One, Two, Three… oh sorry i was busy in 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 equal opportunities and rights for every individual of a country.
Before learning Economic planning in India let us understand what is Economics?
“Economics is the scientific discipline 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.
Table of Content
- 1 What is Economic Planning in India?
- 2 History of Economic Planning in India
- 2.1 Economic Planning Models
- 2.2 Latest News on Economic Planning in India
- 2.3 Importance of Economic Planning in India
- 2.4 Steps Involved in Economic Planning in India
- 2.5 Features of Economic Planning in India
- 2.6 Objectives of Economic Planning in India
- 2.7 Types of Economic Planning in India
- 2.8 Impact of Economic Planning in India
What is Economic Planning in India?
Economic planning in India consist of economic decisions, schemes formed to meet certain pre-determined economic objectives and a road map of directions to achieve specific goals within specific period of time.
By the conscious decisions of Central and State Government, based on 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.
Adam Smith defines economics as "a science which inquires into the nature and cause of wealth of nations."
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 economy, how to equalize the distribution of resources among people.
At the time of Independence, all sectors were in shutting down stage, 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.
Since there were so many countries earlier were colonies like USA under British, but before 1947 itself these countries got freedom and were developed in all aspects.
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 the leaders started looking 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.
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 the II World War also required adequate and effective planning of economic resources for the 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 March 15, 1950 and the plan era began on April 1, 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 “National Planning Commission” by a committee but due to the changes in the political era and 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.
At the end by considering all the plans, In the same year Planning Commission was introduced with “Five Year Plan in India” by Jawaharlal Nehru, he was the first chairman of planning commission.
Economic Planning Models
a) 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 in the countries like America, Australia, etc. where it contributed and made them rich from poor.
So the leaders in India were thinking to implement 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 Socialistic model.
b) Socialistic Plan Model
Under 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 down-up strategy and most of our people were poor.
Then this was considered to adopt for the implement 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 that’s why the economic planners decided to combine both Capitalistic and Socialistic model.
At last, the economic planners set to adopt “Mixed Economy” to achieve higher growth altogether, therefore the leaders have contributed their knowledge to our economic planning in India.
The mixed economy is the 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 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 Private and Public Sector.
- PPP-Model help the economy with capitalistic and socialistic manner.
- Regulation of Private sectors by Government is possible.
- Private Ownership is an excellent feature of 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 mixed economy is the private sectors can grow and contribute to the welfare of the society in the foam of providing Healthcare, Insurance, accommodation facilities and many more for their employees.
Where as Government can help the people in the foam of providing schemes, welfare programs and also can earn in the foam of taxes from the private sectors.
Here people are the king, where the government can control private entities and the people can elect Government.
Latest News on Economic Planning in India
India seeks to ease largest hurdle for factories with new coverage
Prime Minister Narendra Modi plans to unveil an industrial policy expected in the near future to boost national manufacturing and accelerate economic growth ahead of next year’s federal elections.
According to the new plan, a company does not need to buy land or equipment, but can lease it in the long term, reducing costs and installation time, said the secretary of the department.
Politics and industrial promotion, Ramesh Abhishek. Units in industrial groups can share their infrastructure.
“We have to be competitive,” said Abhishek, who has been working on the plan for more than a year. “For this, we need to modernize our technology, reduce costs, improve logistics and improve our skills, industrial policy will gather all the elements and make recommendations on what should be done.”
The administration of Prime Minister Modi is struggling to fulfill one of his main campaign promises, which generates 10 million jobs a year, which propelled him to power in the 2014 elections.
At the polls for the start of early elections 2019, the main opposition party, Congress, takes advantage of the disenchantment with unemployment and growing social tensions.
The measure of the reform, which will probably be one of the last before the reelection of Modi, is trying to attract more than $ 100 billion of investment in the country and reactivate the economy.
Quarterly growth is expected to slow down in the three-month period ending in September, as the restriction of bank liquidity slows the business climate before national elections.
The rules will be relaxed for small and medium enterprises, which represent more than 90% of the third largest continent in Asia. India won 23 places to occupy the 77th position in the World Bank’s business facility ranking, announced earlier this month.
The government is also completing work on the $ 100 billion Delhi-Mumbai industrial corridor, which has been delayed for a decade. The work valued at $ 2 billion has been completed and the companies have received land to establish factories.
Importance of Economic Planning in India
The Economic planning is necessary for any country without which it becomes a journey without destination.
- Goals and objectives of a country is 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 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.
Steps Involved in Economic Planning in India
a) Determination of the objectives of economic planning in India, 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) Formation of specific program 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.
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 Specific Objectives.
We plan our daily activities in life for achieving some or other objective, similarly a nation requires to prepare its objective to achive the same, how the economic planners get to know which should be prioritized? By making surveys and research they will come with specific objectives to be achieved.
For example, Economic Planning in India aims to increase the rate of growth, elimination of poverty, to bring stability and achieve full employment in the economy.
b) Central and State Planning Authority
The both central and state planning authority has the responsibility to prepare different schemes of development and coordinating the various activities that they has to take like division of power, decision making of varies policies and schemes, activities of production, distribution and consumption in an economy.
c) Democratic Character
Despite the various plans are prepared by experts however at the same time, adequate opportunities are provided to the people to actively participate at various levels, one who plans must consider the inclusive growth without any discrimination.
Being federal structure of Indian constitution, the Union Government solely uses its fiscal monetary and physical controls to guide and direct towards goals in relevance to the five-year plan set up.
d) Only An Advisory Role of Planning Commission
Planning Commission is the apex body in the decentralized set-up. It provides the necessary perspective, guidance, and coordination.
Furthermore, it serves as a closer link between agencies in order that functioning may be smooth in this regard, the planning commission is an advisory character.
e) Feasible Policies and Targets
A good planning is based on the initial resources of the country to attain the possible goals and policies. In this way, domestic resources are planned for attaining economic stability.
f) Rapid Economic Development
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.
g) Quick Improvement in the Standard of Living
Since, along with public sectors private participants are allowed free to trade which intern increases profits but all resources cannot be given to private people so planning is essential.
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.
h) Removal of Poverty
Economic Planning In India is necessary for the early removal of severe poverty of the people, This can be performed 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.
i) 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.
j) Increasing the Rate of Capital Formation
Planning can also raise the rate of capital formation in the developing 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 extended the rate of capital formation via planned Investments which includes roads, manufacturing machines, etc.
k) 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.
l) 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 importing and effective promotion of export of Industrial goods, the development plans can reorganize the structure of foreign trade . Thus owing to such development the trade structure is not like colonial as it was before.
m) 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 to think about the 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 towards 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 Government can collect taxes and work towards nation.
iii. To Ensure Equal Distribution of Wealth and Resources
Since ancient times, the rich became richer and 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, but that is not enough.
By providing less 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.
Lot of policies and frameworks helped to update the knowledge which led to the practice of Modern Economic strategies.
v. Maintaining 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 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 mixed economy considering various models and came up with 5-year Economic Planning in India to overcome all issues in the country.
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) A 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 1980’s.