Is planning relevant in India?

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Is planning relevant in India?

  1. 1. BUSINESS ENVIRONMENT PROJECT REPORT Submitted to: DR. K. L. CHAWLA Programme Director, FORE School of Management Submitted by: ANKITA MAHESHWARI 91007 ANKUR SHARMA 91008 ANMOLSAHNI 91009 NAVJOT SINGH BINDRA 91010 ASHUTOSH KUMAR JHA 91011 BISHNUCHETTRI 91012 FMG XVIII A Group 2 FORE School of Management Is planning relevant in Indian context today? Page 1
  2. 2. Acknowledgement We‘d like to express our earnest gratitude towards Dr. K.L. Chawla, Faculty, FORE School of Management, for the stupendous guidance and support that he provided to us during the execution of the project on ‗Is planning relevant in Indian context today?‘. His role in providing a vivid insight into the dynamics of Business Environment, the various determinants and the present day scenario that goes beyond the realms of any text-book; have really motivated us to work that bit harder to come out with this report. We‘d also like to acknowledge the unending help that we received from our fellow classmates whilst the execution of this project. Their help and concern goes on to reiterate the kind of bonhomie that exists at FORE School of Management. Thanking all, Group - II FMG XVIIIA FORE School of Management, Delhi Is planning relevant in Indian context today? Page 2
  3. 3. Table of Contents Executive Summary ...................................................................................................... 5 Review of related Literature ...................................................................................... 6 Section I: What is a Plan? ........................................................................................... 12 History of plans in India ................................................................................ 12 Why to Plan: ...................................................................................................... 13 Objectives .......................................................................................................... 14 Stages in Economic Planning........................................................................ 16 Pre conditions for effective economic planning: .................................... 16 Characteristics of Economic Planning: ...................................................... 17 Planning In India and Impact ....................................................................... 17 Organization ..................................................................................................... 19 Divisions ............................................................................................................ 19 Section II: Progress of Five Year Plans uptil now: .............................................. 21 First Five Year Plan (1951-55) .................................................................... 21 Second Five Year Plan (1956- 61)............................................................... 22 Third Five Year Plan (1961- 66) ................................................................. 23 Fourth Five Year Plan (1969 - 74) .............................................................. 24 Fifth Five Year Plan (FY 1974-79) .............................................................. 25 Sixth Five Year Plan (FY 1980-85) .............................................................. 26 Seventh Five Year Plan (FY 1985-90) ........................................................ 27 Eighth Five Year Plan (FY 1992-1997) ...................................................... 28 Ninth Five Year Plan (FY 1997-2002) ........................................................ 29 Tenth Five Year Plan (FY 2002-07) ............................................................ 29 Eleventh five year plan (FY 2007-12) ........................................................ 30 Role Of Economic Planning On GDP ............................................... 30 Role of Administration & Pay Commission ................................. 30 Role of Service Sector......................................................................... 31 Role of Economic Planning In Industry And Service ................. 32 Role of Employment ........................................................................... 36 Role of Education ................................................................................ 37 Is planning relevant in Indian context today? Page 3
  4. 4. Advantages and disadvantages of planning ............................................. 39 Disadvantages of economic planning ........................................................ 40 Changing nature of planning ........................................................................ 44 Section III: Analysis ..................................................................................................... 45 Deficiencies of Planning ................................ Error! Bookmark not defined. Conclusion ..................................................................................................................... 47 Appendix ........................................................................................................................ 48 Bibliography ................................................................................................................. 54 Is planning relevant in Indian context today? Page 4
  5. 5. Executive Summary Over the course of the last 60 years, India has developed as a stable economy. Indian planning and policies of the Indian Government have guided and shaped India into a mixed economy. Through this report, we attempt to present an analysis of why planning still needs to be done in India and bring forward the good and the bad aspects of it. This report brings forth the history of planning, which came into being with the setup of the Planning Commission. Also, it compares the expected results and actual achievements of the Five Year Plan from 1951 till date. Then we take a look at the impacts of economic planning in India on various sectors such as agriculture, banking and finance and natural resources. This report envisages the progress of the Five Year Plans of India with special focus on their objectives and achievements. In case, a plan was a success or a failure, this report studies in detail the factors that lead to that outcome. It also includes what were the wrong decisions made on the part of the Planning Commission and what could have been done to minimize the effect of the failure of a plan. The report discusses the role of Economic Planning in GDP, employment, education, industry and services and so on. We also analyze the deficiencies in planning in India and discuss the ways to overcome them. Finally, we compare the various macro-economic aggregates for each of the plans and conclude that Economic Planning is very important for every country. Because of excellent economic planning now we are one of the parts of developing countries. On the basis of need in certain sectors government introduced five years plan for better development. Now India‘s GDP growth is very high as compare with other countries and that is because of better planning. Is planning relevant in Indian context today? Page 5
  6. 6. Review of related Literature Paper I: India’s Development Strategy: Accidents, Design and Replicability Author: Nirvikar Singh About the Paper: This paper examines India‘s development strategy, and to what extent it may be considered a success. It provides a brief history of why and how the strategy was adopted, as well as of its implementation, including the role of initial conditions, such as human capital, geographical location, and infrastructure. It analyses the extent and reasons for success of the strategy, including policy, political economy, timing, and linkage of the strategy to economy-wide development. Particular attention is given to the relative roles of domestic and international actors, including the part played by foreign investment, trade, and other dimensions of openness. The paper considers the extent to which the strategy remains viable for the future, the challenges still faced, and what other strategies might be required. It concludes with possible lessons for other countries and their future development strategies. Criticism: Using the colonial period as a benchmark, India certainly has done well. Its GDP growth and improvements in human development indicators were both well above the earlier era, and this accelerated progress began almost immediately after independence. This achievement came while preserving a democratic political system, with minimal reliance on outside help, and accompanied by the development of a rich set of governance and private sector institutions for delivering food, health, shelter and education to a much greater proportion of the population than ever before in the region‘s history. Infrastructure investment was greater than before, industries were developed in support of modernization goals, and higher education, in particular, grew dramatically. India also sustained relatively low inflation rates, preventing the kind of tax on the poor that has been characteristic of Latin American economies, several of which have experienced hyper-inflations of varying severity. On the other hand, as early as the 1960s, several East Asian countries began to outstrip India‘s economic performance. Their example became the basis for a shift in mainstream academic views of development, especially towards emphasizing the benefits of Is planning relevant in Indian context today? Page 6
  7. 7. openness to international trade. However, in India this period was marked by political impulses that restrained economic policy changes in that direction. Growth in the 1980s was aided by some reforms, as well as a macroeconomic stimulus that turned out to be unsustainable, and an external payments crisis in 1991 forced some dramatic changes in economic policy. Essentially, openness to international trade was increased dramatically through tariff reductions and replacement of import quotas by tariffs, and the scope of domestic industrial licensing was drastically reduced. Conclusion: While India has demonstrated that it can grow at almost double digit rates, comparable to those achieved by the economies of the East Asian ‗miracle‘, it faces numerous challenges if that growth is to be sustained for long enough to raise average levels of living comparable to, say, South Korea today, or even China. Human development indicators such as literacy, educational attainment and infant mortality also show significant deficits, when comparisons are made to other countries with similar income levels. Increasing inequality of income is paralleled by increasing regional inequality.These trends can create political instability, or lead to growth that peters out, leaving a wealthy class connected with the global market economy, and significant numbers of poor people. Paper II: Innovation Capacity and Economic Development: China and India Author: Peilei Fan About the Paper: This paper discusses that both China and India, the emerging giants in Asia, have achieved significant economic development in recent years. China has enjoyed a high annual GDP growth rate of 10 per cent and India has achieved an annual GDP growth rate of 6 per cent since 1981. Decomposing China and India‘s GDP growth from 1981 to 2004 into the three factors‘ contribution reveals that technology has contributed significantly to both countries‘ GDP growth, especially in the 1990s. R&D outputs (high-tech exports, service exports, and certified patents from USPTO) and inputs (R&D expenditure and human resources) further indicate that both countries have been very committed to R&D and their output is quite efficient. Both governments have played an essential role in transforming their national innovation systems so that they can be more adaptable to economic development. The main focus of their reforms has been to link the science sector with Is planning relevant in Indian context today? Page 7
  8. 8. the business sector and to provide incentives for innovation activities. Balancing import of technology and indigenous R&D effort is another major theme. Innovation capability development has become more and more critical to the success of biofirms in India and China. Institutional factors have great influence on choice of innovation at the firm level, i.e., the decision at firm level in terms of indigenous R&D or import of technology. Nevertheless, limited financial resources and insufficiently qualified human resources remain two major challenges for domestic companies in both countries. Criticism: After independence in 1947, Indian leaders introduced economic policies that were characterized by import substitution, industrialization, state intervention in labor and financial markets, a large public sector, business regulation and central planning. Nevertheless, India‘s protectionism bordered rather on Fabian socialism and was less extreme than the Soviet style central-command system in China, as the regime involved both public and private sectors and was based on direct and indirect state intervention. The high 3.7 per cent annual growth rate for GDP per capita for the period 1980-2005 can be attributed to two stages of reforms: the pro-business measure initiated by Rajiv Gandhi in 1980 and economic liberalization initiated in 1991 by Prime Minister P. V. NarashimhaRao and his finance minister, Manmohan Singh.Technology progress has contributed significantly to the expansion of GDP, especially in the 1990s, for both China and India. China has enjoyed an annual GDP growth rate of 9.6 per cent since 1981, while India has achieved a corresponding figure of 5.6 per cent. GDP growth rate can be decomposed into three parts: the contributions of capital, labor, and technology, and the share of technology can be measured by total factor productivity (TFP) growth rate. Conclusion: The paper concludes with a review of the development of the biotech industry in both countries, with special focus on the progress of innovation capability of domestic firms—a factor that is becoming more and more critical to the success of the Indian and Chinese biotech firms. Institutional factors have great influence over the choice of innovation at the firm level, i.e., the decision at firm level in terms of indigenous R&D or the import of technology. But limited financial resources and the mediocre human resource qualifications remain two major challenges for domestic Is planning relevant in Indian context today? Page 8
  9. 9. companies in both China and India. Paper III: Enforcing the Right to Food in India: Bottlenecks in Delivering the Expected Outcome Author: George Cheriyan About the Paper: Over the past decade, a series of events in India have brought the question of food security into sharp focus. Vast famine-affected areas versus surplus production and stocks of grains, the impact of globalization and World Trade Organization laws on agriculture and farmers, the media‘s spotlight on starvation deaths and, finally, the Supreme Court of India‘s strong reaction to the plight of the hungry—all make a case for recognizing the right to food. This paper examines the situation prevailing in India and reviews the obligations and initiatives by the government of India to ensure food security. This paper mainly looks at the aspect of corruption as one of the reasons for the failure of the programmes meant for the poor, makes suggestions for addressing the issue and examines the possible role of civil society organizations in making the schemes workable for the poor. Criticism: The vast number of people below the poverty line, and the failure of schemes meant for this group, clearly shows that India needs to wake up. The judiciary cannot monitor the implementation of the schemes forever. The government needs to review the policy periodically and take corrective measures for effective implementation of different schemes and programmes, establish mechanisms of accountability and ensure the right to food for all. Hunger in India has gender and age dimensions. Half of the country‘s women suffer from anemia and maternal undernourishment, resulting in maternal mortality and underweight babies. Hunger and starvation also have regional and geographical dimensions. These social evils recur not only in particular regions, but also across most of India. The pattern of agriculture has brought uneven development across regions and is characterized by low levels of productivity and degradation of natural resources in some areas. Agriculture has also become a relatively unrewarding profession due to an unfavorable price regime and low value addition, causing increased migration from rural areas as farmers abandon farming, and increased numbers of suicides among farmers due to debt. Is planning relevant in Indian context today? Page 9
  10. 10. Conclusion: India is an active member of the United Nations and is a state party to International Covenant on Economic, Social and Cultural Rights (ICESCR). Hence there is an obligation to respect, protect and fulfill the right to food for every citizen of India. The Indian Constitution does not expressly recognize the fundamental right to food. The Supreme Court had appointed a commission to look into the right-to- food schemes and in its latest report observed that despite the fact that starvation deaths were continuing to occur across the country, there was little proof to indicate that the states were taking effective measures to improve the situation. As the problem of food insecurity relates to both the demand and supply of food, a solution could be to empower people towards greater purchasing power, as well as addressing the inadequacy of the distribution system, and checking corruption and leakages. Awareness among the people with regard to their right to food can escalate the process of equitable distribution and thus help to realize the right to food for all citizens. The obligation to protect and respect the people compels the state to implement the right to food effectively, without recourse to extensive financial means. Paper IV: Indian Agriculture in the New Economic Regime, 1971-2003: Empirics based on the Cobb Douglas Production Function Author: Manoj S. Kamat, Sanjay N. Tupe, and Manasvi M. Kamat About the Paper: New Economic Policy 1991 and the formation of WTO in 1995 have brought structural transformations in the Indian agricultural sector. This paper attempts to review trends in this since 1970-71 periods. It also examines the determinants of agricultural gross domestic product during the pre and post-economic reforms. This paper explores the trend and the impact of the New Economic Policy on the state of Indian agriculture with reference to socio-economic factors like poverty, farmers suicides, food stock, input support, quantum of production, cropping pattern and India‘s membership of the WTO on agricultural growth . Criticism: The importance of agriculture sector in the process of economic development is indispensable. With the recognition of this fact, Indian planners have emphasized on the development of agricultural and allied sector right from the beginning of the economic planning process in India. In the last 57 years, Indian agriculture has significantly contributed in terms of income and employment Is planning relevant in Indian context today? Page 10
  11. 11. generation. Even today the 24% of the total GDP (Gross Domestic Product) originates from the agriculture sector and 62 % people find direct and indirect employment in the agriculture sector in India. However in the process of economic transformation, agriculture sector looses its importance due to its eroding contribution in national income. In the earlier years of economic planning, food availability was the serious problem in India. The total food grain production was hardly 51 million tones in 1950-51, which increased to 216 million tones in 2004-05. Ninth Five Year Plan (1997-2002) emphasized on building of food stock to take up the challenge of famine and ever increasing demand for food from the masses. However the average Compounded Annual Growth Rate (CAGR) of agriculture and the allied sector remained low and volatile since the beginning of the said Plan. A change in cropping pattern indicates a shift in area under the cultivation of major crops. Since 1950-51 the area under food grain crop cultivation has been declining, also indicating that the cultivation of non-food grain crops has been increasing. In 1950-51 the area under food grain crop cultivation was 74 percent of the cultivable land, which declined by 2 percent to 72 percent in 2002-03. This shift in cropping pattern was taking place due remunerative prices being offered to commercial crops and better market access given to growers. it is evident that after the introduction of new economic policy the area under cultivation of the rice and wheat crops decelerated from 0.66 and 2.02 in 1970s to -0.08 and 0.51 in the decade 1990s respectively. Area devoted for the coarse cereals and pulses also decreases during the same duration. Declining trend in all these crops created shortage of food in the recent days and puts pressure on prices of daily foodstuff, resulting into increasing cost of living of masses. Conclusion: Before and after the introduction of the New Economic Policy, Indian agriculture sector is in the Decreasing Returns to Scale phase. This paper proves that input availability was under strain during that period, hence there is urgent need to increase the flow of agro-inputs to meet the global challenge of food security, poverty reduction and unemployment. We therefore advocate government to increase the flow of inputs to this sector so that the proposed 10 percent growth rate can be achieved successfully. Is planning relevant in Indian context today? Page 11
  12. 12. What is a Plan? A plan spells out how the resources of a nation should be put to use. It should have some general goals as well as specific objectives, which are to be achieved within a specified period of time. A plan spells out how the resources of a nation should be put to use. It should have some general goals as well as specific objectives, which are to be achieved within a specified period of time; in India plans are of five years duration (we borrowed this from the former Soviet Union, the pioneer in national planning). Our plan documents not only specify the objectives to be attained in the five years of a plan but also what is to be achieved over a period of twenty years. This long-term plan is called ‗perspective plan‘. The five-year plans are supposed to provide the basis for the perspective plan. THE basic objective of development necessarily is to provide the masses of the Indian people the opportunity to lead a good life.It will be unrealistic to expect all the goals of a plan to be given equal importance in all the plans. The planners have to balance the goals, a very difficult job indeed. Our five-year plans do not spell out how much of each and every good and service is to be produced. This is neither possible nor necessary. It is enough if the plan is specific about the sectors where it plays a commanding role, while leaving the rest to the market. History of plans in India On 15th August 1947, India woke to a new dawn of freedom: finally we were masters of our own destiny after some two hundred years of British rule; the job of nation building was now in our own hands. The leaders of independent India had to decide, among other things, the type of economic system most suitable for our nation, a system which would promote the welfare of all rather than a few. Among the different economic systems, socialism appealed to Jawaharlal Nehru the most. However, he was not in favor of the kind of socialism established in the former Soviet Union where all the means of production, i.e., all the factories and farms in the country, were owned by the government. There was no private property. Nehru, and many other leaders and thinkers of the newly independent India, sought an alternative to the extreme versions of capitalism and socialism. Basically sympathizing with the socialist outlook, they found the answer in an economic system which, in their view, Is planning relevant in Indian context today? Page 12
  13. 13. combined the best features of socialism without its drawbacks. In this view, India would be a socialist society with a strong public sector but also with private property and democracy; the government would plan economy with the private sector being encouraged to be part of the plan effort. The ‗Industrial Policy Resolution‘ of 1948 and the Directive Principles of the Indian Constitution reflected this outlook. In 1950, the Planning Commission was setup with the Prime Minister as its Chairperson. The era of Five Year Plans had begun. The Soviet planners under the support of Joseph Stalin set up the first of what later became known as the Five Year Plans. The initial five-year plans were created to serve in the rapid industrialization of the Soviet Union, and thus placed a major focus on heavy industry.The remarkable successes in industrialization achieved by the Union of Soviet Socialist Republics (USSR) under a regime of state ownership of means of production and central planning in the face of the hostility of the world‘s major capitalist powers, which did everything to thwart Soviet development, including denying the USSR access to technology and trade and supporting fascist Germany, subtly and otherwise, as a bulwark against the perceived ―Bolshevik menace‖. This, clearly, impressed the stalwarts of the freedom movement, andJawaharlal Nehru, so much that they implemented similar principles in India. And thus, India has an extensive network setup to formulate 5-year plans under the supervision of the Planning Commission Why to Plan: Plan tries to specify some fixed targets and some ways to achieve. India, during days just after independence, was in dire conditions and needed to start acting soon. Some of the problems which necessitated need for an immediate plan are :  Vicious circle of poverty  Foreign Trade  Need for Rapid industrialization  Population pressure  Development of Natural resources  Backward Population  Capital Deficiency  Market imperfections Is planning relevant in Indian context today? Page 13
  14. 14. Objectives The central objective of planning in India is to raise the standard of living of the people. Five Year Plans aim at increasing output. At the same time, they aim at reducing inequalities of income and wealth and providing equal opportunities for all. Growth with social justice is basic goal. Estimation of poverty line and incidence of poverty for which the Planning Commission is the nodal agency in the Government of India. To increase per capita and NI: To increase in per capita and NI of a country is regarded as an indicator of eco, development. The increase in income represents higher standard of living as well as increase in income of india. Higher level of employment: Growing population nullifies the effect of growing economy and hence reduces the increase in real income and per capita income. If labor base is expanding, output must also expand correspondingly to ensure full employment. Unemployment problem requires an immediate solution for the elimination of poverty. It is observed that the rising of unemployed expands poverty base. Removal of unemployment has thus been mentioned as one of the objectives of economic planning in all the five year plans, but according to lots of critiques it has never been accorded the priority it merited. Time bound targets have never been set. There also has been difference in opinion between centre and planning commission over the treatment of unemployment. Growth with social justice: Social justice means equal opportunities for all, improving the standard of living of the poorest groups and reduction in inequalities in income and wealth. The Social Welfare Sector deals the with welfare, rehabilitation and development of persons with disabilities, social deviants and other disadvantaged in close co-ordination with the nodal Ministry of Social Justice and Empowerment and the Women and Child Development sector handles Empowerment of women and Development of Children in close co-ordination with the nodal Department of Women and Child Development. Increasing industrial output: Is planning relevant in Indian context today? Page 14
  15. 15. The Indian industry saw its output shrink for the first time in 15 years with a 0.4 per cent year-on-year decline in October, as the impact of the global economic downturn deepened in the country. Increasing industrial output is also linked with growing employment generation and growing prosperity overall. To remove bottlenecks in agriculture, manufacturing industry (especially capital goods) and the balance of payments. In the agricultural sector, the main objective was increasing agricultural productivity and attaining self–sufficiency in foodgrains. In the industrial sector, the emphasis was on basic and heavy industries. In the foreign trade sector, the emphasis was on having a viable balance of payments position‘. The strategy adopted in Indian Planning is often referred to as ‗Mahalanobis strategy‘. In this strategy, emphasis was laid on rapid industrialization with priority for basic and heavy industries. Reduction of inequality in income Although, reduction in income inequality has been mentioned as one of the objectives of economic planning in India but in terms of priority it always got a very low place. It is probably on accounts of this reason that neither the plan documents, nor any other publications of the Planning Commission ever provided estimates of the inequalities in income and wealth distribution. PramitChaudhari is perhaps right in his assertion that Indian plans have never made any serious attempt to redistribute income and wealth. Modernisation Although, the role of science and technology in the country‘s development has been recognized it was never on the agenda till sixth plan. The sixth plan document stated, ―the term modernization connotes a variety of structural and institutional changes in the framework of economic activity.‖ If one accepts this concept of modernization, then this is also to be admitted during the whole of the planning period, India did make advances on the modernization path though the progress might not have been spectacular. Self- reliance: About five decades ago on the eve of the first plan, India was dependent on foreign countries as industry was almost non-existant, primary sector Is planning relevant in Indian context today? Page 15
  16. 16. agriculture was not producing enough for domestic consumption and very low foreign funds inflow. It has been observed in many cases that developed countries while supplying essential commodities like food grains, machinery and other capital equipment to underdeveloped countries attempt to take full advantage of their strong bargaining position and extort exorbitant prices for their products. It is now generally agreed that in the field of self-reliance, India has two achievements to its credits. First, the country is now almost self sufficient in food. Second, with the growth of iron and steel, machine tools and heavy engineering industries, this country has made considerable advancement towards self-reliance in capital equipment. In totality, however, the goal of self-reliance has proved to be elusive. Stages in Economic Planning i. Formulation- by planning commission.In this stage, planning commission prepares draft that goes to National development council. The council then endorse the draft, and it is forwarded to Parliament. ii. Adoption-By Parliament iii. Approval - After the approval of Parliament only, the draft becomes the planned document. iv. Execution-By executive v. Supervision- By Officials Pre conditions for effective economic planning:  Collection of Statistical Data- If at collection stage data is incorrect or irrelevant or collected half heartedly then economic planning won‘t be effective at all.  Economic Organisation  Government Setup  Public Cooperation-Citizen must provide every information so that government can formulate policies for their betterment. Is planning relevant in Indian context today? Page 16
  17. 17. Characteristics of Economic Planning: In a planned economy, major economic decisions such as what and how much is to be produced, when and where it is to be produced and to whom it is to be allocated will be determined by a central authority such as the State, through the Planning Commission.The Government will have the powers of implementation. Before the Plan is drawn up, a detailed survey of all available resources – physical resources, financial resources and human resources – has to be made. The first step in drawing up a Plan is to determine a growth target for an economy over the Plan period. The planners then divide the economy into a number of sectors such as agriculture, industry and service sector. The planners will fix the targets for the sectors and also decide how much investment must be made in each sector to achieve the targets. Then they will decide the right type of investment projects and production techniques. Planning In India and Impact The economy of India is the twelfth largest in the world by market exchange rates and the fourth largest in the world by GDP, measured on purchasing power parity (PPP) basis. The country was under socialist-based policies for an entire generation from the 1950s until the 1980s. The economy was characterized by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth. Since 1991, continuing economic liberalization has moved the economy towards a market-based system. Independence to 1991 Indian economic policy after independence was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature). Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labor and financial markets, a large public sector, business regulation, and central planning. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s. Elaborate licences, regulations and the accompanying red tape, commonly referred to as Licence Raj, were required to set up business in India between 1947 and 1990. Is planning relevant in Indian context today? Page 17
  18. 18. India's low average growth rate from 1947–80 was derisively referred to as the Hindu rate of growth, because of the unfavorable comparison with growth rates in other Asian countries, especially the "East Asian Tigers". The Rockefeller Foundation's research in high-yielding varieties of seeds, their introduction after 1965 and the increased use of fertilizers and irrigation are known collectively as the Green Revolution, which provided the increase in production needed to make India self-sufficient in food grains, thus improving agriculture in India. After 1991 In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. While this increased the rate of growth, it also led to high fiscal deficits and a worsening current account. The collapse of the Soviet Union, which was India's major trading partner, and the first Gulf War, which caused a spike in oil prices, caused a major balance-of-payments crisis for India, which found itself facing the prospect of defaulting on its loans. India asked for a $1.8 billion bailout loan from IMF, which in return demanded reforms. In response, Prime Minister NarasimhaRao along with his finance minister Manmohan Singh initiated the economic liberalisation of 1991. The reforms did away with the Licence Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Since 1990 India has emerged as one of the fastest-growing economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security. While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China. Is planning relevant in Indian context today? Page 18
  19. 19. Organization The Prime Minister is the Chairman of the Planning Commission, which works under the overall guidance of the National Development Council. The Deputy Chairman and the full time Members of the Commission, as a composite body, provide advice and guidance to the subject Divisions for the formulation of Five Year Plans, Annual Plans, State Plans, Monitoring Plan Programmes, Projects and Schemes. The Planning Commission functions through several Divisions, each headed by a Senior Officer. The Set up is:  Chairman  Sh. Montek Singh Ahluwalia, Dy. Chairman  Shri V. Narayanasamy, Minister of State  Members o Dr. Kirit Parikh o Prof. AbhijitSen o Dr. V.L. Chopra o Dr. BhalchandraMungekar o Dr.(Ms.) SyedaHameed o Shri B.N. Yugandhar o Shri Anwar-ul-Hoda o Shri B. K. Chaturvedi  Dr. SubasPani, Secretary  Senior Officials  Grievance Officers Divisions Divided in following Sectors : A. Agriculture  Flow of Institutional Credit to Agriculture  Land use Classification  Distribution of Land Holdings—All India  All India Area, Production and Yield of Food Grains (Kharif and Rabi)  Area Irrigated by Sources  Per-capita Net Availability of Foodgrains in India  Progress in Use of Agricultural Inputs  Irrigation and Flood Control Is planning relevant in Indian context today? Page 19
  20. 20.  Magnitude and Composition of Investment B. Infrastructure  Power and Energy  Transport – Shipping  Transport – Railways  Transport – Roadways  Transport – Civil Aviation  Telecommunication and Broadcasting C. Social Sector  Education  Employment  Health and Family Welfare( Including Population)  Empowerment of Women and Development of Children  Empowerment of the Socially Disadvantaged Groups  Social Welfare  Public Distribution System  Rural Development  Housing, Water Supply and Sanitation D. Other sectors/ Areas  Science and Technology  Environment and Forests  Tourism  Special Area Programmes Office Memorandum: Changing the name of 'Village & Small Industries Division' to "Village & Small Enterprises Division" dated 8/3/04 Is planning relevant in Indian context today? Page 20
  21. 21. Progress of Five Year Plans uptil now: First Five Year Plan (1951-55) The First Five-Year Plan (FY 1951-55) attempted to stimulate balanced economic development while correcting imbalances caused by World War II and partition. Agriculture, including projects that combined irrigation and power generation, transportation and price stability, received priority. It was based on Harrod-Domar Model. Community Development Program was launched in 1952. This plan was more than a success, because of good harvests in the last two years of the plan. Total budget: 206.8 billion (INR) or USD$23.6 billion. Objectives: o The standard of living o Community and agriculture development o Energy and irrigation o Communications and transport o Industry o Land rehabilitation o Social services o Target of GDP growth 2.1 per year Achievements: o GDP 3.6% per year o Evolution of good irrigation system o Improvements in Roads o Improvements inCivil aviation o Improvements inRailways o Improvements inTelegraphs o Improvements inPosts o Improvements inManufacture of fertilizers o Improvements inElectrical equipment Disadvantages o Development of only a few industries Is planning relevant in Indian context today? Page 21
  22. 22. o Private industry had not developed Second Five Year Plan (1956-61) By contrast, the Second Five-Year Plan (FY 1956-60) emphasized rapid industrialization, particularly basic, heavy industries in the public sector, and improvement of the economic infrastructure. The plan also stressed social goals, such as more equal distribution of income and extension of the benefits of economic development to the large number of disadvantaged people. This plan is also called Mahalanobis Plan after its chief architect. It advocated huge imports, which led to emptying of funds leading to foreign loans. It shifted basic emphasis from agriculture to industry far too soon. During this plan, price level increased by 30%, against a decline of 13% during the First Plan. Objectives o To increase by 25% the national income o To make the country more industrialized o To increase employment opportunities so that every citizen gets a job Development of o Mining and industry o Community and agriculture development o Power and irrigation o Social services o Communications and transport o Miscellaneous Achievements o 5 steel plants o A hydro-electric power project o Production of coal increased o More railway lines o Land reform measures o Improved the living standards of the people o The large enterprises in seventeen industries were nationalized Disadvantages o Eliminate the importation of consumer goods o High tariffs Is planning relevant in Indian context today? Page 22
  23. 23. o Low quotas or banning some items altogether o License were required for starting new companies o This is when India got its License Raj , the bureaucratic control over the economy o When a business was losing money the Government would prevent them from shutting down Third Five Year Plan (1961-66) The Third Five-Year Plan (FY 1961-65) aimed at a substantial rise in national and per capita incomewhile expanding the industrial base and rectifying the neglect of agriculture in the previous plan. The third plan called for national income to grow at a rate of more than 5 percent a year; self-sufficiency in food grains was anticipated in the mid-1960s.At its conception time, it was felt that Indian economy has entered a take-off stage. Therefore, its aim was to make India a 'self-reliant' and 'self- generating' economy. Also, it was realized from the experience of first two plans that agriculture should be given the top priority to suffice the requirement of export and industry. Economic difficulties disrupted the planning process in the mid-1960s. In 1962, when a brief war was fought with China on the Himalayan frontier, agricultural output was stagnating, industrial production was considerably below expectations, and the economy was growing at about half of the planned rate. Defense expenditures increased sharply, and the increased foreign aid needed to maintain development expenditures eventually provided 28 percent of public development spending. Midway through the third plan, it was clear that its goals could not be achieved. Food prices rose in 1963, causing rioting and looting of grain warehouses in 1964. War with Pakistan in 1965 sharply reduced the foreign aid available. Successive severe droughts in 1965 and 1966 further disrupted the economy and planning. Objectives o More stress to agriculture o Subsidies o Sufficient help o Effective use of country resources o To increase the national income by 5% per year Is planning relevant in Indian context today? Page 23
  24. 24. o To increase the production of agriculture so that the nation is self sufficient in food grains o To provide employment opportunities for every citizen of the country o To establish equality among all the people of the country Achievements o Decentralization o Organizations formed o Panchayat o ZilaParishads o Laid emphasis on Oil conservation o Laid emphasis on Irrigation o Laid emphasis on A forestation o Laid emphasis on Dry farming o Laid emphasis on Many fertilizer and cement plants were built o Laid emphasis on Green Revolution Fourth Five Year Plan (1969 -74) The Fourth Five-Year Plan (FY 1969-73) called for emphasis on agriculture's growth rate so that a chain reaction can start. It fared well in the first two years with record production, last three years it faced failure because of poor monsoon. This plan had to tackle the influx of Bangladeshi refugees before and after 1971 Indo-Pak war.A 24 percent increase over the third plan in real terms of public development expenditures was emphasized. Main The public sector accounted for 60 percent of plan expenditures, and foreign aid contributed 13 percent of plan financing. Agriculture, including irrigation, received 23 percent of public outlays; the rest was mostly spent on electric power, industry, and transportation. Although the plan projected national income growth at 5.7 percent a year, the realized rate was only 3.3 percent. Objectives o To reform and restructure govts expenditure agenda( defense became one major expense) o To facilitated growth in exports o To alter the socio economic structure of the society Achievements o Great advancement has been made with regard to India national income o Considered as one of the emerging powers Is planning relevant in Indian context today? Page 24
  25. 25. o Served as a stepping stone for the economic growth o Food grains production increased Problems o A gap was created between the people of the rural areas and those of the urban areas. o Due to recession, famine and drought, India did not pay much heed to long term goals Fifth Five Year Plan (FY 1974-79) The Fifth Five-Year Plan (FY 1974-78) was drafted in late 1973 when crude oil prices were rising rapidly; the rising prices quickly forced a series of revisions.The fifth plan prepared and launched by D.D. Dhar proposed to achieve two main objectives viz, 'removal of poverty' (GaribiHatao) and 'attainment of self reliance', through promotion of high rate of growth, better distribution of income and a very significant growth in the domestic rate of savings. The plan was subsequently approved in late 1976. The plan was terminated in 1978 (instead of 1979) when Janta Government came to power. The fifth plan was in effect only one year, although it provided some guidance to investments throughout the five-year period. The economy operated under annualrolling plans in FY 1978 and FY 1979.There were 2 Sixth Plans. One by the Janta Government (for 78-83) which was in operation for 2 years only and the other by the Congress Government when it returned to power in 1980. Objectives o To reduce social, regional, and economic disparities o To enhance agricultural productivity o To check rural and urban unemployment o To encourage self-employment o Production support policies in the cottage industry sector o To develop labor intensive technological improvements Achievements o Food grain production was above 118 million tons due to the improvement of infrastructural facilities o Bombay High had shot up the commercial production of oil in India Problems faced Is planning relevant in Indian context today? Page 25
  26. 26. o The world economy was in a troublesome state o This had a negative impact on the Indian economy o Prices in the energy and food sector skyrocketed and as a consequence inflation became inevitable o The international economy was in a trouble o Food, oil, and fertilizers where prices sky-rocketed o Several inflationary pressures Sixth Five Year Plan (FY 1980-85) The Sixth Five-Year Plan (FY 1980-84) was intended to be flexible and was based on the principle of annual "rolling" plans. It called for development expenditures of nearly Rs1.9 trillion, of which 90 percent would be financed from domestic sources, 57 percent of which would come from the public sector. Public sector development spending would be concentrated in energy (29 percent); agriculture and irrigation (24 percent); industry including mining (16 percent); transportation (16 percent); and social services (14 percent). In practice, slightly more was spent on social services at the expense of transportation and energy. The plan called for GDP growth to increase by 5.1 percent a year, a target that was surpassed by 0.3 percent. Objectives o To improve productivity level o To initiate modernization for achieving economic and technological self- reliance o To control poverty and unemployment o To develop indigenous energy sources and efficient energy usage o To promote improved quality of life of the citizens o To introduce Minimum Needs Program for the poor o To initiate Family Planning Achievements o Speedy industrial development o Emphasis on the information technology sector o Self sufficiency in food o Science and technology also made a significant advance o Several successful programs on improvement of public health o Government in the Indian healthcare sector o Government investments in the Indian healthcare sector Is planning relevant in Indian context today? Page 26
  27. 27. Problems faced o During this time the Prime Minister was Rajiv Gandhi and hence industrial development was the emphasis of this plan some opposed it specially the communist groups, this slowed down the pace of progress. Seventh Five Year Plan (FY 1985-90) The Seventh Five-Year Plan (FY 1985-89) envisioned a greater emphasis on the allocation of resources to energy and social spending at the expense of industry and agriculture. Also, it emphasized on policies and programs which aimed at rapid growth in food-grains production, increased employment opportunities and productivity within the framework of basic tenants of planning. It was a great success, the economy recorded 6% growth rate against the targeted 5%. The main increase was in transportation and communications, which took up 17 percent of public-sector expenditure during this period. Total spending was targeted at nearly Rs3.9 trillion, of which 94 percent would be financed from domestic resources, including 48 percent from the public sector. The planners assumed that public savings would increase and help finance government spending. Objectives o Anti-poverty program o Improved facilities for education to girls o The government undertook to increase productivity of o Oilseeds,Fruits,Vegetables o Pulses, Cereals,Fish o Egg, Meat, milk o Communications - Emergence of informatics, and hooking up of telecommunications with computers o Transport - inland waterways, product pipelines, civil aviation, coastal shipping Achievements o Social Justice o Removal of oppression of the week o Using modern technology o Agricultural development o Anti-poverty programs o Full supply of food, clothing, and shelter Is planning relevant in Indian context today? Page 27
  28. 28. o Increasing productivity of small and large scale farmers o Making India an Independent Economy Problems o 1989-91 was a period of political instability in India and hence no five year plan was implemented o In 1991, India faced a crisis in foreign exchange(Forex) reserves Eighth Five Year Plan (FY 1992-1997) The schedule for the Eighth Five-Year Plan (FY 1992-96) was affected by changes of government and by growing uncertainty over what role planning could usefully perform in a more liberal economy. Two annual plans were in effect in FY 1990 and FY 1991.The eighth plan was launched after a worsening Balance of Payment position and inflation during 1990-91. The plan undertook various drastic policy measures to combat the bad economic situation and to undertake an annual average growth of 5.6%. Some of the main economic performances during eighth plan period were rapid economic growth, high growth of agriculture and allied sector, and manufacturing sector, growth in exports and imports, improvement in trade and current account deficit. The eighth plan was finally launched in April 1992 and emphasized market-based policy reform rather than quantitative targets. Objectives o Prioritize the specific sectors which requires immediate investment o To generate full scale employment o Promote social welfare measures like improved healthcare, sanitation, communication and provision for extensive education facilities at all levels o To check the increasing population growth by creating mass awareness programs o To encourage growth and diversification of agriculture o To strengthen the infrastructural facilities o To place greater emphasis on role of private initiative in the development of the industrial sector Achievements o Rise in the employment level o Poverty reduction o Self-reliance on domestic resources o Self-sufficiency in agricultural production Is planning relevant in Indian context today? Page 28
  29. 29. o GDP Growth Per Annum 5.6 Ninth Five Year Plan (FY 1997-2002) The Ninth Five Year Plan(FY 1997-02) was developed in the context of four important dimensions: Quality of life, generation of productive employment, regional balance and self-reliance. Objectives o To prioritize rural development o To generate adequate employment opportunities o To stabilize the prices o To ensure food and nutritional security o To provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy o To check the growing population increase o To encourage social issues like women empowerment o To create a liberal market for increase in private investments Achievements o A combined effort of public, private, and all levels of government o Ensured the growth of india economy. o Service sector showed fast growth rate Tenth Five Year Plan (FY 2002-07)  To achieve the growth rate of GDP @ 8%.  Reduction of poverty ratio to 20% by 2007 and to 10% by 2012.  Providing gainful high quality employment to the addition to the labour force over the tenth plan period.  Universal access to primary education by 2007.  Reduction in gender gaps in literacy and wage rates by atleast 50% by 2007.  Reduction in decadal rate of population growth between 2001 and 2011 to 16.2%.  Increase in literacy rate to 72% within the plan period and to 80% by 2012.  Reduction of Infant Mortality Rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012.  Increase in forest and tree cover to 25% by 2007 and 33% by 2012.  All villages to have sustained access to potable drinking water by 2012. Is planning relevant in Indian context today? Page 29
  30. 30.  Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012. Eleventh five year plan (FY 2007-12) Objectives o Income & Poverty o Education o Health o Women and Children o Infrastructure o Environment Role Of Economic Planning On GDP India moved from the ―Hindu Rate of Growth (HRG)‖ during the sixties and seventies to a ―Bharatriya Rate of Growth (BRG)‖ of 5.8 per cent during the eighties and nineties. A number of eminent economists have asserted that the growth of the economy during the second half of the nineties was propped up by pay commission related increases in the pay of government/public servants and this artificial increase is unsustainable. Thus the real growth rate of the economy is currently not 5.8 per cent but closer to 5 per cent. Other commentators have gone even further to assert that services growth during the entire nineties, which has kept average growth during the nineties at 5.8 per cent is unsustainable and that the underlying growth rate is currently as low as 4.5 per cent. In this article I address these and other related questions by looking a little deeper into the underlying sector growth rates, particularly the role of services. Such assertions based on short-term movements, are shown to have little relevance to long-term growth trends and prospects. Role of Administration& Pay Commission Because of the way in which GDP from administration is measured, it is quite legitimate to question its role in long-term growth. The productive sectors of the economy meet the market test in that the consumer is willing to pay for the goods or services purchased. Thus their value is determined by market prices. As there is no market price for the administrative services supplied by the government, their contribution to GDP is measured by wages etc. incurred in the sector. Thus a rise in the real wages paid raises the value added as measured by the GDP statistics. As long Is planning relevant in Indian context today? Page 30
  31. 31. as these services are not produced at rates determined through competitive bidding, there is no other way in which they can be valued. We can, however, get a better fix on the sustainable rate of growth by excluding GDP from administration from our growth estimates. During the eighties and nineties, average rate of growth of GDP (adj.) i.e. excluding the GDP from administration, was only 0.04 per cent point lower than the growth of conventionally measured GDP. This leaves the Bharatiya rate of growth unchanged at 5.8 per cent. This is not, however, true of the Hindu rate of growth. During the sixties and seventies the average rate of growth of GDP (adj) was 0.13 per cent point lower than for GDP as a whole, so that the HRG is reduced from 3.4 per cent to 3.3 per cent. Role of Service Sector As per broad globally accepted definition of goods and services, Agriculture & allied sectors, mining & quarrying and manufacturing sectors produce goods while the output of all other sectors constitutes services. The former are traditionally classified as tradable and the latter as non-tradable, though this is rapidly changing. We can define GDP from Services (adj) by excluding the GDP from administration. A comparison of the growth rate in this with the unadjusted GDP completely contradicts the common assertion that much of services growth was due to the government pay rise. On the contrary the rate of growth of services (adj) during the last two decades was marginally (0.05 per cent point) higher than that for Services as a whole (unadjusted). It is, however, wrong to conclude, as some have done, that the nineties is the first instance in which services have grown faster than other sectors of the economy. On the contrary in each of the five decades since independence, GDP from Services has grown faster than GDP from the tradable goods sectors of the economy. The gap averaged about 2.2 per cent points in the first four decades but has expanded to 3.1 per cent points in the nineties. If we exclude GDP from administration from our GDP calculations, the gap shows much greater fluctuations; It was 0.8 per cent point in the fifties, rose to 1.3 per cent point in sixties and seventies, fell back to 0.7 per cent point in the eighties and then rose to a peak of 1.7 per cent point in the nineties. Though in absolute terms the last is unprecedented it is worth noting that it is only 30 per cent Is planning relevant in Indian context today? Page 31
  32. 32. higher than the GDP (adj) growth rate for the nineties. The 1.3 per cent point gap in the seventies & sixties was respectively 46 per cent & 34 per cent higher than GDP (adj) growth rate. There are two broad reasons for the higher contribution of non-tradable services to GDP growth during the nineties. The decline in protection for non-tradable sectors arising from the elimination of QRs and reduction in tariffs for mining and manufacturing sectors. The measurement of community services, however, suffers from valuation problems whenever it is provided free, whether by the government or by non-governmental organisations. As ―Other community services‖ include education and health services, it is contaminated by the pay commission related wage increases for government teachers and doctors. The effect on overall trends is, however, likely to be even less than for administration. In conclusion, we find that though the pay commission related pay increases may have distorted estimates of GDP for a few years they do not affect the trend rate of growth of GDP. The ―Bharatiya rate of growth‖ remains at 5.8% per annum even if government administration is excluded altogether. A similar adjustment of services also contradicts the assertion that this factor is responsible for higher service growth. Further, services (adjusted) have always grown faster than overall GDP growth, though their contribution has fluctuated. The contribution of services during the nineties is high only in comparison to the eighties, when their contribution was unusually low. Role of Economic Planning In Industry And Service India has one of the world's fastest growing automobile industries and is global leader of auto industry Industry accounts for 27.6% of the GDP and employ 17% of the total workforce. However, about one-third of the industrial labour force is engaged in simple household manufacturing only. In absolute terms, India is 16th in the world in terms of nominal factory output. India's small industry makes up 5% of carbon dioxide emissions in the world. Economic reforms brought foreign competition, led to privatization of certain public sector industries, opened up sectors hitherto reserved for the public sector and led to Is planning relevant in Indian context today? Page 32
  33. 33. an expansion in the production of fast-moving consumer goods. Post-liberalization, the Indian private sector, which was usually run by oligopolies of old family firms and required political connections to prosper was faced with foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on designing new products and relying on low labour costs and technology. Textile manufacturing is the second largest source for employment after agriculture and accounts for 26% of manufacturing output. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear. Dharavi slum in Mumbai has gained fame for leather products. Tata Motors' Nano attempts to be the world's cheapest car. India is fifteenth in services output. It provides employment to 23% of work force, and it is growing fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP, accounting for 55% in 2007 up from 15% in 1950. Business services (information technology, information technology enabled services, business process outsourcing) are among the fastest growing sectors contributing to one third of the total output of services in 2000. The growth in the IT sector is attributed to increased specialization, and an availability of a large pool of low cost, but highly skilled, educated and fluent English-speaking workers, on the supply side, matched on the demand side by an increased demand from foreign consumers interested in India's service exports, or those looking to outsource their operations. India's IT industry, despite contributing significantly to its balance of payments, accounted for only about 1% of the total GDP or 1/50th of the total services in 2001 However the contribution of IT to GDP increased to 4.8 % in 2005-06 and is projected to increase to 7% of GDP in 2008. Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.The Industry Division deals with the industrialization issues including policies and programmes relating to large and medium industries. It handles matters concerning formulation, implementation, monitoring and evaluation of Plans and programmes for the larger and medium industries for the Annual and Five Year Plans in respect of both the Central Sector and States /UT's . The industry groups /industries being dealt with by the Division include engineering industries like Is planning relevant in Indian context today? Page 33
  34. 34. capital goods industry, steel, non-ferrous metals, ship building, fertilizers, chemicals and petrochemicals, drugs and pharmaceuticals, textiles including jute, electronics, paper and paper board, cement, sugar, leather, alcohol; other consumer industries, etc. The division also deals with issues such as economic reforms, liberalisation, disinvestment, technology policies, public sector, foreign direct investment, exports, productivity, consumer protection, weights & measures, Patent/IPR/Trademark and similar other matters which have a bearing on industrial development of the country. The matters relating to public sector enterprises and industrial finance are also handled by the Division, Reference to the Planning Commission in these areas in the form of Cabinet Notes, Parliament question and other miscellaneous forms of communication are dealt with in the Division. The broad functions of the Division are:  To handle all matters relating to industrial policy and other associated policy  To deal with policies relating to the public sector enterprises  To handle matters relating to industrial finance, financial institutions and capital markets  To study and analyse industrial statistics and undertake special studies relating to industrial development and sickness  To undertake appraisal and evaluation of industrial projects in the public sector  To undertake appraisal and evaluation of industrial projects related to development of export infrastructure and allied activities  To undertake appraisal of export promotion efforts and market access initiatives in the wake of WTO regime  To implement policy issues relating to Disinvestment of PSUs  To study and analyse industrial production trends and to make forecast of the demand estimates  To undertake coordination and review of industrial development programmes  To formulate plans and programmes for development of various industrial sub-sectors and industries, their financing and re-viewing the targets of capacity and production  To study scientific and technical advances and technology transfer issues  To study factors inhibiting or accelerating growth in particular sectors for industries  Monitoring the programs and progress of Centrally Sponsored Schemes relating to industrial sector export promotion and allied activities. Is planning relevant in Indian context today? Page 34
  35. 35.  To inter-act with various Ministries, Industry Associations and other Governmental and non-Governmental bodies on industrial matters  To inter-act with the State Governments and Union Territories on industrial development issues Service: The major items of work handled by the Division and activities undertaken include:  The work relating to formulation of policies, Five Year Plans, Annual Plans, Mid-term Appraisal of Plans pertaining to Telecommunications, Posts, Information Technology and Information & Broadcasting sectors of the Economy.  Examination of the Plan schemes / projects of the above mentioned sectors including the PSUs / Organizations under them.  Examination of various policy documents / papers and preparation of comments as required by the Commission and Government from time to time.  Participation in various Inter-Ministerial Committees and Commissions set up by the Government for these sectors.  Maintenance and updation of Planning Commission Website : http: //planningcommission.nic.in  Printing and distribution of 'Plan Documents' and other reports of the Planning Commission.  Preparation and circulation of 'Daily News Digest' The details of organisations and the major programme areas with which the Division is associated for various aspects of policy formulation, monitoring and evaluation include: (A) TELECOMMUNICATIONS I. Department of Telecom – DOT, WMO, WPC II. Regulatory Bodies – TRAI, TDSAT III PSUs Providing Telecom Services- BSNL, MTNL IV Development and Manufacturing of Telecom Equipment- ITI, TEC, C-DOT (B) POSTAL SECTOR: DEPARTMENT OF POSTS (C) INFORMATION TECHNOLOGY I. Department of Information Technology-C-DAC, DDEACC, SAMEER Is planning relevant in Indian context today? Page 35
  36. 36. II. Strengthening of IT infrastructure in States / UTs (D) INFORMATION AND BROADCASTING I. Ministry of Information & Broadcasting II. PrasarBharati Corporation III. Information Sector IV. Film Sector (V) Public Sector Units (PSUs) (E) PLANNING COMMISSION WEBSITE ADDRESS:http://planningcommission.gov.in//. Role of Employment 1. A quantitative scenario of the population, labour force and work force is the starting point of the plan exercise on employment and unemployment. It also serves as a baseline, with reference to which, the impact of the various plan initiatives, policies and programmes can be articulated in a quantitative manner. 2. The Eleventh Five Year Plan is being evolved as an Education Plan, and a novel feature of the exercise on projections of labour force is the explicit treatment of the influence of the levels of education on participation in labour force. The concerns of employment strategy for the Eleventh Five Year Plan differ from the earlier Plans, in that now there is an explicit focus at the quality of employment, and not merely at the aggregate unemployment. 3. Besides the focus on growth in output, the strategy for creation of employment opportunities should carefully look at the institutional environment that governs the exchange of labour for wages received in the labour market. 4. The Eleventh Plan aims to address many economic and social problems, such as inadequate physical infrastructure, in the rural areas, in particular – roads, housing, drinking water, sanitation, housing, and access to electricity; urban renewal; care of the child and adolescent girls; children out of school; improving productivity and income from agriculture; and unemployment among the rural labour households. Is planning relevant in Indian context today? Page 36
  37. 37. 5. In its recommendations the Working Group has emphasized on measurement of Quality of employment‗. There is a need to supplement the existing methodology for measurement of labour force and employment. Many technical issues have to be contended with in determining the right approach to measurement of employment and unemployment, if the quality of employment is also to be accounted for. 6. The Working Group has looked at the employment and unemployment situation for the Country as a whole. However, in dealing with the planning issues pertaining to labour and employment, a differential approach across regions is required. While the elements of such an approach are perceptible in the region- specific programmes and policies, including the district-specific programmes such as the NREGA, the Working Group underlines the need for more intensive work. Best use of the data that already exists, and a new approach to collect location-specific employment data through more frequent surveys / census of households and establishments, than once in 5 to 10 years as is done now, are required. Role of Education Education Policy should be sensitive towards cultural and linguistic diversity of Indian society, and therefore uniform standards should not be applied.There should be increased access of minorities in all non-minority institutions. While minority institutions are kept out of the purview of reservation of SCs, STs and OBCs in general, they should be obligated to reserve certain seats for members of their own minority community who belong to SCs, STs and OBCs.Nomadic groups and de-notified tribes should also be grouped along with disadvantaged. Data gaps on this category of students-SC/ST/Minorities/ Girls/Disadvantaged – need to be filled at each stage of education. Majority of the people are not aware of all the Plan schemes, which benefit them. In view of this an Equal Opportunities Cell may be set up. An Officer (Ombudsman) who would manage this Equal Opportunities Cell should be made responsible to widely circulate information brochures and pamphlets and also to educate people in the target group. The officer so appointed should act like a single window operator who can be approached by the applicant.All the universities Is planning relevant in Indian context today? Page 37
  38. 38. should establish SC/ST/OBC/Disadvantaged Groups Cells at the earliest, which could also function as anti-discrimination Cell. Mid day meal scheme has increased the enrollment of children in schools. However, teachers should have the ability to motivate students to learn. They should encourage the students to develop skills and learn, so that children look forward to coming to schools not only for eating but also for learning. Refresher courses may also be developed for the teachers. SSA should enlarge support for hostels for boys and girls on the same lines as Kasturba Gandhi BalikaVidyalayas with 75% minimum reservation for SC/ST/OBC and disadvantaged groups. The Planning Commission had constituted a Working Group on ―Development of Education of SC/ST/Minorities/Girls and other disadvantaged Groups‖ - Eleventh Five Year Plan – 2007-2012 vide their order No.M-12015/2/2005-Edn. dated 21.6.2006, under the Co-chairmanship of Secretary, Higher Education and Secretary, School Education and Literacy(Annexure-A). First meeting of the Working Group was held on 17th August 2006 in which it was decided that the Working Group may consider the sectoral issues presented by various sectors like Higher Education, Technical Education, Vocational Education, School Education, Elementary Education and Adult Education. Accordingly, Working Group met on 1st, 6th, 7th & 8th September, 2006 to consider the issues raised by various sectors including a special session exclusively devoted to the issues and problems faced by children with specific needs. Literacy Status Despite the fact that there has been an increase in the literacy rates of SCs/STs since independence, the present position is still far from satisfactory. The overall increase in literacy rate in the country during the period 1961-2001 was 36.54 against which increase in literacy rate for SCs and STs during the same period was 44.42 and 38.57 respectively. The female literacy rates among STs continue to remain a serious cause of concern, as it is only 34.76% as against the total female literacy rate of 53.67%. However, in overall terms, the female literacy rate has increased significantly since independence, the female literacy rate was only 8.86% in1951. The literacy rate of females is 53.67% as compared to 75.26% among males in 2001. The female literacy rate has risen by 14.38% compared to a corresponding increase of 11.13% Is planning relevant in Indian context today? Page 38
  39. 39. Advantages and disadvantages of planning Supporters of planned economies cast them as a practical measure to ensure the production of necessary goods—one which does not rely on the vagaries of free market(s). Stability Long-term infrastructure investment can be made without fear of a market downturn (or loss of confidence) leading to abandonment of the project. This is especially important where returns are risky (e.g.fusion reactor technology) or where the return is diffuse (e.g.immunization programs or public education). Critics will point out that even though the economy will never go down, it never goes up. Conformance to a grand design While a market economy maximizes wealth by evolution, a planned economy favors design. While evolution tends to lead to a local maximum in aggregate wealth, design is in theory capable of achieving a global maximum. For example, a planned city can be designed for efficient transport, while organically grown cities tend to suffer from traffic congestion. Critics would point out that planned cities will suffer from the same problems as unplanned cities, unless reproduction and population growth is subject to strict control, as in a closed city. Meeting collective objectives by individual sacrifice Planned economies may be intended to serve collective rather than individual needs: under such a system, rewards, whether wages or perquisites, are to be distributed according to the value that the state ascribes to the service performed. A planned economy eliminates the individual profit motives as the driving force of production and places it in the hands of the state planners to determine what is the appropriate production of different sets of goods. The government can harness land, labor, and capital to serve the economic objectives of the state. Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external Is planning relevant in Indian context today? Page 39
  40. 40. financing. This is what happened in the Soviet Union during the 1930s when the government forced the share of GNP dedicated to private consumption from 80 percent to 50 percent. While there was a significant decline in individual living standards, the state was able to meet some of its "economic objectives." It could be seen as the government deciding: Who produces what, Where it is produced, How much it costs, and Where it goes. Comparison with capitalist corporations Taken as a whole, a centrally planned economy would attempt to substitute a number of firms with a single firm for an entire economy. As such, the stability of a planned economy has implications with the Theory of the firm. After all, most corporations are essentially 'centrally planned economies', aside from some token intra-corporate pricing. That is, corporations are essentially miniature centrally planned economies and seem to do just fine in a free market. As pointed out by Kenneth Arrow and others, the existence of firms in free markets shows that there is a need for firms in free markets; opponents of planned economies would simply argue that there is no need for a sole firm for the entire economy. Disadvantages of economic planning Inefficient resource distribution – surplus and shortage Critics of planned economies argue that planners cannot detect consumer preferences, shortages, and surpluses with sufficient accuracy and therefore cannot efficiently co- ordinate production (in a market economy, a free price system is intended to serve this purpose). For example, during certain periods in the history of the Soviet Union, shortages were so common that one could wait hours in a queue to buy basic consumer products such as shoes or bread. [15] These shortages were due in part to the central planners deciding, for example, that making tractors was more important than making shoes at that time, or because the commands were not given to supply the shoe factory with the right amount of leather, or because the central planners had not given the shoe factories the incentive to produce the required quantity of shoes of the required quality. This difficulty was first noted by economist Ludwig von Mises, who called it the "economic calculation problem". Economist JánosKornai developed this Is planning relevant in Indian context today? Page 40
  41. 41. into a shortage economy theory (advocates could claim that shortages were not primarily caused by lack of supply). There is also the problem of surpluses. Critics of central planning say that a market economy prevents long-term surpluses because the operation of supply and demand causes the price to sink when supply begins exceeding demand, indicating to producers to stop production or face losses. It is argued that this "invisible hand" prevents long-term shortages and surpluses and allows maximum efficiency in satisfying the wants of consumers. Critics argue that since in a planned economy prices are not allowed to float freely, there is no accurate mechanism to determine what is being produced in unnecessarily large amounts and what is being produced in insufficient amounts. They argue that efficiency is best achieved through a market economy where individual producers each make their own production decisions based on their own profit motive. Cannot determine and prioritize social goods better than the market can Some who oppose comprehensive planned economies argue that some central planning is justified. In particular, it is possible to create unprofitable but socially useful goods within the context of a market economy. For example, one could produce a new drug by having the government collect taxes and then spend the money for the social good. On the other hand, opponents of such central planning say that "absent the data about priorities conveyed through price signals created by freely acting individuals, [it is questionable] whether determinations about what is socially important can even be made at all." Opponents do not dispute that something useful can be produced if money is expropriated from private businesses and individuals, but their complaint is that "it‘s far from certain that those monies could not have been spent better" if individuals were allowed to spend and invest as they wished according to their own wants. We can see things of value being produced by the state taxing and using those funds to undertake projects which are believed to be social goods, but we cannot see what social goods have not been produced due to wealth taken out of the hands of those who would have invested and spent their money in other ways according to their own goals. These opponents of central planning argue that the only way to determine what society actually wants is by allowing private enterprise to use their resources in Is planning relevant in Indian context today? Page 41
  42. 42. competing to meet the needs of consumers, rather those taking resources away and allowing government to direct investment without responding to market signals. According to Tibor R. Machan, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals." If the government in question is democratic, democratically-determined social priorities may be considered legitimate social objectives in which the government is justified in intervening in the economy. Many democratic nations have a mixed economy, where the government intervenes to a certain extent and in certain aspects of the economy, although other aspects of the economy are left to the free market. Lack of incentive for innovation Another criticism some make of central planning is that it is less likely to promote innovation than a free market economy. In the latter, inventors can reap huge benefits by patenting new technology, so there is arguably much more incentive to innovate. Conversely a planned economy can deliver vast national resources into research and development if it gets the idea that a particular field is critical to its interests, usually military technology. The Soviet Union's ability to maintain fierce competition versus the United States during the space race and Cold War, despite its smaller economy, is an example of this. Infringement on individual freedoms The top down structure of a centrally planned economy dictates a hegemonic operating culture - whereas in a free market economy several models of operating can compete simultaneously in a manner similar to organisms in an ecosystem. Critics also hold that certain types of command economies may require a state which intervenes highly in people's personal lives. For example, if the state directs all employment then one's career options may be more limited. If goods are allocated by the state rather than by a market economy, citizens cannot, for example, move to another location without state permission because they would not be able to acquire food or housing in the new location, as the necessary resources were not preplanned. Likewise, because of the state's controls over an individual's personal choices, critics contend that central planning intrinsically results in a top-down, dictatorial state Is planning relevant in Indian context today? Page 42
  43. 43. where politicians and bureaucrats use the state to achieve their own ends, which are in turn described as the "social" objectives of the state. In essence, critics contend that a planned economy has nothing to do with the preferences of the individuals that comprise a society, but rather the abstract goals of some group. The Road to Serfdom is a book written by Friedrich Hayek and critical of collectivism, presenting the argument that a central planned economy must ultimately result in tyranny. An idea similar to this is the idea of the iron cage presented even earlier by Max Weber in The Protestant Ethic and the Spirit of Capitalism. Suppression of economic democracy and self-management Central planning is also criticized by elements of the radical left. Libertarian socialist economist Robin Hahnel notes that even if central planning overcame its inherent inhibitions of incentives and innovation it would nevertheless be unable to maximize economic democracy and self-management, which he believes are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom. But they could never have delivered economic self-management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impending markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power.‖ Corruption A planned economy creates social conditions favoring political corruption. "Particularly, command economies have been notoriously corrupt. First, centralized decision-making predisposes planners to abuses of power. Second, the inherent inefficiency of plans drawn with insufficient information creates a need for bypassing or subverting the official decision-making process. For example, the Soviet Gosplan could not create plans that were feasible, and other means were used to meet the Is planning relevant in Indian context today? Page 43
  44. 44. quotas." A gift economy featuring corruption, blat, developed. The Chinese guanxi is somewhat similar. Changing nature of planning • In a federal democracy like ours, the principal task of planning is to evolve shared vision among not only the federal units but also among other economic agents, so that the efforts of all the actors become convergent towards the national priorities. • While the growth process can be made the responsibility of the corporate sector to a greater degree, its direction and distribution are to be steered by planned public intervention, so that regional imbalances are reduced and socio economic inequities are set right. For example, directing the growth of the large industry into the backward areas and technology-intensiveareas to realise national goals. • The nature of instruments available to planners in the implementation has changed. The planning process has to focus on the need for planning for policy, so that the signals that are sent to the economic system induce the various agents to grow in a manner that is consistent with national goals. In particular, investment patterns would be determined by sectoral policies. For example, phasing in rupee convertibility over almost a decade, so that the necessary changes and adjustments can be made. • Given the federal nature of the Indian context, the role of planning is to develop a common policy stance for the Centre and the States. Also, the task of federal policy coordination is central to Indian planning. For example, the need to invite foreign investment in infrastructure areas like power need centre-state coordination as the necessary legislation and administrative changes involve both. • Lastly, planning at the grass root level, that is participatory, is very crucial for improving the delivery systems and proper use of resources. The role of the Government is thus to facilitate participatory planning. Is planning relevant in Indian context today? Page 44
  45. 45. Analysis Deficiencies of Planning 1. Experts now realize that a minimum standard of living have been ensured for all if resources had been thought of, not in money term, but in term of people. Economic development should not have been equated with increasing the supply of good but with providing opportunity for work to the entire population and raising their productivity by better knowledge and better equipment. 2. In spite of enormous advance in industrialization there has been no change in the occupational pattern of the country‘s work force. Agriculture sector was 72 p.c. in 1911 in 2001 and still 60 percent of labour force is in primary sector. In India,a fairly rapid growth in the non agricultural sectors during the last 50 years of planned development has not made any noticeable impact on the industrial distribution of the work force. Investment and output have grown at a high rate but the production mix and the technology mix have been so capital intensive that employment has not grown. Between 1961 & 1976, in modern factory sector, investment increased 139 p.c. and output 161 p.c. but employment increased only 71%. In the period of economic reform employment generation rate has been reduced. 3. So long emphasis was on financial rather than physical targets. There should be a change in the way in which target are fixed by the planning commission. In spite of the known ambiguities associated with financial targets, emphasis still continues to be laid on financial rather than physical target. It is true that physical targets are mentioned quite prominently but there is no clear indication of the link between physical and financial targets 4. After 50 years of planning, the condition created and sustained by the government policy has resulted in aggravating inequality in the distribution of wealth. Millions of people specially I rural areas continue to languish on the border line of abject poverty if not of actual starvation. The planning has not touched even to the fate of large part of population. Thus there is ample Is planning relevant in Indian context today? Page 45
  46. 46. justification for the general feeling that the technique of planning in India dose not deserve the price that has been paid for it. 5. So far as the conceptual or logical content of planning is concerned there is not much wrong; the wrong lie is its in implementation, its lack of cohesion with social factors and the impediments imposed by political, social, administrative and cultural forces rather then strictly economic factors. What is needed is not an exclusive new approach to replace the old but a reorientation and modification of the old with some additions here and there. 6. One of the objectives of the planning is economic self-reliance means economy should be attaining varies type of securities such as food security, energy security, environment security, social political security. The private sector as well as public sector has failed to generate adequate resources. We have also failed to create sophisticated equipment and material. 7. The tenancy reforms have not been complete and insecurity of tenure has been much more pronounced. The nature of infrastructure has helped mostly to reach peasantry in the industrial sector also big became bigger. The planning has increased the inequalities only. 8. The economy has faced an-uninterrupted inflationary process. The inflation is varied from 5 to 10 % per annum. It has been eroded purchasing power of the people-increased project cost, and reduced the competitiveness of the economy. It has also affected rates of saving and real investment. Common people have become hard hit at such inflation. 9. The resources allocation pattern does not show any consistent trend. Sometimes it was on industry or sometimes it was on agriculture, after the 1stfive year plan agriculture got prime importance again relatively in 10 th plan. Allocation on power and transport were satisfactory but various aspects of social sector has been neglected. Social sectors have got relative attention from 8th plan onwards. 10. The growth rate in the plan period in most cases has not been satisfactory. Moreover, growth rates have not helped to remove poverty and unemployment. The product mix that has been generated has not helped poor people. Balance of payment situation has not been satisfactory. We had always a deficit in the BOP. Is planning relevant in Indian context today? Page 46
  47. 47. Conclusion On the basis of facts and figures, Economic Planning is very important for every country. Because of excellent economic planning now we are one of the parts of developing countries. On the basis of need in certain sectors government introduced five years plan for better development. Five year duration chosen gives planning commission ample time to review the effects or ineffectiveness of the plans. Planning has also evolved over the years with plans becoming more and more inclusive and broadening their scope. Besides India has been blessed with good planners with a very impartial outlook development. After introduced 1991 policy the growth of India became very faster because of liberalization and licensing in different sectors. Because of liberalization the rate Foreign Direct Investment increased after 1991. But this success does not hide the fact that the growth rate, although Impressive, In recent years has not been our true potential. We were brought out of out slumber by the crisis of 1991 and subsequent pressure from World bank. But that crisis also made us realisethat we need to back our lofty plans with equally high Implementation plans. Corruption, Red-Tapism and politicization of every trivial issue has somewhat restricted our pace and we need to plan simultaneously to weed it out as well as transverse past it. Also we have seen in past that planning commission has been affected by the political upheavals with some of the 5 year plans delayed or influenced by the leaders in power. Is planning relevant in Indian context today? Page 47
  48. 48. Appendix (All attachments sourced from documents available on Planning Commission’s website) Plan-wise Targeted and Actual GDP growth rate Is planning relevant in Indian context today? Page 48
  49. 49. Is planning relevant in Indian context today? Page 49
  50. 50. Is planning relevant in Indian context today? Page 50

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