• ECONOMIC PLANNING IN

INDIA

Economic planning refers to the allocation of

resources in a comprehensive way to achieve
the pre-determined objectives with optimal
utilisation of the resources.
• Types of Economic Planning
Imperative Planning

Also called authoritative planning by direction or command.

There is one Central Authority which decides all aspects of
planning. Generally practised in socialist economies.
Entire resources are used to the maximum to fulfil targets of
plan.

.
Indicative Planning

• Also known as inducement planning. (flexible

in nature). Government acts as a facilitator
and encourages private sector’s role in the
economy. However, it also regulates the
private sector to achieve specific targets.
Generally practised in mixed economy.
Perspective Planning
• It is planned for a long period of time, usually 15–
20 years (but not one plan for the whole period ).
• It is operationalised through the Five Year Plans
(FYPs) and Annual Plans. In this, the planner sets
a perspective plan that broadly defines the
direction desired to be taken by the economy.
NITI Aayog has adopted this type of planning
structure.
Decentralised Plan
• Execution of the plan from the grassroots
level. Formulated by the Centre in accordance
with the State authorities.
Core Plan
• planning authority requests the States to
submit their projected revenue estimates.On
the basis of such estimates, planning authority
determines the expenditure for the State
annual plans. This helps to prevent diversion
of funds from the priority sectors to the non-
planned account.
Fixed Plan
It is fixed for 4, 5, 6 or 7 years. Physical targets
are fixed along with the total outlay.
Need for Economic Planning in India at
the Time of Independence
• Poor economic conditions at the time of independence
• Lack of significant private sector in the economy
• For effective mobilisation of resources and their efficient
allocation
• Lopsided development of the industries
• Moreover, as USSR had embarked on its journey of
planning, there was an international influence
Evolution of Indian Economic Planning
1934- M. Visvesvaraya Plan
• It emphasised on shifting from agriculture to
industrialisation and also to increase employment in
industries.
• It aimed to double national income within 10 years.
• In his book titled Planned Economy for India (1934), he
set the goal of poverty eradication through growth.
FICCI Proposal
• 1934- It vouched to end laissez-faire and
presented the opinion of capitalist class. It
also advocated for setting up National
Planning Commission.
1938- Congress Plan –
• With the initiative of Subhas Chandra Bose,
National Planning Committee (1938) was
formed with J.L. Nehru as its Chairperson.
1944 Bombay Plan
• Sponsored by top eight industrialists of Bombay.
• Aimed at agricultural restructuring through
abolition of Zamindari system, rapid
industrialisation, development of essential and
consumer goods and small medium and cottage
industries.
• Emphasised on industrialisation in order to
reduce the hardships of the population due to
inflation.
1944 Gandhian Plan
• Drafted by Acharya Shriman Narayan Agarwal.
Emphasised on economic decentralisation and on the
promotion of small-scale and cottage industries.

1945 People’s Plan

• Drafted by M.N. Roy for a period of 10 years. Main
priorities of the plan were agricultural development
and increase in agricultural production along with
maintaining an equal balance with industrialisation.
1950 Sarvodaya Plan
• Drafted by Jayaprakash Narayan.
• Emphasised on agriculture and small and cottage industries. It
suggested freedom from foreign technology and stressed upon
land reforms. It also recommended for decentralised and
participatory planning.
1950 Planning Commission
• It was charged with the responsibility of making assessment of all
the resources of the country, formulating plans for the most
effective and balanced utilisation of resources.
• J.L. Nehru being the Prime Minister was its 1st Chairman.
2015 NITI Aayog
• Replaced the Planning Commission. It functions as a think tank.
 STRATEGIES OF PLANNING IN INDIA

1. Planning in Pre-1991 or Pre-reforms Phase

• In between 1950 and 1990, our nation was more inclined
towards the public sector with a regulated private sector.
• Controlled expansion of private sector
• Development and establishment of heavy industries like
iron and steel
• Promotion of small-scale industries
• Inward-looking trade strategies
• Various restrictions on foreign capital and enforcement of
Foreign Exchange Regulation Act for its regulation
Based on the above strategies, several planning
models were adopted
• Harrod–Domar Model (adopted in the 1st
FYP)
• It emphasised on the role of capital
accumulation’s dual character, i.e.,
1. It increases the national income .
2. It also increases the production capacity .
it depends on the planners to determine at what
rate the net investment should increase so as to
balance the demand and supply side for the
achievement of full employment equilibrium in the
long run.
Nehru–Mahalanobis Model (adopted in the 2nd
FYP)
• This strategy was based on a two-sector model,
1. Consumer Goods sector, and
2. Capital Goods sector.
• The strategy emphasised on investment in heavy
industries in order to achieve industrialisation
for rapid economic development. It was based
on the Russian strategy.
• It aimed to make the economy self-reliant and
overcome capital constraints.
• It was adopted in the 2nd FYP and was continued
till the 5th FYP.
• It was a long-term strategy.
Gandhian Strategy
• It was drafted by Acharya Sriman Narayan Agarwal in 1944.
• The two basic objectives of the ‘Gandhian Model’ were:
1. to raise material as well as cultural level of the masses.
2. to provide a basic minimum standard of life.
• The strategy emphasised on scientific development of
agriculture and rapid growth of cottage and village
industries.
• Hence, this strategy focussed on employment-oriented
planning rather than the production-oriented planning of
the Nehru–Mahalanobis strategy.
 2. Planning in Post-1991 or Post-
Reforms Phase
• Due to the policies followed till 1991, the fiscal deficit
and revenue deficit of India increased.
• The dependence on imports and lack of significant
exports resulted in Balance of Payments crisis.
• Apart from these, the country was facing the situation
of stagnation along with high inflation.
• Simultaneous occurrence of Gulf crisis and reduced
foreign exchange reserves resulted in rise in prices.
• Consequently, our country adopted a different New
Economic Policy. Under the New Economic Policy of
India:
• Private sector was promoted and free play of
market was facilitated.
• Foreign inflows under FDI and FII were
encouraged.
• Export was highly promoted along with the
minimal restriction on import.
• There was an emphasis on promotion of Public–
Private Partnership (PPP) model.
• Moreover, the policy of LPG was adopted in the
8th FYP (1992–97).
LPG (LIBERALISATION, PRIVATISATION
AND GLOBALISATION) STRATEGY
• This strategy somewhat ended the Licence-
Permit Raj.
• It encouraged privatisation and allowed
Foreign Direct Investment (FDI).
• Export Promotion policy was adopted to
boost economic growth.
• This model changed the nature of planning
from centralised to indicative planning.
Liberalisation:
It meant a policy of deregulation of different segments of the
economy and reducing government controls over industry and other
sectors.
• Delicencing most of the industries, thereby enabling entrepreneurs
to enter any industry or trade.
• However, complete deregulation (laissez-faire) was not undertaken.
• There were now a few industries which required compulsory
licencing.
• Liberalisation of industrial location policy.
• Restrictions on mergers, takeovers etc. were largely removed.
• Capital market was liberalised to a great extent.
• However, SEBI was established in 1992 to keep an eye on
regulating its functioning.
Privatisation:
It meant the policy of transfer of ownership of public
sector enterprises from the Government sector to the
private sector.
It also implied granting more autonomy to public sector
enterprises in decision-making.
• Policy of De-reservation-initially as per Industrial
Policy resolution 1956, total number of 17 industries
were reserved for the public sector. Post-1991, this
number was reduced to 8. As of 2019, the number of
industries reserved for the public sector stands at 2
(Atomic energy and railway operations)
• Policy of Disinvestment was adopted by selling Government
equity in Public sector enterprises in the market.
Globalisation:
It implies opening up of the Indian economy to world
economy.
• Import liberalisation programmes through reducing import
duties and import quota.
• Opening up the economy to FDI.
• Free flow of technology to and from other countries.
• Allowing convertibility of rupee on current account of BOP
in 1994.
 FIVE YEAR PLANS IN INDIA

• The FYPs in India were framed, executed and

monitored by the Planning Commission of
India.
1. First Five Year Plan:
• It was launched for the duration of 1951 to 1956, under the
leadership of Jawaharlal Nehru.
• It was based on the Harrod-Domar model with a few
modifications.
• Its main focus was on the agricultural development of the
country.
• This plan was successful and achieved a growth rate of
3.6% (more than its target of 2.1%).
• At the end of this plan, five IITs were set up in the country.
2. Second Five Year Plan:
• It was made for the duration of 1956 to 1961, under
the leadership of Jawaharlal Nehru.
• It was based on the P.C. Mahalanobis Model made in
the year 1953.
• Its main focus was on the industrial development of
the country.
• This plan lags behind its target growth rate of 4.5% and
achieved a growth rate of 4.27%.
• However, this plan was criticized by many experts and
as a result, India faced a payment crisis in the year
1957.
3. Third Five Year Plan:
• It was made for the duration of 1961 to 1966.
• This plan is also called ‘Gadgil Yojna’, after the Deputy Chairman of
Planning Commission D.R. Gadgil.
• The main target of this plan was to make the economy
independent. The stress was laid on agriculture and the
improvement in the production of wheat.
• During the execution of this plan, India was engaged in two wars:
(1) the Sino-India war of 1962 ,(2) the Indo-Pakistani war of 1965.
These wars exposed the weakness in our economy and shifted the
focus to the defence industry, the Indian Army, and the stabilization
of the price (India witnessed inflation).
• The plan was a flop due to wars and drought. The target growth
was 5.6% while the achieved growth was 2.4%.
4. Plan Holidays:
• Due to the failure of the previous plan, the government
announced three annual plans called Plan Holidays
from 1966 to 1969.
• The main reason behind the plan holidays was the
Indo-Pakistani war and the Sino-India war, leading to
the failure of the third Five Year Plan.
• During this plan, annual plans were made and equal
priority was given to agriculture its allied sectors and
the industry sector.
• In a bid to increase the exports in the country, the
government declared devaluation of the rupee.
5. Fourth Five Year Plan:
• Its duration was from 1969 to 1974, under the leadership
of Indira Gandhi
• There were two main objectives of this plan i.e. growth
with stability and progressive achievement of self-
reliance.
• During this time, 14 major Indian banks were
nationalized and the Green Revolution was started.
• Implementation of Family Planning Programmes was
amongst major targets of the Plan
• This plan failed and could achieve a growth rate of 3.3%
only against the target of 5.7%.
6. Fifth Five Year Plan:
• Its duration was 1974 to 1978.
• This plan focussed on Garibi Hatao, employment, justice,
agricultural production and defence.
• a Twenty-point program was launched in 1975, the Minimum
Needs Programme (MNP) and the Indian National Highway System
was introduced.
• Overall this plan was successful which achieved a growth of 4.8%
against the target of 4.4%.
• This plan was terminated in 1978 by the newly elected Moraji Desai
government.
7. Rolling Plan:
• After the termination of the fifth Five Year Plan, the
Rolling Plan came into effect from 1978 to 1990.
• In 1980, Congress rejected the Rolling Plan and a new sixth
Five Year Plan was introduced.
• Three plans were introduced under the Rolling plan:
(1) For the budget of the present year
(2) this plan was for a fixed number of years-- 3,4 or 5
(3) Perspective plan for long terms-- 10, 15 or 20 years.
• The plan has several advantages as the targets could be
mended and projects, allocations, etc. were variable to the
country's economy.
8. Sixth Five Year Plan:
• Its duration was from 1980 to 1985, under the
leadership of Indira Gandhi.
• The basic objective of this plan was economic
liberalization by eradicating poverty and
achieving technological self-reliance.
• It was based on investment Yojna, infrastructural
changing, and trend to the growth model.
• Its growth target was 5.2% but it achieved a 5.7%
growth.
9. Seventh Five Year Plan:
• Its duration was from 1985 to 1990, under the leadership
of Rajiv Gandhi.
• The objectives of this plan include the establishment of a
self-sufficient economy, opportunities for productive
employment, and up-gradation of technology.
• The Plan aimed at accelerating food grain production,
increasing employment opportunities & raising
productivity with a focus on ‘food, work & productivity
• For the first time, the private sector got priority
over the public sector.
• Its growth target was 5.0% but it achieved 6.01%.
10. Annual Plans:
• Eighth Five Year Plan could not take place due
to the volatile political situation at the centre.
• ITwo annual programmes were formed for the
year 1990-91& 1991-92.
11. Eighth Five Year Plan:
• Its duration was from 1992 to 1997, under the leadership of P.V.
Narasimha Rao.
• In this plan, the top priority was given to the development of human
resources i.e. employment, education, and public health.
• During this plan, Narasimha Rao Govt. launched the New Economic Policy
of India.
• Some of the main economic outcomes during the eighth plan period were
rapid economic growth (highest annual growth rate so far – 6.8 %), high
growth of agriculture and allied sector, and manufacturing sector, growth
in exports and imports, improvement in trade and current account deficit.
A high growth rate was achieved even though the share of the public
sector in total investment had declined considerably to about 34 %
• This plan was successful and got an annual growth rate of 6.8% against the
target of 5.6%.
12. Ninth Five Year Plan:
• Its duration was from 1997 to 2002, under the
leadership of Atal Bihari Vajpayee.
• The main focus of this plan was “Growth with
Social Justice and Equality”.
• It was launched in the 50th year of independence
of India.
• This plan failed to achieve the growth target of
6.5% and achieved a growth rate of 5.6%.
13. Tenth Five Year Plan:
• Its duration was from 2002 to 2007, under the
leadership of Atal Bihari Vajpayee and
Manmohan Singh.
• This plan aimed to double the Per Capita Income
of India in the next 10 years.
• It also aimed to reduce the poverty ratio to 15%
by 2012.
• Its growth target was 8.0% but it achieved only
7.6%.
14. Eleventh Five Year Plan:
• Its duration was from 2007 to 2012, under the
leadership of Manmohan Singh
• It was prepared by the C. Rangarajan.
• Its main theme was “rapid and more inclusive
growth”.
• It achieved a growth rate of 8% against a
target of 9% growth.
15. Twelfth Five Year Plan:
• Its duration is from 2012 to 2017, under the
leadership of Manmohan Singh.
• Its main theme is “Faster, More Inclusive
and Sustainable Growth”.
• Its growth rate target was 8%.
 Achievements and Criticisms of Five Year Plans
• Achievements
• Increase in GDP, per capita income, savings and investment.
• Improvement in social indicators, viz., MMR, IMR, literacy rate etc.
• Progress in industry and industrial growth.
• India achieved self-sufficiency in almost all basic and capital goods
industries and consumer goods industries.
• There was a good deal of diversification in industrial structure.
• Development of huge educational system.
• Development of economic infrastructure particularly in the fields of
transport, irrigation and telecommunications.
• Developments in the field of science and technology.
Criticisms
• Failure to eliminate poverty
• Failure to eliminate income and gender inequality
• Failure to provide employment to all able persons
• Failure to implement land reforms fully
• Failure to check the growth of black money
• Failure to prevent concentration of economic power •
Quality of education outcomes was not satisfactory
• Regional imbalances were noticed in development
Centralised nature of planning (the plans were
programme driven rather than demand driven)
 NITI AAYOG
• National Institution for Transforming India (NITI) Aayog was set up
on 1 January 2015, replacing the 65-year-old Planning Commission.
NITI Aayog seeks to provide a critical, directional and strategic input
into the developmental process of the country.
• Like the Planning Commission, it is a non-constitutional and non-
statutory body.
• It is a policy think tank established to provide strategic and
technical advice to the Central Government. Therefore, it is an
advisory body with no financial role. Its recommendations are not
binding on the Government.
• Unlike the Planning Commission, it does not enjoy financial powers
to allocate funds to States. Now fund allocation is done by the
Ministry of Finance, GOI.
Composition of NITI Aayog
NITI Aayog comprises of:
• Prime Minister as Chairperson.
• Vice-Chairperson (nominated by the Prime
Minister)
• One Full-time Chief Executive Officer (CEO)
(appointed by the Prime Minister for a fixed
tenure in the rank of Secretary to GOI)
• 04 full-time members – appointed by the Prime
Minister.
• Maximum 02 part-time members on rotational
basis from relevant institutions.
• Maximum 04 members from among Union
Council of Ministers (nominated by the Prime
Minister) as ex-officio members.
• Special Invitees nominated by the PM (includes
Experts, Specialists,Practitioners with domain
knowledge).
• Secretariat, as deemed necessary.
• The Governing Council of NITI Aayog comprises of the
Chief Ministers of States and Lt. Governors of UTs as
members and is headed by the Prime Minister. This
Governing Council has replaced the erstwhile National
Development Council (NDC).
• There is also provision of Regional Councils with specific
tenure which is to be formed on need basis in order to
address specific issues. It comprises Chief Ministers of
States and Lt. Governors of UTs of the concerned region.
• The number of employees under NITI Aayog has been
drastically reduced as compared to the erstwhile Planning
Commission (around 400 at present).
SEVEN PILLARS OF NITI Aayog
• Pro-People – to fulfil the aspirations of an individual as
well as of society.
• Pro-Activity – in anticipation and in response to the
citizens’ need.
• Participation – involvement of citizens.
• Empowering women in all aspects.
• Inclusion of all sections of society in the process of the
development of the country.
• Equality of opportunity for all, especially for youth.
• Transparency of the administration.
Functions of NITI Aayog
• To act as a think tank and provide Central and State governments
strategic and technical advice across the spectrum of the key
elements of policy.
• Developing itself as a state-of-the-art resources centre, with the
necessary resources and skills that will enable it to provide strategic
policy vision for the government and deal with contingent issues.
• To foster cooperative federalism through better Centre–State
coordination.
• To develop mechanisms to formulate credible plans and policy
framework at the village level and at higher levels of the
government.
• To monitor and evaluate the implementation of programmes, focus
on technology upgradation and capacity building.
• To publish various socio-economic indices.
NATIONAL DEVELOPMENT AGENDA REPLACED THE FIVE YEAR PLAN
• Instead of preparing a Five Year Plan as done by the erstwhile
Planning Commission, NITI Aayog has formulated a National
Development Agenda. The National Development Agenda of NITI
Aayog includes following three documents:
1. Vision document – a perspective plan covering a duration of 15
years (2017–18 to 2031–32). It combines national development goals
and international Sustainable Development Goals along with the plan
relating to internal security, defence, etc.
2. Strategy Document – a seven-year-long plan (2017–18 to 2023–24)
to convert long-term vision into an implementable policy.
3. Action Plan Document – a three-year short-term action plan (2017–
18 to 2019–20) to translate policies into action.

• .
• Planning Commission vs NITI Aayog
PC enjoyed the power to allocate NA has no financial power of fund
funds to Ministries and State allocation. It is only a think tank.
Governments.
.

It issued dictums to State It issues guidelines in consultation

Governments for its with State Governments.
implementation.

A kind of Top-Down approach was Bottom-up approach is followed by

followed in formulating plans. NA.

.
Decisions were more centralised . Decentralisation to ensure
 Previous Years’ Preliminary
Examination Questions

2019
1. Atal Innovation Mission is setup under the
(a) Department of Science and Technology
(b) Ministry of Labour and Employment
(c) NITI Aayog
(d) Ministry of Skill Development and
Entrepreneurship
2017

2. Which of the following has/have occurred in India after its

liberalisation of economic policies in 1991?
1. Share of agriculture in GDP increased enormously.
2. Share of India’s export in World trade increased.
3. FDI flows increased.
4. India’s foreign exchange reserves increased enormously.
Select the correct answer using the codes given below:
(a) 1 and 4 only
(b) 2, 3 and 4 only
(c) 2 and 3 only
(d) 1, 2, 3 and 4
2015
3. The GOI has established NITI Aayog to replace
the
(a) Human Rights Commission
(b) Finance Commission
(c) Law Commission
(d) Planning Commission
2014
4. The main objective of the Twelfth FYP is
(a) Inclusive growth and poverty reduction.
(b) Inclusive and sustainable growth.
(c) Sustainable and inclusive growth to reduce
unemployment.
(d) Faster, sustainable and more inclusive
growth.
2010
5. In the context of India’s FYP, a shift in the pattern
of industrialisation with lower emphasis on heavy
industries and more on infrastructure began in the
(a) Fourth Plan
(b) Sixth Plan
(c) Eighth Plan
(d) Tenth Plan
6. Inclusive growth as enunciated in the
Eleventh FYP does not include one of the
following:
(a) Reduction of poverty
(b) Extension of employment opportunities
(c) Strengthening of capital market
(d) Reduction of gender inequality
Previous Years’ Main Examination Questions

2018
1. How are the principles followed by the NITI Aayog different
from those followed followed by the erstwhile Planning
Commission of India?

2016
2. How has globalisation led to the reduction of employment
in the formal sector of the Indian economy? Is increased
informalisation detrimental to the development of the
country?
2013
3. Examine the impact of liberalisation on
companies owned by Indians. Are they
competing with the MNCs satisfactorily?