Open In App

Economic Planning during 1950-1990

Improve
Improve
Like Article
Like
Save
Share
Report

On 15 August 1947, India gained Independence from the two hundred years of British rule. Finally, India became the master of its destiny, and the job of building the nation is now in the hands of the people of India. After Independence, it was necessary to rebuild the stagnant economy into a journey of a developing country. Therefore, the Indian leaders had to decide on an economic system that would be most appropriate for the nation and that would facilitate public welfare. 

An economic system is a mechanism with the help of which the government plans and allocates accessible services, resources, and commodities across the country. It means that with the help of the economic system, government solves the central problems of an economy. 

Central Problems of the Economy

1. What to Produce: It includes deciding which goods and services and in what quantity must be produced in a country. A country has limited resources like land, labour, and capital. Thus it is essential to decide what goods must be produced and in what quantity.

2. How to Produce: It includes deciding the techniques of production. There are two types of techniques (i) labour-intensive, and (ii) capital-intensive. Labour-intensive goods are produced with more labour and less capital involvement; whereas, capital-intensive goods are created with more capital and less labour involvement. The selection of techniques depends upon the cost of technology and the amount of the goods required.

3. For Whom to Produce: It involves deciding which goods are to be produced and for which section of society, i.e., who will consume the goods. For example, all sections of society require essential goods like wheat and rice, but there is a demand for luxury goods by a few sections of society. So the government creates a balance between the two.

Types of Economic Systems

Three different types of economic systems can be used to address the central issues. 

1. Market/Capitalist Economy: An economic system in which the private sector owns, controls, and utilizes the means of production is known as a Market Economy. An example of this system is the USA. Here, the market forces of demand and supply, play an essential role in determining the price of goods and services. The primary purpose of production in this economy is to earn profits.

2. Socialist Economy: An economic system in which the government owns, controls, and utilizes the means of production is known as a Socialist Economy. An example of this system is in China. The government of China plays a vital role in determining the price of goods and services. The primary purpose of production in this economy is to promote public welfare.

3. Mixed Economy: An economic system that includes the best features of the socialist and capitalist economy is known as a Mixed Economy. Simply put, it is a mixture of capitalist and socialist economies.

Indian leaders (like Jawaharlal Nehru) adopted this model (Mixed Economy) in India in which both the public and private sector perform their roles in solving the central problems of the country. After adopting Mixed Economy, the next step for the government was to plan for the future, i.e., Economic Planning

What is Economic Planning?

Economic Planning refers to the system in which the central authority sets targets, programs, and policies to achieve those specified targets and policies within a specific period. The primary purpose is to achieve optimum utilisation of the resources. With this, social welfare, along with growth, can be maximised.

Economic Planning means the utilisation of a country’s resources in different development activities as per the national priorities.

Planning Commission.

Features of Economic Planning

  1. In the public sector, the Industrial Policy Resolution of 1948 and the Directive Principles of the Indian Constitution reflected a leading role. Moreover, the private sector was also promoted to be a part of the plan.
  2. The government set up the Planning Commission of India under the chairmanship of Prof. Mahalanobis in 1950. With this, the idea of economic planning became the reality.
  3. The Commission mainly aims to evaluate the country’s human and physical resources and make plans for the effective utilisation of the resources.
  4. The Planning Commission fixed five year period for Economic Planning which set the era of the Five-Year Plan (borrowed from the former Soviet Union).
  5.  In the Indian Constitution, economic and social planning exists in the concurrent list of the Seven Schedules.

Necessity/ Importance of Economic Planning in India

Economic planning is vital in developing countries like India due to various reasons:

Importance of Economic Planning in India

 

1. Optimum Utilisation of Resources: 

The resources (human and physical) are limited in nature. Due to its scarcity, it is crucial to use the resources effectively. Economic planning provides a rational basis and plans for the optimum utilisation of resources. An economic plan helps in determining which resources are required and where. The authorities, with this determination, will bring the best possible use of resources.

2. A Roadmap for Action:

The decision-making process needs guidance and direction. The economic plan directs the government’s action in a coordinated manner toward the set of economic objectives. Simply put, it provides a vision to pursue its objectives in both the short and long term. Hence, it provides a direction to achieve economic stability. 

3. Scope of Cooperation and Participation:

Economic planning helps make institutional changes by highlighting the need for social progress. The scope of public cooperation and engagement is expanded by planning and implementation.

4. Improvement in Standard of Living:

The quality and the quantity of goods and services available to the given population is called the Standard of Living. The standard of living in India is far below the required level. As a result, planning is essential in addressing social evils and improving the low level of per capita income. It ultimately raises the standard of living of people.

5. Equitable Distribution of Income and Wealth:

There is an unequal distribution of income and wealth in the economy of a developing nation like India. It means that a small portion of the population is rolling in luxuries while the masses of people can not even fulfil their basic needs. Planning is, therefore, necessary to minimise the level of poverty in the country.

6. Balanced Economic Development:

An industrial plan mainly focuses on the production of consumer products, whereas the primary industries are neglected. This may lead to unbalanced development. For this purpose, economic planning is needed as it may be helpful in balanced economic growth.

7. Employment Generation:

The economic plans put efforts into generating employment opportunities by encouraging the development of small and cottage industries. It will also reduce the pressure of the population on agriculture.

8. For Self-Sufficiency:

Economic development requires the investment of huge capital. Economic planning is used to ensure that resources are used as efficiently as possible for the welfare of the nation.

It can be summarised that no country has ever developed a planned economy in a day or a year. Planning has a history of development and change throughout several decades. The history of economic growth in various countries shows that planning has undergone evolution and its development or modification is related to several variables that have made planned economies more prevalent in many nations. Moreover, the requirements of the economy are ever-changing, and there is a need for improvement. Thus planning plays a vital role in the economy. 



Last Updated : 06 Apr, 2023
Like Article
Save Article
Previous
Next
Share your thoughts in the comments
Similar Reads