INDIAN INSTITUTE OF TECHNOLOGY ROORKEE

Growth, Institutional Framework and

Policy Regime

Economic Planning: Evolution and Strategy

Evolution of Planning

• Five‐Year Plans (FYPs) are centralized and integrated national economic

programs. Joseph Stalin implemented the first Five Year Plan in the
Soviet Union in the late 1920s. Most communist states and several
capitalist countries subsequently have adopted them.
• The First Five‐Year Plan was one of the most important because it had a
great role in the launching of Indian development after the
Independence. Thus, it strongly supported agriculture production and it
also launched the industrialization of the country (but less than the
Second Plan, which focused on heavy industries).
• It built a particular system of mixed economy, with a great role for the
public sector (with an emerging welfare state), as well as a growing
private sector (represented by some personalities as those who
published the Bombay Plan).

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Role of the State as Visualized in the Fifties

• Nehruvian view – derived predominantly from Fabian socialism –

endorsed the need for rapid development led by state economic
activity and planning
• Pre – industrial economies are predominantly rural and
agricultural in nature (Zamindari system)
– Strong State Intervention
• Role of the State
– Maintaining law and order, defining and protecting property rights
– Providing elementary education, basic health care, drinking water….basic
needs for any civilized society…which has beneficial effect on general level
of productivity
– State vs. Market
– Huge infrastructure projects….public vs. private …balanced development
– Social justice …equality…

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Early Experience with Five Year Plans
Plan Notes
It was based on Harrod‐Domar Model.
Community Development Program launched in 1952
First Plan
Focus on agriculture, price stability, power and transport
(1951 ‐ 56)
It was a successful plan primarily because of good harvests in the last two
years of the plan
Also called Mahalanobis Plan named after the well known economist
Second Plan Focus ‐ rapid industrialization
(1956 ‐ 61) Advocated huge imports through foreign loans.
Target Growth: 4.5% Shifted basic emphasis from agriculture to industry far too soon.
Actual Growth: 4.27% During this plan, prices increased by 30%, against a decline of 13% during the
First Plan
At its conception, it was felt that Indian economy has entered a take‐off stage.
Therefore, its aim was to make India a 'self‐reliant' and 'self‐generating'
Third Plan
economy.
(1961 ‐ 66)
Based on the experience of first two plans, agriculture was given top priority to
Target Growth: 5.6%
support the exports and industry.
Actual Growth: 2.84%
Complete failure in reaching the targets due to unforeseen events ‐ Chinese
aggression (1962), Indo‐Pak war (1965), severe drought 1965‐66
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First Plan (1951 ‐ 56)
• The total planned budget of Rs.2069 crore(2378 crore later) was allocated to seven broad areas:
irrigation and energy (27.2%), agriculture and community development (17.4%), transport and
communications (24%), industry (8.4%), social services (16.64%), land rehabilitation (4.1%), and
for other sectors and services (2.5%). The most important feature of this phase was active role of
state in all economic sectors. Such a role was justified at that time because immediately after
independence, India was facing basic problems—deficiency of capital and low capacity to save.
• The target growth rate was 2.1% annual gross domestic product (GDP) growth; the achieved
growth rate was 3.6% the net domestic product went up by 15%. The monsoon was good and
there were relatively high crop yields, boosting exchange reserves and the per capita income,
which increased by 8%. National income increased more than the per capita income due to rapid
population growth. Many irrigation projects were initiated during this period, including the
Bhakra, Hirakud and Damodar Valley dams. The World Health Organization (WHO), with the Indian
government, addressed children's health and reduced infant mortality, indirectly contributing to
population growth.
• At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as
major technical institutions. The University Grants Commission (UGC) was set up to take care of
funding and take measures to strengthen the higher education in the country. Contracts were
signed to start five steel plants, which came into existence in the middle of the Second Five‐Year
Plan. The plan was quasi successful for the government.

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Second Plan (1956 ‐ 61)

• The Second Plan was particularly in the development of the public sector and "rapid
Industrialisation". The plan followed the Mahalanobis model, an economic
development model developed by the Indian statistician Prasanta Chandra
Mahalanobis in 1953.
• The plan attempted to determine the optimal allocation of investment between
productive sectors in order to maximise long‐run economic growth. It used the
prevalent state of art techniques of operations research and optimization as well as
the novel applications of statistical models developed at the Indian Statistical
Institute. The plan assumed a closed economy in which the main trading activity
would be centred on importing capital goods.
• Hydroelectric power projects and five steel plants at Bhilai, Durgapur, and Rourkela
were established with the help of Russia, Britain (the U.K) and West Germany
respectively. Coal production was increased. More railway lines were added in the
north east.
• The total amount allocated under the Second Five‐Year Plan in India was
Rs.48 billion. This amount was allocated among various sectors: power and irrigation,
social services, communications and transport, and miscellaneous.

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Third Plan (1961 ‐ 66)
• The Third Five‐year Plan stressed agriculture and improvement in the production of wheat, but the
brief Sino‐Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards
the defence industry and the Indian Army. In 1965–1966, India fought a War with Pakistan. There
was also a severe drought in 1965. The war led to inflation and the priority was shifted to price
stabilisation. The construction of dams continued. Many cement and fertilizer plants were also built.
Punjab began producing an abundance of wheat.

• Many primary schools were started in rural areas. In an effort to bring democracy to the grass‐root
level, Panchayat elections were started and the states were given more development
responsibilities.

• State electricity boards and state secondary education boards were formed. States were made
responsible for secondary and higher education. State road transportation corporations were
formed and local road building became a state responsibility.

• The target growth rate was 5.6%, but the actual growth rate was 2.4%.[6]

• Due to miserable failure of the Third Plan the government was forced to declare "plan holidays"
(from 1966–67, 1967–68, and 1968–69). Three annual plans were drawn during this intervening
period. During 1966–67 there was again the problem of drought. Equal priority was given to
agriculture, its allied activities, and industrial sector. The government of India declared "Devaluation
of Rupee" to increase the exports of the country. The main reasons for plan holidays were the war,
lack of resources, and increase in inflation after that plan holiday was created.
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Changing Perception
Prevailing crisis in agriculture and serious food shortage necessitated the emphasis on agriculture during the
Annual Plans
Three Annual Plans During these plans a whole new agricultural strategy was implemented. It involving wide‐spread distribution of
(1966‐69) high‐yielding varieties of seeds, extensive use of fertilizers, exploitation of irrigation potential and soil
Plan holiday for 3years. conservation.
During the Annual Plans, the economy absorbed the shocks generated during the Third Plan
It paved the path for the planned growth ahead.
Fourth Plan (1969 ‐ 74) Main emphasis was on growth rate of agriculture to enable other sectors to move forward
Target Growth: 5.7% First two years of the plan saw record production. The last three years did not measure up due to poor monsoon.
Actual Growth: 3.30% Influx of Bangladeshi refugees before and after 1971 Indo‐Pak war was an important issue
The fifth plan was prepared and launched by D.D. Dhar.
Fifth Plan (1974‐79) It proposed to achieve two main objectives: 'removal of poverty' (Garibi Hatao) and 'attainment of self reliance'
Target Growth: 4.4% Promotion of high rate of growth, better distribution of income and significant growth in the domestic rate of
Actual Growth: 3.8 savings were seen as key instruments
The plan was terminated in 1978 (instead of 1979) when Janta Party Govt. rose to power.
There were 2 Sixth Plans. Janta Govt. put forward a plan for 1978‐1983. However, the government lasted for only
Rolling Plan (1978 ‐ 80)
2 years. Congress Govt. returned to power in 1980 and launched a different plan.
Sixth Plan (1980 ‐ 85)
Focus ‐ Increase in national income, modernization of technology, ensuring continuous decrease in poverty and
Target Growth: 5.2%
unemployment, population control through family planning, etc.
Actual Growth: 5.66%
Seventh Plan (1985 ‐ 90) Focus ‐ rapid growth in food‐grains production, increased employment opportunities and productivity within the
Target Growth: 5.0% framework of basic tenants of planning.
Actual Growth: 6.01% The plan was very successful, the economy recorded 6% growth rate against the targeted 5%.

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Changing Perception
• Fourth Plan (1969–1974)
– The Indira Gandhi government nationalised 14 major Indian banks and the
Green Revolution in India advanced agriculture.
– Indo‐Pakistan War of 1971 and Bangladesh Liberation War took funds
earmarked for industrial development
– Smiling Buddha underground nuclear test (Pokhran‐1) in Rajasthan on May
18, 1974
– The target growth rate was 5.6%, but the actual growth rate was 3.3%.
• Fifth Plan (1974–1978)
– on employment, poverty alleviation (Garibi Hatao), and justice
– The Indian national highway system was introduced and many roads were
widened to accommodate the increasing traffic. Tourism also expanded.
The twenty‐point programme was launched in 1975. It was followed from
1974 to 1979.
– The target growth rate was 4.4% and the actual growth rate was 4.8%

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Changing Perception

• Sixth Plan (1980–1985)

– the beginning of economic liberalisation

– Price controls were eliminated and ration shops were closed.

• Seventh Plan (1985–1990)

– to establish growth in areas of increasing economic productivity, production
of food grains, and generating employment through "Social Justice".

– social justice, removal of oppression of the weak, using modern technology,

agricultural development, anti‐poverty programmes, full supply of food,
clothing, and shelter, increasing productivity of small‐ and large‐scale
farmers, and making India an independent economy.

– The target growth rate was 5.0% and the actual growth rate was 6.01%

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Role of Planning in a Market Economy

• Launched India's free market reforms that brought the nearly

bankrupt nation back from the edge. It was the beginning of
liberalization, privatisation and globalization (LPG) in India.
• Planning has a very useful “indicative” role
• Even in market economy the state has to play a vital role not as a
facilitator but also as a provider of basic infrastructure, physical,
social and financial.
– A central agency is required to coordinate the departments, ministries,
sectors
– Provide prescriptions such as by suggesting appropriate tax policy and
measures to create incentives for economic agents to save and invest ,
protect environment, promote employment, ensure the smooth functioning
of the common market.
– Indication, coordination and prescription
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Role of Planning in a Market Economy

Eighth Plan (1992 - 97)

• Modernization of industries was a major highlight of the Eighth Plan. Under this
plan, the gradual opening of the Indian economy was undertaken to correct the
burgeoning deficit and foreign debt. Meanwhile, India became a member of the
World Trade Organization on 1 January 1995. The major objectives included,
controlling population growth, poverty reduction, employment generation,
strengthening the infrastructure, institutional building, tourism management,
human resource development, involvement of Panchayati rajs, Nagar Palikas,
NGOs, decentralisation and people's participation.
• The target growth rate was 5.6% and the actual growth rate was 6.8%.
• To achieve the target of an average of 5.6% per annum, investment of 23.2% of
the gross domestic product was required. The incremental capital ratio is 4.1.
The saving for investment was to come from domestic sources and foreign
sources, with the rate of domestic saving at 21.6% of gross domestic production
and of foreign saving at 1.6% of gross domestic production

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Role of Planning in a Market Economy

Ninth Plan (1997‐ 2002)

• Joint efforts from the public and the private sectors in ensuring economic
development of the country
• Contributions towards development from the general public as well as
governmental agencies in both the rural and urban areas of the country
• New implementation measures in the form of Special Action Plans (SAPs) were
evolved during the Ninth Five‐Year Plan to fulfill targets within the stipulated
time with adequate resources. The SAPs covered the areas of social
infrastructure, agriculture, information technology and Water policy.
• The prime focus of this plan was to increase growth in the country with an
emphasis on social justice and equity.
• Objectives: Population control; Generating employment by giving priority to agriculture and
rural development; Reduction of poverty; Ensuring proper availability of food and water for the
poor; Availability of primary health care facilities and other basic necessities; Primary education
to all children in the country; Empowering the socially disadvantaged classes like Scheduled
castes, Scheduled tribes and other backward classes; Developing self‐reliance in terms of
agriculture; Acceleration in the growth rate of the economy with the help of stable prices

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Role of Planning in a Market Economy

The eighth plan was postponed by two years because of political uncertainty
at the Centre

Worsening Balance of Payment position and inflation during 1990‐91 were

the key issues during the launch of the plan.

Eighth Plan The plan undertook drastic policy measures to combat the bad economic
(1992 ‐ 97) situation and to undertake an annual average growth of 5.6%

Some of the main economic outcomes during eighth plan period were rapid
economic growth, high growth of agriculture and allied sector, and
manufacturing sector, growth in exports and imports, improvement in trade
and current account deficit.

Ninth Plan
(1997‐ 2002) It was developed in the context of four important dimensions: Quality of life,
Target Growth: 6.5% generation of productive employment, regional balance and self‐reliance.
Actual Growth: 5.35%

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Redefining the Role of State

• India now has a very vibrant private sector

• Public sector is much less dominant in many crucial sectors.
• Government ownership has declined
• Industrial growth in future is clearly depends on the performance
of the private sector
• The state has to pay more attentions towards the social sector
developments, infrastructure (rural), road, health, education

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Redefining the Role of State

Goals:
To achieve 8% GDP growth rate
Reduction of poverty ratio by 5 percentage points by 2007.
Providing gainful high quality employment to the addition to the labour force
over the tenth plan period.
Universal access to primary education by 2007.
Reduction in gender gaps in literacy and wage rates by atleast 50% by 2007.
Tenth Plan
Reduction in decadal rate of population growth between 2001 and 2011 to
(2002 ‐
16.2%.
2007)
Increase in literacy rate to 72% within the plan period and to 80% by 2012.
Reduction of Infant Mortality Rate (IMR) to 45 per 1000 live births by 2007 and
to 28 by 2012.
Increase in forest and tree cover to 25% by 2007 and 33% by 2012.
All villages to have sustained access to potable drinking water by 2012.
Cleaning of all major polluted rivers by 2007 and other notified stretches by
2012.

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Redefining the Role of State
Accelerate GDP growth from 8% to 10%. Increase agricultural GDP growth rate to 4% per year.
Create 70 million new work opportunities and reduce educated unemployment to below 5%.
Raise real wage rate of unskilled workers by 20 percent.
Reduce dropout rates of children from elementary school from 52.2% in 2003‐04 to 20% by 2011‐12.
Increase literacy rate for persons of age 7 years or above to 85%.
Lower gender gap in literacy to 10 percentage point. Increase the percentage of each cohort going to
higher education from the present 10% to 15%.
Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births
Reduce Total Fertility Rate to 2.1
Provide clean drinking water for all by 2009. Reduce malnutrition among children between 0‐3 years
Eleventh Plan to half its present level. Reduce anaemia among women and girls by 50%.
(2007 ‐ 2012) Raise the sex ratio for age group 0‐6 to 935 by 2011‐12 and to 950 by 2016‐17
Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are
women and girl children
Ensure all‐weather road connection to all habitation with population 1000 and above (500 in hilly
and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015
Connect every village by telephone by November 2007 and provide broadband connectivity to all
villages by 2012
Increase forest and tree cover by 5 percentage points.
Attain WHO standards of air quality in all major cities by 2011‐12.
Treat all urban waste water by 2011‐12 to clean river waters.
Increase energy efficiency by 20 percentage points by 2016‐17.
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NITI Aayog : Role and Functions

• Relevance of Planning Commission

• The cabinet resolution lists 13 different tasks to it which may be
grouped under four major heads, namely:
– fostering cooperative federalism by providing structured support to states
on a continuous basis;

– formulation of a strategic vision and long‐term policies and programme

framework both for the macroeconomy and for different sectors;

– acting as a knowledge and innovation hub and providing research inputs by

undertaking and accessing globally available research; and

– providing a platform for interdepartmental coordination

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NITI Aayog : Role and Functions

• The important question is whether the Aayog will have influence when it does
not have the power to give grants and when it does not have the powers to
make plan allocations to different ministries and departments.
• The abolition of the Planning Commission paves the way for restoring the role
of the Finance Commission to assess the total requirements of the states in the
revenue account without making a distinction between plan and non‐plan
spending.
• However, the Finance Commission does not have a comparative advantage in
recommending specific purpose transfers unless it is made a permanent body.
• However, so long as the Finance Commission continues to be a temporary body,
the NITI Aayog will have a role in designing and implementing these
programmes
• The success of the institution in achieving interministerial, interdepartmental
coordination will depend on the trust and cooperation it receives from them
and the harmony with which the Aayog and various ministries work

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