ESI adda paid lecture-2
Objectives
of Economic Planning in India
Economic
growth
It
refers to the increase in the country’s capacity to produce the output of goods
and services within the country.
Increase
in employment
Employment
refers to engagement of the labour force in gainful economic activity such as
production of goods and services.
Reduction
in inequality
A
large section of India’s population belongs to lower income group and termed as
poor whereas a few are very rich with very high level of income.
Reduction
of poverty
At
the time of independence more than fifty percent of India’s population was
poor. The poverty has been gradually declining over the period of time.
Modernization
of the economy
Lack
of modern technology is a drawback because of which Indian agriculture and
industrial development had to suffer.
Ensuring
social justice and equality
The
age-old systems need to be reformed.
Objectives
of Economic Planning in India
Economic
growth
It
refers to the increase in the country’s capacity to produce the output of goods
and services within the country.
Increase
in employment
Employment
refers to engagement of the labour force in gainful economic activity such as
production of goods and services.
Reduction
in inequality
A
large section of India’s population belongs to lower income group and termed as
poor whereas a few are very rich with very high level of income.
Reduction
of poverty
At
the time of independence more than fifty percent of India’s population was
poor. The poverty has been gradually declining over the period of time.
Modernization
of the economy
Lack
of modern technology is a drawback because of which Indian agriculture and
industrial development had to suffer.
Ensuring
social justice and equality
The
age-old systems need to be reformed.
History
of Economic Planning in India
Though
the planned economic development in India began in 1951 with the inception of
First Five Year Plan, theoretical efforts had begun much earlier, even prior to
the independence.
Following
steps were in this direction-
·
National Planning Committee by Indian National Congress in 1938,
·
The Bombay Plan and Gandhian Plan in 1944.
·
Peoples Plan in 1945 (by post war reconstruction Committee of
Indian Trade Union)
·
Sarvodaya Plan in 1950 by Jaiprakash Narayan
Post
Independence India began a five-year plan program to make the most use of the
country’s resources and achieve rapid economic development.
This
idea of five year economic planning was borrowed from the Soviet Union.
Development
plans were designed and implemented within the mixed economy framework.
The
process began with setting up of Planning Commission in March 1950 and was
charged with the responsibility-
·
Making assessment of all resources of the country.
·
Augmenting deficient resources
·
Formulating plans for the most effective and balanced
utilisation of resources and determining priorities.
·
This concept of five year plans was carried from independence
till 2017.
·
These plans were developed, executed and monitored by the
Planning Commission from 1951 to 2015; and then by NITI Aayog from 2015 to
2017.
·
In 2017, the five-year planning system was replaced by the
NITI Aayog’s 15 year vision document.
New
Economic Policy in 1991
The
main features of this policy are:
Liberalization
Privatization
Globalization
(LPG
model of development)
Liberalization
Liberalization
means withdrawal of controls and regulations by the government on establishment
and running of industries in the country.
Till
1991, all the public sector units were practically under the government even if
they were called autonomous bodies.
There
were lot of interventions by the ministries of the government in functioning of
the pubic sector.
Liberalization
did away with licenses.
Earlier,
it was mandatory for any individual or organization to seek permission from the
government to start any industrial activity.
Privatization
It
means opening of the door of industrial activities to the private sector which
was exclusively reserved for public sector only except nuclear enemy and defense.
The
government also decided to disinvest some of the public sector companies by
selling parts of their assets to public.
Globalization
It
is a process to allow free flow of goods
and services, labour and technology, investments, etc.
WTO
promotes globalization and India became its member.
After
1991, India accepted soft attitude towards foreign companies to do their
business in India in order to promote competition.
India
began to try to reduce or abolish tariffs on import of commodities.
India
promoted exports.
The
Indian govt started to allow foreign companies to hold 51% share or more.
History of Economic Planning
in India
Outline of various five year plans:
First plan (1951-56)
Target growth: 2.1%
Actual growth 3.6%
Very successful
It was based on Harrod Domar model.
Influx of refugees, severe food shortage and mounting
inflation confronted the country at the onset of the first five year plan.
The plan focussed on agriculture, price stability, power and
transport.
It was a successful plan primarily because of good harvests
in the last two years of the plan. Objectives of rehabilitation of refugees,
food self sufficiency and control of prices were more or less achieved.
Second plan (1956-61)
Target growth: 4.5%
Actual growth: 4.3%
Moderately successful
Simple aggregative Harrod Domar growth model was again used
for overall projections and the strategy of resource allocation to broad
sectors as agriculture and industry was based on two and four sector model
prepared by Prof. PC Mahalanobis.
So, the plan is also called Mahalanobis plan.
It was conceived in an atmosphere of economic stability. So,
agriculture was accorded a lower priority in the second five year plan.
The plan focussed on rapid industrialization- heavy and basic
industries. Advocated huge imports through foreign loans.
The Industrial Policy 1956 was based on establishment of a socialistic
pattern of society as the goal of economic society.
Acute shortage of forex led to pruning of development
targets,
Inflation was observed (30%) (but the first five year plan
had seen a decline in prices)
Third five year plan (1961-66)
Target growth: 5.6%
Actual growth: 2.8%
Very unsuccessful
At its conception, it was felt that Indian economy has
entered a take-off stage. So, it wanted to make India a self-reliant
and self-generating economy.
Based on the experience of first two plans (agricultural
production was seen as limiting factor in India’s economic development) agriculture
was given top priority to support the exports and industries.
The plan failed because of unforeseen events:
Chinese aggression (1962)
Indo Pak war (1965)
These two wars meant India focussed more on defense and development
instead of economic development.
Severe drought (1965-66) was another reason for the failure of
the plan.
Plan Holiday
The third five year plan had generated shocks in the economy which were then absorbed during the three consecutive annual plans.
After the failure of the third five year plan, there were
many setbacks that the economy received.
·
Devaluation of Rupees to boost exports (How does devaluation of Rupee boost exports)
·
A very high inflation meant that the fourth five
year plan was to be postponed.
· A
A new agricultural strategy was implemented:
HYV seeds
fertilizer
irrigation
soil conservation
Fourth
five year plan (1969-74)
Target
growth: 5.7%
Actual
growth: 3.3%
Refusal
of supply of raw materials and essential equipments form the allies during the
Indo Pak war resulted in twin objectives of ‘growth with stability’ and ‘progressive
achievement of self reliance’ for the fourth plan.
Main
emphasis was on growth rate of agriculture to enable other sectors to move
forward. First two years of the plan saw record production. The last three
years did not measure up due to poor monsoon.
Implementation
of family planning was a major objective of the plan.
Major
reason for the failure of this plan was the influx of Bangladeshi refugees
before and after the 1971 Indo-Pak war.
Fifth
five year plan (1974-79)
Target
growth: 4.4%
Actual
growth: 4.8%
The
final draft of the fifth five year plan was launched and prepared by Dr. DP
Dhar. The conditions those days were:
Runaway
inflation
Govt
failed to take over the wholesale trade of wheat.
Main
objectives of the fifth five year plan:
·
Garibi hatao
·
Attainment of self reliance
By
following-
·
Promotion of high rate of growth
·
Better distribution of income
·
Significant growth in domestic rate of savings
Original
public sector outlay had to be increased later. It was because there was high
inflation so cost calculations proved to be wrong at a later stage.
Emergency
was declared in 1975
The
implementation of the 20 point programme of PM became more important
than the five year plan.
Fifth
five year plan was terminated in 1978 (a
year before 1979) because the Janata party came in power in 1978.
Rolling Plan (1978-80)
This
plan was for two years because the Janata party govt lasted only for two years.
There
were two sixth plans.
1978-1983
plan emphasized on employment.
The
Janata Party criticized the govt for concentration of power, inequality of
income, and increasing poverty.
In
1980, Congress Party again came to power and brought forward another plan
discarding this one.
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