Plan Formulation and Implementation in India | Economics

Plan Formulation and Implementation in India!

In India, achievement of growth did not ensure full development nor did it lead to removal of poverty—which have consistently been the goals of economic planning. Mainly due to imple­mentation failure there was more unemployment at the end than at the beginning of each Five Year Plan. The consequence of continuing unemployment was a lower growth rate and per­petuation of poverty.

The strategy of eradicating poverty through growth has largely failed as the number of poor in proportion to the total population has kept on increasing. Faced with growing poverty, the poor are increasingly losing faith in the plan premises.

Another fact of poverty is inequality in income and wealth distribution and concentration of economic power in the private corporate sector. The egalitarian policies to narrow down in­equalities in income and wealth have largely failed as is evident from the deteriorating share of the bottom 20% households in the nation’s income and consumption expenditures in rural and urban areas.

Even after 60 years of Independence there is an economic polarisation between classes, with the rich living in luxury, using goods and services sought after in the developed Western world, and the poor saddled with living standards that are unbelievably low. The strik­ing contrast between the rich and the poor in India is unparalleled in any civilized society.

In the face of glowing inequalities it is the non-poor classes which have been the major beneficiaries of most of the policies ostensibly adopted for the benefit of the poor! The pattern of resource allocation is clearly in favour of producing goods and services for the rich, rather than for the poor. All these indicators make the “Garibi Hatao” slogan a farce.

Formulation of current economic policy is one thing, and its implementation quite another. In India, there has, all along, been a wide gap between Planned policies and their actual imple­mentation. Consequently, it is widely held that Indian Plans are ‘political documents’ or ‘state­ment of hopes’ and those no longer arouse enthusiasm among the general public.

Compliance with existing laws and regulations can go a long way in achieving the goals of economic planning, including equality in income and wealth distribution. There can be no social justice for the weaker sections if the executors of egalitarian policies have a vested interest in retaining their social and economic power. The foremost task ahead of the nation is enforcement of law, and narrowing down the gap between a Plan and its implementation.

The Role of Planning in Liberalised Economy:

Planning is, no doubt, a programme of actions regarding the future. It is also a technique of managing an economy. It is an instrument for controlling the private sector of the economy.

India has adopted a programme of planned economic development since 1951. However, in spite of Planning, India has not achieved satisfactory growth. It has also failed to eliminate poverty and ensure equity. Moreover, the poor performance of the controlled planned economy ultimately led to collapse of socialism in erstwhile Soviet Union and several East European countries.

In India a crisis situation developed in May 1991. And the government adopted a policy of economic liberalisation in June 1991 by removing some controls and relaxing others. This virtually led to partial departure from Planning and a bold step forward towards a market- based economy. Planning was no longer considered to be a technique of controlling the private sector of the economy. It was just taken as a broad framework for guiding the economy in the desired direction.

Failure of Planning:

India’s Plans have failed to achieve their basic goals. The economic conditions of the poor have not increased much since the first decade of planning. So Planning has lost its relevance to the masses and they have lost faith in Planning. This is why the 9th Plan (1997-2002) generated hardly any excitement unlike the first eight plans. The reason was not that the 8th Plan was bad compared to the earlier plans.

The same was true of the 10th Plan (2002-2007) which has just been completed. Both were good Plans, at least on paper. But, in reality, they left much to be desired. Planning no longer secures importance since no Plan is effective without active sup­port and participation of the people at the grassroots level. Planning has lost its relevance. So it generates no hopes and no longer excites imagination.

Neglect of Policies:

Planners themselves are responsible for this disillusionment with Planning. In the past all Plans have emphasised the need for efficient allocation of resources. This preoccupation with allocative efficiency and optimality along with a neglect of policies has resulted in such inefficiency of resource use that India’s growth purpose in the first four decades of planning (1951 -1990) left much to be desired.

It was felt that much higher growth rate could have been achieved if simple economic policies were followed. What was even more distressing was that the growth per­formance has been low despite consistent rise in both saving and investment rates.

Planning did not ensure equity or distribution of justice either. No doubt various efforts were made to eradicate poverty but the results of the efforts were not satisfactory. Poverty persists in abundant measures eventually. Thus the main reason for disillusionment with plan­ning is the perpetuation of poverty in an economy, where the growth preference itself has been dismal. Most Plans stressed input-substitution, self-reliance and dominant role of state and the public sector. But they have failed in fulfilling the objectives of poverty-alleviation and satis­faction of public needs.

Resource Allocation Through Markets:

The failure of planning in bringing redistribution with growth brought into focus the importance of efficiency not only in the allocation but also in the use of resources. It was felt in the early 1990s that market mechanism and competition could attain efficiencies better than control Planning has been able to do.

Is Planning Needed Now?

The reforms introduced in July (1991) sought to promote competition and ensure efficiency in resource use; to exploit the opportunities of trade in a globalized economy; to force entrepre­neurs from bureaucratic constraints on scale of production, choice of location and techniques as well as of product mix; to make imports and exports easier; to facilitate ease of entry; to provide easy access to adequate credit and technology. Indian industries are now free regarding their products, processing, places of location and plant size.

Most imports no longer require an import licence and tariffs have been reduced. The process of financial liberalisation has begun and fiscal reforms are also on way (such as reduction of fiscal deficit and prudence in govern­ment expenditure). So the question has naturally arisen: Is Planning needed in deregulated market economy? If so, what is its exact role?

Need for Planning:

The basic justification for Planning in a liberalised economy has been expressed in the Prime Minister’s description to the 8th Plan (1992-1997)-

The market can be expected to bring about an ‘equilibrium’ between ‘demand’-backed by purchasing power—and ‘supply’, but it will not be able to ensure a balance between ‘need’ and ‘supply’.

Even today 37% of the population is so poor that it does not have enough income to meet its ‘needs’ and government intervention is necessary. So during the 10th Plan (2002-07), the trend towards transition to a liberalised economy has to be managed and perfected with great care.

Fulfilling Social Objectives:

Giving up central planning, positive setting, licence-permit regime variety, does not mean giv­ing up social objectives. If we are to serve the objectives better and faster a reliance on markets and decentralisation is desirable. Of course, markets as well as the governments have a role in ensuring this.

Planning as a Transfer (Redistribution) Mechanism:

In addition, Planning is needed to provide transfers. An important role of Planning lies in de­signing and monitoring redistributive purposes. An important redistributive measure is promoting human resource development. According to Sen, elementary education and primary health care can improve the skills of the poor as also their ability to acquire marketable skills. A more equitable distribution of knowledge and skills will improve social welfare.

Need for Informational Decentralisation:

Decentralisation of economic decisions still seems to be the most practical approximation of liberalised economy. Both central planning and decentralisation in a liberalised market-based economy require vast amounts of information which the government alone can provide.

Provision of Public Goods:

There is another area of government action or planning—viz, provision of public good and services. There is also need for promotion of optimum use of environmental resource through appropriate prices.

Interregional Equity:

Another objective of planning which is still valid is the promotion of inter-regional equity. Backward regions—just like poor people—need transfers. The government can help backward regions through provision of other incentives.

Role of Planning in New Era:

The role of planning is:

(i) To ensure that all markets are functional.

(ii) To plan public action in areas where externalities create natural monopolies.

(iii) To act as a forum for the poor in decision-making.

(iv) To maintain macroeconomic stability to prevent real income of the poor from falling.

Greater equity can be brought about faster by investing in skill formation, human resource deficit and by providing health and education.

Employment Creation:

Planning should also concern itself with programmes targeting transfers such as employment guarantee schemes to provide immediate relief to the poor at the national level. The availability of an alternative employment opportunity increases the power of unskilled workers to demand fair wages. This, in its turn, will increase the value of labour.

Conclusion:

The above targets are achievable and should be the central theme of Planning. However, Plan­ning cannot be done in isolation of economic policy formation. Planning and policy analysis must be integrated. The present Five Year Plan models are not adequate for this purpose.