Logic of Planning

8/6/2019 Logic of Planning

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Logic of Planning in India

Definition

Systematic utilization of the

available resources at a progressive

rate so as to secure an increase in

output, national income,

employment and social welfare of

the people


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Mrs. Barbara

Planning may be defined as the

continuous and deliberate choiceof economic priorities by some

public authority


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Michael P Todaro

Economic planning is described as a deliberate

governmental attempt to co-ordinate economic

decision making over long run and to influence, directand control the level and growth of a nation's principal

economic variables like

income

ConsumptionEmployment

Investment

Saving

Exports

Imports

To achieve a predetermined set of developmental

objectives


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An economic plan is a specific set of

quantitative economic targets to be reached ina given period of time with a stated strategy

for achieving these targets


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Essential features of economic planning

1. Rational arrangement of economic resources through conscious and

deliberate choice of economic priorities

2. Predetermined objectives

3. Centralized authority taking responsibility of planning coordinating

various economic activities

4. Institutional set up

5. Mobilizations and utilization of resources necessary for the

implementation of development plan

6. Selection of suitable development strategy

7. Specific period and definite area


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Rationale for planning / need for planning

1. To remove market imperfections

2. To ensure socially optimal use of resources

3. To bring out major structural changes

4. Attitudinal or psychological impact5. To get foreign aid


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Responsibilities assigned to planningcommission

1. To make an assessment of the material, capital and human

resources of the country and to investigate the possibilities ofaugmenting these resources

2. To formulate a plan for the most effective and balanced utilization

of countrys resources

3. To indicate factors which tend to retard economic development

4. To appraise, from time to time, the progress achieved in the

execution of each stage of plan and to recommend measures


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State of Indian economy at the time of independence

Indian economy was stagnant at the time of independence

Stagnation here indicate

Downward movement in per capita income

Deterioration in productive capacity of the country

economic stagnation manifest itself in various form in India

Vicious circle of poverty and mass poverty

1. Low level of economic development

2. Rural and agrarian character of Indian economy

3. Unbalanced occupational structure

4. High illiteracy rate (ignorance)

5. Mass communicable diseases and high mortality rate

6. Little industrialization (only 2 % of the labour force was engagedin organized manufacturing sector)

7. High level of unemployment and underemployment


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Changes in per capita income

1905-06 to 1945-46 (1905-06 to 1915-16 = 100)

Year Suredra Patel

1905-06 to 1915-16 100

1916-17 to 1925-26 106.9

1926-27 to 1935-36 98.31936-37 to 1945-46 91.1


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Sector National Income

1948-49

Workforce

1950-51

Agriculture, animal

husbandry, forestry,

fisheries

49.1 72.3

Nines, manufacturing

industries, smallenterprises

17.1 10.7

Trade, transport and

communication

18.5 7.7

Other services,

professions,

administration,

domestic services

15.7 9.3

Total 100 100

Distribution of National income and workforce sector - wise


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First plan 1951-1956

Second plan 1956-1961

Third plan 1961-1966

Plan holiday for 3 years 1966-1969

Fourth plan 1969-1974

Fifth plan 1974-1979Fifth plan 1978-1983

Sixth plan 1980-1985

Seventh plan 1985-1990

Two annual plans 1991-1992

Eighth plan 1992-1997

Ninth plan 1997-2002

Tenth plan 2002-2007

Eleventh plan 2007-2012

Planning Era in India


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Objectives of Economic Planning in India

1. Growth of the economy

2. Modernization of economy

3. Self reliance

4. Social justice (social, political and economic justice)

5. Economic and social equality

6. Special care for weaker sections


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Aims or objectives of first plan

1. Raising standard of living of the people

2. Offering to the people more opportunities for more richerand more varied life

3. Rapid economic growth


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Structural constrains and development strategy

1. Acute shortage of material capital

2. Low capacity to save

3. Structural limitations preventing convention of saving intoproductive investment

4. Secular diminishing returns in agriculture

5. Dangers of giving primacy to market mechanism

lead to excessive consumption of upper income groups

result in relative underinvestment in sectors essential to

accelerated development

6. Precipitate transformation of the ownership of assets to reduce

unequal distribution of income and wealth is considered

detrimental to maximization of production and saving


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1. Public investment would be concentrated in infrastructure

2. Public investment would be made in agriculture

3. Public investment would be made in industries


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Capital goods sector grows at an accelerated rate

Increase in employment

Increase in income

Increase in saving

Increase in investment in capital goods and in industries producing

consumer goods

Capital goods sector grows at an accelerated rate


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Role of the state as visualized in the fifties

1. Raise domestic saving rate and put them to moreproductive use

2. Maintain law and order

3. Defining and protecting property rights

4. Provide elementary education, basic health care, safe

drinking water

5. Make investment in projects like road net work, major

irrigation, steel plants, railways

6. State mobilize idle labour for creating productive assets

like roads, irrigation, land improvement, schools, rural

hospitals etc

7. Strong state intervention to achieve the goals of social

justice and preventing concentration of power


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Strategy of development

Implies basic long term policy to realize objectives ofplanning

In a broad sense

It incorporates the entire plan frame

such as objectives, the priorities, investment pattern,

resource mobilization, fiscal and monetary policies

etc

Rosenstein Rodan

if an economy has stagnated for long period, it wouldnot grow unless a big push is given to it


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Regarding the objectives of planning in India, B.S Minhas writes

in his book Planning and The Poor as

development along socialist lines to secure rapid economic

growth and expansion of employment, reduction of disparities of

income and wealth, prevention of concentration of economic

power and create of values and attitudes of a free and equaleconomy

First Plan strategy

No specific strategy in the first plan

Planners were concerned with

Rehabilitation of war and partition torn economy

Laying foundation for future economic development


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So first plan strategy gave emphasis on

Agriculture including irrigation and power

Infrastructure transport and communication

Strategy in the second plan and up to fifth plan

Mahalanobis Strategy of Development

Core of this strategy:

rapid industrialization through heavy investment in heavy, basic and

machine building industries

For them, development of heavy industry was synonymous

with industrialization

planners believed that rapid industrialization was a basic condition forrapid economic development

Objective of this strategy was to

achieve self sustained long term growth via investment

in heavy industries.


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Planning commission supported this strategy for two

reasons

Investment in heavy industry help the Indian economy to build up

large volume of capital stock

Heavy industries helps to lay the foundation for a strong and self

reliant economy

Other elements of this strategy

1. Role of public sector

Assigned dominant role to public sector due to Very heavy investment required in heavy industry sector

Too long gestation period Low profitability of these industries (so no private investment)

Growth of public sector facilitate of growth of socialistic pattern of society


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2. Role of small scale industries

Due importance was given to small and cottage industries and agriculture

Why was it given importance

1. Growth of consumer goods sector help the growth of heavy industries

They are source of consumer goods

Consumer goods sector produce marketable surplus

Demand for products of heavy industries such as machines increases

Increases the possibility of investment in heavy industries

2. Increase in consumer goods was necessary to meet needs of growing

population

3. Input output ratio low in small and cottage industries

4. Short gestation period

So ideally suited to increase supply of consumer goods


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3. Employment generation

Heavy industries are capital intensive

This come in conflict with employment objective

So promoted labour intensive techniques in consumer goods sector

At the same time capital intensive sector of heavy industry was expanding

rapidly

The characteristics of first three plans were

Sustained growth in pre capita income

Distinct acceleration in public sector investment

Distinct acceleration in the growth of industrial output

So this phase was dominated by growth oriented development

strategy


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Deviations from Mahalanobis strategy (in IV th plan)1. Agriculture and related primary production was given attention

2. New agricultural strategy comprising a package programme

involving high yielding variety of seeds, plant protection measures,

adequate use of fertilizers, improved water management for

increasing agriculture production was formulated

3. Development of light consumer goods industries was preferred to

heavy capital goods industries

4. In the field of infrastructure, roads were given priority over railways


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5th plan strategy

High incidence of poverty in India

Economic growth alone can not alleviate it

So 5th plans objective was removal of poverty (plan gave priority to

removal of poverty to growth)

1. So it formulated a strategy ofMinimum need programmeIt comprises drinking water, medical care in rural areas, nutrition,

house sites for rural landless laborers, rural roads, rural electricity,

slum clearance etc

2. Strategy emphasized on agriculture and production of essential

goods of mass consumption along with heavy industries (strategywas in favour of consumption goods industries)


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6th plan strategy

Objective of 6th

plan

1. High and sustained growth

2. Progressive improvements in the standard of living of the people

3. Providing material base for a self reliant economy

Elements of 6th plan strategy

High priority was given to energy sector

Public sector was given an important role in the growth

performance of the economy

Efforts to increase exports to solve balance of payment crisis

Specific programmes like IRDP, NREP were launched to remove

poverty and unemployment


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7th plan strategyMahalanobis strategy helped ----------

saving rate in the country to rise at fast rate

This created excess capacity in heavy industries

7th plan strategy paid little emphasis on heavy industries

1. Gave more emphasis on infrastructure

7th plan is termed as infrastructure plan

2. import substitution strategy was reappraised andliberalization of import substitution strategy began

3. Gradual liberalization of Indian economy began


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Liberalization, Privatization and Globalization model ofD

evelopment

Essential elements of LPG model of development

1. Give greater role to private sector

2. Aim at reducing the role of state significantly

3. Thus abandon planning fundamentalism in favour of more liberal and

market controlled pattern of development

4. Envisages much larger volume foreign direct investment to support growth

process

5. Aim at a strategy of export led growth as against import substitutionpracticed earlier


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MajorChanges in Govt. Policies

1. Areas reserved for public sector were opened to privatesector

2. Permitted the private sector to set up industrial units without

taking licenses

3. Asset limit for companies underMRTPAct was abolished

4. Government granted approval for direct foreign investment upto 51 % (of equity) in high priority areas

5. Chronically sick public sector units were referred to the Board

for Industrial and Financial Reconstruction for the formulation

of rehabilitation schemes

6. Greater autonomy was given to PSU managements

7. Economy was opened to other countries to encourage

exports


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PURA-A Neo - GandhianApproach to Development

(Providing UrbanAmenities in RuralAreas)

Objectives

1. Economic upliftment of villages

2. Eradication of poverty

3. Raising ofGDP growth rate to 10% and sustain it

To achieve these objectives, five areas were given priority

Agriculture and food processing

Reliable and quality electric power for all parts of the country

Education and health care for all

Expansion of information and communication technology to rural areas to

promote education and create national wealth

Development of strategic sectors

nuclear technology

Space technology

Defense technology


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1. State has a positive role in employment generation and to promote

social welfare

2. State provide economic and social infrastructure3. Macro economic management

This would take the form of

Targeting and subsidizing credit to selected industries

Protecting domestic import substitutes

Subsidizing declining industries

Establishing and financially supporting government banks

Establishing firms for exports

Developing export marketing institutions

Sharing information between public and private sectors

Providing financial assistance to small scale industries and to

individual to create employment in informal sector.

4. Reform of public sector

Logic of Planning

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