Economic Planning & Objectives & Reason Behind Failures of Economic Planning

ECONOMIC PLANNING & OBJECTIVES & REASON BEHIND FAILURES OF ECONOMIC PLANNING 1. Mr. Rashmiranjan Panigrahi , MBA, M.Com Planning is the making of major economic decisions. What and how is to be produced and to whom it is to be allocated – by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economic system as a whole. In an economy like India, the basis socioeconomic problems like poverty, unemployment, stagnation in agricultural and industrial production and inequality in the distribution of income and wealth can hardly be solved within the framework of an unplanned economy planning is required to remove these basic maladies. SALIENT FEATURES OF INDIA’S FIVE YEAR PLAN 1. Democratic: The first important feature of Indian planning is that it is totally democratic. India being the largest democratic country in the world has been maintaining such a planning set up where every basic issue related to its Five Year Plan is determined by a democratically elected Government. Moreover, while formulating a Five Year Plan, opinions of various tiers of Government, various organisations, institutions, experts etc. are being given due considerations. 2. Decentralized Planning: Although since the inception of First Plan, the importance of decentralised planning was emphasized so as to achieve active people’s participation in the planning process, but the real introduction of decentralized planning was made in India for the first time during the Seventh Plan. Thus decentralized planning is a kind of planning at the grass root level or planning from below. Under decentralized planning in India, emphasis has been given on the introduction of district planning, sub-divisional planning and block-level planning so as to reach finally the village level planning successfully. 3. Regulatory Mechanism: Another important feature of Indian planning is that it is being directed by a central planning authority, i.e., the Planning Commission of India which plays the role of regulatory mechanism, so as to provide necessary direction and regulation over the planning system. Thus under the present regulatory mechanism, every planning decision in India originates from the Planning Commission and being finally approved by the National Development Council. 4. Existence of Central Plan and State Plan: Another important feature of Indian planning is that there is the co-existence of both the Central Plan and State Plans. In every Five Year Plan of the country, separate outlay is earmarked both for the Central Plan and also for the State Plans. Central Plan is under the exclusive control of the Planning Commission and the Central Government, whereas the State Plan is under the exclusive control of State Planning Board and State Government which also requires usual approval from the Planning Commission. 5. Public Sector and Private Sector Plan: Another notable feature of India’s Five Year Plan is that in each plan, a separate outlay is earmarked both for public sector and the private sector. In each five year plan of the country, public sector investment and private sector investment amount is separately fixed, which comprises the total investment in each plan. India, being a mixed economy, it is quite natural that a separate investment outlay for public as well as the private sector is being maintained in each plan. 6. Periodic Plan: One of the important features of Indian planning is that it has adopted a periodic plan of 5-year period having five depurate Annual Plan components. This type of periodic plan approach is quite suitable for realizing its definite targets.

7. Basic Objectives: One of salient features of Indian Five Year Plan is that each and every plan is guided by certain basic or fundamental objectives which are almost common in most of our plans. The major objectives of economic planning in India mostly consist: (a) Attainment of higher rate of economic growth (b) Reduction of economic inequalities (c) Achieving full employment (d) Attaining economic self reliance (e) Modernisation of various sectors (f) Redressing the imbalances in the economy. In general, Growth with social justice is the main objective of economic planning in India.

8. Unchanging Priorities: Five year plans in India are determining its priorities considering the needs of the country. It is being observed that Indian Five Year Plans have been giving too many priorities on the development of industry, power and agriculture with minor modifications. Thus there is no remarkable changes in the priority pattern of Indian planning, although in recent years increasing priorities are also being laid on poverty eradication programmes and on employment generating schemes.

1. Mr. Rashmiranjan Panigrahi , MBA, M.Com , Mail id – [email protected] Lecturer in Finance , ASMIT , University certified faculty of SMU

9. Balanced Regional Development: Another salient feature of India’s Five Year Plan is that it constantly attaches much importance on balanced regional development. Development of backward regions is one of the important objectives of Indian planning. India’s planning system has even isolated some states under “special category states” so as to channelize additional resources to these backward states for their rapid development. 10. Perspective Planning on Basic Issues or Problems: Another important feature of Indian planning is that it has adopted the system of perspective planning on some basic issues or problems of the country, for a period of 15 to 20 years on the basis of necessary projections. 11. Programme Implementation and Evaluation: Indian planning system is broadly supported by programme implementation machinery, which used to play a very important role. Programme implementation machinery includes various Government departments which are usually involved for the implementation of the plan. More there is an evaluation machinery which usually conducts pre-project evaluation and post-project evaluation of every planning project of the country. 12. Shortfalls in Target Realization: Another notable feature of India’s Five Year Plan is its shortfalls in target realization. Although targets are fixed for every plans in respect of rate of growth of national income, employment, population, production of some important items etc. But in most of the cases these targets are not fulfilled to the fullest extent, excluding certain specific cases. Such shortfalls in target realization lead to the problems of spill over of projects into next five year plans and cost over-runs.

Failures of Economic Planning in India 1. Rise in Prices: Price stability has been one of the objectives of every five year plan in India. But almost all the plans witnessed considerable rise in price-level. In first plan, price level came down. In all other plans, the prices recorded a steep rise. Price level rose on average by 63 percent in second plan, 5.8% in third plan, 9% in fourth plan, 6.3% in fifth plan, 3.6 percent in Ninth plan and 4% in 2004-05. 2. Slow Growth in Production Sector: In the five year plan, growth rate of production was slow in many sectors. Priority should have been given to the development of agriculture in all the plans, but it was not done. Capital intensive industries in urban areas were given precedence over small scale industries in the rural areas. In agriculture green revolution continues to be confined largely to wheat and rice crop. 3. Inequality in Distribution of Income and Wealth: One of the main objectives of five year plans has been to minimise inequality in distribution of income and wealth. But the plan witnessed only increase in inequality. Rich Class becomes richer and poor class poorer. This inequality is found not only in industrial sector but in agriculture sector also. According to one estimate, 3 percent of household own roughly 50 percent of cultivable land. 4. Inefficient Administration: An expert team of U.N.O. observed that one of the main short comings of Indian plans has been with reference to its implementation. Plans are formulated after good deal of discussion and deliberation but their targets are not achieved due to inefficient administration, dishonesty, vested interest and red tapism etc 5. Lack of Strong Foundation: In spite of the fact that nine five year plans have rolled by still the economic base is far from being strong. We are still dependent on weather God for good harvest. In 1965-66, 1966-67, 1979-80, 1982-83 and 2002-03, the economy received a big jolt due to failure of monsoons. Large scale import of food grains was resorted to Gulf war in 1991 also caused disruption to Indian Economy. In 1998, due to shortage in the production of onions, the prices increased to Rs. 60 per kg. 6. Extra Ambitious: Indian plans are criticised on the ground that their targets are very ambitious. Two factors may account for its first shortage of resources and second faulty implementation of the plans. These has been a wide gap between the targets of growth rate and their achievements during the period of planning average growth rate of Indian economy has been 4.4 percent as against the target of 5%. The gap between the targets and achievements underlines the failures of the plans.

1. Mr. Rashmiranjan Panigrahi , MBA, M.Com , Mail id – [email protected] Lecturer in Finance , ASMIT , University certified faculty of SMU

7. Paradox of Saving and Investment: Although during the planning period there has been appreciable increase in saving and investment, yet the growth rate of economy has been very slow. Several factors account for this paradox: (a) Capital output ratio is very high in India. It is around 3.6:1 relatively less increase in production. (b) Considerable part of investment is in the form of buffer stocks of food grains and not in time form of fixed capital formation. No wonder, despite the increase in the rate of investment there is no corresponding increase in production. (c) Large portion of investment is made in traditional sector instead of modern one. 8. No increase in the Standard of Living: All the five year plans of India aimed at raising the standard of living of the people. In fact what to say of improving the living standard, even the basic necessaries have not yet been provided to the people. On an average, a normal healthy person needs 2508 calories of food per day but in India per capita availability of food is 2400 calories.

1. Mr. Rashmiranjan Panigrahi , MBA, M.Com , Mail id – [email protected] Lecturer in Finance , ASMIT , University certified faculty of SMU