Indian Planning:

An overview
Dr. Susmita Banerjee
Associate Professor
Department of Economics
Charuchandra College
HISTORY:
Indian planning is an open process. Much of the controversy and the debates that accompany the preparation
of the plans are public. Though the planned economic development in India began in 1951 with the inception
of First Five Year Plan , theoretical efforts had begun much earlier, even prior to the independence.
• Setting up of National Planning Committee by Indian National Congress in 1938 ,
• The Bombay Plan & Gandhian Plan in 1944,
• Peoples Plan in 1945 (by post war reconstruction Committee of Indian Trade Union),
• Sarvodaya Plan in 1950 by Jaiprakash Narayan were steps in this direction.

Five-Year Plans (FYPs) are centralized and integrated national economic programs. Joseph Stalin
implemented the first FYP in the Soviet Union in the late 1920s. Most communist states and several
capitalist countries subsequently have adopted them.
After independence, India launched its First FYP in 1951, under socialist influence of first Prime Minister
Jawaharlal Nehru. The process began with setting up of Planning Commission 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.
The first Five-year Plan was launched in 1951 and two subsequent five-year plans were formulated till
1965, when there was a break because of the Indo-Pakistan Conflict. Two successive years of drought,
devaluation of the currency, a general rise in prices and erosion of resources disrupted the planning process
and after three Annual Plans between 1966 and 1969, the fourth Five-year plan was started in 1969
(-1974). Then came the fifth Five Year Plan (1974-79) which did not complete its five years because of the
change of party in power. With the coming into power of the Janata Party Government, the sixth Five Year
Plan was launched in 1978 covering the period1978-83. Again, with the change in Government in 1980,
the new Sixth Five Year Plan was started covering the period 1980-85 and followed by the Seventh Plan
(1985-90). Seventh Plan was completed by 1990.

The Eighth Plan could not take off in 1990 due to the fast changing political situation at the Centre and the
years 1990-91 and 1991-92 were treated as Annual Plans. The Eighth Plan was finally launched in 1992
after the initiation of structural adjustment policies.

For the first eight Plans the emphasis was on a growing public sector with massive investments in basic
and heavy industries, but since the launch of the Ninth Plan in 1997, the emphasis on the public sector has
become less pronounced and the current thinking on planning in the country, in general, is that it should
increasingly be of an indicative nature. Twelfth Plan was started in 2002.
Causes of Structural Backwardness of Indian Economy were perceived as follows:

1. Acute deficiency of material capital, which prevented the introduction of more

productive technologies.
2. Low domestic capacity to save
3. It was assumed that even if the domestic capacity to save could be raised by
mans of suitable fiscal and monetary policies, there were structural limitations
preventing conversion of savings into productive investment.
4. It was assumed that whereas agriculture was subject to secular diminishing returns,
industrialization would allow surplus labour currently underemployed in
agriculture to be more productively employed in industries which operated
according to increasing returns to scale.
5. It was assumed that if the market mechanism were accorded primacy, this would
result in excessive consumption by the upper income groups, along with relative
under-estimate in sectors essential to the accelerated development of the economy.
The Indian development experience could be divided into two distinct phases:

Phase I: The period spanning roughly the first three five years of planning (1950-51 to 1964-65)
may be termed as the sustained growth phase.--- sustained growth in most of the economic
performance. The growth rate was much higher than what had been recorded during the
pre-independence historical past. But not as high as it was targeted. The compulsion was to
initiate a sustained process of economic growth in a stagnant and backward economy with very
low PCY.

• It was believed that the autonomous market forces with private initiative could not be relied upon
to initiate the growth process. Active state intervention through comprehensive planning was
deemed to be required.

• Phase was dominated by the social objective of economic growth.

• Distributional aspect though discussed in the plan documents, were given secondary importance.
It was believed that the size of the cake had to be expanded before the distributional issues could
be tackled.

• It was thought that ‘trickle down’ effect would operate during the process of growth and it could
be strengthened through the orthodox fiscal policies.
Phase II: A sharp break in the growth process appears to have taken place since the
mid-sixties mainly due to two successive agricultural droughts of 1965-66 and 1966-67.
The entire period since mid-sixties to date has been characterised by a noticeable
deceleration in the growth rate along with high rate of inflation. This may be described
as the slowing down phase.
 PLAN
First Plan • It was based on Harrod-Domar Model.
(1951 - 56)
Target • Influx of refugees, severe food shortage & mounting inflation
Growth confronted the country at the onset of the first five year Plan.
: 2.1 %
Actual • The Plan Focused on agriculture, price stability, power and transport.
Growth
3.6 % • The plan had emphasised public irrigation as a leading input into
agriculture.

• It was a successful plan primarily because of good harvests in the last

two years of the plan. Objectives of rehabilitation of refugees, food self
sufficiency & control of prices were more or less achieved.
In the First Five Year Plan (1951-56) it was stated in the following words:
“ The urge to economic and social change under present conditions comes
from the facts of poverty and of inequalities in income, wealth and
opportunity. The elimination of poverty cannot obviously, be achieved merely
by redistributing existing wealth. Nor can a programme aiming only at raising
production remove existing inequalities. These two have to be considered
together....”
The above objectives of planning were emphasised in one form or the other in
the coming times also. As the Second Five Year Plan (1956-61) said:
“ The Plan has to carry forward the process initiated in the First Plan period. It
must provide for a larger increase in production, in investment and in
employment. Simultaneously, it must accelerate the institutional changes
needed to make the economy more dynamic and more progressive in terms no
less of social than of economic ends.”
Second Plan • Simple aggregative Harrod Domar Growth Model was again used for overall projections
(1956 - 61) and the strategy of resource allocation to broad sectors as agriculture & Industry was
based on two & four sector Model prepared by Prof. P C Mahalanobis. (Plan is also
Target Growth: called Mahalanobis Plan).Second plan was conceived in an atmosphere of economic
4.5% stability .
• It was felt agriculture could be accorded lower priority.
Actual Growth: • The Plan Focused on rapid industrialization- heavy & basic industries .
4.3% • Stepping up the rate of investment and a conscious policy of developing an indigenous
heavy industry base to lay the foundation for accelerated self reliant growth.
• Gave emphasis on leading role of state. It was believed that all industries of the basic
and strategic importance, or in the nature of public utility services should be in the
public sector. Other industries which are essential and require investment on a scale
which only the State have, also to be in the public sector.
• The encouragement of labour intensive technology for producing mass consumer goods
in order to generate adequate employment for the currently unemployed and
underemployed.
• Advocated huge imports through foreign loans.
• The Industrial Policy 1956 was based on establishment of a socialistic pattern of
society as the goal of economic policy.
Second Plan Revisited:

• Acute shortage of forex led to pruning of development targets , price rise was also seen ( about 30%) vis a vis decline in
the earlier Plan & the 2nd FYP was only moderately successful.

• Planners failed to estimate the amount of imports needed to achieve the process of transition to self –reliant growth.
They concluded that this increase in import is a temporary phenomenon. In the long run country can overcome this
situation if the suitable foreign assistance was available for the period of 10 to 15 years.

• Considerable acceleration in public sector investment in infrastructure and productive investments in universal
intermediates like steel, coal, power and heavy electrical machinery.

• Although the encouragement to the cottage, village and small scale industries as a means of providing employment as
well as expanding the supplies of consumer goods were conceived as part of this strategy, very little was achieved in this
regard.

• Policies towards reduction of income inequality were not very much successful.

• The rate of growth of industrial production was impressive. Spectacular growth was noticed in the production of
machineries, chemicals and iron and steel .

• Production of cotton textile industries were not very impressive. This indicates disproportionate growth of the heavy
industries sector.
Third Plan • The general pattern of development followed in this plan flows from the basic
(1961 - 66) approach and experience of the Second Five Year Plan.

Target Growth: • At its conception, it was felt that Indian economy has entered a “takeoff stage”.
5.6% Therefore, its aim was to make India a 'self-reliant' and 'self-generating'
economy.
Actual Growth:
2.8% • Based on the experience of first two plans (agricultural production was seen as
limiting factor in India’s economic development), agriculture was given top
priority to support the exports and industry. Thus the Third Plan seems to differ
from the Second.

• It was argued that during early stages of industrialization it was necessary for
agriculture to contribute to the building up of a modern industrial sector by
providing cheap labour and also cheap food. Along with increasing productivity,
this in turn would help in maintaining low ‘product wage’ in the industrial sector.
The relationship between maintaining a low product wage and a high level of
accumulation was assumed to be strictly positive.
• Indian planners had underestimated the time lag involved on the production side in industry, as all as the need
to bring about a large scale shift in the in the input-output ratios in traditional agriculture.
• Through PL480 imports as well as through irrigation-induced increase in food production, Indian planners
succeeded in maintaining low rate of price increase, which helped to maintain a sort of social equilibrium in
the urban areas.
• Social peace was further promoted by rapid increase in urban employment.
• In the agriculture sector expansion of the area cultivated even under traditional technology had led to the
non-negligible increase in rural income, at least in major agricultural states, eg., Punjab, Andhra Pradesh,
Tamil Nadu. Other states like Uttar Pradesh, though did not show any significant rise in agricultural
production, nevertheless benefitted from certain land reform measures, such a the abolition of intermediary
tenures.
• The Plan was thorough failure in reaching the targets due to unforeseen events like- Chinese aggression
(1962), Indo-Pak war (1965), severe drought 1965-67.
• Due to conflicts the approach during the later phase was shifted from development to defense &
development. Severe cut back in public investment led to the acceleration principle into reverse and
resulted emergence of significant excess capacity in the heavy and capital goods sector. .
• Two successive monsoon failures in 1965 and 1967 led to drastic fall in agricultural production.
• There was huge imbalance between demand and supply of food grains, which was combined result of
high growth rate of population, exhaustion of the possibilities for increasing the cultivated areaand the
diminished effectiveness of regional crop specialization.
• Huge import of food grain from USA.
URBAN BIAS:

Facts suggests that compared to the First Five Year Plan, there was a relative de-emphasis on agriculture in
the Second Five Year Plan. This was often claimed that there was urban bias at the root of India’s
development planning, which was pronounced in the Second plan and not significantly different in the Third
plan. .
Three Annual Failure of Third Plan that of the devaluation of rupee( to boost exports) along with inflationary
Plans recession led to postponement of Fourth FYP. Three Annual Plans were introduced instead. Prevailing
(1966-69) crisis in agriculture and serious food shortage necessitated the emphasis on agriculture during the
Annual Plans.
(Plan holiday)
During these plans a whole new agricultural strategy was implemented. It involving wide-spread
distribution of high-yielding varieties of seeds, extensive use of fertilizers, exploitation of irrigation
potential and soil conservation. This strategy carried over into the fourth Five Year Plan under the
leadership of Dr. D. R. Gadgil.

During the Annual Plans, the economy absorbed the shocks generated during the Third Plan
There was sharp cut in public investment.
Sharpe fall in the demand for a whole range of products produced by the private sector.
It paved the path for the planned growth ahead.

This plan was significant for two reasons: 1) annual plans bought out into the open one of the major
weaknesses underlying Mahalanobis’s strategy, namely, the idea that what was physically possible and
desirable could also be rendered financially feasible. 2) for any rate of growth of national income there
must ba corresponding rate of growth in the supply of necessities. Experience of inflation in the
mid-sixties, coupled with the government’s reluctance to step up investment raises the fear of
inflationary price expectations in spite of the existence of significant excess capacity in the equipment
goods sector. How best to finance a plan required very careful attention.
Fourth Plan • Refusal of supply of essential equipments and raw materials from the allies during
(1969 - 74) Indo Pak war resulted in twin objectives of “ growth with stability “ and
Target Growth: “progressive achievement of self reliance “ for the Fourth Plan.
5.7% Actual • In India’s economy, two factors , viz, fluctuations in agricultural production and
Growth: 3.3%. uncertainties about foreign assistance cause greater instabilities.
• Main emphasis was on growth rate of agriculture to enable other sectors to move
forward. First two years of the plan saw record production. The last three years did
Major events: not measure up due to poor monsoon.
▪ Bank • Laid stress on creating buffer stocks of food grains so as to ensure regular supplies
Nationalization of food. According to the Indian planners this step is required to bring the stability
▪ Green Revolution in general price level.
• In order to eliminate uncertainties in respect of resources for the plan , it was felt
that the dependence on foreign aid was to be minimized.
• Implementation of Family Planning Programmes were amongst major targets of
the Plan.
• Influx of Bangladeshi refugees before and after 1971 Indo-Pak war was an
important issue along with price situation deteriorating to crisis proportions and the
plan is considered as big failure.
• Stability could not be eliminated. In addition, some new bottlenecks developed- the
most notable being in the field of energy and transport. These factors together
prevented growth rate from picking up.
Fifth Plan • The final Draft of fifth plan was prepared and launched by D.P. Dhar in the backdrop of
(1974-79) economic crisis arising out of run-away inflation fueled by hike in oil prices and failure
Target of the Govt. takeover of the wholesale trade in wheat.
Growth:
4.4% Actual • Social compulsions of the problems of persistent and widespread poverty and
Growth: unemployment which came to the force during the second phase provide a plausible
4.8% rationale for the advocacy of the redistributive focus in the development strategy that
has been proposed in all the plan documents since the Fifth Five Year Plan.

• The shift towards the redistributive strategy takes for granted the basic premise that the
undifferentiated growth itself would not be able to tackle the problem of persistent and
widespread poverty over a foreseeable horizon.
FIFTH PLAN :
• It proposed to achieve two main objectives: 'removal of poverty’ (Garibi Hatao) and 'attainment of self reliance’. It
was felt that it was not enough by itself to alleviate the ‘mass poverty’, which was center of political attraction at that
time. This led to the formulation of an approach to the Fifth Five Year Plan which was based on a strategy of
‘redistribution with growth’. The Approach to the Fifth Five Year Plan followed the recommendation of the working
group in its definition of poverty in terms of nutritional inadequacy, and further encouraged by the political mood,
ventured to put explicit redistribution in the lowest three deciles as an objective in its own right. Aimed for
inter-sectorally consistent growth rates of output that would be necessary to raise the average per capita consumption
level of the lowest three deciles to a stipulated figure.

• Promotion of high rate of growth, better distribution of income and significant growth in the domestic rate of savings
were seen as key instruments.

• Emphasised on the ultimate objective of elimination of concessional external assistance. ( same as Third and Fourth
Plan) Political mood was encouraging as the ruling part had been returned to power in 1971 with a popular mandate to
remove poverty

• For the realisation of this objective, the principal emphasis was on raising the investment rate apart from pushing up the
productivity level, keeping in mind a population growth rate of 2% per annum.
• Furthermore, since net aid had to reduced to zero by the terminal year, domestic savings had to equal
domestic investment in the terminal year. There was however a cushion provided by the assumption
that net inflow of external capital for the plan as a whole would be a non-zero sum worked out from
independent estimates.

• Due to high inflation, cost calculations for the Plan proved to be completely wrong and the original
public sector outlay had to be revised upwards. After promulgation of emergency in 1975, the
emphasis shifted to the implementation of Prime Ministers 20 Point Programme. FYP was relegated
to the background and when Janta Party came to power in 1978, the Plan was terminated.

• Failed to create any solid foundation on the basis of which subsequent growth process could be
sustained. Thus in 1979-80 the economy suffered a major set back and the GDP declined by 5.2%.

The objectives were stated by the Sixth Five Year Plan (1980-85) in the following words:
“ The basic task of economic planning in India is to bring about a structural transformation of
the economy so as to achieve a high and sustained rate of growth, a progressive improvement
in the standard of living of the masses leading to eradication of poverty and unemployment
and providing a material base for a self-reliant economy.”
Sixth Plan The Sixth Plan began at a time when the economy was severely disrupted by the
(1980 - 85) drought of 1979 and a sharp deterioration in our terms of trade brought about by a
Target Growth: further steep increase in the price of imported oil in 1979 and 1980. The deterioration
5.2% in the balance of payments and the high rate of inflation threatened the stability of the
Actual Growth: economic system and the possibility of sustained growth. However, during the Sixth
5.7% Plan period, successful efforts were made to restore economic stability and to sustain
the process of growth and development. The Plan was based on a set of objectives,
and the actual performance of the economy in terms of growth, modernization,
self-reliance and social justice is assessed in what follows.
Formation of
NABARD and The Sixth Five Year Plan India was undertaken for the period between 1980
EXIM Bank in to1985, with the main aim of attaining objectives like :
1982 • speedy industrialization,
• rise in the employment level through schemes like TRYSEM, IRDP and providing
slack season employment (NREP)
• poverty reduction, [DWCRA, IRDP]
• acquisition of technological self-reliance.
• Increase in national income,
• modernization of technology,
• controlling population explosion etc.
• At the onset of the Sixth Five Year Plan India, Rajiv Gandhi, the then prime minister prioritized speedy industrial
development, with special emphasis on the information technology sector. From the Fifth Five Year Plan, the
nation had been able to achieve self sufficiency in food. Moreover, the industrial sector was also diversified and
science and technology also made a significant advance.

• the major hindrances in the way of further development in this period was the boom in the Indian population.
Family Planning was introduced in India for the first time.

• However, several successful programs on improvement of public health and epidemic control were also
undertaken to reduce infant mortality and increase life expectancy. Significant investments were made by the
government in the Indian healthcare sector.

• The aggregate growth target set for the Sixth Plan could be achieved mainly because of good agricultural
performance and a rapid growth in the services sector. The rate of growth of income generated in mining and
manufacturing was well below target, and this is one of the weak points in the growth record in the Sixth Plan.

• The Sixth Plan was formulated at a time when the balance of payments was under severe strain due to the
sharp increase in oil prices. During the Sixth Plan, both exports and imports grew more slowly than anticipated
and the overall trade deficit (at constant prices) was about 18 per cent larger than anticipated. However, the net
earnings from invisibles were much higher, and the current account deficit (at constant prices) was nearly a
third less than anticipated. These developments, along with the inflow of borrowings from the International
Monetary Fund, halted the decline in exchange reserves which started in 1979-80. In the last three years of the
Plan, foreign exchange reserves rose steadily, and covered nearly 5 months' imports by the end of 1984-85.
 ▪ A crucial component in the strategy for self-reliance was the accelerated oil production programme. A rapid
increase in the production of domestic crude oil decreased the import: Had the import ratio for these two
commodities remained at the 1979-80 levels, the financing of these imports would have posed a virtually
insurmountable problem for the balance of payments in the Sixth Plan period. Restriction on consumption
would have been inevitable with consequential disruptions in agriculture, industry, transportation and other
sectors.

• There was a decline in the incidence of poverty in this period.

• The objective of social justice is also served by the minimum needs programme which aims at an improvement
in living conditions of the poor and their access to education and health. During the Sixth Plan, targets for
elementary education enrolment and for the provision of primary and subsidiary health centres were exceeded.
• The Indian national highway system was introduced for the first time and many roads were widened to
accommodate the increase in traffic and betterment of traffic system in India.
• Tourism expanded.
• Beginning of economic liberalization.
• Price controls eliminated and ration shops closed. This led to the increase in food prices and an increased cost
of living.

Broadly, the sixth Plan could be taken as a success as most of the target were realized even though during the last
year (1984-85) many parts of the country faced severe famine conditions and agricultural output was less than the
record output of previous year.
The Seventh Seventh Plan started off on a strong ground. The Sixth Plan had paved the way for economic development by
Five-Year increasing the production in the agricultural and industrial sector, curbing the rate of inflation and maintaining
Plan: a balance in the transaction of goods, services and money. This plan strove to achieve socialism and expand
(1985-90 ) the production of energy.
Target Growth:
5.0% The main objectives of the Seventh Five-Year Plan are as follows:
Actual Growth: 1) Decentralization of planning and full public participation in Development.
6.0% 2) The maximum possible generation of productive employment.
3) Alleviation of poverty and a reduction in interclass, inter regional and rural urban disparities.
4) To grow agricultural sector at an average annual rate of 4.0 per cent in terms of gross output and 2.5 per
cent in terms of value added;
5) Attainment of self sufficiency in food, at higher levels of consumption.
6) A higher level of social consumption, particularly in education, health, nutrition and sanitation and
housing.
7) An enhancement in the degree of self reliance through export promotion and import substitution.
8) The acceleration of the voluntary adoption of a small family norm and a positive role for women in
economic and social activity.
9) A reduction in infrastructural bottlenecks and shortages and improved capacity utilization and productivity
throughout the economy.
10) To ensure rapid expansion of irrigation, power, transport and industry facilities;
11) Efficiency, modernization and competition in industry.
12) Conservation of energy and promotion of non conventional energy sources.
13) Ecological and environmental conservation
14) The integration of science and technology into the main stream of development planning.
The Seventh Plan aimed at 5% per annum increase in GDP. This rate was a little higher than the rate of growth
realised during the past decade. Considering the resource constraint and the actual performance of the economy
during the first three years of the plan, realisation of this target did not look very easy. In the first three years of
the Seventh Plan GDP had increased at a modest rate of 3.8% per annum. However during 1988-89 due to
bumper harvests the growth rate picked up sharply and the average annual increase in GDP during the whole of
the Seventh Plan period turned out to be 5.8% per annum against the target of 5% per annum. Thus the overall
growth rate exceeded the target. In isolation this may look quite impressive. However, if we examine as to how
overall rate of growth rate of 5.8% per annum was realised during the Seventh Plan Period, the situation appears
to be less encouraging. The country did not register a steady rate of growth during the Seventh Plan Period.
There were marked variations in the rate of growth registered in different years of the plan.

The situation changed drastically in the 1980’s especially under the Rajiv Gandhi Regime, when the government
embarked on an aggressively expansionist policy without any attempt to tackle difficult problems of mobilising
revenues. The fiscal deficit was growing very fast and there was no hesitation in financing it through borrowing
and deficit finance. At the same time the foreign exchange position deteriorated due to a slow down in exports,
the cumulative effect of large commitments on account of non-development imports during the early eighties
and unrestrained commercial borrowing on hard terms. Thus, in spite of an improvement in the average GDP
growth rate, the growth process of 1980s has been widely criticised by the economists. The major criticism of
this growth process which involved high fiscal deficit was that it was unsustainable as it put pressure on BOP
and also led to inflation. Another major criticism was that it involved inefficient utilisation of resources.
The year of 1990-91 was not bad in terms of growth rate though in this year the economic crisis which was
deepened in 1991-92 had already began.
In 1990-91, GDP registered 5.4 percent increase. this could not be sustained in 1991-92 as in this year
adverse effects of the economic crisis arrested the overall growth process. The rate of growth of GDP in this
year was only 0.8 percent and both agricultural and industrial sectors registered negative growth rates of 2.8
and 0.1 percent respectively.
BOP problem worsen.
Country faced severe foreign exchange problem and was on the brink of default in payment.
Government tackled this problem by introducing a severe import squeeze, as a result of which industrial
production was disrupted.
Production in the industrial sector showed a tendency to fall.
Inflationary pressure which had begun to increase in 1990-91, reached a peak level of 16.7 percent .
Growth rate of real GDP in this period of crisis decelerated sharply and was as low as 0.8% in 1991-92.

Two Annual Plans (1990-91 and 1991-92)

The Eighth Plan (whose term would have been 1990— 95) could not take off due to the ‘fast changing
political situation at the Centre’.79 The pathbreaking and restructuring-oriented suggestions of the Eighth
Plan, the sweeping economic reforms ensuing around the world as well as the fiscal imbalances of the late
1980s were the other important reasons for the delay in the launch of the Eighth Plan. The new government,
which assumed power at the centre in June 1991, decided to commence the Eighth Plan for the period
1992— 97 and that the fiscals 1990— 91 and 1991— 92 should be treated as two separate Annual Plans. The
two consecutive Annual Plans (1990—92) were formulated within the framework of the approach to the
Eighth Plan (1990— 95) with the basic thrust on maximisation of employment and social transformation.
The government which assumed office in June 1991 responded to the crisis in two ways. First, it
took some emergency actions to restore confidence in the government’s ability to manage the
balance of payments. Had the government failed on this front the crisis would have deepened and
all programmes of future development in this country would have in jeopardy. Among the
emergency actions devaluations of the rupee by around 18 percent in July 1991 and shipment of
gold to the Bank of England to raise $600 million were particularly important. However, these
measures could provide only temporary respite from the economic crisis. Therefore, government
decided to introduce substantial reform and adopted a new development strategy. The new
development strategy involved four majour policy initiatives:
i) Macroeconomic stabilization through fiscal correction
ii) Trade policy reforms to provide stimulus to exports
iii) Industrial policy reforms to provide greater competitive stimulus to industry, and
iv) Financial sector reforms to improve its performance.
These policy measures were expected to improve the health of the economy and put it back on the
development path. This new development strategy is often characterised as Export-led-Growth
strategy. It assumes that trade is an engine of growth implying that the performance on the export
front will determine the overall growth performance of the economy. However, the export
performance to a greater extent depends upon the external economic environment which in recent
years has not been very favourable due to recession in the major industrialised countries. The ELG
enabled countries like Hong Kong, South Korea, Singapore, China , Malaysia to achieve higher
growth path. The Indian Government was inspired from their development experiences.

It will be highly needful to enquire about the objectives of planning in the era of the economic
reforms initiated in the fiscal 1991— 92 as this new economic policy (NEP) made the experts and
economists to conclude many questionable things about the objectives of planning in the country:

(a) The need to shift dependence from wage to self-employment.

(b) The state is rolling back and the economy is becoming pro-private and sector-wise the social
purpose of the planning will be lacking.
(c) The objectives of planning nearly outlined hitherto have been blurred.
(d) The promotion of foreign investment will induce the economy into the perils of
neo-imperialism, etc.
But all the above-given doubts were cleared by the forthcoming plans in
straightforward words. We may quote from the following Plans:

“ For the future economic development, the economy will be more

dependent upon private participation and the nature of planning will become
more indicative with the major objectives of planning remaining the same” .

This was announced by the government while launching the economic

reforms (July 23, 1991) and commencing the Eighth Five Year Plan (1992—
97).

“ There was no change in the basic objectives of planning even though there
was change in instruments of policy” — this was announced by the
government while announcing the new economic policy (1991).
Eighth Plan The Eighth Plan (1992— 97) was launched in a typically new economic environment. The
(1992— 97) economic reforms were already started (in July 1991) with the initiation of the structural
Target Growth: adjustment and macro-stabilisation policies necessitated by the worsening balance of payments,
5.6% higher fiscal deficit and unsustainable rate of inflation. This was the first plan which went on for
Actual Growth: an introspection of the macro-economic policies which the country had been pursuing for many
6.8% decades. The major concerns and pathbreaking suggestions which this Plan articulated may be
summarised as follows:
i) an immediate re-definition of the state’s role in the economy was suggested;
(ii) ‘market-based’ development advised in the areas which could afford it, i.e., a greater role for
the private sector in the economy;
(iii) more investment in the infrastructure sector, especially in the laggard states as the ongoing
emphasis on greater private sector investment could not be attracted towards these states;
(iv) rising non-plan expenditure and fiscal deficits need to be checked;
(v) subsidies need restructuring and refocussing;
(vi) planning immediately needs to be ‘decentralised’;
(vii) special emphasis on ‘co-operative federalism’ suggested;
(viii) greater focus on ‘agriculture’ and other ‘rural activities’ was suggested for which the Plan
cited empirical evidences as they encourage the economy to achieve enhanced standard of living
for its people and to promote the cause of balanced growth, a shift in the mindset of planning.
As the economy moved towards liberalisation, criticism came from every quarter against the move.
The process of planning was also criticised on the following counts:
(i) As economy moves towards the market economy, the planning becomes ‘irrelevant’;
(ii) When the state is ‘rolling back’, planning makes no sense;
(iii) The planning process should be ‘re-structured’ in the era of liberalisation; and
(iv) There should be increased thrust on the ‘social sector’ (i.e., education, healthcare, etc.)
The planners had envisaged a target of 5.6 percent per annum increase in GDP in the Eighth Plan. As
against this, GDP increased at an impressive rate of 6.8 percent per annum during the Eighth Plan
period. In the first two years the rate of increase in GDP was rather modest -5.5 percent per annum.
Thereafter, in the remaining three years of the Eighth Plan annual rate of increase in GDP was 7.0
percent or more., the average rate of increase in GDP being 7.3 percent per annum.
This spectacular economic growth made proponents of economic liberalisation in the country unduly
optimistic and they opined that the liberalisation package had put the Indian Economy on the high
growth path. But the fundamentals of the economy were not sound. The saving and investment rates
were low. Hence, 7.0 percent growth rate could not be sustained and the economy reverted back to a
lower growth path.
While the Ninth Plan (1997— 2002) was being launched it was announced:
“ The goals of planning in India, which were set by Panditji have not changed. The
Ninth Plan does not attempt to reinvent the wheel. At the same time, the goals and
targets this Plan attempts to achieve are based on the lessons of experience including
the Eighth Plan. They address today’s problems and challenges and try to prepare the
nation for tomorrow as well.”
The Ninth Plan The Ninth Plan (1997— 2002) was launched when there was an all round ‘slowdown’ in the
(1997— 2002) economy led by the South East Asian Financial Crisis (1996— 97). Though the liberalisation
process was still criticised, the economy was very much out of the fiscal imbroglio of the early
Target Growth: 1990s. The Plan prepared under United Front Government focussed on “Growth With Social
6.5% Justice & Equality “
Actual Growth: With a general nature of ‘indicative planning’ the Plan not only did target an ambitious high
5.4% growth rate (7 per cent) but also tried to direct itself towards time-bound ‘social’ objectives.
There was an emphasis on the seven identified Basic Minimum Services (BMS) with
additional Central Assistance for these services with a view to obtaining complete coverage of
the population in a time-bound manner. The BMS included:
(i) Safe drinking water;
(ii) Primary health service;
(iii) Universalisation of primary education;
(iv) Public housing assistance to the shelter-less poor families;
(v) Nutritional support to children;
(vi) Connectivity of all villages and habitations; and
(vii) Streamlining of the public distribution system.
Ninth Plan aimed to depend predominantly on the private sector – Indian as well as
foreign (FDI) & State was envisaged to increasingly play the role of facilitator &
increasingly involve itself with social sector viz education , health etc. and infrastructure
where private sector participation was likely to be limited. It assigned priority to
agriculture & rural development with a view to generate adequate productive
employment and eradicate poverty.
The issue of fiscal consolidation became a top priority for the governments starting from
this Plan, for the first time which had its focus on the following related issues:

(i) Sharp reduction in the revenue deficit of the government, including centre, states and
the PSUs through a combination of improved revenue collections and control of
inessential expenditures;
(ii) Cutting down subsidies, collection of user charges on economic services (i.e.,
electricity, transportation, etc.), cutting down interest, wages, pension, PF, etc;
(iii) Decentralisation of planning and implementation through greater reliance on states
and the Panchayat Raj Institutions (PRIs).
Tenth Plan Recognising that economic growth cant be the only objective of national plan, Tenth
(2002 - 2007) Plan had set ‘monitorable targets’ for few key indicators of development besides 8
Target Growth % growth target. The targets included reduction in gender gaps in literacy and wage
8%
Actual Growth rate, reduction in Infant & maternal mortality rates, improvement in literacy, access to
7.6 % potable drinking water cleaning of major polluted rivers, etc. Governance was
considered as factor of development & agriculture was declared as prime moving force
of the economy.
States role in planning was to be increased with greater involvement of Panchayati Raj
Institutions. State wise break up of targets for growth and social development sought to
achieve balanced development of all states.
Some highly important steps were taken during the plan, which undoubtedly points out a change in the
planning policy mindset of the government, major ones being:

(i) Doubling per capita income in 10 years;

(ii) Accepting that the higher growth rates are not the only objective— it should be translated into improving
the quality of life of the people;
(iii) For the first time the Plan went to set the ‘monitorable targets’ for eleven select indicators of development
for the centre as well as for the states;
(iv) ‘Governance’ was considered a factor of development;
(v) States’ role in planning to be increased with the greater involvement of the PRIs;
(vi) Policy and institutional reforms in each sector, i.e., reforms in the PSUs, legal reforms, administrative
reforms, labour reforms, etc;
(vii) Agriculture sector declared as the prime moving force (PMF) of the economy;
(viii) Increased emphasis on the social sector (i.e., education, health, etc.);
(ix) Relevance between the processes of economic reforms and planning emphasised; etc.

The Mid-term Appraisal of the Plan was approved by the NDC in June 2005. The assessment gives a mixed
picture regarding its performance. As per the appraisal, the country performed well in many areas and these
gains needed to be consolidated, but there were some important weaknesses also, which, if not corrected can
undermine even the current performance level.
Eleventh Plan Eleventh Plan was aimed “Towards Faster & More Inclusive Growth “after UPA rode back
(2007 - 2012) to power on the plank of helping Aam Aadmi (common man). India had emerged as one of the
Target fastest growing economy by the end of the Tenth Plan. The savings and investment rates had
Growth increased , industrial sector had responded well to face competition in the global economy and
9% foreign investors were keen to invest in India. But the growth was not perceived as sufficiently
Actual Growth inclusive for many groups , specially SCs , STs & minorities as borne out by data on several
8% dimensions like poverty, malnutrition, mortality, current daily employment etc .
The Plan targets a growth rate of 10 per cent and emphasises the idea of ‘inclusive growth’. In
the approach paper, the Planning Commission shows its concerns regarding realising the
growth targets on account of the compulsions towards the Fiscal Responsibility and Budget
Management Act. The major concerns were:
(i) A higher inflation (above 6 per cent) led to the tightening of the credit policy forcing lower
investment in the economy (which will lower the production);
(ii) A stronger rupee is making export earnings shrink fast;
(iii) Costlier food grains and other primary articles playing havoc for the poor masses;
(iv) Costlier oil prices becoming a burden for the national exchequer; etc.
Not only the government but the Confederation of Indian Industry (CII) as well as the World
Bank expressed doubts in the Eleventh Plan realising the ambitious 10 per cent growth.
It has drawn attention to the problems in some selected areas and identified constraints that
would be of relevance for the balance period of the Eleventh Plan and also for the Twelfth
Plan. These include inter-alia:
(i) Restoring dynamism in agriculture,
(ii) Managing India’s water resources,
(iii) Problems in achieving power generation targets,
(iv) Issues pertaining to urbanisation, and
(v) Special problems of tribal development.
Performance of Eleventh Plan:

The broad vision for Eleventh Plan included several inter related components like rapid growth reducing poverty
& creating employment opportunities , access to essential services in health & education, specially for the poor,
extension if employment opportunities using National Rural Employment Guarantee Programme, environmental
sustainability, reduction of gender inequality etc. Accordingly various targets were laid down like reduction in
unemployment ( to less than 5 % among educated youth ) & headcount ratio of poverty ( by 10 %), reduction in
drop out rates, gender gap in literacy , infant mortality , total fertility , malnutrition in age group of 0-3 ( to half
its present level), improvement in sex ratio, forest & tree cover, air quality in major cities, ensuring electricity
connection to all villages & BPL households (by 2009) & reliable power by end of Eleventh Plan , all weather
road connection to habitations with population 1000 & above (500 in hilly areas) by 2009, connecting every
village by telephone & providing broad band connectivity to all villages by 2012.

The Eleventh Plan started well with the first year achieving a growth rate of 9.3 per cent, however the growth
decelerated to 6.7 per cent rate in 2008-09 following the global financial crisis. The economy recovered
substantially to register growth rates of 8.6 per cent and 9.3 per cent in 2009-10 and 2010-11 respectively.
However, the second bout of global slowdown in 2011 due to the sovereign debt crisis in Europe coupled with
domestic factors such as tight monetary policy and supply side bottlenecks, resulted in deceleration of growth to
6.2 per cent in 2011-12.
Consequently, the average annual growth rate of Gross Domestic Product (GDP) achieved during the
Eleventh Plan was 8 per cent, which was lower than the target but better than the Tenth Plan achievement.
Since the period saw two global crises - one in 2008 and another in 2011 – the 8 per cent growth may be
termed as satisfactory. The realised GDP growth rate for the agriculture, industry and services sector
during the 11th Plan period is estimated at 3.7 per cent, 7.2 per cent and 9.7 per cent against the growth
target of 4 per cent, 10-11 per cent and 9-11 per cent respectively.

The Eleventh Plan set a target of 34.8 percent for domestic savings and 36.7 per cent for investment after
experiencing a rising level of domestic savings as well as investment and especially after emergence of
structural break during the Tenth Plan period. However, the domestic savings and investment averaged
33.5 per cent and 36.1 per cent of GDP at market prices respectively in the Eleventh Plan which is below
the target but not very far.

Based on the latest estimates of poverty released by the Planning Commission, poverty in the country has
declined by 1.5 percentage points per year between 2004-05 and 2009-10.The rate of decline during the
period 2004-05 to 2009-10 is twice the rate of decline witnessed during the period 1993-94 to 2004-05.
Though the new poverty count based on Tendulkar Formula has been subject of controversy , it is
believed by the Committee that whether we use the old method or the new , the decline in percentage of
population below poverty line is almost same.
On the fiscal front , the expansionary measures taken by the government to counter the effect of lobal
slowdown led to increase in key indicators through 2009-10 with some moderation thereafter. The
performance on the Fiscal Scenario, according to the Planning Commission, the expansionary fiscal
measures taken by the government in order to counter the effects of the global slowdown were continued in
2009— 10, and this led to further increase in the key deficit indicators. The fiscal deficit of the Centre, which
was 2.5 per cent in 2007— 08 increased substantially to 6.0 per cent in 2008— 09 and further to 6.4 per
cent in 2009— 10, but it declined to 5.1 per cent in 2010— 11 (RE) and the Budget Estimates for 2011— 12
put the fiscal deficit at 4.6 per cent of the GDP.
Similarly, the revenue deficit of the Centre increased from 1.1 per cent in 2007— 08 to 4.5 per cent in
2008— 09 and further to 5.2 per cent in 2009— 10 and declined to 3.4 per cent for 2010— 11 (RE). As per
2011— 12 (BE), the revenue deficit is projected at the same level of 3.4 per cent of the GDP. The increase in
the deficit levels of the Centre owes to revenue foregone on account of reduction in indirect tax rates and
enhanced
public expenditure in order to boost demand in the economy amidst global meltdown. The issue of Price
Stability remained resonating for more than half of the Plan period. To ward off the crisis of rising prices,
the government needed to announce several tax concessions at one hand, while it could not pass the burden
of the costlier imported oil prices on the masses. That would have resulted in ultimately putting the
exchequer in a fund-crunch mode, at the end, creating a short-supply of investible funds in government’s
hand, hence, causing the Eleventh Plan to perform at the levels below its target. Inability to pass on burden
on costlier imported oil prices might have constrained the supply of investible funds in the government’s
hand causing the 11th Plan to perform at the levels below its target.
 Though expectations have mounted, the circumstances in which the Twelfth Plan was
Twelfth Plan commenced were less favourable than at the start of the Eleventh Plan in 2007–08. At that
(2012-2017) time, the economy was growing robustly, the macroeconomic balance was improving and
global economic developments were supportive. The situation were much more difficult at
Target Growth:
the time of commencement of Twelfth Plan. The global economy was going through what
9.0%
looks like a prolonged slowdown precipitated by the sovereign debt problems of the
Actual Growth: 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.

The domestic economy was also run up against several internal constraints. Macro-economic
imbalances had surfaced following the fiscal expansion undertaken after 2008 to give a fiscal
stimulus to the economy. Inflationary pressures had built up. Major investment projects in
energy and transport had slowed down because of a variety of implementation problems.
Some changes in tax treatment in the 2012–13 had caused uncertainty among investors.

The Twelfth Plan therefore emphasizes that our first priority must be to bring the economy
back to rapid growth while ensuring hat the growth is both inclusive and sustainable. The
broad vision and aspirations which the Twelfth Plan seeks to fulfil are reflected in the
subtitle: ‘Faster, Sustainable, and More Inclusive Growth’.
Inclusiveness is to be achieved through poverty reduction, promoting group equality and regional balance,
reducing inequality, empowering people etc. whereas sustainability includes ensuring environmental
sustainability ,development of human capital through improved health, education, skill development, nutrition,
information technology etc. and development of institutional capabilities, infrastructure like power
telecommunication, roads, transport etc.

The policy challenge in the Twelfth Plan was, therefore, two-fold.

The immediate challenge was to reverse the observed deceleration in growth by reviving investment as
quickly as possible. This calls for urgent action to tackle implementation constraints in infrastructure which
are holding up large projects, combined with action to deal with tax related issues which have created
uncertainty in the investment climate.
From a longer term perspective, the Plan must put in place policies that can leverage the many strengths of
the economy to bring it back to its real growth potential.

Immediate priority is to revive the investor sentiment along with next short term action of removing the
impediments to implementation of projects in infrastructure, especially in the area of energy which would
require addressing the issue of fuel supply to power stations, financial problems of discoms and clarity in terms
of New Exploration Licensing Policy (NELP).
Planning Commission identified the strengths that can be leveraged to enable the country to move forward, and
the constraints that could hold it back, and on this basis they developed a strategic agenda. In developing such
an agenda, the Planning Commission had relied on four key elements:
• the strategy must be firmly grounded in an understanding of the complexities of the development challenges
that India was facing at that time and also recognising the transformation that was taking place in the
economy and in the world. This understanding of the ground reality was required to identify the critical
leverage points where government action could have the maximum impact.
• progress would be achieved through a combination of government action in both policies and public
programmes and the efforts of many private actors that are important in the economy.
• the outlay on government programmes had to increase in many areas but this must be accompanied by
improved implementation. For this, they argued, that it was necessary to focus on capacity building and
governance reforms, including system change that would increase accountability in the public sector.
• Finally, the planning process must serve as a way of getting different stakeholders to work together to
achieve broad consensus on key issues. These stakeholders include (i) different levels of the government
sector: Centre, States and Panchayati Raj Institutions (PRIs)/Urban Local Bodies (ULBs); (ii) the private
sector, both big companies and small businesses, whose investments would drive our growth and (iii)
citizens’ groups and the voluntary sector, who would bring the key element of people’s participation and
can greatly help improve the quality of government action.
Although planning should cover both the activities of the government and those of the private sector, a great
deal of the public debate on planning in India had taken place around the size of the public sector plan. The
Twelfth Plan laid an ambitious set of Government programmes, in order to achieve the objective of rapid and
inclusive growth. In view of the scarcity of resources, it was essential to take bold steps to improve the
efficiency of public expenditure through plan programmes. Need for fiscal correction viz tax reforms like
GST, reduction of subsidies as per cent of GDP (while still allowing for targeted subsidies that advance the
cause of inclusiveness etc .) and managing the current account deficit was another chief concern for the
planners .

Achievement of sustained growth would require long term increase in investment and savings rate . It was
argued that in order to bring the economy back to 9 per cent growth by the end of the Twelfth Plan, it was
necessary to increase the fixed investment rate up to 35 per cent of GDP. For this, actions were required to
revive private investment, including private corporate investment. Moreover, actions were also needed to
stimulate public investment, (especially in key areas of infrastructure especially, energy, transport, water
supply and water resource management). Reversal of the combined deterioration in government and
corporate savings were a key element in the strategy.