Question No. 4
Write short notes on the following:
(a) Nature of Indian Economic Planning
Independence came to India with the partition of the country on 15 August 1947. In 1948, an Industrial Policy Statement was announced.
It suggested the setting up of a National Planning Commission and framing the policy of a mixed economic system.
On 26 January 1950, the Constitution came into force. As a logical sequence, the Planning Commission was set up on 15 March 1950 and the plan era started from 1 April 1951 with the launching of the First Five Year Plan (1951-56).
However, the idea of economic planning in India can be traced back to the pre-independent days.
“The idea of economic planning gained currency in India during and after the years of the Great Agricultural Depression (1929-33). The then Government of India was by and large guided by a policy of leaving economic matters to individual industrialists and traders.”
(i) 1934:
It is rather surprising that blueprints for India’s planning first came from an engineer-administrator, M. Visvervaraya. He is regarded as the pioneer in talking about planning in India as a mere economic exercise. His book ‘Planned Economy for India’ published in 1934 proposed a ten-year plan. He proposed capital investment of Rs. 1,000 crore and a six-fold increase in industrial output per annum.
(ii) 1938:
In 1938, the Indian National Congress headed by Pandit J.L. Nehru appointed the National Planning Committee (NPC) to prepare a plan for economic development. The NPC was given the task of formulating a comprehensive scheme of national planning as a means to solve the problems of poverty and unemployment, of national defence, and of economic regeneration in general. However, with the declaration of the World War II in September 1939 and putting leaders into prison, the NPC could not march ahead.
(iii) 1944:
The Bombay Plan, the People’s Plan and the Gandhian Plan: One of the most widely discussed plan during the 1940s was the Bombay Plan prepared by the Indian capitalists. It was a plan for economic development under considerable amount of government intervention.
It emphasised the industrial sector with an aim of trebling national income and doubling of per capita income within a 15-year period. Under this plan, planning and industrialisation were synonymous.
An alternative to the Bombay Plan was given by M. N. Roy in 1944. His plan came to be known as People’s Plan. His idea of planning was borrowed from the Soviet type planning. In this plan, priorities were given to agriculture and small scale industries. This plan favoured a socialist organisation of society.
In the light of the basic principles of Gandhian economics, S. N. Agarwal authored ‘The Gandhian Plan’ in 1944 in which he put emphasis on the expansion of small unit production and agriculture. Its fundamental feature was decentralisation of economic structure with self-contained villages and cottage industries.
(iv) 1950 Planning Commission:
After independence, the Planning Commission was set up by the Government of India in March 1950. The Commission was instructed to (a) make an assessment of the material capital and human resources of the country, and formulate a plan for the most effective and balanced utilisation of them; (b) determine priorities, define the stages for carrying the plan and propose the allocation of resources for the due completion of each stage; (c) identify the factors which tend to retard economic development; and (d) determine the conditions which (in view of the then current socio-political conditions) should be established for the execution of the plan.
The planning process was initiated in April 1951 when the First Five Year Plan was launched. Since then ten five year plans have been completed and the Eleventh Plan is in progress.
The Timing of These Eleven Plans are Given here in a Tabular Form:
2. Characteristics of Indian Plans:
There is a long history of the evolution of economic thinking and approach to planning in India and, therefore, its features are changing with the change of the economy. Structure and objectives of each and every country never remain uniform as well as linear. One can also see a wide difference in the political viewpoint as well as political approaches. Such differences lead to different approaches to planning varying from country to country.
In other words, every country has its own peculiarities of economic planning, and India is no exception to this. Further, such characteristics of Indian planning are not uniform. It is to be noted here that the features relate to the initial situation that shape the future of planning. Again, the objectives of planning are not static in the sense they need to be changed according to the needs and opportunities of the country.
Indian history of planning can be divided into three periods: pre-independent, 1951- 1991 and 1991 onwards. We will, however, concentrate on planning of independent India down from 1951 till date. Now we will present some of the essential features of Indian planning so as to understand the mechanics of planning both in a controlled and planned economy, and planning in a market- friendly economy.
(i) Five Year Planning:
Though India’s plans are of a 5-year period, such planning is linked with a long term view. Sino-India War (1962), Indo-Pak War (1965), and the unprecedented drought in the mid-60s forced to adopt the approach of ‘plan holiday’ from the Fourth Five Year Plan. Instead of a regular Five Year Plan, planning was discontinued through three ad hoc Annual Plans during the period 1966-69.
Again, with the assumption of power by the Janata Government in 1977, rolling plan on a year to year basis or the Sixth Plan had been formulated for the period 1978-83. In 1980, this rolling plan concept was discontinued by the Congress (I) Government much ahead of the scheduled time and the Sixth Plan came into operation from 1980 and continued till 1985. Because of unprecedented political crisis in New Delhi and frequent changes of power, the Eighth Five Year Plan scheduled for the period 1990-95 could not be launched.
The Eighth Five Year Plan was delayed by two years, though the years 1990-91 and 1991-92 had not been projected as ‘plan holiday’. The Eighth Five Year Plan came into operation in 1992. Since then there has been no break from the five year planning system.
(ii) Developmental Planning:
Indian planning is of the developmental variety. To build up a self-reliant economy, overall economic development of the country received top priority. However, short term problems like refugee rehabilitation, food crises, foreign exchange shortage also got due attention from the planners.
(iii) Comprehensive Planning:
Indian planning is comprehensive in character in the sense that it not only undertakes economic programmes but also puts emphasis on changes in institutional structures and cultures. It emphasies both on the development of agriculture, industry, transport and communications and physical infrastructures and social infrastructures such as literacy, health, population control, environment, etc. Planning programmes are also initiated for the development of lower castes and backward classes so that these people are involved in the development processes.
(iv) Indicative Planning:
Indian planning before 1991 was of the nature of directive planning and averse to the role of market mechanism. As far as resource allocation in the governmental sector was concerned, the government did not rely on the market but gave directions so that resources could be utilised by all the states efficiently. Private initiative and freedom was allowed but not in an unhindered way. Private industrialists were encouraged for making investments but, at the same time, they came under strong control and regulation.
Thus, planning in India during 1951-91 was not strictly ‘planning by direction’ like the socialist plan and not strictly ‘planning by inducement’ like capitalist planning.
This old system of Indian planning of the comprehensive nature was to be replaced by an integrative approach that combines both planning and market mechanism. Thus, the Indian planning became indicative in nature with the launching of the Eighth Five Year Plan in 1992. As plans roll on, its indicative nature gets strengthened.
Under it, the role of the government becomes passive and the government sheds some of its functions at the altar of the market principles. It is indicative planning as it merely outlines the directions to which the country is expected to run as well as talks about the means for achieving these aims.
To improve efficiency and productivity of the economy, reliance on market principles is attached and planning mechanism then act as a pathfinder or a leader instead of putting more emphasis on the long term goals of the country.
Thus, flexibility is one of the important hallmarks of indicative planning. Earlier, Indian planning was also of indicative character. But the Eighth Plan had made it more so and had redefined the role and functions of the Planning Commission.
(v) Democratic Planning:
Indian planning is democratic planning. The chief building block of laying down the national plan is the Planning Commission. It is a decision-making body that formulates five year plans and implement them in a democratic spirit and frame. Discussions are held periodically between the people’s representatives, industrialists, chambers of commerce, educationists, and many other bodies as well as the members of the Planning Commission.
The National Development Council is there to make decisions relating to planning in consultation with the Union and State Governments. In fact, the NDC is the apex body for coordination of policies and plans of the Central and the State Governments.
After getting the stamp of approval from the NDC, the plan document is placed before the Parliament for consideration. Though one finds some sort of centralise, planning decisions Indian planning may be called a decentralised one, if not bottom-up planning.
(vi) Decentralised Planning or Planning from Below:
Being democratic planning, Indian planning is essentially a decentralised type of plan. Until the Fourth Plan, planning at the national level was essentially macro planning. In other words, there was very little or no provision for microplartning, i.e., planning from below. While ‘macroplan’ provides a broad framework, a ‘microplan’ chalks out all the details in and fixes priorities for different regions depending on their specific needs.
A macroplan cannot deal with the problems of the remotest regions of the country. A macroplan does not involve people straightforward. However, for an allround growth of every region—small or big—planning has to be decentralised in which local people, local institutions and local governance are asked to participate. This is called ‘participatory development’. Participation of the community is needed to deal with the local problems, local resources, local priorities, etc. In this way, the concept of planning from bottom-to-top rather than top-to-down is more popular in India.
(vii) Present Role of the Planning Commission:
The nature and content of the Eighth Plan (1992-97) was different from earlier plans since this plan had been greatly influenced by the liberalised economic policies of the government and the changing world situation. From a rather centralised planning system, the country moved gradually towards indicative planning.
However, as market forces gathered strength as contrasted to planning, India’s Planning Commission became somehow redundant. Earlier, the Planning Commission behaved something like a ‘super-cabinet’ in propagating and implementing plan policies and programmes.
Against the backdrop of embracing market philosophies, the Planning Commission could no longer act as a policymaking body as it did earlier. The role of the Planning Commission indeed needs to be diluted in the light of changes in the Indian scenario. In other words, Planning Commission needs to be married to the market economy.
Most importantly, the present UPA government has been facing challenges from different quarters because of coalition politics. And the Planning Commission has been reorienting itself to accommodate the compulsions of the coalition Government.
In view of this, Dr. M.S. Ahluwalia articulated relating to the role of the Planning Commission that currently the two roles of the Planning Commission are more important. First is the role of principles that needs to be changed regularly according to the exigencies of the situation. Different ministries will play such roles in their policies and principles.
Since no neutral standpoint could be maintained by the respective ministries, the Planning Commission would then play a more bigger role in the realm of perspective or long term planning. Secondly, market, in case of long term of planning, has very little say. Herein lies the importance of the Planning Commission. Thus, the planning methodology must change so as to reflect the new economic realities and the emerging requirements.
It is, thus, obvious that the features of Indian planning are not static. The role of the Planning Commission has changed to a different form. Above all, the above features of Indian plans are just the reflection of the country’s socio-eco-politico philosophies and viewpoints.
(b) Small Scale industries
Small Scale Industries (SSI) are those industries in which the manufacturing, production and rendering of services are done on a small or micro scale. These industries make a one-time investment in machinery, plant, and equipment, but it does not exceed Rs.10 crore and annual turnover does not exceed Rs.50 crore.
Update on Small Scale Industries (SSIs):
Earlier industries that manufactured goods and provided services on a small scale or micro-scale basis were granted Small Scale Industries (SSI) registration by the Ministry of Small Scale Industries. However, after the government passed the MSME (Micro, Small and Medium Enterprises) Act in 2006, the small and micro-scale industries came under the MSME Act.
On 9 May 2007, subsequent to the amendment of the Government of India (Allocation of Business) Rules, 1961, the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries were merged to form the Ministry of Micro, Small and Medium Enterprises. Thus, the SSIs are included under the Ministry of MSME.
Currently, the SSIs are classified as small or micro-scale industries based on the turnover and investment limits provided under the MSME Act and they need to obtain MSME registration. The government provides many benefits to the small scale industries having MSME registration at present.
Introduction of SSI
Essentially the small scale industries are generally comprised of those industries which manufacture, produce and render services with the help of small machines and less manpower. These enterprises must fall under the guidelines, set by the Government of India.
The SSI’s are the lifeline of the economy, especially in developing countries like India. These industries are generally labour-intensive, and hence they play an important role in the creation of employment. SSI’s are a crucial sector of the economy both from a financial and social point of view, as they help with the per capita income and resource utilisation in the economy.
Characteristics of SSI
Ownership
SSI’s generally are under single ownership. So it can either be a sole proprietorship or sometimes a partnership.
Management
Generally, both the management and the control is with the owner/owners. Hence the owner is actively involved in the day-to-day activities of the business.
Labor Intensive
SSI’s dependence on technology is pretty limited. Hence they tend to use labour and manpower for their production activities.
Flexibility
SSI’s are more adaptable to their changing business environment. So in case of amendments or unexpected developments, they are flexible enough to adapt and carry on, unlike large industries.
Limited Reach
Small scale industries have a restricted zone of operations. Hence, they can meet their local and regional demand.
Resources Utilisation
They use local and readily available resources which helps the economy fully utilise natural resources with minimum wastage.
Role in the Indian Economy
Employment
SSI’s are a major source of employment for developing countries like India. Because of the limited technology and resource availability, they tend to use labour and manpower for their production activities.
Total Production
These enterprises account for almost 40% of the total production of goods and services in India. They are one of the main reasons for the growth and strengthening of the economy.
Make in India
SSI’s are the best examples for the Make in India initiative. They focus on the mission to manufacture in India and sell the products worldwide. This also helps create more demands from all over the world.
Export Contribution
India’s export industry majorly relies on these small industries for their growth and development. Nearly half of the goods that are exported from India are manufactured or produced by these industries.
Public Welfare
These industries have an opportunity to earn wealth and create employment. SSIs are also important for the social growth and development of our country.
Seedbed for Large Scale Industries
SSI acts as the seedbed for Large Scale Industries (LSI) as it provides conducive conditions for the development and growth of entrepreneurs. Small enterprises require low investment and simple technology and use local resources to meet local demands through personal contacts. Thus, it creates scope for the growth and development of LSI.
Objectives of SSI
The objectives of the small scale industries are:
To create more employment opportunities.
To help develop the rural and less developed regions of the economy.
To reduce regional imbalances.
To ensure optimum utilisation of unexploited resources of the country.
To improve the standard of living of people.
To ensure equal distribution of income and wealth.
To solve the unemployment problem.
To attain self-reliance.
To adopt the latest technology aimed at producing better quality products at lower costs.
Types of SSI
SSI are primarily categorised into 3 types, based on the nature of work carried out, which are as follows:
Manufacturing Industries
The manufacturing industries manufacture finished goods for consumption or used further in processing. Some examples of such SSIs are food processing units, power looms, engineering units, etc.
Ancillary Industries
Ancillary industries manufacture components for other manufacturers. These manufacturers then assemble the final product. Big companies manufacture finished goods, but they do not generally make all the parts themselves. The vendors of such big companies are ancillary industries.
Service Industries
Service-based industries are not involved in any kind of manufacturing products. They provide services such as repair, maintenance and upkeep of the products after-sales.
Other types of SSIs are as follows:
Export Units
An SSI is considered as an export unit when the exporting is more than 50% of its production.
Cottage Units
The cottage units are considered as SSIs when they do not involve a dedicated facility and are carried out within living spaces or houses of the owners.
Village Industries
An SSI is considered village industries when they are established in rural areas and are not part of the organised sector. Typically, these industries solely depend on human labour for production.
(c) Economic Reforms
In other words, ‘“economic reforms’” normally indicate deregulation or at times, decrease in the size of government, to eliminate deformities caused by the management or the presence of administration, rather than current or raised regulations or government plans to lessen the perversions created by market failure.
