Growth of India’s National Income during the Plan Period and Its Features

Let us make an in-depth study of the growth of India’s national income during the plan period and its features.

National Income Trends:

The rate of growth of national income since the First Plan has been around 3.5 to 4 p.c. substantially below the targeted rates of 5 to 5.5 p.c.

Above all; there are ups and downs in the growth rates achieved during the plan period.

The First Plan (1951-56) experienced an annual growth rate of 3-7 p.c. while it marginally increased to 4.1 p.c. in the Second Plan. But there was a downturn in the growth rate during the Third Plan because of two wars and severe drought.

The growth rate achieved during the Third Plan period stood at 2.8 p.c. Though the three Annual Plans registered a somewhat better growth rate (3.9 p.c.), the Fourth Plan witnessed a growth rate of 3.4. p.c. per annum due to sharp price rise, power crisis and under-utilisation of capacity of the industrial sector.

Seen against this, in the Sixth Plan the growth rate was more than 5.5 p.c. The Seventh Plan contemplated a rise in the growth rate of national income by 5 p.c. annually. The actual growth rate has been of the order of 5.5 p.c. for the entire plan.

The Eighth Plan recorded a growth rate of 5.5 p.c. The growth rate slipped to 5.5 p.c. in the Ninth Plan. However, a record breaking growth rate of national income was struck (7.8 p.c.) in the Tenth plan (2002-07) (See Table 12.5).

In absolute terms, the net national product at factor cost, i.e., national income at 1999-2000 prices was Rs 2,06,493 crore in 1950-51. National income has risen from Rs 5,66,931 crore in 1980- 81 to Rs 27,60,325 crore in 2007-08. Between 1950-51 and 2007-08, the Indian economy registered rate of growth of 4.8 p.c. per annum.

However, in the 1980s and 1990s, we have been able to grow at the rate of about 6 p.c. It is a welcome development. The growth rate of GDP achieved in the 2000s (i.e., 2000-01—2007-08) came to more than 8 p.c. This higher growth path seems sustainable on a long-term basis.

We see an encouraging spot i.e., higher growth rate in national income in the growth profile of the country. However, the better measure of economic development is the per capita income which is obtained by dividing national income by the population of the country. Remember that per capita national income is equivalent to per capita net national product at factor cost.

The growth rate of per capita income since the First Plan has been of the order of around 1.3 to 1.5 p.c. Actually, in the First Plan, it was 2.6 per cent. But we achieved a higher growth rate of per capita income above the trend rate during the Fifth (2.7 p.c.), Sixth (3.1 p.c.), Seventh (3.3 p.c.), Eighth (4.5 p.c.), Ninth (3.5 p.c.), and the Tenth Plan (6.1 p.c.)

In absolute terms, India’s per capita income at 1999-2000 prices was Rs. 6,122 in 1950-51. It rose to Rs. 8,590 in 1980-81. It increased to Rs. 24,256 in 2007-08. Per capita income growth per month is thus assumed to be Rs. 896.

Features of Growth in the Planning Era:

From the above description, one can point out several features of growth during the planning period.

First, the growth rates of national income and per capita income over the last 58 years have been encouraging, particularly in the light of the growth rates achieved during the British period. But, at the same time it is to be noted that the actual performance has been below the targets set.

Barring the First, Seventh, Eighth, Ninth and Tenth Plan, actual growth rate remained below the target growth rate. In the First Plan, actual growth rate (3.6 p.c.) exceeded the targeted (2.5 p.c.) rate.

In all the plans, targeted growth rate was kept at 5 p.c. or 5.5 p.c. The actual growth rate achieved in various plans has been shown in the Table 12.5. As is expected, the economy must grow at a higher rate as plan period rolls on. The annual growth rate for the period 1981-91 works out to be 5.75 p.c. and for the period 1993-07 it is 7.5 p.c.

Obviously, if these growth rates are explained in real terms (i.e., at constant prices) the annual growth would be much below the targeted rates of 6.0 and 6.5 p.c.

Secondly, per capita income is also very small by current standards though it is rising. Unimpressive growth rate of national income over the plan period has resulted in a marginal increase in per capita income. It is observed that, out of 58 years of economic planning, the rate of increase in NNP was lower than the population growth rate for more than 22 years. As a result, per capita income registered a decline in all these years.

Even there are some years when the country has suffered economic retrogression. Consequently, levels of living of the poor have gone down to a low level. This can be evidenced from the fact that in 2004- 05 27.5 p.c. of total population lived below the poverty line compared to 36 p.c. in 1993-94.

This poverty estimate has been made on consumption distribution using a 30-day recall—called Uniform Recall Period (URP). However, poverty estimates based on Mixed Recall Period (MRP) has declined from 26.1 p.c. in 1999-2000 to 21.8 p.c. in 2004- 05.

Thirdly, India’s national income, even after 58 years of planning, is largely dependent on agriculture. Good harvests result in higher growth rates in income and bad harvests cause a fall or even negative growth rate. So India’s growth rate of national income is very much linked with the agricultural growth rate. In recent years, tertiary sector has been contributing largely.

Fourthly, compared to the growth rates of different countries between 1950-1980, India’s performance is rather disappointing. At the moment, world’s highest per capita income country is Norway whose per capita income was equivalent of $ 66,530 in 2006. India’s per capita income was of the order of $ 820. Burundi ranked lowest among the 133 members of the World Bank with a 2006 annual per capita income of just $ 100.

Hence the necessity of raising the growth rate arises to close the increasing gap between developed countries and India and even between India and other underdeveloped nations of the world whose growth rates are higher than India.

Again, as far as per capita income trends are concerned, one notices favourable change also. There was a break in the Sixth Plan when per capita income rose by 3.1 p.c. p.a. In the Seventh Plan, it rose further to 3.3 p.c. p.a., in the Eighth Plan, to 4.5 p.c. p.a., and to a high of 6.1 p.c. p.a. in the Tenth Plan.

This is not a mean achievement against the background of population growth rate of approximately 2 p.c. Between 1990-01, per capita income grew at the rate of 3.14 p.c. p.a. This amounts to saying that in the 1990s and early 2000s number of people living below the poverty line is on the decline. Even then roughly after 58 years of planning nearly 260 million population live below the poverty line by any measure.

Sectoral composition of national income between 1950 and 1980-81 clearly showed predominance of the primary sector in terms of its contribution towards GDP. Its share was 38.1 p.c. as contrasted to 36 p.c. of the tertiary sector in 1981.

In 2007-08, the relative share of primary sector declined to 19.4 p.c. of GDP, while the share of the tertiary sector rose to 55.7 p.c. This suggests a progressive development of the Indian economy.

Finally, India’s performance is not altogether discouraging if she is compared with other nations though India’s per capita income is one of the lowest in .the world. India’s average annual GNP per capita between 1985 and 2006 grew at the rate of 7.4 p.c. as contrasted to the U.S.A’s and U.K’s 1.3 p.c.

However, China performed much better than India. Its GDP per capita during the same period grew at the rate of 9.8 p.c. In recent years, growth rates in all the economies have slumped down due to global recession.

Now, we may sum up the main points. We have registered a higher growth rate in national income and per capita income —an improvement over the Hindu rate of growth of 3.5 p.c. during the previous three decades. The query is whether such high growth can be sustained or not. Sustainability of higher growth rate for a long period is of utmost importance.

However, after the initiation of economic reforms process in 1991, the country is poised for higher economic growth. Between 1992-93 and 2001-02, GDP grew at an average annual rate of 6.1 p.c. Although, the GDP growth rate declined to 5.3 p.c. in 2002-03, it increased to around 8.5 p.c. in 2003-04 and 9.2 p.c. in 2006-07.

Thus, an air of optimisim prevails. It is hoped that sustainable growth on a long-term basis has been achieved against some unexpected shocks like the East Asian crisis, global recession, unprecedented rise in international oil prices, Indo-Pak border tension, severe natural calamities, the Iraq war, etc.

Above all, there is some sort of macroeconomic stability (like low rate of inflation, reasonable stable exchange rate, high foreign exchange reserves, and adequate stocks of food grains even in the midst of drought). It may not be out of place to point out here that the primary objective of the New Economic Policy was to put the Indian Economy on a sustainable high growth path.

We may conclude this section with a quotation from ‘Oxford Companion to Economics in India edited by Kaushik Basu:

“It has now become the latest poster child for how economic growth can be unleashed with a turn towards free markets and open trade. India has yet to catch up with China’s growth rates (or China’s level of income), but thanks to its solid democratic institutions and impressive performance in information technology, the country is increasingly vying with China as the country of the future.”