Before learning Economic planning in India let us understand what is Economics – Economics is the social science that studies the manufacturing, distribution and consumption of products and offerings. The economy focuses on the behavior and interactions of Economic objectives and the functioning of economies.
What is Economic Planning in India?
Economic planning in India consist of schemes formed to meet certain pre-determined economic objectives for a specific period of time, by the conscious decision of Central and State Government, based on in-depth study of the existing and potential resources of a country and a careful study of the needs of the people.
Economic Planning in India Started After the Independence in 1947
Economic Planning in India was a tough challenge for our national leaders, they were facing a big problem, how to construct the economy, 20% of people were controlling 80% of resources, then 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 economy, how to equalize the distribution of resources among people.
At the time of Independence all sectors were shattered, none of the sectors were in shape, the problem was with an adaptation of the economic planning model in India and then our national leaders observed different models.
Since there were so many countries earlier were colonies like USA under British, but earlier in 1947 these countries were developed,
In the meanwhile, our National leaders thought that if it is possible to implement a model which has implemented in these countries so that we can ensure better lifestyle and can eradicate poverty, unemployment from our country.
So then we started looking various models compared to and then we were agreed that no 2 models ever be the same, plans are designed to specific requirements of the country.
There were 2 Types of Economic Planning Model
- Capitalistic Plan Model
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, as for example America, Australia was poor Nations, but this plan successfully contributed in bringing these Nations from poor to rich.
So the leaders in India were decided to implement same but the problem was with capital, we had landlords, but we had not 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 method Socialistic model.
- Socialistic Plan Model
Under Socialistic plan model, the economic decisions are taken by the Government and it was successful in USSR and East European countries.
This model was close to the heart of leaders because it was working towards down-up strategy and most of our people were poor.
Then planned to adopt this model to implement because it was close to our Ideology, it works to eliminate poverty.
But the problem was with landlords we cannot overrule them and princely states this was the only problem they had.
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.
In the mean, while India itself was a result of communal problems forcing separation from India, that’s why we gave special rules for princely states and 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 that are why the economic planners decided to combine both Capitalistic and Socialistic model.
Finally adopted Mixed Economy to achieve better growth in all aspects and leaders have contributed their knowledge to our Economic Planning in India.
History of Economic Planning in India
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’.
* 1938 – Jawaharlal Nehru set-up “National Planning Commission” but due to the changes in the political era and second world war it did not implement.
* 1940 – The 8 leading industrialists of Bombay presented “Bombay Plan” it was a 15 Year Invest Plan
* 1944 – SN Agarwal 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 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.
Importance of Economic Planning in India
The Economic planning is necessary for any country without which it becomes a journey without direction.
- Economic planning is needed to set the goals and objectives of a country
- It helps in proper utilization of resources
- It defines the clear idea 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 had no previous experience of politics because before British came to India, kings, and queens were ruling, but it was necessary to make an Economic plan.
a) Identifying the Objective.
The most important features of economic planning should possess definite objectives. Planning means conscious and purposeful undertaking for a definite objective. For instance, Economic Planning in India has the objective to increase the rate of growth, elimination of trade cycles, bringing the stability and a attain full employment in the economy.
Objectives of Economic Planning in India
i. High Rate of Growth
All the Indian Five-year plans have given primary importance to the higher growth of real National income. During the British rule, Indian economy is was stagnant and the people were living in a state of abject poverty. The pervasive poverty and misery were the most important problem that has to be tackled through a Five-year plan.
ii. Economic Independence
Economic Independence means to stand on one’s own legs. In the Indian context, it implies that dependence on foreign aid should be as minimum as possible. At the beginning of planning, we had to import food grains from the USA to meet domestic demand, so planning helped to achieve the self-reliance.
iii. Social Justice
Social Justice means to equitably distribute the wealth and income of the country among different sections of the society. In India, we find that a large number of people are poor; while few lead a luxurious life. Therefore we have concentrated on social justice of poor people.
iv. Modernization of the Economy
Before Independence, our economy was backward and feudal in character but then after attainment of Independence, the planners and policymakers tried to modernize the economy by changing the structural and institutional set up of the country.
v. Economic Stability
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 from satisfactory.
In conclusion, they have adopted mixed economy considering various models and came up with 5-year Economic Planning in India.
b) Central and State Planning Authority
The existence of central and state planning authority is another feature of Economic Planning in India. The central and state planning authority is responsible to prepare different central and state schemes of development and coordinating the various activities. In short, the central and state authority takes all decisions relating to production and consumption in an economy.
c) Democratic Character
Another discovers feature is its Democratic nature. No doubt, despite the various plans are prepared by experts but at the same time, adequate opportunities are provided to the people to actively participate at various levels. Being federal structure of Indian constitution, the Union Government only uses its fiscal monetary and physical controls to guide and give direction in relevance to the five -year plan subsequently.
d) Only An Advisory Role of Planning Commission
In the decentralized set-up of the planning commission is the apex body. It provides the necessary perspective, guidance, and coordination. Furthermore, it serves as a close link between agencies so that functioning may be smooth in this regard, the planning commission is an advisory character.
e) Feasible Policies and Targets
A good planning are based on the initial resources of the country to achieve the feasible goals and policies. In this way, domestic resources are planned for attaining economic stability.
f) Planning for Consumption
In a centrally planned economy it should not be confined to production alone but the same time, it must cover the distribution and consumption also. In other words, the planning authority should not decide what and how to produce but it must keep in mind and decide accordingly among whom it is to be distributed.
Economic Planning is a resource allocation planning that is compared with the market mechanism. As a coordinating mechanism for socialism, economic planning substitutes factor markets and is defined as a direct allocation of resources, contrasted with the indirect allocation mechanism of the market.
g) Rapid Economic Development
Before Independence, the long period of British rule and exploitation had made India one of the poorest nations in the world. 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.
h) Quick Improvement in the Standard of Living
In an Unplanned economy, the country’s resources and materials cannot be employed for increasing the people’s welfare as the private capitalists in such an economy direct their activities in increasing their own profits. The path of planning has been chosen to promote a rapid rise in the standard of living of the people by efficient exploitation of resources.
i) Removal of Poverty
Economic Planning In India is necessary for the early removal of abject poverty of the people, This can be done through.
a) Planned for an increase in the employment opportunities of the people.
b) Planned for production of mass consumption goods and their planned distribution among the people.
c) Fulfillment of minimum needs program by providing essential facilities like roads, water, etc.
d) Planned to increase the consumption of the poorest section of the people.
j) Rational Allocation and Efficient Utilization of Resources
India is rich in natural resources but these resources are not fully exploited to get maximum benefits. The resources tend to engage in the production of goods and services which make more profits only this will be concentrated in an unplanned economy, as a result, rational allocation of resources is not possible, so India planned for the pattern of Investment of resources and allocation.
k) Increasing the Rate of Capital Formation
Planning can also raise the rate of capital formation in the low-level countries like India. The surplus of public enterprises as found in the planned economy can be utilized for Investment and capital formation. In India, the Government has been increasing, the rate of capital formation through planned Investment like roads, manufacturing machines, etc.
l) Reduction in Unequal Distribution of Income and Wealth
In absence of Economic Planning In India, inequality tends to increase due to growing concentration of Eco-resources at the hands of few capitalists. planning can change this trend with proper guidance and control of production, distribution, investment, etc. The development works established an increase in Income and employment.
m) Reorganization of Foreign Trade
The Foreign trade structure may be the direction of the primary producing economy to the Industrialized economy. Through proper controls of import and effective promotion of export of Industrial goods, the development plans can reorganize the foreign trade structure. Thus owing to such development the trade structure is not like colonial as it was before.
n) Regional Balanced Development
Proper development programs may be taken for the all-round development of background areas, as a result, that all the regions are sufficiently developed. More Industries are to be set up in the less developed regions and plan should provide dispersal of Industries.
For the most part, these are the few reasons for thinking towards Economic Planning In India.
Latest News on Economic Planning in India
Video on Indian Economy Progression – Held at ET Global Business Summit(2018)
The overall exposure of India has increased over the years as it grows in economic power and assumes a more important role in world affairs.
The Global Business Summit presented by The Economic Times and YES BankBSE was held on February 23 to 24(2018) in the capital present a list of stars, chaired by Prime Minister Narendra Modi and other ministers, as well as the world’s CEOs and their Indian counterparts, which reflect the pre-eminence of the country.
Know more about the Event ET Global Business Summit(2018)
Types of Economic Planning in India
Economic planning can be divided into four types, such as:
1. Perspective plans
The Perspective plan is a long-term plan. In general, it is formulated for a period of 15 years to 20 years.
2. Five-year plans
The Five-year plans, as the name suggests, are designed for a period of five years. It is an integral part of the perspective plan.
3. Annual plans
The Annual plan is part of the five-year plan. It is prepared for the year. Therefore, for each five-year plan, five annual plans will be prepared in detail.
4. Rolling plans
The Rolling plans do not have a fixed period. These plans only last and continue. As it progresses, the year that has been completed is eliminated and a year is added to the end.
Five Year Economic Planning in India
Steps Involved in Economic Planning in India
a) Determination of the objectives of economic planning, taking into account the socio-economic situation in the country.
b) Estimation of the natural and human resources available in the country.
c) Evolving a suitable developmental strategy for the realization of the objectives.
d) Formulation of specific programmes for the achievement of the objectives.
e) Determination of the plan outlay and investments.
f) Allocation of resources among different sectors in accordance with the priorities of objectives.
g) Establishment of an institution, authority or body for the formulation, organization, and review of the plans.
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