History of Planning in India: First and Second Five-Year Plans – UPSC Economy Notes

The history of planning in India is deeply intertwined with the nation’s journey towards economic development and self-sufficiency. Rooted in the aftermath of independence in 1947, India’s planning process commenced with the formulation of its First Five-Year Plan in 1951 under the stewardship of Prime Minister Jawaharlal Nehru and his economic advisors. This inaugural plan set the precedent for a centralized approach to economic development, emphasizing state intervention and public investment in key sectors such as agriculture, industry, and infrastructure. The Second Five-Year Plan, initiated in 1956, further consolidated this approach, focusing on industrialization and technological advancement to bolster the nation’s economic growth and address pressing social challenges. These early planning initiatives laid the groundwork for subsequent developmental strategies, shaping India’s economic trajectory and policy landscape for decades to come.

History of Planning in India: First and Second Five-Year Plans

1. First Five-Year Plan (1951-1956):
   • The primary emphasis of the First Five-Year Plan was on the agricultural sector. This focus was driven by the need to counter large-scale imports of food grains and address inflationary pressures on the economy.
   • The plan aimed for an annual average growth rate of 2.1 per cent, but it exceeded expectations by achieving a growth rate of 3.61 per cent.
   • Notable economist K.N. Raj played a pivotal role in shaping India’s inaugural five-year plan.
2. Second Five-Year Plan (1956-1961):
   • Building on the successful agricultural targets of the First Plan, the Second Five-Year Plan shifted its focus towards the establishment of heavy industries.
   • The plan set ambitious targets for increasing the rate of investment from 7 per cent to 11 per cent.
   • The Second Plan outperformed its growth rate target, demonstrating the effectiveness of its strategies.
   • This plan was rooted in the Nehru-Mahalanobis model, which advocated for self-reliance and emphasized growth driven by basic industries.

These initial Five-Year Plans laid the foundation for India’s planned economic development. They strategically addressed key sectors like agriculture and heavy industries, reflecting the nation’s commitment to achieving self-sufficiency and balanced growth across various domains of the economy.

Nehru-Mahalanobis Model of Economic Growth:

The Nehru-Mahalanobis model of economic growth was instrumental in shaping India’s economic policies during its formative years after independence. This strategy was devised by Jawaharlal Nehru, India’s first Prime Minister, with P.C. Mahalanobis serving as its chief architect. The model aimed to address the unique economic challenges India faced at that time.

1. Emphasis on Basic Industries:
   • The model prioritized the development of basic industries, particularly capital goods or investment goods. These industries were crucial as they produced the machinery and equipment necessary for further industrialization.
   • The focus on basic industries was intended to stimulate investment, promote ancillary industries, establish townships, and ultimately drive higher rates of output and economic growth.
2. Import Substitution:
   • The strategy advocated for protective barriers against foreign competition. This was aimed at enabling Indian industries to create domestic alternatives for imported goods, thereby reducing dependence on foreign capital.
3. Significant Role of the Public Sector:
   • The model envisaged an active role for the public sector, particularly in critical sectors like power generation, transportation (roads and railways), and more. This was seen as essential for steering India’s economic development.
4. Promotion of Small-Scale Sector:
   • The model recognized the importance of a vibrant small-scale sector in driving the production of consumer goods. This was considered vital for achieving balanced and equitable growth, as well as for fostering entrepreneurship.

Achievements and Criticisms:

• The strategy successfully increased the growth rate of industrial production, leading to a well-diversified industrial base within a relatively short span.
• However, it faced criticism for the imbalances it created between the growth of heavy industries and other sectors like agriculture and consumer goods. Critics also argued that relying solely on the trickle-down effect for poverty alleviation was a slow and incremental approach.

Ultimately, the Nehru-Mahalanobis model played a pivotal role in setting India on a path of industrialization and self-reliance, laying the foundation for subsequent economic policies.

Industrial Policy Resolution of 1956:

The Industrial Policy Resolution of 1956 was a significant policy document adopted in April 1956 in India. It outlined the objectives and framework for social and economic policy in the country. The primary goal of this policy was to establish a socialistic pattern of society in India. The resolution categorized industries into three distinct schedules:

1. Schedule A:
   • Industries falling under this category were deemed to be the exclusive responsibility of the state. This means that the government would have complete control and ownership over these industries.
2. Schedule B:
   • Industries in this category were designated to be progressively state-owned. While the state would primarily establish new enterprises in these sectors, private enterprises could supplement the state’s efforts.
3. Schedule C:
   • All remaining industries and their future development were, in general, left to the initiative and enterprise of the private sector. The government’s involvement in these industries was limited, and private enterprises played a more prominent role.

Overview of Third Plan (1961-1966):

The Third Five-Year Plan, spanning from 1961 to 1966, aimed to strike a balance between industrial and agricultural development. Its key objectives were to establish a self-sustaining economy. Notably, during this period, India resorted to borrowing from the International Monetary Fund (IMF) for the first time. Additionally, the rupee underwent its first devaluation in June 1966, although it technically fell outside the purview of the Third Plan.

Annual Plans (1966-1969):

Due to various challenges faced on both the external and domestic fronts, such as conflicts with China and Pakistan, inflation, natural disasters like floods, and foreign exchange crises, the Fourth Five-Year Plan, slated to begin in 1966, was not initiated. Instead, three annual plans were implemented from 1966 to 1969. This period, characterized by the absence of five-year plans, is often referred to as a “plan holiday.”

The Annual Plans for this period were as follows:

• 1966-1967
• 1967-1968
• 1968-1969

During these annual plans, the government focused on addressing immediate economic challenges and formulating strategies to steer the country’s development in the absence of a full-fledged Five-Year Plan.

Fourth Plan (1969-1974):

• The primary objective of the Fourth Five-Year Plan (1969-1974) was to achieve growth with stability.
• This plan placed special emphasis on improving the conditions of underprivileged and weaker sections of society by focusing on education and employment opportunities.
• Significant developments during this period included the nationalization of banks, abolition of privy purses (payments made to the families of former princely states), the outcomes of the Green Revolution, oil shocks (resulting from oil-exporting countries raising oil prices for political reasons), and the Indo-Pak war.

Fifth Plan (1974-1979):

• The main objective of the Fifth Five-Year Plan (1974-1979) was to achieve growth with a focus on social justice.
• This plan period was cut short by the Janata Party coming to power in 1977.
• The Janata Party initiated its own Sixth Five-Year Plan in 1977, but when a new government came to power in 1980, it removed the Janata Party’s plan from official records and officially launched the Sixth Five-Year Plan.
• This transition resulted in a gap year, 1979-1980, which effectively functioned as a planned holiday, as there was no formal Five-Year Plan during that period.

Rolling Plan:

The concept of a Rolling Plan was introduced in India in 1962, following the Chinese attack on India. This approach to economic planning was proposed by Professor Gunnar Myrdal, an influential economist known for his book “Asian Drama,” which explored economic development in Asian countries.

Key Characteristics of the Rolling Plan:

1. Flexibility:
   • Unlike traditional fixed-term plans, the Rolling Plan is designed to be flexible. While it sets annual and multi-year goals, these targets are not rigidly adhered to. Instead, they can be adjusted based on the prevailing ground-level conditions.
2. Adaptability to Changing Circumstances:
   • The Rolling Plan is particularly suited for economic situations that are subject to rapid changes or uncertainties. It allows for the modification of targets, projections, and resource allocations to align with evolving economic conditions.
3. Fluidity in Planning:
   • The Rolling Plan model recognizes that economic environments can be dynamic and unpredictable. As a result, it provides a mechanism to revise and fine-tune planning parameters as needed.

Advantages of Rolling Plans:

1. Flexibility to Respond to Changes:
   • Rolling Plans offer the advantage of adaptability. They can respond to emerging challenges or opportunities without being constrained by fixed targets.
2. Overcoming Rigidity:
   • Unlike traditional Five-Year Plans, which may be less responsive to changing circumstances, Rolling Plans can help overcome the rigidity associated with long-term planning.

Disadvantages of Rolling Plans:

1. The challenge in Achieving Targets:
   • Frequent revisions of targets may lead to difficulties in achieving them. Rapid adjustments can make it challenging for policymakers and implementers to meet the set goals.
2. Potential for Economic Instability:
   • Excessive revisions and adjustments within a Rolling Plan can introduce a level of instability into the economy. This can affect investor confidence and overall economic performance.

In summary, the Rolling Plan approach provides a valuable tool for countries facing rapidly changing economic conditions. However, striking the right balance between flexibility and stability is crucial to its successful implementation.

Sixth Plan (1980-1985):

• Objective: The primary focus of the sixth plan was poverty alleviation. Additionally, there was a strong emphasis on strengthening infrastructure to support the development of both industry and agriculture.
• Achieved Growth Rate: The actual growth rate during the sixth plan period was 5.7%, surpassing the targeted rate.
• Poverty Alleviation Programs: The plan introduced several programs aimed at directly addressing poverty, including the Integrated Rural Development Programme (IRDP), Training of Rural Youth for Self-Employment (TRYSEM), Development of Women and Children in Rural Areas (DWCRA), National Rural Employment Programme (NREP), and Rural Landless Employment Guarantee Programme (RLEGP).
• IMF Loan: In 1981, India sought a loan from the International Monetary Fund (IMF).

Seventh Plan (1985-1990):

• Objectives: The seventh plan emphasized achieving rapid growth in food grain production and creating more employment opportunities.
• Achieved Growth Rate: The actual growth rate during the seventh plan period was 5.81%, exceeding the targeted rate.
• Beginning of Liberalization: This plan marked the initial steps towards economic liberalization, and it laid the groundwork for building consensus on economic reforms.
• Long-Term Fiscal Policy: The plan initiated the implementation of a long-term fiscal policy.
• Export-Import Policy: For the first time, a three-year export-import policy was announced.

Plan Holiday (1990-1992):

• The eighth plan, slated to begin in 1990, was delayed due to a combination of economic crisis, external uncertainties, and political instability.
• As a result, there was a two-year hiatus in the implementation of five-year plans, known as the “plan holiday,” covering the years 1990-1991 and 1991-1992.

These plans and their outcomes reflect the evolving economic landscape and policy priorities of India during this period, as well as the challenges faced in implementing planned development strategies.

Eighth Plan (1992-1997):

• Reorientation of the Economic Growth Model: This plan marked a significant shift in India’s economic growth model. Structural reforms were introduced to address the challenges posed by a depleted foreign currency reserve and twin deficits in the budget and current account.
• IMF Loan and Balance of Payments Situation: India had to seek another loan from the International Monetary Fund (IMF) to stabilize the balance of payments situation. At this time, foreign currency reserves had dropped to a critically low level, less than 1 billion USD.
• Key Objectives:
  • Controlling population growth
  • Poverty reduction
  • Employment generation
  • Strengthening infrastructure
  • Institution building
  • Empowering Panchayati Raj institutions and Nagar Palikas
• Targeted Growth Rate vs. Actual Growth Rate: The targeted growth rate for this plan was 5.6%, but the actual growth rate exceeded expectations, reaching 6.8%.
• India’s Membership in WTO: India became a member of the World Trade Organization (WTO) on January 1, 1995.
• Constitutional Status for Panchayati Raj and Nagar Palika: To ensure that the benefits of the plan reached the grassroots level, Panchayati Raj and Nagar Palika institutions were granted constitutional status. This move aimed to enable bottom-up planning and improve service delivery.
• SEBI’s Statutory Status: The Securities and Exchange Board of India (SEBI), which has existed since 1988, was granted statutory status through an Act of Parliament.
• Rao-Manmohan Singh Model of Liberalization: The plan was based on the economic liberalization model championed by Prime Minister P.V. Narasimha Rao and Finance Minister Dr Manmohan Singh.

The Eighth Plan was instrumental in initiating key reforms that would have a profound impact on India’s economic trajectory, setting the stage for further liberalization and globalization.

Rao-Manmohan Singh Model of Growth:

The economic reforms initiated in 1991, under the leadership of Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh, were based on the Rao-Manmohan model. This model aimed to bring about substantial changes in India’s economic management and development. Here are the key objectives and principles of this model:

1. Reorientation of the State’s Role: The model advocated a shift in the role of the state in economic management. It emphasized that the state should primarily focus on social and infrastructural development, rather than directly managing or controlling various sectors of the economy.
2. Selective Dismantling of Controls and Permits: The model proposed the selective dismantling of controls and permits. This was done to encourage the private sector to invest more freely and participate actively in economic activities. By reducing bureaucratic hurdles, the aim was to stimulate private enterprise and economic growth.
3. Promotion of Private Sector Investment: The model sought to promote private sector participation in economic development. By creating a conducive environment for private investment, it aimed to spur economic growth, job creation, and innovation.
4. Competition for Public Sector Enterprises (PSEs): The model advocated introducing competition for Public Sector Enterprises. This was intended to enhance productivity and profitability in the public sector, making them more efficient and responsive to market dynamics.
5. External Sector Liberalization: The model focused on liberalizing the external sector of the economy. This involved integrating the Indian economy with the global economy to leverage resource flows and foster competition. The liberalization measures helped accumulate foreign exchange reserves, alleviating balance of payments pressures.
6. Stimulating Foreign Investments: The model aimed to attract foreign investments, including Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). This influx of foreign capital contributed to economic growth, technological advancement, and increased competitiveness in the Indian market.
7. Boosting Exports: The liberalization of the economy, coupled with reforms in trade policies, led to a significant uptick in exports. This contributed to economic growth and helped strengthen India’s position in the global market.

The Rao-Manmohan Singh model of growth played a pivotal role in transforming India’s economic landscape. It paved the way for increased economic liberalization, globalization, and integration with the global economy, setting the stage for higher growth rates and improved living standards.

Indicative Planning:

Indicative Planning is an approach to economic planning that emphasizes providing broad policy guidelines and creating a favourable environment for private sector participation in the economy. This model of planning was adopted in India from the 8th five-year plan (1992-1997) onwards, especially in the context of economic reforms initiated in 1991. Here are the key characteristics and principles of Indicative Planning:

1. Role of the Private Sector: Indicative Planning places a significant emphasis on the role of the private sector in economic development. The government’s role shifts from being a controller and regulator to that of a facilitator, allowing the private sector to play a more substantial role in driving economic growth.
2. Policy Direction and Support: Instead of imposing strict directives and commands, the government provides policy guidelines and support to the corporate sector. This includes setting favourable fiscal, monetary, trade, and investment policies that encourage private sector participation and contribution to plan targets.
3. Reduced Government Control: Indicative Planning entails reducing government control over trade and industry. The aim is to create a more liberalized and market-oriented economic environment where businesses have the flexibility to operate and innovate.
4. Predictability, Transparency, and Reversibility: The government focuses on creating a predictable, transparent, and irreversible policy climate. This stability in policies is crucial for businesses to make long-term investments and commitments towards achieving plan targets.
5. Long-Term Strategic Vision: The Planning Commission (or its successor agencies) takes on the responsibility of developing a long-term strategic vision for the future. This involves anticipating trends and formulating strategies that align with international standards and competitiveness.
6. Drawing from International Practices: The concept of Indicative Planning draws inspiration from successful economic models in other countries. For example, Japan’s shift towards microelectronics and France’s use of indicative planning are cited as examples of how this approach can yield positive results.
7. Adaptability and Flexibility: Indicative Planning recognizes the need for adaptability and flexibility in response to changing economic conditions. The government remains open to adjusting policies and strategies to ensure continued progress towards plan objectives.

Indicative Planning reflects a shift towards a more market-oriented and open economy, where the private sector is recognized as a crucial driver of economic growth. By providing the right policy framework and support, the government aims to harness the potential of private enterprises in achieving planned economic targets.

Ninth Five-Year Plan (1997-2002):

The Ninth Five-Year Plan in India, covering the period from 1997 to 2002, was marked by a series of significant events and challenges, both domestically and internationally. Here are some key highlights and developments during this plan period:

1. Political Instability and Global Events: The plan period began amid political instability, and India faced various challenges on both domestic and global fronts. The East Asian financial crisis occurred in 1997, impacting economies in the region. The Kargil War with Pakistan took place in 1999, and the 9/11 terrorist attacks occurred in 2001.
2. Globalization and Financial Initiatives: Despite challenges, the plan period witnessed India’s increasing integration into the global economy. In 1999, an Indian company was listed on the NASDAQ stock exchange in the United States through an American Depository Receipt (ADR), signalling a step towards globalization.
3. Nuclear Tests and Defense: India conducted nuclear tests in 1998, which had strategic implications. The country demonstrated its nuclear capabilities, leading to debates and discussions on the global stage.
4. Economic Reforms and Privatization: The Ninth Plan saw the initiation of economic reforms, including the privatization of public sector units. Disinvestment, a process of reducing the government’s stake in public sector enterprises, began during this period.
5. Social Welfare Programs: Several social welfare programs were launched during the Ninth Plan to address rural development and poverty alleviation. The Swarnajayanti Gram Swarojgar Yojana (SGSY) was introduced in 1999, consolidating earlier programs like the Integrated Rural Development Program (IRDP), TRYSEM, and DWCRA.
6. Infrastructure Development: Infrastructure development was a focus during this period. The Pradhan Mantri Gram Sadak Yojana (PMGSY) was initiated in 2000 to provide all-weather road connectivity to rural areas. The Golden Quadrilateral (GQ) national highway network connecting major metro cities was launched in 2001.

The Ninth Five-Year Plan reflects a dynamic period in India’s history, with economic reforms, global integration, and significant social and infrastructure initiatives. The plan aimed at addressing immediate challenges while setting the stage for sustained economic growth and development.

Tenth Five-Year Plan (2002-2007):

The Tenth Five-Year Plan in India, spanning the period from 2002 to 2007, set forth ambitious goals and objectives to propel the country’s economic and social development. Here are the key objectives and notable developments during this plan period:

1. Main Objectives:
   • Achieve 8% GDP Growth: One of the primary goals was to attain an annual GDP growth rate of 8%.
   • Poverty Reduction: Targeted a reduction in the poverty rate by 5 percentage points by the end of 2007.
   • Employment Generation: Aimed at providing gainful and high-quality employment to those entering the workforce each year.
   • Gender Gap Reduction: Sought to reduce the gender gap in literacy and wage rates by at least 50% by 2007.
2. Economic Challenges and Drought: The plan period began with a severe drought in 2002-03, impacting GDP growth, which plunged to around 4%. However, the subsequent year witnessed a significant rebound, with GDP growth exceeding 8%, influenced in part by the “base effect.”
3. Global Economic Growth: The global economy experienced growth during this period, and India benefited from these positive global trends.
4. Key Initiatives:
   • National Rural Employment Guarantee Act (NREGA): The plan period saw the initiation of NREGA, a landmark social welfare program aimed at providing employment opportunities in rural areas.
   • National Rural Health Mission (NRHM): Launched during this plan, NRHM focused on improving healthcare services in rural India.
5. Economic Performance: Despite the initial challenges, the Indian economy performed well during the Tenth Plan, achieving a growth rate of 7.8%.

The Tenth Five-Year Plan demonstrated a commitment to addressing key socio-economic challenges, including poverty, unemployment, and gender disparities. The launch of impactful programs like NREGA and NRHM reflected a concerted effort to improve the well-being of the population and lay the groundwork for sustainable development.

Eleventh Five-Year Plan (2007-2012):

The Eleventh Five-Year Plan in India, covering the period from 2007 to 2012, unfolded against the backdrop of a global economic downturn triggered by the collapse of Lehman Brothers and the subsequent financial crisis. Here are the key features and objectives of the Eleventh Plan:

1. Global Economic Recession:
   • The plan period coincided with the global economic recession that followed the Lehman Brothers bankruptcy and affected major financial institutions worldwide.
   • Countries implemented fiscal stimulus measures to counter the economic downturn, following Keynesian principles.
2. Central Theme: “Towards Faster and More Inclusive Growth”:
   • The overarching theme of the Eleventh Plan was to achieve faster economic growth while ensuring inclusivity.
   • Specific goals included accelerating economic growth, reducing poverty, creating 70 million new jobs, and achieving unemployment rates below 5%.
3. Focus Areas: Agriculture, Education, and Infrastructure:
   • The plan placed a significant emphasis on addressing challenges in agriculture, enhancing educational opportunities, and bolstering infrastructure development.
   • These focus areas were identified as crucial elements for sustainable and inclusive growth in a rapidly expanding economy.
4. Economic Growth Target:
   • The Eleventh Plan set an ambitious target for economic growth, aiming for a 9% growth rate.
   • The actual achievement during the plan period was an 8% growth rate.

The Eleventh Five-Year Plan reflected India’s commitment to navigating through global economic challenges and advancing its socio-economic development. By concentrating on key sectors like agriculture, education, and infrastructure, the plan aimed to lay the groundwork for a more inclusive and resilient economy. The global economic context and the emphasis on inclusive growth underscored the need for comprehensive and adaptive policy measures.

Twelfth Five-Year Plan (2012-2017):

The Twelfth Five-Year Plan in India, covering the period from 2012 to 2017, outlined ambitious goals for achieving sustained and inclusive economic growth. Here are the key features and outcomes of the Twelfth Plan:

1. Economic Growth Target:
   • The primary objective of the Twelfth Plan was to attain an annual average economic growth rate of 8%.
   • The plan aimed at fostering faster, sustainable, and more inclusive growth.
2. Inclusive Growth:
   • Inclusivity was a central theme, focusing on ensuring that the benefits of economic growth reach all sections of society.
   • Policies and initiatives were designed to address disparities and uplift marginalized communities.
3. Change in Government and Plan Implementation:
   • The government changed in 2014 with the election of a new administration.
   • The Twelfth Plan faced a shift in approach and priorities under the new government, leading to changes in the implementation of certain policies outlined in the plan.
4. Economic Challenges:
   • The plan period witnessed economic challenges, including the impact of global economic conditions on India’s growth trajectory.
   • In 2016, a significant economic event occurred with the demonetization of high-denomination currency notes, which aimed at curbing corruption and promoting a digital economy.
5. Actual Growth Rate:
   • The plan period concluded with an actual growth rate of 6.9%, which fell short of the ambitious 8% target.

The Twelfth Five-Year Plan reflected the evolving economic landscape and the government’s commitment to addressing challenges while pursuing robust and inclusive growth. However, changes in governance and economic events like demonetization influenced the plan’s trajectory and outcomes.

FAQs

Q: What were the objectives of the First Five-Year Plan in India?

A: The objectives of the First Five-Year Plan, initiated in 1951, aimed to prioritize the development of agriculture, infrastructure, and industrialization. It focused on attaining self-sufficiency in food production, promoting heavy industries, and reducing poverty through economic growth.

Q: How did the Second Five-Year Plan differ from the First in India?

A: The Second Five-Year Plan, launched in 1956, shifted its focus from heavy industries to more balanced growth across various sectors. It emphasized the development of basic infrastructure, such as power, transportation, and communication networks. Additionally, it aimed to address social issues like education, healthcare, and rural development.

Q: What were the major challenges faced during the implementation of the First Five-Year Plan in India?

A: One major challenge during the implementation of the First Five-Year Plan was the shortage of capital and resources. India’s economy was largely agrarian and lacked industrial infrastructure, leading to difficulties in achieving the set targets. Additionally, bureaucratic inefficiencies and lack of technical expertise hindered progress.

Q: How did the planning process evolve between the First and Second Five-Year Plans in India?

A: Between the First and Second Five-Year Plans, there was a noticeable evolution in the planning process. The Second Plan incorporated lessons learned from the implementation of the First Plan, emphasizing more decentralized planning and greater involvement of state governments. It also included a focus on improving social indicators alongside economic development.

Q: What were some notable achievements of the First and Second Five-Year Plans in India?

A: Some notable achievements of the First and Second Five-Year Plans in India include significant growth in agricultural production, establishment of key industries like steel and power plants, expansion of irrigation facilities, and the initiation of infrastructure projects such as dams and highways. Additionally, the Plans laid the foundation for India’s economic development and provided a framework for future planning efforts.

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