Planning Commission & Niti Ayog : The
Torch Bearer for the Economic Development Of India
Author : CA A. K. Jain
-Chapter Headings-
A. Preamble : Planning Commission
B. Evolution of the Five-Year Plans
C.
Shortcomings :
1.
Bureaucratic Inefficiencies and Red Tape :
2. Inefficient Public Sector Enterprises :
3. Lack of Incentives for Innovation and Efficiency :
4. Balance of Payments Crisis :
5. Heavy Subsidies and Deficit Financing :
6. Underperformance of Agriculture :
7. Global Comparison :
8. Dependency on Foreign Aid :
9. Regional Disparities :
10. Environmental Concerns :
D. Key
Achievements of Five Yearly Planning :
1. Industrial Development :
2. Agricultural Growth :
3. Infrastructure Development :
4. Social Sector Advances :
5. Transition to Market Economy :
6. Sustainable Development Goals (SDGs) :
7. Decentralized Planning :
8. Innovation and Technology :
Preamble : Niti Aayog, The Think Tank
A.
Accomplishment Credited to NITI Aayog
1. Policy Innovation :
2. Ease of Doing Business :
3. Aspirational Districts Program :
4. Digital Transformation :
B. Scope
for Improvement :
1. Policy Implementation Monitoring :
2. Data-Driven Decision Making :
3. Collaboration with States :
4. Innovation and Technology Integration :
5. Public Awareness and Feedback Mechanisms :
6. Evaluation and Impact Assessment :
7. Sustainable Development Goals (SDGs) Integration :
8. Inequality and Regional Disparities :
9. Criticism of Consultative Process : Economic
Planning In Other Countries 1. India : 2. United States : 3. China : 4. Russia : 5. Australia and Canada :
Conclusion
Preamble
The Indian
Five-Year Plans were a series of comprehensive economic development
initiatives implemented by the Indian government since independence in
1947. Initially inspired by the Soviet model of mixed economy or socialist
pattern with centralized economic planning, India's planning system aimed
to achieve rapid industrialization, technological advancement, and social
welfare. This concept due to inherent limitations and weakness failed to
deliver.
The failure
of the mixed economy or socialist pattern in India can be attributed to
bureaucratic inefficiencies, unproductive public sector enterprises, lack
of innovation, fiscal deficits, and a severe balance of payments crisis.
The economic reforms initiated in 1991 marked a significant shift towards
a more market-oriented economy, leading to improved growth rates, reduced
poverty, and greater integration with the global economy.
With
economic liberalization reforms initiated in 1991, India shifted towards a
market-oriented economy, reducing the centrality of Five-Year Plans in
economic policy formulation. Subsequently, the Planning Commission, which
formulated the Five-Year Plans, was replaced by the NITI Aayog (National
Institution for Transforming India), signalling a departure from the
centralized planning model towards a more decentralized and flexible
approach to economic development.
Evolution of the Five-Year Plans
The first
Five-Year Plan (1951-1956) focused on agriculture, power, and social
services, aiming to achieve a growth rate of 2.1%. Subsequent plans
shifted emphasis towards heavy industries, infrastructure, and
self-reliance, with varying success rates. The planning process evolved
with each plan incorporating feedback and adjusting priorities based on
changing economic circumstances. Some of the major shortcomings and
achievements are mentioned below.
Shortcomings : The mixed economy or socialist pattern of economy
adopted by the Indian government after independence in 1947 was designed
to combine the strengths of both the public and private sectors. However,
several factors contributed to its limited success and eventual need for
significant economic reforms. Here are some key reasons for limited
success of five year centralised planning.
1.
Bureaucratic Inefficiencies and Red Tape :
The Indian economy was heavily regulated through the License Raj, which
required businesses to obtain numerous permits and approvals to start and
operate. This system led to significant delays, corruption, and stifling
of entrepreneurship. One of the significant criticisms of the Five-Year
Plans is the gap between planning and implementation. Many projects faced
delays, cost overruns, and inefficiencies due to bureaucratic red tape,
corruption, and lack of coordination among various stakeholders.
2.
Inefficient Public Sector Enterprises :
Many public sector enterprises were poorly managed, leading to low
productivity and financial losses. These enterprises often became bloated
with excessive staffing due to political pressures.
3. Lack
of Incentives for Innovation and Efficiency :
Heavy state control over key sectors reduced competition and incentives
for innovation. Private sector participation was limited, leading to
technological stagnation. For example , in the automotive sector, lack of
competition meant that Indian consumers had limited choices and faced high
prices for substandard vehicles.
4.
Balance of Payments Crisis :
By the late 1980s, India faced a severe balance of payments crisis.
Foreign exchange reserves dwindled to the point where they could cover
only a few weeks of imports. In 1991, India's foreign exchange reserves
had plummeted to less than $1 billion.
5. Heavy
Subsidies and Deficit Financing :
The government’s emphasis on subsidies and welfare programs without
corresponding revenue generation led to high fiscal deficits. For an
example, the agricultural sector received substantial subsidies, but
without accompanying reforms, this led to inefficiencies and distortions
in the market.
6.
Underperformance of Agriculture :
While the Green Revolution initially boosted agricultural production, it
later faced diminishing returns due to lack of further technological
innovation and investment.
7. Global
Comparison :
Countries like South Korea, Taiwan, and later China, adopted more
market-oriented reforms earlier and witnessed rapid economic growth and
poverty reduction. South Korea’s GDP per capita grew from about $100 in
1960 to over $10,000 by 1990, whereas India’s grew much more slowly.
8.
Dependency on Foreign Aid :
In the initial stages, the plans heavily relied on foreign aid and
assistance, which raised concerns about sovereignty and long-term
sustainability. The Second Five-Year Plan (1956-1961) saw substantial
assistance from countries like the Soviet Union and the United States.
9.
Regional Disparities :
Development remained uneven across regions, with disparities among
different states. The benefits of economic development were often unevenly
distributed, exacerbating income inequality and disparities between urban
and rural areas. States like Bihar and Odisha lagged behind in
development.
10.
Environmental Concerns :
Rapid industrialization and urbanization during the planning era led to
environmental degradation, including pollution and depletion of natural
resources.
Key Achievements of Five Yearly Planning
Spearheaded
by the Planning Commission, Five Yearly Planning was an ambitious
initiative aimed to harness resources efficiently, reduce regional
disparities, and propel the nation towards self-sufficiency. Some of the
major achievements of five year planning system are listed here in below.
1.
Industrial Development :
The first Five-Year Plan (1951-1956) laid the foundation for industrial
growth by prioritizing heavy industries such as steel, power, and
infrastructure. The establishment of Bhilai Steel Plant, Bokaro Steel
Plant, Hindustan Aeronautics Limited and the Damodar Valley Corporation.
By the end of the first plan, industrial production had shown significant
growth, setting the stage for future expansions.
2.
Agricultural Growth :
Agriculture, being the backbone of India's economy, received substantial
attention under the planning framework. Initiatives like the Community
Development Program aimed at modernizing agriculture, enhancing irrigation
facilities, and promoting rural electrification. Green Revolution
strategies introduced during subsequent plans (1960s onwards) further
revolutionized agricultural productivity, ensuring food security and rural
prosperity.
3.
Infrastructure Development :
The planning era witnessed massive investments in infrastructure,
including roads, railways, ports, and telecommunications. Projects like
the construction of the Bhakra Nangal Dam for irrigation and hydroelectric
power, and the establishment of the Indian Institutes of Technology for
technical education, underscored the commitment to modernizing India's
infrastructure backbone.
4. Social
Sector Advances :
Centralized planning prioritized social welfare and human development
through initiatives like the establishment of premier educational and
research institutions, healthcare facilities, and rural development
programs. The establishment of the All India Institute of Medical Sciences
(AIIMS) and the expansion of primary education exemplify efforts towards
building a skilled and healthy workforce.
Transition to Market Economy
With
economic liberalization reforms initiated in 1991, India shifted towards a
market-oriented economy, reducing the centrality of Five-Year Plans in
economic policy formulation. Subsequently, the Planning Commission, which
formulated the Five-Year Plans, was replaced by the NITI Aayog (National
Institution for Transforming India), signalling a departure from the
centralized planning model towards a more decentralized and flexible
approach to economic development.
1.
Sustainable Development Goals (SDGs) :
The contemporary development agenda focuses on achieving sustainable
development goals, necessitating a more holistic and inclusive approach
beyond traditional economic indicators.
2.
Decentralized Planning :
There's a growing emphasis on decentralized planning, empowering local
governments and communities to address regional disparities and ensure
grassroots participation in development initiatives.
3.
Innovation and Technology :
Embracing innovation and technology-driven growth has become imperative
for India to compete globally and address emerging challenges such as
climate change and digital divide.
Niti Aayog, The Think Tank
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiNHIkNPAPvKDA8yGxs2pKX5ek9dnDxHPp5tr20F0WXvpZlBVTubXhVrteqEMqYXpSRkQyrqZXAASZ6t0ZcdTQnreuqdu4S_g1kdjt6cxybF9kImKnPr2YkQugM0fGJUzi-pfdAPwmnwGYX_yEgSwxUWBgSB1xtcwv_RRcdFloJJUoFsWEhvOA-5F-RRhU/w623-h232/Planning2.jpg) Preamble
NITI Aayog,
or the National Institution for Transforming India, was established on
January 1, 2015, to replace the erstwhile Planning Commission, with the
aim of fostering cooperative federalism and promoting sustainable
development goals. It serves as the premier policy think tank of the
Government of India, providing both directional and policy inputs to
various ministries and states.
The NITI
Aayog’s action agenda is a comprehensive document outlining the framework
of policy changes. Implementation of these policies is meant to take place
in the short term in India. The NITI Aayog action agenda is part of a
larger vision document that has now replaced the erstwhile five year plans
of the planning commission.
Accomplishment Credited to NITI Aayog
1. Policy
Innovation :
NITI Aayog has been instrumental in introducing innovative policies and
initiatives, such as the Atal Innovation Mission , which aims to promote
entrepreneurship and innovation among Indian youth.It has initiated
reforms in areas such as agriculture, healthcare, education, and
infrastructure. For instance, the Aayog introduced the National Health
Policy 2017 and the National Education Policy 2020, aiming to modernize
and improve these sectors.
2. Ease
of Doing Business :
The institution has played a significant role in improving India's ranking
in the Ease of Doing Business index, facilitating reforms at both the
central and state levels to streamline regulations and boost
investment.Through its continuous efforts to streamline regulations,
reduce bureaucracy, and enhance transparency, India's position in the
global rankings has significantly improved from 142nd in 2014 to 63rd in
2019.
3.
Aspirational Districts Program :
One of NITI Aayog's flagship initiatives, the Aspirational Districts
Program, targets socio-economic development in 112 backward districts
across India, focusing on key indicators like healthcare, education, and
infrastructure.
4.
Digital Transformation :
NITI Aayog has actively promoted digital transformation and the adoption
of emerging technologies through initiatives like the National Strategy
for Artificial Intelligence and the Blockchain Policy Framework.
Scope for Improvement
NITI Aayog,
the premier policy think tank of the Government of India, has a crucial
role in guiding India's economic and social policies. While it has made
significant strides since its inception in 2015, several areas for
improvement exist.
1. Policy
Implementation Monitoring :
One of NITI Aayog's key roles is to monitor the implementation of policies
across various sectors. However, there have been instances where policies
formulated by NITI Aayog have faced challenges in effective
implementation. For example, the rollout of GST (Goods and Services Tax)
faced initial implementation hurdles despite NITI Aayog's endorsement and
support.
2.
Data-Driven Decision Making :
While NITI Aayog emphasizes data-driven policy making, there is room to
enhance the quality and timeliness of data used. For instance, improving
data collection methodologies in sectors like agriculture and healthcare
could lead to more accurate policy recommendations. Case in point, the
Pradhan Mantri Fasal Bima Yojana faced criticism due to discrepancies in
crop yield data used for insurance payouts.
3.
Collaboration with States :
NITI Aayog's mandate includes fostering cooperative federalism by working
closely with state governments. Strengthening this collaboration could
lead to more effective policy implementation at the grassroots level. The
example of the Aspirational Districts Programme highlights successes where
local challenges are addressed through targeted interventions and
partnerships with states.
4.
Innovation and Technology Integration :
Leveraging emerging technologies such as AI and block chain for policy
formulation and monitoring could enhance efficiency and transparency. For
instance, incorporating block chain in subsidy distribution systems can
reduce leakages and ensure benefits reach intended beneficiaries.
5. Public
Awareness and Feedback Mechanisms :
Enhancing public engagement and feedback mechanisms can ensure policies
are more inclusive and responsive to citizens' needs. The MyGov platform
and initiatives like the Atal Innovation Mission are steps in this
direction, but further outreach efforts could improve effectiveness.
6.
Evaluation and Impact Assessment :
Strengthening mechanisms for evaluating the impact of policies
post-implementation is critical. Robust impact assessment frameworks can
help in course correction and refinement of policies. For example, the
evaluation of the Swachh Bharat Mission has shown mixed results in terms
of sanitation coverage and behavioral change.
7.
Sustainable Development Goals (SDGs) Integration :
While NITI Aayog has aligned national policies with SDGs, integrating
these goals more deeply into sectoral policies and tracking progress
rigorously could enhance India's progress towards achieving the SDGs by
2030. Case studies from sectors like renewable energy adoption and
healthcare accessibility can illustrate successes and challenges.
8.
Inequality and Regional Disparities :
While NITI Aayog aims to promote inclusive growth and reduce regional
disparities, progress in this regard has been uneven, with certain regions
and marginalized communities continuing to lag behind in terms of
development indicators.
9.
Limited Fiscal Autonomy :
Unlike its predecessor, the Planning Commission, NITI Aayog lacks fiscal
powers, which limits its ability to allocate funds and directly influence
resource allocation for developmental projects.
10.
Criticism of Consultative Process :
Some stakeholders have criticized NITI Aayog for its top-down approach to
policy formulation, which they argue does not sufficiently involve states,
local bodies, and civil society organizations in the decision-making
process.
By
addressing these areas, NITI Aayog can further strengthen its role as a
catalyst for policy reform and economic development in India. Implementing
targeted improvements supported by case studies, figures, and factual
analysis will be crucial in achieving sustained positive impact across
sectors.
Economic Planning In Other Countries
The method
of economic planning varies significantly between developed countries and
countries like India, where centralized bodies such as the Planning
Commission (now replaced by Niti Aayog) play a crucial role in national
economic planning. Here’s a comparative look at the planning methods in
India versus some developed countries like the United States, China,
Russia, Australia, and Canada:
India :
India historically followed a socialist-inspired economic planning model
with a central planning authority, first the Planning Commission and now
Niti Aayog, tasked with formulating Five-Year Plans and guiding national
economic policies. Key features include:
1.
Centralized Planning :
The Planning Commission (now Niti Aayog) formulated Five-Year Plans
outlining national priorities, targets, and resource allocations across
sectors like agriculture, industry, and social development.
2.
Top-down Approach :
Decision-making was largely centralized, with the Planning Commission/Niti
Aayog influencing policy and resource allocation at the national level.
3. Mixed
Economy :
India maintained a mixed economy with both public and private sectors,
with planning aimed at balanced growth and social equity.
4.
Example :
During the Green Revolution (1960s-70s), the Planning Commission
focused on agricultural modernization to achieve food self-sufficiency,
impacting national food security policies.
United
States:
The United States contrasts sharply with India in its approach to economic
planning:
1.
Market-driven :
The U.S. largely relies on market forces to allocate resources, with
minimal central planning. Government intervention tends to be
sector-specific (e.g., infrastructure, defense).
2.
Decentralized :
Economic decisions are decentralized, with states, local governments, and
private enterprises playing significant roles.
3.
Regulatory Approach :
Government agencies (e.g., Federal Reserve) manage monetary policy, but
long-term economic planning is less centralized and more
market-responsive.
4.
Example :
The U.S. federal government sets broad economic policies (e.g., tax
codes, trade policies) but leaves detailed planning to states and private
enterprises.
China :
China represents a unique blend of central planning and market
mechanisms:
1.
State-led Planning :
The Chinese government sets strategic economic goals and targets
through Five-Year Plans overseen by agencies like the National Development
and Reform Commission (NDRC).
2.
State-Owned Enterprises (SOEs) :
Significant sectors are dominated by SOEs, which align with national
planning objectives (e.g., infrastructure, heavy industry).
3. Market
Reforms :
Since the late 1970s, China has gradually introduced market-oriented
reforms while maintaining central planning control.
4.
Example :
China's recent Five-Year Plans emphasize technology innovation and
sustainable development goals, influencing global markets.
Russia :
Russia’s planning approach has evolved from Soviet-era central
planning:
1.
Transition to Market Economy :
Post-Soviet Russia shifted from centralized planning to a market economy,
though state influence remains significant in strategic sectors (e.g.,
energy, defense).
2.
Economic Liberalization :
Government policies focus on deregulation, privatization, and
attracting foreign investment.
3.
Regional Disparities :
Economic planning addresses regional disparities and economic
diversification efforts.
4.
Example :
Russia's economic strategy under Vladimir Putin includes
infrastructure development (e.g., energy pipelines) to strengthen
geopolitical influence.
Australia
and Canada :
Both countries feature market-driven economies with limited central
planning :
1.
Resource-based Economies :
Australia and Canada emphasize resource extraction (e.g., mining,
agriculture) with policies to manage environmental impacts and indigenous
rights.
2.
Decentralized Governance :
States and provinces play significant roles in economic planning,
aligning with federal policies on issues like environmental regulation and
infrastructure.
3.
Example :
Australia's planning focuses on sustainable development (e.g., renewable
energy transition), while Canada's policies address regional economic
disparities (e.g., Northern development initiatives).
In summary,
while India historically relied on centralized economic planning through
institutions like the Planning Commission and now Niti Aayog, developed
countries like the United States, China, Russia, Australia, and Canada
emphasize market-driven mechanisms with varying degrees of state
intervention in strategic sectors and regional development. The balance
between centralized planning and market dynamics shapes each country's
approach to economic growth, resource allocation, and social welfare.
Conclusion
Both the
Planning Commission and NITI Aayog have played significant roles in
shaping India's development trajectory, but each has faced criticism for
shortcomings. Let's delve into their strengths and weaknesses:
Planning
Commission provided a centralized framework for economic planning
fostering national development goals. It played a crucial role in India's
initial success in achieving self-sufficiency in agriculture. However,
states had limited say in planning, leading to a "one-size-fits-all"
strategy that did not work well. Bureaucratic hurdles, lack of follow up
and accountability blemished the effectiveness. Besides, the initial focus
was primarily on economic growth, neglecting crucial social welfare
aspects.
In NITI
Aayog greater state involvement in planning is intended to create more
responsive and adaptable policies but lacks the financial resource
allocation authority of the Planning Commission, is hindering its ability
to influence change. Besides, as a body directly under the Prime
Minister's office, there's a concern of potential political bias in its
policy recommendations. The long-term effectiveness of its approach
compared to the established Planning Commission model remains to be
proven.
The NITI
Aayog should come up with new reforms, with clue from the neighbouring
countries, for example from the experience of the now industrialized
Chinese state. It ensured after its market-oriented economic reforms began
China created special economic zones to push manufacturing and
export-oriented industries. The general rules of business were eased in
these zones, marked out in areas with better infrastructure and access to
cheap labour for investors. Indian special economic zones that came up
decades later lacked such push and better incentives to attract foreign
investors in numbers and size to give China a competition. China made a
shift by promoting green energy like solar power and reducing its
dependence on coal massively. China has emerged as the second-largest
solar energy producer. India may emulate Chinese example to reduce its
dependence on coal and oil, most of which it imports. China with its
proper implementation of strategies became the “factory of the world” that
was backed by an industrial policy that is driven by the Reforms
Commission and the National Development. Similarly, in all Southeast Asian
and East Asian countries, industrial policy has always been planned and
has been executed as part of the five-year or longer-term plans.
While
Southeast Asian and East Asian countries still have and had five-year
plans, the thing that was also integral to their planning was the
productive use of labour, the most abundant factor of these countries,
through an export-oriented manufacturing strategy. Such strategies have
been lacking in India’s planning.
Being the
strategic gizmo of government policy decisions for economic development,
NITI Ayog should focus on the implementation rather than only focusing
upon the recommendations of the policies. It should also be focussing upon
the reforms and informing the government as to where it will have to face
the consequences for non-implementation of its policies and where it is
falling short. The establishment of NITI Aayog gave positive results but
there is a need to change and focus on areas that have been discussed in
this article.
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**********Disclaimer: The information and statistics presented in this article
have been compiled from various sources deemed reliable. However, readers are
advised to independently verify the accuracy and relevance of the data before
making any decisions or taking action based on the information provided herein.
The author and publisher do not assume any responsibility or liability or any
consequences resulting from reliance on the information presented in this
article.
2024/06/05
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