Overview

National planning is a process of setting national targets, and preparing programmes and policies that will help achieve those targets. The policies and programmes must be consistent with each other, ensure optimal use of national resources both financial and real, and be based on an understanding of the response of the economy to these interventions.

Indian economy is based on the concept of planning. This is carried through her five-year plans, developed, executed and monitored by the Planning Commission. With the Prime Minister as the ex-officio Chairman, the commission has a nominated Deputy Chairman, who has rank of a Cabinet Minister. Montek Singh Ahluwalia is currently the Deputy Chairman of the Commission. The eleventh plan completed its term in March 2012 and the twelfth plan is currently underway

The Planning Commission was set up by a Resolution of the Government of India in March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community.The Planning Commission was charged with the responsibility of making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities.

Planning without an objective is like driving without any destination. There are generally two sets of objectives for planning, namely the short-term objectives and the long-term objectives. While the short-term objectives vary from plan to plan, depending on the immediate problems faced by the economy, the process of planning is inspired by certain long term objectives.

OBJECTIVES

The central objective of planning in India is to raise the standard of living of the people. Five Year Plans aim at increasing output. At the same time, they aim at reducing inequalities of income and wealth and providing equal opportunities for all. Growth with social justice is basic goal. Estimation of poverty line and incidence of poverty for which the Planning Commission is the nodal agency in the Government of India.

In case of our Five Year plans, the long-term objectives are:

(i) A high rate of growth with a view to improvement in standard of living.

(ii) Economic self-reliance;

(iii) Social justice

(iv) Modernization of the economy

(v) Economic stability

To increase per capita and National Income: One of the primary objectives is to increase in per capita and NI of the country. The increase in income represents higher standard of living as well as increase in income of India.

Higher level of employment: Growing population nullifies the effect of growing economy and reduces the increase in real income and per capita income. If labor base is expanding, output must also expand correspondingly to ensure full employment. Unemployment problem requires an immediate solution for the elimination of poverty. Removal of unemployment has thus been mentioned as one of the objectives of economic planning in all the five year plans Growth with social justice: Social justice means equal opportunities for all, improving the standard of living of the poorest groups and reduction in inequalities in income and wealth. The Social Welfare Sector deals the with welfare, rehabilitation and development of persons with disabilities, social deviants and other disadvantaged in close co-ordination

Increasing industrial output: Increasing industrial output is also linked with growing employment generation and growing prosperity overall.

To remove bottlenecks in agriculture, manufacturing industry (especially capital goods) and the balance of payments

In the agricultural sector, the main objective was increasing agricultural productivity and attaining self–sufficiency in food grains. In the industrial sector, the emphasis was on basic and heavy industries. In the foreign trade sector, the emphasis was on having a viable balance of payments position‘. The strategy adopted in Indian Planning is often referred to as Mahalanobis strategy. In this strategy, emphasis was laid on rapid industrialization with priority for basic and heavy industries.

Reduction of inequality in income

reduction in income inequality has been mentioned as one of the objectives of economic planning in India but in terms of priority it always got a very low place. It is probably on accounts of this reason that neither the plan documents, nor any other publications of the Planning Commission ever provided estimates of the inequalities in income and wealth distribution. Pramit Chaudhari is perhaps right in his assertion that Indian plans have never made any serious attempt to redistribute income and wealth.

Modernization Although, the role of science and technology in the country‘s development has been recognized it was never on the agenda till sixth plan. The sixth plan document stated ―the term modernization connotes a variety of structural and institutional changes in the framework of economic activity.

Self- relianceAbout five decades ago on the eve of the first plan, India was dependent on foreign countries as industry was almost non-existant, primary sector agriculture was not producing enough for domestic consumption and very low foreign funds inflow. Developed countries while supplying essential commodities like food grains, machinery and other capital equipment to underdevelopedIt is now generally agreed that in the field of self-reliance. Now the country is almost self-sufficient in food and with the growth of iron and steel, machine tools and heavy engineering industries, this country has made considerable advancement towards self-reliance in capital equipment.

Characteristics of Economic Planning

In a planned economy, major economic decisions such as what and how much is to be produced, when and where it is to be produced and to whom it is to be allocated will be determined by a central authority such as the State, through the Planning Commission.The Government will have the powers of implementation. Before the Plan is drawn up, a detailed survey of all available resources – physical resources, financial resources and human resources – has to be made. The first step in drawing up a Plan is to determine a growth target for an economy over the Plan period. The planners then divide the economy into a number of sectors such as agriculture, industry and service sector. The planners will fix the targets for the sectors and also decide how much investment must be made in each sector to achieve the targets. Then they will decide the right type of investment projects and production techniques

Stages in Economic Planning

i. Formulation- by planning commission. In this stage, planning commission prepares draft that goes to National development council. The council then endorses the draft, and it is forwarded to Parliament.

ii. Adoption-By Parliament

iii. Approval - After the approval of Parliament only, the draft becomes the planned document.

iv. Execution-By executive

v. Supervision- By Officials

Need of Planning (i) It is only through economic planning that a nation can hope to improve the living standards of its people and to use its resources to optimum capacity; (ii) Economic planning prevents lop-sided growth to national economy by selecting the most productive combination of projects and by judicious allocation of available resources;(iii) It helps to correct and eliminate regional imbalances by focusing attention on the needs of backward areas(iv) It promotes co-ordination between the different sectors of the economy(v) It is the only reliable way in which the State can try to remove economic disparities and establish an egalitarian society free of social and political tensions(vi) It provides the people with the best criterion by which to judge the performance of their governments which, in a planned economy, have to work for achieving pre-determined targets and rates of growth.

Objectives and success of Five Year Plans in India

1st Five Year Plan (1951-56)

It aimed towards the improvement in the fields of agriculture, irrigation and power and the plan projected to decrease the countries reliance on food grain imports, resolve the food crisis and ease the raw material problem especially in jute and cotton. 

The focus was to maximize the output from agriculture, which would then provide the momentum for industrial growth.

1st five year plan proved dramatic success as agriculture production hiked, national income went up by 18%, per capita income by 11% and per capital consumption by 9%.

2nd Five Year Plan (1956-61)

It projected towards the agriculture programs and to meet the raw material needs of industry, besides covering the food needs of the increasing population. The Industrial Policy of 1956 was socialistic in nature. The plan aimed at 25% increase in national income.

Second Five Year Plan showed a moderate success. 

3rd Five Year Plan (1961-66)

Plan’s main motive was to make the country self-reliant in agriculture and industry and for this allotment for power sector was increased to 14.6% of the total disbursement. 

The plan aimed to increase national income by 30% and agriculture production by 30% and to promote economic developments in backward areas; unfeasible manufacturing units were augmented with subsidies and agriculture production by 30%.

The 3rd five year plan was affected by wars with China in 1962 and Pakistan 1965 and bad monsoon.

4th Five Year Plan (1969-74)

This five year plan mainly emphasized on encouraging education and creating employment opportunities for the marginalized section of the society as improvement in their standard of living would only make the country economically self- reliant. 

Another aim of the plan was to create awareness about the Family planning program among Indians. The achievements of the fourth plan were not as per the expectations as agriculture and industrial growth was just at 2.8% and 3.9% respectively.

5th Five Year Plan (1974-79)The fifth plan mainly aimed on checking inflation and various non-economic variables like nutritional requirements, health, family planning etc. The plan anticipated 5.5% growth rate in national income.

The plan could not complete its 5 year tenure and was discontinued by the new Janata government in the fourth year only.

6th Five Year Plan (1980-85)

The 6th five year plan was formulated by the Congress government in 1980 which equally focused on infrastructure and agriculture. The plan was successful in achieving a growth of 6% pa.

7th Five Year Plan (1985-1989)

The plan focused at improving various sectors like welfare, education, health, family planning and also encouraged employment opportunities. The plan introduced programs like Jawahar Rozgar Yojana.

This plan was proved successful in spite of severe drought conditions for first three years consecutively.

8th Five Year Plan (1992-1997)

The eighth plan aimed towards modernization of industries, poverty reduction, encouraging employment, strengthening the infrastructure. Other important concerned areas were devaluation of rupees, dismantling of license prerequisite and decrease trade barriers.

The plan helped to achieve an annual growth rate of 5.6% in GDP and also controlled inflation.

9th Five Year Plan (1997-2002)

The ninth five year plan focused on increasing agricultural and rural income and to improve the conditions of the marginal farmer and landless laborers.

The plan helped to achieve average annual growth rate of 6.7%.

10th Five Year Plan (2002-2007)

The 10th five year plan targeted towards making India’s economy as the fastest growing economy on the global level, with an aim to raise the growth rate to 10% and to reduce the poverty rate and increase the literacy rate in the country.

The plan showed success in reducing poverty ratio by 5%, increasing forest cover to 25%, increasing literacy rates to 75 % and taking the economic growth of the country over 8%.

11th Five Year Plan (2007-2012)

The eleventh five year plan targets to increase GDP growth to 10%, to reduce educated unemployment to below 5% while it aims to reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births, reduce Total Fertility Rate to 2.1  in the health sector. 

The plan also targets to ensure electricity connection and clean drinking water to all villages and increase forest and tree cover by 5%.

TWELFTH PLAN (2012-2017)

The Twelfth Plan period presents both challenges and opportunities. The Plan commenced at a time when the global economy was going through a second financial crisis, precipitated by the sovereign debt problems of the Eurozone which erupted in the last year of the Eleventh Plan. The crisis affected all countries including India.Our growth slowed down to 6.2 percent in 2011-12 and the deceleration continued into the first year of the Twelfth Plan, when the economy is estimated to have grown by only 5 percent

CRITICAL CHALLENGES IN THE TWELFTH PLAN

Four critical challenges facing the economy in the Twelfth Plan are: (a) Managing the energy situation, (b) Managing the water economy, (c) Addressing the problems posed by the urban transformation. (d) Ensuring protection of the environment in a manner that can facilitate rapid growth.

The main goal of 12th plan would be ‘faster, sustainable and more inclusive growth’.

During the 11th Plan period, the average annual growth was 7.9 percent. A full Planning Commission chaired by Prime Minister Manmohan Singh September 15 endorsed the document which has fixed the total plan size at Rs.47.7 lakh crore.

Targets of 12th Five Year Plan Average growth target has been set at 8 percent Areas of main thrust are-infrastructure, health and education Growth rate has been lowered to 8 percent from the 9.0 percent projected earlier in view

adverse domestic and global situation. During the 11th Plan period, the average annual growth was 7.9 percent A full Planning Commission chaired by Prime Minister Manmohan Singh on September 15

endorsed the document which has fixed the total plan size at Rs.47.7 lakh crore The 12th Plan seeks to achieve 4 percent agriculture sector growth during the five-year period Agriculture in the current plan period grew at 3.3 percent, compared to 2.4 percent during the

10th plan period. The growth target for manufacturing sector has been pegged at 10 percent On poverty alleviation, the commission plans to bring down the poverty ratio by 10 percent.

At present, the poverty is around 30 per cent of the population.  Health and education sectors are major thrust areas and the outlays for these in the plan have

been raised. The outlay on health would include increased spending in related areas of drinking water and

sanitation. The commission had accepted Finance Minister P. Chidambaram's suggestion that direct cash

transfer of subsidies in food, fertilizers and petroleum be made by the end of the 12th Plan period

Advantages and disadvantages of planning

Stability Long-term infrastructure investment can be made without fear of a market downturn (or loss of confidence) leading to abandonment of the project. This is especially important where returns are risky (e.g. Fusion reactor technology) or where the return is minimum (e.g. Immunization programs or public education). Critics will point out that even though the economy will never go down, it never goes up.

Conformance to a grand design A planned economy favors design. While evolution tends to lead to a local maximum in aggregate wealth, design is in theory capable of achieving a global maximum. For example, a planned city can be designed for efficient transport, while organically grown cities tend to suffer from traffic congestion.

Meeting collective objectives by individual sacrifice Planned economies may be intended to serve collective rather than individual needs: under such a system, rewards, whether wages or perquisites are to be distributed according to the value that the state ascribes to the service performed.

The government can harness land, labor, and capital to serve the economic objectives of the state. Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external financing.

Comparison with capitalist corporations

A centrally planned economy would attempt to substitute a number of firms with a single firm for an entire economy. As such, the stability of a planned economy has implications with the Theory of the firm. That is, corporations are essentially miniature centrally planned economies and seem to do just fine in a free market.

Disadvantages of economic planning Inefficient resource distribution – surplus and shortage Critics of planned economies argue that planners cannot detect consumer preferences, shortages, and surpluses with sufficient accuracy and therefore cannot efficiently co-ordinate production. For example, during certain periods in the history of the Soviet Union, shortages were so common that one could wait hours in a queue to buy basic consumer products such as shoes or bread.

There is also the problem of surpluses. Critics of central planning say that a market economy prevents long-term surpluses because the operation of supply and demand causes the price to sink when supply begins exceeding demand, indicating to producers to stop production or face losses.

Cannot determine and prioritize social goods better than the market can Some who oppose comprehensive planned economies argue that some central planning is justified. In particular, it is possible to create unprofitable but socially useful goods within the context of a market economy. For example, one could produce a new drug by having the government collect taxes and then spend the money for the social good.We can see things of value being produced by the state taxing and using those funds to undertake projects which are believed to be social goods, but we cannot see what social goods have not been produced due to wealth taken out of the hands of those who would have invested and spent their money in other ways according to their own goals. These opponents of central planning argue that the only way to determine what society actually wants is by allowing private enterprise to use their resources in competing to meet the needs of consumers, rather those taking resources away and allowing government to direct investment without responding to market signals

Lack of incentive for innovation

Another criticism some make of central planning is that it is less likely to promote innovation than a free market economy. Inventors can reap huge benefits by patenting new technology, so there is arguably much more incentive to innovate. A planned economy can deliver vast national resources into research and development if it gets the idea that a particular field is critical to its interests, usually military technology.

Infringement on individual freedoms

Critics also hold that certain types of command economies may require a state which intervenes highly in people's personal lives. For example, if the state directs all employment then one's career options may be more limited. If goods are allocated by the state rather than by a market economy, citizens cannot, for example, move to another location without state permission because they would not be able to acquire food or housing in the new location, as the necessary resources were not preplanned.

Likewise, because of the state's controls over an individual's personal choices, critics contend that central planning intrinsically results in a top-down, dictatorial where politicians and bureaucrats use the state to achieve their own ends, which are in turn described as the "social" objectives of the state. In essence, critics contend that a planned economy has nothing to do with the preferences of the individuals that comprise a society, but rather the abstract goals of some group.

Corruption A planned economy creates social conditions favoring political corruption. "Particularly, command economies have been notoriously corrupt. First, centralized decision-making predisposes planners to abuses of power. Second, the inherent inefficiency of plans drawn with insufficient information creates a need for bypassing or subverting the official decision-making process.

Analysis

Deficiencies of Planning 1. Experts now realize that a minimum standard of living have been ensured for all if resources had been thought of, not in money term, but in term of people. Economic development should not have been equated with increasing the supply of good but with providing opportunity for work to the entire population and raising their productivity by better knowledge and better equipment.

2. In spite of advancement in industrialization there has been no change in the occupational pattern of the country‘s work force. Investment and output have grown at a high rate but the production mix and the technology mix have been so capital intensive that employment has not grown

3. So long emphasis was on financial rather than physical targets. There should be a change in the way in which target are fixed by the planning commission. In spite of the known ambiguities associated with financial targets, emphasis still continues to be laid on financial rather than physical target. It is true that physical targets are mentioned quite prominently but there is no clear indication of the link between physical and financial targets

4. After 50 years of planning, the condition created and sustained by the government policy has resulted in aggravating inequality in the distribution of wealth. Millions of people especially rural areas continue to fall under below poverty line. The planning has not touched even to the fate of large part of population.

5. So far as the conceptual or logical content of planning is concerned there is not much wrong; the wrong lie is its in implementation, its lack of cohesion with social factors and the impediments imposed by political, social, administrative and cultural forces rather than strictly economic factors. What is needed is not an exclusive new approach to replace the old but a reorientation and modification of the old with some additions here and there.

6. The tenancy reforms have not been complete and insecurity of tenure has been much more pronounced. The nature of infrastructure has helped mostly to reach peasantry in the industrial sector also big became bigger. The planning has increased the inequalities only.

7. The economy has faced an-uninterrupted inflationary process. The inflation is varied from 5 to 10 % per annum. It has been eroded purchasing power of the people-increased project cost, and reduced the competitiveness of the economy. It has also affected rates of saving and real investment. Common people have become hard hit at such inflation.

8. The resources allocation pattern does not show any consistent trend. Sometimes it was on industry or sometimes it was on agriculture, after the 1stfive year plan agriculture got prime importance again relatively in 10th plan. Allocation on power and transport were satisfactory but various aspects of social sector have been neglected. Social sectors have got relative attention from 8th plan onwards.

9. The growth rate in the plan period in most cases has not been satisfactory. Moreover, growth rates have not helped to remove poverty and unemployment. The product mix that has been generated has not helped poor people. Balance of payment situation has not been satisfactory. We had always a deficit in the BOP.

CONCLUSION

Economic Planning help in mobilizing and allocating the resources in desired manner. Objective of economic planning is to reduce inequality, economic growth, balanced regional growth and modernization

The economy has entered into the 12th plan period in an environment of great promise but also one that presents major challenges. India has done well on the growth front, but not so well on inclusion. On the basis of facts and figures, Economic Planning is very important for every country. Because of excellent economic planning now we are one of the parts of developing countries. On

the basis of need in certain sectors government introduced five years plan for better development. Five year duration chosen gives planning commission ample time to review the effects or ineffectiveness of the plans. Planning has also evolved over the years with plans becoming more and more inclusive and broadening their scope. Besides India has been blessed with good planners with a very impartial outlook development. After introduced 1991 policy the growth of India became very faster because of liberalization and licensing in different sectors. Because of liberalization the rate Foreign Direct Investment increased after 1991. But this success does not hide the fact that the growth rate, although Impressive, In recent years has not been our true potential. We were brought out of our slumber by the crisis of 1991 and subsequent pressure from World bank. But that crisis also made us realize that we need to back our lofty plans with equally high Implementation plans. Corruption, Red-Tapism and politicization of every trivial issue has somewhat restricted our pace and we need to plan simultaneously to weed it out as well as transverse past it. Also we have seen in past that planning commission has been affected by the political upheavals with some of the 5 year plans delayed or influenced by the leaders in power.