Planned Development in India -

Objectives, Targets and strategies of the

latest Plan: A brief evaluation of the
Indian planning.
• After achievement of independence, India became a republic. She
chose to follow a path of ‘planning for social and economic
development’, which meant that the State would play a pro-active
role in deciding about ‘what, how, how much, where and whom’ in
economic and social activities of the system while respecting, by
and large institutions of private property and market.
• Our Constitution itself gave scope for market to function and yet
asked the State to intervene in the functioning of the market.
• Thus, we adopted the middle path, the concept of mixed economy,
with public and private sectors playing complementary roles,
remaining active partners in the common tasks of development.
• Professor Robbins defines economic planning as
“collective control or supersession of private activities
of production and exchange.”
• To Hayek, planning means, “the direction of productive
activity by a central authority.”
• In the words of Zweig, “Economic planning consists in
the extension of the functions of public authorities to
organization and utilization of economic
resources...Planning implies and leads to centralization
of the national economy.”
NEED FOR PLANNING

• To Increase the Rate of Economic Development.

o In the words of D.R. Gadgil, “Planning for economic development implies external direction or regulation
of economic activity by the planning authority which is in most cases, identified with the government of
the state.” It means increasing the rate of capital formation by raising the levels of income, saving and
investment.
• Modernisation
o structural and institutional changes in economic activities leading to a progressive and modern economy.
• Self reliance
o . This implies progressively reduction and ultimately elimination of dependence on foreign aid and
imports for certain critical commodities.
• Social Justice
o to render social justice to all, more particularly to the deprived strata of the society.
o Removing Poverty and Inequalities.
• To Improve and Strengthen Market Mechanism
o (c) Development of Money and Capital Markets.

• To Remove Unemployment.
• Balanced Development of the Economy.
o (a) Development of Agricultural and Industrial Sectors.
o (b) Development of Infrastructure.
• Towards the end of 1938, National Planning Committee was set
up under the Chairmanship of Shri Jawahar Lal Nehru. The
Committee produced a series of studies on different subjects
relating to economic development.
• Besides the National Planning Committee, eight leading
industrialists of India conceived a Plan of Economic Development
which is popularly known as Bombay Plan.
• There was also a Gandhian plan prepared by Shriman Narayan.
• All these plans were only of historical importance because they
were just paper plans which were never implemented. Immediate
after independence, nothing perceptible took place except
announcement of a resolution of Industrial policy, 1948.
• The Planning Commission, however, was constituted on
March 15, 1950 by a cabinet resolution—well much after
independence and fifty days after promulgation of the
Constitution
• National Development Council 1952.
Strategy

• By strategy we mean the use of correct approach /method/formula

for achieving the target under planning. In the first plan period of
1951-56, no specific strategy was adopted during this time the
government of India gave more emphasis to agriculture keeping in
view the fact that majority of India’s population depend on
agriculture and there was the immediate issue of adequate food
grain supply to address food shortage.
• The first five year plan was a great success as the targeted growth
rate was achieved so India was in a position to adopt a long term
strategy for planning in future. The development strategy was
accordingly spelt out explicitly in the second plan period of 1956-
61. The strategy was to give emphasis on – 1. Industrialization, 2.
Within industrialization more emphasis on heavy industries.
• Planning Strategies : Phase of Control

• Interventionist State
o the State will influence much of the economic activities of the private sector through various
instruments like license and allocation of critical inputs, including foreign exchange under its control.
This phase came to be known as license-permit-quota raj.
• Expansion of Public Sector
o the basic strategy was that the public sector assumed the responsibility of developing heavy and
basic industries (steel, fuel and power, machine-building and chemical industries) and social and
economic infrastructure (such as banks and other financial institutions, railways and airways, power,
etc.) whereas the private sector was given the right to develop consumer goods industries and trade
—almost whole of internal trade and most of external trade, besides agriculture, livestock, plantation
and fishing etc.
• Nationalisation
o Many private industries, for one or the other reasons were nationalised, presumably in overall
national interest. Coal mining and exploration, extraction, refining and distribution of crude oil, not
within the exclusive public sector, were nationalised for spurring growth.
o Many textiles mills were nationalised to protect labour. Banks were nationalised in many phases in
1956, 1969 and 1980 to make available credit to priority sector and to expand branches in unserved
areas.
• Development of Heavy Industries
o to develop our own machine-making capability as well production of steel, fuel, power and chemicals.
• Import Substitution
o Indigenous production of both capital goods needed by producers, and consumer goods, needed by
the masses was given priority.
Phase of De-regulation : (LPG
Reforms)
• Indian economy overview was highly inspired by Soviet
Union's practices postindependence. It had been
recording growth rate not greater than five jumped till
1980s.
• This stagnant growth was termed by many economists
as 'Hindu Growth Rate'.
 What triggered the BoP crisis in the early 1990s?
• The growth of the Indian economy in the 1980s came at the cost of bitter
fiscal imbalances.
• India had a highly unfavourable balance of payments (BoP) situation due
to reliance on heavy foreign loans.
• The country faced a full-scale macroeconomic crisis in the early 1990s,
marked by high inflation, rising food prices, large current account deficit,
huge domestic and foreign debt, a sharp fall in the foreign exchange
reserves, a steep decline in India’s credit rating, and a cut off of
commercial loans accompanied by a net outflow of NRI (Non-Resident
Indian) deposits.
• Also, the Gulf Crisis of 1990 (that pushed up the oil prices) came as an
external shock to the vulnerable Indian economy.
• In the year 1991, Indian economy faced an acute shortage of foreign
exchange. Fresh debts were being denied by the international institutions
such as the International Monetary Fund (IMF) and the World Bank as well
as other commercial lenders. Further, India was almost on the edge of
defaulting on its foreign lenders’ claims.
Conditionalities Imposed by the IMF
and World Bank
• The IMF and the World Bank provided the much-needed
foreign exchange, but on their own terms and
conditions.
• As a part of these conditions, India was required to cut
down fiscal deficit and the rate of growth of money
supply so as to liberalize the domestic economy and to
relax restrictions on international flow of goods,
services, capital and technology.
Privatization

• Policy of dereservation: The Industrial Policy Resolution of 1956 had

reserved 17 industries for the public sector. The Industrial Policy of 1991
reduced the number of such industries to 8. In 2024, just 2 sectors of
national importance are reserved for the public enterprises i.e. atomic
energy and railway operations.
• Policy on sick enterprises: The Board for Industrial and Financial
Reconstruction (BIFR) was set up under the Sick Industries Companies
(Special Provisions) Act, 1985 to look into the revival of sick industrial
units.
• Identification and categorization of profit-making PSUs: The Government
began to identify and categorise high-performing and profit-making public
sector enterprises to provide financial and managerial autonomy to
become global giants. They were categorized into
Maharatna/Navaratna/Miniratna companies and given additional power
and freedom to incur capital expenditure, raise debt, enter into joint
ventures, restructure their Board of Directors, and work out their own
manpower and resource management policies.
• Memorandum of Understanding (MOU): The purpose of an MOU is to ensure a
levelplaying field for the public sector vis-a-vis the private corporate sector. The
public sector enterprises entering into MOU with the government are given rating
as per their performance on a 5 point scale — excellent, good, very good, fair and
poor.
• Voluntary Retirement Scheme (VRS): VRS in the public sector enterprises to
address the issue of over-staffing in public sector units.
• Disinvestment: It means selling of investment. In the context of public enterprises,
the policy of disinvestment refers to selling of the Government's equity in the
public sector units in the market. Under this policy, a part of the government
shareholding in the selected public sector undertakings would be offered to
private investors, financial institutions, mutual funds, workers, and the public at
large. It is done to raise resources with the objective of reducing public debt
burden, encourage modernization and tech advancement. In the Union Budget for
2023-24, the government has set a disinvestment target of ₹51,000 crore.
Effect of Reforms on the Indian Economy
• Higher growth rates: The growth rate of national income picked up from 5 per cent
in 1990-1991 to about 9.3 per cent in 2007-08 and 8.2 per cent in 2023-24. (Pre
reform period average growth rate is about 4%)
In 1992,as the country ushered into liberalization regime. Thereafter, the
economy started scaling upward. This new trend in growth was called 'New Hindu
Growth Rate'.
• Changes in the composition of the national income: o The post-reform period has
been characterised by significant changes in the composition of the national
income.
o While the share of agriculture has declined, that of industry and service sector has increased.
The share of Gross value added (GVA) of agriculture and allied sectors in total economy in
2022-23 is 18.3% (at current prices). While in 1990-91, industry (manufacturing) contributed
26 per cent of India’s GDP, industry contributed about 30 percent of total gross value added
in the country in FY2024.
o Further, the service sector contributed over 50 percent to India's GDP in FY2024 against
approximately 44 per cent in 1991-92.
• Savings and investment performance: Post-reform period showed a remarkable
increase in savings and investment.
o Gross domestic savings increased from about 23 percent in 1990-91 to 31 percent in 2015-
16, rate of investment (rate of gross domestic capital formation as per cent of GDP) has
increased from 26 per cent in 1990-91 to about 31 per cent in 2015-16 and to 30.2% of GDP
in FY23.
• Foreign trade: Over time, the export sector has grown to be a significant
earner of foreign exchange and a major contributor to India’s national
income.
o For example, India's overall exports (Merchandise and Services combined) in
November 2023 is estimated to be USD 62.58 Billion.
• Foreign exchange reserves: The BoP has shown significant improvement
after economic reforms. As a result, India's foreign exchange reserves have
increased rapidly.
o As against only $1.1 billion in June, 1991, in June 2024, India's Forex Reserves stand
at around $647 billion.
• Foreign Direct Investment:
o India allows 100% FDI in most of the sectors except in a few sectors such as lottery,
business, chit funds, atomic energy, etc.
o FDI inflow has increased from US $1.3 billion in 1990-91 to USD 70.97 billion in FY
2022- 23. Moreover, foreign institutional investors have been allowed to invest in the
Indian capital market subject to certain regulations.
• Overseas investment by Indian companies: Outbound investments from
India have undergone considerable change not only in terms of magnitude
but also in terms of geographical spread and sectoral composition.
o According to the Department of Economic Affairs, India’s overseas direct investment
(ODI) stood at US$ 33.45 billion in FY23.
Assessment of Reforms
• The balance sheet of the Indian economy in the post-
reform period is mixed.
• The overall post-reform growth rate has been higher
than the average rate achieved during the pre-reform
period, largely because of the services sector.
• The fiscal balance and inflationary tendency have been
controlled.
However, this growth is not inclusive
due to the following reasons:
• Growth is skewed within the economy.
o For example, there is a great divide separating industry and agriculture, and the
infrastructure, especially the rural infrastructure, is in a dilapidated state
• The reforms are just confined to the economy and they are not spreading
to the social sector.
o The social sector including healthcare, education, social security, gender equity
and environmental protection, has suffered a setback owing to the decline of the
public investment in these crucial areas
• Low spending by the government has led to growing inequity in education
and a decline in the quality of education. Indian society is marked by four
great divides: rural-urban, rich-poor, along gender line and caste lines –
which pervade every aspect of life, including social services.
o In each category, there is the existence of a disadvantaged section that finds it
extremely difficult to get access to social services and thus gets left out.
o In India, the percentage of GDP spent on healthcare was 1.9% in 2023-24.
• Failure to Remove Poverty and Inequality
completely :
o More than 240 million people are still under absolute poverty according to official
estimates.

• Problem of Unemployment Persists :

• Failure to Curtail Corruption and Black Money :
NITI Aayog And Its Action Agenda
• In January 2015, the Government of India replaced the Planning
Commission with an institution called NITI Aayog (National Institution for
Transforming India) by passing a resolution.
• It is the premier think tank of the Government of India. It acts as the
quintessential platform of the Government, as it brings the Indian states
to act together in national interest.
• The initiatives of NITI Aayog includes o Three year Action Agenda o
Fifteen year vision and o Seven year strategy.
• Some key functions of NITI Aayog are designing policy and programme
framework, fostering cooperative federalism, providing advice and
encouraging partnerships between key stakeholders and various national
and international institutions, designing strategic and long term policies
and programme frameworks and monitoring their progress and efficacy.