What is Economic Planning India? Explained

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Now let's try to understand economic planning in this blog in the following.

Content 

  1. An Introduction
  2. What does economic Planning Mean?
  3. India's Economic Planning 
  4. India's Planning Objective 
  5. Requirement For Planning 
  6. Planning Strategies 

Introduction

India is a huge country with numerous difficulties that its people encounter. For nearly two centuries, the British ruled the country and used its resources to their advantage, leaving the country in abject poverty. Except for 'independence,' there was nothing to be proud of or glad about when the British left India in 1947. There were numerous issues before the Indian government. Aside from mass poverty, there was the issue of food scarcity and inflation. Other severe issues confronting the country included illiteracy, a lack of health care, a lack of infrastructure, and so on. As a long-term plan. The solution to these challenges was 'planning' for economic development.

WHAT DOES ECONOMIC PLANNING MEAN?

  1. Making a list of the issues confronting the economy.
  2. Rearranging the list in order of priority. The highest priority issue that must be addressed promptly should be placed first, and so on.
  3. The next stage is to identify the problems that must be handled in the short term and those that must be addressed in the long run.
  4. Setting a target in order to obtain the intended result. The goal could be a specific time frame in which the problem must be handled. If the problem is to be addressed in the long run, it must be specified how much of the problem will be remedied in the initial period (say, a year or six months), and so on. Second, the aim could be a specific amount to be attained. In the case of production, for example, the government can set a quantity objective.
  5. Estimating the quantity of resources required to meet the aim. Financial resources, human resources, physical resources, and so on are examples of resources.
  6. Another critical responsibility is to mobilize resources. This means that the planners must be aware of the resources available for assembling the necessary resources. For example, in the case of financing the plan, the planners must create a budget and outline the various sources of funding. When the government creates plans, one of the key sources of funding is tax money.

A bank loan is one of the sources of finance for a business owner. When multiple sources of funds are available, the planner must decide how much money should be collected from each of these sources. Another significant responsibility in carrying out the plan proposal is the use of human resources. The planner must estimate the sort of labor and the number of people needed to complete the work. This requirement should be well estimated from the start. Similarly, adequate estimation of physical resources should also be provided. Office buildings, automobiles, furniture, stationery, and other physical resources are examples of physical resources. Once the resources are in place, the implementation and execution process can begin in a systematic manner to accomplish the intended result. Periodic reviews must be performed until the ultimate achievement is realized to ensure that everything is going smoothly and to correct any mistakes or to adapt the working style to fit any change.

INDIA'S ECONOMIC PLANNING

To solve its diverse socioeconomic difficulties, India implemented a five-year planning system. You have probably heard about the issues that the Indian economy faced during its independence. To recap, these issues include widespread poverty and inequality, low agricultural production and food grain storage, a lack of industrial and infrastructure growth, and so on. Because these issues will take time to resolve, the Indian government developed a five-year plan beginning with the first year plan in 1951 development. The objective was to create a list of critical problems to solve while keeping in mind the available resources and the ability to organise the resources. Then, after five years, examine what has been done and correct any flaws in the next five-year plan period, and so on. Jawaharlal Nehru, P.C Mahalonobis, V.R Gadgil, and V.K.R.V Rao are among the outstanding architects of Indian planning. In 1950, after becoming India's first prime minister, Nehru established the Planning Commission. The Planning Commission's main job was to develop plans while keeping the country's resources in mind and recommending the best ways to use them effectively and in a balanced manner. For the years 1951-1956, the Planning Commission created the first five-year plan (FYP). By 2014, India had already gone through more than sixty years of planning, with the eleventh five-year plan completed and the twelfth FYP still in progress.

INDIA'S PLANNING OBJECTIVES

The numerous aims of economic planning in India are established with the country's socio-economic challenges in mind. As a result, the following goals have been established:

  1. Economic growth
  2. Increase in employment
  3. Reduction in inequality of income
  4. Reduction in poverty
  5.  Modernization of the economy
  6. Ensuring social justice and equality.

Economic Growth: The goal of achieving economic growth requires that real national income and per capita income must grow at a specific rate each year. The measure of national income at a specific year's price or at a constant price is known as real national income. The average income of individuals in the economy is referred to as real per capita income. It is stated that in order to raise the standard of living for each individual/household and society as a whole, both per capita income and national income must increase in real terms. Because income symbolises purchasing power, an increase in income will boost people's and the country's purchasing power. When people's purchasing power rises, they will be able to purchase more goods and services to satisfy their desires. 

The country as a whole can pay for its imports from other countries. An increase in real income implies that the output level or quantity of output is higher than it was previously. In this context, production comprises output from many sectors of the economy, such as agricultural output, industrial output, and services, in order to meet the demands of India's rising population. Every year, there must be an increase in output. To reach a higher rate of output, the economy's rate of investment in infrastructure and capital stock must be increased. Power projects, roads, railways, airports, ports, telecommunication networks, and buildings are all examples of infrastructure. Plant, machinery, banking, and insurance are examples of capital stock. Investment in all of these items is required to generate economic growth in real income; thus, the country's planners set a growth objective in each five-year plan, taking into account population growth, demand for goods and services, and so on.

Increase in Employment: Employment refers to the participation of the labour force in productive economic activity such as the production of goods and services. Income is generated through the production process, which entails the utilisation of factors of production provided by households. You are aware that production elements include land, labour, capital, and organization/entrepreneurship. These factors are held by the country's households. Because factors are limited resources that must be employed to generate goods and services, it is critical for the government to establish chances for them to be appropriately used/utilized. An economy's production capacity is determined by the number of factor resources it possesses. If these factors of production are employed, the appropriate amount of output can be generated. The output value can then be allocated among the factors as income in the form of wage for labour, rent to the owner of land and building, interest to the owner of capital, and profit to the entrepreneur. If the country is unable to establish job opportunities to gainfully engage the factors of production, the necessary amount of output and thus income cannot be produced. Take, for example, the country's labour resources. You are aware that the country's population provides labour force between the ages of 15 and 59. Every year, as the population grows, so does the number of persons in the labour force. The majority of them are also educated. If there is insufficient opportunity for employment, they will remain unemployed and underutilised. In truth, India's unemployment rate is extremely high. Unemployment, in addition to increasing demand without equal increases in production, is a cause of a variety of societal problems such as poverty and crime, among others. As a result, the Indian economy's strategists include job development as a significant goal in their five-year plans.

Income Inequality Reduction: India is a country with a varying economic standard of living among its people. This suggests that India lacks consistency in terms of economic levels. A big portion of India's population is classified as poor since they have a low income, although a handful are extremely wealthy and have a high amount of income. Income disparity is a serious societal concern; women, regardless of caste or religion, are the worst affected in terms of income standard. Similarly, the scheduled caste and scheduled tribal populations are marginalised sections of Indian society because they are at the bottom of the development pyramid. One of the key causes of income inequality is unequal asset distribution, such as per capita land ownership, possession of mobile and immovable property from inheritance, and so on. 

The vast majority of Indians live in rural areas and work in agriculture. However, just a few are large landowners, with the vast majority being marginal or small farmers and agricultural labourers. Agricultural laborers are so named because they do not own land to cultivate and must move from one location to another in pursuit of work on a daily or weekly basis. Their plight is exacerbated by their illiteracy and lack of ability to organise themselves. Because of their poor income, they have nothing to start with for their next generation. Landlords, on the other hand, enjoy better returns on their property and the property remains with their future generations due to the existence of the law of inheritance. As a result of the possession and absence of private property, the rich remain rich and the poor remain impoverished in the country. This inequality has a negative impact on India. The poor are unable to support the market due to a lack of purchasing power, but the rich have too much purchasing power, causing wasteful consumerism to expand. Inequality is the root cause of the majority of social ills. As a result, our planners sought to reduce income distribution inequality through planning.

Poverty Reduction: Another significant goal of planning in India is "poverty reduction." At the time of independence, more than half of India's population was impoverished. According to government predictions, about 27 to 28 percent of India's population would be poor by 2014. In the lesson on poverty and employment, you will learn about how poverty is measured in India. For the time being, let us limit our definition of poverty to a scenario in which an individual is unable to meet his or her fundamental necessities of existence. There are many people in the country who do not even have a square meal every day. Poverty is exacerbated by a lack of job. It is exacerbated by the inequitable allocation of national wealth and income. Poverty is referred to as a plague on human dignity, and it has severely harmed India's image around the world. Because of its inability to eradicate poverty, developed countries do not take India seriously. It takes careful planning to eradicate poverty from the country.

Modernization of the Economy: India has been a country of constant exploitation by foreign forces such as the Mughals, who reigned for over two centuries, and the British, who controlled for another two centuries. When the British turned over authority to the Indian government in 1947, they left the country in a state of poverty and underdevelopment. Because of historical reasons, the Indian economy has been unable to progress beyond its current level of operation. Its economy remained rural and industrially backward. There was no advancement in technology or technical advancement. The lack of contemporary technology is a fundamental reason for the Indian economy's low agricultural output and lack of industrial development. Because of the underdeveloped industrial and service sectors, agriculture was the largest contribution to India's GDP at the time of independence and for many years afterward. Combined with the population's lack of greater education and skill development, the occupational structure has remained skewed toward agriculture. To reverse this tendency, India's GDP structure must be changed by boosting the quality of human resources and strengthening industries and the service sector. This can be accomplished through economic modernization.

Ensuring Social Justice and Equality: Indian planning tried to achieve a socialistic pattern of society as well. It can be accomplished through ensuring social justice and equity for its people. In truth, all of the aforementioned goals are required to accomplish social justice. However, introducing reforms in various sectors by changing age-old systems that have perpetuated poverty and inequality, obstructed development of the industrial and service sectors, or caused low agricultural productivity is a sufficient condition for sustaining social justice and equitable income distribution. As a result, the planners proposed agricultural and economic policy adjustments to promote growth and equal sharing of development advantages.

REQUIREMENT FOR PLANNING

A large part of the question of the necessity for planning has been answered by the definition of planning itself, which has been detailed above. As previously said, planning entails a number of processes that must be completed in order for efficient implementation and execution to take place. In truth, the Indian economy is beset by a slew of issues. Each problem is complex and cannot be handled in a short amount of time. Take, for example, the issue of poverty. There is no immediate solution to these difficulties. The government must collect data to determine the number of persons affected by poverty and the nature of that poverty. 

Data collection is a massive effort in and of itself, given India's immense geographical extent and difficulty of access to many locations. In a democracy, the government is obligated to develop policies after thorough debate and discussion, which takes time. The mobilisation of necessary resources, as well as the availability of resources to maintain the programme over a lengthy period of time, are the two most critical steps in addressing the problem of poverty. It cannot be done without good planning. Planning is also required to avoid needless expenditure, minimise costs, meet deadlines, and make the best use of resources.

PLANNING STRATEGY

By strategy, we imply the application of the proper approach/method/formula for achieving the goal under consideration. During the first plan period of 1951-56, no specific strategy was adopted; however, the government of India placed a greater emphasis on agriculture, recognizing that agriculture employs the majority of India's population and that there was an immediate issue of adequate food grain supply to address food shortages. The first five-year plan was a major success because the targeted growth rate was met, allowing India to embrace a long-term strategy for future planning. The development strategy was therefore firmly stated in the second plan period of 1956-1961. The approach was to emphasize – 1. industrialization, and 2. within industrialization, a greater concentration on heavy industries.

JUSTIFICATION OF THE INDUSTRIALIZATION STRATEGY

To solve issues such as poverty, unemployment, economic growth, self-sufficiency, and so on. Indian planners established an industrialization strategy for the country as a whole, with a focus on creating heavy and basic industries in particular. The following are some of the arguments in favour of an industrialization and heavy industries strategy: 

  • India's population has become overly reliant on agriculture, resulting in overcrowding in rural areas, pressure on land, fragmentation of land holdings, underemployment, and unemployment. With a fixed amount of land available for cultivation, increased population reduces or eliminates per capita availability of land. This has resulted in inequitable land distribution, which has had a negative impact on agricultural production. Industrialization is the only way to shift surplus agricultural labour to industries and relieve land pressure. 
  • Industrial activities create more jobs than agriculture activities. As a result, industrialization will aid in the employment of the country's unemployed.
  • Industrialization is required for the growth of agriculture. Agriculture provides raw materials for industries, and the agriculture sector requires industrial equipment and machinery such as a pump set, tractor, electricity, and so on. 
  • Priority must be given to the establishment of fundamental and heavy industries. Iron and steel, aluminium, heavy chemicals, heavy electrical, and other sectors are examples of basic and heavy businesses. These are industries that produce capital goods.

Every economy need such sectors because they provide the machinery and equipment required to build other industries that may generate consumer items to satisfy wants. As a result, the heavy industries form the economy's backbone. It should be emphasized that following the approval of the heavy industry plan, the Indian government established the public sector to construct and operate such industries. Steel Authority of India Limited (SAIL), Bharat Aluminium Company (BALCO), Bharat Heavy Electrical Limited (BHEL), National Aluminium Company (NALCO), and others are some instances. Aside from heavy and basic sectors, the Indian government has prioritised the development of micro, small, and medium-sized businesses. These industries are defined by the amount of money that can be invested in them and can be founded by private individuals. These industries have several advantages, including the encouragement of self-employment as well as the creation of new jobs, the utilization of local resources, the reduction of economic disparity because they can be owned by individuals, and so on.

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