Planned economy

• Planned economy is one in which the state owns (partly or wholly) and directs the economy.
• All important decisions related to price, production, and investment are interfered with by the government. 

Command and control economy

• While such a role is assumed by the State in almost every economy, in planned economies, it is pronounced: (for example in communist and socialist countries- former USSR and China till the 1970s.) In such a case a planned economy is referred to as command economy or centrally planned economy or command and control economy.
• In command economies, the state does the following.
  • Controls all major sectors of the economy.
  • Legislates on their use and about the distribution of income.
  • State decides on what should be produced and how much; sold at what price.
  • Private property is not allowed.
  • Command economies were set up in China and USSR, mainly for rapid economic growth and social and economic justice but have been dismantled in the last two decades as (they do not create wealth sustainably and are not conducive to innovation and efficiency.)
  • Cuba and North Korea are still command economies.

Market economy

• In a market economy, it is the opposite. The state has a minimal role in the management of the economy. All production, consumption, and distribution decisions are predominantly left to the market.
• State plays a certain role in redistribution. The state is called the laissez-faire state here. (It is a French phrase literally meaning "Let do.")

Indicative plan

• It is one where there is a mixed economy with State and market playing significant roles to achieve targets for growth that they together set.
• It is operated under a planned economy but not a command economy.

The difference between a planned economy and a command economy is that in the former there may be a mixed economy and while in the latter Government owns and regulates the economy to the near monopolistic limit.

Types Of Planning 

• Type of planning where the Central Planning Authority decides upon every aspect of the economy and the targets set and the processes delineated to achieve them are to be strictly followed. This type of planning is mainly practiced in socialist economies.

• A system of planning in which the State sets broad parameters and goals for the economy. It is different from centralized planning as unlike in the latter, the State does not set Plan targets to the minutest details, but only broadly indicates the targets to be achieved. It was adopted in our country since the 8th Five Year Plan, as practiced in many developed countries.

• It’s a planning for a long period of time, usually 15-20 years. As a highly specialized task, it is operationalized through the Five Year and Annual plans. In such a form of planning, the planners formulate a perspective Plan that broadly defines the direction desired to be taken by the economy.

Under the scheme of rolling plans, there are three different steps.

• First, a plan for the current year, that includes the annual budget.
• Second, a plan for a fixed number of years, say three, four or five. It is revised every year as per the requirements of the economy.
• Third, a perspective plan for 10,15 or 20 years.

Doctrine of Balanced Growth

• To some it means investing in a laggard sector or industry so as to bring it abreast of others. To others, it implies that investment takes place simultaneously in all sectors or industries at once. 
• To still others, it means balanced development of manufacturing industries and agriculture. Balanced growth, therefore, requires balance between different consumer goods industries, and between consumer goods and capital goods industries. 
• It entails balance between vertical and horizontal external economics. Thus it aims at all sectors growing in unison.  For this, balance is required between the demand and supply sides.
• The supply side lays emphasis on the simultaneous development of all inter-related sectors, which help in increasing the supply of goods.  It includes the simultaneous and harmonious development of intermediate goods, raw material, power, agriculture, irrigation, transport, etc. and all industries producing consumer goods.
• On the other hand, the demand side relates to the provision for larger employment opportunities and increasing incomes so that the demand for goods and services may rise on the part of the people.  This side is related to supplementary industries, consumer goods industries, especially agriculture and manufacturing industries. 
• When with the simultaneous setting up of all types of industries large number of people are employed, they create demand for each other’s goods.  In this way, all goods will be sold out.

An Overview of India's Five-Year Plans

• In India, the five-year plans were drafted, developed, and executed by the Planning Commission which was set up in March 1950 by a resolution of the Government of India. The Prime Minister was its ex-officio Chairman. There was a nominated Deputy Chairman of the Planning Commission also who had rank of a Union Cabinet Minister.
• The long-term objectives of the planning were 

1. high rate of economic growth
2. achieving economic self-reliance
3. social justice
4. modernization of economy
5. economic stability

• India launched its first Five-Year Plan in 1951.

First Five-Year Plan (1951-1956)

• Launched in 1951.
• Based on Harrod-Domar Model.
• In this plan, the major focus was on agricultural development and making judicious use of natural resources for the improvement in the standard of living of Indian people.
• The target growth in GDP was 2.1% while the growth rate achieved was 3.6%.
• Some major developments that took place in this period include

1. start of irrigation projects such as Bhakra Dam, Hirakud Dam, and Mettur Dam;
2. steps taken to rehabilitate the landless workers - various land reforms measures such as land consolidation and land ceiling were introduced;
3. improvement in posts and telegraphs, railways, roads, etc.;
4. measures for the growth of the small-scale industry

Second Five-Year Plan (1956-1961)

• Based on Mahalanobis Model.
• Industries, particularly heavy industries got more importance...the government was interested in boosting the manufacturing base of the Indian economy...this supported the development of the public sector.
• Basic emphasis was shifted from agriculture to industry.
• Mahalanobis Model was depending on the assumptions that

1. the economy is closed and has two segments - consumer goods and capital goods
2. capital goods are primary for the development of the economy because investment decisions are taken on the availability of capital goods in an economy
3. capital is a scarce factor
4. capital goods production is not influenced by consumer goods production...but consumer goods production is influenced by the capital goods production

• Therefore, the government tried to make the optimum allocation of funds to the various sectors of the economy...though, the manufacturing sector got more favour.
• The overall aim was to achieve maximum gain on a long-term basis.
• Some important developments that took place during the Second Five-Year Plan:

1. Steel plants at Durgapur, Bhilai, and Rourkela were set up in collaboration with Britain, Russia, and Germany respectively;
2. Chemical fertilizer plant at Sindri was set up;
3. Railway locomotive factory at Chitranjan and a shipbuilding facility at Vishakhapatnam were established;
4. Many railway tracks were laid down in north-east India;
5. Atomic Energy Commission was established in 1957;
6. India adopted its first Industrial Policy in 1956

• The target of GDP growth was fixed at 4.5% while the actual growth remained at 4.27%.
• During this plan period, inflation rose to 30%.

Third Five-Year Plan (1961-1966)

• Objectives:

1. More than 5% per annum growth of India's national income;
2. Achievement of self-sufficiency in foodgrains;
3. Increase in agricultural production to meet the needs of India's industry and exports;
4. Expansion of basic industries;
5. Expansion of employment opportunities;
6. Greater equality of opportunity and of income
7. More even distribution of economic power

• Major initiatives taken during the third five-year plan include

1. Established on the Unit Trust of India in 1963;
2. Establishment of the Industrial Development Bank of India in 1964;
3. Setting up of the Food Corporation of India in 1965;
4. The setting up of the Agricultural Price Commission in 1965

• The third five-year plan saw unfortunate developments such as the Chinese aggression (1962), India-Pakistan War (1965), and severe drought (1965-66).
• India faced an acute food shortage and the US sent us food aid under Section 480 of the Public Law of the US, therefore, this aid was popularly known as PL-480.
• This plan could not achieve its growth target, the growth rate registered was 2.84%.

First Plan Holiday (1966-1969)

• Due to the crises that emerged during the third five-year plan and the consequent foreign exchange crisis, India had to borrow from the IMF, and the Indian rupee was devalued.
• India was not in a position to launch the fourth five-year plan.
• Therefore, a plan holiday was taken for three years from 1966-67 to 1968-69.
• During this period, three annual plans were launched, i.e., for 1966-67, 1967-68, and 1968-69.
• In the three annual plans, the emphasis remained on agriculture which include

1. widespread distribution of HYV seeds;
2. extensive use of fertilizers;
3. exploitation of irrigation potential;
4. soil conservation

• The annual plan strategy of India helps the country to emerge from the crisis and launch the four five-year plan from the year 1969.

Fourth Five-Year Plan (1969-1974)

• Launched in 1969 after a break of three years.
• The plan was based on Gadgil Strategy.
• Objectives:

1. Promotion of economic equality, equity, and social justice;
2. Achievement of full employment and economic self-reliance;
3. Modernization of the Indian economy;
4. To achieve a growth target of 5.7%

• Important initiatives taken under the plan were

1. Nationalization of 14 major banks in 1969;
2. Abolition of privy purse by the 26th Amendment Act of 19;

• The period of the fourth five-year plan was not smooth sailing. The major problems that India had to face in this period were

1. India-Pakistan War of 1971;
2. very high rate of inflation in India as a consequence of an increase in oil and fertilizer prices in the backdrop of the 1973 oil crisis;
3. huge influx of Bangladeshi refugees caused a trouble

• Food grain production increased as a result of the Green Revolution, this led India near to self-sufficiency in food production.
• Need for more foreign exchange reserves was felt which facilitated growth in exports, and the need for import substitution was also felt.
• Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 was enacted.
• The fourth plan could not achieve its targeted growth rate. The actual growth rate remained at 3.3%.

Fifth Five-Year Plan (1974-1979)

• Prepared by D.D. Dhar.
• Two main objectives were

1. Garibi Hatao (removal of poverty);
2. Atmanirbharta (self-reliance)

• The objectives were to be achieved by

1. accelerating the rate of economic growth;
2. reducing income gaps in society;
3. incrone-yearate of savings

• This plan was terminated one year earlier in the year 1978 due to the change of government in the Centre. Janta Government replaced the Congress Government in 1978.
• Increase in food grain production and exports of minerals and oil took India to a comfortable position in terms of foreign exchange reserves.
• The main issues that were emphasized in the plan were

1. reduction in the rate of unemployment;
2. improving the scope of self-employment;
3. encouraging growth of small-scale industries;
4. reducing discrepancy in economic development at the regional level;
5. enhancing import substitution in areas like paper, equipment, minerals, and chemicals;
6. labour-intensive production technology

• It was during the fifth five-year plan that the Government of India launched (in 1975) a Twenty-Point Programme to eradicate poverty and better the lives of the poor and the underprivileged population of the country. This was an important socio-economic initiative with the following 20 points:

1. attack on rural poverty
2. strategy for rained agriculture
3. better use of irrigation water
4. biggest harvest
5. enforcement of land reforms
6. special programmes for rural labour
7. clean drinking water
8. health for all
9. two-child norm
10. expansion of education
11. justice for SC & ST
12. equality for women
13. new opportunities for women
14. housing for the people
15. improvement of slums
16. new strategy for forestry
17. protection of environment
18. concern for consumer
19. energy for villages
20. a responsive administration

• Major initiatives taken/programmes launched during the fifth five-year plan:

1. Introduction of Minimum Needs Programme in 1974
2. Launch of Command Area Development Programme in 1974
3. Launch of Regional Rural Banks in 1975
4. Introduction of Food for Work pogramme in 1977

• India conducted the first successful nuclear test under the codename Operation Smiling Buddha.
• The target of GDP growth was 4.4% while the growth rate achieved was 4.8%.

Rolling Plan (1978-1980)

• Janta Government replaced the Congress Government in 1978.
• As a result, the fifth five-year plan was discontinued one year earlier in 1978 and launched Rolling Plan (1978-83) which was discontinued in 1980 due to the fall of Janta Government.
• Major initiatives taken under the rolling plan include

1. launch of the Integrated Rural Development Programme (IRDP) in 1978;
2. launch of a self-employment programme named Training Rural Youth for Self-Employment (TRYSEM) in 1979

Sixth Five-Year Plan (1980-1985)

• Launched by Mrs. Indira Gandhi-led Congress Government in 1980 by terminating the rolling plan.
• This plan was a major deviation from the Nehruvian Model of five-year planning.
• Objectives:

1. Speedy industrialization;
2. Rise in employment level;
3. Attainment of self-reliance in technology;
4. Poverty reduction

• A slogan of Garibi Hatao was adopted in the sixth five-year plan.
• Infrastructure building was given due attention, the highest financial allocation went to the energy sector.
• Important developments during this period:

1. National Highways were built;
2. Economic liberalization was introduced by eliminating price controls and closing ration shops;
3. Introduction of family planning;
4. National Rural Employment Programme (NREP) was launched in 1980;
5. NABARD and EXIM Bank were set up in 1982

• Rate of inflation was brought under control.
• Actual rate of GDP growth achieved was 5.6% against the targeted one of 5.2%.

Seventh Five-Year Plan (1985-1990)

• This plan was launched in the backdrop of the success of the sixth five-year plan.
• Objectives:

1. To upgrade the industrial sector;
2. To enable India to establish itself as one of the developed countries of the world;
3. To expand the education and healthcare systems;
4. To generate more scope for employment;
5. To produce more food

• The basic issues that remained in focus were

1. reduction in poverty;
2. development of agriculture;
3. introduction of mothe dern technology;
4. assuring food, clothing, and shelter to everybody;
5. striving to achieve economic freedom;
6. helping farmers to increase in productivity;
7. achieving harmony in all sectors of the Indian economy

• Under the plan, special care was taken to 

1. spread education among girls; and
2. enhance telecommunication

• In this plan were launched the long-term fiscal policy and a three-year EXIM policy.
• Major programmes launched under the plan were

1. Jawahar Rozgar Yojana in 1989;
2. Operation Blackboard in 1987;

Second Plan Holiday (1990-1992)

• India took another plan-holiday for two years in 1990-91 and 1991-92.
• This was due to the following:

1. Foreign exchange crisis;
2. Political instability at the centre;
3. Prepatory period for the introduction of LPG model to meet the conditions imposed by the IMF

• During this period, the first disinvestment took place in India with disinvestment in 31 selected PSUs.
• Devaluation of Indian Rupee occurred in 1991.

Eighth Five-Year Plan (1992-1997)

• Launched in the wake of the introduction of the Liberalization, Privatization, and Globalization (LPG) model in the Indian economy.the 
• Foreign exchange problem wasinfrastructureses when the plan started.
• Objectives:

1. Modernization of the industrial sector;
2. Technical development;
3. Privatization;
4. Reduction of deficit and foreign debt

• During this plan period, India became a member of the WTO on January 1, 1995.
• Agriculture happened to be the largest contributor to the GDP of India.
• Major initiatives launched under this plan include

1. Rashtriya Mahila Kosh was established in 1993;
2. launch of the Employment Assurance Scheme in 1993;
3. Mid-Day Meal Scheme launched in 1995

• Achievements of the plan:

1. rapid overall economic growth;
2. high rate of growth in agriculture, manufacturing, and allied sectors;
3. growth in imports and exports;
4. improvement in trade and current account deficit

• In terms of GDP growth rate, this plan is considered a success. The target GDP growth rate was 5.6% while the achieved one was 6.8%.

Ninth Five-Year Plan (1997-2002)

• The plan was formulated to act as a tool for solving the economic and social problems of the country.
• So, the plan was initiated for improvement in the overall social and economic sectors of the economy.
• Objectives:

1. Rapid industrialization;
2. Poverty reduction;
3. Gaining self-sufficiency on local resources;
4. Achieving full employment;
5. Price stabilization;
6. Population control;
7. Enhancing private financial investments;
8. Achievement of self-sufficiency in food production;
9. Equal opportunities of employment

• The plan gave priority to agriculture and rural development.
• Major initiatives launched include

1. Swarnajayanti Gram Swarojgar Yojana (SGSY) in 1999;
2. Pradhan Mantri Gram Sadak Yojana (PMGSY) in 2000;
3. Antyodaya Anna Yojana (AAY) in 2000;
4. Sarva Shiksha Abhiyaan (SSY) in 2001

• 6.5% was the target rate while the achieved GDP growth rate was 5.35%.

Tenth Five-Year Plan (2002-2007)

• Launched when A.B. Vajpayee was the Prime Minister of India.
• Objectives/targets:

1. Compulsory schooling for children by 2003;
2. Reduction in mortality rate of children to 45/1000 living births by 2007 and 28/1000 living births by 2012;
3. Cleaning of all rivers between 2007 and 2012;
4. Reduction in poverty ratio by at least five percentage points by 2007;
5. Making provision for useful and lucrative employment to the population;
6. Decrease in gender discrimination in wage rate and literacy by a minimum of 50% by 2007;
7. Enhancing forest and tree cover to 25% by 2007 and 33% by 2012;
8. Ensuring continuous availability of pure drinking water in rural India;
9. Check of population growth;
10. Increase in literacy rate by at least 75% by the end of the 10th plan period;
11. Decrease of Maternal Mortality Rate (MMR) to 2/1000 live births by 2007 and 1/1000 live birth by 2012

• Major initiatives:

1. Launch of National Food for Work Programme (NFFWP) in 2004;
2. National Rural Employment Guarantee Act (NREGA) launched in 2006;

• During this plan. severe drought occurred in 2002-03.
• This plan achieved a GDP growth rate of 7.6% against the targeted one of 8%.

Eleventh Five-Year Plan (2007-12)

• By the beginning of this plan, a lot was changed in India. India had become one of the major global economies.
• Objectives/targets:

1. To increase public investment in irrigation, rural electrification, and rural roads;
2. To reduce subsidies in power and fertilizer;
3. To promote agricultural research;
4. To ensure environmental protection;
5. To create more employment opportunities;
6. To develop rural infrastructure;
7. To abolish poverty;
8. To reduce dropouts rate in primary schools
9. To increase the agriculture growth rate to 4%;
10. To increase the literacy of persons of age 7 years or above to 85%;
11. To improve sex-ratio;
12. To increase energy efficiency by 20% percent by 2016-17;
13. To reduce anaemia among girls and women by 50%;
14. To ensure all-weather road connectivity to habitations with a population of 1000 and above by the end of 2009;
15. To provide broadband connectivity to al villages by 2012;
16. To attain WHO standards of air quality in all major cities by 2011-12

• The theme of the plan was 'towards faster and more inclusive growth'.
• The actual GDP growth rate achieved during the plan was 8% against the target of 9%.

Twelfth Five-Year Plan (2012-17)

• This was the last five-year plan in India.
• The Narendra Modi-led NDA government has discarded the five-year plan model.
• Objectives/targets:

1. To achieve a 4% growth rate in agriculture;
2. To reduce poverty by 10 percentage points;
3. To achieve faster, sustainable, and more inclusive economic growth;
4. To improve living conditions for SC, ST, OBC, and minorities;
5. To eliminate gender gaps;
6. To generate 50 million work opportunities in non-farm sector and providing skill certifications;
7. To reduce total fertility rate to 2.1 (replacement level);
8. To increase infrastructure investment to 9% of GDP;
9. To achieve the goal of secondary education for all by 2017;
10. To implement the National Action Plan for Climate Change (NAPCC) to achieve the target of 20% to 25% reduction in emission levels by 2020;
11. To improve child sex-ratio (0-6) to 950;
12. To increase gross irrigated area from 90 million hectare to 103 million hectare;
13. To complete Eastern and Western dedicated freight corridor;
14. To incrase green cover by 1 million hectare every year

• The theme of the plan was "faster, more inclusive, and sustainable growth".
• The plan achieved the actual growth rate of 6.9% against the target of 8.2%

Growth Performance in the Five-Year Plans in terms of average annual GDP Growth Rate

Five-Year Plan	Target	Actual
First Five-Year Plan (1951-56)	2.1	3.6
Second Five-Year Plan (1956-61)	4.5	4.27
Third Five-Year Plan (1961-66)	5.6	2.84
Fourth Five-Year Plan (1969-74)	5.7	3.3
Fifth Five-Year Plan (1974-79)	4.4	4.8
Sixth Five-Year Plan (1980-85)	5.2	5.6
Seventh Five-Year Plan (1985-90)	5.0	6.1
Eighth Five-Year Plan (1992-97)	5.6	6.8
Ninth Five-Year Plan (1997-02)	6.5	5.35
Tenth Five-Year Plan (2002-07)	8.0	7.6
Eleventh Five-Year Plan (2007-12)	9.0	8.0
Twelfth Five-Year Plan (2012-17)	8.2	6.9

Graphical Representation of Target and Actual Average Annual Growth Rate of Five-Year Plans

Relevance of Planning

There has been a national debate about the relevance of planning in the era of liberalization where the state controls and regulations are dismantled to a great extent andmarket forces are given larger role. (The investment of the government for the five year plans is also on decline). (The trend began in the 7th plan and strengthens into the Eleventh Plan).

It is true that the quantitative aspects of planning in terms of control over economy are being selectively phased out and the nature of planning process is undergoing a qualitative change. Planning is important for the following reasons in the era of liberalization

• In a federal democracy like ours, the principal task of planning is to evolve a shared vision among not only the federal units but also among other economic agents so that the efforts of all the actors become convergent towards the national priorities, the role of planning is to develop a common policy stance for center and states. Also, (the task of federal policy coordination is central to Indian Planning). For example, the need to invite foreign investment in infrastructure areas like power need center-state coordination as the necessary legislation and administrative changes involve both.
• While the growth process can be made the responsibility of the corporate sector to a greater degree, its direction and distribution are to be steered by planned public intervention so that regional imbalances are reduced and socio economic inequities are set right. For example, `directing the growth of the large industry into the backward areas and technology intensive areas to realize national goals.
• The nature of instruments available to planners in the implementation has changed. Quantitative controls have yielded place to qualitative ones .The planning process has to focus on the need for planning for policy.
• Planning at the grass roots level that is participatory is very crucial for improving the delivery systems and proper use of the resources. The role of the government is thus to facilitate participatory planning.
• Environmental priorities are a major concern of planning is necessary for the sectors like energy, communication, transport and so on as private sector needs to be guided into the national plan.
• In the era of globalization where corporates are not expected to plan beyond the growth of a particular unit, the (role of safeguarding national interest is that of planning by the State). For example, being subjected to various discriminative trade practices by EU, USA and so on, (the Indian farmers, manufacturers and exporters have to fight sophisticated battles in the WTO for which the legal services and information and building up bargaining power are best provided by the State).

Thus, planning continues to be relevant and ever more so for the following reasons

• Federal cooperation and coordination
• Equitable growth
• Environment friendly development
• Defending national interest in the age of globalization
• Inter-sectoral balance in growth

Changing Role of Planning Institutions

From a highly centralized planning system, the Indian economy is gradually moving onwards indicative planning where hard planning is no longer undertaken. The role of the Planning Commission accordingly changes. The Commission concerns itself with the building of a long term strategic vision of the future and decide on priorities of nation. It works out sectoral targets and provides promotional stimulus to the economy to grow in the desired direction.

Planning Commission plays an integrative role in evolving a national plan in critical areas of human and economic development. In the social sector, Planning Commission helps in schemes which require coordination and synergy like rural health, drinking water, rural energy needs, literacy and environment protection.

When planning in a vast federal country like India involves multiplicity of agencies, a high powered body like the PC can help in evolution of an integrated approach for better results atmuch lower costs.

In our transitional economy, Planning Commission attempts to play a systems change role and provide consultancy within the Government for developing better systems). It has to ensure smooth management of the change and help in creating a culture of high productivity and efficiency in the Government.

In order to spread the gains of experience more widely, Planning Commission also plays an information dissemination role.

With the emergence of severe constraints on available budgetary resources, the resource allocation system between the States and Ministries of the Central Government is under strain. This requires the Planning Commission to play a mediatory and facilitating role, keeping in view the best interest of all concerned. The recent Niti Aayog also indicates the changing role of planning in India.

Planning under NITI Aayog

The Government of India has established NitiAyog as a “Think Tank” which has no power to impose policies. By establishing NitiAyog the government wants to be an “enabler” and leaves the impetus to provide a platform for cooperative and competitive federalism to the newly established body. India was probably the first non-Communist country which went for central planning. Starting with the Harrod-DomarModel  and later statistics of Mahalanobis model, the planning commission set out sector- specific output and investment targets. It was strong enough to have a final say on resource allocation. For the last few decades, funds were simply tied to not only successful but also failed schemes because vested interests demanded their continuation. There was an increasingly frustration in the states but they had to yield to the arrogant fund controlling body. Most underdeveloped states including the North East had to suffer due to the dogged prescription of one-size-fits-all schemes by the planning commission. The NitiAyog seeks to give up the one size fits all prescriptions for a huge country like India with lots of vertical and horizontal imbalances. Whether it would be able to carve out its unique place in today’s time, is yet to be seen. Planning Commission was an advisory body, and so is Niti Aayog. But the key difference between them is that while the former had powers to allocate funds to ministries and states; this function will be now of finance ministry.

Niti Aayog is essentially a think tank and a truly advisory body. Other differences are as follows:

• The role of states in the planning commission era was limited. The states annually needed to interact with the planning commission to get their annual plan approved. They had some limited function in the National Development Council. Since NitiAyog has all chief ministers of states and administrators of UT in its Governing Council, it is obvious that states are expected to have greater role and say in planning/ implementation of policies.
• The top down approach is reversed in NitiAyog. It will develop mechanisms to formulate credible plans to the village level and aggregate these progressively at higher levels of government.
• The provision of regional council is there in NitiAyog to address local / regional development issues.
• One of the new functions of NitiAyog is to address the need of the National Security in the economic strategy. How this is to be done – is yet to be watched.
• While the planning commission formed Central Plans, NitiAyog will not formulate them anymore. It has been vested with the responsibility of evaluating the implementation of programmes. In this way, while NitiAyog retains the advisory and monitoring functions of the Planning commission, the function of framing Plans and allocating funds for Plan assisted schemes has been taken away.

The governing council, which has all chief ministers of states and administrators of the Union Territories sounds much like the National Development Council.

Aims & Objectives of NITI Aayog

NITI Aayog is essentially an advisory body that seeks to provide critical directional and strategic inputs across spectrum of key elements of policy to the centre as well as states. It also seeks to put an end to the slow and tardy implementation of the policy by fostering inter-ministry, inter-state and centre-state coordination. Strong states make a strong nation, is the core idea; and the Ayog will foster cooperative federalism by evolving a shared vision of national development priorities. It has been envisaged to follow the bottom-top development approach whereby, it would develop mechanisms to formulate credible plans to the village level and aggregate these progressively at higher levels of government.

• It would also pay attention to the weaker sections of the society that may not have benefitted from economic progress.
• It would create a knowledge, innovation and entrepreneurial support system via a community of national and international experts, practitioners and partners.
• It would serve as a platform for resolution of inter-sectoral and inter-departmental issues in order to accelerate the implementation of the development agenda.
• It will also monitor and evaluate the implementation of programmes, and focus on technology upgradation and capacity building.

Composition of NITI Aayog

Chairperson -Prime Minister

Governing Council – Its members are Chief Ministers and Administrators of the Union Territories

Regional Councils -These would be created as per need and its members would be chief ministers and administrators of UTs of respective regions.

Vice-Chairperson – The Vice-chairperson of the NitiAyog will be appointed by Prime Minister. The first Vice-Chairperson of NitiAyog is Arvind Panagariya.

Further, the NitiAyog has full time members (number unspecified), part time members (maximum 2, these would be scholars from universities and research institutions), Ex-officio members (maximum 4, these are ministers from Union Council of Ministers), Special Invitees (appointed by PM for fixed tenure. Finally, there is a Chief Executive Officer (CEO) of the NitiAyog, who is appointed by Prime Minister and has a rank similar to Secretary to the Government of India. Current CEO was named on January 10 (SindhushreeKhullar ). The secretariat will be established if deemed necessary.

Evidence-informed policymaking is an approach that aims to integrate the best available scientific evidence into the design of public policies. Central and state governments make hundreds of policy decisions, small and big, every day that have an impact on millions of lives. Many of the policy questions have been rigorously researched, and controlled trials are conducted in order to assess the impact, leading to valuable insights into which policies work, which don’t and why. But not all of this research finds its way into government policies. This is often because we lack a unifying mechanism within government that can synthesise a diverse array of scientific evidence, from India and other developing countries, and provide coherent recommendations for policymakers. This is also why a centrally located government think tank like the NITI Aayog, which can command the necessary resources and attention, is well placed to play this role.

NITI Aayog and Evidence-based Policy Making

NITI Aayog is mandated to work towards furthering cooperative federalism. It can also promote evidence based policy making by ensuring that a policy innovation from any state, regardless of the party in power, gets due attention and becomes a template for other states as long as it is backed by rigorous scientific evidence. In policy areas where evidence is scarce, the NITI Aayog can actively promote collaborations between policymakers and researchers by funding and rigorously testing policy innovations at the pilot stage, before recommending them for scale. This comes from a realisation that despite decades of effort in designing and implementing anti-poverty programmes, there is little consensus on the most effective strategies for improving the lives of the poor. Reflecting this thought, the World Development Report 2015, the flagship report of the World Bank, focuses on mind, society and behaviour and makes a strong case for the application of behavioural science in development.

Challenges

To achieve this in practice will require the NITI Aayog to overcome two key challenges:

1. accessing high-quality researchers in multiple disciplines who can partner with policymakers, and
2. creating a willingness among policymakers to learn from evidence instead of relying solely on intuitions or ideologies.

Learning from Tamil Nadu

In fact, the state of Tamil Nadu has already taken a step in this direction. In 2014, the government of Tamil Nadu entered into a partnership with the Abdul Latif Jameel Poverty Action Lab (J-PAL) to institutionalize the use of evidence in policymaking by rigorously evaluating innovative programmes before they are scaled up, strengthening monitoring systems and enhancing the officials’ capacity to generate and use data. In perhaps a first for any state government in India, the Tamil Nadu government also set up an Innovation Fund, with an annual allocation of Rs. 150 crore, through which any government agency can access resources for pilot innovation programmes through a competitive process.

The Rise and Fall of Planning Commission

Planning Commission was set up by a Government of India Resolution in 1950 as an advisory and specialized institution. It was charged with the responsibility to formulate a strategy of development for independent India in a long-term perspective and for making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities.  Its first chairman, as we all know was Jawaharlal Nehru.

The constitutional provision that was kept in mind while creating the planning commission was that the Economic & Social planning is an item of Concurrent list and creation of such body will strengthen the roots of Centre-State Cooperation and Indian federalism. Later in 1952, the National Development Council was established as an advisory body to the Planning Commission.

The planning commission emerged as an intellectual hub with distinguished scholars and economists as its members. It was such as a respectable body, that it became a role model for planning commissions and boards of many developing countries in those times.

Fall of Planning Commission

Gradually, both planning as well as planning commission lost rationale. It actually began from 1960s, when successive droughts and poor harvests led the government to abandon planning for an interregnum of three years (plan holiday). These plan holidays were early signals of decline of planning commission. Slowly and steadily, the administrative fiat eroded its role and the spirit with which its original writer Nehru had launched it, was never revived later.

Due to administrative fiat, it was transformed into a government department without any proper function or mandate. Its functions collided with Finance Commission as well as Finance Ministry. A few examples are:

• Its role of serving as an intermediate between the centre and state continued, but collided with Finance Commission, which recommended on statutory transfers.
• Its role on non-discretionary transfers was almost nothing as there was a Gadgil Formula in place.
• Its role on residual discretionary allocation of resources to states was in effect nothing, because this is being done by the finance ministry.

However, despite no legal or constitutional backing, planning commission \continued to preside over the allocation of central funds meant for the “Plan” both for the centre and the states.  There was a one way flow of policy and for the state governments, the practice of requiring them to come to Delhi for their “plan approval” every year also continued. But, the focus was shifted to crisis management and academic exercises rather. If there is any other notable work of planning commission in recent times, it has been various committees and the ritual of preparing five-year plan documents, mid-term reviews etc. A few nice ideas that have been incubated in the planning commission include Direct Benefit Transfer, Financial Inclusion and Banking Correspondent models etc.  The other specific factors that led to lost of its relevance are as follows:

Globalization, Liberalization, and Privatization

When the planning commission was launched, India was on the path of Nehru’s socialistic economy. Today, India is largely a market driven economy where three fourths of investments flow from the private sector. The planning in a largely market-driven economy cannot be similar to an economy that is heavily controlled by the state. Thus, there was a need of shift in the focus of planning in current times in comparison to the past.

Shortcoming of the planning process: Why Planning Commission was abolished?

The planning process in India, particularly after liberalization, has become erratic due to an array of reasons some of which are as follows:

Firstly, it is focused on theoretical tools such as sophisticated mathematical models. These models did not work on ground because they were based on input/output coefficients that are highly aggregative. This was mainly due to data problems.

Secondly, the planning documents generally resulted in duplication of the jobs of central ministries and the states by setting up parallel divisions in planning commission itself.

Thirdly, during the successive plan periods, the targeted goals were compromised in most arbitrary way. This was mainly because of the faulty budgeting resulting in absence of annualized break-up of targets set in the plan.

Fourthly, the multiyear budgeting in our country has its own problems. The rationale behind multiyear budgeting is that different programmes have different time spans. For example, Bharat Nirman was launched for four-year period 2005-09, while JNNURM was launched for seven years beginning 2006. However, five years is a too long a period and almost every plan immediately started dwindling after its launch. It could be more logical if a plan could be prepared for 3 years timeframe and fourth and fifth years would be set as tentative plans. Further, the five year plans were not in sync with the annual budgeting exercise. In the absence of a budget system that helps a five year plan get implemented annually, the five year planning remained at best as an academic exercise.

Fifthly, the plan/non-plan distinction in government expenditures has lost its relevance and needs to go.

Sixthly, the dwindling flow of central assistance for state plans and the cessation of on-lending to the states by the centre the system of Annual Plan approval with the states has lost its significance and needs to be done away with.

Finally, the system of transfers from the centre needs to be reformed.

Lost credibility of the Planning Commission

Successive governments have used the planning commission as a parking lot for decent placement for the favourable officers and academics, who could not be accommodated anywhere else as its members. Its credibility was lost due to its theoretical reports and data-mining which generally did not stand correct on ground.

In words of finance minister Arun Jaitley, the Planning Commission wasuseful in a command economy structure, which is not relevant today.  India is a diversified country and its states are in various phases of economic development along with their own strengths and weaknesses. Planning commission used “one size fits all” approach and imposed policies on states and tied allocation of funds with projects it approved. In contrast, the government has established NitiAyog as a “Think Tank” which has no power to impose policies.

Achieving of Planning

In the last about 60 years since India became a Republic, the National Income has increasedmany times. Today, (India is the third largest economy in Asia) with about $1.4 trillion GDP after China and Japan; is the 11th largest economy in the world). (India is the fourth largest in the world as measured by purchasing power parity (PPP)), with a gross domestic product (GDP) of about $4 trillion- USA, China, Japan, India. In the face of global recession, India posted 6.7% rate of growth in 2008-09 and 7.6% in 2009-10 and (is the second fastest growing major economy after China)The first half of 2010- 1 saw the growth rate at 8.9%.

Poverty dropped to about 20% of the population- the criterion used is monthly consumption of goods valued less than Rs. 211.30 per capita for rural areas and Rs. 454.11 for urban areas (2006) Social indicators improved e though there is a long way to go- IMR,MMR, literacy, disease eradication etc. The industrial infrastructure is relatively strong - cement, steel .fertilizers, chemicals, etc Agricultural growth is also gaining momentum with food grains production at 233 mt in 2010. (Forex reserves are $300 b (January 2011) which) is a dramatic turnaround from 1991 when we had a billion dollars.

More than 1.7 lakh MW of power capacity is installed by the end of 2010 India has emerged as a back office if the world and its prowess in software is growing.

India ranks fourteenth worldwide in factory output. India ranks fifteenth worldwide in services output). There has been considerable expansion of higher, education. At the time of Independence there were 20 universities and 591 colleges, while today, there are almost 500 universities and 21,000 colleges. Literacy levels are 75% (2010).

The failures

• Poverty still plagues about 360 million (Tendulkar committee);
• Inflation on CPI and food inflation are rising relentlessly hurting the poor-. 14.4% is the food inflation I December 2010;
• Unemployment is high;
• Regional imbalances are intensifying;
• Malnutrition haunts about half the children in India