Economics Project

Submitted To : Submitted By :

Prof. Gulshan Kumar Sukhvir singh

B. Com LL.B Sem 3

Section - D

Roll No. 236/19

 Acknowledgment

I would like to express my special thanks of gratitude to my

Indian Economics teacher Prof. Gulshan Kumar for their
able guidance and support in completing my project.

I would also like to extend my gratitude to the Director Prof.

Rajinder Kaur for providing with all the facilities that were
required.
 CONTENTS

 Definition/Meaning of Economic Planning

 Objectives of Planning
 Achievements of Economic Planning
 Failures of Economic Planning
 References/Bibliography
DEFINITION/MEANING OF ECONOMIC PLANNING

The term ‘economic planning’ has been used very loosely in

economic literature. Therefore the term has been often confused with
communism, socialism or economic development. Economists are not
unanimous with regard to the term ‘economic planning’. Despite the
aforesaid situation, efforts have been made to explain the term in
precise words.

Economic planning is the making of major economic decision, what

and how much is to be produced, and to whom it is to be allocated by
the conscious decision of a determinate authority, on the basis of a
comprehensive survey of the economic system as a whole.

Professor Lewis has referred to six different sense in which the term
economic planning is used in economic literature. “First, there is an
enormous literature in which it refers only to the geographical zoning
of factors, residential buildings, cinemas and the like. Sometimes this
is called town and country planning and sometimes just planning.
Secondly, ‘planning’ means only deciding what money the
government will spend in the future, if it has the money to spend.

Thirdly, a ‘planned economy’ is one in which each production unit (or

firm) uses only the resources of men, materials and equipment
allocated to it by quota and disposes of its product exclusively to
persons or firms indicated to it by central order. Fourthly, ‘planning’
sometimes means any setting of production targets by the
government, whether for private or public enterprise.

Most governments practice this type of planning if only sporadically,

and if only for one or two industries or services to which they attach
special importance. Fifthly, here targets are set for the economy as a
whole, purporting to allocate all the country’s labour, foreign
exchange, raw materials and other resources between the various
branches of the economy.

And, finally, the word ‘planning’ is sometimes used to describe the

means which the government uses to try to enforce upon private
enterprise the targets which have been previously determined.”
 OBJECTIVES OF ECONOMIC PLANNING

1. Economic Growth and Development:

Every five-year plan had a growth target that had to be achieved by

the end of the planning period. In order to bring about an
improvement in standard of living of the people, the per capita
income has to rise. A rise in per capita income is necessary to
overcome the problems of poverty and its effects.

2. Increase in Employment:

The developing economies generally suffer from open unemployment

and disguised unemployment. India is no exception to it. Slow growth
of the agricultural sector and lack of investments in the industrial
sector are major causes for high levels of unemployment in the
country. Measures have been taken in every five- year plan to create
employment opportunities, thereby, increasing labour productivity.

3. Increase in Investment:

Economic growth cannot be achieved unless adequate investments are

made to bring about an increase in output capacity. Investments help
in creating employment opportunities. One of the objectives of
planning is, thus, to push up the rate of investment to ensure smooth
flow of capital to various sectors of the economy.

4. Social Justice and Equity:

The five-year plans also focused on reducing inequalities in the

distribution of income in order to ensure social justice. Prevalence of
inequalities in the economy results in exploitation of the poor wherein
the rich become richer and the poor become poorer.

5. Balanced Regional Development:

In India, there exists a wide gap in the development of different states

and regions. While Gujarat, Tamil Nadu, Maharashtra etc., enjoy high
levels of development, there are states like Bihar, Odisha, Nagaland
etc., which remain backward. Planning aims at bringing about a
balanced regional development by diverting more resources to the
poor and backward regions.
6. Modernisation:

Modernisation refers to a shift in the composition of output,

innovation and advancement in technology. Modernisation helps an
economy to advance at a faster pace and compete with the developed
nations of the world. The objective of planning is to encourage and
incentivise investments into various sectors of the economy,
especially the industrial sector, to help them adopt new technologies
and thus, increase efficiency.
 Achievements of Economic Planning in India:

Economic planning in India, formally conceived in 1951, has come a

long way in helping the economy to tackle the challenges in various
sectors and has enabled it to achieve rapid economic progress.

Some of the major achievements of planning in India are as

follows:

1. Economic Growth:

Economic planning in India has been successful in increasing the

national income and the per capita income of the country resulting in
economic growth. The net national income at factor cost increased
from Rs. 4393.45 billion in 1966- 67 to Rs.45, 733 billion in 2011-12
(at 2004-05 prices). The per capita income increased from Rs.8876 to
Rs.38, 048 during the same period (at 2004-05 prices).
The average growth rate has increased from 3.5 percent during 1950
to 1970 to about 5.5 percent after 1990’s. The economy recorded a
growth rate of 7.8 percent during the eleventh five- year plan.
2. Progress in Agriculture:

The first five-year plan focused on agricultural development.

However, agricultural sector did not receive priority in the subsequent
plans. Yet, with various initiatives implemented in the agricultural
sector such as the green revolution and agricultural pricing policies,
there has been a considerable increase in the output of the agricultural
sector.
The index of agricultural production increased from 85.9 in 1970-71
to 165.7 in 1999-2000 (Base year- 1981-82). The production of major
food grains which includes rice, wheat, coarse cereals and pulses has
increased from 77.14 million tons in 1958-59 to 252.22 tons in 2015-
16. With the introduction of green revolution, the yield per hectare of
food grains has increased from 662 kg in 1959-60 to 2056 kg in 2015-
16.

Similarly, the production of commercial crops has also recorded an

increasing trend. Various reforms in the agricultural sector such as the
Rashtriya Krishi Bima Yojana and Kisan credit cards during the ninth
plan and National Food Security Mission and Rashtriya Krishi Vikas
Yojana during the eleventh plan have been quite successful in
improving the performance of the agricultural sector.

3. Industrial Growth:

Economic planning has also contributed to the progress of the

industrial sector. The index of industrial production increased from
54.8 in 1950-51 to 152.0 in 1965-66 (Base year- 1960-61) which is
about 176 percent increase in production during the first three five-
year plans.
It went up from 109.3 in 1981-82 to 232.0 in 1993-94 (Base year-
1980-81). Taking 2004-05 as the base year, the index of industrial
production recorded an increase from 108.6 in 2005-06 to 181.1 in
2015-16. The introduction of reforms in 1991 relieved the industrial
sector from numerous bureaucratic restrictions that were prevalent
earlier.
This has led to the rapid growth of the industrial sector in India. India
has made remarkable progress in cotton textiles, paper, medicines,
food processing, consumer goods, light engineering goods etc.

4. Public Sector:

The public sector played a predominant role in the economy

immediately after the independence. While there were only 5
industrial public sector enterprises in 1951, the number increased to
244 in 1990 with an investment of Rs.99, 330 ctores. However, the
number of public sector enterprises fell to 217 in March 2010.

Yet, the cumulative investment went up to Rs.5, 79,920 cores. The

ratio of gross profit to capital employed increased from 11.6 percent
in 1991-92 to 21.5 percent in 2004-05. Heavy engineering and
transport equipment industries recorded a 117 percent and 111 percent
growth respectively in 2006-07 over the previous year.

Very high profits were recorded by petroleum, telecommunication

services, power generation, coal and lignite,
financial services, transport services and minerals and metal
industries. The government has eliminated a number of restrictions on
the operational and financial powers of the Navaratnas, Miniratnas
and several other profit making public sector enterprises.

5. Infrastructure:

Development of infrastructure such as transport and communication,

power, irrigation etc., is a pre-requisite to rapid economic growth and
development. Expansion of transport facilities enables easy
movement of goods and services and also enlarges the market.
Irrigation projects contribute significantly to rural development.
Power projects help in meeting the growing demand for power by
both industrial and household sector. The total road length increased
from about 400,000 km in 1951 to about 4.7 million km in 2011.
India has the second largest road network in the world with about
5,472,444 kilometers of road, as on March 31, 2015.
The route length of the Indian railway network has increased from
about 53,596 km in 1951 to about 64,450 km in 2011. The investment
in infrastructure as a percentage of GDP was about 5.9 percent during
the tenth plan and increased to about 7.2 percent during the eleventh
plan.

6. Education and Health Care:

Education and health care are considered as human capital as they

contribute to increased productivity of human beings. Considerable
progress was achieved in the education as well as health sector during
the five-year plans. The number of universities increased from about
22 in 1950-51 to 254 in 2000-01. There were about 22 central
universities, 345 state universities, 123 deemed universities and about
41,435 colleges in 2016.
The number of institutions in higher education has increased to over
100 percent since 2008. With the growth in the number of institutions,
the literacy rate in India has increased from 16.7 percent in 1950-51 to
74.04 percent in 2011. With improvements in the health
infrastructure, India has been able to successfully control a number of
life threatening diseases such as small pox, cholera, polio, TB etc.
As a result, there has been a fall in the death rate from 27.4 per
thousand persons in 1950-51 to 7.3 per thousand persons in 2016. The
life expectancy has increased from about 32.1 years in 1951 to 68.01
years in 2014. The infant mortality rate has declined from 149 per
thousand in 1966 to 37.42 per thousand in 2015.
7. Growth of Service Sector:

Service sector is the key contributor to the economic growth of India.

The service sector contributed to about 53.2 percent of the gross value
added growth in 2015-16. The contribution of the IT sector to India’s
GDP increased from about 1.2 percent in 1998 to 9.5 percent in 2015.
The service sector has recorded a growth rate of about 138.5 percent
in the last decade.
Financial services, insurance, real estate and business services are
some of the leading services that have been recording a robust growth
in the past few years. The rapid growth of the service sector in India
could be attributed to the inflow of huge amount of FDI in this sector.
India’s share of service exports in the world service exports has
increased from 0.6 percent in 1990 to 3.3 percent in 2011.

8. Savings and Investment:

Savings and Investments are major driving forces of economic

growth. The gross domestic savings in India as a proportion of GDP
has increased from 8.6 percent in 1950-51 to about 30 percent in
2012-13. The gross capital formation has increased from 8.4 percent
in 1950-51 to 34.70 in 2012-13. Capital accumulation is the key to
economic development. It helps in achieving rapid economic growth
and has the ability to break the vicious circle of poverty.

9. Science and Technology:

India is the third most preferred destination for technology

investments. It is among the top most countries in scientific research
and space exploration. India is also making rapid progress in nuclear
technology. ISRO has made a record of launching 104 satellites in
one go on a single rocket. India today has the third largest scientific
manpower after U.S.A and Russia.
The government has undertaken various measures such as setting up
of new institutions for science education and research, launching the
technology and innovation policy in 2013, strengthening the
infrastructure for research and development in universities, and
encouraging public- private partnership etc.

10. Foreign Trade:

On the eve of independence, India’s primary exports were agricultural

commodities and UK and US were its major trading partners. India
was largely dependent on other countries for various capital and
consumer goods. However, with the development of heavy industries
during the five-year plans, India has been able to reduce its
dependence on other countries and was able to achieve self-reliance in
a number of commodities.
With the liberalisation of trade, India now exports about 7500
commodities to about 190 countries and it imports about 6000
commodities from about 140 countries.

Shortcomings of Economic Planning in India:

1. Slow Growth:

The planning process in India has been able to achieve considerable

increase in the national income and per capita income. Yet, the rate of
increase has been slow as compared to developing countries like
China, which have been able to achieve more than 10 percent growth
rate consistently. India was able to achieve a growth rate of only
about 4 to 5 percent during the pre-reform period. It was only during
the post reform period that is after 1991, that the country could
experience a growth rate of over 7 percent.

2. Neglect of Agriculture:

The five year plans failed to pay attention to the agricultural sector
except for the first five-year plan. As a result, the agricultural growth
rate declined from 3.62 percent in 1991-92 to 0.81 percent during
2009-10. And the share of agriculture in GDP declined from about 50
percent during 1950-51 to about 16 percent of the GDP in 2015.

3. Unemployment:

The plans have failed to address the problem of unemployment which

is a cause of many social evils. The unemployment rate has
marginally reduced from 8.35 percent during 1972-73 to about 6.53
percent in 2009-10. It was about 4.19 percent in 2013. The growth
rate of employment has recorded a decline from 2.61 percent in 1972-
73 to 1.50 percent during 2009-10. The employment in primary sector
recorded a negative growth rate of 0.13 percent in 2009-10.

4. Widespread Poverty:

Failure to address the problem of unemployment has resulted in

widespread poverty in the country. The first four plans failed to
address the problem of poverty. It was only during the fifth five-year
plan that measures were taken to tackle poverty directly by
introducing various poverty alleviation programmes. These
programmes, however, have achieved only limited success. The
poverty rate in India declined from about 26.1 percent in 2000 to 21.9
percent in 2011.

5. Inflation:

Poverty is aggravated under the situation of inflation. The five-year

plans have not been able to stabilise the prices due to which there has
been a steep rise in the general prices. The inflation rate was around
10 percent in 2012.

6. Rising Inequality:

With rapid economic growth, the country has been witnessing a rise
in the level of inequality. It has been estimated that the richest 1
percent own about 58 percent of the country’s wealth. Poor
performance of the agricultural sector and lack of investments in rural
infrastructure are cited as the primary reason for such rising
inequalities.

7. Political Instability:

Political instability and inefficient administration are the major

hurdles in successful implementation of the plans. Though the plans
are formulated after complete analysis of the economic situation, most
of the plans fail to achieve the targets due to inefficient
administration, corruption, vested interests and red tapism.

The achievements and failures of the economic planning in India,

thus, reveal the underlying gaps in the process of planning. It is an
undeniable fact that the current level of growth and development that
the country has achieved could not have been possible without
planning.

Yet, systematic and efficient implementation of the plans and

strategic policies to tackle the problem of unemployment and poverty
could take the country to greater heights. It is strongly believed that
the NITI Aayog would address these gaps that existed in the planning
process in India and would strive to build a vibrant economy over the
years.
 NITI AAYOG

The National Institution for Transforming India, also called

NITI Aayog, was formed via aresolution of the Union Cabinet
on January 1, 2015. NITI Aayog is the premier policy ‘Think
Tank’ of the Government of India, providing both directional
and policy inputs. While designing strategic and long term
policies and programmes for the Government of India, NITI
Aayog also provides relevant technical advice to the Centre and
States.The Governing Council of NITI, with The Prime Minister
as its Chairman, comprises Chief Ministers of all States and Lt.
Governors of Union Territories (UTs).The Government of India,
in keeping with its reform agenda, constituted the NITI Aayog
to replace the Planning Commission instituted in 1950. This
was done in order to better serve the needs and aspirations of
the people of India. An important evolutionary change from the
past, NITI Aayog acts as the quintessential platform of the
Government of India to bring States to act together in national
interest, and thereby fosters Cooperative Federalism.
 FUNCTIONS

NITI Aayog (National Institution for Transforming India):

 To evolve a shared vision of national development
priorities sectors and strategies with the active
involvement of States in the light of national objectives.
 To foster cooperative federalism through structured
support initiatives and mechanisms with the States on a
continuous basis, recognizing that strong States make a
strong nation.
 To develop mechanisms to formulate credible plans at the
village level and aggregate these progressively at higher
levels of government.
 To ensure, on areas that are specifically referred to it, that
the interests of national security are incorporated in
economic strategy and policy.
 To pay special attention to the sections of our society that
may be at risk of not benefiting adequately from economic
progress.
 To deign strategic and long term policy and programme
frameworks and initiatives, and monitor their progress
and their efficacy. The lessons learnt through monitoring
and feedback will be used formaking innovative
improvements.
 ADVANTAGES OF NITI AAYOG

Aayog acted like an action tank and not just as a think

tank. By collecting fresh and new ideas and sharing them with
the government at the Central and State level, it lifts
frontiers and ensures that there is no inactivity in any
organization or institution Improving innovation: A
commendable work has been done by The Atal Innovation
Mission, which is established under NITI Aayog, it has
helped in improving the innovation ecosystem in India.
More than 1,500 Atal Tinkering Labs have been established
inschools across the country and it is anticipated that this
number will cross 5,000.It has also set up Atal Incubation
Centers to encourage start-ups and young innovators. Acts like
a funnel: Through which innovative and new ideas come from
various possible sources such as industry, civil society,
academia, or foreign specialists, and then these ideas flow
for their implementation into the government system.
Initiatives: Some of the initiatives like Ayushmaan Bharat,
water conservation measures, approach towards artificial
intelligence, and a draft bill for establishing the National
Medical Commission replacing the Medical Council of
India, these all initiatives have been conceptualized in NITI
Aayog, and respective Ministries are taking them forward.
The work of NITI Aayog also includes cutting across the
silos within the government, for example,
still, the maximum number of malnourished children in the
world are in India. POSHAAN ABHIYAAN by NITI Aayog is
best placed to achieve this convergence and push the agenda
forward. NITI Aayog is also helping to bring about a greater
level of responsibility in the system: Development Monitoring
and Evaluation Office has been established by the NITI
Aayog, which collects performance data of various Ministries on
a real-time basis. These data are then used at the highest policy-
making levels to improve performance and establish
accountability. This outcome-based real-time monitoring,
performance, and evaluation of government work can help to
improve the efficiency of governance. By using such data,
we also come up with ranks of the State based on
their performance across various verticals that promotes
a spirit of competitive federalism. NITI Aayog plays a
significant role in being the representative of States in Delhi
and facilitates direct communication with the line ministries,
which helps in addressing issues in a relatively shorter time
 DISADVANTAGES OF NITI AAYOG

The need of the hour is that NITI Aayog has to evolve

into a much stronger organization as compared to what it is
now. NITI Aayog should be engaged with the allocation of
“transformational” capital in a formulaic manner, complete
with incentive-compatible conditional ties. As now when the
Planning Commission has been dissolved, there is a vacuum
especially as the NITI Aayog is primarily a think tank with
no resources to dispense, which renders it toothless to
undertake a “transformational” intervention. The
implications that should be enforced in a complex country like
India which has become an industrial economy late is that the
planning must continue as a central function of the state to
bring the economy to long-run equilibrium. However, it can
be contended that the Planning Commission was not able to
fulfil its function adequately. The reason why NITI Aayog came
into force by replacing the Planning Commission, there was a
necessity to grow into a much stronger organization. The
NITI Aayog should come up with new reforms, learn from
the neighbouring countries, for example learn from the
experience of the now industrialized Chinese state. It ensured
after its market-oriented economic reforms began at the State
apparatus (China created special economic zones to
push manufacturing and export-oriented industries. The
general rules of business were eased in these zones, marked
out in areas with better

infrastructure and access to cheap labor for investors.

Indian special economic zones that came up decades later
lacked such push and better incentives to attract foreign
investors in numbers and size to give China a competition.
China made a shift by promoting green energy like solar power
and reducing its dependence on coal massively. China has
emerged as the second-largest solar energy producer. India may
emulate Chinese example to reduce its dependence on coal
and oil, most of which it imports).The State Planning
Commission should become more powerful by focusing on
growth and poverty reduction. China with its proper
implementation of strategies became the “factory of the world”
that was backed by an industrial policy that is driven by the
Reforms Commission and the National Development. Similarly,
in all Southeast Asian and East Asian countries, industrial
policy has always been planned and has been executed as
part of the five-year or longer-term plans. While Southeast
Asian and East Asian countries still have and had five-year
plans, the thing that was also integral to their planning
was the productive use of labor, the most abundant factor
of these countries, through an export-oriented
manufacturing strategy. Such strategies have been lacking in
India’s planning.
 REFERENCES/BIBLIOGRAPHY

 https://www.microeconomicsnotes.com
 https://www.blog.ipleaders.in
 https://www.businessmanagementideas.com