Introduction & Overview
Economic planning in India was adopted as a crucial strategy for socio-economic development post-independence. It aimed to address colossal challenges like poverty, illiteracy, industrial backwardness, and infrastructural deficits. The planning process evolved from a centralized model under the Planning Commission (1950-2014) to a more decentralized, cooperative, and indicative approach with the establishment of NITI Aayog in 2015.
This journey reflects India's changing economic priorities, global integration, and the evolving dynamics of Centre-State relations. The core objective has consistently been to achieve rapid economic growth, self-reliance, poverty alleviation, and equitable development.
Historical Context of Planning
Rationale for Planning
- Colonial Exploitation: De-industrialization, agricultural stagnation.
- Poverty & Inequality: Widespread poverty, stark income disparities.
- Low Industrial Base: Limited heavy industries, import dependence.
- Agricultural Backwardness: Feudal land relations, low productivity.
- Infrastructural Deficit: Poor roads, railways, communication, power.
- Market Failures: Private sector lacked capital/incentive for long-gestation projects.
- Socialist Influence: Nehru's vision, inspired by Soviet planning success.
Early Initiatives & Proposals
M. Visvesvaraya's Plan (1934)
"Planned Economy for India" advocating democratic capitalism with industrialization focus.
National Planning Committee (NPC) (1938)
Chaired by Nehru, emphasized state intervention, set up by INC under Subhash Chandra Bose.
Bombay Plan (1944)
By 8 industrialists, proposed significant state intervention, aimed to double per capita income in 15 years.
Gandhian Plan (1944)
By S.N. Agarwal, emphasized decentralization, village self-sufficiency, cottage industries.
People's Plan (1945)
By M.N. Roy, Marxist-inspired, advocated nationalization of agriculture and state control.
Sarvodaya Plan (1950)
By Jaiprakash Narayan, Gandhian principles, decentralized participatory planning.
The Planning Commission (1950-2014)
Establishment & Structure
- Established: March 1950, by an executive resolution (non-constitutional, non-statutory).
- Recommendation: Advisory Planning Board (1946) chaired by K.C. Neogy.
- Chairman: Prime Minister (ex-officio).
- Deputy Chairman: De facto executive head.
- Members: Full-time experts, part-time Union Ministers.
- National Development Council (NDC): Established Aug 1952 (executive resolution). Comprised PM, Union Cabinet, CMs, PC members. Apex body for plan approval and Centre-State cooperation.
Objectives & Role in FYPs
- Self-Reliance: Reduce dependence on foreign aid/imports.
- Poverty Alleviation: Raise living standards.
- Industrialization: Develop strong industrial base (heavy industries).
- Economic Growth: Achieve high growth in national/per capita income.
- Modernization: Adopt new technologies.
- Social Justice & Equity: Reduce income/regional disparities.
- Full Employment: Create sufficient opportunities.
- Role: Assessed resources, formulated plans, determined priorities, monitored progress, advised govt.
The Five-Year Plans: A Journey Through Decades
First Plan (1951-56)
PM: J. Nehru | Target: 2.1% | Actual: 3.6%
Focus: Agriculture, Irrigation (Harrod-Domar model).
Achievements: Price stability, agriculture boost, Bhakra-Nangal, Hirakud dams.
Second Plan (1956-61)
PM: J. Nehru | Target: 4.5% | Actual: 4.2%
Focus: Rapid Industrialization, Heavy Industries (Mahalanobis Model).
Achievements: Steel plants (Bhilai, Durgapur, Rourkela), Atomic Energy Commission. Failures: Neglect of agriculture, inflation, forex crisis.
Third Plan (1961-66)
PM: J. Nehru, L.B. Shastri | Target: 5.6% | Actual: 2.8%
Focus: Self-sufficiency in food grains, basic industries.
Failures: Wars (China 1962, Pak 1965), severe drought, lowest growth. Devaluation of Rupee (1966).
Plan Holidays (1966-69)
PM: Indira Gandhi | Avg. Growth: 3.9%
Reason: Due to crisis after 3rd plan.
Focus: Three Annual Plans, emphasis on agriculture, Green Revolution initiated.
Fourth Plan (1969-74)
PM: Indira Gandhi | Target: 5.7% | Actual: 3.3%
Focus: Growth with Stability, Progressive Self-Reliance.
Achievements: Nationalization of 14 banks (1969), MRTP Act 1969. Failures: Indo-Pak War (1971), oil crisis (1973), high inflation.
Fifth Plan (1974-79)
PM: Indira Gandhi | Target: 4.4% | Actual: 4.8%
Focus: Poverty Alleviation (Garibi Hatao), Self-Reliance.
Achievements: Emphasis on employment, 20-Point Programme. Terminated in 1978 by Janata Party.
Rolling Plan (1978-80)
PM: Morarji Desai | Actual: -5.2% (1979-80)
Concept: Introduced by Janata Party govt. Flexible annual targets updated yearly. Abandoned by new Congress govt.
Sixth Plan (1980-85)
PM: Indira Gandhi | Target: 5.2% | Actual: 5.7%
Focus: Strengthening infrastructure, poverty reduction.
Achievements: NABARD established (1982), IRDP. Start of economic liberalization (small scale).
Seventh Plan (1985-90)
PM: Rajiv Gandhi | Target: 5.0% | Actual: 6.0%
Focus: Food, Work, Productivity; Modernization.
Achievements: Focus on private sector, employment generation (Jawahar Rozgar Yojana). Growing fiscal deficit, BoP crisis brewing.
Annual Plans (1990-92)
PM: V.P. Singh, Chandra Shekhar, P.V.N. Rao | Actual: 1.1% (1991-92)
Reason: Political instability, BoP crisis.
Key Event: Economic reforms initiated in 1991.
Eighth Plan (1992-97)
PM: P.V.N. Rao | Target: 5.6% | Actual: 6.8%
Focus: Human Development, Liberalization (Indicative Planning).
Achievements: Successful implementation of LPG reforms, high growth. Panchayat Raj institutions strengthened.
Ninth Plan (1997-2002)
PM: I.K. Gujral, A.B. Vajpayee | Target: 6.5% | Actual: 5.4%
Focus: Growth with Social Justice and Equity.
Failures: Impact of Asian Financial Crisis, Pokhran-II sanctions, Kargil War. Slowdown in growth.
Tenth Plan (2002-07)
PM: A.B. Vajpayee, Manmohan Singh | Target: 8.0% | Actual: 7.6%
Focus: Monitorable targets for development, governance.
Achievements: Highest average growth rate. Focus on doubling per capita income in 10 years.
Eleventh Plan (2007-12)
PM: Manmohan Singh | Target: 9.0% | Actual: 8.0%
Focus: Towards Faster and More Inclusive Growth.
Achievements: Focus on education (RTE Act 2009), health (NRHM), environment. Failures: Global financial crisis (2008) impact.
Twelfth Plan (2012-17)
PM: Manmohan Singh, Narendra Modi | Target: 8.0% | Actual: 6.9% (revised est.)
Focus: Faster, Sustainable and More Inclusive Growth.
Key Event: Planning Commission dissolved in 2014, plan effectively ended.
Rolling Plan Concept (1978-80)
Introduced by Janata Party government. Envisaged a long-term perspective plan with an annually updated detailed five-year plan. Advantages: Flexibility, adaptability. Disadvantages: Instability, lack of long-term commitment. Abandoned in 1980.
Gadgil Formula (for plan assistance to states)
First adopted in 1969 for distributing Central Plan Assistance. Named after D.R. Gadgil. Objectives: Equitable resource distribution, reduce regional disparities. Criteria: Population, per capita income (inverse), fiscal management, special problems. Less central now with NITI Aayog and Finance Commission changes.
NITI Aayog: The Think Tank of New India
Establishment & Rationale
- Established: January 1, 2015, replacing Planning Commission via executive resolution.
- Rationale:
- Outdated centralized model ("One Size Fits All").
- Strained Centre-State relations.
- Lack of expertise in new economic complexities.
- Need for a "Think Tank" to foster cooperative federalism.
Structure and Composition
- Chairperson: Prime Minister of India.
- Vice-Chairperson: Appointed by PM (Cabinet Minister rank).
- Governing Council: CMs of all States & LGs of UTs (key for cooperative federalism).
- Regional Councils: Address specific regional issues.
- Members: Full-time experts, part-time from universities, ex-officio Union Ministers.
- CEO: Appointed by PM (Secretary rank).
Functions and Role
Policy Think-Tank
Provides strategic & technical advice to Central & State govts.
Cooperative Federalism
Fosters collaboration, moving from "Centre-to-State" to "Centre-and-States".
Competitive Federalism
Encourages healthy competition via performance-based rankings.
Monitoring & Evaluation
Monitors govt. programmes; DMEO is an attached office.
Knowledge & Innovation Hub
Repository of best practices, promotes research & innovation.
Design Policy Framework
Develops long-term strategic visions, medium-term strategies.
Key Initiatives & Reports
Strategic Plans
- 3-Year Action Agenda (2017-20)
- 7-Year Strategy (New India @75, 2018-2023)
- 15-Year Vision (Amrit Kaal Vision India@2047 - in progress)
Indices and Reports
- SDG India Index & Dashboard
- Composite Water Management Index (CWMI)
- State Health Index, School Education Quality Index (SEQI)
- India Innovation Index, Export Preparedness Index (EPI)
- National Multidimensional Poverty Index (MPI)
Key Programmes
- Aspirational Districts Programme (ADP) (112 districts)
- Aspirational Blocks Programme (ABP) (500 blocks)
- Atal Innovation Mission (AIM)
- Women Entrepreneurship Platform (WEP)
Current Affairs & Recent Developments
National MPI Progress Review (July 2023)
Reported 13.5 crore people moved out of multidimensional poverty between 2015-16 and 2019-21, based on NFHS data.
Export Preparedness Index (EPI) 2022 (July 2023)
Tamil Nadu topped among states. Assessed states on policy, business ecosystem, export ecosystem, and performance.
Aspirational Blocks Programme (ABP) (Jan 2023)
Launched for 500 blocks across 31 states/UTs, extending ADP principles to block level development.
NITI for States Platform (Oct 2023)
A comprehensive digital public infrastructure (DPI) offering data, best practices, and policy insights for states.
Viksit Bharat @2047: Voice of Youth (Dec 2023)
Initiative to invite ideas from youth for India's vision of a developed nation by 2047. NITI Aayog involved in roadmap development.
Focus on Green Growth & State Support Mission
NITI Aayog involved in policies for green hydrogen, circular economy, and promoting State Institutions for Transformation (SITs) in states.
Planning Commission vs. NITI Aayog
| Feature | Planning Commission | NITI Aayog |
|---|---|---|
| Establishment | March 1950 | January 1, 2015 |
| Nature | Centralized planning body, advisory (with financial clout) | Policy Think Tank, advisory, cooperative & competitive federalism promoter |
| Role of States | Limited, primarily in NDC meetings | Enhanced, through Governing Council, Regional Councils, direct consultation |
| Power to Allocate Funds | Yes, for plan expenditure | No direct power to allocate funds (Finance Ministry handles) |
| Policy Formulation | Top-down approach | Bottom-up and consultative approach (States as equal partners) |
| Approach | Prescriptive, "one size fits all" | Supportive, guiding, "knowledge hub" |
| Focus | Five-Year Plans, resource allocation | Long-term vision, strategy, monitoring, innovation, cooperative federalism |
Mains-ready Analytical Notes
Debate on Centralized Planning:
- Pros: Directed scarce resources to priority sectors, built foundational industries (e.g., steel, power – Mahalanobis model in 2nd FYP), initiated land reforms (though implementation varied), laid basis for Green Revolution infrastructure.
- Cons: Led to inefficiencies ("license-permit raj"), stifled private enterprise, regional disparities persisted, high capital-output ratios in public sector.
Continuity & Change: Initial plans (1st-3rd) heavily state-dominated. Post-1991 (8th Plan onwards), shift to indicative planning, greater role for private sector. NITI Aayog represents a further evolution, not a complete break from the idea of guided development.
Impact: Significant achievements in building industrial/agricultural base, but mixed record on poverty, employment, and equity.
Achievements: Created a framework for national development, significant infrastructure development, agricultural growth (Green Revolution era plans), development of S&T institutions.
Failures:
- Ineffective Land Reforms, Persistent Poverty & Inequality.
- Regional Disparities, Inefficiency & Bureaucracy ("License Raj").
- Fiscal Strain due to ambitious plans without adequate resource mobilization.
Reasons for Decline/Replacement: Economic liberalization (1991) reduced scope for centralized control. Rise of powerful state governments demanded greater say. Globalized economy required nimbler policy responses. The commission was seen as an anachronism.
Shifting Priorities: From heavy industry (2nd Plan) to agriculture and poverty (4th, 5th Plans), to human development and market orientation (8th Plan onwards).
Successes: Green Revolution, creation of a diversified industrial structure, expansion of education and health services.
Shortcomings: Persistent issues of implementation, leakages, corruption. Inability to generate sufficient employment for the growing labor force. Environmental concerns often overlooked in early plans.
Contemporary Relevance: While FYPs are gone, the idea of medium-to-long-term strategic thinking (as seen in NITI's 3, 7, 15-year documents) remains relevant for guiding public investment and policy direction.
Shift in Paradigm: From a "planner" to a "facilitator" and "enabler."
Cooperative Federalism: Governing Council provides a platform. Example: Consensus building on issues like GST. State Support Mission to create SITs.
Competitive Federalism: Indices (SDG India, Health Index) push states to perform better. Example: States like Gujarat, Karnataka often compete for top ranks. Cons: Could lead to "naming and shaming" without adequate capacity building for lagging states. Data quality can be an issue.
Think Tank Role: Providing policy inputs (e.g., on doubling farmers' income, electric mobility). Strategic documents provide a roadmap. Example: NITI's "Strategy for New India @75" outlined policy directions.
Monitoring & Evaluation (DMEO): Crucial for evidence-based policymaking. Example: DMEO's evaluation of Centrally Sponsored Schemes provides feedback for reforms.
Challenges for NITI Aayog: Ensuring its advice is heeded, maintaining genuine cooperative federalism, strengthening data collection, bridging gap between policy and implementation, often seen as lacking financial clout.
Impact of Reports/Indices: SDG India Index has successfully mainstreamed SDGs in state-level policy discourse. Aspirational Districts Programme shown positive results due to targeted monitoring and convergence.
UPSC Previous Year Questions (PYQs)
Prelims MCQs
Answer: (b) The Second Five-Year Plan
Explanation: The Second FYP (1956-61) was based on the P.C. Mahalanobis model, which emphasized rapid industrialization with a focus on heavy and capital goods industries.
Answer: (d) faster, sustainable and more inclusive growth
Explanation: The tagline for the 12th Five-Year Plan (2012-2017) was "Faster, Sustainable and More Inclusive Growth."
1. It is a constitutional body.
2. It is based on the principle of cooperative federalism.
3. The Prime Minister of India is the ex-officio Chairperson of NITI Aayog.
Select the correct answer using the code given below:
(a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
Answer: (b)
Explanation: NITI Aayog was established by an executive resolution, so it is not a constitutional body (1 is incorrect). It actively promotes cooperative federalism (2 is correct). The Prime Minister is the ex-officio Chairperson (3 is correct).
Mains Questions
- 1. "The establishment of NITI Aayog is a watershed moment in the evolution of Indian planning." Critically evaluate.
- 2. The nature of economic planning in India has undergone significant changes since its inception. Discuss the evolution of planning objectives and strategies, highlighting the key drivers of these changes.
- 3. NITI Aayog plays a critical role in fostering cooperative and competitive federalism. Elaborate with suitable examples. What are the challenges in this regard?
Practice Questions
Original MCQs for Prelims
1. It is an initiative of the Ministry of Rural Development aimed at improving socio-economic indicators in backward districts.
2. The programme focuses on 5 core themes: Health & Nutrition, Education, Agriculture & Water Resources, Financial Inclusion & Skill Development, and Basic Infrastructure.
3. NITI Aayog anchors the programme with support from Central Ministries and State Governments.
Which of the statements given above is/are correct?
(a) 1 and 2 only (b) 2 and 3 only (c) 3 only (d) 1, 2 and 3
Answer: (b)
Explanation: Statement 1 is incorrect; while it aims to improve socio-economic indicators, it is an initiative anchored by NITI Aayog, not solely the Ministry of Rural Development. Statement 2 lists the core themes correctly. Statement 3 is correct regarding NITI Aayog's role.
(a) A shift from a statutory body to an executive body.
(b) A shift from indicative planning to imperative planning.
(c) A shift from a body with financial allocation powers to a primarily advisory think-tank.
(d) A shift from focusing on cooperative federalism to focusing solely on competitive federalism.
Answer: (c)
Explanation: Both Planning Commission and NITI Aayog were/are executive bodies (not statutory unless an Act was passed). The shift was from a body that played a key role in financial allocations for Five-Year Plans to an advisory body focused on policy guidance and fostering federal cooperation/competition. Indicative planning was a feature of later FYPs, not something NITI Aayog moved away from towards imperative planning. NITI Aayog focuses on both cooperative and competitive federalism.
Original Descriptive Questions for Mains
- 1. "NITI Aayog was envisaged as a catalyst for transforming India's development landscape by fostering cooperative federalism and strategic foresight, moving beyond the legacy of the Planning Commission." To what extent has NITI Aayog lived up to this vision? Critically analyze.
- 2. The journey of economic planning in India reflects a transition from state-led developmentalism to a more market-oriented, collaborative approach. Discuss the key milestones in this transition and evaluate their impact on India's socio-economic development.