Economic Policies and the Planning Process of India

Read this article to learn about the Economic Policies and the Planning Process of India and Five-year Plans !

On 15^th August 1947 when India became independent politically, the country stood at the threshold of a new era.

The country at this stage was under-developed and its people were on the brink of poverty. Its vast resources, agriculture and minerals were unexploited due to lack of proper direction.

Planning offered the only way to achieve a rapid and balanced growth keeping the national priorities in mind. The state was now expected to play an active part in economic and social development. The success o,” such planned development in both agrarian and industrial sector in the USSR also played a part in popularizing the concept of planned development.

After the adoption of a new constitution, the government of India set up the Planning Commission in March 1950 to assess the country’s material, capital and human resources and to formulate a plan for the most effective and balanced utilization.

The first Prime Minister, Pt. Jawaharlal Nehru was also its first chairman. The Finance Minister and the Minister for planning were its essential members amongst other ministers in different capacities linked to economic development.

Some of the objectives outlined in these plans were maximization of national income, rapid industrialization, providing full employment and most importantly achieving self-sufficiency. The central purpose identified with the process of development was to raise the standard of living and opening out more opportunities to people.

Planning in India needed proper channelling of resources into different developmental activities in accordance with accepted national priorities. While short-term developmental objectives have varied from plan to plan, the planning process was in some ways inspired by certain long-term goals.

These are:

(a) High growth rate with a view to improve the standard of living. Due to the oppressive policies of the British, the country in the colonial period witnessed a retarded development. The standard of living of the people was very low. The general objectives of all the Five year plans have been to raise the standard of living and achieve a much higher growth rate of national income.

(b) Achieving social justice. As per the Directive Principles of State Policy laid down in the Constitution, achievement of justice- social, economic and political were proclaimed as a national commitment. The Five Year Plans being an inherent part of state policy, social justice figured as the most important objective in them.

Its purview covered the achievement of economic and social equality and regional balance in development and avoidance of concentration of economic power. Special care for the backward classes of the population is one of the targets for attaining social justice.

(c) Economic self-reliance. Political independence is never complete without economic independence. Self-reliance in this regard came as a natural objective of the successive Five Year Plans.

The emphasis was on achieving financial self-reliance. Its essence lay in the fact that the economy should be able to finance its continued growth at a satisfactory rate largely from domestic resources. Foreign and external help should be kept at minimum level.

However, a major policy change occurred in this regard from 1991 when the Government at the Center liberalized the economy and went all the way to attract foreign investments in order to modernize the economy faster.

The strategy for development included a comprehensive planning for all round development; a mixed economy approach to keep up the socialistic pattern of development; achieve a balanced development that would develop both agriculture and industry; provide maximum employment; cater to the development of backward areas; to uplift the backward classes and achieve overall social welfare.

First Five-Year Plan (1951-52 to 1955-56):

The first five-year plan had a two-fold objective:

1. To correct the disequilibrium in the economy caused by the Second World War and the partition of the country.

2. To initiate simultaneously a process of all round development which would ensure a rise in national income and a steady improvement in the living standards of the people.

The plan accorded the highest priority to agriculture, including irrigation and power projects. The plan also aimed at increasing the rate of investment from 5% to 7% of the national income. The growth rate achieved in this plan was 3.6%.

Second Five-Year Plan (1956-57 to 1960-61):

In December 1954, the Parliament declared the objective of the Second Plan to achieve the Socialistic Pattern of Society. The basic aim under this was to attain greater equality of income and wealth and not private profit.

It promoted a pattern of development that would lead to the establishment of a socialistic society in India. The benefits of the plan were directed towards the betterment of the less privileged than the progressive sections. The main objectives of the second plan were:

a. An increase of 25% in the national income.

b. Rapid industrialization with special emphasis on the development of basic and heavy industries.

c. Large expansion of employment opportunities.

d. Reduction of the inequalities in income and wealth and a more even distribution of economic power.

The Plan aimed at increasing the rate of investment from 7% to 11 % of the national income by 1960-61. This plan increased the scope of industrialization by increasing the production of iron and steel, heavy chemicals, development of heavy engineering and machine building industries.

For the first time long-term economic policy was formulated and loans were taken from foreign countries. The growth rate achieved was 4%. Rapid industrialization and diversification of the economy were the main course of development. The development of basic industries and allocation of resources among different sectors were also taken carefully.

Third Five-Year Plan (1961-62 to 1965-66):

The third Five Year Plan aimed at securing a marked advance towards self-sustaining growth. Its objectives were:

(a) Increase in the national income of over 5% per annum and at the same time ensure a pattern of investment that would sustain this rate of growth during subsequent plan periods.

(b) Achieve self-sufficiency in food grains and increase agricultural production to meet the re­quirements of the industry and exports.

(c) Expand the basic industries like steel, chemicals, fuel and power and to establish machine building ability so that requirement of further industrialization could be met within a period of ten years and that too from the country’s own resources.

(d) Utilize fully the manpower resources of the country and ensure a substantial expansion in employment opportunities.

(e)Bring down disparities of income and wealth and get a more equitable distribution of economic power.

The national income in this plan was to increase by about 30% by 1965-66 and per capita income by about 17% during the period. The growth rate stipulated at 2.2%. The Programmes of the second plan were carried over in the third plan too. The development of basic industries remained a fundamental concern to growth.

Annual Plans (1967, 1968, 1969):

The situation created by the Indo-Pak conflict, two successive years of severe drought, 1965-66 and 1966-67, devaluation of the currency in 1966, general rise in prices and erosion of resources available for plan purpose delayed the finalization of the fourth five year plan.

Instead three annual plans were formulated within the framework of the draft outline of the fourth plan. The main aim of this plan was to restore normalcy in the economy. The emphasis of these plans was to adopt irrigation projects along with the use of high yielding variety crops in the agricultural sector. In the industrial sector the stress was on the utilization of the existing capacity and on consumer goods industry.

Fourth Five-Year Plan (1969-70 to 1973-74):

The Fourth plan aimed at raising the standard of living of the people through programmes that would promote social justice and equality at the same time. The concentration of the plan was the welfare of the weaker sections of the society especially through employment and education. The rate of growth in national income was 3.3% per annum and the per capita income was 1.2% per annum. The performance in industry as well as agriculture was not satisfactory.

Fifth Five-Year Plan (1974-79):

The following objectives were stated under the fifth five-year plan:

a. Removal of poverty.

b. Achievement of economic self-reliance.

To achieve these objectives the procedure thought was to get a 5.5% overall rate of growth; expansion of productive employment; extended programmes of social welfare; emphasis on agriculture and basic industry with special attention to production for mass consumption; export promotion and substitution of imports.

The Fifth plan that was to be completed in March 1979 was completed earlier; by March 1978.This was the golden period for rural development as the largest funds were diversified for rural development. The rate of growth achieved was 5.2%.

Sixth Five-Year Plan (1980-85):

This plan accelerated the work for the removal of poverty, generation of gainful employment and technological and economic self-reliance. The plan targeted a growth rate of 5.2% and achieved it. It was successful in achieving the required industrial development and agricultural growth. It also achieved aims of social justice.

The plan undertook the development of underdeveloped areas of the country. It also concentrated on the refinement of technology. It was the first perspective plan of the country slated for a long term of fifteen years. It also saw a rapid growth in the service sector. About 94% of the cost of investments was met from the domestic resources projecting the self-reliance of the country.

Seventh Five-Year Plan (1985-90):

The sixth five-year plan provided the background for the next plan. The guiding principles of the plan continued to be growth, equity and social justice, self-reliance, improved efficiency and productivity. The policies to accelerate growth in food grains production, increase employment opportunities and raise productivity were pursued in this plan.

The rate of growth of 5.6% was kept for this plan. The strategy in the seventh plan to generate productive employment was to increase cropping intensities and extension of agriculture through use of new technologies. Emphasis was also given on various rural schemes for development.

Eighth Five-Year Plan (1992-97):

The Eighth plan had the following objectives:

a. Generating adequate employment to achieve near full employment level by the turn of the century.

b. Containing population growth through active scheme of incentives.

c. Eradication of illiteracy in the age group of 15 to 35 years.

d. Provision for health and availability of safe drinking water especially in villages.

e. Self-sufficiency in food and generation of agricultural surplus.

f. Strengthening the infrastructure in order to support growth process on a sustained basis.

The strategy for achieving the above mentioned goals was to be a mixture of new investments and correction of imbalances in different sectors and increasing investment efficiency. This plan also aimed at a 5.6% growth per annum. Much of the investments was to be met by capital inflow from abroad in the form of loans.

Ninth Five-Year Plan (1997-2002):

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 attract 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. Some of the objectives outlined in this plan were:

a. Priority to agriculture and rural development and generate productive employment and eradi­cation of poverty.

b. Accelerating the growth rate of the economy and keeping the prices stable.

c. Containing the growth rate of population.

d. Promoting and developing people’s participatory institutions like the Panchayati Raj and Co­operatives.

e. Strengthening efforts of building self-reliance.

Agrarian Reforms:

Independent India inherited a predominantly agrarian economy from the colonial period. At present 40% of the national income comes from agriculture and allied activities. It has remained the mainstay of the Indian economy and has provided a livelihood to a greater part of the population.

Agriculture occupies an important position with regard to industrial development. A steady and sustained agricultural base ensures a self sufficient and adequate industrialization too. Agriculture provides raw materials to industries. The growth of major industries as cotton, textile, jute, sugar etc. is affected by fluctuations in agriculture. It provides food grains to the industrial population by creating a marketable surplus.

Some of the distinguished features of Indian agriculture are as follows:

a. Inspite of being the principal industry, agriculture continues to be backward in character. The yield per hectare of land of all the principal crops produced in India is low. Productivity per worker is equally low.

b. Agriculture in India is largely carried on the basis of subsistence farming. The cultivator pro­duces mainly for himself and his family’s consumption. Thus generation of marketable surplus always remained as the focus of the planning for agriculture.

Mode of cultivation has always been primitive in India. The cultivator uses the same old tech­niques of production of the plough. The neglect of modern techniques for production also slowed down productivity in agriculture and it remains labour intensive.

Sub-division and fragmentation of land holdings remains a perpetual problem with Indian agri­culture. The larger family concept leads to division of family land into several divisions. These lands besides being small and unproductive fail to generate adequate surplus also.

Measures to improve agricultural production and productivity have come to be termed as agrarian reforms. Broadly two sets of measures are adopted. They are linked intricately with land ownership, tenancy and distribution measures.

i. Institutional measures

ii. Technological measures

Institutional Measures:

With reference to land reforms, it was necessary to have a land ownership pattern that is socially just and economically viable. The measures adopted for land reform were:

a. Abolition of intermediaries:

At the time of independence, three different types of land tenure system were prevailing in India – Zamindari, Mahalwari and Ryotwari. After independence the first important step that the government taken up was the abolition of intermediaries. The state Governments enacted legislations to take over the intermediary rights from zamindars. The abolition of intermediaries was effected by March 1968 and fully implemented in several states. It is said that about 30 million tenants benefited from the zamindari abolition.

Tenancy reforms in India had been conferred the benefit of security of land tenure by preventing large-scale eviction of tenants. Resumption of land by the owner for personal cultivation only, assuring a prescribed minimum area of land to the tenants has been provided for in the legislations.

Payment of rent by the tenants to the landlord had now been regulated. The rent varied from 1/3^th to 1/5^th of the gross produce. Provisions have been made in the tenancy legislation for conferment of ownership rights to tenants.

b. Ceiling on Land Holdings:

Land holdings were limited on a minimum as well as a maximum ceiling. The maximum limit has been fixed to do social justice. The minimum has been fixed to prevent uneconomic unit of cultivation. The ceiling on land has been enacted in most of the states in the post independence period.

Those possessing land beyond the maximum limit would have to surrender the surplus land to the state. People with uneconomic units, evicted tenants and landless workers are usually distributed these surplus lands. Through this ceiling of land the Government intends to minimize the concentration of economic power and wealth. It would ensure fuller utilization of workforce in agriculture and shall also enhance the social status of the rural poor.

c. Consolidation of Land Holdings:

In order to solve the problem of fragmented holdings, consolidation is one of the best measures. It means pooling together in one compact block all the plots of land of a farmer that are scattered all over the village. Not only does the cultivator get a compact portion of land but the total land or unit also remains the same.

This kind of operation not only makes agricultural production economic but also reduces the area of wasteland. By 1985 about 51.8 million hectare of land had been consolidated. It has led to more productivity and increase in the cultivable area by removal of boundaries. About fifteen states had passed laws on consolidation of land and this has led to the full utilization of agricultural land for cultivation.

(d) Cooperative Farming:

The main problem of agriculture in India is the practice of subsistence farming. Economic farming is far beyond the imagination of the Indian cultivator. A remedy in this regard is cooperative farming. Its essence lies in the retention of the rights of the individual
cultivator in his own land, at the same time carrying on the agricultural operations jointly. The main features of this kind of method are the following:

i. Land formed into a single unit.

ii. Land proprietorship remains with the individual cultivator.

iii. Management of land carried on jointly.

iv. Members are paid for their work.

v. Net profits are distributed amongst members but some of it is held back for building up reserves and resources.

In return the state offers its assistance to such a society by advancing loans for purchase of seeds, supply of manures and other necessary implements for cultivation. This has solved the problems of uneconomic farming to a great extent.

Technological Measures:

The initial plans did not provide any facility for improvement in farming techniques. Agricultural efficiency depends to a great extent on the input and method of cultivation practiced. The various branches of technological measures are:

a. Irrigation:

Adequate supply of water is the primary necessity for good agriculture. Geographically India receives substantial rainfall but that is often uncertain in volume, time and place and is not enough to sustain a stable agricultural base. Artificial irrigation thus becomes a necessity to improve agricultural production.

Irrigation being a key factor in agriculture helps to extend the net sown area in regions that receive scanty rainfall. It also promotes multi-cropping by making it possible to raise a second crop during dry seasons. It increases the gross cropped area. The main sources of artificial irrigation are canals, wells and tanks. During the seventh plan rapid expansion in irrigation facilities is considered to be a key element in agricultural procedures.

b. Fertilizers and Manures.

In order to increase agricultural productivity, fertilizers and manures played an important role. Previously animal dung, compost and bones and other organic manures were used to restore the nutrients of the soil. The land was also left fallow to rebuild its nutrients. In recent years the uses of chemical fertilizers have greatly added to agricultural productivity.

The consumption of fertilizers increased from 69,000 tonnes of nutrients in the first plan to 9.6 million tonnes by the end of the sixth plan. This varied use of improved fertilizers has increased the crop area and led to better productivity. To increase consumption of fertilizer the sixth plan aimed at ensuring equitable and efficient fertilizer distribution and to see that its benefits are received by all sectors of the farming community.

To ensure the fuller benefits of such manures adequate measures were taken to protect the crops from rodents and pests. Plant protection measures were also an important component of increasing crop yield.

Improved Seeds:

A great amount of improvement can be brought about by the use of better seeds in agriculture. The yield from better seeds is larger and the crop too sells for a better price.

To promote the use of better seeds the Government has set up the National Seeds Corporation. State Farms Corporations have also been established in 1969 to encourage the production and distribution of certified seeds.

Thirteen State Seeds Corporations have also been established to supply improved seeds to farmers. Improved varieties of seed have been discovered for practically all cereal crops and oil seeds, pulses, jute, cotton and sugarcane have been planted in high yielding varieties of seeds. The spread of high yielding technology based on fertilizer and irrigation responsive high yielding varieties of crops since 1960s commonly known as Green Revolution has greatly added to the output of wheat and rice.

The high yielding variety programme started as a part of the third plan and the annual plans had a lot of provisions for the improvement in agricultural productivity. The main emphasis under the HYVP was on improved variety of seeds for raising the yield per hectare of land. Total area under HYVP was 54.5 million hectare in 1984-85.

These now form a major strategy of agricultural development in India. The introduction of this programme had led to self-sufficiency in food production in India. At a point it was even proposed that such high yielding variety of seeds would be distributed free of cost to cultivators to improve the yield per hectare of land.

(d) Credit and Finance Facilities:

The average farmer in India is very poor. He is unable to improve cultivation on his own. Traditionally his borrowing agencies have been the moneylenders who extorted the maximum out of him to fill their pockets. But in the post independence era, agricultural production came under the supervision of the government and all intermediaries were removed.

Besides other assistance in agricultural operations, the average farmer was also advanced credit facilities to improve productivity. The farmer needed financial assistance to buy goods quality seeds, implements and agricultural machinery to carry on operations. The scheme of providing loans was made easy to facilitate the farmer to repay them.

Non- traditionally, cooperatives, credit societies and land development banks provide short, medium and long-term credit to the cultivators. These agencies provide loans at reasonable rate of interest.

The various agencies providing loans to farmers are the Agricultural Credit Societies. One of the earliest of such agencies are the Primary Agricultural Credit Societies (PACS) while the Land Development Banks were a source of long term loans to the farmers. The former were tied to the Central Cooperative Banks (CCB) and the latter to the State Cooperative Banks (SCB).

However the essence of cooperative structures was missing in these agencies. They were not self-sufficient and were dependent on each other for generating credit.

Gradually the Commercial Banks were realized as another source for rural credit. These Commercial Banks too provided loans on direct basis for short as well as long term. They provided loans for distributing fertilizers and other agricultural inputs.

A third field agency called the Regional Rural Banks (RRB) was introduced in October in 1975. Their role was to provide credit for agricultural and rural development where the other two agencies were weak. The RRBs were intended to be banks that the average man could afford. Scheduled banks usually public sector banks sponsor the RRBs.

The Reserve Bank of India and the State banks help the farmers only through these networks of cooperative institutions.

The National Bank for Agriculture and Rural Development (NABARD) has been the apex refinancing institution for agriculture and rural credit. The NABARD functions as a financing institution to the various SCBs and RRBs. Prior to the NABARD these refinancing functions were performed by the RBI.

Thus the role of credit institutions in advancing loans crucial to development of agriculture has been immense. It is primarily because of these facilities that agricultural operations have been launched in a big way by various categories of Indian cultivators.