General Knowledge

What is Economic Planning in India? All you need to know

One, Two, Three… oh sorry I was busy counting, ‘Yes’ we need Economic Planning in India because we use Economics in our daily life.

There are 2 kinds of people Business people take their profits and the Employees work for them take salaries, at the end of the day both calculate only these 2 factors i.e. Income and Expenditure.

When a normal person has got importance in Economics, then think definitely a vast country like India required proper planning and execution in a large process.

It is required to maintain the financial aspects in the form of budget, policies, schemes, efficient utilization of resources, etc. in order to maintain peace, healthy competition, and to cater to equal opportunities and rights for every individual of a country.

Before learning Economic planning in India let us understand what is Economics?

“Economics is a branch that studies the production, distribution, and consumption of products and services”.

The economy focuses on the behavior and interactions of economic objectives and also the functioning of economies.

Economic Planning in India

Economic planning in India consists of economic decisions, schemes formed to meet certain pre-determined economic objectives and a road-map of directions to achieve specific goals within a specific period of time.

By the conscious decisions of Central and State Government, based on the in-depth study of the existing and potential resources of a country through surveys and a careful study of the needs of the people, the planning takes place.

Economic Planning in India After Independence (1947)

Economic Planning in India was a big challenge for our National Leaders, they faced a big problem, how to build the economy, 20% of people were controlling 80% of resources.

The point was how to make independence meaningful to the masses because, unless and until financial empowerment is granted, any empowerment is insignificant or superficial.

Furthermore, the main challenge was how to reconstruct the economy, how to equalize the distribution of resources among people.

At the time of Independence, all sectors were in shutting down situation, none of the sectors were in shape, the problem was an adaptation of the economic planning model in India and then our national leaders observed different models to choose the best.

There were so many countries earlier were colonies like the USA under British, but before 1947 itself these countries got freedom and were developed in all aspects.

Meanwhile, our National leaders thought that, if it is possible to implement a model that has implemented in these countries so that we can ensure better lifestyle and can eradicate poverty, unemployment from our country.

So, then the leaders started looking at various models compared to and then they were agreed that no 2 models ever be the same, plans are designed to specific requirements of the country.

History of Economic Planning in India

The purpose of Planning is deeply rooted in the Indian context because we have a centuries-old civilization such as Mohanjadaro and the Indus Valley that were well planned and structured compared to any modern plans today.

The current thinking of economic planning is fairly new, somewhat rooted in Marxist socialism.

In the 19th century, intellectuals, theorists, thinkers from Europe put forward the idea of state involvement to stop capitalism and the inequality of society.

The Soviet Union has an economic planning idea for the first time in 1928 that was given to change the country into an industrial superpower.

The idea of economic planning was strengthened during the Great Depression in 1930, and Keynes’ writing also advocated the value of economic planning.

The outbreak of World War II also required adequate and effective planning of economic resources for effective management after the effects of war.

After Independence, India with the partition of the country on 15th August 1947. In 1948, a declaration of industrial policy was announced.

The Policy was suggesting the creation of a National Planning Commission and the elaboration of the policy of a mixed economic system.

On January 26, 1950, the Constitution came into force. In logical order, the Planning Commission was created on 15th March 1950, and the planning era began on 1st April 1951, with the launch of the first five-year plan (1951-56).

However, the idea of economic planning in India dates back to days before independence.

The idea of economic planning grew in India during and after the years of the Great Agricultural Depression (1929-1933).

The Indian government of the time was generally guided by a policy of leaving economic issues to industrialists and merchants aside and concentrated on Agriculture initially.

* 1934 – Sir M. Vishveshwarya

A prominent engineer and politician made his first attempt in the construction of Economic planning in India in 1934 through his book, “Planning Economy for India” it was a 10-year plan.

* 1938 – Jawaharlal Nehru

He set-up the “National Planning Commission” by a committee but due to the changes in the political era and the second world war it did not implement.

* 1940 -Bombay Plan 

The 8 leading industrialists of Bombay presented “Bombay Plan” it was a 15 Year Investment Plan.

* 1944 – SN Agarwal

He gave the “Gandhian Plan” it was focusing on the agricultural and rural economy.

* 1945 – MN Roy

Drafted “People’s Plan” it was aiming nationalization of agriculture in the production and distribution besides giving importance towards consumer goods by the state only.

* 1950 – JP Narayan

He has given “Sarvodaya Plan” which was inspired by Gandhian Plan and with the idea of Vinobabhave, it gave importance not only for agriculture, encouraged small and Cottage Industries in the plan.

In the end by considering all the plans, In the same year Planning Commission was introduced with “Five Year Planning in India” by Jawaharlal Nehru, he was the first chairman of the planning commission.

Economic Planning Models

Economic Planning in India, Mixed Economy, Capitalistic Economy, Socialistic Economy
Economic Planning in India

a) Capitalistic Plan Model

The capitalistic plan model is where economic decisions are taken by market forces or private ownership with no Government interference like what to produce, where to produce, whom, when, etc., according to the demand and supply.

This plan was also a success in countries like America, Australia, etc. where it contributed and made them rich from the poor.

So the leaders in India were thinking to implement the same but the problem was with capital, we had landlords, but we had no disposable capital that we can invest, demand and supply cannot be created since 80% of people were poor and lack of technology and capital.

However, this model was ignoring social considerations, and its only goal is to make profits, so again decided not to implement, then we turn to another model called the Socialistic model.

b) Socialistic Plan Model

Under the Socialistic plan model, the economic decisions are taken by the Government and it was successful in USSR and other East European countries.

This model was close to the heart of leaders because it was working towards a down-up strategy and most of our people were poor.

Then this was considered to adopt for the implementation because it was close to our Ideology, it works to eliminate poverty.

But the problem was with landlords because if we see the history we find that the reason behind the failure of 1857 revolt was because of landlords and capitalist they did not co-operate with our freedom fighters, they supported Britishers hence, that is why freedom struggle failed.

At the same time, while India was the result of communal problems that forced the separation of India, this is the reason why we have given special rules for princely states and the right to property in our constitution to decrease the fear of landlords and building confidence to the princely states.

Moreover, there are problems to implement both the models hence, the economic planners decided to combine both the Capitalistic and Socialistic models.

At last, the economic planners set to adopt a “Mixed Economy” to achieve higher growth altogether, therefore the leaders have contributed their knowledge to our economic planning in India.

c) Mixed Economy

The mixed economy is a combination of capitalism and socialism. Under the mixed economy, the benefits of capitalism and socialism are incorporated and, at the same time, their disadvantages are avoided.

In a mixed economy, the private and public sectors operate side by side. The government directs economic activity to certain socially important sectors and private entities contribute the growth of the country in the form of taxes in the economy and the balance is subject to the operation of the price mechanism.

The public and private sectors work cooperatively to achieve social objectives as part of a common economic plan.

Features of Mixed Economy

  • Participation of both the Private and Public Sector.
  • PPP-Model helps the economy with a capitalistic and socialistic manner.
  • Regulation of Private sectors by Government is possible.
  • Private Ownership is an excellent feature of the mixed economy.
  • Social security is established by the Government through democracy.
  • Balancing Inequalities of Income, Wealth, and Resources take place.
  • Economic Freedom is ensured.

The beauty of a mixed economy is the private sectors can grow and contribute to the welfare of the society in the form of providing Healthcare, Insurance, accommodation facilities and many more for their employees.

Whereas the Government can help the people in the form of providing schemes, welfare programs and also can earn in the form of taxes from the private sectors.

Here people are the king, where the government can control private entities and the people can elect Government.

Do you know Why GDP Growth is Important for the Objective of Inclusion?

Importance of Economic Planning in India

Economic planning is necessary for any country without which it becomes a journey without a destination.

  • Goals and objectives of a country are set by Economic Planning only
  • It helps in prioritizing the particular sector, which is lacking in growth.
  • It helps in proper utilization of resources
  • It defines the clear idea of how a country is heading with the global era
  • It allocates the division of work to reach the schemes to the people
  • It sets the target to be achieved and measures how they performed
  • It helps in maintaining healthy competition among people
  • It guides how central and state Government Co-ordinate and meet the goals.

Features of Economic Planning in India

Economic Planning in India was not so easy, we tend to had no previous political expertise, as we were ruled by kings and queens earlier.

After we got freedom from the British, the National political party emerged to solve the problems of people then the economic decisions and concepts came into existence.

a) Identifying the Objectives by using surveys, research, predictions and other methods helps the Government to adopt the policies to meet the specific goals of the nation.

For example, Through the survey, we will come to know the poverty, unemployment status, etc. which can be defined as objectives to eradicate poverty and unemployment as the goal.

b) Both central and state planning authority has the responsibility to prepare different schemes of development and coordinating the various activities that they have to take.

For example, the division of power, decision making of varies policies and schemes, activities of production, distribution, and consumption in an economy are the mutually work exist between state and central.

c) The main objective of Indian planning is to achieve the objective of economic development. It is necessary for underdeveloped countries because they can solve the problems of general poverty, unemployment, and backwardness.

The main task before the National Government was to undertake some positive development measures to initiate a process of development, which can be done effectively only through the instrument of planning.

It indirectly increases the purchasing power of an individual and increases the standard of living.

d) Though the removal of poverty is also the main objective of planning apart from providing basic needs and creating opportunities, the planning has to concentrate on proper utilization of resources, because to make more profits the resources are exploited a lot.

As a result, rational allocation of resources is not possible, so India planned for the pattern of Investment of resources and allocation.

e) The Foreign trade structure may be the direction of the primary producing economy to the Industrialized economy.

Proper planning of import and export of goods helps the economy to increase capital formation in the country, which becomes the investment for various social, physical and economic infrastructural developments and even helps to expand the business across the country and creates opportunities for the people.

f) The planning not only concentrates on the main cities, but it also guides to balance the regional development in order to decrease the tensions of unequal distribution.

For example, More Industries are to be set up in the less developed regions and plans should provide dispersal of Industries or else the people living in backward regions migrate to cities and create a lot of problems.

For the most part, these are a few important features of Economic Planning In India.

Objectives of Economic Planning in India

i. Setting up proper direction towards Economic Growth.

When the British left India, our country faced extreme poverty. We had all the resources but, due to the lack of economic opportunities and leadership, we suffered.

To solve this problem, we follow the model of the five-year plan, in which we define the objectives and work towards reaching goals.

This helped a lot to ensure economic Independence in generating income for the population, which indirectly contributed to national growth.

ii. Economic Self – Sufficiency.

Economic Self Sufficiency means to stand on one’s own legs. In the Indian context, it implies that dependence on others should be as minimum as possible.

At the beginning of planning, we had to import food grains from the USA to meet domestic demand, therefore planning helped to achieve the self-sufficiency by helping farmers to grow more in our country itself.

An individual who is self – sufficient, he can generate more employment opportunities for the people which makes their life better and in turn, the Government can collect taxes and work towards the nation.

iii. To Ensure Equal Distribution of Wealth and Resources.

Since ancient times, the rich became richer and the poor became poorer, to balance the economy by offering equal opportunities to the population. This objective has been prioritized in economic planning.

In India, the main problem is overpopulation, although the government establishes different schemes and policies, that is not enough.

By providing lesser interest loans to do business and create more employment opportunities, this can be resolved over a period of time.

iv. Modernization of the Economy.

Before Independence, our economy was backward and feudal in character but then after the attainment of Independence, the planners and policymakers tried to modernize the economy by changing the structural and institutional set up of the country.

A lot of policies and frameworks helped to update the knowledge which led to the practice of Modern Economic strategies.

iv. Modernization of the Economy.

Economic Stability means to control inflation and unemployment. After the second plan, the price level started increasing for a long period of time, however, the progress in rising direction has been far away from satisfactory.

But it is considered as the main activity of any economy of the world due to its immediate effects on people.

In conclusion, they have adopted a mixed economy considering various models and came up with 5-year Economic Planning in India to overcome all issues in the country.

Steps Involved in Economic Planning in India

1) Determination of the objectives of economic planning, taking into account the socio-economic situation in the country.

2) Estimation of the natural and human resources available in the country.

3) Evolving a suitable developmental strategy for the realization of the objectives.

4) Formation of the specific program for the achievement of the objectives.

5) Determination of the plan outlay and investments.

6) Allocation of resources among different sectors in accordance with the priorities of objectives.

7) Establishment of an institution, authority or body for the formulation, organization, and review of the plans.

Types of Economic Planning in India

1) Inducement Planning

2) Directive Planning

3) Physical planning

4) Financial Planning

5) Structural Planning

6) Functional Planning

7) Centralized Planning

8) Decentralized Planning

9) Democratic Planning

10) Totalitarian Plan

11) Fixed Plan

12) Rolling Plan

13) Short-term plan

14) Medium-term plan

15) Long-term plan

16) Corrective Plan

17) Developmental Plan

Impact of Economic Planning in India

a) The Land reforms were partially successful because even though the ancient system of Zamindari was abolished, it was ineffective because the political power was in the hands of the upper classes.

Large industrialists continued to benefit from it, while only insignificant progress was made in reducing poverty.

b) Many Large development projects were taken up such as mega-dams(Bhakra Nangal and Hirakud), heavy industries(Steal plants, Oil refineries, manufacturing units, defense production, electricity projects, etc.)

c) Critical infrastructure has been developed for greater economic development, such as transport and communication networks.

d) Green Revolution: The government has offered high yield seeds, fertilizers, pesticides, and better irrigation at subscribed prices, which has increased agricultural growth in India but also increased the polarization between classes and regions leading to large-scale inter-personal and inter-regional disparities.

e) The government has taken various initiatives to strengthen the state to control over the economy since it nationalized 14 private banks, announced many programs in favor of the poor, and so on.

f) Poor growth of the economy, inefficiency, and corruption of public sector organizations, weak bureaucracy, etc.

They have caused citizens to lose confidence in centralized planning that leads to a reduction in the role of the state in the Indian economy since the 1980s.

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