Pariksha SaathiLesson 2 of 10 · Indian Economy
Five-Year Plans, the Planning Commission and NITI Aayog
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Why India chose planning
At independence India had low incomes, a weak industrial base and mass poverty, and its leaders believed the state had to direct investment. Ideas of planning came earlier: M. Visvesvaraya's Planned Economy for India (1934), the National Planning Committee set up by the Congress in 1938 under Jawaharlal Nehru, the Bombay Plan of 1944 by leading industrialists, the Gandhian Plan of 1944 by S.N. Agarwal, the People's Plan of 1945 by M.N. Roy and the Sarvodaya Plan of 1950 by Jayaprakash Narayan. Economic and social planning is Entry 20 of the Concurrent List, but the Planning Commission itself was neither a constitutional nor a statutory body.
The Planning Commission and the NDC
The Planning Commission was set up on 15 March 1950 by a resolution of the Union Cabinet. The Prime Minister was its chairman, Jawaharlal Nehru being the first, and the Deputy Chairman was its working head, Gulzarilal Nanda being the first. Plans drafted by the Commission were approved by the National Development Council (NDC), formed in August 1952, which brought together the Prime Minister, Union Cabinet ministers and the Chief Ministers of the states. The Commission also decided plan assistance to the states; from the Fourth Plan this followed the Gadgil formula, later revised as the Gadgil-Mukherjee formula.
The early plans
The First Plan (1951-56) used the Harrod-Domar model and gave priority to agriculture, irrigation and power, including multipurpose river valley projects such as Bhakra-Nangal and Hirakud; it met its targets. The Second Plan (1956-61), based on P.C. Mahalanobis's model, pushed heavy and basic industry; the public sector steel plants at Bhilai (Soviet help), Rourkela (West German help) and Durgapur (British help) belong to it. The Third Plan (1961-66) aimed at a self-reliant and self-generating economy but failed because of the 1962 war with China, the 1965 war with Pakistan and the drought of 1965-66. Three annual plans followed in 1966-69, the first plan holiday.
From the Fourth to the Seventh Plan
The Fourth Plan (1969-74) aimed at growth with stability and progressive achievement of self-reliance; 14 major banks were nationalised in 1969, during this plan. The Fifth Plan (1974-79) put poverty removal (Garibi Hatao) and self-reliance first and introduced the Minimum Needs Programme; the Janata government ended it a year early, in 1978, and adopted a Rolling Plan (1978-80), an idea associated with Gunnar Myrdal. The Sixth Plan (1980-85) targeted poverty and employment, and the Integrated Rural Development Programme was extended across the country during it. The Seventh Plan (1985-90) stressed food, work and productivity. Political uncertainty and the balance of payments crisis then led to two annual plans in 1990-92, the second plan holiday.
From the Eighth to the Twelfth Plan
The Eighth Plan (1992-97) ran alongside the 1991 reforms and made human development the core of planning. The Ninth Plan (1997-2002) sought growth with social justice and equality. The Tenth Plan (2002-07) set monitorable targets for poverty, literacy and other social goals. The Eleventh Plan (2007-12) was titled Towards Faster and More Inclusive Growth and the Twelfth Plan (2012-17) Faster, More Inclusive and Sustainable Growth. The Twelfth was the last Five-Year Plan. As the private sector and markets grew, planning had already shifted from detailed central allocation towards indicative goals.
NITI Aayog
On 1 January 2015 a Cabinet resolution replaced the Planning Commission with the National Institution for Transforming India (NITI Aayog), after the Prime Minister announced the change on 15 August 2014. The Prime Minister is its Chairperson. Its Governing Council has the Chief Ministers of all states and of union territories with legislatures and the Lieutenant Governors of the other union territories, and in practice it has taken over the role of the NDC; Regional Councils meet for specific regions. The body is run by a Vice-Chairperson appointed by the Prime Minister, full-time members, up to two part-time members from universities and research bodies, up to four Union ministers as ex-officio members, and a Chief Executive Officer of the rank of Secretary, with experts as special invitees.
What NITI does differently
NITI Aayog is a policy think tank and advisory body, not an allocator of money; the power to give grants to states moved to the Finance Ministry. It follows cooperative federalism, treating states as partners, and a bottom-up approach in which plans are built from the village and district level upwards. It encourages competitive federalism through indices that compare states, evaluates schemes through its Development Monitoring and Evaluation Office, and hosts the Atal Innovation Mission (2016). Like the Planning Commission, it is neither constitutional nor statutory, having been created by an executive resolution.
Key facts
- Planning Commission: 15 March 1950 by Cabinet resolution; PM as chairman; first Deputy Chairman Gulzarilal Nanda; neither constitutional nor statutory.
- NDC formed August 1952 to approve the plans; members were the PM, Union Cabinet ministers and the Chief Ministers.
- First Plan 1951-56: Harrod-Domar model, agriculture and irrigation; Second Plan 1956-61: Mahalanobis model, heavy industry (Bhilai, Rourkela, Durgapur steel plants).
- Third Plan 1961-66 failed due to the 1962 and 1965 wars and the drought; annual plans 1966-69 = first plan holiday.
- Fifth Plan 1974-79: Garibi Hatao and the Minimum Needs Programme; ended early in 1978; Rolling Plan 1978-80 under the Janata government.
- Second plan holiday: annual plans 1990-92; Eighth Plan 1992-97 made human development the core of planning.
- Eleventh Plan (2007-12): faster and more inclusive growth; Twelfth Plan (2012-17): faster, more inclusive and sustainable growth - the last plan.
- NITI Aayog: 1 January 2015 by Cabinet resolution; PM is Chairperson; Governing Council of all CMs and LGs; CEO of Secretary rank; a think tank with no power to allocate funds.
- Pre-independence plans: Visvesvaraya 1934, National Planning Committee 1938 (Nehru), Bombay Plan 1944, Gandhian Plan 1944 (S.N. Agarwal), People's Plan 1945 (M.N. Roy).
Quick revision
Planning Commission 15 March 1950 (Cabinet resolution, PM chairman, Nanda first Deputy Chairman); NDC 1952; Plan 1 Harrod-Domar (agriculture), Plan 2 Mahalanobis (heavy industry), Plan 3 failed (wars, drought); plan holidays 1966-69 and 1990-92; Rolling Plan 1978-80; Plan 8 human development; Plan 12 (2012-17) last; NITI Aayog 1 Jan 2015: PM chairs, Governing Council, CEO, think tank, cooperative federalism, no fund allocation; Atal Innovation Mission 2016.