Planning in India

Indian Economy is at crossroads. Neo-liberal agenda of the government will further deepen the divide between rich and poor, urban and rural. Role of state has receded, and the market has expanded at its cost. The myth of the leviathan of market needs to be demystified and the notion that market is the panecia needs to be rebuffed. This deconstruction warrants an historical approach to understanding of Indian Economy. We shall begin with Planning in India.

India was hit by a deep economic crisis in July 1990. But this came against the backdrop of consistent economic growth which at that time was lauded by the World Bank as well as the International Monetary Fund. Till just before the crisis the Indian economy was praised for sound management and impressive growth. And this was not for nothing as throughout the 1980s national income of Indians grew at around 5.5 per cent while industrial growth clocked upwards of 8 per cent annual growth. Then what caused the crisis?

The immediate cause was the Gulf crisis, a bad Balance of Payment (BoP) scenario and alarmingly low Foreign Exchange Reserves (FOREX). But again the question is, what caused the BoP crisis? The historical answer to this is that elections were on the anvil and the government announced a number of ambitious and populist welfare schemes and plans that spiked the plan expenditure and short-term loans were taken for this. Actually, the Indian economy was running on confidence, in as much as the government was getting loans from foreign lenders, primarily for debt servicing and financing imports. But this confidence
collapsed when India started facing repayment problems in the wake of the Gulf crisis. The regime of Rajiv Gandhi saw India buckling under the pressures of the International Monetary Fund and the World Bank. He signed the General Agreement of Tariff and Trade (GATT). This commencement of the globalisation of economy without adequate structural reforms led to numerous dominos that could not be handled by subsequent governmentsbetween 1990 and 1992.

Against this backdrop the 1991 Budget introduced the LPG (Liberalisation-Privatisation-Globalisation) Reforms scheme, ostensibly to pull India out of the quagmire. But how far have these reforms worked for the larger good stands questioned today, and rightly so. The unfolding of events that led to the crisis of the economy in 1990 in the first place needs to be perused. For an understanding of this, we need to understand economic planning in India as it is said that centralised planning in which Socialism was reduced only to rhetoric and was supplanted by a large and unwieldy bureaucracy is what led to the crisis of 1990.
We are starting a series of articles on the evolution of Indian Economy which developed in and through State Planning. This is necessary for analysing the current threat posed by Neo-liberalism which promises a more uneaqual India that might explode into a sociopolitical turmoil in the country.


First Five Year Plan

The First Five Year Plan was presented by the then Prime Minister Jawaharlal Nehru in Parliament on 8 December 1951.

This plan was based on the Harrod-Domar Model.

At that time the country was confronted with three problems:

  • Influx of refugees;
  •  Severe food shortage (resulting into large-scale import of food grains); and
  • High inflation.

Therefore, its imm

ediate objectives were rehabilitation of refugees, rapid agricultural development so as to achieve self-sufficiency in food grain production and controlling inflation.

Plan Outlay was allocated to seven areas

  •  Irrigation and energy (27.2 per cent),
  •  Agriculture and community development (17.4 per cent),
  •  Transport and communications (24 percent),
  •  Industry (8.4 per cent),
  •  Social services (16.64 per cent),
  •  Land rehabilitation (4.1 per cent), and
  •  For other sectors and services (2.5 per cent).

Main Area of Concern

  •  Industrialisation, especially Heavy Industries.
  •  Tackling unemployment.
  •  Optimum allocation of resources between the productive areas.
  •  The Plan accorded priority to agriculture including irrigation and power projects. It was also popularly called the Agriculture Plan.
  •  The total outlay of the Plan was Rs. 2069 crores which was later raised to Rs. 2378 crores.
  •  Provisions had been made in the First Five Year Plan for the development of the basic industries which included fertilisers and electrical equipment.


  •  Increase of about 18 per cent in the national income of India.
  •  The general growth rate during the Plan was 3.7 per cent per annum against the target of 1.2 per cent.
  •  The output of food grains increased by 20 per cent, that of cotton by 45 per cent and major oilseeds by 8 per cent.
  •  More than 16 million acres were added to the irrigated land.
  •  The output of electricity rose from 6575 kwh in 1945-51 to 11,000 million in 1955-56.
  •  Atomic Energy Commission was established.
  •  Five power plants were established at Durgapur, Rourkela and Bhilai.
  • Many irrigation projects were started including Bhakra Dam and Hirakud Dam.

Planning in India started in the wake of independence. The government of India set up a Planning Commission in 1950 to make an assessment of material, capital and human resources of the country and to make a plan for its most effective and balanced utilisation. The First Five Year Plan initiated a process of development in India aimed at raising the standard of living, giving people a more varied and richer experience of life, and this was sought to be achieved by planning for growth and social justice.

The Plan contains the clearest articulation of the need for planning and the role of the State within the process. The First Five Year Plan (1951-56) concentrated on public investments in infr- astructure and agriculture. The role of the State was envisaged as ensuring a high rate of savings and their optimum investment. There was much agreement over the role of the State as the pivot of the development process: the State should be responsible for changing the economic structure and bringing about growth by altering the distribution of income by direct State action.
At that time the interventionist development strategy not only had the sanction of economists in the developing countries but also of leading economists in industrial countries. The Massachusetts Institute of Technology (MIT) helped India to develop a multi-sectoral planning model of growth. A number of high profile economists of international repute from the United States and other Western countries visited India during this period.


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