Lesson 7 - Economy - Indian Planning Lyst3984

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October 6th, 2019
Lesson 7
Indian Planning
Indian Planning ........................................................ 3 Failure To Eradicate Poverty ....................... 13
Types Of Economic Systems ................................ 3 Failure In Undertaking Land Reforms And
Capitalism ......................................................... 3 Other Institutional Reforms In Agriculture . 13
Intuitions Underlying Capitalism .................. 3 1991 Economic Crisis .......................................... 13
Socialism ........................................................... 3 Background ..................................................... 14
Government Ownership And Control ........... 3 Stabilisation Measures ................................ 15
Goals Of Socialism ......................................... 4 Structural Reform Measures ....................... 15
Socialism And Central Planning .................... 4 Liberalisation ................................................... 15
Mixed Economy ................................................ 4 Deregulation Of Industrial Sector................ 16
Goals And Policies ......................................... 4 Financial Sector Reforms ............................. 16
What Is A Plan? .................................................... 5 Tax Reforms ................................................. 17
Goals Of Five-Year Plans ...................................... 6 Foreign Exchange Reforms .......................... 17

Growth .............................................................. 6 Trade And Investment Policy Reforms ........ 18
Modernisation .................................................. 6 Privatisation .................................................... 18
Self-Reliance ..................................................... 6 Navratnas Policy .......................................... 19
Equity ................................................................ 7 Globalisation ................................................... 19
Development Experience Under Plan Period – Outsourcing ................................................. 19
Phase I (1951-1990) ............................................. 7 World Trade Organisation ........................... 20
1st Five Year Plan (1951 – 56) ........................... 7 Development Experience Under Plan Period –
2nd Five Year Plan (1956 – 1961)....................... 7 Phase Ii (1992-2017) ........................................... 21
3rd Five Year Plan (1961 – 1966) ....................... 8 8th Five Year Plan (1992 – 1997) ..................... 21
Three Annual Plans (1966 – 69)........................ 8 9th Five Year Plan (1997 – 2002) ..................... 22
4th Five Year Plan (1969 – 1974) ....................... 9 10th Five Year Plan (2002 – 2007) ................... 23
5th Five Year Plan (1974 – 1979) ....................... 9 11th Five Year Plan (2007 – 2012) ................... 23
Rolling Plan (1978 – 80) .................................. 10 12th Five Year Plan (2012 – 2017) ................... 24
6th Five Year Plan (1980 – 1985) ..................... 10 Post-Reform Period Appraisal – Achievements
......................................................................... 25
7th Five Year Plan (1985 – 1990) ..................... 10
Rise In The Growth Rate .............................. 25
Pre-Reform Period Appraisal – Achievements 11
Rise In Exports And Large Build-Up Of
Acceleration Of Growth Rate ...................... 11
Foreign Exchange Reserves ......................... 25
Growth Of The Agriculture Sector .............. 11
Surges In Inflow Of Foreign Investment ...... 25
Development Of Heavy-Capital Goods
Growth Of The Private Sector ..................... 25
Industry Base............................................... 11
Robust Performance Of The Service Sector 25
Development Of Economic Infrastructure.. 11
Post-Reform Period Appraisal – Failures ........ 25
Pre-Reform Period Appraisal – Failures ......... 12
Agriculture Has Not Gained Much .............. 25
Failure In Setting Up A Strong, Competitive
And Diversified Industrial Base ................... 12 Problem Of Poverty Still Not Solved............ 25
Failure To Create Employment Opportunities Unemployment Is On Rise ........................... 26
..................................................................... 12
1|P a g e W W W . E D U T A P . C O . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241
Plight Of Agricultural Labourers Has Cooperative And Competitive Federalism
Worsened .................................................... 26 ..................................................................... 34
Rural Areas Still Neglected .......................... 26 Shared National Agenda .......................... 34
Indian Economy & Issues Relating To State’s Best Friend At The Centre .......... 34
Planning & Mobilsation Of Resources ........... 27 Decentralised Planning ............................ 34
Major Objectives Of Planning In India ...... 27 Vision & Scenario Planning ..................... 34
Constituent Assembly ................................ 27
Domain Strategies .................................... 35
Constitution Of India ................................. 27
Sounding Board ......................................... 35
Six Major Objectives Of Planning In India
Network Of Expertise ............................... 35
........................................................................ 27
Knowledge And Innovation Hub ............. 35
Economic Growth ..................................... 27
Harmonisation ........................................... 35
Poverty Alleviation ................................... 27
Conflict Resolution ................................... 35
Employment Generation ......................... 28
Coordinating Interface With The World 35
Controlling Economic Inequality ............ 28
Internal Consultancy ................................ 35
Self-Reliance ............................................. 28
Capacity Building ...................................... 35
Modernisation .......................................... 28
Monitoring And Evaluation ..................... 36
Critical Evaluation Of Planning Under
Planning Commission .................................... 28 Guiding Principles ....................................... 36
Lack Of Perspective In Planning .............. 28 Antyodaya .................................................. 36
Failure In Promoting A Balanced Growth Inclusion ..................................................... 36
And Development ....................................... 29 Village ......................................................... 36
Highly Centralised Nature Of Planning .. 30 Demographic Dividend ............................. 36
Lop-Sided Employment Strategy ............. 30 People’s Participation .............................. 36
Excessive Emphasis On Psu ...................... 30 Governance ................................................ 36
Agriculture Overshadowed By Industry 31 Sustainability ............................................. 36
Faulty Industrial Location Policy ............. 31 Achievements Of Niti Aayog ..................... 36
Wrong Financial Strategy.......................... 31 Recent Friction With The Government .. 37
Politicisation Of The Planning Process .. 31 Critique Of Niti Aayog ................................ 38
Niti Aayog ........................................................ 32 Future Of Economic Planning In India ....... 39
Changing Contours Of India ..................... 32 International Experience ........................... 39
Demographic Shift .................................... 32 The Constitutional Question .................... 39
Economic Shift .......................................... 32 Need For Competence ............................... 40
Shift In The Private Sector ...................... 32 Resources Required To Achieve Goals ...... 40
Forces Of Globalisation ........................... 33 Infrastructure ............................................... 40
Role Of The States .................................... 33 Sustainable Development Goals .............. 41
Technology Paradigm .............................. 33 Niti Aayog Estimate .................................. 41
Functions Of Niti Aayog ............................ 34 MCQs For Practice .................................................. 43
MCQs With Answer And Explanation ..................... 44
Indian Planning little insight into each is bound to provide greater
insight into this economic system.
▪ Private Property: At the top of the list of what
TYPES OF ECONOMIC SYSTEMS makes an economic system capitalism is private
ownership of resources, goods, and assets. In
Every society has to answer three questions:
fact, the name capitalism was coined to
✓ What goods and services should be produced in
emphasize the private, rather than government
the country?
or public, ownership of capital. Private property
✓ How should the goods and services be
means owners can decide when and where, and
produced? Should producers use more human
even if, to sell their resources, goods, and assets.
labour or more capital (machines) for producing
▪ Individual Freedom: The ownership of private
things?
property works best when owners have the
✓ How should the goods and services be
freedom to use their resources as they see fit. A
distributed among people?
democratic political system provides the
individual freedoms that work best with
Different economic systems answer these questions
capitalism. While economic and political
differently.
freedoms do not necessarily go hand in hand,
CAPITALISM economic and political systems tend to work
better when such freedoms coexist.
One answer to these questions is to depend on the ▪ Competitive Markets: The institution that brings
market forces of supply and demand. In a market everything together for capitalism is competitive
economy, also called capitalism, only those markets. Competition among buyers and sellers
consumer goods will be produced that are in brings out the best, that is most efficient, use of
demand, i.e., goods that can be sold profitably resources.
either in the domestic or in the foreign markets. If
cars are in demand, cars will be produced and if
bicycles are in demand, bicycles will be produced.
If labour is cheaper than capital, more labour-

intensive methods of production will be used and
vice-versa.
In a capitalist society the goods produced are

distributed among people not on the basis of what
people need but on the basis of Purchasing Power— SOCIALISM
the ability to buy goods and services. That is, one has
to have the money in the pocket to buy it. Low cost GOVERNMENT OWNERSHIP AND CONTROL
housing for the poor is much needed but will not
count as demand in the market sense because the A socialist society answers the three questions in a
poor do not have the purchasing power to back the totally different manner. In a socialist society the
demand. As a result, this commodity will not be government decides what goods are to be
produced and supplied as per market forces. Such a produced in accordance with the needs of society. It
society did not appeal to Jawaharlal Nehru, our first is assumed that the government knows what is good
prime minister, for it meant that the great majority for the people of the country and so the desires of
of people of the country would be left behind individual consumers are not given much
without the chance to improve their quality of life. importance.
INTUITIONS UNDERLYING CAPITALISM
The government decides how goods are to be
The three key components, or institutions,
produced and how they should be distributed. In
underlying capitalism are private property,
principle, distribution under socialism is supposed to
individual freedom, and competitive markets. A

be based on what people need and not on what they and how to distribute what is produced. In a mixed
can afford to purchase. economy, the market will provide whatever goods
and services it can produce well, and the
Unlike under capitalism, for example, a socialist government will provide essential goods and
nation provides free health care to all its citizens. services which the market fails to do.
Strictly, a socialist society has no private property
since everything is owned by the state. While all real-world economies are mixed, some
mixed economies tend to use markets more than
GOALS OF SOCIALISM governments and others rely more on governments
than markets. For example, capitalism is the popular
The primary goals of modern real-world socialism term for a market-oriented economy that leans
are: heavily to the market end. Socialism and
▪ To correct the inefficiencies of market failures. communism are mixed economies that lean more
▪ To obtain more equal wealth and income (often a lot more) toward government control.
distributions.
▪ To equalize economic opportunities.
SOCIALISM AND CENTRAL PLANNING
Government ownership of resources and control of

industries under socialism necessitates control of
allocation decisions. This is often accomplished
through central planning. While less extensive than
found in communism, detailed plans are needed to
allocate resources in the absence of market
exchanges. And while such planning generally lacks GOALS AND POLICIES
the efficiency incentives found in markets, it can
improve the efficiency if the markets would An inherent dimension of a mixed economy is the
otherwise fall victim to failures. pursuit of economic goals using assorted
government policies. The five basic goals that are
For example, transportation systems are usually generally desired by society are:
owned and controlled by governments under ▪ full employment
socialism due to the possible market failure of ▪ stability
market control, especially the emergence of natural ▪ economic growth
monopoly. ▪ efficiency
▪ equity
Governments take primary responsibility in the

pursuit of these five goals with a wide variety of
economic policies that assist, guide, control, and
regulate voluntary market exchanges. Such policies
take the form of:
▪ laws passed by legislatures
▪ administrative actions taken by elected
executives
▪ rules set forth by government agencies
▪ decisions made through the courts.
MIXED ECONOMY
Most economies are mixed economies, i.e. the KEY DEFINITION

government and the market together answer the
three questions of what to produce, how to produce

Capitalism: A type of economy based on -- (1) macroeconomics are full employment, stability,
private ownership of most resources, goods, and and economic growth. Full employment is the
other stuff (private property); (2) freedom to condition in which all of the economy's available
generally use the privately-owned resources, resources are engaged in the production of goods
goods, and other stuff to get the most wages, rent, and services. Stability is the condition in which the
interest, and profit possible; and (3) a system of economy avoids large changes in production,
relatively competitive markets. While government employment, and especially prices. Economic
establishes the legal "rules of the game" for growth is the condition in which the economy's
capitalism and provides assorted public goods, like production possibilities are expanding over time.
national defense, education, and infrastructure,
most production, consumption, and resource
allocation decisions are left up to individual WHAT IS A PLAN?
businesses and consumers. The term capitalism is
derived from the notion that capital goods are A plan spells out how the resources of a nation
should be put to use. It should have some general
under private, rather than government,
goals as well as specific objectives which are to be
ownership.
achieved within a specified period of time; in India
plans are of five years duration and are called five
Socialism: In theory, an economy that is a
transition between capitalism and communism. It year plans (we borrowed this from the former Soviet
is based on--(1) government, rather than Union, the pioneer in national planning).
individual, ownership of resources, (2) worker
control of the government, such that workers, Our plan documents not only specify the objectives
rather than capitalist, control capital and other to be attained in the five years of a plan but also
productive resources, (3) income allocated on what is to be achieved over a period of twenty
need rather than on resource ownership or years. This long-term plan is called ‘perspective
contribution to production (using the needs plan’. The five-year plans are supposed to provide
standard rather than the contributive standard). the basis for the perspective plan.
It will be unrealistic to expect all the goals of a plan

Mixed Economy: An economy, or economic
to be given equal importance in all the plans. In fact,
system, that relies on both markets and
the goals may actually be in conflict. For example,
governments to allocate resources. While, in
the goal of introducing modern technology may be
theory, we could have a pure market economy or
a pure command economy, in the real world all in conflict with the goal of increasing employment if
economies are mixed, relying on both markets and the technology reduces the need for labour. The
governments for allocation decisions. Markets planners have to balance the goals, a very difficult
allocate resources through voluntary choices job indeed. We find different goals being
made by living, breathing people. Government emphasised in different plans in India.
forces allocation through involuntary taxes, laws,
restrictions, and regulations. Both institutions play Our five year plans do not spell out how much of
vital roles in an economy. each and every good and service is to be produced.
This is neither possible nor necessary (the former
Micro Goals: The two goals of a mixed economy Soviet Union tried to do this and failed). It is enough
if the plan is specific about the sectors where it
that are most relevant to the study of
plays a commanding role, for instance, power
microeconomics are efficiency and equity.
generation and irrigation, while leaving the rest to
Efficiency is obtaining the most possible
the market.
satisfaction of wants and needs from a given
amount of resources. Equity is the "fairness" with
which income and wealth are distributed. Of KEY DEFINITION
course, what is "fair" is not obvious.
Planned Economy: An economy, or economic
Macro Goals: The three goals of a mixed economy system, that relies heavily on central planning by
that are most relevant to the study of government to allocate resources and answer the
three basic questions of allocation. A planned Growth is usually measured by increases in gross
economy is often a type of command economy, in domestic product or per capita gross domestic
which government uses its coercive powers to product. The main sources of growth are increases
implement central planning allocation decisions. in the quantity and quality of the resources. And
the primary way of achieving these increases goes
Planning Commission: An organisation set up by by the term investment.
the Government of India. It is responsible for
making assessment of all resources of the country, Gross Domestic Product: The total value of final
augmenting deficient resources, formulating plans goods and services produced within a country’s
for the most effective and balanced utilisation of borders in a year, regardless of ownership. It is
resources and determining priorities. used as one of many indicators of the standard of
living in a country, but there are limitations with
this view.
GOALS OF FIVE-YEAR PLANS
GROWTH MODERNISATION
▪ It refers to increase in the country’s capacity to ▪ To increase the production of goods and
produce the output of goods and services within services the producers have to adopt new
the country. technology. For example, a farmer can increase
▪ It implies either a larger stock of productive the output on the farm by using new seed
capital, or a larger size of supporting services varieties instead of using the old ones. Similarly,
like transport and banking, or an increase in the a factory can increase output by using a new
efficiency of productive capital and services. type of machine.
▪ A good indicator of economic growth, in the ▪ Adoption of new technology is called
language of economics, is steady increase in the modernisation.
Gross Domestic Product (GDP). The GDP is the ▪ However, modernisation does not refer only to
market value of all the goods and services the use of new technology but also to changes in
produced in the country during a year. social outlook such as the recognition that
▪ You can think of the GDP as a cake and growth is women should have the same rights as men. In a
increase in the size of the cake. If the cake is traditional society, women are supposed to
larger, more people can enjoy it. It is necessary remain at home while men work. A modern
to produce more goods and services if the people society makes use of the talents of women in
of India are to enjoy (in the words of the First Five the work place — in banks, factories, schools etc.
Year Plan) a more rich and varied life. — and such a society in most occassions is also
▪ The GDP of a country is derived from the prosperous.
different sectors of the economy, namely the
agricultural sector, the industrial sector and the SELF-RELIANCE
service sector. The contribution made by each of
▪ A nation can promote economic growth and
these sectors makes up the structural
modernisation by using its own resources or by
composition of the economy.
using resources imported from other nations.
▪ In some countries, growth in agriculture
▪ The first seven five year plans gave importance
contributes more to the GDP growth, while in
to self-reliance which means avoiding imports of
some countries the growth in the service sector
those goods which could be produced in India
contributes more to GDP growth.
itself. This policy was considered a necessity in
order to reduce our dependence on foreign
KEY DEFINITION countries, especially for food.
▪ It is understandable that people who were
Growth: The process of increasing the economy's recently freed from foreign domination should
ability to produce goods. Growth is also one of the give importance to self-reliance. Further, it was
three macroeconomic goals of an economy (full feared that dependence on imported food
employment and stability are the other two).
supplies, foreign technology and foreign capital ▪ It was a successful plan primarily because of
may make India’s sovereignty vulnerable to good harvests in the last two years of the plan.
foreign interference in our policies. Objectives of rehabilitation of refugees, food self
sufficiency & control of prices were more or less
KEY DEFINITION achieved.
▪ Target Growth: 2.1 %; Actual Growth: 3.6 %.
Import Substitution: A policy of the state for
development of economy in which import of 2 ND FIVE YEAR PLAN (1956 – 1961)
goods is generally substituted by domestic
▪ Simple aggregative Harrod Domar Growth
production (through import controls, tariffs and
Model was again used for overall projections and
other restrictions) with a view to encourage
the strategy of resource allocation to broad
domestic industry on grounds of self-sufficiency
sectors as agriculture & Industry was based on
and domestic employment.
two & four sector Model prepared by Prof. P C
EQUITY Mahalanobis. (Plan is also called Mahalanobis
Plan).
▪ Now growth, modernisation and self-reliance, ▪ Second plan was conceived in an atmosphere of
by themselves, may not improve the kind of life economic stability. It was felt agriculture could
which people are living. A country can have high be accorded lower priority.
growth, the most modern technology developed ▪ The Plan Focussed on rapid industrialization-
in the country itself, and also have most of its heavy & basic industries.
people living in poverty. ▪ Advocated huge imports through foreign loans.
▪ It is important to ensure that the benefits of ▪ The Industrial Policy 1956 was based on
economic prosperity reach the poor sections as establishment of a socialistic pattern of society
well instead of being enjoyed only by the rich. So, as the goal of economic policy.
in addition to growth, modernisation and self- ▪ The Mahalnobis model intended to rectify the
reliance, equity is also important. imbalances in the industrial structure created
▪ Every Indian should be able to meet his or her during the years of British rule.
basic needs such as food, a decent house, ▪ The needs of huge investment required to
education and health care and inequality in the support the heavy and capital goods industries
distribution of wealth should be reduced. could only be met by the Government and thus
the public sector was given the responsibility to
KEY DEFINITION steer the country on the path of industrialization.
▪ The Mahalnobis model led to Import-
Equity: The situation in an economy in which the substitution pattern of growth and an inward-
apportionment of resources or goods among the looking model of development where domestic
people is considered fair. production of goods to replace imports was
intended.
▪ The objective of self-reliance and all-round
DEVELOPMENT EXPERIENCE UNDER development required not only huge investment
PLAN PERIOD – PHASE I (1951- but also formulation of policies which supported
high quotas, tariffs, duties (protectionism).
1990) Thus, a well-protected and competition free
environment was designed to provide time and
1 ST FIVE YEAR PLAN (1951 – 56) economies of cost to achieve productivity,
efficiency and also a place in the global market.
▪ It was based on Harrod-Domar Model.
▪ Acute shortage of forex led to pruning of
▪ Influx of refugees, severe food shortage &
development targets, price rise was also seen
mounting inflation confronted the country at the
(about 30%) vis a vis decline in the earlier Plan;
onset of the first five year Plan.
the 2nd FYP was only moderately successful.
▪ The Plan Focussed on agriculture, price stability,
▪ Target Growth: 4.5%; Actual Growth: 4.3%.
power and transport.

KEY DEFINITION electrical equipment, textile machinery, printing &
packaging machinery etc.
Tariff: A tax on imports, which can be levied either
on physical units, e.g. per tonne (specific) or on
QUESTION 1
value. Tariffs may be imposed for a variety of
Q. Consider the following statements regarding
reasons including: to raise government revenue,
Indian Planning: [2009]
to protect domestic industry from subsidised or
1. The Second Five-Year Plan emphasized on the
low-wage imports, to boost domestic
establishment of heavy industries.
employment, or to ease a deficit on the balance of
2. The Third Five-Year Plan introduced the concept
payments. Apart from the revenue that they raise
of import substitution as a strategy for
tariffs achieve little good—they reduce the
industrialization.
volume of trade and increase the price of the
Which of the statements given above is/are
imported commodity to consumers.
correct?
(a) 1 only
Tariff Barriers: All the restrictions on imports by a
(b) 2 only
government in the form of taxes.
(c) Both 1 and 2
(d) Neither 1 nor 2
Import Quotas: Quantity restrictions imposed by
Answer: A
the government of one nation on imports from
other nations. The primary goal of import quotas
is to reduce imports and increase domestic
3 RD FIVE YEAR PLAN (1961 – 1966)
production. Because the quantity of imports is
restricted, the price of imports increases, which ▪ At its conception, it was felt that Indian economy
thus encourages domestic consumers to buy more has entered a “take-off stage”. Therefore, its aim
domestic production. Import quotas are one of was to make India a 'self-reliant' and 'self-
three common foreign trade policies designed to generating' economy.
discourage imports and/or encourage exports. ▪ Based on the experience of first two plans
The other two are tariffs and export subsidies. (agricultural production was seen as limiting
factor in India’s economic development),
Heavy Industry: Heavy industry relates to a type agriculture was given top priority to support the
of business that typically carries a high capital cost exports and industry.
(capital-intensive), high barriers to entry, and low ▪ The Plan was thorough failure in reaching the
transportability. The term "heavy" refers to the targets due to unforeseen events - Chinese
fact that the items produced by "heavy industry" aggression (1962), Indo-Pak war (1965), severe
used to be products such as iron, coal, oil, ships, drought 1965-66. Due to conflicts the approach
etc. during the later phase was shifted from
development to defence & development.
Basic Industry: A type of industry that produces ▪ Target Growth: 5.6%; Actual Growth: 2.8%.
materials that are supplied to other industries,
and which is important in a country's economy. It THREE ANNUAL PLANS (1966 – 69)
includes mining, oil and gas.
▪ This period is euphemistically described as Plan
Capital Goods Industry: The Capital Goods holiday.
industry is the “mother” of all manufacturing ▪ Failure of Third Plan and also that of the
industry and is of strategic importance to the devaluation of rupee (to boost exports) along
national security and economic independence. It with inflationary recession led to postponement
manufactures products that are used in the of Fourth FYP. Three Annual Plans were
production of other products but are not introduced instead. Prevailing crisis in
incorporated into the new product. These include agriculture and serious food shortage
machine tools, industrial machinery, process plant necessitated the emphasis on agriculture during
equipment, construction & mining equipment, the Annual Plans.

▪ During these plans a whole new agricultural
strategy was implemented. It involved wide- Green Revolution: Great increase in production of
spread distribution of high-yielding varieties of food grains (especially wheat and rice) that
seeds, extensive use of fertilizers, exploitation resulted in large part from the introduction into
of irrigation potential and soil conservation. developing countries of new, high-yielding
▪ The growth target was not set for these three varieties, beginning in the mid-20th century. Its
years but the actual growth rate was 3.9%. early dramatic successes were in Mexico and the
▪ During the Annual Plans, the economy absorbed Indian subcontinent. The new varieties require
the shocks generated during the Third Plan. large amounts of chemical fertilizers and
▪ It paved the path for the planned growth ahead. pesticides to produce their high yields, raising
concerns about cost and potentially harmful
KEY DEFINITION environmental effects. Poor farmers, unable to
afford the fertilizers and pesticides, have often
Devaluation: The act of reducing the price reaped even lower yields with these grains than
(exchange rate) of one nation's currency in terms with the older strains, which were better adapted
of other currencies. This is usually done by a to local conditions and had some resistance to
government to lower the price of the country's pests and diseases.
exports and raise the price of foreign imports,
which ultimately results in greater domestic
production. 5 T H FIVE YEAR PLAN (1974 – 1979)
▪ The final Draft of fifth plan was prepared and

4TH FIVE YEAR PLAN (1969 – 1974) launched by D.P. Dhar in the backdrop of
economic crisis arising out of run-away inflation
▪ Refusal of supply of essential equipment and raw fuelled by hike in oil prices and failure of the
materials from the allies during Indo Pak war Govt. takeover of the wholesale trade in wheat.
resulted in twin objectives of “growth with ▪ The fifth five year plan (1974-79) was essentially
stability” and “progressive achievement of self a shift from earlier strategy of ‘only growth’ to
reliance” for the Fourth Plan. growth with social justice or growth with
▪ Main emphasis was on growth rate of redistribution’.
agriculture to enable other sectors to move ▪ The first three plans had focused on ‘growth’
forward. First two years of the plan saw record with the belief that the increase in growth rate
production. The last three years did not would have a ‘trickle –down effect’ and in the
measure up due to poor monsoon. long run even the poorest of the poor would
Implementation of Family Planning Programmes gain. However, nothing of this sort happened
were amongst major targets of the Plan. even after so many years of planning, thus a need
▪ The fourth five year plan laid stress on the to re-strategise was the need of the hour.
objective of self reliance and also was the phase ▪ The eradication of poverty through various anti-
of ‘Green Revolution’ heralding a new chapter in poverty programmes was launched to achieve
the history of agriculture in India. Though, there the objective of poverty eradication. It proposed
were Annual Plans from 1966-1969 for three to achieve two main objectives: 'removal of
years, the fourth plan tried to consolidate the poverty' (Garibi Hatao) and 'attainment of self
position on the food front and by laying the reliance'.
foundation for future export potentialities. ▪ Promotion of high rate of growth, better
▪ Influx of Bangladeshi refugees before and after distribution of income and significant growth in
1971 Indo-Pak war was an important issue along the domestic rate of savings were seen as key
with price situation deteriorating to crisis instruments.
proportions and the plan is considered as big ▪ Due to high inflation, cost calculations for the
failure. Plan proved to be completely wrong and the
▪ Target Growth: 5.7%; Actual Growth: 3.3% original public sector outlay had to be revised
upwards. After promulgation of emergency in
KEY DEFINITION 1975, the emphasis shifted to the
implementation of Prime Ministers 20 Point ROLLING PLAN (1978 – 80)
Programme. FYP was relegated to the
background and when Janta Party came to ▪ There were 2 Sixth Plans. Janta Government put
power in 1978, the Plan was terminated. forward a plan for 1978-1983 emphasising on
▪ Target Growth: 4.4%; Actual Growth: 4.8%. employment, in contrast to Nehru Model which
the Govt criticised for concentration of power,
KEY DEFINITION widening inequality & for mounting poverty.
However, the government lasted for only 2
Runaway inflation (or galloping or years.
hyperinflation): It occurs when the prices rise very ▪ Congress Government returned to power in
rapidly, with the result that the value of money 1980 and launched a different plan aimed at
declines significantly to a fraction of its former directly attacking on the problem of poverty by
value. creating conditions of an expanding economy.
6 T H FIVE YEAR PLAN (1980 – 1985)

Trickle Down Theory: Trickle-down economics, or
“trickle-down theory,” states that tax breaks and ▪ The Plan focussed on increase in national
benefits for corporations and the wealthy will income, modernization of technology, ensuring
trickle down to everyone else. It argues for income continuous decrease in poverty and
and capital gains tax breaks or other financial unemployment through schemes for transferring
benefits to large businesses, investors, and skills (TRYSEM - Training of Rural Youth for Self-
entrepreneurs to stimulate economic growth. The Employment) and rural development (IRDP -
argument hinges on two assumptions: All Integrated Rural Development Programme) and
members of society benefit from growth, and providing slack season employment (NREP -
growth is most likely to come from those with the National Rural Employment Programme),
resources and skills to increase productive output. controlling population explosion etc.
▪ Broadly, the sixth Plan could be taken as a
Savings: The after-tax disposable income of the success as most of the target were realised even
household sector that is not used for consumption though during the last year (1984-85) many parts
expenditures. In general terms, saving is the use of of the country faced severe famine conditions
income to purchase legal claims through financial and agricultural output was less than the record
markets rather than the direct purchase of output of previous year.
physical goods and services. In the ▪ Target Growth: 5.2%; Actual Growth: 5.7%.
macroeconomic world modeled by the circular
flow, saving is the diversion of household income 7 T H FIVE YEAR PLAN (1985 – 1990)
away from consumption and into the financial
markets. In this model, saving is a primary source ▪ The Plan aimed at accelerating food grain
of funds used for business investment production, increasing employment
expenditures for capital goods. Saving is also used opportunities & raising productivity with focus
to finance government expenditures. on ‘food, work & productivity’.
▪ The plan was very successful as the economy
recorded 6% growth rate against the targeted
QUESTION 2 5% with the decade of 80’s struggling out of the
Q. During which Five Year Plan was the ‘Hindu Rate of Growth’.
Emergency clamped, new elections took place ▪ Target Growth: 5.0%; Actual Growth: 6.0%.
and the Janata Party was elected? [2009]
(a) Third KEY DEFINITION
(b) Fourth
(c) Fifth Hindu Rate of Growth: The Hindu rate of growth
(d) Sixth is a term referring to the low annual growth rate
Answer: C of the economy of India before the liberalisations
of 1991, which stagnated around 3.5% from 1950s
10 | P a g e W W W . E D U T A P . C O . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241

to 1980s, while per capita income growth HYV (High Yielding Variety) Programs which
averaged 1.3%. stressed on the usage of seeds, fertilizers and
water.
▪ India, could achieve self-sufficiency in food grain
QUESTION 3
production by the end of the fifth five year plan.
Q. The Sixth and the Eighth Five Year Plans
covered the period 1980-1985 and 1992-1997
KEY DEFINITION
respectively. The Seventh Five Year Plan covered
the period: [1997]
P.L. 480: The term 'P.L. 480 (or Public Law 480) ' as
(a) 1987 - 1992
it applies to the area of agriculture can be defined
(b) 1986 - 1991 as ' P.L. 83-480 (July 10, 1954), also called Food for
(c) 1985 - 1990 Peace, is the common name for food aid programs
(d) 1988 - 1994 established by the Agricultural Trade
Answer: C Development and Assistance Act of 1954, which
seeks to expand foreign markets for U.S.
agricultural products, combat hunger, and
PRE-REFORM PERIOD APPRAISAL –
ACHIEVEMENTS encourage economic development in developing
countries. Title I makes export credit available on
ACCELERATION OF GROWTH RATE concessional terms, for example, at low interest
▪ One of the basic objectives of planning in India rates for up to 30 years. Donations for emergency
has been to achieve rapid economic growth rate food relief and non-emergency humanitarian
of the economy. assistance are provided under Title II. Title III
▪ During the last phase of British rule from 1901- authorizes a Food for Development program that
1946, the growth rate of Indian economy was provides government-to-government grant food
around one percent. assistance to least developed countries.
▪ During the first three decades of planning, the
rate of growth averaged around 3.5-4 percent
(the Hindu growth rate - coined by Professor Raj DEVELOPMENT OF HEAVY-CAPITAL GOODS
INDUSTRY BASE
Krishna).
▪ The pre-independence India was characterized
▪ The sixth plan onwards, there was a rise in the
by the existence of low industrial development-
rate of growth due to the considerable changes
marked by ownership and control by a small
in the economy.
group of industrial houses, lack of technological
GROWTH OF THE AGRICULTURE SECTOR interest among the entrepreneurs.
▪ There were substantial imports of food grains in ▪ In India, the Second Five year Plans, laid down
the 1960’s and 1970’s under the PL-480 from the the foundations of rapid industrial
USA. development. The second Plan was based on the
▪ The average spending on the agriculture and Nehru-Mahalnobis model of heavy – capital
allied activities has been around 23 to 25 goods industries development.
percent of the Plan outlay in each of the five year ▪ The industrial development has by and large
Plans. This was in addition to the private sector been successful in achieving ‘large extent of
investment in agriculture and allied activities. diversification’ over a relatively short period of
▪ The setting up of multi-purpose Projects like time. India has moved from being an importer of
Bhakra Nangal, Damodar Valley and Hirakud capital goods and machinery to an exporter of
Dam brought in great prospects for the such goods.
agriculture sector.
DEVELOPMENT OF ECONOMIC
▪ All such investment and the launch of the ‘New
INFRASTRUCTURE
Agricultural Strategy’ or the ‘Green Revolution’
▪ The development of infrastructure opened up
in the sixties lead to increase in agricultural
the prospects of modernizing different sectors of
output.
the economy as well as integrating rural areas
▪ The new agricultural strategy led to increase in
with the towns and cities.
production per hectare on account of marvels of
▪ The laying down of irrigation projects and FAILURE TO CREATE EMPLOYMENT
canals, hydro-electric and thermal power OPPORTUNITIES
projects, the expansion of network of surface ▪ Indian Planning system tried to achieve long
transport has led to developed infrastructure term growth through the heavy and capital
and enlargement of the market. goods industry. But such a model emphasized on
▪ The green revolution heralded an era of growth and not on employment.
modernization in the mid-sixties in the ▪ The heavy and capital goods industries are
agriculture sector, with the introduction of seed capital–intensive in nature and also are set up in
(High Yield Variety)- fertilizer-water strategy to urban areas. On both the grounds, the
improvise productivity and raise income levels of opportunity for employment creation was lost.
farmer. ▪ According to the Planning Commission Reports,
the backlog of unemployed persons was 5.3
PRE-REFORM PERIOD APPRAISAL – million at the end of the first plan and 28 million
FAILURES in the beginning of 1990.
▪ A large number of people are unemployed both
FAILURE IN SETTING UP A STRONG, in urban and rural areas. Apart from that, there
COMPETITIVE AND DIVERSIFIED
is also the problem of ‘underemployment’ and
INDUSTRIAL BASE
‘disguised unemployment’.
▪ Though India began well by emphasizing on the
growth of heavy and capital goods industry, the
KEY DEFINITION
neglect of consumer goods and small-scale
industry proved to be a mistake.
Capital Intensive: The term "capital intensive"
▪ The promotion of heavy and capital goods
refers to business processes or industries that
industries by the state led to concentration and
require large amounts of investment to produce a
inefficiency. Indian planners were myopic by
good or service and thus have a high percentage
focusing on the heavy and capital goods
of fixed assets, such as property, plant, and
industries in subsequent plans too.
equipment (PP&E).
▪ There should have been a promotion of strong
industrial base by encouraging both small and
Labour Intensive: The term "labour intensive"
large scale industries and also focusing on
refers to a process or industry that requires a large
efficiency and competition.
amount of labour to produce its goods or services.
▪ Further, the policy of import substitution which
The degree of labour intensity is typically
was essential for promoting ‘self-reliance’ was
measured in proportion to the amount of capital
too stretched for a long period of time.
required to produce the goods or services: the
▪ The Indian industries under the ‘infant industry’
argument also were unable to acquire higher the proportion of labour costs required, the
competitiveness, efficiency and low cost more labour-intensive the business.
feature which are hallmark for facing global
Underemployment: Underemployment is a
competitiveness.
measure of employment and labour utilization in
the economy that looks at how well the labour
KEY DEFINITION
force is being utilized in terms of skills, experience
and availability to work. Labour that falls under
Infant Industry Argument: The infant industry
the underemployment classification includes
argument is an economic rationale for trade
those workers who are highly skilled but working
protectionism. The core of the argument is that
in low paying or low skill jobs, and part-time
nascent industries often do not have the
workers who would prefer to be full-time. This is
economies of scale that their older competitors
different from unemployment in that the
from other countries may have, and thus need to
individual is working but is not working at his full
be protected until they can attain similar
capability.
economies of scale.
Disguised Unemployment: Disguised, or hidden,
unemployment can refer to any segment of the
population not employed at full capacity, but it is items needed to sustain life. This means that
often not counted in official unemployment poverty line is set by the welfare standard in a
statistics within the national economy. This can particular society (economy). (** General
include those working well below their Definition)
capabilities, those whose positions provide little
overall value in terms of productivity (i.e. marginal
productivity is zero), or any group that is not FAILURE IN UNDERTAKING LAND REFORMS
AND OTHER INSTITUTIONAL REFORMS IN
currently looking for work but is able to perform
AGRICULTURE
work of value.
▪ The emphasis on development of basic and
heavy industries by the second plan was the
FAILURE TO ERADICATE POVERTY need of the hour but there was also the need for
▪ The fact that more than a quarter of the strengthening the agriculture and the allied
population in India was living below poverty line sectors.
even after four decades of Planning speaks ▪ Though the new agricultural strategy/the green
volume about the failure of Planning in creating revolution were launched in the mid-60s, but no
‘growth for all’. efforts were taken to undertake land reform
▪ The adoption of the ‘Nehru-Mahalnobis model’ measures. Consequently, productivity of
led to the laying of the ‘strong infrastructure’ in agriculture suffered. Ownership of land makes a
form of heavy-capital goods, dams and multi- lot of difference to the productivity of the land.
purpose projects but the majority of Indians, ▪ Even after decades of Planning, only a few states
who are illiterate, unskilled and reside in the like West Bengal and Kerala have carried out
rural areas were deprived of a minimum level of land reforms.
living.
▪ Though, programmes like ‘Garibi Hatao’
QUESTION 4
undertaken by Mrs Indira Gandhi were Q. One of the reasons for India’s occupational
undertaken in the seventies but the success structure remaining more or less the same over
were dismal – both on account of improper the years has been that: [1995]
measures and also due to the magnitude of the (a) investment pattern has been directed towards
population. capital intensive industries.
(b) productivity in agriculture has been high
KEY DEFINITION enough to induce people to stay with agricultural.
(c) ceiling on land holdings have enabled more
Poverty Line*: The per capita expenditure on people to own land and hence their preference to
certain minimum needs of a person including food stay with agriculture.
intake of a daily average of 2,400 calories in rural (d) people are largely unaware of the significance
areas and 2,100 calories in urban areas. (* of transition from agriculture to industry for
Definition in India) economic development.
Answer: A
Poverty Line**: Poverty line is the amount of
money needed for a person to meet his basic
needs. It is defined as the money value of the QUESTION 5
goods and services needed to provide basic Q. Disguised unemployment generally means
welfare to an individual. Poverty line changes from [2013 - I]
one country to another. In developed countries, (a) large number of people remain unemployed
where there is advanced standard of living and (b) alternative employment is not available
welfare concepts, poverty line is high as basic (c) marginal productivity of labour is zero
standard to live include higher consumption (d) productivity of workers is low
requirements and accessibility to many goods and Answer: C
services. On the other hand, in many less
developed countries, the basic requirements will
be low and contains mostly essential consumption 1991 ECONOMIC CRISIS
In 1991, India met with an economic crisis relating to spending a large share of its income on areas which
its external debt — the government was not able to do not provide immediate returns such as the social
make repayments on its borrowings from abroad; sector and defence, there was a need to utilise the
foreign exchange reserves, which we generally rest of its revenue in a highly efficient manner. The
maintain to import petrol and other important income from public sector undertakings was also
items, dropped to levels that were not sufficient for not very high to meet the growing expenditure. At
even a fortnight. The crisis was further compounded times, our foreign exchange, borrowed from other
by rising prices of essential goods. All these led the countries and international financial institutions,
government to introduce a new set of policy was spent on meeting consumption needs. Neither
measures which changed the direction of our was an attempt made to reduce such profligate
developmental strategies. spending nor sufficient attention was given to boost
exports to pay for the growing imports.
KEY DEFINITION
In the late 1980s, government expenditure began to
Import Cover: It measures the number of months exceed its revenue by such large margins that
of imports that can be covered with foreign meeting the expenditure through borrowings
exchange reserves available with the central bank became unsustainable. Prices of many essential
of the country. Eight to ten months of import goods rose sharply. Imports grew at a very high rate
cover is essential for the stability of a currency. without matching growth of exports. As pointed out
earlier, foreign exchange reserves declined to a
Default: Failure to make repayment of the level that was not adequate to finance imports for
principal and interest on a debt e.g. sovereign debt more than two weeks. There was also not sufficient
(loan obtained by the government) to the lenders, foreign exchange to pay the interest that needs to
say, international financial institutions, on the be paid to international lenders. Also, no country or
scheduled date, causing loss of credibility as a international funder was willing to lend to India.
debtor.
India approached the International Bank for
Reconstruction and Development (IBRD), popularly
BACKGROUND known as World Bank and the International
Monetary Fund (IMF), and received $7 billion as loan
The origin of the financial crisis can be traced from to manage the crisis. For availing the loan, these
the inefficient management of the Indian economy international agencies expected India to liberalise
in the 1980s. We know that for implementing and open up the economy by removing restrictions
various policies and its general administration, the on the private sector, reduce the role of the
government generates funds from various sources government in many areas and remove trade
such as taxation, running of public sector enterprises restrictions between India and other countries.
etc. When expenditure is more than income, the
government borrows to finance the deficit from India agreed to the conditionalities of World Bank
banks and also from people within the country and and IMF and announced the New Economic Policy
from international financial institutions. When we (NEP). The NEP consisted of wide ranging economic
import goods like petroleum, we pay in dollars which reforms. The thrust of the policies was towards
we earn from our exports. creating a more competitive environment in the
economy and removing the barriers to entry and
Development policies required that even though the growth of firms. This set of policies can broadly be
revenues were very low, the government had to classified into two groups: the stabilisation measures
overshoot its revenue to meet challenges like and the structural reform measures.
unemployment, poverty and population explosion.
The continued spending on development KEY DEFINITION
programmes of the government did not generate
additional revenue. Moreover, the government was Deficit Financing: A situation where the
not able to generate sufficiently from internal expenditure of the government exceeds its
sources such as taxation. When the government was revenue.
On the other hand, structural reform policies are
New Economic Policy: A term used to describe the long-term measures, aimed at improving the
policies adopted in India since 1991. efficiency of the economy and increasing its
international competitiveness by removing the
Import Cover: It measures the number of months rigidities in various segments of the Indian economy.
of imports that can be covered with foreign The government initiated a variety of policies which
exchange reserves available with the central bank fall under three heads viz., liberalisation,
of the country. Eight to ten months of import privatisation and globalisation.
cover is essential for the stability of a currency.
KEY DEFINITION
QUESTION 6
Structural Reform Policies: Long-term measures
Q. Which of the following best describes the term like liberalisation, deregulation and privatisation
‘import cover’, sometimes seen in the news? aimed to improve the efficiency and
[2016]
competitiveness of the economy.
(a) It is the ratio of value of imports to the Gross
Domestic Product of a country.
(b) It is the total value of imports of a country in a QUESTION 7
year. Q. Which one of the following is correct regarding
(c) It is the ratio between the value. stabilization and structural adjustment as two
(d) It is the number of months of imports that components of the new economic policy adopted
could be paid for by a country’s international in India? [1996]
reserves. (a) Stabilization is a gradual, multi-step process
Answer: D while structural adjustment is a quick adaptation
process
(b) Structural adjustment is a gradual multi-step
STABILISATION MEASURES process, while stabilization is a quick adaptation
process
Stabilisation measures are short-term measures, (c) Stabilization and structural adjustment are very
intended to correct some of the weaknesses that similar and complimentary policies. It is difficult to
have developed in the balance of payments and to separate one from the other
bring inflation under control. In simple words, this (d) Stabilization mainly deals with a set of policies
means that there was a need to maintain sufficient which are to be implemented by the Central
foreign exchange reserves and keep the rising prices government while structural adjacent is to be set
under control. it motion by the State governments
Answer: B
KEY DEFINITION
Stabilisation Measures: Fiscal and monetary LIBERALISATION

measures adopted to control fluctuations in the
balance of payments and high rate of inflation. As pointed out in the beginning, rules and laws
which were aimed at regulating the economic
Balance of Payments (BOP): It is a statistical activities became major hindrances in growth and
statement summarising all the external development. Liberalisation was introduced to put
transactions (receipts and payments) on current an end to these restrictions and open various
and capital account in which a country is involved sectors of the economy. Though a few liberalisation
over a period of time, say, a year. As the BOP measures were introduced in 1980s in areas of
shows the total assets and obligations over a time industrial licensing, export-import policy,
period, it always balances. technology upgradation, fiscal policy and foreign
investment, reform policies initiated in 1991 were
more comprehensive. Let us study some important
STRUCTURAL REFORM MEASURES areas, such as the industrial sector, financial sector,

tax reforms, foreign exchange markets and trade and Permit License Raj: A term used to denote the
investment sectors which received greater attention rules and regulations framed by the government
in and after 1991. to start, run and operate an enterprise for
production of goods and services in India.
KEY DEFINITION
Dereservation: Allowing an individual or group of
Economic Liberalisation: It encompasses the enterprises to produce goods and services which
processes, including government policies, that were hitherto produced by a particular individual
promote free trade, deregulation, elimination of or group of enterprises. In India, it refers to
subsidies, price controls and rationing systems, allowing large-scale industries to produce goods
and, often, the downsizing or privatization of and services which were produced only by the
public services. Economic liberalization has been small-scale industries.
central to adjustment policies introduced in
developing countries since the late 1970s, mostly
in the context of the conditions for lending set by FINANCIAL SECTOR REFORMS
international financial institutions. Thus,
government policies were redirected to follow a Financial sector includes financial institutions, such
noninterventionist, or laissez-faire, approach to as commercial banks, investment banks, stock
economic activity, relying on market forces for the exchange operations and foreign exchange market.
allocation of resources. It was argued that market- The financial sector in India is regulated by the
oriented policy reforms would spur growth and Reserve Bank of India (RBI). You may be aware that
accelerate poverty reduction. all banks and other financial institutions in India are
regulated through various norms and regulations of
the RBI. The RBI decides the amount of money that
DEREGULATION OF INDUSTRIAL SECTOR the banks can keep with themselves, fixes interest
rates, nature of lending to various sectors, etc. One
In India, regulatory mechanisms were enforced in of the major aims of financial sector reforms is to
various ways: reduce the role of RBI from regulator to facilitator
▪ industrial licensing under which every of financial sector. This means that the financial
entrepreneur had to get permission from sector may be allowed to take decisions on many
government officials to start a firm, close a firm matters without consulting the RBI.
or decide the amount of goods that could be
produced The reform policies led to the establishment of
▪ private sector was not allowed in many private sector banks, Indian as well as foreign.
industries Foreign investment limit in banks was raised to
▪ some goods could be produced only in small- around 50 per cent. Those banks which fulfil certain
scale industries, and conditions have been given freedom to set up new
▪ controls on price fixation and distribution of branches without the approval of the RBI and
selected industrial products. rationalise their existing branch networks. Though
banks have been given permission to generate
The reform policies introduced in and after 1991 resources from India and abroad, certain
removed many of these restrictions. Industrial managerial aspects have been retained with the RBI
licensing was abolished for almost all but product to safeguard the interests of the account-holders
categories — alcohol, cigarettes, hazardous and the nation. Foreign Institutional Investors (FII),
chemicals, industrial explosives, electronics, such as merchant bankers, mutual funds and
aerospace and drugs and pharmaceuticals. Many pension funds, are now allowed to invest in Indian
goods produced by small-scale industries have now financial markets.
been dereserved. In many industries, the market has
been allowed to determine the prices. KEY DEFINITION
KEY DEFINITION Foreign Institutional Investment: Foreign

investments which come in the form of stocks,
bonds, or other financial assets. This form of
investment does not entail active management or Another component of reforms in this area is
control over the firms or investors. simplification. In order to encourage better
compliance on the part of taxpayers many
Foreign Institutional Investors (FIIs): Banking and procedures have been simplified and the rates also
non-banking financial institutions of foreign origin substantially lowered. Recently, the Parliament
e.g. commercial banks, investment banks, mutual passed a law, Goods and Services Tax Act 2016, to
funds, pension funds or other such institutional simplify and introduce a unified indirect tax system
investors (as distinct from the domestic financial in India. This law came into effect from July 2017.
institutions investing) whose investment in stocks This is expected to generate additional revenue for
and bonds in the country through stock markets the government, reduce tax evasion and create ‘one
have significant influence. nation, one tax and one market’.
Merchant Bankers: Banks or financial institutions, KEY DEFINITION

also known as investment bankers, that specialise
in advising the companies and managing their Fiscal Policy: All the planned actions of a
equity and debt requirement (often referred to as government in mobilising financial resources for
portfolio management) through floatation and meeting its expenditure and regulating the
sale/purchase of stocks and bonds. economic activities in a country.
Stock Exchange: A market in which the securities Fiscal Management: The use of taxation and
of governments and public companies are traded. government expenditure to regulate the
It provides the facilities for stock brokers to trade economic activities.
company stocks and other securities.
Goods and Services Tax: It is a single indirect tax
on the supply of goods and services. It was
TAX REFORMS introduced in July 2017 by abolishing a variety of
taxes, such as sales tax and excise that prevailed in
Tax reforms are concerned with the reforms in the India. Under GST, tax is imposed on the basis of
government’s taxation and public expenditure value addition at each stage of the movement of
policies, which are collectively known as its fiscal goods and services. Different slabs of tax rates,
policy. such as 0 per cent, 5 per cent, 12 per cent, 18 per
cent and 28 per cent, are imposed on almost all
There are two types of taxes: direct and indirect. goods and services. This slab is same throughout
Direct taxes consist of taxes on incomes of the country.
individuals, as well as, profits of business
enterprises. Better Compliance: Obeying or complying with
the Government regulation. It is referred to
Since 1991, there has been a continuous reduction usually in case of payment of taxes and dues to the
in the taxes on individual incomes as it was felt that Government.
high rates of income tax were an important reason
for tax evasion. It is now widely accepted that FOREIGN EXCHANGE REFORMS
moderate rates of income tax encourage savings
and voluntary disclosure of income. The first important reform in the external sector
was made in the foreign exchange market. In 1991,
The rate of corporation tax, which was very high as an immediate measure to resolve the balance of
earlier, has been gradually reduced. payments crisis, the rupee was devalued against
foreign currencies. This led to an increase in the
Efforts have also been made to reform the indirect inflow of foreign exchange. It also set the tone to
taxes, taxes levied on commodities, in order to free the determination of rupee value in the foreign
facilitate the establishment of a common national exchange market from government control. Now,
market for goods and commodities. more often than not, markets determine exchange
rates based on the demand and supply of foreign Import Licensing: Permission required from the
exchange. government to import goods into a country.
KEY DEFINITION Export Duties: Taxes imposed on goods exported

from a country.
Foreign Exchange: Currency or bonds of another
country.
PRIVATISATION
Foreign Exchange Markets: A market in which
currencies are bought and sold at rates of It implies shedding of the ownership or
exchange fixed now, for delivery at specified dates management of a government owned enterprise.
in the future. Government companies are converted into private
companies in two ways (i) by withdrawal of the
government from ownership and management of
TRADE AND INVESTMENT POLICY REFORMS public sector companies and or (ii) by outright sale
of public sector companies.
Liberalisation of trade and investment regime was
initiated to increase international competitiveness Privatisation of the public sector enterprises by
of industrial production and also foreign selling off part of the equity of PSEs to the public is
investments and technology into the economy. The known as disinvestment. The purpose of the sale,
aim was also to promote the efficiency of local according to the government, was mainly to improve
industries and adoption of modern technologies. financial discipline and facilitate modernisation. It
was also envisaged that private capital and
In order to protect domestic industries, India was managerial capabilities could be effectively utilised
following a regime of quantitative restrictions on to improve the performance of the PSUs. The
imports. This was encouraged through tight control government envisaged that privatisation could
over imports and by keeping the tariffs very high. provide strong impetus to the inflow of FDI.
These policies reduced efficiency and
competitiveness which led to slow growth of the The government has also made attempts to improve
manufacturing sector. The trade policy reforms the efficiency of PSUs by giving them autonomy in
aimed at taking managerial decisions. For instance, some
▪ dismantling of quantitative restrictions on PSUs have been granted special status as
imports and exports maharatnas, navratnas and miniratnas.
▪ reduction of tariff rates and
▪ removal of licensing procedures for imports. KEY DEFINITION
Import licensing was abolished except in case of
hazardous and environmentally sensitive industries. Public Sector Establishments: All those
Quantitative restrictions on imports of establishments which are owned and operated by
manufactured consumer goods and agricultural the government. They may be run either by local
products were also fully removed from April 2001. government, state government or by central
Export duties have been removed to increase the government independently or jointly.
competitive position of Indian goods in the
international markets. Disinvestment: A deliberate sale of a part of the
capital stock of a company to raise resources and
KEY DEFINITION change the equity and/or management structure
of a company.
Quantitative Restrictions: Restrictions in the form
of total quantities or quotas imposed on imports Privatisation: The process of converting or "selling
to reduce balance of payments (BOP) deficit and off" government-owned assets, properties, or
protect domestic industry. production activities to private ownership. After
several decades of increasing government control
over productive activities, privatization came into
vogue in the 1980s, along with business Although globalisation is generally understood to
deregulation and an overall movement toward mean integration of the economy of the country
greater use of markets. with the world economy, it is a complex
phenomenon. It is an outcome of the set of various
policies that are aimed at transforming the world
NAVRATNAS POLICY towards greater interdependence and integration.
It involves creation of networks and activities
In order to improve efficiency, infuse transcending economic, social and geographical
professionalism and enable them to compete more boundaries. Globalisation attempts to establish links
effectively in the liberalised global environment, the in such a way that the happenings in India can be
government identifies PSEs and declare them as influenced by events happening miles away. It is
maharatnas, navratnas and miniratnas. They were turning the world into one whole or creating a
given greater managerial and operational borderless world.
autonomy, in taking various decisions to run the
company efficiently and thus increase their profits. KEY DEFINITION
Greater operational, financial and managerial
autonomy has also been granted to profit-making Integration of Domestic Economy: A situation
enterprises referred to as miniratnas. where the policies of government facilitate free
trade and investment with other countries making
The Central Public Sector Enterprises are designated the domestic economy work together with other
with different status. A few examples of public economies in an efficient and mutually
enterprises with their status are as follows: (i) interdependent way.
Maharatnas – (a) Indian Oil Corporation Limited, and
(b) Steel Authority of India Limited, (ii) Navratnas – Globalisation: The generalized expansion of
(a) Hindustan Aeronautics Limited, (b) Mahanagar international economic activity which includes
Telephone Nigam Limited; and (iii) Miniratnas – (a) increased international trade, growth of
Bharat Sanchar Nigam Limited; (b) Airport Authority international investment (foreign investment) and
of India and (c) Indian Railway Catering and Tourism international migration, and increased
Corporation Limited. proliferation of technology among countries.
Globalization is the increasing world-wide
Many of these profitable PSEs were originally integration of markets for goods, services, labour,
formed during the 1950s and 1960s when self- and capital. It is an ongoing process that started
reliance was an important element of public policy. several centuries ago. However, most people
They were set up with the intention of providing would agree that today we are in a period of rapid
infrastructure and direct employment to the public globalization as international economic activity
so that quality end-product reaches the masses at a has accelerated in the last 200 years or so.
nominal cost and the companies themselves were
made accountable to all stakeholders.
OUTSOURCING
The granting of status resulted in better
performance of these companies. Scholars allege This is one of the important outcomes of the
that instead of facilitating public enterprises in their globalisation process. In outsourcing, a company
expansion and enabling them to become global hires regular service from external sources, mostly
players, the government partly privatised them from other countries, which was previously
through disinvesment. Of late, the government has provided internally or from within the country (like
decided to retain them in the public sector and legal advice, computer service, advertisement,
enable them to expand themselves in the global security — each provided by respective departments
markets and raise resources by themselves from of the company).
financial markets.
As a form of economic activity, outsourcing has
GLOBALISATION intensified, in recent times, because of the growth
of fast modes of communication, particularly the
growth of Information Technology (IT). Many of the The WTO agreements cover trade in goods as well
services such as voice-based business processes as services to facilitate international trade (bilateral
(popularly known as BPO or call centres), record and multilateral) through removal of tariff as well as
keeping, accountancy, banking services, music non-tariff barriers and providing greater market
recording, film editing, book transcription, clinical access to all member countries.
advice or even teaching are being outsourced by
companies in developed countries to India. As an important member of WTO, India has been in
the forefront of framing fair global rules, regulations
With the help of modern telecommunication links and safeguards and advocating the interests of the
including the Internet, the text, voice and visual developing world. India has kept its commitments
data in respect of these services is digitised and towards liberalisation of trade, made in the WTO, by
transmitted in real time over continents and removing quantitative restrictions on imports and
national boundaries. Most multinational reducing tariff rates. Some scholars question the
corporations, and even small companies, are usefulness of India being a member of the WTO as a
outsourcing their services to India where they can major volume of international trade occurs among
be availed at a cheaper cost with reasonable degree the developed nations. They also say that while
of skill and accuracy. The low wage rates and developed countries file complaints over agricultural
availability of skilled manpower in India have made subsidies given in their countries, developing
it a destination for global outsourcing in the post- countries feel cheated as they are forced to open
reform period. their markets for developed countries but are not
allowed access to the markets of developed
KEY DEFINITION countries.
Business Process Outsourcing (BPO): Outsourcing KEY DEFINITION

of business processes (activities constituting a
service) by companies to other companies. This Non-tariff Barriers: All the restrictions on imports
term is frequently associated with outsourcing of by a government in the form other than taxes.
such activities (e.g. receiving and making calls on They mainly include restrictions on quantity and
behalf of other companies popularly known as call quality of goods imported.
centres), by foreign companies to Indian
companies in the field of IT-enabled services. Multilateral Trade Agreements: Trade
agreements made by a country with more than
two nations to exchange goods and services.
WORLD TRADE ORGANISATION
Bilateral Trade Agreements: The agreements
The WTO was founded in 1995 as the successor relating to exchange of commodities or services
organisation to the General Agreement on Trade between two countries.
and Tariff (GATT).
WTO: The abbreviation for World Trade
GATT was established in 1948 with 23 countries as Organization, which is an international
the global trade organisation to administer all organization that oversees multilateral trade
multilateral trade agreements by providing equal among nations. The WTO was established in 1995
opportunities to all countries in the international by the Uruguay round of trade negotiations to
market for trading purposes. replace the General Agreement on Tariffs and
Trade (GATT) that had been in place for the
WTO is expected to establish a rule-based trading preceding five decades. The WTO administers
regime in which nations cannot place arbitrary multilateral trade agreements, provides a forum
restrictions on trade. In addition, its purpose is also for trade negotiations, handles trade disputes,
to enlarge production and trade of services, to monitors national trade policies, and provides
ensure optimum utilisation of world resources and technical assistance and training for developing
to protect the environment. countries. The WTO has about 150 member
countries.
within the domain of private and multinational
sectors
(b) With market assuming a central place, the role
QUESTION 8
of central planning in many sectors has been
Q. Which of the following were the aims behind
rendered redundant
the setting up of the World Trade Organization
(c) The focus of planning has shifted to sectors like
(WTO)? [1996]
human resource
1. Promotion of free trade and resource flows
(d) The nation’s priorities have shifted away from
across countries
industrial development to rural development
2. Protection of intellectual property rights
Answer: D
3. Managing balanced trade between different
countries
4. Promotion of trade between the former East QUESTION 11
Bloc countries and the western world Q. Economic liberalisation in India started with:
Select the correct answer by using the codes [2000]
given below: (a) substantial changes in industrial licensing
(a) 1, 2, 3 and 4 policy
(b) 1 and 2 (b) the convertibility of Indian rupee
(c) 2 and 3 (c) doing away with procedural formalities for
(d) 1 and 4 foreign direct investment
Answer: B (d) significant reduction in tax rates
Answer: A
QUESTION 9
Q. Given below are two statements, one labelled QUESTION 12
as Assertion (A) and the other labelled as Reason Q. Which of the following has/have occurred in
(R). [1996] India after its liberalisation of economic policies
Assertion (A): An important policy instrument of in 1991? [2017]
economic liberalization is reduction in import 1. Share of agriculture in GDP increased
duties on capital goods. enormously.
Reason (R): Reduction in import duties would help 2. Share of India’s exports in world trade
the local entrepreneurs to improve technology to increased.
face the global markets. 3. FDI inflows increased.
In the context of the above two statements, 4. India’s foreign exchange reserves increased
which one of the following is correct? enormously.
(a) Both A and R are true and R is the correct Select the correct answer using the codes given
explanation below:
(b) Both A and R are true R is not a correct (a) 1 and 4 only
explanation (b) 2, 3 and 4 only
(c) A is true but R is false (c) 2 and 3 only
(d) A is false but R is true (d) 1,2, 3 and 4
Answer: A Answer: C
QUESTION 10
Q. The planning process in the industries sector DEVELOPMENT EXPERIENCE UNDER
in India has assumed a relatively less important
position in the nineties as compared to that in the PLAN PERIOD – PHASE II (1992-
earlier period. Which one of the following is not 2017)
true in this regard? [1999]
(a) With the advent of liberalisation, industrial 8 T H FIVE YEAR PLAN (1992 – 1997)
investment development have largely been placed

▪ The eighth plan was postponed by two years formal training and highly informal on-the-job
because of political uncertainty at the Centre. experiences.
▪ Worsening Balance of Payment position, rising
debt burden, widening budget deficits,
QUESTION 13
recession in industry and inflation were the key
issues during the launch of the plan. Q. Which one of the following Five Year Plans
▪ The plan undertook drastic policy measures to recognised human development as the core of all
combat the bad economic situation and to development efforts? [1995]
undertake an annual average growth of 5.6% (a) The Third Five Year Plan
through introduction of fiscal & economic (b) The Fifth Five Year Plan
reforms including liberalisation under the Prime (c) The Sixth Five Year Plan
Ministership of Shri P V Narasimha Rao. (d) The Eighth Five Year Plan
▪ Focus: ‘Plan with a human face’; it gave a lot of Answer: D
importance to human resource development
▪ Some of the main economic outcomes during QUESTION 14
eighth plan period were rapid economic growth, Q. What is the annual growth rate aimed in the
high growth of agriculture and allied sector, and Eighth Five Year Plan [1995]
manufacturing sector, growth in exports and (a) 5.6%
imports, improvement in trade and current (b) 6%
account deficit. High growth rate was achieved (c) 6.5%
even though the share of public sector in total (d) 7%
investment had declined considerably to about Answer: A
34 %.
▪ Target Growth: 5.6%; Actual Growth: 6.8%
QUESTION 15
KEY DEFINITION Q. Consider the following statements: [2018]
Human capital formation as a concept is better
Recession: It is a slowdown or a massive explained in terms of a process which enables
contraction in economic activities. A significant fall 1. individuals of a country to accumulate more
in spending generally leads to a recession. Such a capital.
slowdown in economic activities may last for some 2. increasing the knowledge, skill levels and
quarters thereby completely hampering the capacities of the people of the country.
growth of an economy. In such a situation, 3. accumulation of tangible wealth.
economic indicators such as GDP, corporate 4. accumulation of intangible wealth.
profits, employments, etc., fall. Economies Which of the statements given above is/are
generally react by loosening their monetary correct?
policies by infusing more money into the system, (a) 1 and 2 only
i.e., by increasing the money supply. (b) 2 only
(c) 2 and 4 only
Budgetary Deficit: A situation when the (d) 1, 3 and 4
government’s income and tax receipts fail to cover Answer: B
its expenditures.
Human Capital: The sum total of a person's 9 T H FIVE YEAR PLAN (1997 – 2002)
productive knowledge, experience, and training. ▪ The Plan prepared under United Front
The acquisition of human capital is what makes a Government focussed on “Growth With Social
person more productive. One of the most notable Justice and Equality” Ninth Plan aimed to
methods of stocking up on human capital is depend predominantly on the private sector –
through formal education--from grade school to Indian as well as foreign (FDI) & State was
advanced college degrees. However, human envisaged to increasingly play the role of
capital is also effectively obtained through less facilitator and increasingly involve itself with

social sector viz education, health etc and power on the plank of helping Aam Aadmi
infrastructure where private sector participation (common man).
was likely to be limited. ▪ India had emerged as one of the fastest growing
▪ It assigned priority to agriculture and rural economy by the end of the Tenth Plan. The
development with a view to generate adequate savings and investment rates had increased,
productive employment and eradicate poverty. industrial sector had responded well to face
▪ Target Growth: 6.5% Actual Growth: 5.4% competition in the global economy and foreign
investors were keen to invest in India.
10 T H FIVE YEAR PLAN (2002 – 2007) ▪ But the growth was not perceived as sufficiently
inclusive for many groups, specially SCs, STs &
▪ Recognising that economic growth can’t be the
minorities as borne out by data on several
only objective of national plan, Tenth Plan had
dimensions like poverty, malnutrition,
set ‘monitorable targets’ for few key indicators
mortality, current daily employment etc.
(11) of development besides 8 % growth target.
▪ The broad vision for 11th Plan included several
▪ The targets included reduction in gender gaps in
inter related components like rapid growth
literacy and wage rate, reduction in Infant &
reducing poverty & creating employment
maternal mortality rates, improvement in
opportunities, access to essential services in
literacy, access to potable drinking water
health & education, especially for the poor,
cleaning of major polluted rivers, etc.
extension of employment opportunities using
▪ Governance was considered as factor of
National Rural Employment Guarantee
development and agriculture was declared as
Programme, environmental sustainability,
prime moving force of the economy.
reduction of gender inequality etc.
▪ States role in planning was to be increased with
▪ The Eleventh Plan started well with the first year
greater involvement of Panchayati Raj
achieving a growth rate of 9.3 per cent, however
Institutions.
the growth decelerated to 6.7 per cent rate in
▪ State wise break up of targets for growth and
2008-09 following the global financial crisis.
social development sought to achieve balanced
▪ The economy recovered substantially to register
development of all states.
growth rates of 8.6 per cent and 9.3 per cent in
▪ Target Growth 8 % Actual Growth 7.6 %
2009-10 and 2010-11 respectively.
▪ However, the second bout of global slowdown
KEY DEFINITION in 2011 due to the sovereign debt crisis in
Europe coupled with domestic factors such as
Economic Development: A country’s economic tight monetary policy and supply side
development is usually indicated by an increase in bottlenecks, resulted in deceleration of growth
citizens’ quality of life. ‘Quality of life’ is often to 6.2 per cent in 2011-12.
measured using the Human Development Index, ▪ Consequently, the average annual growth rate of
which is an economic model that considers Gross Domestic Product (GDP) achieved during
intrinsic personal factors not considered in the Eleventh Plan was 8 per cent, which was
economic growth, such as literacy rates, life lower than the target but better than the Tenth
expectancy and poverty rates. Development Plan achievement. Since the period saw two
occurs when there is an increase in real income global crises - one in 2008 and another in 2011 –
per head – GDP per capita, increase in levels of the 8 per cent growth may be termed as
literacy and education standard, improvement in satisfactory.
the quality and availability of housing,
improvement in levels of environmental standards
KEY DEFINITION
and increased life expectancy.
Inclusive Growth: It is growth that reduces the
disadvantages of the most disadvantaged while
11 T H FIVE YEAR PLAN (2007 – 2012)
benefitting everyone.
▪ Eleventh Plan was aimed “Towards Faster &
More Inclusive Growth “after UPA rode back to Global Financial Crisis: The global financial crisis
(GFC) refers to the period of extreme stress in
global financial markets and banking systems deceleration continued into the first year of the
between mid 2007 and early 2009. During the Twelfth Plan, when the economy is estimated to
GFC, a downturn in the US housing market was a have grown by only 5 percent.
catalyst for a financial crisis that spread from the ▪ The Twelfth Plan therefore emphasizes that our
United States to the rest of the world through first priority must be to bring the economy back
linkages in the global financial system. Many banks to rapid growth while ensuring that the growth
around the world incurred large losses and relied is both inclusive and sustainable. The broad
on government support to avoid bankruptcy. vision and aspirations which the Twelfth Plan
Millions of people lost their jobs as the major seeks to fulfil are reflected in the subtitle:
advanced economies experienced their deepest ‘Faster, Sustainable, and More Inclusive
recessions since the Great Depression in the Growth’.
1930s. ▪ The plan targets a growth rate of 4 percent for
the agriculture sector and 10 percent for the
Debt Crisis: Debt crisis is a situation in which a manufacturing sector.
government (nation, state/province, county, or ▪ Twelfth plan plans to shift a substantial portion
city etc.) loses the ability of paying back its of population from agriculture to higher
governmental debt. When the expenditures of a productivity non-agricultural occupations. The
government are more than its tax revenues for a growth process should be job creating in order
prolonged period, the government may enter into to achieve inclusivity.
a debt crisis. Various forms of governments ▪ The plan highlights the need to achieve robust
finance their expenditures primarily by raising growth in the manufacturing sector with
money through taxation. When tax revenues are emphasis on medium, small and micro-
insufficient, the government can make up the enterprises (MSME) which provide the best
difference by issuing debt. A debt crisis can also scope for absorbing labour currently employed in
refer to a general term for a proliferation of low productivity jobs.
massive public debt relative to tax revenues, ▪ The plan shall increase investment in
especially in reference to Latin American countries infrastructure as a percentage of GDP to 9
during the 1980s, the United States and the percent by the end of the twelfth plan.
European Union since the mid-2000s, and the ▪ The plan proposes to increase the gross irrigated
Chinese debt crises of 2015. area from 90 million hectares to 103 million
hectares by the end of the plan.
European Sovereign Debt Crisis: The European ▪ The Twelfth plan also seeks the development of
sovereign debt crisis was a period when several human capabilities which include education,
European countries experienced the collapse of health and so on. The Sarva Shiksha Abhijan
financial institutions, high government debt, and (SSA), the Right to education (RTE), the Midday
rapidly rising bond yield spreads in government Meal Scheme (MDM), which are showing some
securities. It began in 2008 with the collapse of positive results will be pursued intensely with
Iceland's banking system. Some of the greater allocation.
contributing causes included the financial crisis of
2007 to 2008, and the Great Recession of 2008
QUESTION 16
through 2012.
Q. The main objective of the 12th Five-Year Plan
is [2014 - I]
12 T H FIVE YEAR PLAN (2012 – 2017) (a) inclusive growth and poverty reduction
(b) inclusive and sustainable growth
▪ The Twelfth Plan commenced at a time when the (c) sustainable and inclusive growth to reduce
global economy was going through a second unemployment
financial crisis, precipitated by the sovereign (d) faster, sustainable and more inclusive growth
debt problems of the Eurozone which erupted in Answer: D
the last year of the Eleventh Plan. The crisis
affected all countries including India. Our growth
slowed down to 6.2 percent in 2011-12 and the
POST-REFORM PERIOD APPRAISAL – liberal policy towards foreign capital. It opened up
ACHIEVEMENTS the possibilities of a greater participation to foreign
investors in different sectors along with the Indian
RISE IN THE GROWTH RATE private sectors.
The development strategy since 1990s focused on
‘Growth with equity and social justice’ but with a GROWTH OF THE PRIVATE SECTOR
greater reliance on the private sector, market The abolition of the licensing system and removal
mechanism and through trade and foreign of restrictions on the entry of the private sector in
investments. There has been a discernible impact on the areas earlier reserved for the public sector
the GDP growth rate due to the adoption of the heralded the era of rapid growth of the private
economic reforms after the 1990s. India could come sector. The private sector entered into new areas
out of the ‘Hindu growth rate’ tag. The economy has and expanded production and employment
entered an average growth rate of 7- 8 percent. opportunities. The much needed investment and
growth potentialities saw phenomenal rise.
The Economic Survey 2007-08 summed up the
success of the New Economic Policy in the following ROBUST PERFORMANCE OF THE SERVICE
words: SECTOR
The first decade of planned development saw the
“An analysis of post-independence growth agriculture sector contributing more than half of the
experience shows two statistically significant GDP while the Industry sector and the Services
breaks in the rate of growth of the economy. The sector contributed 16.0 and 28.0 percent
first break occurred in the early 1980s when the respectively. During the period from 1960-1980,
economy moved from what has been commonly there was a slow and gradual improvement in the
described as ‘the Hindu growth rate’ of around 3.5 service’s sector’s share – it increased to over 34
per cent to 5.5 per cent. This followed a policy shift percent. Interestingly, this improvement was
away from excessive controls and restrictions on
accompanied by the growth of the Industrial sector
private enterprise towards gradual decontrol. The
also. However, with the onset of reforms the share
second break occurred in mid 1990s with the of the service sector went up to 44 percent but that
ushering in deeper and broad based reforms at the
of Industry was at 27 percent.
beginning of the decade. The step up in GDP growth
rate to 6.5 per cent in late 1990s and further to 7.8 POST-REFORM PERIOD APPRAISAL –
per cent during the Tenth Plan, is evidence of the FAILURES
success of these policy measures”.
AGRICULTURE HAS NOT GAINED MUCH
RISE IN EXPORTS AND LARGE BUILD-UP OF Agriculture is the backbone of the Indian economy
FOREIGN EXCHANGE RESERVES and needs a greater focus to enhance productivity and
The onset of reforms in the 1990s led to the good linkage to the other sectors. There is need for making
performance of the export sector. Though the major farming a lucrative option with the help of
export earnings came through the software exports, developments in technology, financial innovation and
other sectors also contributed too. The earnings the growth of manufacturing and service sector. The
from exports helped us to avert any deterioration in agriculture sector needs reforms to achieve high
the balance of trade, as our imports too were growth. Encouraging initiative and enterprise of
growing. Thus, surpluses from the current accounts farmers, encouraging private sectors, removal of
led to comfortable balance of payment position. restrictions on agricultural trade, processing activities
and strengthening infrastructure are still lacking.
India’s foreign exchange reserves which had fallen
to low levels during the 1990s crisis, gradually rose PROBLEM OF POVERTY STILL NOT SOLVED
from $2 billion in 1991 to $305 billion in May 2008. Economic reforms have not been successful in solving the
problem of poverty in India. Though the poverty ratio has
SURGES IN INFLOW OF FOREIGN declined from nearly 55 per cent in 1973-74 to 27.5
INVESTMENT percent in 2004-05, the fact remains that around 30
The new economic policy of the 1990s heralded the crores people still live in poverty. According to some
era of liberalization, privatization and globalization. economists, there have not been much efforts in
The new economic policy consequently adopted a alleviation of poverty in the post-reforms era. Also, there
is a widespread apprehension that the economic reforms
are anti-poor. Some even point out that in the name of
fiscal consolidation and reforms, there is curtailment of
many anti-poverty programmes.
UNEMPLOYMENT IS ON RISE
The new economic policy has led to rise in employment
of skilled and trained workforce. The rise in GDP growth
rate is due to the growth of the services sector
particularly. In the rural areas, there is a huge problem of
unemployment on account of lack of demand for
unskilled workers and also to falling opportunities in the
agriculture sector. Their numbers keep on swelling and
they lead a life of abject poverty and unemployment.
PLIGHT OF AGRICULTURAL LABOURERS HAS

WORSENED
The agricultural labourers continue to be the most
backward and neglected class of the rural economy.
Their number is too large and keeps growing. They live in
absolute poverty and form the weakest link in the rural
India. Low income and lack of regular employment
makes them vulnerable. In spite of so many programmes
of the Government, these people live in abject poverty
and economic reforms has further neglected them.
RURAL AREAS STILL NEGLECTED

Since a vast majority of poverty is found in the rural
areas, greater emphasis should be placed on rapid
development of the rural areas. There is a need for rapid
development of agriculture and other rural vocations like
poultry, fisheries, animal husbandry along with setting up
of other value-added industries. But the rural areas are
still neglected and opportunities for employment have
not grown. People migrate to urban areas in search of
employment opportunities.

planning for the country, but it also outlines the
INDIAN ECONOMY & ISSUES broader objectives of planning.
RELATING TO PLANNING & CONSTITUTION OF INDIA
MOBILSATION OF There are three important features included in the
RESOURCES constitutional provisions, which pertain to the
objectives of planning in the country:
▪ ‘Economic and social planning’ is a
MAJOR OBJECTIVES OF PLANNING concurrent subject. Also, while framing the
‘Union’, ‘State’ and ‘Concurrent’ lists,
IN INDIA allocating subjects and other provisions, the
Planning for India was an instrument to realise the Constitution vests power in the Union to
aspirations and dreams of the future. We know that ensure co-ordinated development in
the foundations of future India were not laid in one essential fields of activity, while preserving
day. The cherished dream about future India had the initiative and authority of the states in
evolved through a long-drawn process of the entire the spheres allotted to them.
period of the freedom struggle. These aspirations ▪ The Constitution includes provisions for
and goals got their proper places and due promoting cooperation on a voluntary basis
importance in the reports of the National Planning between the Union and the states and
Committee (NPC), in the deliberations of the among states and groups of states in
Constituent Assembly and finally in the investigation of matters of common interest,
Constitution of India. From the margins of the in legislative procedures and in
ripening nationalist movement, as well as taking administration, thus avoiding the rigidities
clues from the Soviet and the French styles of inherent in federal constitutions (Articles
planning, the NPC articulated the objectives of 249, 252, 257, 258, 258-A, and 312). In other
planning in India. The process of planning in India words, the objective is cooperative
tried to include all the aspirations of the nationalist federalism.
movement as well as of the future generations. But ▪ The Constitution also sets out in broad
this will be a highly general comment upon the outline the pattern of the welfare state
objectives of planning in India. We need to delve into envisaged and the fundamental principles
the specific and objective goals of planning in India on which it should rest.
to further our discussions. Some of the historic
SIX MAJOR OBJECTIVES OF
deliberations regarding planning will serve our PLANNING IN INDIA
purpose:
ECONOMIC GROWTH
CONSTITUENT ASSEMBLY
Sustained increase in the levels of production in the
Reviewing the entire situation, in the light of the
economy is among the foremost objectives of
social philosophy evolved over decades, the
planning in India, which continues till date and will
Constituent Assembly came to the conclusion that
be so in future, without any iota of doubt in it.
to guide this ‘revolution of rising expectations’ into
constructive channels, India should make POVERTY ALLEVIATION
determined efforts through carefully planned large-
scale social and economic development and the Poverty alleviation was the most important issue
application of modern scientific and technological which polarised the members of the NPC as well as
improvements, to bring about a rapid and the Constituent Assembly that a highly emphatic
appreciable rise in the standard of living of the decision in favour of a planned economy evolved
people, with the maximum measure of social justice even before Independence. Several programmes
attainable. On the whole it was a call for India have been launched in India directing the cause of
becoming a welfare state. This important poverty alleviation by all the governments till date
deliberation does not only call for the necessity of and the process continues even today with more
seriousness (we see the National Rural Employment imperialism.” India still strives for self-reliance in
Guarantee Programme—NREGP—being launched every field of the economy, as well as serving the
by the UPA Government in 2006 by passing an Act in realities of higher interdependence in the
the Parliament—the matter has started attracting globalising world post-World Trade Organisation
such high political concern). (WTO).
EMPLOYMENT GENERATION MODERNISATION
Providing employment to the poor has been the Modernising the traditional economy was set as a
best tool of economics to alleviate poverty. Thus, foremost objective of planning. Specially, the
this objective of planning in India comes naturally agriculture sector of the economy needed an
once it commits itself to alleviate poverty. immediate inclusion of modern methods and
Employment generation in India has been, techniques of farming dairying, etc. Similarly, in
therefore, part and parcel of the objective of poverty education too, India needs to go for inclusion of
alleviation in India. General programmes and modern education system.
schemes have been launched by the governments
from time to time in this direction, some based on The major objectives of planning in India are not
the wage employments still, others based on self- only broad but open-ended. That is why it hardly
employment. needed any change and modification with changing
times. It means, after the completion of one plan the
CONTROLLING ECONOMIC INEQUALITY objectives for the new plan are automatically set.
Coming to the composition of the objectives, we may
There were visible economic inequalities in India at confidently conclude that all the aspirations of the
the inter-personal as well as at the intra-personal Preamble, the Directive Principles of the State
levels. Economic planning as a tool of checking all Policy, the Fundamental Duties and the
kinds of economic disparities and inequalities was Fundamental Rights have got their due place and
an accepted idea by the time India started planning. weightage. All the aspirations of the nationalists and
To fulfil this objective of planning the governments the freedom fighters look resonating in the very soul
have enacted highly innovative economic policies at of the Indian planning system.
times even inviting a tussle with regard to the
Fundamental Rights enshrined in the Constitution.
Though Indian Planning has socio-economic CRITICAL EVALUATION OF
objectives to fulfil, only economic planning was
made a part of the planning process (technically PLANNING UNDER PLANNING
speaking) and social planning (better called social COMMISSION
engineering) was left to the political process. That is
why reservation in government jobs and Planning has been subject to a number of criticisms
admissions in premier academic institutions, land right since its inception in the country. With the
reforms, promoting inter-caste marriages, etc., do passage of time, not only the number of criticism
not fall under the purview of the Planning increased, but more importantly the shortcomings of
Commission. planning were pointed out. Although after
considerable delay, the governments took note of
SELF-RELIANCE the shortcomings besides taking some major steps.
The criticisms stand even today, but with one
During the 1930s and 1940s, there was an ardent difference that the government is not only conscious
desire among the nationalists, capitalists and the of them but also trying to do away with them. We
NPC for making the economy self-reliant in all may briefly discuss the major criticisms of planning
economic sphere. Self-reliance was defined not as in India as well as the follow ups from the
autarchy, but as an effort to strike against a government to do away with them as under:
subordinate position in the world economy. As
Jawaharlal Nehru asserted: self-reliance, “does not LACK OF PERSPECTIVE IN PLANNING
exclude international trade, which should be
encouraged but with a view to avoid economic
According to experts, if a nation is going for FAILURE IN PROMOTING A
economic planning it must have ‘perspective’ BALANCED GROWTH AND
element in it. To have perspective in planning, two DEVELOPMENT
basic elements need to be fulfilled, namely —
▪ Planning should be evaluation-based Indian planning is blamed for failing the objective
▪ ‘Long-term’ goals should be followed up of a regionally balanced growth and development.
besides the ‘short-term’ goals. Though the Second Plan itself had noticed this fact,
the measures taken were not sufficient or were
In the Indian context, the succeeding plans have short-sighted. Economic planning at the national
been always commenced without the full level has proved to be a highly effective tool of
evaluation of the preceding Plan. This was mainly promoting balanced growth. But in the Indian case it
due to the following reasons: turned out to be the opposite.
▪ Lack of a nodal body responsible for data
collection at the national level; To take care of the issue of balanced growth, the
▪ Federal nature of polity made data collection planning process has been using the right tools, i.e.,
full of delays and also due to higher dependence allocating plan funds on a sectoral (primary,
on the states; and secondary and federal reasons) basis. But due to
▪ Speedier data delivery was not possible. political reasons, enough discrepancies cropped up
in the method of allocating funds to the states. At
After the recommendations of the National the theoretical level, the governments knew the
Statistical Commission (Chaired by C. Rangarajan), remedies, but at the practical levels politics
2000, the government discussed to set up a nodal dominated the planning process. Democratic
body for data collection at the pan-India level, immaturity and politicisation of the planning
cutting across federal hurdles. Computerisation is process is to be blamed for this.
already being done for speedier data delivery. For
the time being the Plans are launched on the basis Now things have changed for the better. The
of projected data (provisional, latest, etc.), which is government is following a two-pronged strategy to
almost near the real data. But once the above achieve the objective of a balanced growth and
discussed arrangements are in place, Indian planning development in the country:
will be based on evaluation, undoubtedly. In the ▪ Backward regions today are prioritised in
meantime, the ‘Quarterly Review’ and the directing the Central Government
‘Performance Budgeting’ of the Union Budgets have investment (very much the same since the
brought in the evaluation element to a greater 1950s), but a new beginning in the
degree. ‘differential development strategy’ has been
made by the Centre with the Tenth Plan.
The First Plan had set long-term goals (for the Under this strategy, the developmental
coming 20 years) besides the short-term goals (for constraints of different states are to be
five years). But over the time, falling confidence in tackled with a differentiation in the
mobilising required resources and political strategy. The more needy states get more
uncertainties at the Centre made it a convention to funds and assistance from the Centre for
set only short-term targets of planning. This their planned development, cutting across
shortcoming seems to be done away with after the the political party lines (it is seen today as a
commencement of the Tenth Plan. The Plan did not symbol of political maturity on the issue of
go for setting long-term goals only, but even did set economic development, at least).
monitorable targets for the Eleventh Plan, too. ▪ There is also a complementary strategy of the
planning to address the matter of regional
Point should be noted here that the government had imbalance in the country. After the country
been conscious about the need for perspective started the process of economic reforms,
planning as a separate division with the same name the nature of planning was to incline more
had been functioning in the Yojana Bhavan since the and more towards indicative planning. The
mid-1970s. economy was to be more and more
dependent on private sector investment for
its future development. And the private constraints of the states and is trying to adequately
sector will be, naturally, more interested in support the state Plans to the extent possible. In
investing in the regions, which have better return, the Centre wants greater and transparent
infrastructure support. Since the developed fiscal compliance from the states. This approach
regions have better infrastructure they will continued during the Eleventh Plan and so has been
attract the highest level of private committed for the Twelfth Plan, too. After some
investment, which will again accelerate the time we may hope that this criticism of Indian
process of imbalanced growth. To tackle this planning will lose it’s ground.
problem, the Centre is promoting the states
with lower, infrastructure so that they can It is high time now that the planning process of the
overcome the disadvantage. The process is nation tries including the mass participation. The
slower, but at least the government is Economic Survey 2011–12 rightly devotes a section
addressing the issue, which is not less to dwell into contracts and how the civil society and
satisfying and there is no criticism to this citizens play a key role in fostering economic
strategy. Still balanced growth and growth. “Honesty, punctuality, the propensity to
development is going to be a great challenge keep promises, the attitude towards corruption are
for planning in India. matters shaped in great part by norms and social
beliefs and the behaviour patterns can become
HIGHLY CENTRALISED NATURE OF habitual. Moreover, in a democracy like India, what
PLANNING can be done by government depends in great
measure on how ordinary people think and what
Decentralising the process of planning has been a
people believe in,” it says. The Survey further adds
major goal of the governments since the 1950s. But
that the civil society has been campaigning to put in
after Nehru, with every Plan we see greater
place new institutions, such as the Lokpal Act, to
tendency of centralisation in the planning process.
ensure the quality of service and bring about
Setting up of the NDC and promoting multi-level
transparency through steps such as auction of
planning (MLP) did not serve much purpose in this
natural resources while the government has either
direction. It has been among the criticised areas of
been slow or resisted several changes.
planning in India as the National Planning
Committee as well as the First Plan itself had called LOP-SIDED EMPLOYMENT STRATEGY
for ‘democratic planning’ in the country.
Planning in India has been tilted heavily in favour of
By the mid-1980s, the mindset of the Centre went ‘capital intensive’ industries, especially from the
for a change and the need for decentralised planning Second Plan onwards. Such industries in the public
got proper attention. Finally, by early 1990s two sector could not generate enough employment. In
constitutional amendments (i.e., the 73rd and the place of it India should have gone in for ‘labour-
74th) promoted the cause of decentralised planning intensive’ industries. In the era of economic
by delegating constitutional powers to the local reforms, the attitude changed and the planning
bodies. With this, a new era of planning began, but process is promoting the agriculture sector with an
still the planning of local bodies is in a nascent stage emphasis on agri-industries and agro-exports to
due to lack of proper financial provisions for them. create more gainful and quality employment
Once the financial provisions for local bodies are opportunities. The earlier emphasis on ‘wage-
evolved to the adequate level or the local bodies are employment’ has shifted towards ‘self-
given financial autonomy, the process of employment’ to do away with the lop-sided
decentralised planning will surely get a new direction employment strategy of the past.
and meaning, as the experts believe.
EXCESSIVE EMPHASIS ON PSU
The Tenth Plan emphasised greater role for the
states in the planning process. The Plan started a Indian planning emphasised on public sector
concerted effort to include the states’ participation undertakings (PSUs) for the right reasons, but in the
in the national planning process. The Centre is today wrong way and for a considerably longer period of
more concerned about the developmental time. The state’s monopolies in certain areas
continued over such a long period that too in losses
that there came a demand-supply gap in the major the PSUs require skilled labour force, the regions
goods and services produced by the PSUs. Though failed to gain any employment from the PSUs too.
very conducive policy changes were effected after The government still continues with the same policy
the country started the reform processes, the of setting up industries, but now the new PSUs are
hangover of the past is still looming large. Several hardly set up in traditional areas.
reforms in the PSUs as well as a more liberal
approach towards the private sector with market WRONG FINANCIAL STRATEGY
reforms are needed to phase out the discrepancies
Mobilising resources to support the highly capital-
created by the over emphasis on PSUs.
intensive Plans (courtesy the PSUs) has always been
AGRICULTURE OVERSHADOWED BY a challenge for the government. To support the
INDUSTRY Plans, no stones were left unturned namely, going
for a highly complex and liberal tax structure,
Promoting the cause of faster industrialisation over nationalising the banks, etc. Ultimately, tax evasion,
time became so dear to the planning process that the menace of parallel economy and lesser and
the agriculture sector got badly over-shadowed. lesser capital for the private sector were the bane
Though the Plans were highlighting or prioritising of India. Expansion of subsidies, salaries and the
agriculture, the industrial sector and the PSUs were interest burden every year gave an upward push to
glorified in such a way that time and resources both the non-plan expenditure leading to scarcity of
were scarce for the agriculture sector. Such a policy funds to support the plan expenditure (i.e., the
always created a situation of food insecurity (even developmental expenses).
today) for the country and the masses who
depended upon agriculture for their livelihood and In the era of reforms, the government has started
income (still it is 58.2 per cent) could never increase giving attention to the financial strategy of
their purchasing power to a level that the economy supporting the Plans in the right way. Besides tax
could reverse the situation of ‘market failure’. In reforms, the financial reforms, as well as fiscal
India, even today, industrial growth is badly consolidation have been given proper care in recent
dependent on agricultural growth. years.
The Tenth Plan recognises agriculture as the ‘core POLITICISATION OF THE PLANNING
element’ of development. This is a welcome PROCESS
ideological change in the strategy of planning. Now
In a democratic political system, almost every issue
the industries can sustain themselves, but the
of socio-political importance is influenced by
laggard agriculture sector needs some special care
politics. It is more correct in the case of lesser
and promotion from the government, so that the
matured democracies. The same stands true for the
masses who earn their livelihood from agriculture
process of planning in our country. Greater and
can benefit out of the WTO-promoted globalisation.
greater politicisation of the planning process
The agriculture sector is in urgent need of attention,
culminated in such a design that at times economic
otherwise, the process of globalisation is going to be
planning served the opposite purpose. For example,
ineffective in benefitting the masses.
we know that planning is a tool for promoting
FAULTY INDUSTRIAL LOCATION regionally balanced growth, but in India in the
POLICY process of serving vested political interests of the
Centre, it resulted into promoting an imbalanced
There are time-tested theories of ‘industrial growth.
location’ considering the nearness of raw materials,
market, cheaper labour, better transportation and In recent years, the government has tried to address
communication, etc. But the Plans always the major criticism of planning in India. More such
prioritised setting up of new industrial units (i.e., constructive steps with better results are expected
the PSUs) in the backward regions of the country, in future. More aware and better informed citizens
which falsify the theories of industrial location. The will lead to better and better planning in future.
government needs to develop all industrial
infrastructures besides setting up certain PSUs. As
There has been a general anger among the sections The government agrees that the Planning
of society regarding coalition politics, scams, etc., in Commission has served India well. However, India
recent years. The Economic Survey 2014–15 rightly has changed dramatically over the decades at
blames coalition politics and the federal structure multiple levels and across varied scales. These
for tardy decision making in several areas—from oil transformatory forces have changed the very
subsidy to tax reforms, FDI in retail and free contours of India—highlighted by the government
movement of foodgrains. Almost everyone outside document in the five areas:
the government blamed it for policy paralysis. The
Survey notes it as an area of concern. DEMOGRAPHIC SHIFT
India’s population has increased over three-fold to

NITI AAYOG reach 121 crores. This includes an addition of over
30 crore people to Urban India. As well as an
By mid-2014, India did show a quite strong mandate increase of 55 crore youth (below the age of 35.
and a very stable government came at the Centre. With increasing levels of development, literacy and
We find the new government showing a renewed communication, the aspirations of the people have
vigour and zeal in several areas. One such area has soared, moving from scarcity and survival to safety
been its attempts at ‘redefining’ the federal polity and surplus. Today, we are looking at a completely
of the country for the purpose of promoting growth different India, and country’s governance systems
and development. We see a pronounced policy shift need to be transformed to keep up with the
in the direction of ‘empowering and keeping state changing India.
in front’ by giving them more financial space and
responsibilities. Keeping its promises in the ECONOMIC SHIFT
direction, the government abolished the Planning
Commission (PC) and replaced it by a new body— India’s economy has undergone a paradigm shift. It
the NITI Aayog. The acronym NITI stands for has expanded by over a hundred times, to emerge
National Institution for Transforming India. We see as one of the world’s largest economics.
the government aspiring for the emergence of the Agriculture’s share in the GDP has seen a dramatic
‘Team India’ in the new body. drop, from more than 50 per cent to less than 15 per
cent. The plan size of ₹43 lakh crore of the 12th Plan
It will be premature to be conclusive on this shift dwarfs the plan size of ₹2,400 crore of the 1st Plan.
from “Planning to NITI” (as the government calls). Priorities, strategies and structures dating back to
Even an academic comparison between the old and the time of the birth of the Planning Commission,
the new bodies will also not serve enough purpose must thus be revisited. To align with this shift and
as it needs some time when the outcome of the sheer scale, India needs to overhaul the very nature
change will be available. Judgements on this shift will of the planning processes, the government says.
be only good once it is done after some period of SHIFT IN THE PRIVATE SECTOR
time. In the meantime, India remains a planned
economy. The nature of the Indian economy, and the role of
the government in it, has undergone a paradigm
The discussion given here is mainly based on the shift. Driven by an increasingly open and liberalised
documents and releases which came out from the structure, India’s private sector has matured into a
GoI before and after the NITI Aayog was set up vibrant and dynamic force. The sector is not
(January 1, 2015). In these documents, the operating just at the international cutting edge, but
government has not only provided the reasons as also with a global scale and reach. This changed
why does India need to go in for a new body, but economic landscape requires a new administrative
charts out a very encouraging and out of tradition paradigm in which the role of the government must
role/function for the new body. An attempt has been evolve from simply allocating resources in a
made to closely follow the ‘government line’ of command and control eco system, to a far more
thinking so that the ‘spirit’ of it is not lost. nuanced one of directing, calibrating, supporting
and regulating a market eco system. National
CHANGING CONTOURS OF INDIA
development must be seen beyond the limited
sphere of the ‘Public Sector’. Government must, opening up newer avenues of coordination and
thus, transition from being a ‘provider of first and cooperation. Technology is also playing a substantial
last resort’ and ‘major player’ in the economy, to role in enhancing transparency as well as efficiency,
being a ‘catalyst’ nurturing an ‘enabling holding the government more accountable. Thus,
environment’, where the entrepreneurial spirits of India needs to make it central to systems of policy
all, from small self-employed entrepreneurs to large and governance.
corporations, can flourish. This importantly, frees up
the government to focus its precious resources on The above-given changes have been recognised by
public welfare domains such as essential the experts for years now. With changing contours
entitlements of food, nutrition, health, education of the economy, the institutions guiding the
and livelihood of vulnerable and marginalised groups economy should also change. The government
of the society. quotes several such instances when appropriate
changes were advised in the Planning Commission
FORCES OF GLOBALISATION by the experts, committees, even the PC, among
others:
In recent decades, the world at large has also ▪ The 8th Plan (1992–97) document (the very
evolved. We live today in a ‘global village’, first after the reform process commenced in
connected by modern transport, communications 1991) categorically stated that, as the role of
and media, and networked international markets the government was reviewed and
and institutions. In this milieu, India’s economic restructured, the role and functions of the
actions ‘contribute’ to the global dynamics, while PC too needed to be rethought. The PC also
our economy also get influenced by the happenings needed to be reformed to keep up with
far away from us. The framework of policy making changing trends, relieving itself of the old
together with the functioning of governments need practices and beliefs, which had lost
to incorporate the realities of our continuing relevance, and adopting new ones based on
integration with the global economic system. past experiences of India as well as other
ROLE OF THE STATES nations. Specifically, the PC needed to be in
tune with the process of economic reforms.
Indian states have evolved from being mere ▪ The Standing Committee on Finance of the
appendages of the Centre, to being the actual 15th Lok Sabha observed in its 35th Report
drivers of national development. The development on Demand for Grants (2011–12) that the
of states must thus become the national goal, as the “PC has to come to grips with the emerging
nation’s progress lies in the progress of states. As a social realities to re-invent itself to make
consequence, the one-size-fits-all approach, often itself more relevant and effective for aligning
inherent in centralised planning, is no longer the planning process with economic reforms
practical or efficient. States need to be heard and and its consequences, particularly for the
given the flexibility required for effective poor”. This was the need of making the
implementation. The government quotes Dr. B. R. planning process relevant to the process of
Ambedkar to bring the point home: “it is economic reforms.
unreasonable to centralise powers where central ▪ The former Prime Minister, Dr. Manmohan
control and uniformity is not clearly essential or is Singh, in his farewell address to the PC (April
impracticable”. Thus, while emanating from global 2014), also urged reflection on ‘what the role
experiences and national synergy, India’s strategies of the PC needs to be in this new world. Are
need to be calibrated and customised to local needs we still using tools and approaches which
and opportunities. were designed for a different era? What
additional roles should the Planning
TECHNOLOGY PARADIGM Commission play and what capacities does it
need to build to ensure that it continues to
Technology advancements and information access be relevant to the growth process?” This
have unleashed the creative energy of India. They observation has quite high relevance, as Dr.
have integrated our varied regions and ecosystems Singh is himself a “noted” economist.
in an interlinked national economy and society,
Taking the clues for a change, the government It will ‘evolve’ a shared vision of national
quotes Mahatma Gandhi before going for the development priorities and strategies, with the
change: “Constant development is the law of life, active involvement of the states. This will provide
and a man who always tries to maintain his dogmas the framework ‘national agenda’ for the Prime
in order to appear consistent drives himself into a Minister and Chief Ministers to implement.
false position”. The government adds further,
keeping true to this principle our institutions of STATE’S BEST FRIEND AT THE CENTRE
governance and policy must evolve with the
changing dynamics of the new India, while remaining It will support states in addressing their own
true to the founding principles of the Constitution of challenges, as well as building on strengths and
India, and rooted in our Bharatiyata or wisdom of comparative advantages. This will be through
our civilizational history and ethos. It was, in every various means, such as coordinating with ministries,
sense, a kind of pledge to devise India’s own means, championing their ideas at the Centre, providing
methods, tools and approaches to promote ‘consultancy’ support and ‘building capacity’.
development. DECENTRALISED PLANNING
For the government, the NITI Aayog is to be the The new body is to ‘restructure’ the planning
institution to give life to these aspirations (discussed process into a ‘bottom-up model’, empowering
above). The Aayog is being formed based on states, and guiding them to further empower local
extensive consultation across a spectrum of governments in developing mechanisms to
stakeholders, including inter alia state governments, formulate credible plans at the village level, which
relevant institutions, domain experts and the people are progressively aggregated up the higher levels of
at large. the government. The maturing of India’s
governmental institutions has enabled increasing
FUNCTIONS OF NITI AAYOG the specialisation of their functions. There is, thus, a
COOPERATIVE AND COMPETITIVE need to separate as well as energise the distinct
FEDERALISM ‘strategy’ element of governance from the usual
‘process’ and ‘implementation’ element. As a
It will be the ‘primary platform’ for operationalising dedicated ‘Think Tank’ of the government, NITI
cooperative federalism, enabling states to have Aayog will carry out this ‘directional’ role,
active participation in the formulation of national strategically charting the future of the nation. It will
policy, as well as achieving time-bound provide specialised inputs—strategic, functional
implementation of quantitative and qualitative and technical—to the Prime Minister and the
targets through the combined authority of the government (Centre as well as the state), on matters
Prime Minister and the Chief Ministers. This will be critical to the fulfilment of the national development
by means of systematic and structured interactions agenda. It means, the new body is to function like a
between the Union and state governments, to better ‘think tank’.
understand developmental issues, as well as forge a
VISION & SCENARIO PLANNING
consensus on strategies and implementation
mechanisms. The above would mark the To ‘design’ medium and long-term strategic
replacement of the one-way flow of policy from frameworks of the big picture vision of India’s
centre-to-state, with a genuine and continuing future—across schemes, sectors, regions and time;
Centre-State partnership. The Aayog is supposed to factoring in all possible alternative assumptions and
further this cooperation with the enhanced vibrancy counterfactuals. These would be the ‘drivers of the
of Competitive Federalism; the Centre competing national reforms agenda’, especially focussed on
with the states and vice versa, and the states identifying critical gaps and harnessing untapped
competing with each other, in the joint pursuit of potentialities. The same would need to be
national development. intrinsically dynamic with their progress and efficacy
SHARED NATIONAL AGENDA constantly monitored for necessary mid-course
recalibration; and the overall environment
(domestic and global) continuously scanned for
incorporating evolving trends and addressing keep up with such enhanced aspirations, the new
emerging challenges. This would mean a body will have the mandate to go beyond mere
fundamental transition from merely planning for planning and strategising, to facilitating
where the nation’s money goes, to planning where implementation of the development agenda as
we want the nation to go. And given its unique well. This would involve making implementation
position as the aggregator and integrator of all central to the planning process, through an emphasis
developmental initiatives of the Government of on tangible outcomes, realistic targets, strict time
India and the states, the new body would be ideally lines and robust monitoring and evaluation—a
suited for the same. transition from the isolated conceptualisation of
merely ‘planning’, to ‘planning for implementation’.
DOMAIN STRATEGIES It will also act as a ‘catalyst’ to the government
machinery at large—filling gaps, enhancing
To ‘build’ a repository of specialised domain capabilities and de-clogging bottlenecks, as and
expertise, both sectoral and cross-sectoral; to assist where required.
ministries of the Central and state governments in
their respective development planning, as well as HARMONISATION
problem solving needs. This will especially enable
the imbibing of good governance best practices, To ‘facilitate harmonisation’ of actions across
both national as well as international, especially with different layers of the government, especially when
regards to structural reforms in the country. involving cross-cutting and overlapping issues across
multiple sectors through: communication,
SOUNDING BOARD coordination, collaboration and convergence
among all stakeholders. The emphasis will be on
To be an ‘in-house sounding board’ whetting and bringing all together on an integrated and holistic
refining government positions, through objective approach to development.
criticisms and comprehensive counter-views in the
economy. CONFLICT RESOLUTION
NETWORK OF EXPERTISE To provide a ‘platform’ for mutual resolution of

inter-sectoral, inter-departmental, inter-state as
To ‘mainstream’ external ideas and expertise into well as centre-state issues; facilitating consensus
government policies and programmes through a acceptable and beneficial to all, to bring about
collaborative community of national and clarity and speed in execution.
international experts, practitioners and other
partners. This would entail being government’s link COORDINATING INTERFACE WITH THE
to the outside world, roping in academia WORLD
(universities, think tanks and research institutions),
private sector expertise, and the people at large, for It will be the ‘nodal point’ for strategically
close involvement in the policymaking process. To harnessing global expertise and resources in India’s
bring the point home, the document quotes the developmental process—coming in from across
Rigveda – ‘let us welcome noble thoughts flowing nations, multi-lateral institutions and other
in from all directions’. international organisations.
KNOWLEDGE AND INNOVATION HUB INTERNAL CONSULTANCY
The body to be an ‘accumulator’ as well as It will offer an internal ‘consultancy’ function to

‘disseminator’ of research and best practices on Central and state governments on policy and
good governance, through a state-of-the-art programme design—providing frameworks adhering
Resource Centre which identifies, analyses, shares to basic design principles such as decentralisation,
and facilitates replication of the same. The flexibility and a focus on results. This would include
document further adds, an increasingly mature specialised skills such as structuring and executing
Indian population has steadily increased the focus PPPs.
on, and demand for, actual delivery and results. To
CAPACITY BUILDING
fate, having equal influence over the choices the
To enable ‘capacity building’ and ‘technology up- nation makes.
gradation’ across governments, benchmarking with
latest global trends and providing managerial and VILLAGE
technical knowhow.
To integrate our villages into the development
MONITORING AND EVALUATION process, to draw on the vitality and energy of the
bedrock of our ethos, culture and sustenance.
It will ‘monitor’ the implementation of policies and
programmes, and ‘evaluate’ their impact; through DEMOGRAPHIC DIVIDEND
rigorous tracking of performance metrics and
comprehensive programme evaluations. This will To harness our greatest asset, the people of India,
not only help identify weaknesses and bottlenecks by focussing on their development, through
for necessary course-correction, but also enable education and skilling, and their empowerment,
data-driven policymaking; encouraging greater through productive livelihood opportunities.
efficiency as well as effectiveness. PEOPLE’S PARTICIPATION
To transform the developmental process into a

GUIDING PRINCIPLES people-driven one, making an awakened and
The government document has categorically pointed participative citizenry—the driver of good
out the very ‘purpose’ of the new body —in the governance. This includes our extended Indian
process of carrying out its functions, the Aayog will family of the non-resident Indian community spread
be guided by an overall vision of development across the world, whose significant geo-economic
which is inclusive, equitable and sustainable. The and geo-political strength must be harnessed.
institution is to follow a strategy of empowerment GOVERNANCE
built on human dignity and national self-respect—
the document quote Swami Vivekanada to To nurture an open, transparent, accountable, pro-
emphasise this: “to encourage everyone in his active and purposeful style of governance,
struggle to live up to his own highest idea”. The new transitioning focus from Outlay to Output to
body to follow a development model which is all Outcome.
round, all pervasive, all inclusive and holistic.
SUSTAINABILITY
ANTYODAYA
Maintain sustainability at the core of our planning
To prioritise service and upliftment of the poor, and developmental process, building on our ancient
marginalised and downtrodden, (the document tradition of respect for the environment.
quotes the idea of ‘Antodaya’ as articulated by
Pandit Deendayal Upadhyay). Development is ACHIEVEMENTS OF NITI AAYOG
incomplete and meaningless, if it does not reach the
farthest individual. “Nothing is more dreadfully After spending the first few months in setting its
painful than poverty” (the centuries old sage-poet house in order, the Aayog gradually got into the
Tiruvallur has been quoted). groove. The Governing Council meeting, chaired by
Prime Minister Modi, along with state chief
INCLUSION ministers, came up with some valuable insights,
including a panel of chief ministers on rationalising
To empower vulnerable and marginalised sections, the Centrally Sponsored Schemes (CSS), so that
redressing identity-based inequalities of all kinds— wasteful government expenditure could be curbed.
gender, region, religion, caste or class—the
document quoted from Sankar Dev—“to see every During the months after demonetisation, the Aayog
being as equivalent to one’s own soul is the championed the digital drive in the country and, in
supreme means (of attaining deliverance)”. Weaker consultation with the Reserve Bank of India (RBI),
sections must be enabled to be masters of their own

came up with several valuable suggestions to widen Government’s move to formulate a comprehensive
the digital payment ecosystem in the country. Gold Policy to develop the metal as an asset class
and revamp the Gold Monetization Scheme for
It was in the Budget of 2018-19 that the Aayog was enabling people to open hassle-free Gold Deposit
recognised for what it was worth for the first time Account, announced in the Budget, is also a
since its formation, with several recommendations brainchild of the Aayog.
made by it finding mention in the Budget in some
form or the other. NITI Aayog had a role to play in The draft bill to establish the National Medical
as many as six major announcements made by then Commission to replace the Medical Council of India
Finance Minister Arun Jaitley in his Budget speech have been conceptualised in NITI Aayog
that year.
NITI Aayog is also bringing about a greater level of
Starting with framing a mechanism in consultation accountability in the system. Earlier, we had 12 Five-
with states to devising a fool-proof system to ensure Year Plans, but they were mostly evaluated long
farmers got adequate price for their produce, to after the plan period had ended. Hence, there was
making a national programme on ‘Artificial no real accountability. NITI Aayog has established a
Intelligence’ (AI), NITI Aayog was everywhere in Development Monitoring and Evaluation Office
Budget 2018-19. which collects data on the performance of various
Ministries on a real-time basis. The data are then
One of the most vital interventions in the field of used at the highest policymaking levels to establish
agriculture that the Aayog has made the past few accountability and improve performance. This
years is getting bamboo grown in non-forest areas performance- and outcome-based real-time
declassified, as the tree found a very prominent monitoring and evaluation of government work can
mention and an allocation in Budget 2018-19. Jaitley have a significant impact on improving the efficiency
proposed to launch the restructured National of governance. Using such data, NITI Aayog also
Bamboo Mission with an outlay of Rs 1,290 crore in come up with performance-based rankings of States
the Budget to promote the bamboo sector in a across various verticals to foster a spirit of
holistic manner. competitive federalism. That is another big mandate
of NITI Aayog.
The Aayog’s work in getting states to amend their
land lease laws for giving proper rights to tenant The Atal Innovation Mission, which is also
farmers also found mention, with the finance established under NITI Aayog, has already done
minister directing the Aayog to evolve a suitable commendable work in improving the innovation
mechanism to allow lessee cultivators to access ecosystem in India. It has established more than
credit without compromising the rights of the 1,500 Atal Tinkering Labs in schools across the
landowners. The mechanism had to be worked out country. It has also set up over 20 Atal Incubation
in consultation with the states. Centres for encouraging young innovators and start-
ups.
Another big intervention that the NITI Aayog
spearheaded and which found a very prominent RECENT FRICTION WITH THE
place in Budget 2018-19 was the ‘Ayushman Bharat’ GOVERNMENT
scheme, under which the Centre plans to give Rs five
In August 2019, a few months after the Narendra
lakh a year to almost 100 million households for
Modi government took office for the second time,
health care. Officials said much of the scheme’s
union transport minister Nitin Gadkari chided NITI
framework is being worked at the Aayog.
Aayog saying that it had no authority to take a call
on vehicle technology, as that was purely the
The NITI Aayog will also initiate a national
mandate of his ministry. In a public function,
programme to direct efforts in the area of artificial
Gadkari, who is known not to mince words, said this
intelligence, including R&D of its applications. The
in the context of the Aayog's rather tough stance on
outfit is also working on strategic disinvestment in
stopping registration of vehicles using Internal
Central Public Sector Enterprises including Air India.
Combustion Engines (ICE), in order to promote
Electric Vehicles (EVs). The Aayog has been at the NITI Aayog is supposed to be a think tank. This
forefront of the Centre’s move to promote EVs in implies that while generating new ideas, it maintains
order to cut down on pollution and was a key driver a respectable intellectual distance from the
of the FAME scheme that announced a host of government of the day. Instead, what we see is
incentives for the EV sector. Sources said matters uncritical praise of government-sponsored,
came to a head during a meeting between top acronym-infested schemes. It sings paeans to the
automakers and senior Aayog members, where the virtues of the private corporate sector as the
latter took a tough stand on ensuring a timeframe saviour of the Indian economy without realising, let
for rollout of EVs, both in the two-wheeler and in the alone appreciating, the foundational and socially
four-wheeler space, and also laid out the options oriented contribution of India’s vast public sector.
that government could take to ensure that sales of
vehicles based on ICE are phased out. Thereafter, all The former Reserve Bank of India governor and
major automakers in the country expressed head of the 14th Finance Commission Y.V. Reddy
apprehension on any move to ban registration of has recently written a new book on Indian fiscal
ICE-engines, while assuring that they would move on federalism in collaboration with G.R. Reddy. Their
the path of a roadmap for EVs. book has a chapter on the NITI Aayog. They point
out that the NITI Aayog has been confined to writing
A few days later, union Commerce Minister Piyush reports on the Indian economy, preparing draft laws
Goyal in a seminar said that NITI Aayog’s views on for the Union government, evaluating central
various issues do not always reflect those of the schemes and holding conferences with state
government as it is an independent think-tank that government officials. They end their chapter with a
comes up with new solutions constantly. He was sobering observation: “The scope and the remit of
speaking in context of RSS-affiliated organisations the Niti Aayog has been expanded and its stature
such as Bhartiya Majdoor Sangh blaming the Aayog reduced…This has resulted in a vacuum of
for killing jobs and for the sale of government assets. institutional and procedural arrangements for the
interactions between the Union and States. That
Weeks before this, NITI Aayog and the Ministry of vacuum has been unfortunately occupied by the
Electronics and Information Technology were ministries in the Union government."
engaged in a deadlock over who would take
ownership of a government-proposed artificial Vijay Kelkar, chairman of the 13th Finance
intelligence centre in India. NITI Aayog had Commission, called for a NITI Aayog 2.0 in his
circulated a Cabinet note, asking for Rs 7,500 crore Sukhamoy Chakravarty Memorial Lecture on India’s
over three years to set up an AI framework. MeitY's new fiscal federalism in January 2019. Kelkar has
plan estimated an expenditure of Rs 470-480 crore. argued that a restructured NITI Aayog should be
In 2018, four panels set up by MeitY evaluated the given a funding role so that it can help deal with the
use of AI for citizens, such as setting up a data development experience between states. He has
platform, skilling and reskilling, research and clarified that this does not mean a return to the
development, and examining the challenges micromanagement of the old Planning Commission,
involving legal, regulatory, ethical and cybersecurity and the transfers to states should be conditional
aspects. MeitY’s reports haven't been made public. and based on a formula rather than discretion.
NITI Aayog released a discussion paper last June on Kelkar has proposed that the NITI Aayog should get
the “National Strategy for Artificial Intelligence.” annual resources of 1.5-2% of gross domestic
New-age technologies like AI fall under the purview product (GDP). The restructured NITI Aayog will
of the MeitY, but NITI Aayog has spearheaded provide a national perspective on policy, which is
several discussions on the subject. The paper last much needed since individual ministries tend to
year was hailed as a good outlining of the issues to take only a sectional view.
be addressed through AI, but lacked a
comprehensive implementation roadmap. N C Saxena, former member-secretary of Planning
Commission told Business Standard, “If you ask me,
CRITIQUE OF NITI AAYOG NITI Aayog as a concept is very good… I mean it is
envisaged as a independent evaluator of
government programmes, a think-tank that gives
valuable policy inputs devoid of any financial clout, industrial policy that they managed to steer policies
which I think is a good idea, unlike the previous through turbulent times in the global economy, thus
Planning Commission. But when it comes to sustaining growth.
implementing the ideas for which NITI was created,
I feel it has woefully inadequate.” He said that when In most of Latin America/Caribbean (LAC) countries
it came to independent evaluation of programmes, and in Subsaharan Africa (SSA), two full decades of
a lot of times it was seen that the head of the NITI potential economic growth and human
Aayog took a very pro-government view. In such a development were lost when per capita income
situation how could his subordinates guarantee barely rose even as populations continued to grow.
that the evaluation would be independent and These countries abandoned planning and became
rational, Saxena asked. “Of late, the NITI Aayog has captives of the Washington Consensus. On the
come out with some outcome reports on SDGs, but other hand, the important identifier of East Asian
they lack quality in the sense that the rankings don’t and Southeast Asian countries, which did not
explain the real reasons for the downfall or experience such “lost decades” in the 1980s and
improvement. Secondly, most of the data used in 1990s, were their planning structures, backed by an
such reports is old and outdated. Overall, I mean I’m industrial policy and implemented by learning
not very happy with NITI Aayog,” Saxena said. bureaucracies. That is how they were able to ride the
wave of their demographic dividend, which comes
Over the last four years, NITI Aayog has played a but once in the life of a nation. India cannot risk
significant role in shaping many signature policy going the LAC/ SSA way, since it is already past the
initiatives, but it also had its share of controversies, midpoint of its dividend.
including the recent decision to release the back
series GDP data, a leaked report of an unpublished While East Asian and Southeast Asian countries still
jobs and employment data. Historically, GDP data had, and have, five-year plans, what was also
has always been released by the Central Statistics integral to their planning was productive use of
Office (now NSO), and experts questioned the NITI labour, their most abundant factor, through an
Aayog’s role in the new data that showed that export-oriented manufacturing strategy. It was this
growth during the UPA government was lower than strategy that was lacking in India’s planning. Giving
earlier estimated. ‘planning’ per se a bad name for poor policy is
indicative of an ahistorical understanding of
planning.
FUTURE OF ECONOMIC PLANNING
IN INDIA National planning, by whatever name it is called
(Planning Commission or NITI Aayog), has failed to
INTERNATIONAL EXPERIENCE produce all-round development of India’s economy
so far. An all-round plan for recovery from the
Learning from the experience of the now- pandemic is required. As Einstein said, “you cannot
industrialised countries, the Chinese state ensured solve intractable problems with the same thinking
that after its market-oriented economic reforms that produced the problems”. Therefore, it is time
began, its State Planning Commission became more to consider the weakness in India’s national
powerful in the state apparatus. The result was planning.
growth and poverty reduction on a scale
unprecedented in history. China became the Any planning institution in a federal and democratic
“factory of the world” — backed by an industrial system faces two basic challenges when it comes to
policy driven by the National Development and performing a long-term role — a constitutional
Reforms Commission. challenge, and the challenge of competence.
Similarly, in all East Asian and Southeast Asian THE CONSTITUTIONAL QUESTION
countries, industrial policy was planned and
The fundamental issues a national plan must
executed as part of five-year or longer-term plans.
address, such as the condition of the environment,
It was precisely because these countries had
the shape of the economy, and pace of human
planning institutions which went hand in hand with
development, need consistent action over decades. output. It has paid too little attention to the impact
Therefore, policies must continue beyond the terms of the ‘GDP agenda’ on the well-being of
of governments that change in shorter spans in communities where employment declines when
electoral democracies. Moreover, if the planning production moves to lower cost sources elsewhere.
body does not have constitutional status Or to the total environmental impact of global
independent from that of the government, it will be supply chains. Now the system is reacting and
forced to bend to the will of the latter. Planning in stalling globalisation.
China does not face this disruption.
A feature of complex systems, in which all the parts
Debates have begun amongst economists about the are connected, is that the system cannot be healthy
inefficacy of long-term planning in India and the if any part becomes very sick — even if the others
performance of NITI Aayog. They say that planning are in robust health. Even if all other organs in a
is weak when planners do not have the powers to human body are functioning, if one fails, the whole
allocate money for national priorities, which NITI body dies. Therefore, a healthy global system must
Aayog does not have. They forget that the Planning help its weaker members to become stronger.
Commission had such powers and yet was Another feature of complex systems with many
considered ineffective in bringing about all-round interacting forces is that the forces combine in
progress. unique ways in different parts of the system. For
example, the conditions of livelihoods, the natural
Moreover, they glide over constitutional issues in environment, and infrastructure, combine in
granting powers to institutions that allocate public different ways in different localities and States.
money in democracies. A fundamental principle of Therefore, systems solutions must be local too.
democratic governance is that the power to allocate
public money must be supervised by elected These insights into systems structures, as well as
representatives. Therefore, a planning body that considerations of democratic governance in which
allocates money must be backed by a constitutional governance should be devolved to national
charter, and also accountable to Parliament. governments, and, within them, to State
governments, and even to the third tier of city and
NEED FOR COMPETENCE district governance, have implications for the role
and competencies of a national planning institution
Whether a planning institution allocates money, or
for India. It must be a systems reformer, not fund
advises others how to, it must have the necessary
allocator. And a force for persuasion, not control
competence. A national planning institution must
centre. Because its role must be to promote local
guide all-round progress. It must assist in achieving
systems solutions to national problems.
not just faster GDP growth, but also more socially
inclusive, and more environmentally sustainable
growth. For this, it needs a good model in which RESOURCES REQUIRED TO
societal and environmental forces are within the
model. Economists who have been advising ACHIEVE GOALS
policymakers do not have comprehensive models of
socio-environmental systems. Their models are INFRASTRUCTURE
inadequate even to explain economic growth,
Economic Survey 2019-20 emphasized that
because they have not incorporated the
investment in infrastructure is necessary for
implications of economic growth on inequality, for
growth. Power shortages, inadequate transport and
example, which has become a contentious issue.
poor connectivity affects overall growth
performance. Since provision of adequate
An economy is a complex system, which sits within
infrastructure is essential for inclusive growth, India
an even larger and more complex system of human
recently launched the National Infrastructure
society and the natural environment. The
Pipeline (NIP) for the period FY 2020-2025.
globalisation agenda has been driven by an
economic agenda, with policies promoting global
To achieve GDP of USD 5 trillion by 2024 – 2025,
trade and finance to maximise global economic
India needs to spend about USD 1.4 trillion (Rs.100
lakh crore) over these years on infrastructure so that
lack of infrastructure does not become a constraint At USD 701.5 billion, the greatest private sector
to the growth of Indian economy. NIP is expected to opportunity in the country is investment in
enable well prepared infrastructure projects that achieving and maintaining universal access to
will create jobs, improve ease of living and provide electricity, which is the seventh SDG.
equitable access for infrastructure for all thereby
making growth more inclusive, the Survey observes. The study identified opportunities for the private
sector to contribute to three infrastructure-focused
As per the NIP, Central Government (39 per cent) goals between now and 2030 - SDG 6: Clean water
and State Government (39 per cent) are expected and sanitation, SDG 7: Affordable and clean energy,
to have equal share of funding of the projects and SDG 9: Industry, innovation and infrastructure.
followed by the private sector (22 per cent).
Projects worth Rs. 42.7 lakh crore (42 per cent) are Seven per cent of the country's population still do
under implementation. Financing of the National not have access to electricity.
Infrastructure Pipeline will be a challenge but the
Survey hoped that a bouquet of well-prepared The opportunity in the water and sanitation is USD
project will attract from Central and State 19.2 billion as 24 per cent of the people still do not
Government, urban local government, banks and have access to clean water and sanitation and
financial institutions, PE funds and private investors, closing this gap by 2030 will require investment of
both local and foreign. close to USD 20 billion, said the report.
SUSTAINABLE DEVELOPMENT The SDG 9 calls for improvement in industry,

GOALS innovation and infrastructure by 2030 wherein
private sector can chip into transport and digital
India needs a whopping USD 2.64 trillion
areas which requires an investment of around USD
investment to meet the UN's sustainable
226.5 billion. Of the total, transport infrastructure
development goals (SDGs), offering the private
alone will need USD 176.9 billion of investment. The
sector an investment opportunity of over USD 1.12
present digital access is only 45 per cent.
trillion by 2030, according to a report. According to
the Standard Chartered SDG Investment Map, the NITI AAYOG ESTIMATE
total investment that the country needs to make by
2030 is a whopping USD 2,633.9 billion. Of the total, India needs to enhance its spending by an
USD 1,558.8 billion is for clean energy, USD 505.5 additional 6.2 per cent of GDP while doing major
billion for transport infrastructure, USD 377.4 upgrade of its statistical system, improve its
billion for digital access; and USD 192.2 billion for monitoring mechanism and enhance capacity
clean water and sanitation. building of all stakeholders if it wants to achieve
sustainable development goals by 2030, NITI Aayog
Of the total USD 2.64 trillion of investment needed, said in its second Voluntary National Review (VNR)
the potential investment opportunity for the private at the United Nations high-level political forum
sector is a whopping USD 1.12 trillion with USD 701.5 (HLPF) on sustainable development, 2020.
billion going into clean energy, USD 226.5 billion for
digital access, USD 176.9 billion in transport
infrastructure, and USD 19.2 billion for clean water
and sanitation, said the report.
For the emerging markets as a whole, the

opportunity for the private sector is around USD 10
trillion, said the report adding that "India represents
USD 1.124 trillion of SDG opportunity, or more than
10 per cent of the USD 9.668trillion opportunity for
private sector investors across all emerging markets
to help achieve the UN goals."
MCQS FOR PRACTICE Q.5 In context of Planning in India, ‘Rolling
Planning’ refers to:
Q.1 Disinvestment of Public Sector Undertakings is (a) A new Five Year plan that was introduced by the
considered an important step towards adoption of Congress government in 1980
Economic Reforms. Which of the following are (b) A New Plan introduced by the Janata government
possible advantages of Disinvestment? from 1978-80
1. To raise finances for the government (c) A two year interim plan introduced by Congress
2. To make enterprises more efficient during the emergency period
3. Reducing public debt (d) First five year plan of India Government.
4. Labour welfare and to create employment.
Select the correct answer using the codes given
below:
(a) 1 and 2 only
(b) 3 and 4 only
(c) 1, 2 and 3 only
(d) 1, 2, 3 and 4
Q.2 With reference to the plan holiday period of

1966-1969, consider the following statements:
1. No growth target was set for these years.
2. Rupee was devalued to enhance export
competitiveness.
3. Main focus was on agriculture sector in these
years.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Q.3 Consider the following statements about P.C.

Mahalanobis
1. The second Five Year Plan was based on the ideas
of Mahalanobis.
2. The Indian Statistical Institute (ISI) in Calcutta
was established by him.
Which of the given statement/s is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Q.4 Consider the following statements about Indian

trade policy in the Pre-liberalization era
1. It was characterized by import substitution.
2. A lot of emphasis was given to promote exports.
Which of the given statements is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
▪ The growth target was not set for these three
MCQS WITH ANSWER AND years but the actual growth rate was 3.9%.
EXPLANATION ▪
Hence, statement 1 is correct.
In 1966 the government of India declared
devaluation of rupees. Rupee was devalued by
Q.1 Disinvestment of Public Sector Undertakings is 36.5 percent to bring domestic prices in line with
considered an important step towards adoption of external prices, to enhance the competitiveness
Economic Reforms. Which of the following are of exports. Hence, statement 2 is correct.
possible advantages of Disinvestment? ▪ The transition period of agriculture begins in
1. To raise finances for the government 1966 when green revolution takes place in the
2. To make enterprises more efficient country. High yielding varieties of seeds is being
3. Reducing public debt used in the production of rice, wheat, jowar,
4. Labour welfare and to create employment. bajra, and maize to enhance their productivity
Select the correct answer using the codes given level. For efficient use of this technique better
below: irrigation facility, fertilizers, pesticides have
(a) 1 and 2 only being developed in the country. Hence,
(b) 3 and 4 only statement 3 is correct.
(c) 1, 2 and 3 only ▪ In this plan economy tries to overcome from the
(d) 1, 2, 3 and 4 failure faced by the country during third plan.
Answer: C ▪ After absorbing the shocks of third plan period it
tries to make a way out for growth and
Explanation: development in the country.
▪ Disinvestment increases autonomy in the
management of enterprises, and thus, it Q.3 Consider the following statements about P.C.
increases efficiency and overall work culture. It Mahalanobis
also exposes the enterprises to market discipline 1. The second Five Year Plan was based on the ideas
and new technologies and professionalism of Mahalanobis.
increases. 2. The Indian Statistical Institute (ISI) in Calcutta
▪ Labour Welfare and employment is not was established by him.
concerned with Disinvestment rather it is Which of the given statement/s is/are correct?
achieved when more PSUs are setup. (a) 1 only
(b) 2 only
Q.2 With reference to the plan holiday period of (c) Both 1 and 2
1966-1969, consider the following statements: (d) Neither 1 nor 2
1. No growth target was set for these years. Answer: C
2. Rupee was devalued to enhance export
competitiveness. Explanation:
3. Main focus was on agriculture sector in these ▪ Planning, in the real sense of the term, began
years. with the Second Five Year Plan. The Second Plan,
Which of the statements given above are correct? a landmark contribution to development
(a) 1 and 2 only planning in general, laid down the basic ideas
(b) 2 and 3 only regarding goals of Indian planning; this plan was
(c) 1 and 3 only based on the ideas of Mahalanobis. In that sense,
(d) 1, 2 and 3 he can be regarded as the architect of Indian
Answer: D planning.
▪ Mahalanobis established the Indian Statistical
Explanation: Institute (ISI) in Calcutta and started a journal,
Three annual plans (plan holiday 1966-1969) Sankhya, which still serves as a respected forum
The fourth plan was scheduled to begin from April 1, for statisticians to discuss their ideas. Both, the
1966, but due failure of the third plan, production in ISI and Sankhya, are highly regarded by
various sector became stagnant. statisticians and economists all over the world to
this day.
government in 1980 and a new Sixth Plan was
Q.4 Consider the following statements about Indian made. The Rolling Plan consists of three kind of
trade policy in the Pre-liberalization era plans that were proposed. The First Plan is for the
1. It was characterized by import substitution. present year which comprises the annual budget
2. A lot of emphasis was given to promote exports. and Second is a plan for a fixed number of years,
Which of the given statements is/are correct? which may be 3, 4 or 5 years. Plan number two is
(a) 1 only kept changing as per the requirements of the
(b) 2 only Indian economy. The Third Plan is a perspective
(c) Both 1 and 2 plan which is for long terms i.e. for 10, 15 or 20
(d) Neither 1 nor 2 years. Hence there is no fixation of dates in for
Answer: A the commencement and termination of the plan
in the rolling plans. The main advantage of the
Explanation: rolling plans is that they are flexible and are able
▪ The industrial policy that we adopted was closely to overcome the rigidity of fixed five year plans
related to the trade policy. In the first seven by mending targets, the object of the exercise,
plans, trade was characterized by what is projections and allocations as per the changing
commonly called an inward looking trade conditions in the country’s economy.
strategy. Technically, this strategy is called ▪ Disadvantage of Rolling Plan: The main
import substitution. This policy aimed at disadvantage of this plan is that if the targets are
replacing or substituting imports with domestic revised each year, it becomes very difficult to
production. For example, instead of importing achieve them which are laid down in the five-
vehicles made in a foreign country, industries year period and it turned out to be a complex
would be encouraged to produce them in India plan. Frequent revisions resulted in lack of
itself. stability in the economy which is essential for its
▪ In India, no serious thought was given to balanced development and progress.
promote exports until the mid-1980s. Excessive
government regulation prevented growth of
entrepreneurship. In the name of self reliance,
our producers were protected against foreign
competition and this did not give them the
incentive to improve the quality of goods that
they produced. Our policies were ‘inward
oriented’ and so we failed to develop a strong
export sector.
Q.5 In context of Planning in India, ‘Rolling

Planning’ refers to:
(a) A new Five Year plan that was introduced by the
Congress government in 1980
(b) A New Plan introduced by the Janata government
from 1978-80
(c) A two year interim plan introduced by Congress
during the emergency period
(d) First five year plan of India Government.
Answer: B
Explanation:
Rolling Plan (1978–1980)
▪ The Janata Party government rejected the Fifth
Five-Year Plan and introduced a new Sixth
FiveYear Plan (1978–1980). This plan was again
rejected by the Indian National Congress

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Intuitions Underlying Capitalism .................. 3 1991 Economic Crisis .......................................... 13

Socialism ........................................................... 3 Background ..................................................... 14

Government Ownership And Control ........... 3 Stabilisation Measures ................................ 15

Goals Of Socialism ......................................... 4 Structural Reform Measures ....................... 15

Socialism And Central Planning .................... 4 Liberalisation ................................................... 15

Mixed Economy ................................................ 4 Deregulation Of Industrial Sector................ 16

Goals And Policies ......................................... 4 Financial Sector Reforms ............................. 16

What Is A Plan? .................................................... 5 Tax Reforms ................................................. 17

Goals Of Five-Year Plans ...................................... 6 Foreign Exchange Reforms .......................... 17

If labour is cheaper than capital, more labour-

In a capitalist society the goods produced are

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SOCIALISM AND CENTRAL PLANNING

Government ownership of resources and control of

Governments take primary responsibility in the

Most economies are mixed economies, i.e. the KEY DEFINITION

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It will be unrealistic to expect all the goals of a plan

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▪ The final Draft of fifth plan was prepared and

6 T H FIVE YEAR PLAN (1980 – 1985)

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Stabilisation Measures: Fiscal and monetary LIBERALISATION

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KEY DEFINITION Foreign Institutional Investment: Foreign

Merchant Bankers: Banks or financial institutions, KEY DEFINITION

KEY DEFINITION Export Duties: Taxes imposed on goods exported

Business Process Outsourcing (BPO): Outsourcing KEY DEFINITION

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PLIGHT OF AGRICULTURAL LABOURERS HAS

RURAL AREAS STILL NEGLECTED

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EMPLOYMENT GENERATION MODERNISATION

India’s population has increased over three-fold to

NETWORK OF EXPERTISE To provide a ‘platform’ for mutual resolution of

KNOWLEDGE AND INNOVATION HUB INTERNAL CONSULTANCY

The body to be an ‘accumulator’ as well as It will offer an internal ‘consultancy’ function to

To transform the developmental process into a

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SUSTAINABLE DEVELOPMENT The SDG 9 calls for improvement in industry,

For the emerging markets as a whole, the

Q.2 With reference to the plan holiday period of

Q.3 Consider the following statements about P.C.

Q.4 Consider the following statements about Indian

Q.5 In context of Planning in India, ‘Rolling

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