Economic planning is appraised to be the most systematized method to ameliorate the deficiencies or flaws of an economy. Successful implementations of economic planning have already been experienced by multiple nations round the globe. In India, though the concept of planning was first conceived of and implemented in the post-independence era. But it has had its genesis in 1934 when M. Visveswaraya proposed for economic planning in India for the very first time in his book titled “Planned Economy for India”. The book evoked huge zeal within various economists who subsequently showed great keenness towards the concept of planning. Thereafter in 1938, a National Economic Plan for India was demanded by the “All India Congress Committee” and subsequently a National Planning Committee was constituted by the then Government of India with Pandit Jawaharlal Nehru as it chairman. Thereafter in 1944, “Bombay Plan” was formulated by eight eminent Indian capitalists followed up by “Gandhian Plan” by Shriman Narayan Agarwal and “People’s Plan” by the labour leader M.N. Roy in 1945 and then came the “Sarvodaya Plan” by Mr. Jai Prakash Narayan on 30th January, 1950.
The first economic plan for the country formally came into existence post 1947 independence when a committee on economic planning for India was constituted under Pandit Jawaharlal Nehru’s chairmanship. Thereafter, based on the recommendation of this committee, in March 1950, “Planning Commission” was officially constituted and the First Five Year Plan came into existence in 1951.
Economic Planning in a Mixed & Developing Economy like India
The notion of “Economic Planning in India” was derived from the USSR. In India, ‘Planning’ derives its objectives & social premises from the DPSP (Directive Principles of State Policy) enshrined in the Indian constitution. Economic planning is the procedure through which limited natural resources are skilfully used in order to achieve desired economic goals. It is helpful in finding out the solutions of the three major basic problems of an economy – “what to produce”, “how to produce”, and “for whom to produce”. Without having a proper economic plan it is almost impossible to find a solution the basic socio-economic problems such as poverty, unemployment, stagnation in agricultural & industrial production and income inequality. The basic features of economic planning are:-
- Fixing socio-economic goals;
- Achieving all the set goals within specific time period with all possible efforts;
- Having a chief planning authority with proper knowledge on the available economic resources within the country;
- Efficient & optimum utilization of the available limited resources to bring out the maximum possible output & welfare.
India is a classic example of mixed economy. Here both the public as well as private enterprises co-exists. In a mixed economy, it is the duty of the State to direct its policy so as to secure justifiable distribution, control and ownership of the available resources of the community & to prohibit wealth concentration within a few hands besides preventing labour exploitation. It would be very difficult for the State to meet these ends unless it enrols itself in the field of production & distribution. Thus, this reveals the rationale of having an economic plan. In order to protect the weaker sections of the society, it is much expected that the State steps in and efficiently distribute the essential commodities.
Economic plan was implemented in India with the basic aim of enhancing economic growth and raising the living standard of the citizens through development of agriculture, transport, power, industry and communication beside other sectors of the economy. Additionally, it also aims at eradicating poverty, proper allocation of available resources & its optimum utilization, increasing the rate of capital formation, equal and efficient distribution of income & wealth and last but not the least reducing the rate of unemployment and bringing in the new employment opportunities.
The Planning Commission & the Evolution of Planning in India
As mentioned above, the establishment of the Planning Commission (PC) took place in 1950 with the objective of formulating “Five Year-Plans” for India outlining the programmes & policies that should be followed by the centre & states in order to achieve the objectives of all round development. It functioned under the guidance of NDC (National Development Council). It used to frame policies and then consult with the states for allocating funds; held the power of allocating plan funds to ministers & states; in accordance with the Planning Commission report, states along with central government formed part of NDC; it followed a ‘top-down’ model and decided everything from the nation’s perspective before trickling it down.
Till 2017, twelve 5-year-plans were developed and implemented by the Planning Commission. The 1st & the 2nd plans were aimed at rapid agricultural development, achieving self-sufficiency in food, rapid industrialisation and increasing the public resources at large for investments in public sectors. The main focus of the 3rd plan was laying more emphasis on exports while 4th plan that was formulated in a difficult period when the crisis on balance of payment was prevailing, focused mainly on “growth with stability” & “progressive achievement of self –reliance”.
Between the 3rd & 4th plan, there was a break in the planning process because of the rising tensions and conflict between Indo-Pak & Indo-China followed by two years of unprecedented drought, currency devaluation, a general hike in prices & erosion of resources. This period was declared as “Plan Holiday” by the government and three annual plans were outlined in this intervening period. After the 4th plan that ended in 1974, the 5th plan soon commenced with its main focus on eradicating poverty & attaining self-reliance. The 6th & 7th Plans were basically infrastructural plans which focused on raising resources for spending on infrastructures. Then again the 8th Plan could not commence in 1990 because of fast changing political affairs at the centre and therefore it was decided that separate Annual Plans would be drawn for the years 1990-91 & 1991-92.
The 8th plan commenced ultimately in the year 1992 in the midst of severe economic crisis, enormous debt-burden, mounting inflation, widening budget deficit and industrial recession. This plan prioritised ‘developing of human resources’ and achieved 6.8% annual growth rate which was much higher than targeted growth rate of 5.6%. The 9th plan that had laid down its focus on “Growth with Social Justice & Equity” failed to achieve the targeted growth of 7% and witnessed a sharp decline of 2.4%. The 10th & 11th Plans were implemented between 2002 and 2012 where a trajectory economic growth of above 9% was witnessed. The 12th Plan focused on creating employment opportunities, reducing gender discrimination, reducing malnutrition, providing electricity and safe drinking water and providing with banking services to over 90% households.
Drawbacks of Planning Commission
The achievements of Planning would have been far better but there were several issues which led to major shortcomings. The drawbacks includes:-
- Lack of structural mechanism in the formulation of the Plans;
- Deficiency in funds;
- Inefficient administrative machinery;
- Escalation of cost;
- Delay or time overrun in executing schemes & Projects;
- Huge gestation periods mainly taken by huge projects;
- Underutilization of resources in several key & heavy industries;
- Lack of physical achievements;
- Errors of commission & omission on behalf of private enterprises;
- Failure in implementing land reforms;
- Lack of coordination between PC and new bodies such as PM’s project monitoring group, PM’s economic advisory council etc.
- Unrealistic assumptions of designed plans which failed to provide desired tangible results;
- Inadequate implementations, lack of monitoring & evaluating skills.
An internal evaluation was carried out within the government which revealed that the PC was witnessing policy fatigue which necessitated structural alteration in the central planning process. Through the evaluation it was established that the collapse of public investment on the face of increasing subsidies, enormous demand on public resources from the National Rural Employment Guarantee Act, the Right to Education Act & poorly targeted public distribution system. Additionally, the rigid labour laws were also impeding progress and hence there were several difficulties in providing land for public housing & other public project. Therefore, it was necessary to have an all new institutional framework and thus National Institution for Transforming India (NITI) Aayog was born.
The NITI Aayog
The National Institution for Transforming India (NITI) Aayog was established in 2015 replacing its precursor Planning Commission. Just like PC, the Prime Minister of India is the Chairman of this Aayog. Its governing council consists of the Chairman, Chief Ministers of all the States and Lieutenant governors of all the Union territories across India. It has been entrusted with the objective of re-imagining the agenda of development by way of dismantling erstwhile central planning.
With rapid integration of Indian economy with global economy, contradictions transpired between central planning & rising private capital inflows. The NITI Aayog has been mandated to be the government’s think tank, evolve national concord on developmental goals, foster cooperative federalism, redefine all agendas of reforms, develop indicative policies, plans & programmes after having due consultation with the states at the very stage of formulating the policies rather than at the later stage of allocating the funds, act as the platform for resolution over cross-sectoral issues between the Centre & the State Governments, augmenting the capacity and acting as an innovation & knowledge hub.
The NITI Aayog has done massive amount work in a very short period. It started with designing strategic policies, promoting cooperative federalism, providing knowledge & innovation support besides undertaking evaluation and monitoring major investments. It formulated the Strategy for Electronics Industry under ambitious programme of Make in India, prepared the Roadmap for Revitalizing Agriculture, developed a National Energy Policy, formulated a developmental stratagem for the overall North East Areas, and also undertook appraisal of the 12th 5-Year Plan. Additionally, it made recommendations for closing of sick PSUs and strategic disinvestment for other CPSUs besides urging for reforms in University Grants Commission and Medical Council of India. The two outstanding initiatives of the Aayog were framework of priorities for disinvestment and the prototype law on land leasing.
Is doing away with economic planning hurting the Indian economy?
“Action without planning is a disaster and planning without action is daydreaming”
India with its $3 trillion economy is still a developing country with a mixed economy. With a population of about 1.3 billion people the challenges for the economy are huge. And every time the government has focussed to boost a particular area, troubles have precipitated in some other sector which was previously considered fairly stable.
In India close to 30% of the population is still living below poverty line. Poverty in India is multidimensional which means that they are not simply poor by income but also by several other indicators such as poor health, poor quality of work and access to education. And almost all the schemes that have been brought to reduce poverty are usually half-hearted or not easily accessible by the people. Take for example the mid-day meal for the school kids which was to provide nutritious food, which has ended up being a joke for the authorities providing the same. Similarly, for the MGNREGA scheme which was envisaged to provide guaranteed employment opportunities for the rural poor. Today the dysfunctionality of the well-tailored MGNREGA is due to the apathy of the central and state governments. Its not just that the rural poor are suffering for lack of employment, the urban population are much more hit with a rate of unemployment highest in last 45 years which is steadily increasing.
Other parts of the economy paint a similar dismal picture. The rate of growth of GDP is lowest in several sectors. Growth in manufacturing sector is at an all-time low and employees have been cut off in huge numbers. Agriculture sector has faltered similarly with no signs of increasing productivity. The only sector that has hold up the ends is the service sector which employs the least number of people. However, the service sector employs the least number of people and the sector which employed the maximum number i.e. the MSMEs are still to recover after the hastily implemented demonetisation and GST. Mudra loans which were given out to boost the MSME sector have started to turn into non-performing assets (NPAs). Add these to already existing huge NPAs of the banks and it’s going to further stress the banking sector.
With all these problems presently existing in the economy, one is ought to wonder whether abolishing planning has started to hurt. For one there are no targets or goals set out. The aim to become a $5 trillion economy is a verbal commitment and there are no roadmaps to achieve it. And with the current growth rate we are most likely going to miss the that target.
The NITI Aayog replaced the erstwhile five-year plans with a 3-year action plan which was a part of 7-year strategy paper and a 15-year vision document. However the action plans and the policy designed by the NITI Aayog are in the form of recommendations and not binding on either the centre or the states. The policy guide maps may or may not be followed by the governments. Further there are no follow through and back tracking on the policies designed by the NITI Aayog to evaluate the recommendations.
The five-year plans had evolved over with time and according to the challenges the country faced. The present government has laid emphasis on the good governance. The 8th five-year plan and the economic reforms undertaken in 1991 were the pioneers in bringing governance to the fore and reducing government heavy handedness. With the same challenges still haunting the Indian economy it would not be wrong to say that economic planning would have offered some relief.
The imperfections of Planning Commission and the five-year plans had rendered it redundant. The ‘one-size-fits-all’ approach was not feasible for all the states, each of which had diversified challenges to overcome. However, the Planning Commission was an organisation which had vast experience and bureaucrats who specialised in economic planning. Instead of overhauling and removing the issues plaguing the Planning Commission it was completely abolished and replaced with NITI Aayog.
The NITI Aayog has been criticised by its own members as its jurisdiction and functions are not sketched out yet. Further the NITI Aayog has been blamed for just rolling out the government’s agenda and not provide an unprejudiced view.
It would have been rationale to restructure the Planning Commission and setup an institution like the NITI Aayog which could have acted as a think tank and an innovation and knowledge hub.