Success and Failures of Economic Planning in India | Economics

India has completed about six decades (1951-2008) of planning. During the Plan Period it has achieved success in some directions and failed in other areas. So, India’s experience during the Plan Period presents a mixed picture. Here, we present a broad overview of the success and failure of planning.

1. Achievements of Planning:

(i) Increase in National and Per Capita Incomes:

One of the basic objectives of economic planning in India is to increase national and per capita incomes. As a direct consequence of economic planning, India’s national and per capita income rose, though not as rapidly as the Plans projected. National income at 1999-2000 prices rose from Rs. 224,786 crores in 1950-51 to Rs. 3,114,452 crores in 2006-07, sharing a CARG of 4.8%.

On the other hand, the per capita income in real terms had increased at a much lower rate indicating that part of the increase in real national income had been eaten up by the growing population. During the same period PCI increased from Rs. 5,752 to Rs. 22,239, showing a CARG of 2.5%. There was quite some fluctuation in the growth rates over the entire Plan Period. This means that India did not achieve steady growth.

(ii) Progress in Agriculture:

During the 55 years (1950-51 to 2005-06) the Government had spent, on an average, 23 to 24 per cent of the Plan outlay in each of the Five Year Plans on the development of agriculture, allied activities and irrigation. This expenditure was in addition to the private sector investment on agriculture and minor irrigation. As a direct result of this Plan outlay, agricultural production increased steadily, though not to the extent planned by the Government.

Extensive Vs. Intensive Cultivation:

In the first decade of planning, additions to agricultural output were secured from extension of the area under cultivation than from increases in yield per hectare. From 1960-61, the dominant trend has been toward higher yields from the land cultivated.

To increase agricultural productivity, efforts were made to enlarge the supply of water, fertilisers, pesticides, improved (HYV) seeds, etc., in selected areas. This new agricultural strategy brought about the Green Revolution.

Considerable progress has been made in the use of agricultural inputs. This has been really spectacular in the production of rice, wheat and potatoes. The index of agricultural production (1993-94 = 100) increased from 36.4 in 1950-51 to 113 in 2005-06, showing a modest CARG of 2.1%. Food grains production increased from 50.8 mn. tonnes to 208.3 mn tonnes-showing a CARG of 2.6%.

Almost in every crop, production had increased by three or four times. However, the most spectacular increase was achieved in wheat and potatoes. All these have been made possible because of the use of the new agricultural strategy.

In spite of such progress, there have been various shortcomings, such as failure to fulfill the targets of production in many crops, shortfalls in the production of pulses and oilseeds in the face of continuous rise in demand for them, and year-to-year fluctuations in the production of commercial crops such as sugarcane, cotton and jute.

(iii) Progress in Industry:

The progress in some basic industries such as coal, iron ore, cement, fertilisers, finished steel, aluminium, petroleum (crude) and electricity, has been really impressive. Equally impressive is the progress in metallurgical industries, chemical and allied industries.

Diversification:

A major achievement in the industrial sector has been the diversification of industrial structure. This has been made possible by huge investment made by Government on input supplying industries (i.e., industries having strong backward and forward linkages with the rest of the industrial sector). Examples of such industries are iron and steel, petrochemicals, transport and communication and generation and distribution of electricity.

More than half of all planned outlay of the Government in the last ten plans (1951 to 2007) was on these industries. Consequently considerable progress has been achieved in such industries as steel, aluminium, engineering goods, chemicals, fertilisers and petroleum products.

Industrial Growth:

The index of industrial production (1993-94 = 100) increased from 18.3 in 1950-51 to 221.5 in 2005-06, showing a CARG of 4.6%.

Self-sufficiency in Capital Goods:

A major achievement has been the diversification and expansion of India’s industrial capacity with the public sector playing a leading role. For this reason the country is now self-sufficient in consumer goods and in basic commodities like steel and cement, while the capacity of other industries like fertilisers is rapidly expanding.

The growth of capital goods production has been particularly impressive and India can now sustain the likely growth of most of the industries such as textiles, food processing, cement, chemicals, metallurgical, power and transport by domestic production of capital goods, with only marginal imports.

(iv) Per Capita Availability of Consumer Goods:

As a direct consequence of the increase in planned production in agriculture, industry and in all other sectors of the economy, per capita availability and consumption of essential consumer goods had increased steadily. The increase would have been much greater if population had not risen at the rate of 2.1 % per annum or if population growth had been effectively controlled.

(v) Increase in Saving and Capital Formation:

In spite of an increase in per capita consumption of operational consumer goods, gross domestic saving as a proportion of GDP had increased from 8.9% in 1950-51 to 32.4% in 2005- 06. Gross domestic capital formation increased from 8.7% to 33.8% during this period.

(vi) Development of Economic Infrastructure:

Another achievement of great significance is the creation of economic infrastructure which lays foundation for industrialisation. The expansion of roads and road transport has led to the widening of the market. Irrigation and rural electrification have given a boost to agriculture.

Hydroelectric projects have supplied energy for installing factories and other modest establishments in small towns and cities. An integrated infrastructure has opened the possibilities of modernising semi-urban and rural areas.

(vii) Import Substitution and Diversification of Exports:

Due to the adoption of the policy of achieving rapid industrialisation, India’s dependence on foreign countries for capital goods has declined. Similarly, a large number of consumer goods imported earlier are now being domestically produced. This has led to import substitution. Consequently, the commodity composition of India’s exports has changed in favour of manufactures, mineral oils and engineering goods.

(viii) Development of Science and Technology:

Another achievement of planning is the growth of science and technology and the development of technical and managerial cadres to run the modern industrial economy. This has significantly reduced India’s dependence on foreign experts. Moreover, India has started exporting technical experts to Middle East and African countries.

(ix) Build-Up of a Huge Educational Network:

One of the greatest achievement of Indian planning is the development of a huge educational system—the third largest in the world. Enrolment at primary and middle schools increased from 223 lakhs in 1950-51 to 1,283 lakhs in 2005-06, showing CARG of 3.2%. Moreover, the literacy rate has gone up from 18.3% to 64.8%—showing a CARG of 2.3%.

2. Major Failures of Planning:

Five major areas of failure of planning are:

(i) Failure to Eliminate Poverty:

In spite of 57 years (1951-2007) of planning 26% of total population (260 mn.) still lies below the poverty line. So, the planning process has lost its relevance to the poor people.

(ii) Failure to Provide Employment to the Growing Labour Force:

In spite of planning it has not been possible to provide employment to India’s growing labour force. What is really distressing is that there is more unemployment at the beginning than at the end of each Plan (due to the existence of a huge backlog of unemployed people).

This has happened here—every Plan has laid stress on growth rather than on employment and the adoption of capital-intensive techniques of production. In other words, the Government did not adopt an employment-oriented strategy of development which aims at 3 to 4% annual increase of employment at higher levels of productivity.

(iii) Failure to Reduce Inequality of Income and Wealth:

Over the entire Plan Period redistribution of income in favour of the less privileged classes has not taken place. Even if the incidence of poverty has gone down to some extent, the incidence of inequality has increased mainly due to undue concentration of income and wealth in few hands.

Another reason for growing inequality is the failure to control the prices of food and essential consumer goods, called mass consumption goods. Inflation has benefited the rich and caused hardship to the poor.

(iv) Failure to Check the Growth of Black Money:

For various reasons, mainly the fiscal system, the rich people have accumulated huge black money. They have indulged in conspicuous consumption. As a result there has been misallocation of resources. Various measures adopted to unearth black money—such as voluntary disclosure scheme—have largely failed.

(v) Failure to Implement Land Reforms:

The policy decisions to transfer ownership of land to the peasantry was not properly implemented. The progress of land reforms has been rather slow and the State Governments were not eager to implement them with a speed for a quick transition to progressive agriculture and socialism.

As Prof. S. Chakraborty has commented:

“The inability to carry out land reform, along with the maintenance of largely unchanged input base of traditional agriculture, meant that the agrarian transition was left largely incomplete”.

Conclusion:

Prof. S. Chakraborty has identified four major weaknesses of Indian planning:

(a) First, there is gross inefficiency of production in many of the public sector enterprises. There are many areas of production where inefficiency is fairly widespread as income generation of power, transport, steel, fertilisers and high cost consumer durables.

(b) India has not been able to employ its growing labour force.

(c) And its occupational structure has remained more or less unchanged.

(d) Poor implementation of land reform measures has adversely affected industrial growth and has led to wide rural inequality.