UNIT 18 PLANNING IN INDIA

Structure
1 8 .O Objectives
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, 18.1 Introduction
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18.2 General Approach Towards Planning
18.3 Plan Objectives
1 8.4 Plan Strategy
18.4.1 The Early Phase (195 1-60)
18.4.2 Development Strategy in the Sixties
18.4.3 Development Strategy in the Seventies and Eighties
18.4.4 New Development Strategy
' 18.5 Resource Allocation in the Indian Plans
18.6 Let Us Sum Up
18.7 Key Words
18.8 Answers to Check Your Progress Exercises
, 18.0 OBJECTIVES
After going through this unit, you will be able to:
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explain the approach to planning in India;
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elucidate the strategy adopted during planning; and
appraise the allocation of resources under plans.
18.1 INTRODUCTION
When India attained independence in 1947, not only was its economy in a stagnant
condition but also sluggish one. A very important and economically developed
part had gone to West Pakistan and India literally had to start from the scratch.
Obviously the immediate solution to the otherwise dilapidated economy was not
to rely on the market mechanism and private enterprise alone and rather adopt
a combination of state and market forces, the roles of which were to be decided
by the economic planning as an instrument of economic development. Consequently
Planning Commission was set in 1950 to assess the re&irements of the economy
for the proper utilization of resources. India opted central planning as an instrument
of economic development based on the experience of socialist countries, but
adapted to Indian democratic h e wo r k . The first plan was adopted in 1950-51.
Since 1950-51, India has completed ten five year plans till 2007, and also five
annual plans first in 1966-69 and then in 1990-92. The Eleventh five year plan
is in progress at present since 2007.
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18.2 GENERAL APPROACH TOWARDS
Planning in India
PLANNING
Why do we need planning? Plans are documents that ensure a systematic growth
in an economy. They provide a framework where all the sectors and regions are
integrated for the overall growth of the country. Indian plans also followed a
strategy where not only the immediate needs were recognised but a long term
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perspective was given for overall growth of the economy.
India apted for planning with exactly the same purpose even before independence.
Both left wing and right-wing leadefs were equally vehenent supporters of planning
in pre-indpendent India Their view was that if India is to industrialise, the planning
must have a strategy for (i) heavy engineering and machine making industry (ii)
research institutes and (iii) electirc power or energy. Role of small scale industries
was also stressed. As a result, we saw famous Bombay Plan (1944) ernphasising
on industrialisation as a general approach towords planning.
History of Planning
On the eve of Independence, India had to confront three immediate problems:
influx of refuges, food shortages and mounting milation. Accordingly the immediate
objective of the first five year plan was to rehabilitate the refugees. Rapid
agricultural development was envisaged as long-term strategy to give 'big push',
to the economy, as per Rosentein Rodan. According to him, "an economy, if it
has stagnated for a long period, would not grow unless, a big push is given to it."
A bird's eye view suggests that while earlier plans stressed more on economic
growth as the major objective, it was objectives like self-reliance, generation of
employment and poverty alleviation that was given priority in the later plans. The
Seventh plan emphasized more on the modernisation of the economy. Since
1991, however, the entire concern of planning and hence of the government
shifted towards, implementation of a pmgramme of macro-economic stabilisation
and fiscal correction. h u s from the Eighth Plan onwards the transition from a
planned economy to a market-led economy started and in the subsequent plans
the government policies on trade, industry and public sector' undermined the
system of economic planning. Eleventh plan look a turn towads inclusive growth
and social justice to the poor and marginalised sectors of the economy.
18.3 PLAN OBJECTIVES
Planning in India has the features of mixed economy where public and private
sectq. are assigned major and complementary roles. The basic objectives of
planning in India were envisaged as of economic growth, employment, self-reliance
and social justice. Apart from these basic objectives each p!m had its own
specific objectives depending upon the respective needs, possibilities and constraints
As given in the Second Five Year Plan (FYP) document there are four basic
objectives of planning in India, viz.,
a sizeable increase in the national income so as to raise the level of living in the
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Economic Development rapid industrialisation with particular emphasis on the development ofbasic and
heavy industries;
a large expansion of employment opportunities; and
reduction of inequalities in income and wealth and a more even distribution of
economic power.
If we observe closely we find that these objectives are inter-related. A significant
increase in national income and a marked improvement in living standads cannot
be secured without a substantial increase in production of goods and services. To
achieve this we need a lot ofinvestments. In the long run an increase in production
can be realised by promoting basic industries like steel, machine building, coal and
heavy chemicals. Because these are the industries, which have strong linkages
with other economic activities. For simultanews development in all these directions
the available natural resources and manpower have to be used. Further, the
pattern of economic development should reflect certain basic social values and
puposes. Development should result in reduction of economic and social inequalities
While the above-mentioned objectives have been there in all the Five Year Plans,
there have been variations in emphasis on difffkent objectives across Plans. While
earlier FYPs stressed more on economic growth as the major objective, objectives
like self-reliance, generation of employment and poverty alleviation were given
priority in the later Plans. The Seventh Plan emphasised more on the modemisation
of the economy. Since 1991, however, the entire concerns of planning and hence
of the government shifted towards stability in the economy. Thus the objective of
planning has been focussed on bringing down the rate of inflahon, interest rate,
subsidies, fiscal deficit and foreign debt; and improvements in balance of payment
position and fbreign exchange reserve. In the proces, Indian economy has witnessed
a transition fiom a planned economy to a market economy.
An important aspect of Indian planning has been emphasis on human development,
whether through reduction of inequalities and poverty-alleviation measures in the '
earlier plans or through rural development programmes in the later plans. For this
purpose the projection of the state was welfare state, this notion however was
changed and in the ninth and tenth plans the governmefit expected beneficiaries
to be the active participants in'the growth process as well.
Check Your Progress 1
Note: i) Space given below for your answers.
hi Check your answers with those given at the end of the Unit.
1) Outline the basic objectives of Indian planning.
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Planning in India
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3) State whether the following statements are true or false.
a) Increase in inequality has been an objective of Indiim planning.
b) Sovial justice with economic growth was the objective of Indian plans.
c). So far India has seen ten five year plans and five annual plans.
18.4 PLAN STRATEGY
To achieve the Plan objectives mentioned above India has followed certain Plan
strategy. Indian f lans followed a strategy where not only the immediate needs
were recognised but a long term perspective was also given for overall development
of the economy. On the eve of Independence, lndia had to c o h n t three immediate
problems, viz., i) influx of refbgees, ii) food shortages, and iii) high inflation.
Accordingly the immediate objective of First Five Year Plan (1951-56) was to
consolidate the economy.
In order to understand the strategy under different Plans in India, the process of
planning and development in India can be divided into the following four phases:
The Early phase;
Development strategy in the sixties;
Development strategy in the seVtznties and eighties; and
New development strategy.
18.4.1 The Early Phase ((1951-60)
During the early phase (1 95 1-60) the emphasis was mainly on growth, that is, to
raise the level of output in the economy. There were three main aspects such as
i) developing sound base for initiating the long term growth of the economy, ii) a
comparatively high priority to industridisation, and iii) emphasis on the development
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You may recall that at that point of time India was emerging h m the imbalances
created first by the Second World Wsir and subsequently by the partition of the
country. In such an economic environment the top priority was to i) overcome the
food shortages, ii) the development of infrastructure like energy, transport and
communication, and iii) provision of itrigation facilities so that agriculanal p w o n
Economic Development The Second Five Year Plan was built on a strategy of long term development of
the economy. Since the draft of this Plan was prepared by P. C. Mahalanobis
and Nehru was the Prime Minister of the country this strategy is often called
Nehru-Mahalanobis growth strategy which emphasised on industrialisation of the
economy, particularly heavy industries. The rationale for such a strategy was that
in an industrially backward economy with low productivity, the agricultural sector
could not provide more employment. It was argued that development of the
industrial sector is a precondition for development of agricultural and other secton.
Hence during this phase of planning, capital goods industry like iron and steel,
heavy engineering, machine tools and heavy chemical industries were given high
priority. Secondly, it was visualised that heavy industries will induce development
of small scale industries and growth will 'trickle down'. In other words, as a result
of the growth in heavy industries, growth will percolate below.
This strategy, however, had its limitations as it put more emphasis on capital
goods, which resulted in scarcity of essential commodities. The problem became
acute in the later years of the Second F W when there was food scarcity due to
bad harvest. Consequently, in the subsequent Plans greater attention was given to
agriculture. As opposed to the emphasis on the role of capital goods, the emphasis
was on the role of consumer goods. Moreover, the strategy visualised that the
c m t consumption needs of the people would be adequately met through a l d y
available productive capacity and if some shortages arise, the problem would be
overcome by introducing 'state level controls'.
Government intervention, however, proved to be inadequate and the country had
to import foodgrains in large quantities. It put pressure on the already difficult
'balance of payment' position of the country. Smndly, this strategy visualised full
employment by realising 5% annual increase in national income, which was not
translated in terms of actual projects, and expectati~ns did not materialise. The
strategy did not result in 'trickle down effects' and there was no reduction in
income inequalities A supporting institutional framework was required to be '
adopted as a policy measure to redistribute the assets. Therefore, land
reforms legislation was enacted for the redistribution of surplus land. The success
of such institutional measures, however, is a debatable issue.
18.4.2 Development Strategy in the Sixties
With the beginning of the Third Plan (1% 1-66) it was felt that the Indian economy
has entered the 'take off stage and the first two FWs generated the necessary
institutional mechanism for rapid economic development. Consequently in the
Third FYP a goal of 'self reliance' was set. Leaning from the experience of the
first two FWs, the Third FYP accorded a high priority to agriculture along with
the emphasis on the development of the basic industries. During this period the
devc:lopment process ran into serious difficulties. The county had to import large
quantity of foodgrains as a result of falling growth in agricultural output and rapidly
increasing population. There was large trade deficit, as huge investment in heavy
industries required large imports without matching increase in exports. As a result,
there was decrease in savings rate, widespread unemployment particularly in rural
India and concentration of economic power in the hands of few urban industrialists
and rich farmers: At this juncture several research studies indicated that income
'inequality had increased in the country which indicatcd the failure of planning. This
led t 3 rethinking on the development strategy and h,dia observed a 'plan holiday'
during 1966-69.
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In 1969 when the FYP was resumed the objective of economic growth and self
Planning in India :
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reliance was not given up. But the main emphasis got shifted ' h m heavy industry
to quick yielding pj ect s and small scale indushy. Similarly creation of ihstructure
including roads was given priority. For development of agricultural sector high
yielding varieties (HYV) of seeds and chemical fertiliser were given priority as
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compared to community development. The Fourth FYP set before itself two
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principal objectives: rapid growth in gross domestic product (GDP) and pr owi ve
achievement of self-reliance.
18&4.3 Development Strategy in the Seventies and Eighties
The Fifth FYP (1974-79) was introduced at a time when India was in deep
economic crisis due to global hike in crude oil prices. Since the planners were
interested in the slogan of 'garibi hatao' and attainment of self-reliance it was
envisaged to achieve these objectives through better distribution of income, higher
rates of growth and by direct attack on the problem of unemployment, under-
employment and acute poverty. The Fifth Plan was terminated by the new Janata
Party government one year before its completion and the Sixth FYP was adopted.
In fact, India had two Sixth FYPs practically (1978-83 and 1980-85). The Sixth
FYP adopted by the Janata Party (1978-83) was discarded in 1980 with the
change in government at the centre. The Sixth Plan (1978-83) admired the
achievements of earlier Plans in India but aiticised the Nehru-Mahalanobis growth
strategy holding it responsible for unemployment, growing poverty, concentration
of economic power in the hands of few and widening of income and wealth
inequalities. The focus of the Sixth Plan (1978-83) was increasing the employment
potential in agriculture and allied activities. When the new sixth FYP (1 980-85)
was introduced by the congress government, planners rejected the approach of
Janata Party and brought back the earlier model of growth. In order to tackle
the pmblem of poverty there was direct attack on poverty by adopting programmes
like Integrated Rural Development Programme (IRDP) and National Rural
Employment Fkgramme (NREP).
On the whole, the Sixth Plan undermined the role of public sector by reducing its
share in total investment. This Plan was criticised on account of appeasing the
press& groups like h e r s by giving unsustainable increase in agricultural prices
and industrialists by relaxing licensing system and control. More open door policy
was followed towards foreign capital and multinational carporations. Hence by
this period the policies were already swinging away and market started taking
domination ovei the state.
The Seventh FYP (1985-1990) was introduced with a change in the development
strategy. It was envisaged to bring down the rate of population growth because
the gains of growth often got neutralised by fairly high growth rates of population.
There were four basic elements that signitjl a change in the strategy in this Plan.
First, it gave importance to Ggher agricultural production by relying more on new
technology. Second, it undermined the role of public sector and induced promotion
of private sector through indmhial dsregulation lhd, with Libadkition of imports,
it aimed at raising efficiency in the manufacturing sector. Fourth, necessary changes
in industrial and export-import policies were made so that the role of the state
changes h m a regulatory to facilitatory authorities. In totality this strategy was as
John W. Mellor defines, a strategy of Agricultural Development-led Growth
(ADLG). It was expected to show better results due to (i) strong domestic links
between agriculture and industry, (ii) less import intensity of investment in adculture,
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Economic Development (iii) greater employment potential in agriculture. ADLG strategy however did not
lead to favourable results and hence there was call for a strategy of balanced
growth between agriculture and industry.
18.4.4 New Development Strategy
During the late 1980s until 1990-91, the country faced severe financial crisis and
the year 1991 turned out to be a difficult time for the economy. India had to face
serious foreign exchange problem and the government responded to the crisis in
two ways: (i) short term stabilisation measures, and (ii) long term structural measures.
The former measures were to restore the confidence of the government to manage
balance of payment problem. The latter were, however, long term measures
where government decided to introduce substantial economic reforms to bring
dynamism to the economy. It took four major policy initiatives, viz., (i)
rnacmemmmic stabilisation, (ii) tmde policy reforms, (iii) industrial policy reforms,
and (iv) public sectors reforms (details of these policy measures will be the
subject matter of the unit on economic reforms).
Since 1990-9 1, two annual plans (1 990-9 1 and 1 99 1 -92).and four FYPs have
been adopted so far, FYPs i.e., the Eighth (1992-97), Ninth (1997-02), Tenth
(2002-07) and Eleventh (2007-12) FYPs. The philosophy, approach and strategy
have been the same for eighth, ninth and tenth the three FYPs which are guided
by the measures of improving the performance and increasing the efficiency of the
economy. The focus in these FYPs is different compared to earlier Plans, where
people are not mere beneficiaries of development; they are active participants in
the development process. Unlike earlier Plans where a centralized approach is
followed, the Plans after 1990 have stressed more on decentralized and .
participatory approach of development.
Eleventh plan envisions an economy and provides for an opportunity to restricture
existing po.f'icies with inclusive growth. It aimed at putting the economy on a
sustainable grow the trajectory with as growth rate of the per cent. The key
element of the strategy for inclusive growth is to provide access to basic facilities
such as health, education, clean drinking water.
Following points bring out the shift in the strategy of the Plans during this phase:
a Greater flexibility in fiscal and monetary policies;
a Shift in the policy h m the focus on national targets to taking cognizance of the
performance ofdifferent states in the country and efforts towards bridging inter-
stateinequality;
a Ensuring equity and social justice;
. a Bringing 111 capacity utilisation in the manufacturing sector;
a Reduction in thegestation lags of industrial and inhtructural investments;
a Rationalisation of labour laws and regulations;
a Introducing financial sector refoms so that the viability and stability of financial
institutions improves financial sector in India should be able to and willing to
finance a range of activities that are of crucial importance both for growth and
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Re-examination of the subsidies provided to agricultural sector,
planning in Indi:
Revival ofpublic investment in irrigation and water management;
Removal of the reservation policy for small scale industries in a phased manner,
without adversely affecting employment opportunities;
Development of telecommunications, energy, and housing sector on a priority
basis;
Making an decisive impact on the qualityofife ofthe majority ofpeople especially
poor and marginalised, and
Settling socio-economic targets by making social interventions.
Check Your Progress 2
Note: 3 Use the space given below for your answers.
@ Check your answers with those given at the end of the Unit.
1) Outline the changes in plan strategy in the Indian planning pmms.
2) Bring out the important aspects ofthe new development strategy.
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3) State whether the following statements are true or Ealse.
a) The First Five Year Plan
on development of inigation capacity.
b) Direct attack on poverty was a plan strategy during the 1980s.
c) Trickle down effect visualised that rich farmers would benefit fiom green
revolution
d) Mahalanobis model formed the basis of the Second Plan.
Economic Development
18.5 RESOURCE ALLOCATION IN THE
INDIAN PLANS
Investment pattern of Indian Plans reflects the objectives and implementation of
actual planning strategy. Therefore, it is important to look at the resome allocation
under various Plans. For a better view of resource allocation the economy can
be divided into three main sector -, ~.e., agriculture, industry and infrastructure.
Importance of agriculture is self-evident as majority of population in India still
depends on it. Economic development and modernization process are inter-related
as no country can develop without giving due emphasis to the development of
industry. Similarly, for sustaining the long tern development of an economy
infrastructure play a very significant role. Unless transport and communication
facilities are expanded no industry or business can flourish, unless power genetaton
is given due attention the whole programme of industrialisation can suffer; and
agricultural development cannot take place without expanding inigation facilities.
As mentioned earlier, the First Plan had the main objective of correcting the
disequilibrium and initiating the process of all round development. The investment
pattern was accordingly worked out with due regard to immediate and long t am
objectives. The highest alloc&on was provided for transport and communication
followed by inigation and flood control. Since the First Plan did not visualise any
large scale indwtdisation programme; ind&es received only 3% of total resource
allocation.
As noted earlier the Second Five Year Plan emphasised large scale industrialisation.
Consequently, following a strategy of development of heavy and capital goods
industries, a substantial change in the investment pattern took place. The share of
industry and minerals was raised to 20% of the total resource allocation, the
second highest after transport and communication, which was allocated 27% of
the total resources. The Second FYP also gave importance to village and small
scale industries as compared to the First FYP and resource allocation was doubled
from 2% to 4% in this period. Agriculture and allied sectors were given less
percentage of resources in the Second Plan compared to the First Plan (from
15% to 12%) because of the change in priority.
The Third FYP was almost double the size of the Second FYP as the total
expenditure increased h m Rs. 4,672 crore in the Second Plan to Rs. 8,577
crore in Third Plan. The expenditure on agriculture and allied activities were also
doubled in absolute t ms . The p&entage of total expenditure allotted to transport
and communication though declined slightly from 27% to 24%, it was still the
highest in the Third Plan. The resource allocation to industry and minerals were
almost same at 20% of the total reso-. Power (energy) received a comparatively
higher percentage of resources (15%) in the Third Plan as against 9% in the
Second Plan.
As mentioned earlier, subsequent to the Third FYP, there was a plan holiday and
three annual plans during 1966- 1969 were adopted. The total expenditure under
the three annual plans was Rs. 6,625 crore. Almost one-fourth (23%) of the total
resources went to industry and minerals; 18% went to transport, cornmunication
and power sectors while 17% was allocated to agriculture and allied sectors. The
pwi ng importance of energy or power sector in the Indian p l h g was evidcnt
as the resources accorded to the development of power continuously increased
h m 7.6% in the First Plan to 18% in the three annual plans. This was particularly
Planning in India
necessary under the condition of power shortages and its adverse effect on
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industrial production in the country.
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The actual expenditure under the Fourth Plan was Rs. 15,779 crore as against the
plan outlay of Rs. 15,902 crore. In view of the growing concern of the planners
towards emerging bottlenecks in the transport and communication sectors, it was
allocated the highest percentage of resources (19.5%). The second highest allocation
of resources (1 8.6%) was given to the power sector in the Fourth Plan. This was
in view of the realisation that future demand for power was going to increase.
'Moreover, it was important not only to generate more capacity but the transmission
and distribution of power were also requiredto be expanded. Industrial sector
continued to receive high priority. Resource allocation under the Fourth Plan to
this sector was 18%; marginally lower than the transport and communication
sector as well as the power sector. Since the Third and annual Plans period
observed slow and erratic industrial growth, it was imperative in the Fourth Plan
to adopt such policies. Moreover, despite recognising the importance of village
and small scale industries in generating employment, this sector was still getting
less and less proportion of resources. Agriculture and allied sectors were given
higher proportion of resource allocation during the Fourth Plan because of the
high investment demands of the 'green revolution strategy' adopted since 196667.
Thus the planners rightly increased the resource allocation for agriculture as
compared to pr<vious Plans.
The Fifth FYP (1 974-79) once again allocated the highest percentage of resources
to industry and minerals at 23% followed by power at 19% of the total resources.
The transport and communication sector received 17% of total expenditure in the
Fifth Plan. Agricultural sector received lesser resources (12%) & compared to
previous Plans. The thrust was on plant development, horticulture and livestock
practices. Programmes like Minimum Needs Programme (MNP), Drought Prone
Area Pro-e @PAP), the small farmers and agricultural lzbourer development
programme (SFAL), elementary education, drinking water, rural electrification
and slum clearance were also given importance. With the global increase in the
prices of crude oil in 1979 the government realized the increasing pressure on the
resources and accordingly enunciated a' new energy strategy where not only
conventional sources of energy were expected to be tapped but also renewable
energy sources were to be exploited. Consequently, the Sixth FYP (1980-85)
gave priority to the power and energy sector and 28% of the total resources were
allocated to this sector. Transport and communication received 16%, the second
highest share.
The Seventh FYP (1985-90) also followed the same trend and the largest allocation
of the resources went to the energy sector. Agriculture and allied activities including
irrigation and flood control received the second highest (22%) allocation of the
resources followed by transpol: and communication (1 8%) and industry and
minerals (1 3%). Thus in the Seventh Plan a shift in the strategy towards power,
agriculture and rural development is observed. In doing so the Seventh Plan
sought a balance among the infrastructure sector, production sector and human
resource development sector. The Eighth, Ninth and Tenth Plans conformed with
the same pattern in the allocation of resources. A consistent decline in the resource
allocation on agriculture and allied activities is obvious in these Plans. While the
share of irrigation was stable, a growing proportion was allocated towards rum!
development and special programmes. The share of resources allocated to industry
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Economic Development
was also declining and in the Tenth Plan a clear picture emerged in favour of
enerm and tramort and communications sectors.
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Eleventh plan (2007-12) recognised that overall financial system need to be
strengthened and developed through improved regulatory mechanisms. Thus the
plan envisaged the growing role of private sector banks and foreign financial
institutions, Priorities shifted to agriculture and industry compared to services
sector. However, in both agriculture and industry many new areas were focused
keeping in mind the objective of inclusive growth and social justice to the poor
and rnarginalised sections of society. In doing so, the significance of public-private
sector partnership was impressed upon.
Checkyour Progress 3
Note: i) Use the space given below for your answers.
@ Check your answers with those given at the end of the Unit.
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1) Which sector got the highest priority during the First and Second Five Year
Plans?
a) Transport and communication
b) I n d w I
c) Irrigation and Flood Control
2) Third Five Year plan gave priority to which sector?
a) Transport and Communication
b) Power
c) Village and Small Scale Industries
3) Seventh Plan onwards, which sector got prominence by a sizeable percentage
of resource allocation?
a) Energy
b) Transport, industry and minerals
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c) Agriculture and Allied services
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18.6 LET US SUM-UP
In the present Unit, you learnt about the process of planning in India. Beginning
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with the First Plan (1 951 -56), to the Eleventh Plan (2007-12) presently in operation,
the objectives, approach and strategy of the Plans have been explained. The unit
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also introduced you to the sector-wise allocation of resources in each Plan., It
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explains that planning in India has come a long way. Overall its objective has been
similar, but the strategy to achieve these objectives has been changihg depending
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upon the need of the hour. India that started with a process of centralised planning
is now following a more open and decentralised approach.
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Basic Industries
1) You have to emphasise major focus of concentration in each plan. For example
highlight whether focus was on industry or agriculture or services.
2) See Sub-section 18.4.4
3) a) true b) true c) false d) true.
Check Your Progress 3