ECONOMIC PLANNING

Economic Planning 

Definition: Economic planning can be defined as making major economic decisions (what, how and for whom) by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economy as a whole.

• A system where a central authority, in this case, the Planning Commission, now NITI Aayog, in India sets a set of targets and mentions programs to be achieved within a specific period of time.
• For the development of the Indian economy, it was necessary for the government to plan for the economy, known as Economic planning.
• The purpose of the commission is to carefully assess the human and physical resources of the country and to prepare the plans for the effective use of resources.
• The planning commission fixed the planning period at 5 years, which began the era of ‘five-year plans’.

Need for Planning:

Owing to the backwardness and stagnation in the economy, it could not be left in the hands of market forces of supply and demand to make way for growth and development. A heavy investment supported by the government was required and therefore Planning in India was needed.

Directive & Comprehensive Planning:

• Directive Planning: System of planning where planning is used to direct the forces of supply and demand. There is no direct participation of the state in the process of growth; it is solely there for ensuring law and order. This principle is mostly pursued in capitalist economies.
• Comprehensive Planning:  System in which government participates in the process of growth and development. This planning is mostly pursued in mixed and socialist economies.

LONG PERIOD AND SHORT PERIOD GOALS

• Long Period Goals- Common to all Five-year plans and studied as Objectives of Planning.
• Short Period Goals- Plan-Specific and studied as Objectives of Plans.

Long period and short period objectives should not contradict each other and be coordinated.

Long Period Goals/Objectives

• GDP Growth- An increase in GDP means an increase in the level of output, which further means an increase in the flow of goods and services. A consistent increase in the flow of goods and services in an economy for a long period is called Economic growth; therefore, an increase in GDP is equal to an increase in economic growth. This increase depends upon increasing the resource base of the country and an increase in productivity through innovative technology.
• Full Employment- it is a situation where people who are willing to work and able to work at the given market wage rate. This leads to ‘inclusive growth’, achieving the motive of growth and social justice together
• Equitable Distribution or Equity- Economic growth becomes meaningless if only a few people receive its benefits; therefore, it should reach all sections of the society in order to become equitable.
• Modernization - Means updating and adopting modern technology. For example the Green Revolution, and IT Revolution. Modernization in terms of social outlook as well for example women empowerment.
• Self-Sufficiency- This means dependence on domestically produced goods, primarily food grains so the country is not exposed to any political pressure from the rest of the world.

Short Period Goals/Objectives

• This depends on the current needs of the economy.
• Initially started with First plan focusing on higher agricultural production,
• The second plan focused on the industry, Third self-sufficiency and fuller utilization of labor and so on.
• They have to complement the long period goals and objectives, be coordinated with them and not contradict them.

GOALS OF FIVE-YEAR PLANS

The five-year plans have been concerned with the removal of the economic backwardness of the country and making India a developed economy. The five-year plans have also been taken care of to ensure that the weaker sections of the population benefit from the economic progress of the country.

• The first five-year plan was launched for a period starting from 1" April 1951 and ending on 31 March 1956.
• Each five-year plan listed the basic Goals of India's development, which served as the guiding principles of Indian planning.

These basic goals are:

• Growth
• Modernization
• Self-reliance
• Equity

Growth

• Growth refers to an increase in the country's capacity to produce the output of goods and services within the country.
• Growth implies:

• Either a larger stock of productive capital.
• A larger size of supporting services like transport and banking
• An increase in the efficiency of productive capital and services.

• A good indicator of economic growth, in the language of economics, is a steady increase in the Gross Domestic Product (GDP).
• GDP refers to the market value of all the final goods and services produced in the country during a period of one year. An increase in GDP or availability of goods and services enables people to enjoy a more rich and varied life.
• In some countries, growth in agriculture contributes more to GDP growth, while in some countries; growth in the service sector contributes more to GDP growth.
• The contribution of each sector makes up the structural composition of the economy. 

Modernization

Modernization includes:

• Adoption of New Technology: Modernisation aims to increase the production of goods and services through the use of new technology. For example, a farmer can increase the output on the farm by using new seed varieties instead of using the old ones. Similarly, a factory can increase output by using a new type of machine.
• Change in social outlook: Modernisation also requires a change in social outlooks, such as gender empowerment or providing equal rights to women. A society is prosperous if it makes use of the talents of women in the workplace.

Self-reliance

• Self-reliance under Indian conditions means overcoming the need for external assistance. In other words, it means to have developed through domestic resources.
• To promote economic mote economic growth and modernization, the five-year plans stressed the users own resources, in order to reduce our dependence on foreign countries.
• The policy of self-reliance was considered a necessity because of two reasons.
  • To reduce foreign dependence: As India was recently freed from foreign control, it is necessary to reduce our dependence on foreign countries, especially for food. Therefore, stress should be given to attain self-reliance.
  • To avoid Foreign Interference: It was feared that dependence on imported food supplies, foreign technology and foreign capital might increase foreign interference in the policies of our country.

Equity

• It is important to ensure that benefits of economic prosperity are availed by all sections (rich as well as poor) of the economy.
• In addition to the objectives of growth, modernization and self-reliance, equity is also important
• According to Equity, every Indian should be able to meet his or her basic needs (food, house education and health care) and inequality in the distribution of wealth should be reduced.
• In short, Equity aims to raise the standard of living of all people and promote social justice.