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Objectives and failures of economic
planning
By Shikha Pandey
Objectives of economic planning:
The long term objective of economic planning, as spelt out in various plan documents,
have been as follows:
1. Economic growth
2. Self-reliance
3. Removal of unemployment
4. Reduction of income inequalities
5. Elimination of poverty
6. Modernization
7. Inclusiveness and sustainability of growth
1) Economic Growth
Economic growth has always remained in focus as main objective of Indian five year plans.
High priority to economic growth in Indian plans seemed justified, particularly when we view
it in the context of long period of stagnation in 19th and early 20th century. The economy of
the country had received severe jolt under the British on account of massive drain of wealth
from India. In this period while the European countries developed, India suffered under
development. Therefore, once this country got independence, the unequivocal choice of the
decision makers was for economic growth.
The earlier phase: 1951 to 1980
The first five year plan
First Five Year Plan (1951-56) was designed to rectify the imbalances created by the
Second World War and the partition of the country in 1947 and the maladies
persisting in the economy as a legacy of the British rule. Though the plan aimed at
achieving an all-round balanced development, it accorded top priority to agriculture
and irrigation investing 4 4.6 per cent of the total plan budget on this sector.
The first five year plan covering the period from 1951 to 56 had a target of 2.1 % per
annum increase in national income. This target, in fact, was very modest and even
with its realisation there would be no increase in per capita national income. The
performance of the plan, however, was better and over the five year period national
income recorded at 4.6 % per annum increase.
The second five year plan
The Second Five Year Plan (1956-61) set a target of 4.5 % per annum increase in
national income. From a quantitative point of view this target was not significantly
higher than the actual growth performance during the first plan period. The second
plan was, however, different from the first plan in terms of its objectives. Its basic
framework was based on the Mahalanobis strategy of development, which give the
highest priority to heavy industries. The actual growth during the second plan,
however, turned out to be a little lower than the targeted treat. The national income
rose at the rate 4.1 % per annum.
The third five year plan
The third planet into securing and increase in national income of 5.6 % per annum. In
totality the development strategy of this plan was basically the same as that of the
second and. During the third plan period, the national income rose only at a modest
rate of 3.3 % per annum and that there was only a marginal please in national income
per capita. Due to this massive flop the long term planning was suspended for 3 years
and the fourth plan the start in 1969 instead of 1966 which was the scheduled year of
its beginning.
The forth five year plan
The targeted rate of growth of gross national income in the fourth plan was 5.7% for
animal achievement was only 3.0 % per annum.
The fifth five year plan
In the class fifth year plan the target laid down for the increase in GDP was 5.5 % per
annum, which was considered to be higher than what was achieved during the past
two decades. The five year plan in its final form was different from the Duff plan in a
number of respects. The final and end at only 4.4 % per annum increase in GDP as
against the target of 5.5 % per annum set in the draught plant. For the realisation of
this objective, the principle and process was on raising the investment read apart from
pushing up the productivity level.
During the first plan period, the national anthem recorder total electric growth. The
large fluctuations in the rate of growth on account of the fluctuations in the
The rate of growth in the ninth plan was 5.4 % per annum as against the target of 6.5 % per annum. The planning commission put the blame for this poor performance on the low agricultural growth in 3 out of 5 years, reduced demand for industrial goods and the consequent reduction in the growth rate of the industrial sector, and slowdown in the world economy that adversely affected the level of exports.
The Tenth five year plan
When the tenth five year plan end at achieving an annual average growth rate of 8% over the period 2002 to 2007 , the actual rate of National income growth in the plan was 7.6 % per annum. If one leaves out the first year of the plan ( 2002 to 2003 ), India's GDP in the four years ending 2006-2007 grew annually at 8.6 % making it the world's fastest growing economy after China. This generated a lot of euphoria in official circles and the government clean that the economy has moved decisively to a higher growth phase.
The Eleventh five year plan
The success of the previous years emboldened the government to fix 9.0 % per annum economic growth target for 11th plan. As against this the actual rate of growth in the 11th plan was 7.5 % per annum.
The above data is conclusive how, 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.
2) Self-Reliance
About six and a half decades ago on the eve of the First plan, India was dependent on foreign
countries at least in three respects:
First, despite the fact that Indian economy was essentially agrarian, the output of food grains
was not adequate and the country imported big quantities of food grains from the USA and
some other countries.
Second, on account of virtual non-existence of basic industries, transport equipment, machine
tools, heavy engineering goods, electrical plant and machines and many other capital goods
had to be acquired from developed countries.
Third, savings rate being very low, foreign aid had to be obtained in order to step up the
investment rate in the country.
No one dispute that trade between two equal partners on purely commercial terms is
beneficial to both. This may not, however, be correct in respect of underdeveloped countries
trading with the developed countries from an unequal bargaining position. It has been
observed in many cases that developed countries while supplying essential commodities like
food grains, machinery and other capital equipment to underdeveloped countries, attempt to
take full advantage of their strong bargain position and extort exorbitant prices for their
products.
Often exports of these and other essential goods are used as political weapons to blackmail
the third world countries. Therefore, if some underdeveloped country seriously desires to
keep its growth activity free from political pressures of other countries, it has tono choice but
to become completely self-reliant in food and capital equipment. Further, it has also to
minimise its dependence in respect of aid from other countries and the institutions like the
IMF and the World Bank.
Broadly this was the reasons why self-reliance was adopted as a major objective of economic
planning in this country. The emphasis on self-reliance was not much in the first two plans. In
the third plan for the first time it was stated that the country would endeavour to become self-
reliant over a decade or so. The concept of self-reliance adopted in the plan was, however,
narrow, self-reliance was defined merrily as overcoming the need for external assistance. In
the fourth plan, the objective of self-reliance was stated in a concrete form. The plan not only
reiterated the government's commitment to reduce its dependence on foreign aid but also
decided to do away with concessional import of food grain from the USA under PL 480. The
country made progress along the expected lines during the first three years of the plan.
However, in the fourth year of the plan, the country faced deterioration in its balance of
payments position mainly due to large imports of food grains necessitated by that drought and
sharp rise in the international prices of imports.
Under the first plan for tackling the balance of payments problem, to pronged strategy was
adopted in the form of export promotion and import squeeze. This policy and unexpectedly
large private remittances considerably improve the balance of payments position. However,
during the 1980s liberalisation in the foreign sector lead to severe strains on the balance of
payments and the country’s foreign exchange reserves declined to 2,236 million dollars in
March 1991. The government thus resorted to economic reforms. It is now hoped in the
official circles that with correction of macroeconomic imbalances and structural reforms, the
economy in the future would tread on a high growth path and would ultimate you realise the
goal of self-reliance.
It is now generally agreed that in the field of self-reliance, India has two achievements to its
credit. First, the country is now almost self-sufficient in food. Second, with the growth of iron
and steel, machine tools and heavy engineering industries, this country has made considerable
advancement towards self-reliance in capital equipment. In totality, however, the goal of self-
reliance has proved to be elusive. International prices of petroleum products are highly
volatile and any unexpected spot in them can cause severe strain on the country's balance of
In 1993-19, the labour force was 381.94 million while workforce 374.45 million which implies that the number of unemployed people was 7.49 million. As a ratio of labour force, this works out at 2. which therefore was the unemployment rate in 1993-94. According to the employment and unemployment survey conducted by the labour bureau, ministry of labour and employment, for the year 2015-16 unemployment rate in that year was 5.0 %. Unemployment problem is a chronic problem in underdeveloped countries. Though, India has emerged as a new developing country, yet it is in the grip of acute problem of disguised unemployment. Thus, the crucial objective of Indian Planning is the creation of conditions for attaining full employment and the elimination of unemployment, under- employment and disguised unemployment. In fact, full-employment has always remained a major objective of economic planning, specially since Second Five Year Plan. Since then, special emphasis has been given to the expansion of labour intensive industries and small industries and specially to provide employment to persons. The programme like the Integrated Rural Development Programme (IRDP). National Rural Employment Programme (NREP) etc. has created confidence among rural community as it is expected to create additional employment opportunities. The approach to unemployment has changed significantly in recent years. 4) Reduction of income inequality Reduction in income inequalities has been mentioned as one of the objectives of economic planning in India. However, in terms of priority it has always got a very low place. It is probably on account of this reason that neither the plan of documents, nor any other publications of the planning commission ever provided estimates of the inequalities in income and wealth distribution. Pramit Chaudhari is that's right in his assertion that Indian plants have never made any serious attempt to distribute income and wealth. This major objective of Indian Five Year Plans is to provide social justice to the common man and weaker section of the society. In India, vast disparities in income and wealth distribution are a common feature. Our planners have pledged to the establishment of ‘democratic socialism’ and ‘socialistic pattern of society’. In Second Five Year Plan, we have announced socialistic pattern of society. This fact implies raising of the standard of living of the people who happen to be below poverty line. Our planners believe in narrowing down the gap between the rich and the poor as far as distribution of income and wealth is concerned and ensuring that benefits of growth are not to be swallowed by a handful of riches. Fourth Plan indicated its deep concern towards income inequalities. Similarly, Planning Commission admitted that economic planning does seem to make any headway towards the removal of income inequalities during the forty seven years of planning. Seventh and Eighth Plans have the objective of economic stability and change of the economy according to the latest international trends.
India is no stranger to income inequality, but the gap is widening further. Last year's survey had showed that India's richest 1% held 58% of the country's total wealth, which was higher than the global figure of about 50%. According to the latest survey, the wealth of this elite group increased by over Rs 20.9 lakh crore during the period under review-an amount close to the total expenditure estimated in the Union Budget 2017. India's top 1% of the population now holds 73% of the wealth while 67 crore citizens, comprising the country's poorest half, saw their wealth rise by just 1%. In the period between 2006 and 2015, ordinary workers saw their incomes rise by an average of just 2% a year while billionaire wealth rose almost six times faster, adds the charity, an international confederation of 20 organizations networked together in more than 90 countries focussing on global poverty alleviation. The report, fittingly, was released just hours before the start of the World Economic Forum, which will reportedly focus on how to create "a shared future in a fractured world" this year. 5) Elimination of poverty Up to the end of the Fourth Five Year Plan, it was felt that the benefits of development had received a raw deal to tackle the problem of poverty. In the Fifth Plan, there was a visible shift in the approach which resulted in the adoption of Minimum Needs Programme. Earlier to it, there was 20- Point Economic Programme to uplift the village community. New Sixth Plan (1980-85) document mentioned that the incidence of poverty in the country is still very high and necessary measures need to be adopted to combat poverty. According to the new strategy, two programmes were introduced in this plan period. They are Integrated Rural Development programme (IRDP) and National Rural Employment Programme (NREP). Some other programmes of development like Drought Prone Areas Programme (DPAP), Desert Development Programme (DPP), and Crash Scheme for Rural Employment (CSRE). Small Farmers Development Agency and Marginal Farmers and Agricultural Labourers Agency (SFDA/MFALA) were strengthening. Recently, Jawahar Rojgar Yojna has been launched, a programme to guarantee employment to youths in rural and urban areas. During Seventh and Eighth plan, some more rural development programmes have been added. 6) Modernization The idea of modernization was floated in the Sixth Five Year Plan. In a common sense, it implies up- to-dating the technology. But Sixth Plan draft denotes the term modernization, a change in the structural and institutional set up of an economic activity. A shift in the sectorial composition of production, diversification of farm activities, an advancement of technology and innovations are the part and parcel to a change from feudal system into a modern independent entity.
- India is the 7th major country by area and 2nd by population. It is the 12th largest economy at market exchange rate. Yet, development is not visible in India and it’s the neighbourhood nation, i.e., China is progressing at speedy rate.
- The exclusion in terms of low agriculture growth, low quality employment growth, low human development, rural-urban divides, gender and socialise qualities, and regional disparities etc. are the problems for the nation.
- Decreasing of poverty and other disparities and rising of economic growth are major objectives of the nation through inclusive growth.
- Political leadership in the country plays a vital role in the overall development of the country. But, the study has found that politicians in India have a very low level of scientific literacy.
- Studies assessed that the cost of corruption in India amounts to over 10% of GDP. Corruption is one of the ills that prevent inclusive growth.
- Though child labour has been banned by the law in India and there are stringent provisions to deter this inhuman practice. Still, many children in India are unaware of education as their lives are spoiled to labour work.
- Literacy levels have to rise to provide the skilled workforce required for higher growth.
- Economic improvements in the country are overwhelmed by out dated philosophies and allegations by the politicians and opposition parties in India.
- Achievement of 9% of GDP growth for country as a whole is one of the boosting factor which gives the importance to the Inclusive growth in India.
- Inclusiveness benchmarked against achievement of monitor-able targets related to I. Income & Poverty II. Education III. Health IV. Women & children, V. Infrastructure VI. Environment
- At global scale, there is a concern about dissimilarities and exclusion and now they are also taking about inclusive approach for development. Elements of Inclusive Growth: Major components of the inclusive growth strategy included a sharp upsurge in investment in rural areas, rural infrastructure and agriculture spurt in credit for farmers, increase in rural employment through a unique social safety net and a sharp increase in public spending on education and health care. There are several interrelated elements of inclusive growth:
Poverty Reduction Employment generation and Increase in quantity & quality of employment. Agriculture Development Industrial Development Social Sector Development Reduction in regional disparities Protecting the environment. Equal distribution of income Major elements of Inclusive Growth:
- Agriculture Development
- Industrial Development
- Environment
- Protection
- Poverty Reduction
- Employment
- Generation
- Reduction in
- Regional Disparities
- Equal distribution of income
- Social Sector Development Major causes for less inclusive growth: There are several reasons for disrupting inclusive growth. Firstly, growth has been jobless, and the employment growth has declined for the same level of economic growth. Despite of remarkable growth which has made India the world's fourth biggest economy, "employment in different sectors has not been rising. This jobless growth in recent years has been accompanied by growth in casualization". Secondly, growth has been uneven across sectors and locations. For instance, agriculture has been lagging behind and in countries such as India and China, some regions have advanced faster than others. Policies are also relatively ignored the agriculture sector. Third is the rapid rate of globalisation. Due to trade competitiveness, foreign direct investment and new technologies has demanded skilled labour. In some cases, labour laws also often discriminate against formal employment and encourage 'casualization' of labour. In India, there is need to create large-scale job otherwise growth becomes, lower down. Millions of people are looking for structured work and unable to find it. The problem becomes more persistent when one factors in India's prospective demographic "bulge" in the coming decades, as ever-increasing numbers of young people join the workforce every year before fertility rates fall and the population stabilizes around 2040 at about 1.5 billion. Economists project is as a ''demographic dividend" could turn out to be a period of crisis marked by sheer unemployment and rising social turbulence.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
An individual gets 16 metres of cloth per annum. Regarding housing, the condition is
deplorable. In 1950-51, per capita income at 1993-94 prices was Rs. 3687. In 2004-05, it
increased to Rs. 12416 at 1993-94 prices. In India 26% of population still lives much below
the poverty line.
Even after 55 years of planning, poverty alleviation programme has not met with much
success. In the end we can conclude that plans are sound but the problem is of proper
implementation. Political interference and attitude of bureaucracy is greatly responsible for
failure of plans.
