UNIT-2 Planning, Economic Development and Problems of Indian Economy

Economic Planning in India

Economic Planning is essentially a way to plan and organize how to utilize the scarce resources to maximum advantage.

Features of economic planning

It

is a process of stable and continuous development. There is a planning authority which determines the objectives and goals for the plan. Priorities are determined according to the objectives set.

All the pre-determined objectives are realized within a fixed period. The available and potential resources of the country are rationally used to maximize the level of production. Planning should receive public acceptance and cooperation. Economic planning should depend upon the collective working of different sectors of the economy.

Objectives of Economic Planning

Modernisation: It refers to adoption of new technology, new methods of production and changes in social outlook. It implies the use of advanced technology. The objective of modernisation is required to transform the traditional and backward looking economy into modern and forward looking economy.

Self-reliance: It means reducing dependence on imports of those goods which can be produced within the country. This helps in reducing dependence on foreign aid (imports) and increase in the growth of domestic production.

Economic Growth: It is a sustained expansion in economic activitiestrade, agriculture, industry- over a long period of time.

When an economy attains such a stage of growth, it does not require the assistance of external agencies.

Equity and Social Justice: It refers to reduction in inequality of income, uplifting weaker sections of the society and a more even distribution of economic power. It helps in raising the standard of living of people and promoting social justice.

Achievement of Economic Planning

Somewhat Satisfactory Growth: Indian economy is fastly moving ahead on the road to development. The average growth rate during the planning period comes to about 4.4%. The growth in per capita income has been around 1.8%. Indian economy is moving forward although the pace of movement is rather slow.

There was a steady change in the composition of national income originating from manufacturing sector. A number of industries are using the most modern and sophisticated technologies and also some of agricultural technology has been modernised.

Some modernisation: In the area of modernisation, some success has been achieved. This is an area which shows a variety of changes in the structural and the institutional set-up of an economy.

Some success at Self-reliance: There is a decline in the proportion of foreign aid (from 28.1% in second plan and 27.2% in the third plan to 5.5% in the eighth plan. There is a decrease in the dependence on imports for the goods like steel, machinery, fertilisers. The growth rate of exports has increased slowly, from 4.8% in Third plan to over 15% in the Seventh plan.

Little success in providing Equity and social justice: The number of poor below the poverty line has no doubt declined, but the magnitude of poverty continues to be large with 300million (27.5%) still below the poverty-line. The regional inequalities are yet to be reduced. With regard to employment, there has been some improvement but the total situation has not changed much.

Failures of planning
Poor standard of Living: All the five year plans aim at raising the standard of living of the people. In reality, even the basic necessities of life of the people are not being satisfied. According to the Planning Commission, 27.5% population is absolute poor. 60 years of planning has not made any significant improvement in the removal of poverty.

Inflation: Stability in prices has been the objective of each plan. But in almost each plan, prices have risen considerably. Planning has failed to check prices rise in India. Rise in prices has adversely affected the poor and fixed income group.

Unemployment: At the end of First Five year plan, 53 lakh persons were unemployed. During plans, use of capital intensive technology has been promoted. Use of labor intensive technology has not been emphasized upon. In 2009-2010, the unemployment rate is 6.6%.

Less Growth in Agriculture Sector: Agricultural development should have been given top-priority, but it has not been done. Green revolution restricted itself to wheat and rice revolution in only five states. Sufficient irrigation facilities have not been promoted. Agriculture still depends upon monsoons and also the productivity is very low.

Inequality in distribution of income and wealth: This was one of the main objective of Five year plans, but during the planning period inequality has further increased. Inequality of income and its distribution are not found in industrial sector but in agriculture sector as well. According to Economic Survey 20112012, higher relative inequality in seen in urban areas.

Inefficient Administration: The main reason for failure of Five year Plans lies in its implementation. It is because of defective administration, dishonesty, vested interest, corruption, etc. that we have not been able to achieve the desired growth rates.

Low Capital Formation: Economic planning has failed to give a Big Push to capital formation in India. Capital Formation has remained low because of slow economic growth, less facilities of investment, lack of able entrepreneurs, lack of infrastructure, etc.

Inferior Development of Infrastructure: Economic Planning has failed to develop high quality infrastructure in the country. India is still lacking in power generation, high quality transportation, better quality roads and railway tracks, etc.

First Plan(1951-56)
Objectives:
To correct disequilibrium in the economy caused by WW-II and partition. Initiate process of development- rising national income, per capita income, living standards. It aimed at removing food crisis, shortage of raw materials, infrastructure, rehabilitate refugees etc.

Achievement
The first plan was a great success, as the production targets in agriculture was more than fulfilled. (Achievements in agriculture was partly due to favorable climatic conditions) Further, rehabilitation of refugees, food self-sufficiency and price control was achieved.

Tenth Five Year Plan (2002-07)

In the Tenth Plan, the development strategy would be one which enables the private sector to reach its full potential for raising production, creating jobs and raising income levels in the society. To pursue the objective of growth with equity and social justice, the Plan adopted a three pronged strategy which emphasized on:

Agricultural development that ensured widest spread of benefits to rural people. Rapid growth of those sectors which were most likely to create gainful employment opportunities. Continuing and expanding programs to supplement the impact of development for benefit of those target groups which had not sufficiently benefitted from normal growth The Tenth Plan aimed at achieving 8% process.

annual growth rate, it actually achieved 7.6% per annum growth rate.

Eleventh Five Year Plan (20072012)

The

Eleventh Five Year Plan covers the five year period beginning from April 2007 and ending in March 2012. With its strategy of faster and inclusive growth, the Eleventh Plan identifies 27 monitor-able targets at national level. The Plan document states These targets are ambitious but it is better to aim high and fail than to aim low.

The total 27 targets at the national level have been divided into the following 6 main categories : 1) Income and Poverty 2) Education 3) Health 4) Women and Children 5) Infrastructure 6) Environment

Sectoral Growth Targets of the Eleventh Plan

AREA Gross Domestic Product Agriculture Industry Services
GROWTH RATE (%, per annum)

9.0 4.1 10.5 9.9

Exports (in U.S.$) Imports (in U.S $)

16.4 12.5

Plan Size and Sectoral Allocation of Resources in the Eleventh Plan

1) Total Outlay: Rs. 36,44,718 crore (i) Central Plan Outlay: Rs. 21,56,571 crs (ii) Outlay of States & UTs: Rs. 14,88,147crs 2) Centres GBS (Gross Budgetary Support)= Rs. 14,21,711crs 3) Centres assistance to States & UTs = Rs. 3,24,851

4) Sectoral allocation of Plan Resources: Social Service - 30.24 % Energy - 23.43 % Transport - 15.71 % Agriculture - 18.49 % Industry - 4.21 %

Macroeconomics Parameters

GDP growth rate : 9 per cent per annum Investment : 36.72 per cent of GDP Saving rate : 34.84 per cent of GDP Current account deficit : 1.88 per cent of GDP

Challenges of the Eleventh Plan

a)

b) c) d) e)

Sustaining the growth momentum and achieving an annual average growth of 9 per cent in the next five years. Reducing annual inflation rate to a single digit level. Boosting agricultural growth. Expanding industry by at least 10.5 per cent per year. Revenue enhancement and check on unproductive expenditure.

Motto: If we achieve the target of 9 per cent growth in the 11th Five Year Plan then India will be firmly placed in the front ranks of fast growing developing nations.

Twelfth Five Year Plan (2012-2017)

Growth Targets for the Twelfth Plan The Planning Commission has explored two alternative targets for economic growth in the Twelfth Plan. The first is the restatement of the Eleventh Plan Target of 9 per cent growth, which has to be achieved. The second is an even higher target of 9.5 per cent growth for the Twelfth Five Year Plan.

Sectoral Growth Rates- Previous plans and Targets for Twelfth Plan
9th Plan Agriculture, Forestry & Fishing Mining & Quarrying Manufacturing Electricity, Gas & Water Supply Construction Trade, Hotels & Rest. Financing, Insurance 2.5 4.0 3.3 4.8 7.1 7.5 8.0 10th Plan 2.3 6.0 9.3 6.78 11.8 9.6 9.9 11th Plan 3.2 4.7 7.7 6.4 7.8 7.0 10.7 10.5 12th Plan (T) 4.2 8.5 11.5 9.0 11.0

Community, Social & Personal Srv.

Industry Services

7.7
4.3 7.9

5.3
9.4 9.3

9.4
7.4 10.0

8.0
10.9 10.0

New Industrial Policy of 1991

Introduction: Industrial Policy is an important instrument through which the government regulates the industrial activity in an economy. The main aim of industrial policy is to direct the pattern of industrial development and the speed of industrialization. It spells out the role of government in the development of industries, role of public/ private enterprises, etc.

New Industrial Policy, 1991

Designed in 2 parts:1. July 24th1991,concerned large industries including medium sized industries 2. August 6th1991,dealt with small industries

Government has decided to take a series of initiatives in respect of the policies relating to the following areas: Industrial Licensing. Foreign Investment Foreign Technology Agreements. Public Sector Policy MRTP Act.

Thus the objectives of NIP 1991 are: 1. Utilising fully the indigenous capabilities of entrepreneurs. 2. Fostering R&D efforts from the development of indigenous technologies. 3. Raising investment. 4. Improvement in efficiency and productivity. 5. Controlling monopolistic behaviour.

Assigning the right areas for public sector undertakings. 7. Ensuring skills and facilities to the workers to enable them to deal with the technological change. 8. It aims at achieving self-reliance. (building up of our ability to pay for our imports through our own foreign exchange earnings.)
6.

Features and Measures of NIP, 1991

1.

2.
3. 4. 5.

Abolition of industrial licensing Lesser role of the public sector MRTP limit scrapped Free entry of foreign investment and technology Promoting SSIs.

Critical Evaluation of New Industrial Policy 1991

It was believed that NIP, 1991will have the following positive effects on the economy: Increase Production: Foreign investment and foreign technology agreements are designed to attract capital, technology and managerial expertise from abroad. This inflow of foreign investment and better technology will help to raise production. These resources will be more effectively allocated so that industrial production will increase.

Increase Competition:

Easy entry of multinational companies, removal of asset limit on MRTP companies, liberal licensing will increase competition in our economy. Competition will result in more efficiency, better quality of products and lower prices.

Increase efficiency of Public Sector:

The reduction in the number of the industries reserved for public sector from 17 to 3 and the threat of closure of sick public sector enterprises would result in rise in their efficiency. Measures like professional management and greater autonomy are expected to improve performance of public sector enterprise.

Increase Exports: In the NIP 1991, export-oriented units are given various concessions like liberal loans, setting up of special economic zones, liberal import of capital goods, raw material technology, etc. all this will help to achieve balanced regional development.

Reduce Economic Burden on Government: Area of public sector has been reduced drastically. Now only 3 areas are reserved for public sector. All other areas have been opened for private sector. Sick units are either closed or opened to private sectors. All this has reduced the economic burden on the government.

Bring Balanced Development:

Regional

In NIP 1991, special provisions have been made to set up big industries in backward regions. Industries located in backward regions are given various incentives. All this will help to achieve balanced regional development.

Give More Significance to small-scale Industries: The NIP provided a separate strategy for the growth of small-scale and cottage industries. This strategy incorporates several measures for promoting and strengthening small, tiny and village enterprises.

Main Points of Criticism of NIP

It will lead to more concentration of economic power. 2. It will lead to less regional balance. 3. It will lead to excessive competition for small sector. 4. It will increase unemployment. 5. It will raise threat from foreign companies. 6. It will lead to little Research and Development. 7. It will lead to lopsided industrial
1.