Five-Year Plans of India

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The economy of India is based in part on planning through its five-year plans, which are developed, executed and monitored by the Planning Commission. The tenth plan completed its term in March 2007 and the eleventh plan is currently underway.^[1] Prior to the fourth plan, the allocation of state resources was based on schematic patterns rather than a transparent and objective mechanism, which led to the adoption of the Gadgil formula in 1969. Revised versions of the formula have been used since then to determine the allocation of central assistance for state plans.^[2]

The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the Parliament of India on 8 December 1951. The plan addressed, mainly, the agrarian sector, including investments in dams and irrigation. The agricultural sector was hit hardest by the partition of India and needed urgent attention.^[3] The total planned budget of ₹206.8 billion (US$23.6 billion in the 1950 exchange rate) was allocated to seven broad areas: irrigation and energy (27.2 percent), agriculture and community development (17.4 percent), transport and communications (24 percent), industry (8.4 percent), social services (16.64 percent), land rehabilitation (4.1 percent), and for other sectors and services (2.5 percent).^[4] The most important feature of this phase was active role of state in all economic sectors. Such a role was justified at that time because immediately after independence, India was facing basic problems—deficiency of capital and low capacity to save.

The target growth rate was 2.1% annual gross domestic product (GDP) growth; the achieved growth rate was 3.6%. The net domestic product went up by 15%. The monsoon was good and there were relatively high crop yields, boosting exchange reserves and the per capita income, which increased by 8%. National income increased more than the per capita income due to rapid population growth. Many irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud Dam. The World Health Organization, with the Indian government, addressed children's health and reduced infant mortality, indirectly contributing to population growth.

At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as major technical institutions. The University Grant Commission was set up to take care of funding and take measures to strengthen the higher education in the country.^[5] Contracts were signed to start five steel plants, which came into existence in the middle of the second five-year plan.

The second five-year plan focused on industry, especially heavy industry. Unlike the First plan, which focused mainly on agriculture, domestic production of industrial products was encouraged in the Second plan, particularly in the development of the public sector. The plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximise long-run economic growth . It used the prevalent state of art techniques of operations research and optimization as well as the novel applications of statistical models developed at the Indian Statiatical Institute. The plan assumed a closed economy in which the main trading activity would be centered on importing capital goods.^[6][7]

Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela were established. Coal production was increased. More railway lines were added in the north east.

The Atomic Energy Commission was formed in 1948 with Homi J. Bhabha as the first chairman. The Tata Institute of Fundamental Research was established as a research institute. In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power.

The total amount allocated under the second five year plan in India was Rs. 4,800 crore. This amount was allocated among various sectors:

• Mining and industry
• Community and agriculture development
• Power and irrigation
• Social services
• Communications and transport
• Miscellaneous

Target Growth: 4.5% Actual Growth: 4.27%

The third plan stressed on agriculture and improving production of wheat, but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the Defence industry. In 1965-1966, India fought a war with Pakistan. The war led to inflation and the priority was shifted to price stabilisation. The construction of dams continued. Many cement and fertilizer plants were also built. Punjab began producing an abundance of wheat.

Many primary schools were started in rural areas. In an effort to bring democracy to the grassroot level, Panchayat elections were started and the states were given more development responsibilities.

State electricity boards and state secondary education boards were formed. States were made responsible for secondary and higher education. State road transportation corporations were formed and local road building became a state responsibility. The target growth rate of GDP(gross domestic product)was 5.6 percent.The achieved growth rate was 2.84 percent.^{[citation needed]}

At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalised 14 major Indian banks and the Green Revolution in India advanced agriculture. In addition, the situation in East Pakistan (now Bangladesh) was becoming dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place.

Funds earmarked for the industrial development had to be diverted for the war effort. India also performed the Smiling Buddha underground nuclear test in 1974, partially in response to the United States deployment of the Seventh Fleet in the Bay of Bengal. The fleet had been deployed to warn India against attacking West Pakistan and extending the war.

Target Growth: 5.7% Actual Growth: 3.30%

Stress was laid on employment, poverty alleviation, and justice. The plan also focused on self-reliance in agricultural production and defence. In 1978 the newly elected Morarji Desai government rejected the plan. Electricity Supply Act was enacted in 1975, which enabled the Central Government to enter into power generation and transmission.^{[citation needed]} leaders.

The Indian national highway system was introduced for the first time and many roads were widened to accommodate the increasing traffic. Tourism also expanded.

Target Growth: 4.4% Actual Growth: 3.8

The sixth plan also marked the beginning of economic liberalization. Price controls were eliminated and ration shops were closed. This led to an increase in food prices and an increase in the cost of living. This was the end of Nehruvian Plan and Rajiv Gandhi was prime minister during this period.

Family planning was also expanded in order to prevent overpopulation. In contrast to China's strict and binding one-child policy, Indian policy did not rely on the threat of force ^{[citation needed]}. More prosperous areas of India adopted family planning more rapidly than less prosperous areas, which continued to have a high birth rate.

Target Growth: 5.2% Actual Growth: 5.66%

The Seventh Plan marked the comeback of the Congress Party to power. The plan laid stress on improving the productivity level of industries by upgrading of technology.

The main objectives of the 7th five year plans were to establish growth in areas of increasing economic productivity, production of food grains, and generating employment opportunities.

As an outcome of the sixth five year plan, there had been steady growth in agriculture, control on rate of Inflation, and favourable balance of payments which had provided a strong base for the seventh five Year plan to build on the need for further economic growth. The 7th Plan had strived towards socialism and energy production at large. The thrust areas of the 7th Five year plan have been enlisted below:

• Social Justice
• Removal of oppression of the weak
• Using modern technology
• Agricultural development
• Anti-poverty programs
• Full supply of food, clothing, and shelter
• Increasing productivity of small and large scale farmers
• Making India an Independent Economy

Based on a 15-year period of striving towards steady growth, the 7th Plan was focused on achieving the pre-requisites of self-sustaining growth by the year 2000. The Plan expected a growth in labour force of 39 million people and employment was expected to grow at the rate of 4 percent per year.

Some of the expected outcomes of the Seventh Five Year Plan India are given below:

• Balance of Payments (estimates): Export - ₹33,000 crore (US$4.0 billion), Imports - (-)₹54,000 crore (US$6.5 billion), Trade Balance - (-)₹21,000 crore (US$2.5 billion)
• Merchandise exports (estimates): ₹60,653 crore (US$7.3 billion)
• Merchandise imports (estimates): ₹95,437 crore (US$11.4 billion)
• Projections for Balance of Payments: Export - ₹60,700 crore (US$7.3 billion), Imports - (-) ₹95,400 crore (US$11.4 billion), Trade Balance- (-) ₹34,700 crore (US$4.2 billion)

Seventh Five Year Plan India strove to bring about a self-sustained economy in the country with valuable contributions from voluntary agencies and the general populace.

Target Growth: 5.0% Actual Growth: 6.01%

1989-91 was a period of economic instability in India and hence no five year plan was implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India faced a crisis in Foreign Exchange (Forex) reserves, left with reserves of only about US$1 billion. Thus, under pressure, the country took the risk of reforming the socialist economy. P.V. Narasimha Rao)was the twelfth Prime Minister of the Republic of India and head of Congress Party, and led one of the most important administrations in India's modern history overseeing a major economic transformation and several incidents affecting national security. At that time Dr. Manmohan Singh (currently, Prime Minister of India) launched India's free market reforms that brought the nearly bankrupt nation back from the edge. It was the beginning of privatisation and liberalisation in India.

Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January 1995.This plan can be termed as Rao and Manmohan model of Economic development. The major objectives included, controlling population growth, poverty reduction, employment generation, strengthening the infrastructure, Institutional building,tourism management, Human Resource development, Involvement of Panchayat raj, Nagar Palikas, N.G.O'S and Decentralisation and people's participation. Energy was given priority with 26.6% of the outlay. An average annual growth rate of 6.78% against the target 5.6% was achieved.

To achieve the target of an average of 5.6% per annum, investment of 23.2% of the gross domestic product was required. The incremental capital ratio is 4.1.The saving for invetsment was to come from domestic sources and foreign sources,with the rate of domestic saving at 21.6% of gross domestic production and of foreign saving at 1.6% of gross domestic production. ^[8]

Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim of attaining objectives like speedy industrialization, human development, full-scale employment, poverty reduction, and self-reliance on domestic resources.

Background of Ninth Five Year Plan India: Ninth Five Year Plan was formulated amidst the backdrop of India's Golden jubilee of Independence.

The main objectives of the Ninth Five Year Plan of India are:

• to prioritize agricultural sector and emphasize on the rural development
• to generate adequate employment opportunities and promote poverty reduction
• to stabilize the prices in order to accelerate the growth rate of the economy
• to ensure food and nutritional security
• to provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy
• to check the growing population increase
• to encourage social issues like women empowerment, conservation of certain benefits for the Special Groups of the society
• to create a liberal market for increase in private investments

During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower than the target GDP growth of 6.5 per cent. ^[9]

• Attain 8% GDP growth per year.
• Reduction of poverty ratio by 5 percentage points by 2007.
• Providing gainful and high-quality employment at least to the addition to the labour force;*All children in India in school by 2003; all children to complete 5 years of schooling by 2007.
• Reduction in gender gaps in literacy and wage rates by at least 50% by 2007;*Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2%;*Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 - 2007)

The eleventh plan has the following objectives:

1. Income & Poverty
   • Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016-17
   • Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits
   • Create 70 million new work opportunities.
   • Reduce educated unemployment to below 5%.
   • Raise real wage rate of unskilled workers by 20 percent.
   • Reduce the headcount ratio of consumption poverty by 10 percentage points.
2. Education
   • Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12
   • Develop minimum standards of educational attainment in elementary school, and by regular testing monitor effectiveness of education to ensure quality
   • Increase literacy rate for persons of age 7 years or above to 85%
   • Lower gender gap in literacy to 10 percentage point
   • Increase the percentage of each cohort going to higher education from the present 10% to 15% by the end of the plan
3. Health
   • Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births
   • Reduce Total Fertility Rate to 2.1
   • Provide clean drinking water for all by 2009 and ensure that there are no slip-backs
   • Reduce malnutrition among children of age group 0-3 to half its present level
   • Reduce anaemia among women and girls by 50% by the end of the plan
4. Women and Children
   • Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17
   • Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children
   • Ensure that all children enjoy a safe childhood, without any compulsion to work
5. Infrastructure
   • Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power.
   • Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015
   • Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012
   • Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016-17
6. Environment
   • Increase forest and tree cover by 5 percentage points.
   • Attain WHO standards of air quality in all major cities by 2011-12.
   • Treat all urban waste water by 2011-12 to clean river waters.
   • Increase energy efficiency by 20 percentage points by 2016-17.

The Planning Commission has two alternative targets for economic growth in the Twelfth Plan. The first being a repetition of the previous Plan target of 9% growth, that is yet to be achieved. The second is, however an even higher target of 9.5% average growth for the Twelfth Five Year Plan. Numerous macro‐economic techniques have been used to examine the feasibility of these targets in terms of internal consistencies and inter‐sectoral balances. The sectoral growth rates broadly consistent with the 9% and 9.5% alternatives are presented in the table below. The 9% target requires a significant acceleration in growth in agriculture, electricity, gas, water supply and also manufacturing. Agricultural growth has always been an important component for inclusiveness in India, and recent experience suggests that high GDP growth without such agricultural growth is likely to lead to accelerating inflation in the country, which would jeopardise the larger growth process. However, even if such agricultural growth is achieved, it is unlikely that the agricultural sector will absorb additional workers. Thus, the main onus for providing additional jobs to the growing labour force will rest on manufacturing and construction and on the services sectors. The target set for the mining sector, mainly reflecting additional production of coal and natural gas, is also very demanding, but is necessary to meet the primary energy requirements without resorting to excessive imports. As shown in the table below, taking the growth rate to 9.5% would require much faster growth in the manufacturing, as well as in electricity, gas and water supply sectors. The feasibility of achieving such large acceleration in key sectoral performance needs to be considered carefully before the growth targets for the Twelfth Plan are fixed. This is particularly true for the energy sector where supply constraints could be severe. ^[10]

Sl. no.	Sectors	9% Target	9.5% Target
1	Agriculture, Forestry & Fishing	4.0	4.2
2	Mining & Quarrying	8.0	8.5
3	Manufacturing	9.8	11.5
4	Elect. Gas & Water Supply	8.5	9.0
5	Construction	10.0	11.0
6	Transport, Communication & Storage and Tourism	11.0	11.2
7	Financing, Insurance, Real Estate & Business Services	10.0	10.5
8	Community, Social & Personal Services	8.0	8.0
	TOTAL GDP	9.0	9.5
	Industry	9.6	10.9
	Service	10.0	10.0

The progress towards inclusiveness in growth and development is the most difficult to assess, because inclusiveness is a multi‐dimensional concept. The result of inclusive growth should be a reduction in the incidence of poverty, significant improvement in health outcomes, universal access for children to school, increased access to higher education and improved standards of education, including skill development. There should also be an improvement in employment opportunities, increase in wage rates, betterment in livelihoods and improvement in provision of basic amenities like water, electricity, roads, sanitation and housing. Particularly importance have to be given to the needs of the SC/ST and OBC population, women and children (as minorities) and other excluded groups. In order to achieve inclusiveness in all these sectors requires multiple interventions, and its success depends not only on introducing new policies and government programmes, but also on institutional and attitudinal changes, which are highly time consuming. ^[11]

• Official website of the Planning Commission of India