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Planning

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PLANNING AS A TOOL FOR INDIAN ECONOMY TO ACHIEVE IT’S MACROECONOMIC TARGETS

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Planning

  1. 1. PLANNING A TOOL TO ACHIEVE MACROECONOMIC TARGETS 1
  2. 2. INTRODUCTION  Planning is a prudent, rational and scientific system for determining our social and economic objectives and working hard to achieve them.  According to draft of First Five year plan, “Economic planning is essentially a way of organising and utilising resources to maximum advantage in terms of defined social ends. It includes:  A system of ends to be pursued and  Knowledge of available resources and their optimum allocation. 2
  3. 3. INSTITUTIONAL STRUCTURE OF PLANNING IN INDIA  Planning was institutionalised as a part of normal government activity with establishment of Planning Commission in March 1950 under the chairmanship of Prime Minister.  This was followed by the establishment of the National Development Council (NDC) consisting of all Chief Ministers of the states and members of the Union Cabinet and full-time members of the Planning Commission, and chaired by the Prime Minister. 3
  4. 4. OBJECTIVES OF PLANNING  Modernisation  Self Reliance  Economic Growth  Equity and Social Justice 4
  5. 5. PLANS AND THEIR STRATAGIES EARLY EXPERIENCE WITH FIVE YEAR PLANS  First Five Year Plan (1951-56) was just a little more than collection of ongoing public investment projects to take care of damages caused due to war, famine(1943) and partition of sub-continent .  It also aimed at a general increase in the standard of the living including wider objectives of full employment and removal of inequalities.  In Second five year Plan (1956-1961), Mahalanobis Strategy was adopted as it aimed at import substitution led growth(self-reliance). It was adopted to save foreign exchange, protect domestic market and solving unemployment problems. 5
  6. 6.  Introduced by P.C. Mahalanobis, Mahalanobis strategy had the following aspects:  Developing a sound base for initiating the process of long term growth  High priority to industrialisation  Emphasis on development of capital good industries as against consumer good industries.  The Second Plan strategy ran into difficulties in the late 1950s because of severe balance-of-payments problems and food shortages, both of which were arguably linked to the neglect of export possibilities and of agriculture. Inflationary pressures intensified. Population growth also turned out to be a larger problem than was originally anticipated. 6
  7. 7.  The Third Plan (1961 to 1966) sought to address these problems, but without changing the basic strategy of industrialization based on promoting the so called ‘heavy industries’ with a strong emphasis on the public sector, while providing protection from import competition through quantitative restrictions on imports.  Public Sector was assigned the role of:  Promoting infrastructural facilities  Creation of capacity in basic and capital goods industries  Public ownership of means of production 7
  8. 8.  However, its performance fell much short of its expectations due to two years of bad harvests(1965-67), wars with China and Pakistan, Drought in 1965-66 and devaluation of rupee.  To overcome agricultural stagnation and increase productivity, new package of policy in agriculture sector was introduced in Annual plans(1966-69) which included:  Development of HYVs  Use of chemical based fertilizers and pesticides  Commercial source of water supply  Controlled water supply  Introduction of PSP 8
  9. 9.  Later Fourth Five Year Plan(1969-74) focused on growth with stability, including:  Managing foreign exchange scarcity  Reducing fluctuations in agricultural production  Reducing dependence on foreign assistance (tightening of import controls)  However, it failed to reduce poverty as elusive targets of growth were not enough.  So, a number of anti poverty schemes evolved for rural employment and small and marginal farmers in Fifth year plan(1974-79) to implement a direct attack on poverty to help the poor. 9
  10. 10. ECONOMIC REFORMS IN THE 1980S  With Sixth Five Year Plan(1980-85), the 1980s saw the beginning of changes in economic policy with greater flexibility being given to the private sector, and freer access to imports for exporters, combined with a conscious effort at managing the exchange rate to avoid exchange rate appreciation in real terms.  In Seventh Five Year Plan(1986-90), policies towards the private sector were made more supportive and the tax system was rationalised. By 1988 all industries were delicensed except for 32 industries. 10
  11. 11. ECONOMIC REFORMS AFTER 1991 The balance of payment crisis in 1991 was triggered by the sharp increase in oil prices on account of Gulf War in 1990. It lead to the unveiling of economic reforms of 1991 which focused on:  Placing greater reliance on private sector  Opening the economy to foreign trade and foreign direct investment  Restructuring the role of government to concentrate on functions not likely to be performed by market  Promoting livelihood supporting activities for the poor  Ensuring balance of macroeconomic parameters 11
  12. 12.  Eight Five Year Plan (1992-97) showed a definite improvement after the reforms of 1991. The BoP crisis was quickly overcome and economic growth resumed strongly after 1992 yielding an average growth rate of 6.7%.  However, economy slowed down thereafter due to global slowdown(East Asian Crisis in 1997), slower reforms and a string of poor monsoons.  As a result, the growth rate dipped to 5.5% in the Ninth Five Year Plan(1997-2002). 12
  13. 13.  The Tenth Plan called for a renewed effort at pushing economic reforms to achieve a growth rate of 8 per cent.  After an initially weak start, the economy accelerated significantly and the growth rate in the Tenth Plan period (2002 to 2007) was 7.8% percent.  A target of 9% has been set for the Eleventh Five Year Plan(2007-12) and it is expected to be more inclusive with a better performance in agricultural sector. 13
  14. 14. ACHIEVEMENTS OF PLANNING  Somewhat satisfactory growth  Some modernization  Some success at self reliance  Little success on equity and social justice 14
  15. 15. Growth Targets and Achievements Target % Actual % 1. First Plan (1951–56) 2.1 3.6 2, Second Plan (1956–61) 4.5 4.2 3. Third Plan (1961–66) 5.6 2.7 4. Fourth Plan (1969–74) 5.7 3.4 5. Fifth Plan (1974–79) 4.4 4.9 6. Sixth Plan (1980–85) 5.2 5.5 7. Seventh Plan (1985–90) 5.0 5.7 8. Eighth Plan (1992–97) 5.6 6.5 9. Ninth Plan (1997–2002) 6.5 5.5 10. Tenth Plan (2002–07) 8.0 7.8 11. Eleventh Plan(2007–12) 9.0 8.1 (Estimated) Note: The growth targets for the first three plans were set with respect to national income. In the Fourth Plan it was net domestic product. In all Plans thereafter it has been gross domestic product at factor cost. 15
  16. 16. FAILURES OF PLANNING  No significant improvement in Standards of Living  Inflation and Unemployment  Less growth in Agricultural Sector  Inequality in Distribution of income and wealth  Low capital Formation  Unbalanced growth of different regions  Inferior development of Infrastructure 16
  17. 17. ROLE OF PLANNING IN POST LIBERALISATION ERA  Indicative Planning  Coordinating Agency  Ensures Growth with Justice  Resource Allocator  Advisor to States  Think Tank for the Government 17
  18. 18. CONCLUSION-  First four five year plans were aimed to achieve macroeconomic targets of better employment, import substitution industrialization, removal of equalities, check on poverty and to grow with stability.  Sixth & seventh five year plan came with some economic reforms to give some flexibility to private sector & easy imports for exporters. However later in year 1991 LPG policy was introduced  Eight plan showed some improvement in terms of growth rate of 6.7% and a growth rate of 7.8% in tenth plan.  Although there were failures in these plans but somehow they contributed to some modernisation, self reliance, better social justice. Thus, planning became a tool for Indian economy to achieve it’s macroeconomic targets. 18
  19. 19. THANKS 19

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