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PLANNING | Indian Economy

PLANNING | Indian Economy  


Even before independence, the leaders of our freedom struggle were inspired by the model of planning adopted in the Soviet Union. The National Planning Committee (NPC) was constituted in 1938 on the initiative of Subhash Chandra Bose and under the chairmanship of Jawaharlal Nehru for the development of the overall programme to facilitate economic and social development.

The NPC produced 29 volumes of recommendations on economic planning, which guided planning in India after independence. These recommendations were in synchronization with the Bombay Plan.

Bombay Plan

This plan was prepared by the leading industrialists of India and was published in 1944-45. The title of the plan was “A Plan for Economic Development of India”. The plan was in synchronization with the recommendations given by the NPC. Most of the industrialists were also NPC members. The important recommendations of the Bombay Plan are as follows:

  • Rapid industrialization with emphasis on the development of capital goods and core industries
  • Agrarian restructuring through land reforms
  • State to play an active role in economy through planning, controlling, and overseeing different sectors of the economy
  • Large-scale measures for social welfare of the masses.


First Five-Year Plan (1951-56)

This plan emphasized on the development of agriculture, including important irrigation projects, namely, 3hakra Nangal and Hirakud dams. During this plan, an active role was played by the state on account of deficiency of capital with the private sector.

Second Five-Year Plan (1956-61)

The plan was based on the Mahalanobis model. The plan emphasized on the development of heavy industries. The Mahalanobis model was given by Indian statistician P. C. Mahalanobis who mathematically demonstrated the role of heavy industries in the overall growth of the economy.

Third Five-Year Plan (1961-66)

This plan again emphasized on improvements in agriculture. However, on account of Chinese aggression in 1962, the focus of economy shifted towards defence.

In 1965-66, India fought a war with Pakistan. Simultaneously, there was a large-scale drought in the country. On account of wars and severe drought, the plan targets could not be achieved.

The country also went through a severe foreign exchange crisis. As a result, large-scale devaluation of rupee was carried out in 1966. Also, there was a shortage of food grains in the country. The United States exported food grains to India in exchange of Indian rupee. The food aid is popularly called PL-480 because it was given by the United States under Section 480 of Public Law.

Three Annual Plans (1966-69)

On account of poor financial conditions, government decided to go for three annual plans. This period is also known as the period of “Plan Holiday”.

Fourth Five-Year Plan (1969-74)

Droughts and Indo-Pak war (1971-72) led to a significant drain on funds. During this plan, the government initiated populist measures involving a large amount of subsidies, which lead to high fiscal deficit.

Nationalization was also carried out at large scale: private sector banks, insurance companies, coal mines, etc. were acquired by the state.

Fifth Five-Year Plan (1974-79)

The government adopted the Twenty-Point Programme in 1975 with the objective of improving the quality of life of people, especially BPL families. Thrust was given on poverty alleviation, employment generation, housing, education, health, etc. particularly in rural areas.

On account of heavy spending by the government, the economy witnessed double digit inflation. Decision-making on monetary policy was handed over to the RBI.

In 1977, the Janata Party government came to power. It suspended the Five-year Plan initiated by the Congress government. After returning to power in 1980, the Congress government treated 1978-79 as part of the Fifth Five-year Plan and 1979-80 as a separate annual plan.

Sixth Five-Year Plan (1980-85)

This plan was adopted with the slogan “Garibi Hatao”. It attempted poverty alleviation with more targeted approach. The direct attack on removal of poverty, adopted in the Fifth Plan, was further given emphasis under the Sixth Plan.

A number of national-level programmes such as National Rural Employment Programme (1980 Village and Small Industries Development Programme (1983), etc. were launched.

Seventh Five-Year Plan (1985-90)

The basic objectives of planning—growth, modernization, self-reliance, and social justice—remained the guiding principles. Though the economy achieved higher growth rates, it suffered from high fiscal deficits and balance of payment problems. Balance of payment problems emerged on account of liberalization of Imports. At the same time, exports could not be increased. Further, the Gulf War between Iran and Iraq led to the escalation of oil prices and reduction in remittances from West Asia.

Two Annual Plans (1990-92)

Five-year plans were delayed so that the economy could recover and emphasis could be laid on immediate problems, namely balance of payments and fiscal deficit. In these two annual plans, economic reforms were undertaken towards liberalization.

Changing Role of Government before and after Liberalization | PLANNING | Indian Economy

Liberalization refers to the reduction in restrictions over business in the economy. The Government of India has been reducing the restrictions over business since independence, but in 1991, there was a significant reduction in restrictions. Liberalization opened the doors for privatization.

Privatization refers to the greater role of the private sector in the economy either through new investment or through sale of existing government undertakings to the private sector.

Consequently, a larger role was given to the private sector in the economy. The role of the government has reduced to that of facilitator and regulator (from that of major investor as well as regulator). Henceforth, the government as a facilitator creates conditions for the growth of the private sector. As a regulator, the government supervises the activities of the private sector.

However, the government still remains a major investor in those areas where it is not commercially feasible for the private sector to park funds, such as the social sector. The government can undertake detailed planning only in fields where it is actually an investor. As a result, the role of planning got confined mainly to the social sector.

Eighth Five-Year Plan (1992-97)

Economic reforms, which were initiated in 1991, were continued. The larger role of the private sector was recognized in the economy. Also, emphasis was given on the development of infrastructure in backward regions.

Ninth Five-Year Plan (1997-2002)

This plan emphasized on minimum basic services in a time-bound manner to the population, such as safe drinking water, health services, universalization of education, and fiscal consolidation.

Tenth Five-Year Plan (2002-07)

During this plan, many important initiatives were undertaken in relation to administration of plans:

  • Objective targets for selected indicators of development were set for the centre and states with responsibility of ministers.
  • Emphasis was given on greater involvement of Panchayati Raj Institutions in the planning process.
  • Fiscal Responsibility and Budget Management Act, 2003, was passed, which emphasized fiscal deficit targets for the central and state governments.

Eleventh Five-Year Plan (2007-12)

This plan emphasized on the idea of inclusive growth. The salient features of the plan are as follows:

  • The investment rate has been proposed to be raised to 36.7% from 30.8% in the previous plan.
  • The major thrust of the plan will be on the social sector, including agriculture and rural development.
  • Important targets include reducing poverty by 10 percentage points, generating 7 crore new employment opportunities, and ensuring electricity connection to all villages.
  • More investment in the infrastructure sector, including irrigation, drinking water, and sewage.

Twelfth Five-Year Plan (2012-17)

The theme of the Twelfth Five-year Plan is “Faster, Inclusive and Sustainable” growth. Thus, it emphasizes on the higher rate of economic growth, which benefits all sections of society and which is undertaken in an environment-friendly manner. The major targets under the plan are as follows:

  • The draft document aims at a growth rate of 8%. This is the revised rate when compared to the initial approach paper.
  • Poverty rate to be reduced by 10% than the rate at the end of Eleventh Plan.
  • Five crore new work opportunities and skill certifications in the non-farm sector.
  • Investment in infrastructure at 9% of GDP.
  • Increase green cover by 1 million hectare every year.


Single-Level Versus Multilevel Planning

Planning is a process to achieve certain objectives and goals. A planning process can be either (i) single level or (ii) multilevel.

Single-level planning

In the single-level planning, the formulation of plans and decision-making are done at the national level: the process is centralized and the lower territorial levels play a role only in the execution of plans. Indian planning has been essentially single-level economic planning.

Multilevel planning

In the multilevel planning process, the national territory is divided into small territorial units at various levels. In such plans, there is participation of the lower-level administrative bodies in the planning process.

The various levels of multilevel planning in India are (1) centre, (2) states, (3) districts, (4) blocks, and (5) villages. Before the Amendment to the Constitution in 1992, the task of plan formulation was basically carried out by the centre and the state governments. However, after 1992, the lower levels have been given role in the formulation of plans as well.

  1. Central level: The actual task of plan formulation was done by the Planning Commission at the centre with the Prime Minister as chairman.
  2. Second level or state level: The state-level planning body is headed by the Chief Minister.
  3. District level: The district-level planning task is under the overall charge of the collector, also known as deputy commissioner in some states.
  4. Block level: Block-level planning was started during the First Five-year Plan. Each district was divided into a number of blocks, and each block comprised about 100 villages with a population of about 60,000. Hence, a new unit of planning was created at the block level under the leadership of a block development officer.
  5. Panchayat level: Through the Constitution Amendment Act 1992, the Panchayat has been authorized to look after the preparation and implementation of plans.

Multilevel planning has failed on account of the following reasons:

  • Lower levels lack skilled officials to carry out planning process.
  • The funds are concentrated with the central and state-level bodies. As a result, the constraint over financial resources prevents lower-level bodies to commit financial resources under the plans.

Decentralized Planning

Decentralized planning refers to the transfer of power and responsibilities regarding implementation and formulation of development programmes, from the highest institution at the national-level or medium-level state institutions to sub-state-level institutions such as Panchayati Raj Institutions, Zila Parishads, etc.

Decentralized planning has the following advantages over centralized planning:

  • Plans are made according to the local needs, and thus the use of resources allocated under the plan is also efficient.
  • The participation of people is high in the plans made by local bodies.

District Planning Committee

The District Planning Committee consolidates the plans prepared by Panchayats and municipalities in the district and prepares a draft development plan for the district as a whole and forwards the plan to the state planning committee.

Metropolitan Planning Committee

The Metropolitan Planning Committee is meant to prepare a draft development plan for a metropolitan area having a population of more than 10 lakhs and forward it to the state planning committee.

Difference between Multilevel Planning and Decentralized Planning

In multilevel planning, administrative bodies at various levels commit their own available financial resources to the plans. On the other hand, in decentralized planning, lower-level bodies make plans even pertaining to the funds used by higher-level bodies. The plans of lower-level bodies are to be incorporated into larger plans of national- and state-level bodies.


Though planning has facilitated economic development in India, it is criticized on account of various reasons:

  • One of the main objectives of planning was promotion of balanced growth and development. However, economic disparity among various regions proves that planning has failed to promote balanced growth and development.
  • The planning has remained centralized in nature. The welfare programmes in India have been criticized on the ground that they have been programme driven (or one size fits all) rather than local demand driven.
  • During the initial phase of planning, excessive emphasis was laid on public-sector undertakings for economic development at the cost of private sector, which proved to be counter productive in the long run.
  • Even though nearly two-thirds of the population was dependent on agriculture and allied activities, the emphasis on agriculture was low.


An imperative plan is characteristic of a socialist economy in which all the economic activities are bound by the plan. For instance, the plan specifies how much the producer would produce, how the product would be distributed, and what the consumer would pay for it.

On the other hand, in the case of contemporary mixed economies practising indicative planning, the role of the government is mostly that of a facilitator (that is, providing an environment conducive for economic growth). Such an economy generally has a strong private sector with a great deal of autonomy. The government is confined to mainly the social sector and a few strategic industries.

Indian planning is moving from imperative to indicative nature. Thus, the role of planning has significantly reduced in economy.


The relevance of five-year plans has reduced with an increased role of the private sector in the economy. Presently, the government seeks to introduce 15-year vision document in place of five-year plans. The vision document seeks to attain transformational changes in place of the incremental changes attained under five-year plans. The 15-year vision document will be prepared by the NITI Aayog.


Planning Commission

The Planning Commission has been replaced by the NITI (National Institution for Transformation of India) Aayog on 1 January 2015. Like the NITI Aayog, the Planning Commission was a non-statutory body of the centre. The main function of the Planning Commission was preparation of plans for social and economic development of the country. The Planning Commissions used to make recommendations in the form of plans. These recommendations were not binding on the union executive.

NITI Aayog

The National Institute for Transformation of India (NITI) is a Government of India think tank established by Prime Minister Narendra Modi to replace the Planning Commission.

The primary aim of creating the NITI Aayog is to foster the involvement and participation of state governments in the economic policy-making process. It has adopted a “bottom-up” approach towards Manning. A “bottom-up” approach towards planning means that plans are made according to the needs of the local people and according to the local conditions.

Composition | PLANNING | Indian Economy

  • The Prime Minister shall be the ex-officio chairperson of the NITI Aayog.
  • Full-time organizational framework (in addition to Prime Minister as the chairperson) comprises:
  • Vice chairperson
  • Three full-time members
  • Two part-time members on a rotational basis
  • Four ex-officio members from the Union Council of Ministers to be nominated by the Prime Minister
  • Chief executive officer to be appointed by the Prime Minister for a fixed tenure
  • Secretariat as deemed necessary
  • Governing Council comprising Chief Ministers of all states and union territories with legislatures and Lieutenant Governors of other union territories.
  • Regional Councils will be formed for a specific tenure to address specific issues and contingencies impacting more than one state or a region. These councils will be composed of the Chief Ministers of the states and Lieutenant Governors of Union Territories in the region. These will be chaired by the chairperson of the NITI Aayog or his/her nominee.


Differences between Planning Commission and NITI Aayog

                  Planning Commission                                              NITI Aayog
The Planning Commission had the power to allocate funds to ministries and states.



The NITI Aayog is essentially a think tank and the funds are allocated by the Finance Ministry.


The Planning Commission formed the central plans and allocated funds for the same. The NITI Aayog will not formulate any plans but will contribute ideas in the formation and implementation of programmes.
There was a limited role of states in the Planning Commission era. The NITI Aayog incorporates all the Chief Ministers of states and the administrators of union territories in the Governing Council, which is fundamental to its functioning.
It followed the top-down approach for policy making. It emphasizes on the bottom-up approach for policy making.
There was no specific body to address local issues. There is a regional council for the purpose of addressing local issues.

PLANNING | Indian Economy


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