What
- Planning is a multidimensional approach. It has multidimensional application: economic, family, urban planning etc.
Characteristics of planning
- Planning has well some defined goals
- It is a continued process till all goals are met
- Goals are achieved by identifying, mobilizing and utilizing resources in optimal manner
Goals of Planning in India – Four goals of Growth, Modernization, Self-Reliance and Equity
Growth (Economic)
- Increase in GDP
- Increase in production capacity of india that includes: (a) increase in capital inventory, (b) increase in supporting services such as finance and transportation facilities and (c) increase in efficiency of capital and supporting services
Modernization (Technological)
- Using new technology to improve efficiency and production
- Changing existing social outlook and thought process about people. For example : treating women at par with men and using their talents to augment production.
Self-Reliance (political)
- Self-reliance in food, technology and capital was one of the goal for first Seven five-year Planning in India. Later, the concept changed with increasing globalization.
- Self-reliance was a necessity for protection of sovereign rights of newly emerged India.
Equity (Social)
- Ensuring all get their basic needs of food, housing, education and health.
- Reducing inequality through equitable distribution of the GDP produced
Planning in India (1950-1990)
Agriculture
- Existing conditions – dismal condition of agriculture despite absorbing huge workforce
- Land-reforms – removal of intermediaries and ownership of land to tillers and security of tenure for tenants. Purpose was to incentivize the tillers to produce more and efficiently.
- Land ceilings – to promote equity
- Green revolution – modernization for increase in farm productivity
Industry (Industrial policy, 1956)
- Existing condition – private sector lacked venture capital and feared to invest what they have to absence of market. Government thus took leading role in vital sectors. India had very limited capital and technological resources which needed its careful and optimized utilization. Thus, the policy gave due focus on government led development.
- Categorization of industries in three types. First was under complete ownership of the government, second was also under government but private sector had to supplement it. Third type of industries were under private sector but still controlled by the government through license system.
- Focus on small scale industries which were labor intensive but lacked capital and faced stiff competition from large firms. The policy reserved production of many goods only for this sector. Additionally, it received tax benefits and discounted rate of interest.
Important tools of the planning
PSUs
- It invested in the sector where private sector was unable and reluctant to invest.
- It also focused in ensuring regional balance while developing industries.
- PSUs also provided essential services such as education and health which were vulnerable to private exploitation.
License system
- Aim of the license system was to save small firms from large ones having advantageous and competitive positions.
- Promotion of regional equality – easy issuing of license to backward regions. The regions received additional benefits.
- Check on expansion and diversification of goods and services – the limited resources were to be used for producing needs of India only.
Import substitution
- Trade policy included import substitution to save domestic industries from external competition and help it being competitive in long term.
- Another purpose was to save valuable foreign currency from expending in luxurious goods.
- The policy used import license, quota and tariff measures to curb import. It did not focus on exports.
Impacts of Planning (1950-90) in India
Economic
- Substantial industrialization led to growth of large industrial base
- Diversification of industry (such as development of automobile and electronics sector etc.)took place.
- Savings increased
- Growth of small entrepreneurships took place. But their numbers remain limited.
- Failed to generate enough employment to remove pressure of workforce from agriculture.
Critics
The starting industrial policy helped great for economic development of india. But it failed to accommodate itself with the change it created in the economy. Tools such as PSUs and License system that had helped it initially started to play spoiler in absence of justified modifications within.
PSUs
- It continued to monopolize certain sectors where private sector have emerged as capable. For example, the monopoly continued in telecommunication sector till late 1990s.
- It continued to exist even in those sectors such as bread making where private sectors had become efficient.
- Mismanagement resulted in inefficiency of the PSUs resulting huge losses. Infusion of money to counter losses resulted in drain of wealth.
- Overwhelming notions about public welfare rather than improving efficiency and productivity marred the industrial scenario. Many private entities making losses got nationalized in the name of saving jobs. This further reduced the motivation to perform better even in private firms.
License System
- Large firms used the tool to check the growth of competitive entrepreneurship
- Licensing also brought inefficiency and incompetency to the firms
- Excess regulation led to permit license raj which caused wastage of limited but vital resources (time delays and human expertise ) in securing license. It brought inefficiency to the economy.
Import substitution
- Restrictions on import continued even after it started to do more harm than benefit.
- The economy failed to receive incentive to produce quality goods in absence of competition