In this essay we will discuss about the Economic Planning in India. After reading this essay you will learn about: 1. Introduction to Economic Planning in India 2. Historical Background of Economic Planning in India 3. Objectives 4. Strategies 5. Failure 6. Suggestions for Attaining Success.

Contents:

  1. Essay on the Introduction to Economic Planning in India
  2. Essay on the Historical Background of Economic Planning in India
  3. Essay on the Objectives of Economic Planning in India
  4. Essay on the Strategies of Economic Planning in India
  5. Essay on the Failures of Economic Planning in India
  6. Essay on the Suggestions for Attaining Success in Economic Planning in India

1. Essay on the Introduction to Economic Planning in India:

Economic planning is considered as the most systematic technique for redressing all economic ills. Various countries of the world have already experienced the successful implementation of economic planning in the mean time.

Eulogising this experience of economic planning in different countries of the world, India adopted economic planning in order to overcome various economic ills faced by the country during the middle-part of the twentieth century.

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In India the first systematic attempt of economic planning was made in 1934 when M. Visvesyaryya published his book ‘Planned Economy for India’. Again in 1937, Indian National Congress set up the National Planning Committee with Pt. Jawaharlal Nehru as Chairman.

In the mean time 8 leading industrialists of Bombay (Mumbai) submitted the ‘Bombay Plan’ in 1943. Again Shri M.N. Roy also released simultaneously his ’10 year People’s Plan’. After that the National Planning Committee submitted its long awaited report in 1948.

The Government of India also set up a Department of Planning and Development in 1944 and it introduced short-term and long-term plans for restoration of normalcy after war and for economic reconstruction and development.

But in India the real beginning of Planning was made on March 1950 when the Indian Planning Commission was established. In July, 1951 the Commission submitted its draft outline of the First Five Year Plan to be effective from 1951-52 to 1955-56. In the mean time we have completed almost eleven Five Year Plans.

2. Essay on the Historical Background of Economic Planning in India:

In various countries of the world, the manner, extent and the pace of development differed in different economies which are again solely depending upon nature of the state, the level of development and the ideological ideas and orientation of its people and the type of government they form.

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After the formation of governments in provinces under the Government of India Act, 1935, the country started thinking seriously on attaining economic development.

At that time, the country had the options of following only three models, i.e., Russian model followed since 1928, a book written by engineer-statesman M. Visvesyarayya written in 1934 and the third model promoted by J.M. Keynes.

In order to double the national income in ten years, Visvesyarayya wrote:

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“The India problem is fundamentally industrial and should be solved by the same methods, as have proved efficacious in countries like USA, Japan and Canada and latterly with starting success in Soviet Russia………………………….. India cannot prosper except through rapid industrialisation………………… industrialisation has to be organised, planned and worked for……… India way be an industrially developed country or it may be a market for manufactured goods from outside and not both.”

J.M. Keynes had observed that the days of policy of Laissez faire were over and that the state could play a very positive role even in a capitalistic country through effective fiscal intervention, especially on its expenditure side. At the end of 1938, a conference of Ministers of Industries from the Congress ruled provinces was held in October of the same year and thereby decided to constitute a National Planning Committee.

Accordingly, at the end of 1938, Subhash Chandra Bose, the then President of the Indian National Congress constituted the National Planning Committee with Jawaharlal Nehru as the Chairman in that same Conference. After that in 1944, the Government of India established a Planning and Development Department for the preparation of post-war reconstruction plan.

Accordingly, in 1944, three plans, viz, Bombay Plan, People’s plan and Gandhian Plan were submitted to it for consideration after the formation of Interim Government in 1946, the Government of India constituted an Advisory Planning Board which recommended the formation of National Planning Commission.

Accordingly, after independence, Indian Planning Commission was formed in 15th March, 1950 by a resolution of the Cabinet with Prime Minister as its ex-officio Chairman.

From the very beginning, it was decided that out planning would cover both economic and social spheres. While the work under economic spheres included various schemes for the development of mining, forestry, dams, irrigation, rail, road, strategic industries, airports, ports, warehouses etc. and the social spheres include development of schools, colleges, universities, management and technical institutes, hospitals, health Centres, dispensaries, family planning centres, broadcasting etc.

As the plan in our country decided to cover wide areas thus our planning is a kind of broad based comprehensive planning which covers such social and economic activities. The State played a responsible role in different ways so as to co-ordinate, advise, encourage and discourage various sorts of activities through both direct and indirect fiscal and financial mechanisms and also by enacting less.

Thus India adopted a judicious mix of both direct and indirect means. Accordingly, the government took important steps such as-distributing land and other resources to different sections of society and also for different activities; restricting or banning certain activities; starting special financial institutions and directing its activities by manipulating interest rates and credit limits for various sections and activities; arranging fiscal provisions for taxing and subsidizing certain activities; undertaking production and distribution of certain goods and services and thereby developing a strong public sector to play a significant role in the economy of the country.

Accordingly, the newly constituted Planning Commission prepared a blueprint for its First Five Year Plan and the Commission was asked to implement it from April 1951. The Commission in its draft outline suggested to form National Development Council (NDC) which was later constituted by a cabinet resolution on 6th August 1952.

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However, the final report of the First Five Year Plan was finalised by December 1952 after 21 months since the formal starting of the plan, i.e., from 1st April, 1951. In the mean time the Commission prepared its various Five Year Plan documents keeping the medium term and long term perspectives in mind.

The main objectives with which our Five Year Plans were prepared include “development along socialist lines to secure rapid economic growth and expansion of employment, reduction of disparities in income and wealth, prevention of concentration of economic power and creation of values and attitudes of a free and equal society.”

For the attainment of these objectives, Indian planners formulated a definite strategy of planned economic development. Since Second Plan onwards Indian planners started to adopt a clear strategy for our plans. Prof. P.C. Mahalanobis was responsible for introducing a clear strategy of development based on Russian experience.

That strategy laid emphasis on investment in heavy industries. Thus core strategy adopted the planners in India in subsequent three plans, i.e., up to Fifth Plan was to give much emphasis on rapid industrialisation through lumpy or extensive investment on heavy, basic and machine making industries for accelerating the pace of development.

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Later on in the subsequent plans, attempt has been made to develop small scale industries for increasing the supply of consumer goods and also for the development and modernisation of agricultural sector by adopting new agricultural strategy.

Such changes in the strategy encouraged the labour—intensive techniques with employment objective in mind. The plan strategy gave due emphasis on the expansion of public sector for infrastructural development along with development of heavy industries.

Side by side the private sector was also given due importance for expanding its activities. Finally, Indian planning was also based on Fabian Socialist strategy by adopting fiscal policy of taxation and public expenditure for removing inequalities in income and wealth and also for establishing a socialist society based on equality and justice.

3. Essay on the Objectives of Economic Planning in India:

In a developing country like India, economic planning is playing a very important role towards its economic development. The fundamental objective of the economic planning of our country is to accelerate the pace of economic growth and to provide justice to the general masses. Thus “Growth with Social Justice” is the main objective of economic planning in India.

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The major objectives of economic planning in India can be summarised as follows:

(i) Attainment of higher rate of economic growth;

(ii) Reduction of economic inequalities;

(iii) Achieving full employment;

(iv) Attaining economic self-reliance;

(v) Modernising of various sectors; and

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(vi) Removing imbalances in the economy.

Let us now discuss these objectives in detail:

(i) Economic Growth:

Attainment of higher rate of economic growth received topmost priority in almost all the five year plans of the country. As the economy of the country was suffering from acute poverty thus by attaining a higher rate of economic growth eradication of poverty is possible and the standard of living of our people can be improved.

First Plan envisaged a target of 11 per cent increase in national income against which 18 per cent growth in national income was achieved. Second, Third and Fourth Plan envisaged targets for annual growth rate of 5 per cent. 5.6 per cent and 5.7 per cent respectively against which the achievements were 4 per cent, 2.6 per cent and 3.4 per cent respectively.

Again Fifth and Sixth Plan also proposed the annual growth rate of 4.37 per cent and 5.2 per cent against which the achievements were 5.0 per cent and 5.2 per cent respectively.

Seventh Plan also set the target of 5 per cent in respect of annual growth rate of national income. Eighth Plan and the Ninth Plan set the target of 5.6 per cent and 7.0 per cent annual growth rate of national income respectively.

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The Tenth and Eleventh Plan set the target of 8.0 per cent and 9.0 per cent annual growth rate of national income respectively. Thus attaining higher rate of economic growth is found as a common objective for all the five year plans of our country.

(ii) Attaining Economic Equality and Social Justice:

Reduction of economic inequalities and eradication of poverty are the second group of objective of almost all the five year plans of our country particularly since the Fourth Plan. Due to the faulty approach followed in the initial part of our planning, economic inequality widened and poverty became acute. Under such a situation, the Fifth Plan adopted the slogan of ‘Garibi Hatao’ for the first time.

The Seventh Plan document shows that nearly 37.4 per cent of the total population of our country was lying below the poverty line and the plan aimed to reduce this percentage of 29.2 per cent by 1990. Thus to achieve the target, various poverty alleviation programmes like the National Rural Employment Programme (NREP), Composite Rural Training and Technology Centre (CRTTC), Crash Scheme for Rural Employment Programme (CSREP), Rural Landless Employment Guarantee Programme (RLEGP) etc. were introduced. But the performance of these programmes is not up to mark.

(iii) Achieving Full Employment:

Five Year Plans of India gave importance on the subject to employment generation since Third Plan. The generation of more employment opportunities was considered as an objective of both the Third and Fourth Plan of our country. But up to the Fourth Plan employment generation never received its due priority.

Fifth Plan in its employment policy laid special emphasis in absorbing increments in labour force during this Fifth Plan Period. Sixth Plan accorded much importance on the reduction of incidence on unemployment. It has been estimated that the employment will grow at the rate of 4.17 per cent per annum as against the annual growth of labour force at 2.54 per cent.

To achieve this target major programmes which were introduced during this Plan were Integrated Rural Development Programme (IRDP), the National Rural Employment Programme (NREP), the Operation Flood II Dairy Development Project, schemes in the villages and small industries sector the national Scheme of Training Rural Youth for Self Employment (TRYSEM) and various other components of the Minimum Needs Programme.

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One of the major objectives of the Seventh Plan was a faster growth of employment opportunities. Thus the plan aimed that the employment potential would grow at 4 per cent as against the 2.6 per cent growth in the labour force. Again, the Eighth Plan envisages an annual employment growth of 2.6 to 2.8 per cent over the next ten years 1992-2002.

(iv) Attaining Economic Self-Reliance:

One of very important objectives of Indian Planning is to attain economic self-reliance, but this objective attained its importance only, when the Fourth Plan aimed at elimination of the import of food-grains under PL480. Fifth Plan also laid much importance on the attainment of self- reliance.

Thus this plan aimed at achieving self-sufficiency in the production of food-grains, raw materials and other essential consumption goods.

Fifth Plan also emphasised the need for import substitution and export promotion for attaining economic self-reliance. Sixth Plan also put importance on strengthening the impulses of modernisation for the achievement of economic and technological self-reliance. Seventh Plan and Eighth Plan also followed the path for achieving self-reliance.

Although India achieved self-sufficiency in respect of food-grains but it has not yet achieved self- sufficiency in respect of edible oil. In the mean time India has developed number of import substitute industries, particularly basic and capital goods industries but huge import of petroleum oil along with some other items are creating a serious drain on our foreign exchange reserves leading to depletion of foreign exchange reserves to such an extent in 1991-92 that the country had reached at the near-bankruptcy level with a huge external debt obligation, Thus the objective of self-reliance still remains unfulfilled.

(v) Modernisation of Various Sectors:

Another very important objective of Five Year Plans of our country was the modernisation of various sectors, more specifically, the modernisation of agricultural and industrial sectors. Fourth Plan laid much emphasis on the modernisation of agricultural sector and undertook a vigorous scheme for modernisation of agriculture in the name of Green Revolution.

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The successive plans also continued their efforts in the same direction but at a reduced rate.

Sixth Plan categorically mentioned this objective of modernisation for the first time. Here the objective of modernisation means those structural and institutional changes in economic activities which can transform a feudal and colonial economy into a progressive and modern economy.

Thus through modernisation economy may be diversified. It requires setting up of various types of industries and advancement of technology. Meanwhile modernisation has not helped much in employment generation. As a result, country is facing a conflict between the objective of modernisation and the objective of removal of unemployment and poverty.

(vi) Redressing Imbalances in the Economy:

Regional disparities and imbalances in the economy have become so acute in India that it needed special attention in our Five Year Plans. Thus by regional development we mean economic development of all the regions by exploiting various natural and human resources and by increasing their per capita income and living standards. Second Plan onwards, the Government realised the need for balanced development.

Thus Second, Third, Fourth and Fifth Plans laid emphasis on the redressal of economic imbalances for attaining a balanced regional development. Sixth Plan again aimed at progressive reduction in regional inequalities in the pace of development and in the diffusion of technological benefits.

Seventh Plan and Eighth Plan also carried forward the objective of balanced development in a systematic manner. Besides long term objectives, our plans also laid emphasis on short term objectives like control of inflation, industrialisation, rehabilitation of refugees, building up infrastructural facilities etc.

4. Essay on the Strategy of Economic Planning in India:

Economic planning in a country is always guided by definite strategy. In all the five year plans, India adopted its definite strategy for the fulfillment of its objectives. The strategy of planning is also subjected to considerable changes in the entire planning process.

The basic objectives of planning in India were, “development along socialist lines to secure rapid economic growth and expansion of employment, reduction of disparities in income and wealth, prevention of concentration of economic power and creation of values and attitudes of a free and equal society.”

Indian planners formulated a definite strategy of planned economic development keeping this objectives in mind. Determination of such strategic aims are mostly based on critical appraisal made by the commission keeping in view the political, economic and social aspects of the country.

The strategy of plan aimed at reaching the cherished targets through a succession of medium term plans. In this connection Mr. I.G. Patel observed, “Strategy implied essentially a deliberate choice-a-choice to the joint and timing and manner of attack on the problems at hand.”

Thus the strategy of economic planning in India is mostly influenced by the following issues:

(i) Mahalanobis Model of growth;

(ii) Heavy industry strategy;

(iii) Employment objective

(iv) Social Objectives of Development Strategy and

(v) Social objectives and strategy between growth and unbalanced growth.

(i) Mahalanobis Model of Growth:

Although the First Plan did not show any clear strategy of development but the formulation of a strategy of development was attempted by Indian planners from the Second Plan onwards. Prof. P.C. Mahalanobis was the real architect of the Second Plan and accordingly he introduced a clear strategy of development based on Russian experience.

This strategy gave too much emphasis on investment in heavy industry for attaining industrialisation which was assumed as the basic condition for rapid and accelerated economic development of the country. The basic strategy of the Second plan was to raise the purchasing power of the people through investment in heavy industries in the public sector and also by making adequate expenditure on health, education and social services and to control the undesirable inflationary pressure by meeting the increasing demand for consumer goods by arranging a planned supply of those goods.

Accordingly, Prof. Mahalanobis wrote, “In the long run, the rate of industrialisation and the growth of national economy would depend on increasing the production of coal, electricity, iron and steel, heavy machinery, heavy chemicals and heavy industries generally which would increase the capacity of capital formation. Our important aim is to make India independent as quickly possible, of foreign imports of producer goods so that the accumulation of capital would’ not be hampered by difficulties in securing supplies of essential producer goods from other countries. The heavy industries must, therefore, be expanded with all possible speed.”

Taking this objective into consideration, the plan adopted its larger goals and a long term strategy for the industrial and economic advancement based on socialistic pattern of society.

Thus the Second Plan document observed, “that the pattern of development and the structure of socio-economic relations should be so planned that they result not only increase in the national income and employment appreciably but also bring together equality in income and wealth. The benefits of economic development must accrue more and more to the relatively less privileged classes of society and there should be progressive reduction of the concentration of income, wealth and economic power in a few hands.”

In respect of basic strategy, Prof. P.C. Mahalanobis observed, “to increase investments in the heavy industries and also expenditure on services, to increase purchasing power and create fresh demand and on the other hand, to increase supply of consumer goods by increasing investment and production as much as possible in the small household industries to meet the new demand.”

Thus this strategy was conceived and followed in such a manner that the plan would become successful in creating larger employment opportunities, building a strong capital base and also increasing the productive and technical capacity within the country.

Thus the main stress was laid on the introducing relief type of employment opportunity and income for those downtrodden people who were poorly employed and not contributing to the net product of the country. Therefore, cottage and small scale industries was expected to play a pivotal role for generating employment Opportunities.

In this connection, Prof. Mahalanobis observed, “the basic strategy would be to increase purchasing power through expenditure on health, education and social services………………………. ” Thus planning has been considered as an organised attempt of matching a continuously increasing demand for a continuously increasing production leading to a steadily expanding economy.

Thus development of basic and heavy industry has been considered as an important objective of Indian planning which is again considered as a pre-requisite for achieving and sustaining economic growth in the long run.

(ii) Heavy Industry Strategy:

The strategy of planning as envisaged in the Mahalanobis model of growth emphasised on investment in heavy industry for achieving accelerated industrialisation process which was assumed as the basic condition for rapid economic development. Accordingly, Jawahar Lai Nehru, the first Prime Minister of India also argued in favour of heavy industry for attaining industrialisation.

Accordingly, he observed, “If we are to industrialise, it is of primary importance that we must have the heavy industries which build machines.” He further stated that “There are some who argue that the we must not go for heavy industry but for lighter ones. Of course we have to have light industries also but it is not possible to industrialise the nation rapidly without concentrating on the basic industries which produce industrial machines which are utilised in industrial development.”

Accordingly, Nehru was very much forceful in arguing that industrialisation of the country meant development of heavy industry. Following this path, the core strategy followed in the subsequent plans, i.e., from the Second Plan to Fifth Plan was attaining rapid industrialisation through huge investment in heavy, basic and machine building industries.

The planners of the country justified their strategy of attaining rapid economic development through the process of rapid industrialisation on the ground that:

(a) Indian economy was basically an agrarian economy at the time of independence;

(b) Indian agriculture was over-burdened with heavy pressure of population on land and the productivity of agriculture was very low;

(c) Rapid industrialisation was considered as a basic condition for the development both agriculture and other sectors;

(d) Productivity of labour in the manufacturing sector is quite higher than that of agriculture and

(e) The income elasticity of demand for various industrial goods, was quite higher and the manufactured goods were also having higher export opportunities.

Heavy Industry Vs. Light Industry:

There was a conflict of ideas regarding adoption of investment strategy that is based on either heavy industry or light industry. Mahalanobis model gave emphasis on heavy industries for producing basic machines and basic metals which was considered vital for the development of all sectors of the economy.

The Planning Commission supported this strategy of heavy industry on two grounds:

Firstly, investment in the heavy industry is helping the economy of the country for building up larger volume of capital stock and that too at a faster rate.

Secondly, heavy industries would help in laying the foundation of a strong and self-reliant economy by expanding the activities of all the sectors and also by eliminating the country’s dependence on the imports of machinery and equipment’s from foreign countries.

The alternative approach of developing light industries would help the country to produce larger volume of consumer goods for raising the standard of living of the people in the shorter period and also for controlling the inflationary spiral in prices. But this alternative strategy could be achieved by neglecting the process of accumulation of capital stock within the country.

Thus, the Planning Commission argued in favour of production of capital goods and neglected the approach of short period availability of consumption goods. But such large scale production of capital goods would ultimately help in producing larger volume of consumer goods.

Thus the capital goods approach of investing in heavy industry, based on Russian experience, would pave the way for attaining higher level of living in the long period which need a sacrifice of the people in the short period.

Moreover, this heavy industry approach would enable the country to produce larger volume of capital goods initially in the short period and then to produce a large volume of both capital goods and consumption goods in the long period.

Implications of Heavy Industry Strategy:

The following are the main implications of the heavy industry strategy.

Firstly, under the Nehru-Mahalanobis model of growth followed in India, the growth of heavy industries would be limited by the growth of consumer goods industry in the household sector. Thus this model gave active encouragement for the development of cottage and small scale industries producing consumer goods by using modern machinery and electricity.

Secondly, the heavy industry approach towards development also realised the importance of agriculture in the development strategy. Thus the Mahalanobis strategy of self-sustained growth ultimately did not neglect the agriculture and small scale and cottage industries realising its importance for increasing the supply of consumer goods in the economy.

Thirdly, the Mahalanobis strategy assigned a dominant role to the public sector for the development of heavy industry with a long gestation period with the intention to prevent the rise of monopoly ownership and exploitation.

Fourthly, the development strategy also gave due importance to the growth of private sector. Accordingly, it expected that the private sector would develop and expand its activities in the large arena of economic activities and thereby the private sector was given an important place in the mixed economy of the country.

Finally-, the development strategy followed in the country initially forgotten the importance of foreign trade to derive exportable surplus and laid much emphasis on foreign trade which was again corrected since Third Plan onwards by adopting export promotion strategy.

Critical Appraisal of Heavy Industry Strategy:

The heavy industry strategy followed in Indian Planning has been subjected to following criticism:

(a) Neglect of Agriculture:

Heavy industry strategy of development neglected the agricultural sector which is considered as the mainstay of Indian economy and promoted the development of heavy industries at the cost of agricultural development.

(b) Adverse impact of the development of heavy industries:

Development of heavy industries resulted some important bearings on the economy in the form or:

(i) Adverse balance of payments situation;

(ii) Neglect of the problem of heavy population pressure and growing unemployment leading to necessity of raising investment in labour intensive industries;

(iii) Heavy concentration of income and wealth in the hands of few large industrial and business houses; and

(iv) Making the planning process highly unbalanced being too much growth oriented and not employment oriented.

(c) Growing unemployment:

Heavy industry strategy of Indian planning neglected the growing unemployment problem initially leading to the growth of serious unemployment problem in the country.

(d) Failure of the public sector:

The investment strategy adopted in the planning gave overwhelming importance to the development of public sector especially in basic, heavy and infrastructural industries which ultimately failed to yield expected rate of return. Rather, the losses incurred by these PSUs resulted emergence of high cost economy of the country.

(e) Trade deficit:

The development strategy followed in the plan, having its high import intensity, resulted growing trade deficit of the country.

(f) Growing inequality:

The investment strategy adopted in our plans accentuated the inequalities in the distribution of income and wealth during the plan period and thereby failed to achieve the objective of ‘socialism’, ‘economic liberty’ etc.

(g) Neglect of unorganised sector:

The development strategy followed in our plan neglected the development of unorganised sector in which the majority of our population are engaged. This has led to a serious gap between the privileges enjoyed by the workers engaged in the organised sector and that of unorganised sector.

(iii) Employment Objectives of Development Strategy:

The development strategy of planning in India initially neglected the employment objectives. In-spite of having heavy population pressure and growing unemployment problem, the planners failed to take adequate steps for generating employment opportunities for the growing millions of people of the country.

It was mostly due to the conflict between the ‘rapid growth’ and ‘increase in employment opportunities’ that prevailed among the planners and experts of the country in the initial decade of planning. It was mostly from the third plan onwards and more specifically from the Sixth Plan onwards the employment generation programme got its due importance in Indian planning process.

(iv) Social Objectives of Development Strategy:

One of the important aspect of Mahalanobis strategy of development is increase in the level of production along with attainment of better and more equal distribution of income and wealth. Indian planners were also influenced by Fabian socialist strategy of adopting fiscal policy of taxation and public expenditure so as to achieve two important social objectives of planning, i.e., the elimination of inequalities in the distribution of income and wealth and secondly the establishment of socialist society based equality and justice.

While the progressive income tax, capital gains tax, estate duty, gift tax wanted to transfer a part of surplus income and wealth from the richer sections to the government, the public expenditure on public health, education, sanitation, housing, social welfare programmes etc. was attempted to promote the level of welfare of the lower and weaker sections of Indian society.

However, the Indian planners did not make any attempt for undertaking measures for direct redistribution of wealth and properties so as to reduce the degree of disparities of income and wealth and also to check concentration of economic power excepting their half hearted attempts to introduce land reforms and ceiling on land holdings in rural areas of the country.

(v) Choice of Strategy between Balanced Growth and Unbalanced Growth in India:

In the early part of the development process since independence, India was in a dilemma to select a proper development strategy between balanced growth and unbalanced growth. At that time, India was suffering from scarcity of resources and factor inelasticity’s.

Thus it was really a difficult choice for India to adopt the strategy of balanced growth from the very beginning. Mr. P.C. Mahalanobis, the architect of Indian planning, could realise this deficiency of the country in right proportion.

While selecting a proper development strategy for the Second Five Year Plan in India, Mr. Mahalanobis aptly suited that India could ill-afford to concentrate equally on the development of all sectors of the economy at that moment.

Eulogizing this idea, Mr. Mahalanobis observed in his “Talks on Planning” that establishing heavy machinery industry is considered as the most appropriate decision and the course of action for India from the economic point of view.

The development of such industry would provide necessary machines and other capital equipment’s to the other basic industries, viz., steel, fertilizers, textile, aluminium, cement etc. Then Mr. Mahalanobis attached the second highest priority to the development of industries producing synthetic raw materials. With the development of these industries, the production of some other items like steel, coal, electricity, aluminium, cement, fertilizers, transport equipment’s etc. would increase which ultimately leads to a development of a wide range of consumer goods industries.

Thus Mahalanobis’s idea is having some conformity with the theory of balanced growth. In a socialist country, the level of consumption is controlled to a modest level during the initial stage of its development and thereby the country can channelize its investment towards capital goods industries. But in a mixed economy like India, the Government is having a little control over the production system and investment decisions.

With the growth of income of elite class of the society, the demand for consumer goods including luxury and semi-luxury goods started to increase, leading to a huge expansion of consumer goods industries in the private sector and expansion in its output. Thus due to such move, simultaneous growth of various industries takes place.

Thus in-spite of its submission towards the strategy of unbalanced growth, the strategy fails to work in India. In spite of experiencing a huge energy crisis, India failed to attract sufficient investment in the power sector although the flow of investment in the automobile industry and other white goods industry started to pile up due to its growing demand from the urban and rural elites and increasing profitability.

Considering this present trend, Indian planners and policy makers has started to compromise between these two strategies and has been synchronizing the investment flow into the various sectors of the economy. This is no doubt a departure from our previous stand based on Mahalanobis model to a compromise bid under the present changed scenario.

5. Essay on the Failures of Economic Planning in India:

Although the economic planning has achieved a considerable progress on various socio-economic fronts but it has also failed in certain respects.

The following are some of the areas where the economic planning in India has failed:

(i) Lack of Considerable Improvement in Standard of Living:

The Five Year Plans in India have failed to attain a considerable rise in the standard of living of the people, in general. Economic planning has also failed to provide the basic necessities of life. The per capita income at constant (1980-81) prices has increased from Rs 1,127 in 1950-51 to Rs 2,961 in 1996-97.

Again the per capita income at constant prices (1993-94) has increased from Rs 7,689 in 1993-94 to Rs 10,752 in 2001-02. Plan has failed to provide the minimum nutrition, housing facilities, clothing’s, medical care etc. The poverty alleviation programmes have also failed to fulfill the required level of success in improving the standard of living of the people and also to reduce the percentage of population lying below the poverty line.

(ii) Growing Unemployment:

Five Year Plans in India have also failed to generate adequate employment opportunities to the growing number of unemployed. This has resulted increase in the backlog of unemployment in the country from 53 lakh persons during the First Plan to 23 million at the end of the Seventh Plan and then to around 53 million at the end of the Eighth Plan.

As per recent Government estimates, the labour force of the country is projected to increase by about 35 million during 1992-97 and by another 36 million during 1997-2002. Thus the total number of people requiring employment would be around 58 million during 1992- 97 and a little over 94 million over the 10 year period ending 2002.

(iii) Inadequate Growth in the Production Sectors:

The Five Year Plans in India have also become unsuccessful in realising the required growth rate in the production sectors. Both the agriculture and industrial sectors have failed to attain the required growth rates consistently. The rate of growth of agricultural output remained all along poor as the impact of green revolution was very much restricted to only wheat and rice production.

(iv) Rise in the Price Level:

Another important failure of planning in India is its inability to contain the continuous rise in the price level of the country. Excepting First Plan, all other plans have experienced a continuous rise in the price level, i.e., by 20 per cent during the Second Plan and around 40 per cent during the Third Plan, particularly on the prices of food grains.

After maintaining a moderate trend in the price level during the Fourth, Fifth and Sixth Plan, the price level on an average rose by 7 per cent per year during the Seventh Plan. The price level again reached the level of 16.7 per cent rise in August 1991. The average rate of inflation has reached the level of 10.9 per cent in 1994-95 and then gradually declined to 2.6 per cent in 2002-03.

(v) Inequality in the Distribution of Income and Wealth:

Attaining equality in the distribution of income and wealth has been one of the important objectives of Five Year Plans in India. But the economic planning has failed to realise this objective. Inequality in the distribution of income and wealth has rather aggravated with the increasing gap between the rich and poor.

Inequality in the distribution of income and wealth is also acute in agriculture and industry. About 58.1 per cent of the total number of agricultural holdings is of marginal category which is considered as uneconomic. Thus the objective of attaining a socialistic pattern of society has remained a mere slogan.

(vi) Poor Level of Implementation:

The level of implementation of plan projects particularly in respect of rural development, agriculture and social welfare sector remained all along poor as the benefits of plan projects are not reaching the target group of people in proper time and also in adequate quantity due to huge leakages in the plan fund at the implementation level arising out of growing dishonesty and corruption at the administration level.

(vii) Shortfall in Attaining Targets:

Indian planning is subjected to shortfall in attaining its targets as a result of paucity of resources, faulty implementation and inefficient administrative machinery. Five Year Plans India have not only failed to attain the sectoral plan targets but also in attaining the targets in overall economic growth rate. There were shortfall in attaining the overall average growth rate of Indian economy during the Second, Third, Fourth and Fifth Plans and other plans.

(viii) Lack of Strong Base:

Indian planning has also failed to build a strong base for the economy even after the completion of eleven five year plans. The fundamentals of the economy still remained poor, Agricultural sector is still dominating the economic activities, engaging about 66 per cent of the working population of the country. Moreover, the agricultural operation continues to be a gamble in monsoon as a result of poor development of irrigation and flood control facilities.

(ix) Paradox of Savings and Investment:

In-spite of attaining a higher rate of savings and investment, Indian economy has been facing a paradoxical situation of attaining poor rate of economic growth. Such a situation is mostly resulted from higher capital output ratio, low rate of return on capital employed and huge unproductive investment in the traditional sector.

(x) Growing Deficit in BOP and Foreign Exchange Crisis:

Fifty years of economic planning has also failed to contain the trend of growing deficit in the balance of payments of the country leading to a serious foreign exchange crisis as experienced during the year 1991.

6. Essay on the Suggestions for Attaining Success in Economic Planning in India:

Considering failure of planning in India on various fronts, following suggestions are given for attaining success in economic planning in India:

(i) Specifying Objectives and Priorities:

The planning machinery should be very much rational in framing the objectives and priorities of planning in India considering the acute problems of unemployment, poverty, inequality and poor economic growth. While finalizing the priorities of planning, the needs of economy and its people should be given due importance.

(ii) Cost-Benefit Analysis of Plan Project:

Proper steps must be taken for making cost-benefit analysis of all important plan projects before its implementation in order to have a rational decision on all plan projects. Such study can reduce the chances of recurrence of perennial losses incurred by various plan projects.

(iii) Evaluation of Plan Projects:

In order to have a better performance of all plan projects, efforts be made for evaluation of all plan projects and thereby:

(a) Pre-investment surveys,

(b) Concurrent evaluation and

(c) Post project evaluation be made for the proper implementation of all plan projects.

(iv) Physical Planning:

Importance be laid on the introduction of physical planning in all sectors where the achievement of planning should be measured in terms of physical targets instead of financial targets. Performance budgeting should get its due emphasis in this respect.

(v) Shorter Gestation Period:

Gestation period, i.e., the time required to complete a project, should be of shorter duration. Planners should finalize the plan in such a manner, so that some projects with shorter gestation period be accompanied with projects having longer gestation periods. Projects with shorter gestation period can increase the supply of goods and thereby can contain the rise in price level.

(vi) Emphasizing Local Needs:

In order to attain success in planning process, due emphasis should be provided on the local needs and problems. Problems faced by backward areas of the country should get due emphasis. Accordingly, special treatment should be made to solve these problems. Moreover, for successful implementation of planning, the country should adopt decentralised planning process.

(vii) Rapid Development of Agricultural Sector:

Considering the importance of agricultural sector, Indian planning machinery should try to develop the agricultural sector at a rapid pace by adopting modernized agricultural inputs like HYV seeds, chemical fertilisers etc.

(viii) Balanced Growth:

Successful implementation of planning requires balanced growth of both capital goods and consumption goods industries. Development of capital goods alone cannot solve the problem of growing demand for consumption goods. Hence, both the consumption goods and capital goods industries should be developed simultaneously in a balanced manner.

(ix) Balance between Public and Private Sectors:

Balanced development of both public and private sectors is very important in a country like India, which has adopted a mixed economic system. During the first three decades of planning public sector was expanded considerably but the private sector was put under several restrictions and control.

After the introduction of economic liberalisation and more particularly after the adoption of new industrial policy, 1991, private sector was liberalised and unnecessary control and restrictions on it were abolished. Therefore, a pragmatic approach for the balanced development of both public and private sectors has been adopted since 1991.

(x) Development of Village Industries:

Planning machinery should give adequate stress on the development and modernisation of village and cottage industries, in addition to agricultural development, as a necessary support to rural economy. During the five decades of planning, whatever inadequate steps were undertaken that also could not derive the desired result as a result of corruption involved in it.

Proper steps should be taken for proper marketing of the products produced by these village and cottage industries.

(xi) Stability in Prices:

Successful implementation of planning depends on the attainment of price stability in the country. Unnecessary rise in price level results in escalation of cost of all plan projects. India has been experiencing continuous rise in the price level.

In India, the average rate of inflation during the Eighth Plan was 8 per cent as compared to that of 0.6 per cent in Japan, 1.8 per cent in Germany and 3.0 per cent in USA during the corresponding period. For attaining smooth development of the economy, prices of food grains, consumer goods, industrial raw materials etc. should be stabilized. Here the government needs to play an important role in building and maintaining buffer stocks.

(xii) Containing Deficit in BOP:

The planning machinery in India should also try to contain the deficit in the balance of payments by encouraging exports and containing imports for the successful implementation of plans.

(xiii) Co-Operation between Centre and States:

Implementation of plan is a joint responsibility of both the Centre and States. Therefore, a close co-operation between the central and state governments, above the party line, is extremely essential for the successful implementation of a plan. Here the adoption of decentralised planning approach can successfully meet both the national and regional interests of the country.

(xiv) Re-Orientation of PSEs:

The planning machinery in India should try to re-orient the public sector enterprises by rationalizing its policies and improving its managements and also by adopting policy of non­interference in the day to day affairs of these enterprises by the government. Public sector enterprises should also contribute adequately towards financing of the plan.

(xv) Development of Science and Technology:

It is imperative that the country should develop the science and technology to an adequate level for attaining higher productivity and improved quality of its output. Large scale industries must develop its Research and Development (R&D) facility of its own for necessary innovation related to its production technique and output as well.

Scientists should be encouraged to run their research projects by awarding proper incentives and also by providing all sorts of research facilities within the country so that they can serve for the interest of the country. Wherever necessary, efforts be made for technology transfer or the import of improved technology for the productive sectors.

(xvi) Human Capital Formation:

Successful implementation of a plan also depends on suitable population policy to contain its higher growth rate and also on the development of human capital. Adequate management should be made for human capital formation through proper development of education, health and sanitation facilities in adequate quantity.

People should be motivated to work hard with dedication. Work culture should be developed among the people in general and the sense of higher ethics and morality should prevail upon them.

(xvii) Efficient Administrative Machinery:

Existence of efficient administrative machinery is another imperative for successful implementation of planning. Implementation of plan projects and programmes are made by the executive administrative officers of various government departments.

Therefore, the Government should select able bodied, efficient, honest and dedicated officers for the implementation of plan. Arrangements should also be made for their necessary training and motivation.

(xviii) Public Co-Operation:

Successful implementation of plan depends on public co-operation and involvement. People should be motivated to involve themselves and co-operate with the government machinery implementing all plan projects.

Co-operation from the people is spontaneous if the plan is designed to meet the needs of the people. Thus, the success of planning in India depends on efficient administrators, honest politicians and participation of the people with dedication.