Economic planning in India


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a simple learning on 'ECONOMIC PLANNING IF INDIA' AND their five year plans..

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Economic planning in India

  1. 1. Economic Planning in India 1 | P a g e GNDU 2013-2014 ECONOMIC PLANNING IN INDIA INDIAN ECONOMY Roll no: 2208 Submit by: Kulbeer Singh Submit to: Mrs. Kuljeet kaur
  2. 2. Economic Planning in India 2 | P a g e CONTENTS Economic planning in India 1. Introduction….........................................................3 - 4 2. Planning commission of India……………………………….4 – 10 3. History…………………………………………………………………10 – 11 4. Objectives of economic planning………………………….11 – 12 5. Features of economic planning…………………………….12 – 15 6. Achievements of economic planning…………………….15 – 19 7. Failures of economic planning……………………………….19 – 21 8. Causes of slow growth…………………………………………..21 – 23 9. Pre-requisites of successful planning……………………..23 – 25 10. Conclusion……………………………………………………… 25
  3. 3. Economic Planning in India 3 | P a g e ECONOMIC PLANNING IN INDIA  1. introduction Since Independence, the Indian economy has been premised on the concept of planning. This has been carried through the Five-Year Plans, developed, executed, and monitored by the Planning Commission. With the Prime Minister as the ex-officio Chairman, the commission has a nominated Deputy Chairman, who holds the rank of a Cabinet Minister. Montek Singh Ahluwalia is currently the Deputy Chairman of the Commission. The Eleventh Plan completed its term in March 2012 and the Twelfth Plan is currently underway. [1] Prior to the Fourth Plan, the allocation of state resources was based on schematic patterns rather than a transparent and objective mechanism, which led to the adoption of the Gadget formula in 1969. Revised versions of the formula have been used since then to determine the allocation of central assistance for state plans. The important views are considered before planning are:  Economic planning is to make decision with respect to the use of resources.  In communist countries the government makes both micro and macro economic decisions.  Microeconomic decisions include what goods and services to produce, the qualities to produce, the prices to charge, and the wages to pay.
  4. 4. Economic Planning in India 4 | P a g e  Macroeconomics decisions include the rate of investment and the extent of foreign trade.  1.1 Planning commission of India Planning commission of India was setup in March 1950 by government of India. The tasks before planning commission of India are:-  Effective utilization of resources.  Prepare five year plan along with its objective.  Coordination with state government of India for execution of plan  Determination of priorities, stages of plan and propose of allocation of resources for due completion of stages. The First Five-Year Plan was one of the most important because it had a great role in the launching of Indian development after the Independence. Thus, it strongly supported agriculture production and it also launched the industrialization of the country (but less than the Second Plan, which focused on heavy industries). It built a particular system of mixed economy, with a great role for the public sector (with an emerging welfare state), as well as a growing private sector (represented by some personalities as those who published the Bombay Plan. The format of outlay and progress of various plans is show in the table 1: 5 year plans • First plan (1951-1956)- Jawaharlal Nehru • Second plan (1956-1961)- Prasanta Chandra • Third plan (1961-1966) -
  5. 5. Economic Planning in India 5 | P a g e • Fourth plan (1969-1974)- Indira Gandhi • Fifth plan (1974-1979)- Morarji Desai • Sixth plan (1980-1985)- Rajiv Gandhi • Seventh plan (1985-1989) • Period between 1989-91 • Eighth plan (1992-1997) • Ninth Plan (1997 - 2002) • Tenth plan (2002-2007) • Eleventh plan (2007-2012) 1. First Five-Year Plan (1951-1956) The 1st five year plan was presented by Jawaharlal Nehru, who was the Prime Minister during that period. It was formulated for the execution of various plans between 1951 to 1956. The Planning Commission was responsible for working out the plan  The primary aim of the 1st five year plan was to improve living standards of the people of India  The target set for the growth in the gross domestic product was 2.1percent every year. 2. Second Five-Year Plan (1956–1961) The second five-year plan focused on industry, especially heavy industry. This plan particularly focused in the development of the Public Sector. Target Growth: 4.5% Growth achieved: 4.0%.
  6. 6. Economic Planning in India 6 | P a g e 3. Third Five-Year Plan (1961–1966) The third plan stressed on agriculture and improvement in the production of wheat, but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the ‘Defense industry or Indian army’. Target Growth: 5.6% Actual Growth: 2.4% 4. Fourth Five-Year Plan (1969–1974) Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalized 14 major Indian banks and the Green Revolution in India advanced agriculture Target Growth: 5.7% Actual Growth: 3.3% 5. Fifth Five-Year Plan (1974–1979) The plan focused on employment, poverty alleviation, justice and self-reliance in agricultural production and defense Target Growth: 5.23% Actual Growth: 45.3% 6. Sixth Five-Year Plan (1980–1985) The sixth plan marked the beginning of economic liberalization. Price controls were eliminated and ration shops were closed. Target Growth: 5.2% Actual Growth: 5.4% 7. Seventh Five-Year Plan (1985–1990) The main objectives of the 7th five-year plans were to establish growth in areas of increasing economic productivity, production of food grains, and generating employment. Target Growth: 5.0% Actual Growth: 5.7%
  7. 7. Economic Planning in India 7 | P a g e 8. Eighth Five-Year Plan (1992–1997) 1989–91 was a period of economic instability in India and hence no five-year plan was implemented. Between 1990 and 1992, there were only Annual Plans. the country took the risk of reforming the socialist economy and launched India's free market reforms. Target Growth: 5.6% Actual Growth: 6.78% 9. Ninth Five-Year Plan (1997–2002) Main objective was to prioritize agricultural sector and emphasize on the rural development, to generate adequate employment opportunities and promote poverty reduction, to stabilize the prices. Target Growth: 6.5% Actual Growth: 5.35% 10.Tenth Five-Year Plan (2002–2007)  Reduction of poverty rate by 5 percentage points by 2007.  Providing gainful and high-quality employment at least to the addition to the labor force.  Reduction in gender gaps in literacy and wage rates by at least 50% by 2007. Target growth: 8.1% Growth achieved: 7.7% 11.Eleventh Five-Year Plan (2007–2012) INCOME AND POVERTY  Accelerate growth rate of GDP from 8% to 10% and then maintain at 10% in the 12th plan in order to double per capita income by 2016-17.  Increase agricultural GDP growth rate to 4% per year.  Reduce educated unemployment to below 5%.
  8. 8. Economic Planning in India 8 | P a g e  Raise real wage rate of unskilled workers by 20% EDUCATION  Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12.  Increase literacy rate for persons of age 7 years or more to 85%.  Lower gender gap in literacy to 10% points.  Increase the percentage of each cohort going to higher education from the present 10% to 15% by the end of the 11th plan. HEALTH  Provide clean drinking water for all by 2009 and ensure that there are no slip-backs by the end of the 11th plan.  Reduce malnutrition among children of age group 0-3 to half its present level.  Reduce anemia among women and girls by 50% by the end of the 11th Plan. Women and Children  Ensure that at least 33% of the direct and indirect beneficiaries of all government schemes are women and girl children.  Ensure that all children enjoy a safe childhood, without any compulsion to work.
  9. 9. Economic Planning in India 9 | P a g e Infrastructure  Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power by the end of the plan.  Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012.  Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016-17. Environment  Increase forest and tree cover by 5% points.  Attain WHO standards of air quality in all major cities by 2011-12  Treat all urban waste water by 2011-12 to clean river waters.  Increase energy efficiency by 20% points by 2016-17. 12.Twelfth five-year plan (2012-2017) The Twelfth Five-Year Plan of the Government of India has decided for the growth rate at 8.2% but the National Development Council (NDC) on 27 Dec 2012 approved 8% growth rate for 12th five-year plan. With the deteriorating global situation, the Deputy Chairman of the Planning Commission Mr. Montek Singh Ahluwalia has said that achieving an average growth rate of 9 percent in the next five years is not possible. The Final growth target has been set at 8% by the endorsement of plan at the National Development Council meeting held in New Delhi. "It is not possible to think of an average of 9% (in 12th Plan). I think somewhere between 8 and 8.5 percent is feasible,” Mr. Ahluwalia said on the sidelines of a conference of State Planning Boards and departments. The approached paper for
  10. 10. Economic Planning in India 10 | P a g e the 12th Plan, approved last year, talked about an annual average growth rate of 9%. “When I say feasible... that will require major effort. If you don’t do that, there is no God given right to grow at 8 percent. I think given that the world economy deteriorated very sharply over the last year...the growth rate in the first year of the 12th Plan (2012-13) is 6.5 to 7 percent.” He also indicated that soon he would share his views with other members of the Commission to choose a final number (economic growth target) to put before the country’s NDC for its approval. The government intends to reduce poverty by 10% during the 12th Five-Year Plan. Mr. Ahluwalia said, “We aim to reduce poverty estimates by 9% annually on a sustainable basis during the Plan period.” Earlier, addressing a conference of State Planning Boards and Planning departments, he said the rate of decline in poverty doubled during the 11th Plan. The commission had said, while using the Tendulkar poverty line, the rate of reduction in the five years between 2004–05 and 2009–10, was about 1.5%points each year, which was twice that when compared to the period between 1993-95 to 2004-05.  1.2 History Five-Year Plans (FYPs) are centralized and integrated national economic programs. Joseph Stalin implemented the first FYP in the Soviet Union in the late 1920s. Most communist states and several capitalist countries subsequently have adopted them. China and India both continue to use FYPs, although China renamed its Eleventh FYP, from 2006 to 2010, a guideline (guihua), rather than a plan (jihua), to signify the central government’s more hands-off approach to development. India launched its First FYP in 1951, immediately after independence under socialist influence of first Prime Minister Jawaharlal Nehru.
  11. 11. Economic Planning in India 11 | P a g e  1.3 Objectives of Economic Planning 1. Increase in the Rate of Economic Development One of the most important objectives of Economic Planning is to increase the rate of economic development. Capital formation should be carried out. Infrastructure facilities should be extended and social overhead such as education, technical training and health facilities should be increased. Planning in Pakistan should be done keeping in mind that country is populous and there are too many people looking for jobs, hence labor intensive projects should be given priority, which will absorb labor force and employment opportunities will increase. Increase in employment will increase national income and per capital income. Standard of living of people will raise and rate of domestic savings will increase. 2. Diversification of Economy All sectors of economy should be given proper importance. No sector of economy should be neglected. Pakistan is an agrarian country, the development of industry of Pakistan depends upon agriculture, and therefore more emphasis should be given to agriculture. Since population is too much and it is further increasing at a fast rate, therefore production of food grains should be increased. 3. Price Stability Increase in price level hits the poor and fixed income people very much, whereas decrease in price reduces profit margins of the businessmen, which causes reduction in investment. One economic planning is to maintain the price stability. Through planning equal distribution of national wealth be made. The society should not be divided between “Haves and Have-nots”
  12. 12. Economic Planning in India 12 | P a g e 4. Higher Standard of Living Economic Planning should ensure that good education; technical training and better medical facilities are available to all the people of the country. Every one should be provided a reasonable accommodation. Thus policy should standard of living of the masses. 5. Improving Balance of Payments All out efforts should be done under planning that balance of payments continues to improve. Export oriented and import substitutions industries should be given importance. Luxurious goods should be banned and small and agro-based industries should be given concessions and facilities. Imports should be reduced and export increased, in order to improve foreign exchange earnings. Dependence on foreign aid and grants should be curtailed.  1.4 Features of economic planning 1. Determinate authority: Planning is a very complex task. It implies conscious and coordinated efforts to achieve predetermined objectives. This naturally presupposes the existence of a central planning authority. The presence of a central planning authority is a sine qua non for effective and successful planning. This central authority formulates the plan. It prepares the blueprint. In a planned economy production and distributive decisions are not arrived at by the market forces, It is the central planning authority which fixes the targets and suggests measures towards the fulfillment of these decisions. This central planning authority is known as the planning commission in India. In the Soviet Union it is known as the Gosplan. 2. Goals and objectives: Planning always envisages certain predetermined objectives. To plan after all is to act with a purpose. So the aims and objectives of a plan tire lay down in advance, before the planning process
  13. 13. Economic Planning in India 13 | P a g e actually starts. Hence under every type of plan there are certain well- defined objectives which the planning authorities strive to attain. These objectives, however, might be different under different circumstances. A plan might have a single objective or there might be a number of objectives placed in order of their priorities. There may be short-run or long-run objectives. These objectives may be economic, social or political. Certain important objectives of planning, for instance, are maximization of economic growth, maximization of national income, improvement in the standard of living, reduction in economic disparities, full employment of labour, etc. 3. Fixed time periods: In a planned economy there are not only well defined objectives. In addition, targets are fixed for the attainment of those objectives within a specified period of time. The goals must, relate to a period of time. The time specified may be any period. Planning has a time dimension. Consequently there may be short-term, medium-term or long term plans. Plans may be for one, four, five or ten years. It is not necessary that a country should always follow a plan of a certain time period, say five years. Due to exigencies of situation a country instead of a five-year plan, may decide to pursue a seven-year plan. To make the idea of planning more concrete and meaningful, a starting date and a terminal date also should be mentioned. Efforts are made to realize the targets within the specified period. This provides a direction to planning. This also indicates the degree to which the planned efforts have been successful in the realization of the goals. In certain sectors the targets, could not be realized within the given time, the authorities may take necessary corrective measures. 4. Growing importance of the public sector :
  14. 14. Economic Planning in India 14 | P a g e Planning is a socialized activity. The state has to play a crucial role in consciously and deliberately directing this activity. The desired predetermined objective may not be achieved through the free play of the market forces. Since the private sector is guided by the sole consideration of making profit, it, may fail to use optimally the economic resources of the country, and unleash forces of economic growth. In such a case the state has to come forward to develop the basic infrastructure of the economy or to develop productive activities which require huge initial investment or which have a long gestation period. Similarly, public investment may be necessary for the fulfillment of certain socio-economic objectives like reduction of economic inequalities, achieving a balanced rate of growth and so on. 5. Comprehensive planning: In the true sense of the term, planning means comprehensive planning of all the sectors. In plan literature we may speak of planning through the market or planning by each individual production unit, etc. In reality, however, planning cannot be isolated and piece-meal. Planning implies a rational utilization of the economic resources so that there should be proper harmony and coordination among all the sectors of the economy. So piece-meal Government regulation to improve the functioning of the market mechanism is not planning. Planning should not be confused with mere economic directives and controls. It encompasses the entire economy. Planning implies national economic planning covering the whole of national life. 6. Regulations and controls: Regulations and controls constitute an integral part of planning. A planned economy is regulated and controlled by the state. It is not left to the vagaries of free and automatic forces of market operations. In an unplanned capitalist economy there is hardly any control worth the name. People enjoy unbridled freedom in exercising their choices in the field of production, consumption, ex-
  15. 15. Economic Planning in India 15 | P a g e change and other forms of economic activity. In such an economy, if there is any control at all, it is "invisible". A planned economy, however, is-bound to take recourse to controls with a view to achieve the predetermined objectives of planning. Thus, there may be control of production and consumption. Similarly, there may be control on prices, wages, import and export, savings and investment and so on.  1.5 Achievements of economic planning 1. Increase in National Income:  During planning period national income has increased manifold. The average annual increase in national income was registered to be 1.2 percent from 1901 to 1947.  This increase was recorded to be 3 percent in two decades i.e. 1950-70. Moreover, average annual growth rate of national income was 4 per cent in 1970-80 which, further, increased to 5 percent in 1980-90. From 1980-81 to 2000-01, it increased to 5.8 per cent. Thus, a rise in national income has been key indicator for economic development of India. 2. Increase in Per Capita Income:  Before independence, increase in per capita income was almost zero. But after the adoption of economic planning in free India, per capita income has continuously been increased. In the first plan, it raised .by 1.8 per cent and in Second Plan, it was 2.0 per cent.  During Third Plan, it declined to (-) 6.8 per cent. In Three annual plans, growth of per capita income was registered at 1.5 per cent.  In Fourth Plan, it came down to 1.0 per cent. In Fifth Plan, it was 2.7 per cent. During Sixth and Seventh Plan, it was 3.2 per cent and 3.6 per cent
  16. 16. Economic Planning in India 16 | P a g e respectively. In Eighth Plan, it rose to 4.6 per cent. In 2000-01, its rise was registered at 4.9 at 1993-94 prices. 3. Development in Agriculture:  Agricultural productivity has also marked an upward trend during the plan period. The production of food grains which has 510 lakh tonnes in 1950-51 increased to 1804 lakh tonnes in 1990-91 and further to 212.0 million tonnes in 2000-01.  Similarly, the production of cotton which was 21 lakh bales in 1950-51 was expected to be 10.1 million bales in 2000-01. In the same period, the production of sugarcane was expected to be 300.1 lakh tonnes in 2000-01 against the 69 lakh in 1950-51.  Thus, agriculture production during planning period has increased. During the entire planning period, growth rate of agricultural production remained 2.8 per cent per annum.  However, use of chemical fertilizer, better seeds, irrigation and improved methods of cultivation has increased productivity per hectare and per worker many times. This development has laid the foundation of green revolution and other institutional changes in agriculture sector. 4. Development of Industry:  In the first five year plan much of the capital was invested to develop the industry and defense. About fifty percent of the total outlay of the plan was invested for their development.  As a result, industrial production increased to a great extent. For instance, the production of cotton cloth which was 4210 million sq. meters in 1950- 51 increased to 18989 million sq. meters in 1999-2000.
  17. 17. Economic Planning in India 17 | P a g e  The production of finished steel increased to 31.1 million tones in 2001-02 from 10 lakh tonnes in 1950-51. In the same fashion, the production of coal was recorded to be 3226 million tonnes in 2001-02 against the 323 million tonnes in 1950-51. 5. Development of Transport and Communication:  During the planning period, much attention has been paid towards the development of transport and communication. In the first two plans, more than one-fourth of the total outlay was invested on the development of transport and communication.  In 1990-91, the total length of roads increased to 1024.4 thousand kms from 157.0 thousand km. However, further it increased to 1448.6 thousand km in 1998-99. In order to encourage trade goods rail was developed. 6. Self Reliance:  During the last four decades, considerable progress seems to have been made towards the achievement of self reliance. We are no longer dependent on other countries for the supply of food grains and a number of agricultural crops.  In the same fashion, we have made substantial investment in basic and heavy industries. We are in a position to produce all varieties of basic consumer goods. 7. Employment:  During the planning period, many steps have been taken to increase the employment opportunities in the country. In the first five year plan employment opportunities to 70 lakh people were provided.
  18. 18. Economic Planning in India 18 | P a g e  In the fourth and fifth plans about 370 lakh persons got employment. In the seventh five year plan, provisions have been made to provide employment to 340 lakh people. 8. Development of Science and Technology:  In the era of planning, India has made much progress in the field of science and technology. In reality, the development is so fast that India stands third in the world in the sphere of science and technology. Indian engineers and scientists are in a position that they can independently establish any industrial venture. 9. Capital Formation:  In India due to the development of agriculture, industry and defense, the rate of capital formation has also increased. In 1950-51, the rate of capital formation was 11.5 percent.  The rate of capital formation during Second, Third and Fourth plan was 12.7 per cent, 13.5 per cent and 14.5 per cent respectively. It was 24.1 per cent in seventh plan and 26 per cent in Eighth plan and 24 percent in Ninth Flan. 10.Social Services:  Social services, like, education, health and medical facilities, I family planning and the like have also expanded considerably.  As a result of these services: (i) Death rate reduced from 27 per thousand in 1951 to 8 per thousand in 2000-01. (ii) Average life-expectancy increased from 32 years in 1951 to 638 in 2000-01. (iii) Several deadly diseases like malaria etc. have been eradicated, (iv) The number of school going students has increased three-fold and that of collegiate five-fold since 1951. The number of annual admissions to degree courses in Engineering Colleges increased from 7100 in 1950 to 1, 33,000 and the number of universities
  19. 19. Economic Planning in India 19 | P a g e increased from 27 to 254 by now. (v) A chain of National Laboratories and Research Centers has been set up across the country. (vi) Number of hospital-beds, doctors, nurses, medicines and family planning clinics and medical facilities has greatly increased. Number of hospitals and dispensaries has increased to 68396. Now there is one doctor per 5.2 per ten thousand.  1.6 Failures of economic planning Despite the fact that India had made rapid progress in the sphere of agricultural as well as industrial sectors but it is most disheartening to observe that it has miserably failed on many fronts. Its gains turn into insignificance when we highlight how it has failed to achieve declared objectives. However, its main failures are under mentioned: 1. Stagnant Economy: When India was freed, it had deep marks of stagnation. During the phase of forty years of economic planning, its growth rate is zero or near zero. According to one estimate, growth of national income was about 1.15 per cent during 1950to 1980 per year and growth of per capita income was at less than 0.5 percent. 2. Poverty: These five year plans have miserably failed to make a Denton poverty as 40 per cent of population is still in tight grip of poverty. Poverty is greatly responsible for poor diets, low health and poor standard of living. 3. Unequal Distribution of Income and Wealth: Another failure of the planning is that the distribution of income and other assets in rural and urban areas continues to be skewed.
  20. 20. Economic Planning in India 20 | P a g e The bulk of increased income has been pocketed only by the rich few while weaker section of the society lives from hand to mouth and lead a very miserable life. There is no second opinion to say that 2 per cent people of this country possessed 98 per cent wealth. 4. Mounting Unemployment: The unemployment is a constant threat to the social atmosphere of the country as they resort to various unlawful activities. According to 30th round of the N.S.S. Survey, in March 1985, in the age groups of 5 these were only 9.20 million, in the age groups of 15 they were 8.77 million and in the age groups of 15 to 59, there were 8.67 million unemployed. 5. Abnormal Growth of Population: In all plans, main objective was to check over-population but it has miserably failed to bridge the galloping population. The rapid growth of population has aggravated the situation to the worst. This problem gives birth to twin problems of poverty and unemployment. 6. Inflationary Pressure: Inflation has started with the onset of heavy doses of investment programmers during different five year plan periods. Now, it turned to the gravity of the problem as it has created serious imbalances in the socio-political and economic relations. 7. Adverse Balance of Payments: Truly, the production of agricultural and industrial sector has increased manifold but still we are dependent on imports. In our plans, we have stressed on export promotion and import substitution to correct the adverse balance of payments but no headway has been made in this direction.
  21. 21. Economic Planning in India 21 | P a g e 8. Unproductive Expenditure: India is deficient in capital due to rising expenditure on unproductive channels. Moreover, huge investments are made on the construction of five star hotels and other wasteful consumption. Its benefits go in the hands of few affluent people where generally wealth concentrates. Consequently, the rich becomes rich and the poor lag behind. 9. Huge Amount of Deficit Financing: To mobilize the resources for different plans, government has absolutely failed to manage from internal resources. The government at this time is left with no alternative but deficit financing. At every successive plan, there is huge amount of deficit finance. From 1950-51 to 1984-85 total amount of deficit financing in the country was Rs. 24,440 crores. During Seventh Plan, it was proposed to be Rs. 14,000 crores and Rs. 18,000 crore in Eighteenth Plan.  1.7 Causes of slow growth rate during planning 1. High inflation:  Similarly, though onion prices have come down to Rs.25 per kg; they’re still way above Rs.8 per kg that they used to quote just a couple of months back. So, what is the government’s take on this? Price has moved up based on a mix of internal and external circumstances – better change your lifestyle and eating habits. Onion is not the only food article at your disposal.  Though, fruit juices and onions do not affect India growth story by much; it’s the same sorry tale in the price trend of all major commodities including most of the food articles. 2. Slow reform movement: The reformist movement started off well during the phase 1 of UPA ruling. Though, the pace of reforms was mired by
  22. 22. Economic Planning in India 22 | P a g e obstructive policies of Left-coalition partners, the seeds were sown for a fast-paced reformist movement in the ensuing phase which bypassed the Leftists altogether. While DTC just managed to get the appointment of the Finance Minister by 2012, the GST reform got stuck in the mess of outstanding issues between the States and the Centre. To add to the woes, the emergence of the top scandals and frauds further mired the prospects of timely roll-out of GST, as opposition parties are in no mood to entertain any discussion in the Parliament until the Manmohan Singh government ratifies a JPC probe in the matter. 3. Earnings slowdown: High inflation and rising interest rates scenario does not impact individuals and tax-payers alone. It also affects corporate profitability. Higher input costs leads to squeeze in corporate margins at operating level or a spill-over to generalized inflation if the same is passed on to final consumers. While the pure commodity players are likely to benefit from the demand and supply mismatch, others involved in processing of raw-materials and turning them into finished goods might see an impact on the cost of goods sold and operating margins of the company. 4. Current account deficit: India’s current account deficit has surged to 4.1% of GDP during second quarter of the fiscal as against 3.2% the previous year. Merchandise trade deficit widened to $35.4 billion during Q2 FY11 as against $31.6 billion in previous quarter as growth in imports far outpaced the progress in exports. its policy review, the RBI had warned that high current account deficit – 3.5% of GDP for the fiscal 2010-11 – is not sustainable. The central bank had also indicated that soaring oil prices could have negative impact on the trade balance going forward. 5. Industrial growth: The volatility in the industrial output numbers announced over the last few months has left economists high-and-dry with regard to arriving at any type of conclusion on growth figures for the economy. In latest, the core growth (country’s infrastructure sector output)
  23. 23. Economic Planning in India 23 | P a g e registered a smart comeback in December with 6.6% growth. These core sectors – crude oil, petroleum refinery products, coal, cement and steel – accounts for almost a quarter of the country’s IIP. Thus, it raises hopes of robust December overall IIP data.  1.8 Prerequisites for successful planning Planning is of paramount importance for the economic development of an underdeveloped country. However, there must be certain conditions or prerequisites for the successful implementation of planning in a underdeveloped country. The necessary conditions for successful planning are summarized below. 1. Fixation of Objectives and Targets: To plan is to act with a purpose. It involves a predetermined end. So before a country would embark on a plan it must nave before it certain clear objectives. These objectives act as the polestar in guiding the ship of the planning authority in its journey towards economic growth. Then it should fix priorities and targets to realize the predetermined objectives. The resources at the disposal of an underdeveloped country are limited. These physical and human resources are to be utilized for the satisfaction of most urgent needs. Hence the various objectives should be assigned their due priorities. These priorities should be realistic. Besides, they should be consistent and compatible with one another and also flexible. 2. Statistical Information: For the fixation of priorities and targets it is absolutely essential that there should be adequate and reliable statistical information regarding the entire economy. Economic development is essentially a quantitative concept. Planning in the underdeveloped countries is severely handicapped by the absence of adequate satisfaction. There must be a comprehensive statistical survey to elicit information about the existing and potential resources and also
  24. 24. Economic Planning in India 24 | P a g e about the mode of operation of the economy in the past. This would enable the authorities to fix goals, targets and priorities and make projections for the future. 3. Certain Measure of Control: For the fulfillment of planned objectives a certain degree of control is essential. In fact controls are an inherent part of a planned economy. An economy would cease to be a planned one in the absence of any control. But it is not necessary that all the sectors of the economy should be controlled, or they should be controlled uniformly. Usually only the strategic and important sectors are controlled. Besides, the degree of controls would be influenced by various circumstances. The success of economic planning depends upon the adoption and implementation of a suitable scheme of controls. 4. Maintaining a Balanced Economic Structure: Economic planning should be so implemented as not to lead to any lop-sided development in the economy. So there should be proper balance in the economy to achieve consistent economic growth. This will secure realism in the planning process. Thus there should be balances between the public and private sectors, between the production and consumption goods sectors, between labour-intensive and capital-intensive techniques of production and also between .Different regions of a country. To achieve these balances the state should carry on agricultural and industrial development and exercise certain controls over the economy. 5. Strong, Competent and Incorrupt Administration: According to W. Arthur Lewis, a competent and incorrupt administrative staff is the most vital prerequisite for successful planning. Planning is a gigantic task. The job of formulation and execution of a plan is done through the administrative and technical personnel. Developmental planning can have no basis in the absence of competent administrative machinery. 6. An Educational Base: A competent administration forms the backbone of successful planning. Such an administrative structure can be built only on the
  25. 25. Economic Planning in India 25 | P a g e foundation of an educational base. A huge administrative personnel, consisting of civil administrators, engineers, technicians, economists, agricultural experts, accountants, etc., is necessary for the formulation and implementation of plans. This is possible only when a sufficiently strong education base is built up to provide general and technical education. Through proper education the abilities, values and attitudes of people can be changed to fulfill the planned objectives. 7. Reasonable Equality of Income: In the process of economic development, due to certain reasons inequalities of income and wealth grow. But successful planning presupposes a reasonable degree of economic equality. As Oscar Lange remarked, "successful planning for economic development must imply the abolition or least the such concentration of private economic power as would block the realization the plan." Concentration of economic power also leads to the concentration of political power. The masses arc exploited. People lose their interest and enthusiasm for the planned system. Conclusion  Economic planning help in mobilizing and allocating the resources in desired manner.  Objective of economic planning is to reduce inequality, economic growth, balanced regional growth, modernization.  Each five year plan aims to achieving certain target. Five year plan constitute the steps toward the fulfillment of objectives of economic planning.  The 12th Plan has taken off; it is yet to be formally approved with the aim of the growth rate at 8%.
  26. 26. Economic Planning in India 26 | P a g e References 1. Jump up^ Planning Commission, Government of India: Five Year Plans. Retrieved on 2012-03-17. 2. Jump up^ Planning Commission (24 February 1997). "A Background Note on Gadget Formula for distribution of Central Assistance for State Plans". Retrieved 2010-09-17. 3. Jump up^ Sony Pellissery and Sam Geall "Five Year Plans" in Encyclopedia of Sustainability, Vol. 7 pp. 156-160 4. Jump up^ Jalal Alamgir, India's Open-Economy Policy: Globalism, Rivalry, Continuity (London and New York: Routledge 2008), Chapter 2. 5. Jump up^ Baldev Raj Nayar, Globalization And Nationalism: The Changing Balance Of India's Economic Policy, 1950–2000 (New Delhi: Sage, 2001) 6. ^ Jump up to:a b c d e f L. N. Dash (2000). World bank and economic development of India. APH Publishing. p. 375. ISBN 81-7648-121-1. 7. Jump up^ l%20Back%20Ground.pdf 8. Jump up^ 1.htm 9. Jump up^ Agrawal, A N (1995). Indian Economy: Problems of development and planning. Pune: Wishwa Prakashan. p. 676. 10.Jump up^ "National Development Council approves 12th Five Year Plan". Indian Express. 2012-12-27. Retrieved 2013-07-10.
  27. 27. Economic Planning in India 27 | P a g e