JAIIB IE and IFS Paper-1 Module-A Unit-3 : Economic Planning in India & NITI Aayog

09/12/2023

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JAIIB Paper 1 (IE and IFS) Module A Unit 3: Economic Planning in India & NITI Aayog (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 1 (Indian Economy & Indian Financial System) includes an important topic called “Economic Planning in India & NITI Aayog ”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 1 (IE and IFS) Module A Unit 3: Economic Planning in India & NITI Aayog
Aspirants must go through this article to better understand the topic, Banker Customer Relationship and practice using our Online Mock Test Series to strengthen their knowledge of Banker Customer Relationship. Unit 3: Economic Planning in India & NITI Aayog

Definition Of Economic Planning

Economist H. D. Dickinson – “the making of major economic decisions–what and how much is to be produced and to whom it is to be allocated by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economic system as a whole.”
National Planning Committee, set up in 1938 by the Indian National Congress defined planning in India as “Planning, under a democratic system, may be defined as the technical coordination, by disinterested experts of consumption, production, investment, trade, and income distribution, in accordance with social objectives set by bodies representative of the nation. Such planning is not only to be considered from the point of view of economics, and raising of the standard of living, but must include cultural and spiritual values, and the human side of life.”
Planning is the skill of reaching any sort of objective utilising the resources at hand.

Types Of Planning

Depending on the goal, planning may be categorised into several types.
Territorial standpoint: Planning may be regional or national.
Political standpoint: Federal, state, or local.
Participation : Centralised or decentralised planning
Temporal standpoint: long-term or short-term.
Similarly, planning may be sectoral as well as geographical
Sectoral planning : Focuses on a single sector of the economy,
Spatial planning : Focuses on development in the geographical context (which aims at influencing the distribution of people and activities in places).
Some of the key forms of planning that are a part of the Indian planning process are as follows:

National Planning:

Joseph Stalin was the first person to implement the Five-Year Plan in the Soviet Union, in the year 1928-1933.
Various Industrialists came together in 1944 and drafted a joint proposal for setting up a planned economy in India. It is famously known as the Bombay Plan.
The government sought national strategy in order to take an active role in resource allocation and mobilisation for equitable growth and development as a result of the abject poverty.

Regional Planning:

1^st country : US in 1916
It was a huge success in achieving its well-defined goals.
Planning is implemented at the regional level and is targeted to a wide geographical area (i.e., a region consisting of rural and/or urban communities), guaranteeing optimal space utilisation and human activity distribution.

Objectives Of Economic Planning In India

In India, the primary goals of planning are not only broad, but also open-ended. However, the following are some of the broad objectives of planning in India.

Economic Growth: It aims for a sustainable growth in the economy’s output levels. Sustained growth in economic output, is one of the primary goals of planning in India.
Poverty Alleviation: One of the goals of Indian planning is to alleviate poverty. Several programmes aimed at alleviating poverty have been introduced in India, by all governments, till date.
Employment Generation: Fundamental goals of planning has been to reduce unemployment. Employment generation in India has therefore been an integral aspect of poverty alleviation programmed in India.
Social justice and reducing the inequalities: Economic disparities have far-reaching negative consequences in any society, and there were visible economic inequalities in India at both the interpersonal and intra-personal levels. By the time India started planning, economic planning was widely acknowledged, as a technique for addressing all types of economic inequities and injustices.
Self-reliant economy: Self-reliance was characterised as an endeavor, to combat a subservient position in the global economy, not as autarchy.
Modernisation of the economy: India’s plans prioritised the industrialisation . Began with agriculture, a traditional sector that necessitated the quick integration of modern farming, dairying, and other practices.

Note: Modernisation also refers to changes in social outlook such as the recognition that women should have the same rights as men.

History Of Economic Planning In India

By the 1930s, there was political agreement that independent India would be a planned economy
By early 1950s, India had begun economic planning.
Directed by five-year plans, with a mid-term review.
In unusual years of wars and other such crises, India has opted for yearly plans, commonly denoted as ‘plan holidays’, as a departure from five-year plans.
In 2015, – established the NITI (National Institution for Transforming India) Aayog, [nature of the economy had shifted to a market-dominated system and that state rights required to be prioritised, necessitating the establishment of a new structure with dynamic purposes.
Centralised Planning Procedure: Offers a broad framework for the economy’s developmental and investment requirements.
Also aims for equal resource mobilisation to accomplish targeted socioeconomic progress.

Planning Commission

In charge of planning in India since 1950.
Chairman : Prime Minister and headed by a Deputy Chairman [ Not a statutory entity]
Plans are approved for implementation by the National Development Council (NDC), which is chaired by the Prime Minister.
Meanwhile, the central government sought to redefine the parameters of decentralised planning throughout the
GoI established the NITI Aayog, to replace the Planning Commission.
This was done to better serve the needs and ambitions of the people of India
NITI Aayog, serves as the Government of India’s primary platform for bringing States together in national interest, fostering Cooperative Federalism.
Established as a Think Tank, to provide relevant strategic and technical assistance to governments at the federal and state levels, on a wide range of policy issues.

Five Year Plan	Highlights
First Five-Year Plan (1951-56)	§ The First Five Year Plan laid the thrust of economic development in India. § It was presented by the first Indian Prime Minister, Jawaharlal Nehru to the Parliament of India. § K.N Raj, a young economist, argued that India should “hasten slowly” for the first two decades. § It mainly addressed the agrarian sector, including investment in dams and irrigation. Ex- Huge allocations were made for Bhakhra Nangal Dam. § It was based on the Harrod Domar Model and emphasised increasing savings. § By the end of 1956, five Indian Institutes of Technology were established. § The target growth rate was 2.1% and the achieved growth rate was 3.6%.
Second Five Year Plan (1956-61)	§ The Second Five year Plan stressed rapid industrialisation and the public sector. § It was drafted and planned under the leadership of P.C Mahalanobis. § It emphasised quick structural transformation. § The government imposed tariffs on imports to protect domestic industries under this plan. § The target growth rate was 4.5% and the actual growth rate was slightly less than expected, 4.27%.
Third Five Year Plan (1961-66)	§ The focus was on agriculture and improvement in the production of wheat. § States were entrusted with additional development responsibilities. Ex- States were made responsible for secondary and higher education. § Panchayat elections were introduced to bring democracy to the grassroots level. § The target growth rate was 5.6% and the actual growth rate only achieved 2.4% § This indicated a miserable failure of the Third Plan, and the government had to declare “Plan Holidays” (1966-67, 1967-68, and 1968-69). The Sino-Indian War and the Indo-Pak War, which caused the Third Five Year Plan to fail, were the primary causes of the plan holidays.
Fourth Five-Year Plan: (1969-74)	§ It was introduced under the Prime Ministership of Indira Gandhi and attempted to correct the previous failures. § Based on Gadgil Formula, a great deal of emphasis was laid on growth with stability and progress towards self-reliance. § The government nationalised 14 major Indian Banks and the Green Revolution boosted agriculture. § The Drought Prone Area Programme was also launched. § The target growth rate was 5.6%, but the actual growth rate was 3.3%.
Fifth Five-Year Plan (1974-78)	§ It laid stress on increasing employment and poverty alleviation (garibi hatao). § In 1975, the Electricity Supply Act was amended, enabling the central government to enter into power generation and transmission. § The Indian National Highway System was introduced. § The Minimum Needs Programme introduced in the first year of this plan, aimed to provide basic minimum needs. MNP was prepared by D.P. Dhar. § The target growth rate was 4.4% and the actual growth rate turned out to be 4.8% § In 1978, the newly elected Morarji Desai government rejected this plan.
Rolling Plan (1978-80) This was a period of instability. The Janata Party government rejected the fifth five-year Plan and introduced a new Sixth Five-Year Plan. This, in turn, was rejected by the Indian National Congress in 1980 upon Indira Gandhi’s re-election. A rolling plan is one in which the effectiveness of the plan is evaluated annually and a new plan is created the following year based on this evaluation. As a result, throughout this plan, both the allocation and the targets are updated.
Sixth Five Year Plan (1980-85)	§ It underlined the beginning of economic liberation by eliminating price controls. § It was seen as the end of Nehruvian Socialism. § To prevent overpopulation, family planning was introduced. § On the recommendation of the Shivaraman Committee, the National Bank for Agriculture and Rural Development was established. § The target growth rate was 5.2% and the actual growth rate was 5.7%, implying that it was a success.
Seventh Five Year Plan (1985-90)	§ This plan was led by the Prime Ministership of Rajiv Gandhi. § It laid stress on improving Industrial productivity levels through the use of technology. § Other objectives included increasing economic productivity, increasing the production of food grains and generating employment by providing Social Justice. § The outcome of the Sixth Five-Year Plan provided a robust base for the success of the seventh five-year plan. § It emphasised anti-poverty programmes, the use of modern technology, and the need to make India an independent economy. § It focused on attaining prerequisites for self-sustained growth by 2000. § The target growth rate was 5.0%. However, the actual growth rate grew to reach 6.01%
Annual Plans (1990-92) The Eight Five Year Plan was not introduced in 1990 and the following years 1990-91 and 1991-92 were treated as Annual Plans. This was largely because of the economic instability. India faced a crisis of foreign exchange reserves during this time. Liberalisation, Privatisation, Globalisation (LPG) was introduced in India to grapple with the problem of the economy under prime minister P.V Narasimha Rao.
Eighth Five Year Plan (1992-97)	§ The Eighth Plan promoted the modernisation of Industries. § India became a member of the World Trade Organisation on 1 January 1995. § The goals were to control population growth, reduce poverty, generate employment, strengthen the development of infrastructure, manage tourism, focus on human resource development etc. § It also laid emphasis on involving the Panchayats and Nagar Palikas through decentralisation. § The target growth rate was 5.6% but the actual growth rate was an incredible 6.8%.
Ninth Five Year Plan (1997-2002)	§ It marked India’s fifty years since Independence and Atal Bihari Vajpayee led the prime ministership. § It offered support for social spheres to achieve complete elimination of poverty and witnessed the joint efforts of public and private sectors in guaranteeing economic development. § The focus was also to balance the relationship between rapid growth and the quality of life for the people. § The objectives, further included, empowering socially disadvantaged classes, developing self-reliance and primary education for all children in the country. § Strategies included enhancing the high rate of export to gain self-reliance, efficient use of scarce resources for rapid growth etc. § The target growth rate was estimated at 7.1% but its actual growth rate fell shorter to 6.8%
Tenth Five Year Plan (2002-07)	§ The features of this plan were to promote inclusive growth and equitable development. § It intended for an 8% GDP growth per year. § It aimed at reducing the poverty by half and creating employment for 80million people. Further, it aimed to reduce regional inequalities. § It also emphasised reducing the gender gaps in the field of education and wage rates by 2007. § The target growth rate was 8.1% while the actual growth was 7.6%.
Eleventh Five Year Plan (2007-2012)	§ The Eleventh Plan was significant in its aim to increase enrolment in higher education and focused on distant education as well as IT institutes. Ex: The Right to Education Act was introduced in 2009, and came into effect in 2010, making education free and compulsory for children aged between 6-14 years. § Its main theme was rapid and more inclusive growth. § It is aimed at environmental sustainability and reduction in gender inequality. § C.Rangarajan prepared the Eleventh Five Year Plan. § The focus was also laid on providing clean drinking water for all by 2009. § The target rate was 9% and the actual growth rate was 8%.
Twelfth Five Year Plan (2012-17)	§ The last Five Year Plan had “Faster, More Inclusive and Sustainable Growth” as its theme. § The plan aimed at strengthening infrastructure projects, and providing electricity supply in all villages. § It also aimed at removing the gender and social gap in admissions at school and improved access to higher education. § Further, it aspired to enhance the green cover by 1 million hectares each year and to create new opportunities in the non-farming sector. § The target growth rate was 9% but in 2012, National Development Council approved a growth rate of 8% for this twelfth plan.

Assessment Of Five-Year Plan Performance

Fundamental goal : To raise national income as well as per capita income.
However, both national and per capita income growth were quite modest during the planning era.
7 of the 12 five-year plans experienced lower growth rates than expected.
Growth rates were modest during the first three decades of planning, but then picked up.
Massive fluctuations were another aspect of growth story.
Negative per capita income growth has recorded in times such as 1971–72 and 1991–92.
Agriculture growth has indeed been highly volatile, due to the change in environmental factors. The green revolution of the 1960s and the government’s efforts to promote agriculture via different programmes have worked splendidly for the country.
Today, India, has not only attained self-sufficiency in food grains production, but also a leading exporter of many agricultural products.
With the expansion of the iron and steel, machine tool, and heavy engineering industries, India has made major strides toward capital equipment self-sufficiency.
Engineering items account up a significant portion of India’s exports, contributing for around 86 per cent of overall merchandise exports.

National Institution For Transforming India (Niti Aayog)

Established: January 1, 2015, by a resolution of the Union Cabinet.
Government of India’s top policy “Think Tank,” offering both directional and policy suggestions.
Gives relevant technical assistance to the Centre and States in designing strategic and long-term policies and programmes for the Government of India
NITI Aayog serves as the Government of India’s central platform for bringing states together to work in the national interest, fostering Cooperative Federalism.
The creation of NITI Aayog is focused on two hubs:

i)Team India

ii)Knowledge and Innovation Hub.

Team India Hub : coordinates state involvement with the central government, while the Knowledge and Innovation Hub : strengthens NITI’s think-tank capabilities.
These hubs reflect the NITI Aayog’s two primary responsibilities.
NITI Aayog is also transforming itself into a cutting-edge resource centre, with the requisite resources, expertise, and abilities to move quickly, promote research and innovation, provide strategic policy vision for the government, and cope with unforeseen situations.
Chairman : Prime Minister.

Govering Council

Functions of NITI Aayog

NITI Aayog has following important functions to perform:

To develop a shared vision of national development priority sectors and strategies, with active state participation, in the light of national objectives.
To promote cooperative federalism on a constant basis through organised support programmes and process with the states, understanding the strong states make a strong nation.
To create procedures for developing viable plans at the village level and gradually aggregating these at higher levels of government.
To ensure that national security considerations are included into economic strategy and policy in areas explicitly referenced to it.

To give special attention to those segments of our society, who may be at danger of not benefiting adequately from economic advancement.
Create strategic and long-term policy and programme frameworks and initiatives, as well as track their development and efficacy. Lessons learned through monitoring and feedback will be utilised to make novel changes, including midcourse adjustments.
To give guidance and foster collaboration between important stakeholders and like-minded think tanks on a national and worldwide level, as well as educational and policy research organisations.
To establish a collaborative network of national and international specialists, practitioners, and other partners to encourage knowledge, innovation, and entrepreneurship.
To provide a forum for the resolution of cross-sectoral and cross-departmental issues in order to expedite the execution of the development plan.
Maintaining a cutting-edge Resource Centre, serving as a repository for research on good governance and best practices, in sustainable and equitable development, and assisting in their dissemination to stakeholders
Actively monitor and assess programme and initiative execution, including the identification of required resources, in order to increase the likelihood of success and scope of delivery.
To concentrate on technological advancement and capacity building for programme and initiative execution.
To carry out any additional actions that may be required to enhance the implementation of the national development strategy and the previously indicated goals.

The case for NITI Aayog

Planning Commission-not in tune with new development strategy

The Planning Commission is out of sync with the current development strategy:

Over the years, there were two inconsistencies between the Indian development strategy and the five-year planning model that hampered the economic climate.
- 1^st : Between the planning framework and the market’s role.
- In the early years after independence, a planning framework was necessary to distribute the low levels of savings to invest in badly needed infrastructure and priority sectors in order to overcome serious infrastructure deficiencies and the economy’s lack of competitiveness.
- However, the framework did not adjust to the transition phase, following the 1991 economic reform era.
- With budgetary restrictions tightening and political economic concerns crowding out infrastructure expenditure with subsidies and transfers, the planning process has lost much of its importance.
- 2^nd: between centralised authority over resource allocation and the states’ developmental role, in a federal system of government.
- The loss of single-party dominance, as well as the rise of coalition governments and regional parties as members of the central coalition, highlighted the conflict between centralised planning in a federal structure.
- As a result of the above, the two major sources of economic dynamism, the private sector and the states, were forced to operate in a limited environment.