Planning in India: Bombay Plan; People’s Plan; Mahalanobis Plan; Wage-Good Model; Gandhian Plan

Planning in India

The Planning Debates

The Bombay Plan

  1. A small group of influential business leaders in Bombay drew up and published in January 1944, a plan for the economic development of India. The Bombay Plan, as it is now popularly called, did not represent the opinion of the whole business community. But it claimed public attention because it set forth the considered views of some of the front-rank businessmen and captains of Indian industry.
  2. Mr. J. R. D. Tata and Mr. G. D. Birla were primarily responsible for the initiation of the study. The other industrialists who were part of Bombay plan were P. Thakurdas, Kasturbhai Lalbhai and Sir Shri Ram, Ardeshir Dalal, Mr. A. D. Shroff and Dr. John Matthai.
  3. Toward the end of March 1944, the Federation of Indian Chambers of Commerce representing all business organizations of the country endorsed the Bombay Plan at its annual meeting, and from then on, the plan came to be regarded as the proposal of India’s business community, if not of India’s big business.
  4. The Bombay Plan put forward as a basis of discussion, a statement in as concrete a form as possible, of the objectives to be kept in mind in economic planning in India, the general lines on which development should proceed and the demands which planning is likely to make on the country’s resources.
  5. The principal objectives of the plan are to achieve a balanced economy and to raise the standard of living of the masses of the population rapidly by doubling the present per capita income — i.e. increasing it from $22 to about $45 — within a period of 15 years from the time the plan goes into operation.
  6. The planners have laid down minimum living standards on the basis of about 2,800 calories of well-balanced food a day for each person, 30 yards of clothing and 100 square feet of housing; and they also outline the minimum needs for elementary education, sanitation, water supply, village dispensaries and hospitals. The plan points out that absolutely minimum needs require an annual income of at least $25; and if the income of the country were equally distributed it would give each individual only about $22.
  7. The shares of agriculture, industry and services in the total production is to be changed from 53, 17 and 22 percent, respectively, to 40, 35 and 20 percent.
  8. The plan emphasizes the importance of basic industries but also calls for the development of consumption goods industries in the early years of the plan. Power heads the list of basic industries which are to be developed, followed by mining and metallurgy, engineering, chemicals, armaments, transport, cement and others.
  9. The plan proposes doubling the present total of 300,000 miles of roads, increasing railway mileage by 50 percent from its present 41,000 miles, expanding coastal shipping and investing $150,000,000 on improvement of harbors.
  10. The plan offers a comprehensive program of mass education, including primary, secondary and vocational and university schooling. Provision is also made for adult education and scientific training and research.

Sarvodaya Plan (1950)

It was drafted by Jaiprakash Narayan. The plan was mainly inspired by the Gandhian Plan provided by S N Agarwal & the Idea of Sarvodaya presented by another Gandhian leader Vinoba Bhave.

The sarvodaya plan put forward and emphasized the importance of agriculture and village industries especially small-scale textile & cottage industries in the process of economic development. The plan also recommended the Luddite approach and was pessimistic towards the usage of foreign technology.

The most important and well acclaimed part of the plan was its emphasis upon land reforms and decentralized participatory people planning.

People’s Plan

The People’s Plan was Authored by M N Roy and drafted by the Post- War Re-Construction Committee of the Indian Federation of Labour.

The object of the Plan is to provide for the satisfaction of the immediate basic needs of the Indian people within a period of ten years. This objective is to be achieved by expanding production and by ensuring an equitable distribution of the goods produced. Therefore, the Plan prescribes increased production in every sphere of economic activity. But its main emphasis is on agricultural development, since its authors believe that the purchasing power of the people cannot be raised unless agriculture, which is the biggest occupation in the country, becomes a paying proposition.

Agriculture, it is argued, forms the foundation of a planned economy for India. Apart from the nationalization of land and the compulsory scaling down of rural indebtedness, the Plan formulates two schemes for increasing agricultural production: (a) extension of the area under cultivation and (b) intensification of cultivation in the area which is already under cultivation.

In the field of industry, the People’s Plan gives priority to the manufacture of consumer goods. It is argued that as a large volume of demand for essential good for the community remains perpetually unsatisfied, the goal of planned economy in industry must be to satisfy it first.

The People’s Plan attaches great importance to railways, roads and shipping in a planned economy. Therefore, it recommends the rapid development of the means of communication and transport to cope with the increased movement of goods and traffic between town arid country.

The Mahalanobis Strategy

The three main aspects of the strategy of development in the earlier phase of planning was:

The Critique of Mahalanobis Mobel:

The Wage Good Model

Prominent Economist like, C N Vakil and P R Brahmananda advocated Wage Good model for the development of the Indian economy and Industrialisation. Vakil and Brahamanda differed from the Mahalanobis strategy as they believe “At the low level of consumption (this was the situation in India) the productivity of the workers depends on how much they consumed.

According to them, if people were undernourished, they will lose their productivity and become less efficient, at this juncture it is necessary to feed them to increase their productivity. But this is not true for all consumer good; so they differentiated between Wage Good (whose consumption increase worker productivity) and Non-Wage Good (whose consumption did not).

To sum up, Wage Good model says; worker’s productivity depends on not on whether they use machines to produce goods but also on the consumption of wage goods like, food, cloth and other basics. Therefore, the first step towards development is to mechanize agriculture and raise food production; once this objective is reached, one should go for Mahalanobis strategy of Heavy Industrialisation.

Anyway, Vakil and Bharmananda strategies were ignored and India launched heavy Industrialisation in the Second plan without mechanising agriculture. The result was failure of Mahalanobis Strategy and by 1965-66 India was hit by a severe food shortage crisis. Finally, in the wake of the crisis, the government adopted Bharamananda strategy of mechanizing agriculture sector and engineered green revolution.

Changing Objectives of Successive Plans.

Fourth Five-year plan
  • In the Fourth Five-year plan, the basic framework of industrialisation was retained.
  • The objective of self-reliance was not given up, but the main emphasis was shifted to economic growth.
  • The government had starting putting focus on light industries. The agriculture sector was given due importance with adoption of new technologies, improved seeds and fertilizers.
  • The biggest paradox of the industrialisation strategy was that ‘poverty has failed to subside despite growth.
  • The paradox is rightly capture by the Renowned Economist Mahbub-Ul Haq in his famous quote “People are not going to eat tractors”.
Fifth plan
  • The Fifth plan bough the focus of poverty reduction back on the agenda with government prioritising ‘Minimum Needs Program’. The plan had accorded highest priority to the removal of poverty.
  • The plan document mentioned “The existence of poverty in incompatible with the vision of an advanced, prosperous, democratic, egalitarian and just society”.
  • The forthcoming periods saw turmoil in the country in general and economy in particular. The new Janta Party government decided to terminate the strategy of planning and put a moratorium on the fifth five year plan.
  • The Janta Party presented their own draft plan (1978-83) which stated a new development strategy. For the first time, the planning commission acknowledge the fact that the benefits of growth had failed to reach the poor.
  • The commission further decided that there would not be undue emphasis on numbers such as growth rates. The focus will be on raising the standard of living of the people.
  • The Janta government however could not last long and when the new congress government come in power it terminated the fifth plan and adopted sixth five-year plan (1980-85).
Sixth plan The Sixth plan puts its objective as:

  • To structurally transform the economy;
  • To achieve sustained and high growth rate;
  • To improve standard of living of masses & Eradication of poverty and unemployment.

Several anti-poverty programs like IRDP AND NREM was initiated with the aim of removing poverty and unemployment.

Seventh plan The Seventh plan marks a departure from earlier plan strategies and spelt out new long-term strategy.

  • The plans objectives were: solving the basic problems (food, shelter, clothing, education and health) of the people besides creating conditions for self-sustaining growth in terms of both the capacity to finance growth internally and the development of technology.
  • The seventh plan contained key elements of change.
  • It gave highest priority to increasing agricultural production through adoption on new technology.
  • It reversed the role of public sector and induced privatisation of industrial activity.
  • Liberalisation of external sector with the aim of increasing efficiency in the manufacturing sector.
  • The administrative procedures were changed from regulatory to faciliatory procedures. The strategy was a variant of what is now known as “Agricultural Development led Growth” Strategy.
Eighth Five-year Plan The new development strategy:

  • The economic growth during the 1980s was not capable of stopping the economy from economic crisis. The reckless spending’s and fiscal mismanagement by the government has put India on the edge of an economic crisis.
  • The full-scale crisis began in 1990-91 and the year of 1991-92 turned out be a severely bad year for the Indian economy. The crisis was market by an Inflation rate of 16 percent and severe shortages of foreign exchange and Balance of payment difficulties. The severity of the crisis was such that India had to shipped its gold to the Bank of England as collateral against a loan of $ 600 million.
  • As a response to the economic crisis, India adopted structural changes to its economy. The changes which will transform the Indian economy for betterment and will took economy to new heights.

The new approach (Liberalisation, Privatisation and Globalisation) adopted have major policy initiatives:

  • Macroeconomic stabilisation
  • Fiscal reforms
  • Trade policy reforms
  • Industrial Policy reforms
  • Financial sector reforms

The new development strategy was a complete reversal form the earlier strategies. The old rigidities of the command economy were dismantled and the strategy of external pessimism was eliminated. The new strategy favoured globalisation and was characterised with Export Led Growth.

Ninth plan The Ninth plan proposed to achieve a 7% growth rate during the plan period. It introduced fiscal discipline and aimed to control rise in prices through controlling money supply. It aimed at resource mobilization and attracting foreign direct investment. The thrust of the plan was to achieve agricultural growth. The proposition was to broaden the direct tax base for raising resources at the center.

Target Growth: 6.5% Actual Growth: 5.35%

Tenth plan The Tenth plan laid emphasis on the role of government in the new emerging economic scenario.

The plan mentions specific areas where the state has to play a proactive role.

  • The social sector
  • The infrastructure sectors.
  • Equity and social justice was given priority.

The 10th Five Year Plan (2002-2007) targeted at a GDP growth rate of 8% per annum. The primary aim of the 10th Five Year Plan was to renovate the nation extensively, making it competent enough with some of the fastest growing economies across the globe.

It intended to initiate an economic growth of 10% on an annual basis. In fact, this decision was taken only after the nation recorded a consistent 7% GDP growth, throughout the past decade.

GDP growth target: 8% (realized: 7.8%), savings rate target: 27% (realized: 31.4%)

Eleventh plan The Eleventh plan emphasised on ‘faster and more inclusive economic growth’.

  • The objective of inclusiveness and sustainability were accorded with highest priority.
  • The plan mentioned that the strategy must be based on sound macroeconomic policies which establish the precondition for rapid and inclusive growth.

The eleventh plan aimed at:

  • Rapid growth (more than 9%) to reduce poverty and unemployment.
  • Access to health and education for all.
  • Equality of opportunity
  • Empowerment through skill development
  • Employment opportunities underpinned by the National Rural Employment Guarantee Act.
  • Environment Sustainability
  • Good Governance
  • Recognition of Women’s agency.
Twelfth Plan The Twelfth Plan seeks to achieve the growth rate of 8.2 per cent, down from 9 per cent envisaged earlier, in view of fragile global recovery.

The theme of the plan document is “Faster, Sustainable and more Inclusive growth”.

The plan projects an average investment rate of 37 per cent of GDP in the 12th Plan. The projected gross domestic savings rate is 34.2 per cent of GDP.

Besides other things, the 12th Plan seeks to achieve 4 per cent agriculture sector growth during 2012-17. The growth target for manufacturing sector has been pegged at 10 per cent. The total plan size has been estimated at Rs.47.7 lakh crore, 135 per cent more that for the 11th Plan (2007-12).

Key Highlights:

  • The target growth rate has been set at 8.2 percent.
  • The priority areas are: Infrastructure, Health and Education.
  • Agriculture is given its due importance and it has been documented in the plan that agriculture should maintain a growth rate of 4%, in order to reduce rural poverty.
  • The targeted growth rate for the manufacturing sector has been pegged at 10 percent.
  • Health, Education and Skill development continues to be the focus areas for the government in the Twelfth Plan. The plan mentioned that there is a need to ensure adequate resources to these sectors.
  • Simultaneously, it also points to the need to ensure maximum efficiency in terms of outcomes for the resources allocated to these sectors. The need to harness private investment in these sectors has also been emphasized by the approach.
  • Poverty alleviation needs to be done at a much faster rate. The Planning commission envisage to reduce the poverty Head count Ratio by additional 10 percent during the plan period. At present, the poverty HCR is 21.8 per cent of the population.
  • The outlay on health, Drinking Water and Sanitation should be increased.
  • It suggests the need to take steps to reduce energy intensity of production processes, increase domestic energy supply as quickly as possible and ensure rational energy pricing that will help achieve both objectives viz. reduced energy intensity of production process and enhance domestic energy supply, even though it may seem difficult to attempt.
  • Generation of employment for the youth is the key challenge. The plan targets the creation of additional 50 million jobs.
  • Infrastructure investment should be increased to 9% of GDP.
  • The plan document mentions of providing ‘Affordable and accessible Banking Facility to at least 90% of the population’.

By,

Himanshu Arora

Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University

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