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 utilization 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
Evaluation of Economic Planning
The evaluation of economic planning consists of the success and failures of the policy.
Success of Economic Planning
1. Increase in National Income:
The rise in national income signifies economic growth.
Observation:
- India’s national income expanded at a mere 0.5% annual rate in the years before planning. As a result, the Indian economy was in decline.
- During the First Plan, national income increased by 4.6% annually instead of the desired 2.1% annually.
- The target was to raise the national income by 5% annually between the Second and Tenth Plans. However, it can be attained only between the Fifth and Tenth Plans.
- During the Eleventh Plan, the rise in the national income was 7.5% against the target of 9%.
- During the Twelfth Plan, national income increased by 6.8% instead of the expected 8%. The projected rise in national income for 2018–19 is 6.9%.
As a result, during the plans, India was unable to reach the desired rate of growth. The Indian economy had been in a state of economic stagnation prior to independence, but that situation was broken.
2. Rise in Per Capita Income:
A significant rise in per capita income has been recorded over time.
Observation:
- The rate of rise in per capita income had only been theoretical, during the period preceding the planning.
- The rate of growth was gradual during the period of planning. It was just 2.7% during the First Plan. However, it subsequently increased.
- The rate of growth of 6% per annum was recorded in the Eleventh Plan.
- The Twenty-Fifth Plan predicted annual growth of 5.5%. The rate of increase in the per capita income was 5.7% and 5.6%.
A significant achievement is a rise in per capita income since it indicates that more goods and services are available per person in the nation. However, this is just an average increase and gives no indication that the quality of living for every person in the economy would improve as it does not take into consideration the distribution of income.
3. Increase in Savings and Investment:
The main forces behind economic growth are saving and investment. The rate of saving and investment has significantly increased during the period of the five-year program.
Observation:
- The savings rate was 9.5% of the National Income in 1950-51.
- By the end of the Eleventh Plan (2011-2012), it was increased to 31.3% and was projected to be 30.5% in 2017–18.
- The rate of investment (gross capital formation) has also increased, rising from 9.3% of GDP in 1950–1951 to 32.3% in 2017–2018.
4. Institutional and Technical Change in Agriculture:
Agricultural development has derived from five-year plans in two ways:
(i) Land reforms include:
- elimination of middlemen who come between the government and soil cultivators,
- regularisation and moderation of rent,
- Limits on land ownership and land allocation that maximise holding size by the consolidation of holdings.
The environment for farming has significantly improved as a result of these changes.
(ii) The advancement of technology results in an unexpected rise in agricultural outcomes and productivity. This change was characterised by self-sufficiency in food grains.
5. Growth and Diversification of Industry:
Five-year plans promoted basic and capital goods industries like iron, steel, machinery, chemical fertilisers, etc. This fact is illustrated by the following points:
- The growth rate of industrial production during the planning period has been around 7% per annum.
- The growth rate in industrial production in the Eleventh Plan was 7.2%. It was 6.9% in 2018-19.
- To accomplish the level of self-sufficiency, the consumer goods industries have expanded significantly.
- The Indian economy is currently the tenth-largest industry in the world’s economy.
6. Economic infrastructure:
The essential components of economic infrastructure include transport, irrigation facilities, communication, banking, and insurance facilities. There has been considerable growth in the economic infrastructure during the planning period. For example:
- One of the largest railway networks in the world is now Indian Railways.
- India now enjoys the status of a major player in the global market because of the revolutionary expansion of its IT sector.
7. Social Infrastructure:
The essential components of social infrastructure include health and educational facilities. There has been considerable growth in the social infrastructure. It is due to the expansion of health facilities that:
- There was a decline in the death rate from 27 per thousand in 1951 to 6.3 per thousand in 2017.
- The average life expectancy increased from 32 years in 1951 to 69.4 years in 2018.
8. Employment:
To increase employment options, substantial attempts have been made during plans. Moreover, the government has undertaken several employment generation schemes. It is important to mention that:
- The government has set the target of making 50 million job options in the Twelfth Five Year Plan.
- There has been a decrease from 8.3% in 2004-05 to 5.6% in 2011-12.
9. International Trade:
The amount and value of India’s exports have steadily increased during plans.
Observation:
- In the field of exports, the composition has undergone a visible difference.
- Currently, India is exporting engineering products. This demonstrates India’s shift to an industrialised country.
- The value of foreign trade was ₹792 crore to ₹59,02,036 crore in 2018-2019.
During the planning period, India had shown substantial growth, along with a significant structural shift. All economic sectors are experiencing transformation. The rising level of living of the populace is a reflection of the growth. However, there are a few dark spots that point to India’s inability to plan ahead.
Failures of Economic Planning
The reasons behind the failure of Economic Planning are:
1. Poverty:
The central theme of planning was to mitigate poverty. In India, 21.9% of the population continues to live below the poverty line. These are the people who lack even the necessities of life. Amazingly, India is home to nearly 50% of the world’s truly poor people.
2. High Rate of Inflation:
During the five-year plans, due to the high rate of inflation, people’s real income has been eroding. It also categorises the nation into two parts, haves and have-nots. The only exception when the price level dropped is the first plan; otherwise, in all other plans, the prices observed a substantial increase.
3. Unemployment Crises:
Despite the fact that more and more employment options have been created, the problem of unemployment has not diminished. 53 lakh people were unemployed at the end of the First Plan. At the end of the Eleventh Plan, this number increased to 4 crores. This is becoming a significant source of social disturbance and harming the process of growth.
4. Inadequate Infrastructure:
Despite 67 years of planning, the development of infrastructure is still inadequate which includes power, dams, roads, schools, colleges, and hospitals. As a result, the gap between actual and desired growth has increased. Power shortages, in particular, have been a significant barrier to growth and development.
5. Unequal Distribution:
The primary goal of planning was economic and social equality. However, it has been the principal failure of planning in India. The government has been forced to provide employment preferences to those from economically and socially disadvantaged groups as a result of growing social and economic inequality.
In short, “The implementation and enforcement have been the principal shortcomings of planning in India” as observed by the expert team of UNO.