Poverty under Planning

Describing the manner in which poverty is incorporated as a parameter in planning, this chapter delineates the use of poverty estimates in policy-making, and in tracking progress of development over time and space. It dwells on the methodological issues related to measurement of poverty, and identification of poor households, comprehensively summarizing the debates surrounding it. Viewing the pace of poverty reduction as the ultimate test of planning, it quantifies the level and change in poverty since the 1970s. It analyses the state of poverty at national and state level, and assesses the impact of economic growth and income redistributive measures on poverty reduction. It brings out that the phenomenal decline in poverty in the reforms-era took place exclusively due to increase in income, eventuated by high rate of economic growth. Finally, it states that despite the decline, poverty remains a major concern.

Growth, Investment, and Savings in Five Year Plans

This chapter visits major macroeconomic parameters, such as gross domestic product, savings, and investment, and studies their movement, especially the peaks and troughs in the six decades of planning, 1951–2011. The growth performance of the economy is assessed by comparing the realized growth rate with the target set in the Five Year Plans. It identifies the periods when the growth rate failed to meet the target, and pinpoints the reasons behind the shortfall. The growth rates are measured for agriculture, industry, and services sectors, and the structural changes in the economy are explored. Tracing the course of investment in the public and private sector in the mixed-economy framework, it shows how the share of these two sectors in total investment and domestic product altered over time. Finally, it unfolds the nexus between savings, investment, and economic growth that is evident in different phases of the Plan periods.

Planning, Mixed Economy, and Jawaharlal Nehru

This chapter discusses the circumstances which led the political leaders to adopt planning and use it as an instrument of policy in economic and social reconstruction in India after Independence. It elucidates how planning was initiated to modernize India’s resource-constrained, stagnant, and decaying economy, and dove-tailed with the mixed economy approach. It argues that the decision to use planning and the antecedent role to the state and the public sector was not taken by Prime Minister Jawaharlal Nehru alone, as it also came from contemporary leaders. It dispels the notion that the planning model employed by the Soviet Union was straightjacketed in India. Appraising Nehru’s engagement with planners and policymakers, it refers to events that may have shaped his decision to rely on planning, in the context of India’s growth and development strategy that sought to increase income and improve the living standards of its people.

Growth and Development in Pre-reform Period

The first four decades of planning are characterized by rigid state control and regulation on economic activities. This period witnessed the syndrome of low savings–investment and low growth rate. This chapter makes a crtitical assessment of the features of planning and concludes that the state control and regulation retarded the growth rate in this period, especially in industries. Observing that the policies in this four-decade period traversed from forceful attempts by the state to capture the commanding heights of the economy and nationalization of private enterprises in the 1960s and 1970s to initiate measures to widen the scope of the private sector and extending its area of operation in economic activities in the 1980s, it goes on to detail some of the events, which placed the Indian economy on a sound footing despite the average growth rate being low.

Indian Economy in the 2010s

This chapter deals with the state of the Indian economy in the 2010s. The growth scenario in the 2010s began with a promising note but ended in disappointment. The annual growth rate is U-shaped in the first half while downward sloping in second half. The first half depicted high inflation and policy paralysis, whereas second half witnessed low inflation and policy activism. It argues that retardation of growth rate in second half is a part of cyclical process, but it may take more time to recover because the government has taken certain decisions, whch are akin to throwing spanners to growth and also there is misplaced emphasis in areas that lost the focus on growth. It suggests simultaneous use of monetary and fiscal policies to lift the growth rate to the medium-term trend, and comments that the decline in growth has impacted adversely on employment and poverty.

Mathematical Models behind the Five Year Plans

Mathematical models have been used to spell out development priorities and determine sectoral growth profiles in the Five Year Plans. The models used in the pre-reform period belong to the family of growth and investment model. This chapter discusses the basic features of the Mahalanobis model, which was used in the Second Plan, and describes the manner in which input–output based consistency models were used in the Fifth to the Eighth Plans. It gives an overview of the macroeconomic model and input–output model used in Plan formulation in the period of economic reform. The idea is to enable the general readers to be acquinted with the manner and method of employing these models in different stages of Plan formulation, and to understand how intuitively the targets in different areas and sectors of the economy are fixed.

Planning for Growth and Development

This chapter spells out the process of Plan formulation in India since Independence, with its turns and twists, to maximize the rate of economic growth, ensure its sustainability, and improve the standard of living of the people. It delineates the change in form and content of planning from state control on economic activities to neo-liberal economic reform measures, which placed reliance on market mechanism. Describing the roles of central and state governments in the formulation of Five Year Plans, it outlines the proactive role of the state in the pre-reform period. It shows how under economic reform, the space of production and trade relinquished by the state was filled by the private sector, and the major responsibility of growth was transferred to it. It summarizes the role of planning in a market economy and indicates certain issues, which make state intervention in markets a justifiable necessity.

Economic Reform and Inclusive Growth

This chapter discusses the backdrop against which economic reform measures were initiated in 1991, marking a paradigm shift in the approach to planning from that pursued in the previous four decades, 1951–90. It dwells on how market mechanism replaced different agents of the government as dominant decision-makers, and the manner in which different areas and sectors of the economy were integrated with the reform process. It analyses the features of growth in the two decades of reform, 1991–2011, identifies factors that drive the growth rate to a higher trajectory, and evaluates the impact of reform measures on the rate and pattern of growth and equity. Taking note of the concern about social problems arising from market mechanism, it makes an assessment of the measures taken by the government to strengthen income redistributive programmes, so as to ensure that economic growth becomes inclusive.

Introduction

India, after seven decades of independence, found itself in the position of the fifth-largest economy in the world, with nominal gross domestic product (GDP) of USD 2.94 trillion in 2019. It is also the fastest-growing trillion-dollar economy in the world. India’s rank would have been third if GDP across the countries was compared in terms of purchasing power parity. But, in per capita terms, India falls way behind most of the member countries of the World Bank. However, this should not negate the expansion of the Indian economy that has taken place since Independence....