
● Average household gained close to Rs. 11,000 on average per year from the
moderation in prices in the case of vegetarian Thali.
● Average household that consumes two non-vegetarian Thalis gained close to
Rs. 12,000 on average per year during the same period.
From 2006-07 to 2019-20:
● Affordability of vegetarian Thalis improved 29 %.
● Affordability of non-vegetarian Thalis improved by 18 %.

13. India’s Economic Performance in 2019-20

● India’s GDP growth moderated to 4.8 % in H1 of 2019-20, amidst a weak
environment for global manufacturing, trade and demand.
● Growth for ‘Agriculture and allied activities’ and ‘Public administration,
defense, and other services’ in H1 of 2019-20 was higher than in H2 of
2018-19.
● Current Account Deficit (CAD) narrowed to 1.5 % of GDP in H1 of 2019-20
from 2.1 % in 2018-19.
● Sharper contraction of imports as compared to that of exports in H1 of
2019-20, with easing of crude prices.
● Impressive Foreign Direct Investment (FDI).
● Accretion of foreign exchange reserves.
● Rebounding of portfolio flows.
Headline inflation expected to decline by year end: It increased from 3.3 % in H1 of
2019-20 to 7.35 % in December 2019-20 due to temporary increase in food inflation.
Survey expects an uptick in the GDP growth in H2 of 2019-20 @ 5% growth for 2019-20
based on CSO’s first Advance Estimates.

14. Fiscal Developments

● Gross GST monthly collections have crossed the mark of Rs. 1 lakh crore for a
total of five times during 2019-20 (up to December 2019).

15. External Sector

● India’s BoP position improved from US$ 412.9 bn of forex reserves in end
March, 2019 to US$ 433.7 bn in end September, 2019.
● Foreign reserves stood at US$ 461.2 bn as on 10th January, 2020.
● Current account deficit (CAD) narrowed from 2.1% in 2018-19 to 1.5% of GDP
in H1 of 2019-20.
Top export items: Petroleum products, precious stones, drug formulations & biologicals,
gold and other precious metals.
Largest export destinations in 2019-20 (April-November): United States of America (USA),
followed by United Arab Emirates (UAE), China and Hong Kong.
Growth in Non-POL exports dropped significantly from 2009-14 to 2014-19.

Top import items: Crude petroleum, gold, petroleum products, coal, coke & briquittes.
India’s imports continue to be largest from China, followed by USA, UAE and Saudi Arabia.

16. Logistics industry of India

Logistics Industry is currently estimated to be around US$ 160 billion.

● Expected to touch US$ 215 billion by 2020.

● According to World Bank’s Logistics Performance Index, India ranks 44th in
2018 globally, up from 54th rank in 2014.

17. External Debt

It is expected to remain low at 20.1% of GDP as at end September, 2019.

18. Social Infrastructure, Employment and Human Development

● The expenditure on social services (health, education and others) by the
Centre and States as a proportion of GDP increased from 6.2 % in 2014-15 to
7.7 % in 2019-20 (BE).
● India’s ranking in Human Development Index improved to 129 in 2018 from
130 in 2017:
● Gross Enrolment Ratio at secondary, higher secondary and higher education
level needs to be improved.
● The share of regular wage/salaried employees has increased by 5 percentage
points from 18 % in 2011-12 to 23 % in 2017-18.
● A significant jump of around 2.62 crore new jobs with 1.21 crore in rural areas
and 1.39 crore in urban areas in this category.
● Total formal employment in the economy increased from 8 % in 2011-12 to
9.98 % in 2017-18.
 ● Gender disparity in India’s labour market widened due to decline in female
labour force participation especially in rural areas with around 60 % of
productive age (15-59) group engaged in full time domestic duties.
● Access to health services inter-alia through Ayushman Bharat and Mission
Indradhanush across the country has improved.
● Mission Indradhanush has vaccinated 3.39 crore children and 87.18 lakh
pregnant women of 680 districts across the country.
● About 76.7 % of the households in the rural and about 96 % in the urban
areas had houses of pucca structure.
● A 10 Year Rural Sanitation Strategy (2019-2029) launched to focus on
sustaining the sanitation behavior change and increasing access to solid and
liquid waste management.

19. Industry and Infrastructure

● The industrial sector as per Index of Industrial Production (IIP) registered a
growth of 0.6 per cent in 2019-20 (April-November) as compared to 5.0 %
during 2018-19 (April-November).
● Total telephone connections in India touched 119.43 crore as on September
30, 2019.
● The installed capacity of power generation has increased to 3, 64,960 MW as
on October 31, 2019 from 3, 56,100 MW as on March 31, 2019.
● Service Sector contributes about 55 % of the total size of the economy and
GVA growth, attracting two-thirds of total FDI inflows into India.

20. Sustainable Development and Climate Change

● Forest and tree cover increased to reach 80.73 million hectare i.e. 24.56 % of
the geographical area of the country.
● (Gross Value Added) GVA at Basic Prices for 2019-20 from ‘Agriculture,
Forestry and Fishing’ sector is estimated to grow by 2.8 %.
● Agricultural productivity is also constrained by lower level of mechanization in
agriculture which is about 40 % in India, much lower than China (59.5 %) and
Brazil (75 %).
During the last 6 years ending 2017-18, Food Processing Industries sector has been
growing with an Average Annual Growth Rate (AAGR) of around 5.06 %. It constitutes as
much as 8.83 % and 10.66 % of GVA in Manufacturing and Agriculture sector respectively in
2017-18 at 2011-12 prices.
 ECONOMIC PLANNING IN INDIA
● Economic planning is a process under which attempts are made to achieve desired targets of
economic development within a specified period of time.
● After Independence of India, in 1948, a declaration of industrial policy was announced. The
policy suggested the creation of a National Planning Commission and the elaboration of the
policy of a mixed economic system.

Evolution of Planning in India

● Sir M. Vishveshwarya (1934), a prominent engineer and politician made his first attempt in
laying foundation for economic planning in India in 1934 through his book, “Planned
Economy of India”. It was a 10-year plan.
● Jawaharlal Nehru (1938) set-up “National Planning Commission” by a committee but due to
the changes in the political era and 2nd World War, it did not materialize.
● Bombay Plan (1940): The 8 leading industrialists of Bombay presented “Bombay Plan”. It
was a 15 Year Investment Plan.
● S. N Agarwal (1944) gave the “Gandhian Plan” focusing on the agricultural and rural
economy.
● M.N. Roy (1945) drafted ‘People’s Plan”. It was aimed at mechanization of agricultural
production and distribution by the state only.
● J.P. Narayan (1950) advocated, “Sarvodaya Plan” which was inspired by Gandhian Plan and
with the idea of Vinoba Bhave. It gave importance not only for agriculture, but encouraged
small and cottage industries in the plan.

Planning Commission
● Planning Commission was set up to formulate Five Year Plan in India.
● The Planning Commission was created on March 15, 1950, and the plan era began on April 1,
1951, with the launch of the first five-year plan (1951-56).
● Jawaharlal Nehru was the first Chairman of Planning Commission.
● The Planning Commission has been replaced by the NITI Aayog on 1st January 2015.

India’s Five-Year Plans

● The concept of economic planning in India or five-year plan is derived from Russia.
● India has launched 12 five year plans so far. The twelfth five-year plan was the last one in
five-year plans.
● The Government of India has decided to stop the launching of five-year plans and it was
replaced by NITI Aayog.

First Five-Year Plan (1951-1956)

● This plan was based on the Harrod-Domar Model.
● Its main focus was on the agricultural development of the country.
 ● Many irrigation projects including Bhakra-Nangal Dam and Hirakud Dam were started in the
first five-year plan.
● About 44.6 percent of the plan outlay went in favour of the public sector undertakings
(PSUs).
● The community development projects were started.
● This plan was successful and achieved the GDP growth rate of 3.6% (more than its target).

Second Five-Year Plan (1956-1961)

● It was based on the P.C. Mahalanobis Model.
● Its main focus was on the industrial development of the country. Second to transports and
communication.
● Steel plants at Bhilai, Durgapur, and Rourkela were established during this plan.
● This plan was successful and achieved the growth rate of 4.1%.
● Due to the assumption of a closed economy, shortage of food and capital were felt during
this Plan.

Third Five Year Plan (1961-1966)

● Third Five Year Plan is also called 'Gadgil Yojna'.
● The main target of this plan was to make the economy independent and to reach
self-propelled position or take off.
● The plan aimed to increase national income by 30 % and agriculture production by 30 %.
● Due to Indo-China war, this plan could not achieve its growth target of 5.6%.

Plan Holiday or Three Annual (1966-1969)

● The main reason behind the plan holiday was the Indo-Pakistan war & failure of third plan.
● During this period, annual plans (1966-1967, 1967-1968 & 1968-1969) were made and equal
priority was given to agriculture, its allied sectors and the industry sector.

Fourth Five Year Plan (1969-1974)

● There are two main objectives of this plan i.e., growth with stability and Progressive
achievement of self- reliance.
● Fourteen Major Indian Banks were nationalized.
● This plan failed and could achieve growth rate of 3.3% only, against the target of 5.7%.

Fifth Five Year Plan (1974-1979)

● In this plan top priority was given to agriculture, next came industry and mines.
● The plan also focused on poverty alleviation and self-reliance.
● The Twenty Point Programme (TPP) was launched by the Government of India in 1975.
Prime Minister Indira Gandhi launched this programme.
● Overall, this plan was successful, which achieved the growth rate of 4.8% against the target
of 4.4%.
 ● The draft of this plan was prepared and launched by D.P. Dhar. This plan was terminated by
Janata party government in 1978.

Rolling Plan
● The Janta Government terminated the fifth five-year plan in 1977-78 and launched its own
sixth five year plan for period 1978-83.
● In 1980, there was again a change of government at the Centre with the return of the
Congress which abandoned the Sixth Plan of the Janata Government in the year 1980 itself.
● The new government launched a fresh new Sixth Plan for the period 1980–85.
● The plan (1978-1980) is called Rolling plan.

Sixth Five Year Plan (1980-1985)

● The basic objective of this plan was poverty eradication and technological self-reliance.
● This Plan (1980–85) was launched with the slogan of ‘Garibi Hatao’.
● The plan gave emphasis on socio-economic infrastructure in the rural areas and also focused
on eliminating rural poverty and regional disparities.
● Its growth target was 5.2% but it achieved 5.7%.

Seventh Five Year Plan (1985-1990)

● The Plan (1985- 90) emphasised on rapid food grain production, increased employment
creation and productivity in general.
● The Jawahar Rozgar Yojana (JRY) was launched in 1989 with the motive to create wage
employment for the rural poor.
● The plan also focused on growth, modernisation, self-reliance and social justice.
● Its growth target was 5.0% but it achieved 6.0%.

Two Annual Plans

● Eighth five-year Plan could not take place due to volatile political situation at the centre. So,
two annual programmes were formed in 1990-91 & 1991-92.
● The two consecutive Annual Plans (1990–92) were formulated within the framework of the
approach to the Eighth Plan (1990–95) with the basic thrust on maximisation of employment
and social transformation.

Eighth Five Year Plan (1992-1997)

● In this plan the top priority was given to development of the human resources i.e.
employment, education and public health.
● During this plan, New Economic Policy of India was introduced.
● The Eighth Plan (1992–97) was launched in a typically new economic environment.
● This plan was successful and got annual growth rate of 6.8% against the target of 5.6%.
Ninth Five Year Plan (1997-2002)
● The main focus of this plan was “growth with justice and equity”.
● This five-year plan gave priority to Agriculture and Rural Development with a view to
generating adequate productive in employment and eradication of poverty.
● Ensuring food and nutritional security for all.
● The plan emphasizes seven minimum services which include Safe drinking water, Primary
health service, Universalization of primary education, and Nutritional support to children.
● This plan failed to achieve the growth target of 7% and Indian economy grew only at the rate
of 5.6%.

Tenth Five Year Plan (2002-2007)

● This plan aimed to double the per capita income of India in the next 10 years.
● This five-year plan aims to achieve 8 percent average GDP growth for the period (2002-07).
● Reduction in gender gaps in literacy and wages rates by at least 50% by 2007.
● It aimed to reduce the poverty ratio to 15% by 2012.
● Increased emphasis on the social sector (education, health, etc.)
● Its growth target was 8.0% but it achieved only 7.2%.

Eleventh Five Year Plan (2007-2012)

● The Plan targets a growth rate of 10 percent and emphasizes the idea of ‘faster and more
inclusive growth’.
● Prepared by C.Rangarajan.
● Its growth rate target was 8.1% but it achieved only 7.9%.

Twelfth Five Year Plan (2012-2017)

● Its main theme is “Faster, More Inclusive and Sustainable Growth”.
● Provide electricity to all villages.
● Connect all villages with all-weather roads.
● Provide access to banking services to 90 percent Indian households.
● Its growth rate target is 8%.

NITI Aayog

● NITI Aayog (National Institution for Transforming India) was formed on January 1, 2015
through a Union Cabinet resolution. NITI Aayog is a policy think-tank of the Government of
India.
● The NITI Aayog is the new planning body replacing Planning Commission in India.
● NITI Aayog serves as a knowledge hub and monitors progress in the implementation of
 policies and programmes of the Government of India.
● The Prime Minister is the Chairperson of NITI Aayog and Union Ministers will be Ex-officio
members. The Vice-Chairman is the functional head of NITI Aayog.

Structure of the NITI

● Chairman: Prime Minister of India (ex-officio).
● Governing Council: will comprise the Chief Ministers of all states and Lt. Governors of union
territories.
● Vice-Chairperson: to be appointed by the PM (First Vice Chairman was Arvind Panangariya).
● Members: all as full-time.
● Part-time Members: maximum of 2, from leading universities, research organisations and
other relevant institutions in an ex-officio capacity.
● Ex-Officio Members: maximum of 4 members of the Union Council of Ministers to be
nominated by the PM.
● Chief Executive Officer: to be appointed by the PM for a fixed tenure, in the rank of
Secretary to the Government of India.

Functions of NITI Aayog

● Cooperative and Competitive Federalism: To enable the States to have active participation
in the formulation of national policy.
● Decentralized Planning: To restructure the planning process into a bottom-up model.
● Vision and Scenario Planning: To design medium and long-term strategic frameworks
towards India’s future.
● Internal Consultancy: It provides internal consultancy to Central and State governments on
policy and programmes.
● Monitoring and Evaluation: It will monitor the implementation of policies and programmes
and evaluate the impacts.