Economic planning in india mod

Economic Planning in India

PRESENTED BY :Aman sharma

Dept. of Business Administration

Indian National Congress had committed that after the attainment of independence, the country would work on a planned model of development.

With this, the Government of India set up the Planning Commission in 1950 –

to assess the human and material resources of the country; to formulate a plan for their balanced and effective utilization. The main goal of planning was to initiate the process of

Industrialization and development which was non existent due to an alien government.

The national government was committed to raising the level of living of the Indian people by pursuing the task of development.

This task was not possible in short time and needed continuous and sustained efforts over several plans in long term.

So to achieve this the concept of five year planning was done.

Introduction

(i)To increase production to the maximum possible extent so as to achieve higher level of national and per capita income;

(ii) To achieve full employment; (iii) To reduce inequalities of income and wealth; (iv) To establish a socialist based on equality

and socialist justice and absence of exploitation.

LONG-TERM GOALS OF PLANNING

“The State shall, in particular, direct its policy towards securing –

a) that citizens, men and women equally, have the right to an adequate means of livelihood;

b) that the ownership and control of the resources of the community are so distributed as best so sub serve the common good;

c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.”

Directive Principles of the Indian Constitution

The First Five Year Plan stated the long-term economic goals of planning in the following words :

“Maximum production and full employment, the attainment of economic equality or social justice which constitute the accepted objectives of planning under present day conditions are not really so many different ideas but a series of related aims which the country must work for. None of these objectives can be pursued to the exclusion of others, a plan of development must place balanced emphasis on all of them”: Planning Commission, The First Five Year Plan, p. 28.

First Five Year Plan – 1951-56

A Complete transformation to socialism in which all the means of production will be owned by the state (Society model).

Total freedom to private enterprise to undertake the task of national development.

Mixed Economy Framework – A marriage between Capitalist and Socialist model.

Co-existence of private and public sector.

Economic Framework/Model

The distinguishing feature of the Indian mixed economy model was that it

Emphasized that the private enterprise should reconcile the element of self-interest with social interest;

In case, it fails to do so, the government would be left with no option but to take over the control of such sectors of the economy.

In such areas where either the private enterprise fails to subordinate its self-interest, the government would deliberately extend the area o the public sector.

Mixed Economy Model

Profit maximization may not be maximizing social welfare. For instance, private sector was not willing to invest in economic infrastructure such as multipurpose hydro-electro projects, irrigation, roads and communications.

Similarly, private sector may not provide adequate investment in education and health facilities so that access to education and health facilities becomes available to the poor and deprived sections of the society.

The state, therefore, decided to undertake the development of the economic infrastructure - energy, irrigation, transport and communication – in the public sector. It also decided to provide social infrastructure in the form of education and health so that the poor are enabled to acquire these facilities either free or at a very low and affordable cost.

The network of schools colleges, technical training centres, primary health centres, dispensaries, hospitals etc. had to be planned in the public sector.

Mixed Economy Model

“Securing rapid economic and growth and expansion of employment, reduction of disparities in income and wealth, prevention of concentration of economic power and creation of values and attitudes of a free and equal society have been among the objectives of all plans.”

Common goals of all plans

Since all the objectives cannot be achieved in one plan, so every plan indicate the priority of the objectives and specific strategy to achieve that. Strategy in the First Five Year Plan(1951-56)

The First Five Year Plan (1951-56) was faced with three major problems :

(i) Influx of refugees from Pakistan and their rehabilitation;

(ii) Severe shortage of food as a result of the partition of the country and a major part of irrigated areas going over to Pakistan; and

(iii) mounting inflation due to the prevalence of shortages in economy

PLANNING STRATEGIES ADOPTED IN VARIOUS PLANS

The strategy of the First Five Year Plan was to achieve food self-sufficiency in the shortest possible time and to control inflation;

So it focused rapid extension of irrigation so that the output of food grains and agricultural raw materials like cotton and jute improves;

This strategy helped to boost agricultural production, especially of food grains and, thereby, control inflation.

The First Plan, in its strategy, accorded the highest priority to agriculture.

The First Plan rightly mentioned : “We are convinced that without substantial increase in the production of food and raw materials needed for industry it would be impossible to sustain a higher tempo of industrial development.”

Strategy in the First Five Year Plan(1951-56)

The major aim of the strategy of the First Plan was to rehabilitate the economy ruined by war and partition.

The plan did help to remove shortages that existed in the economy.

By the end of the Plan, food grain imports became negligible.

The general price level declined by 13 per cent, food prices also fell.

Consequently the economy was stabilized and in this atmosphere of confidence generated by success of the First Plan, it was possible to move to a programme of rapid Industrialization.

First Five Year Plan

The basic element of the strategy of the Second Plan was to give a “big push” to the economy to build an industrial base in terms of setting and rapid expansion of basic and heavy.

The Second Plan stated : “Investment in basic

industries creates demands for consumer goods, but it does not enlarge the supply of consumer goods in the short run; nor does it directly absorb any large quantities of labour. A balanced pattern of Industrialization, therefore, requires a well-organized effort to utilize labour for increasing the supplies of much-needed consumer goods in a manner which economizes the use of capital.” (Planning Commission).

Strategy in the Second Five Year Plan

Third Plan emphasized that agriculture should be expanded as far as possible and rural economy may be diversified so as to reduce the pressure of population on agriculture.

While giving priority to agriculture, it also laid equal stress on the development of heavy and basic industries such as steel, fuel and power, machine building and chemicals vitally needed for rapid economic development.

Strategy in the Third Five Year Plan

Three major factors seriously jolted the implementation of the Third Plan.

They were : (i) The Chinese invasion of India in 11962,

(ii) The armed conflict with Pakistan in 1965, and

(iii) Exceptionally bad monsoons in 1965-66 leading to serious draught which reduced food grains production by 20% in a single year.

Strategy in the Third Five Year Plan

The Fourth Plan had two objectives, viz., “Growth with Stability” and “Progressive Achievement of Self-Reliance”.

To achieve this efforts were to be made to stabilized prices of food grains and the price level in general. Use of high quality and adequate amount fertilizers in agriculture.

For achieving self-suff. Import of food-grains and foreign aid was reduced drastically.

Strategy in the fourth Five Year Plan

Two major objectives of the Fifth Plan were : “Removal of poverty and attainment of self-reliance.”

For this purpose, the main elements of the strategy were : (i) 5.5% growth rate of GDP.; (ii) A national programme of Minimum Needs covering

elementary education, drinking water, medical care in rural areas, nutrition, home sites for landless labour, rural roads, rural electrification and slum improvement.

(iii) Emphasis on agriculture, key and basic industries and industries producing goods for mass consumption.

(iv) An adequate public procurement and distribution system for assured supply of essential consumption goods, at least to poorer sections, at reasonably stable prices.

(v) Vigorous export promotion and import substitution. (vi) Rigorous restraint on inessential consumption.

Strategy in the Fifth Five Year Plan

a) Nehru-Mahalanobis Model of Growth b) Gandhian Model of Growth c) Rao-Manmohan Model of Growth

THREE MAJOR STRATEGIES ADOPTED SINCE 1956

This model Emphasized on the rapid development of heavy industry with the aim of creating an industrial base of the economy as also to make it more self-reliant in capital-goods sector.

Self-reliant in capital goods and no import of capital goods/producer goods.

Nehru-Mahalanobis Model of Growth

Heavy Industry in India comprises of the heavy engineering industry, machine tool industry, heavy electrical industry, industrial machinery and auto-industry.

These industries provides goods and services for almost all sectors of the economy, including power, rail and road transport.

The machine building industry caters the requirements of equipment for basic industries such as steel, non-ferrous metals, fertilizers, refineries, petrochemicals, shipping, paper, cement, sugar, etc.

Heavy Industry

1. Due to British deliberate colonial policy heavy industry not developed and primary reliance on agriculture sector.

2. Development of large heavy industry which would absorb large labour force and minimise the excessive dependence on agriculture for livelihood.

3. labour productivity is higher in industrial than agriculture sector. Which would enable higher per capital and national income.

4. Rapid industrialization was essential for the development of other sectors.

Arguments of Nehru-Mahalanobis Model

It assumed that foreign aid can be taken but the major financing would be done through domestic savings.

It did not underestimated the role of small industries for employment as the heavy industries are basically capital intensive.

It did not undermined the role of agriculture as without progress and development in agriculture sector industrial progress cannot be achieved.

Nehru-Mahalanobis Model

Vast expansion of the capital goods through heavy industry model.

There was a vast expansion in economic infrastructure in the form of irrigation, energy, transport and communications

There was an expansion of the social infrastructure in the form of health and education facilities – schools, colleges, universities, primary health centres, dispensaries and hospitals.

Rise in savings and investment rate

Achievements of Nehru-Mahalanobis Model

Less allocation of fund for agriculture. Neglect of small scale industries (labour

intensive) – consumer goods. Inefficiency in public sector The value of Import of capital goods

Shortcomings of Model

Janata Party Draft Five Year Plan (1978-83) adopted Gandhian model assuming the failure of earlier Nehru model – to provide minimum living to majority people.

The model emphasized the rapid development of agriculture and small industries;

Village and small industries were emphasized from the point of view of production as well as employment.

Gandhian Model of Development

Employment-oriented planning to replace production-oriented planning;

Emphasis on development of agriculture as a means of enlarging employment;

Emphasis on small industries as against large industries;

It emphasized employment as the principal means of providing national minimum and removal of poverty.

Gandhian Model of Development

Rao-Man Mohan Model of Development was introduced in 1991.

New Economic Policy – A) Liberalization B) Privatization C) Globalisation

Rao-Man Mohan Model