Indian Economy (Evolution of Indian Planning) by Gaurav Bansal

Model Answer

Question #1. During the Plan Period, India achieved success in some directions and failed in other areas. In this context, evaluate the performance of Five Year Plans in solving various problems in India.

Approach:

• The question requires analysis of 5 year plan in light of its success and failures
• Contextually introduce with economic planning in India
• Discuss the success and problems with five year plans in India
• Conclude by writing about why the 5 year plans were discontinued

Context:

From 1947 to 2017, the Indian economy was premised on the concept of planning. This was carried through the Five-Year Plans, developed, executed, and monitored by the Planning Commission (1951-2014) and the NITI Aayog (2015-2017). There were certain objectives of economic planning which include achieving economic growth in terms of increase in real national and per capita income, increase in the level of employment, removal of inequality in the distribution of income removal of poverty, ensuring social and economic justice etc. With the Planning Commission dissolved, no more formal plans are made for the economy. 

Success of five year plans in India

• Achievements of economic planning: Achieving economic growth was a major objectives of planning. The per capita income has attained growth but the rate of growth has been very slow.
• Creation of Infrastructure: India has achieved a great deal in the area of creation of infrastructure. There has been large expansion roads and railway networks. Domestic air travel has increased significantly. Expansion of irrigation and hydro-electric projects has given boost to agricultural production. There has been growth in establishment of towns and cities due to increase in urban infrastructure. Communication network in the form of mobile telephony, internet has expanded tremendously.
• Development in Education: One of the brightest areas of achievements of planning has been the development in education in India. There has been a significant increase in the enrolment of children at school level. 
• Development of Science and Technology: Another significant area of achievement has been the growth in science and technology including the increase in technical and skilled manpower. India’s march in space research has been noticed by the developed countries. It has made impact in the field of nuclear energy as well. 
• Expansion of Foreign Trade: Due to industrialization in the country, India’s dependence on import of capital goods has delivered. Many items, which were imported earlier are being produced domestically. Due to industrial progress, India is also able to export manufacturing and engineering goods.

Drawback of economic planning in India

• Failure to Remove Poverty and Inequality completely: Even after decades of planning, India has not been able to remove poverty completely. There is no significant improvement in the distribution of income and asset holding resulting in existence of inequality. The number of landless agricultural labourers is very high as compared to the land holding population.
• Problem of Unemployment Persists: In spite of growth in income and output, India’s employment situation has not improved much.
• Failure to Curtail Corruption and Black Money: Existence of rampant corruption in various public offices is a matter of grave concern in India. Common person faces a lot of problem in getting things done without giving bribe. In fact corruption has become a major political issue in elections.
• Inefficient administration: As expert team of UNO observed that one of the main shortcomings of Indian plans has been with reference to its implementation.
• Monopoly: The economic planning in India created monopoly not just in public sector units but also in private sector. Example- HAL, BHEL, ITC, Nestle, etc.
• Industrial sickness:  Other drawbacks of the planning is in the planning stage are a major cause of industrial sickness which occurred as a result of many factors such as  faulty choice of location, wrong estimate of budget and too much bureaucratization, etc.

Thus, there were many unfulfilled tasks which the planning in India could not achieve completely. Also, due to the top-to-bottom approach in centralised planning, it was felt that the states needed to have greater say in planning their expenditure. The Planning Commission was seen to be imposing its diktats on states who could have better known what and how much they needed. The Niti Ayog, which has replaced the Planning Commission, is the new body that gives policy direction. Its founding principal is ‘cooperative federalism’. Most important difference is that Niti Ayog has no power to grant funds or make decisions on behalf of states.

Question #2. A broader shift from authoritative planning to indicative planning has already happened in the past decades and thus, there was no need for NITI Ayog with overriding powers. Discuss.

Approach:

• The question requires analysis of the Indicative planning and NITI Ayog
• Introduce by writing about the imperative planning and Indicative planning
• Give reasons for move towards indicative planning
• Then explain the Need for the creation of NITI Ayog
• Conclude by writing the broader significance of NITI Ayog

Hints:

Post independence there was authoritative/imperative planning in India. Under this detailed policy was set with precise estimates of output, production and investment; government directs the public & private sector. India was adopted indicative planning during the 8th Five Year Plan. Indicative planning was implemented to solve the issue of imperfect information in the market and mixed economies.

Reasons to move towards indicative planning –

• We were a closed economy
• State was involved in both the tasks of growth and distribution as private sector was at nascent stage (it had neither the money to invest, nor necessary information.
• But post 1990’s with the launch of 8th 5YP we moved to indicative planning. Under this only a broad framework is given instead of precise targets set and government follows a  policy of persuasion and encouragement with private sector to achieve broad goals
• Imperative planning failed to achieve growth as well as distribution
• In era of liberalization and globalization with too much uncertainty you cannot set long term target

Huge role of private sector as state doesn’t have much money to invest, so one can only persuade, not compel it

Need for the creation of NITI Ayog

NITI Aayog was formed in 2015 to replace the erstwhile Planning Commission. Its creation was based on the recognition that India needed a planning body that could adapt to the evolving socio-economic landscape, leverage technological advancements, and address the complex challenges of a rapidly changing world. Following are need for creation of NITI Ayog:

• Shift away from the command-and-control approach towards collaborative and cooperative model: One of the main reasons for the creation of NITI Aayog was to shift away from the command-and-control approach of the Planning Commission towards a more collaborative and cooperative model. 
• To foster cooperative federalism: NITI Aayog brings together representatives from the central government, state governments, experts, and industry leaders to foster cooperative federalism and collective decision-making. It facilitates dialogue, knowledge-sharing, and consensus-building among different stakeholders to ensure effective implementation of development plans and policies.
• Serves as a think tank: NITI Aayog serves as a think tank that provides evidence-based policy recommendations, conducts research, and monitors the progress of development initiatives. It has the mandate to undertake long-term strategic planning, promote innovation, and monitor the Sustainable Development Goals (SDGs).
• Filling the vacuum: While the shift towards indicative planning has reduced the need for a centralized planning commission, NITI Aayog fills the vacuum by providing a platform for collaborative and strategic planning, coordinating efforts at various levels, and ensuring coherence in policy implementation. It helps to bridge the gap between national priorities and state-level aspirations, facilitates inter-state coordination, and promotes best practices and knowledge sharing among different regions.
• Providing evidence-based insights: NITI Aayog's ability to provide policy direction and recommendations is based on its capacity to access a wide range of expertise and information. By harnessing technology, data analytics, and research capabilities, it can provide evidence-based insights and support evidence-informed decision-making.

Thus, the creation of NITI Aayog in India aligns with the broader shift from authoritative planning to indicative planning. While the need for an apex planning body with overriding powers has diminished, NITI Aayog serves as a crucial institution that provides strategic direction, fosters collaboration, and coordinates development efforts. It plays a pivotal role in bridging the gap between centralized planning and decentralized implementation, ensuring the alignment of national priorities with state-level aspirations, and driving sustainable and inclusive growth in India.