Module 4: Economic development

since Independence

Contents:
Major features of the Indian economy at independence
Economic planning- Evolution and Strategy
Growth and structural changes since independence
Economic reforms and liberalization
Meaning of economic development,
Human Development index and other indices,
State of Human Development in India
Development Goals and Sustainable Development
Goals,

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Chapter 1.2: Economic Planning – Its
evolution & strategy
Introduction:
 The Constitution came into force on 26 January 1950. Subsequently,
Planning Commission was set up on 15 March 1950 and the plan era
started from 1 April 1951 with the launching of the First Five Year Plan
(1951-56).
 Economic planning in India dates back to pre-Independence period when
leaders of the freedom movement and prominent industrialists and
academics got together to discuss the future of India after Independence
which was soon to come. Noted civil engineer and administrator M.
Visvesvaraya is regarded as a pioneer of economic planning in India.
 His book “Planned Economy for India” published in 1934 suggested a ten
year plan, with an outlay of Rs. 1000 crore and a planned increase of 600%
in industrial output per annum based on economic conditions of the time.

Planning Commission
 In 1950, the Government of India formed Planning Commission under
the chairmanship of the first Prime Minister Honorable Pandit
Jawaharlal Nehru.
 The Prime Minister is the Ex-officio chairman of
Planning Commission which consists of experts
from all fields.
 It is responsible for formulation of economic
plans for the problems such as backwardness
of agriculture, food problem, illiteracy,
mass communicable diseases, high
mortality rate,
large scale unemployment etc.

Economic Planning:
 Economic planning is a time bound programme to achieve certain
objectives by allocating available resources under the control of Planning
Authority, within a specified period of time.
 It is a dynamic process.

Definitions:
According to Planning Commission, “Economic Planning is a conscious
and deliberate effort made by the central authority for the mobilization and
effective utilization of the available natural, human and capital resources in
order to attain certain predetermined social and economic objectives, on
the basis of a specified scheme of priorities within a specific period of
time.”

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Characteristics of Economic Planning:
1. Central Planning Authority: There is a central planning authority
in every country which desires to have economic planning. In India it is
known as Planning Commission which is in full charge of formulation of
plans. Economic Planning involves centralized decisions.
2. A survey: A comprehensive survey of the economy is made
according to the availability and utilization of human and natural
resources in a country.
3. Well Defined Goals & Objectives: Planning must be for a
purpose. Its goals and objectives should be well defined. Like in India,
the main purpose of planning is to eliminate poverty, increase per capita
income, national income, etc.
4. Plan period: In many countries including India, plan period is five
years. Thus it is a time bound program.
5. Continuous process: The economic planning is a continuous
process which aims at economic development of a country.
6. Priorities and targets: The priorities are fixed according to ·the
importance of each sector in accelerating economic development. Target
is the concrete step towards the attainment of an objective.
7. Mobilization of resources: The resources needed for planning are
mobilized through various sources like taxation, domestic savings, deficit
financing, external assistance etc.
8. Evaluation: The periodic assessment of the plan such as midterm
appraisal is done to incorporate necessary changes in priorities and
targets. This helps in proper evaluation of the economic plans of a
country.

Objectives of Economic planning:

1. Rapid economic growth:
 The basic objective of economic planning in India has been to attain
rapid economic growth.
 This can be achieved through development of agriculture, industry,
transport and communication and other infrastructural
facilities.
2. Removal of poverty:
 India is facing vicious circle of poverty.
Poverty is a chronic problem which has
persisted despite economic planning for
six decades. Economic development has
not been able to eradicate poverty
completely.
3. Reducing income inequalities:
 There exists a wide gap between the rich and the poor which is not
socially desirable and results in concentration of economic power in
few hands, which try to suppress the poor still more.
 Therefore Planning aims at removal of poverty and reducing
inequalities of income and wealth for the purpose of Social Justice.

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4. Creation of employment opportunities:
 Unemployment and underemployment may lead to frustration,
poverty, disease, social tensions and crimes. Therefore the
economic planning aims at generating employment opportunities
especially in rural India.
 It needs labour intensive techniques which can absorb increasing
labour force.
5. Growth with stability:
 The market economies are unstable and often suffer from ups and
downs in economic activities which are known as trade cycles.
 They lead to obstacles in the progress of the country. Therefore the
objective of the planning is a 'steady progress' which means progress
without fluctuations in general price level.
6. Creation of Regional balance:
 Regional imbalance in development exists due to several historical,
geographical and Locational factors.
 The economic growth takes place only when there is a balanced
regional development. So a major objective of economic planning is to
develop backward areas.
7. Self-reliance:
 Self - reliance means that a country produces all what it consumes.
In order to achieve it in food grains, agriculture should be given top
priority.
 Similarly too much dependence on imports is not desirable especially
during war and economic fluctuations. So emphasis should be given on
import substitution which would provide employment, promote
exports and reduce imports.
8. To raise the rate of Capital Formation:
 Capital formation means creation of capital assets such as
machinery, raw materials, tools and equipments, energy etc. It is the
pre-condition of economic development.
 Low rate of capital formation causes slow rate of economic
development.
9. Rapid Development of Agriculture and Industry:
 The Development of both agriculture and industry will help to raise the
national income of the country. Since 65% of India's population depends
on agriculture for its livelihood, its modernization should be given
priority.
10. Social objectives:
 A number of social objectives are important for raising the quality of life
of people in India. Human Development Index is the modern parameter
for judging the quality of life. It covers education, health and per capita
income.

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An Overview of the Five Year Plans in India:
First Five-Year Plan:
 It was formulated for the period 1951-56, when India was confronting the
problems of huge influx of refugees, food shortage and severe inflation.
The plan, thus, focused on the primary sector, that is, the agricultural
sector to increase the food production in India to overcome the
crisis.
 The monsoon was favorable to agriculture in those years and therefore, the
production increased. The first five-year plan was quite successful as the
targeted growth rate was 2.1 percent and the achieved growth rate was 3.6
percent.

Second Five-Year Plan:

 It was formulated for the period 1956-61 and it focused on rapid
industrialisation. The plan aimed at the development of heavy and
basic industries and conceived that agricultural sector could be given
lower priority as it has been able to achieve its targets in the previous plan.
The second plan achieved only a moderate success due to the severe
shortage of foreign exchange on account of huge imports to meet the
requirements of the industrial sector. The actual growth rate achieved in
the plan was 4.3 percent against the target of 4.5 percent.

Third Five-Year Plan:

 It was formulated for the period 1961-66. The third five- year plan was
prepared with the mindset that India has entered the ‘take-off stage’ and it
is time for it to become a self-reliant and self-generating
economy. The plan gave priority to both agriculture as well as the
industrial sector.
 However, the Indo-China conflict in 1962 and the Indo-Pakistan conflict in
1965 made the plan a complete failure as huge amount of expenditure had
to be allocated to meet the defence requirements. The actual growth rate
achieved in the plan was 2.8 percent as against the target of 5.6 percent.
 The failure of the third plan led to the formulation of three annual plans for
the years 1966-67, 1967-68 and 1968-69, before the launch of the fourth
plan. The period from 1966 to 1969 was, therefore, termed as “Plan
Holiday”. It was during this period that green revolution was introduced
to overcome the food crisis. Green revolution advocated the use of high-
yielding variety of seeds, fertilizers, pesticides and extensive use of
irrigation.

Fourth Five-Year Plan:

 It was formulated for the period 1969-74 and had two basic objectives
growth with stability and progressive achievement of self-
reliance. It stressed upon the growth of the agricultural sector. While the
plan aimed at a highly ambitious growth rate of 5.7 per cent, it could
achieve only 3.3 percent. This failure could be attributed to the huge influx
of refugees from Bangladesh and the Indo-Pakistan war in 1972.
Fifth Five-Year Plan:
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 It was formulated for the period 1974-79 and proposed two main
objectives removal of poverty and attainment of self-reliance. The
plan aimed at achieving its objectives by achieving high growth rate,
equitable distribution of income and increase in domestic savings.
However, the plan was an utter failure due to high levels of inflation.
 With the Janta Government taking over the power, the plan was terminated
in 1978. The growth rate achieved during this period was 4.8 percent as
against the target of 4.4 percent.
 The Janta Government formulated the sixth five-year plan for the period
1978-83 with the objective of creating employment opportunities. The Janta
Government, to its misfortune, lasted only for two years and was replaced
by the Congress Government that came up with a different plan.

Sixth Five-Year Plan:

 It was introduced by the Congress Government for the period 1980-85. It
was based on Nehru’s model of growth and aimed at a direct attack on the
problem of poverty by creating conditions for increasing employment
opportunities. Many employment generation schemes such as Training of
Rural Youth for Self Employment (TRYSEM) and Integrated Rural
Development Programme (IRDP) were introduced.
 Though the plan progressed as perceived by the planners during the first
four years, a severe famine occurred in the fifth year i.e., 1984-85.
Therefore, the agricultural output declined drastically. However, the
economy still managed to grow at 5.7 percent as against the target of 5.2
percent.

Seventh Five-Year Plan:

 It was formulated for the period 1985-1990 and it aimed at accelerating
food grain production, creating employment opportunities and
raising labor productivity. The focus of the plan was on ‘food, work and
productivity’. The plan was quite successful and recorded a growth rate of
6 per cent as against the targeted growth rate of 5 per cent.

Eighth Five-Year Plan:

 This plan could not be formulated in 1990 due to uncertain political
situation at the centre. Therefore, two annual plans for the years 1990-91
and 1991-92 were formulated. During 1991, India had to face severe
balance of payment crisis. The debt burden was mounting and the fiscal
deficit was widening.
 The inflation level was rising and the industrial sector was going through a
recession. Because of this crisis and the pressure from International
Organisations such as IMF, the government led by P.V. Narasimha Rao
introduced the economic reforms in 1991, post which the eighth plan was
launched in 1992 for the period 1992-97 reflecting the reforms with
various structural adjustment policies.
 The role of the private sector increased and several liberalisation measures
were introduced. As a result, the growth rate was the highest as compared
to the previous plans. The eighth plan achieved a growth rate of 6.8
percent as against the targeted growth rate of 5.6 percent.

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Ninth Five-Year Plan:
 It was formulated for the period 1997-2002 and its aim was to achieve
“growth with social justice and equality”. The plan recognised
the critical role of the state in the social sectors such as health care,
education and infrastructure, since the market forces, by themselves, may
not make these areas attractive to the private sector.
 The plan stressed upon the need for public investment in these areas. The
ninth plan aimed at a GDP growth rate of 7 percent. However, due to poor
performance of the economy during 1997-98, the growth target was
revised to 6.5 percent. Yet, the target could not be achieved and the
economy grew only at a rate of 5.4 percent.

Tenth Five-Year Plan:

 It was formulated for the period 2002-2007. It was realised that the
development goals cannot be achieved by targeting the economic
growth alone. Therefore, the tenth five year plan set forth measurable
targets on development indicators such as infant mortality rate, literacy,
access to electricity, sanitation facilities, sustainable food production and
environment.

Eleventh Five-Year Plan:

 It was formulated for the period 2007-2012 and the plan document was
titled “Towards faster and more inclusive growth”. With the objective of
achieving fast and inclusive growth, the eleventh plan had set targets
for various socio-economic indicators.

Twelfth Five-Year Plan:

 It was formulated for the period 2012-2017 and it focused on achieving
faster, inclusive and sustainable growth.
 It aimed at achieving an inclusive growth by reducing poverty, reducing
inequality, empowering people and by bringing in balanced regional
development. The goals towards sustainable development focused on
environmental sustain ability, improvements in health and education sector
and development of physical infrastructure such as transport,
telecommunication, power etc.
 It had set a growth target of 8 percent and had set monitor able targets for
poverty, education, health, infrastructure, environment and sustainability.
It also aimed at providing banking services to 90 percent of the households
and introduced Adhaar based direct cash transfer of subsidies and welfare
payments.
The Planning Commission was replaced by the think tank called NITI Aayog
(National Institution for Transforming India).
The Five year Plans:
Five Year Period Main objective Target Achievement
Plans (%) (%)

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First 1951 - 56 Development of agriculture 2.1 3.6
Second 1956 - 61 Development of heavy 4.5 4.1
industries
Third 1961 - 66 Development of both 5.6 2.7
agriculture & industry
3 Annual 1966 - 69 - - -
Plans
Fourth 1969 - 74 Growth with Stability 5.7 3.3
Fifth 1974 - 78 Removal of poverty 4.4 4.8
Annual 1978 - 80 - - -
Plans
Sixth 1980 - 85 Improvement of Quality of 5.2 5.7
life
Seventh 1985 - 90 Social welfare and Poverty 5 6
eradication
Annual 1990 - 92 - - -
Plans
Eighth 1992 - 97 To give dynamism to 5.6 6.8
economy
Ninth 1997 - Social justice & Equality 7 5.35
2002
Tenth 2002 - 07 Economic growth with 8.0 7.6
developmental goals
Eleventh 2007 - 12 Inclusive growth 9.0 7.9
Twelfth 2012 - 17 Faster, inclusive and 8.0 8.2 (initially
sustainable growth intended)

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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.

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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 cores. 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.
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.
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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. The exports of the country increased from Rs. 54.08 billion in 1977-
78 to Rs. 17,144.24 billion in 2015-16. And imports have increased from Rs.
60.20 billion in 1977-78 to Rs. 24, 859.27 billion in 2015-16.

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.

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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.

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