Five-year Plans

Demise of planning

Print edition : August 05, 2016

July 23, 1971: Prime Minister Indira Gandhi arriving to preside over the first meeting of the reconstituted Planning Commission. Also seen is Deputy Chairman of the Planning Commission and Union Planning Minister, C. Subramaniam. Photo: THE HINDU ARCHIVES

April 1962: Vice President S. Radhakrishnan with Shriman Narayan, member of the Planning Commission, in New Delhi. Photo: THE HINDU ARCHIVES

India’s planning process has had serious democracy deficits, but the country needs a similar mechanism to cope with the challenges posed by neoliberalism.

At the time of Indian Independence, there were three important features of the global state of affairs following the end of the Second World War. The long crisis of the capitalist world from 1914 to 1945—a period during which the world saw two devastating wars caused by inter-imperialist conflicts, the revolutionary overthrow of czarist Russia followed by the emergence of the Union of Soviet Socialist Republics (USSR), and the Great Depression lasting through the 1930s causing great economic distress throughout the capitalist world even as the USSR made spectacular economic advancement under a regime of socialist central planning—had considerably weakened the European imperial powers and Japan. This, and the emergence of a Socialist camp which accounted for around a sixth of the world’s territory and a third of its population by the early 1950s, strengthened the national liberation wars against colonial rule.

The global wave of decolonisation that followed between 1945 and the early 1960s, taken together with these two developments, made it possible for many newly independent countries, at least the more populous among them with considerable land and natural resources, to embark upon a relatively autonomous (though essentially capitalist) path of economic development, even while engaging with the international economy in various ways. This was the international context in which independent India embarked on the path of economic development.

The national context was characterised by the presence of several militant movements of workers and peasants in the period between 1945 and 1950. There was the tribal land struggle of Warli in present-day Maharashtra; the Tebhaga movement for an increased share of produce for the sharecroppers in Bengal; the struggles of agricultural labourers and poor peasants in the Madras Presidency; and the armed resistance of peasants in the Telangana region of what later became Andhra Pradesh. These were among the important instances of rural militancy, but there were struggles of the peasantry in Assam, Punjab and Bihar as well. The strikes of railway workers and Central government employees stood out as instances of urban working-class militancy. Then there was the historic mutiny of the ranks of the Royal Indian Navy. Both the favourable international context and the highly restive national context played key roles in making necessary and possible a process of relatively autonomous development in which, given the limited development of the domestic business classes, the state was bound to play a major role not just as regulator but as participant.

Leaders of India’s freedom movement had been inspired by the remarkable success of economic growth and social development in the USSR, made possible by socialist planning. The Indian National Congress (INC) constituted a National Planning Committee chaired by Jawaharlal Nehru in 1938. Some idea of the importance of this exercise can be gauged from the fact that between 1938 and the Avadi session of the INC in 1955 the committee met more than 70 times and Nehru was present at all the meetings but one. The idea of planning for economic development was very much a part of the legacy of our freedom struggle.

The Planning Commission was set up by the Government of India through a resolution dated March 15, 1950. The resolution made a reference to the setting up of a National Planning Committee in 1938, and to the establishment of a separate Planning and Development Department by the Government of India in 1944. At the instance of this department, both Central and provincial governments had prepared various schemes and projects for post-War implementation.

The resolution tells us that an “Advisory Planning Board” appointed by the Government of India reviewed planning problems and recommended, towards the end of 1949, “ …the appointment of a Planning Commission to devote continuous attention to the whole field of development, so far as the Central government was concerned with it”.

Reviewing the economic situation as it had evolved since the end of the Second World War, the resolution explained the decision to constitute a Planning Commission in the following terms: “The need for comprehensive planning based on a careful appraisal of resources and on an objective analysis of all the relevant economic factors has become imperative. These purposes can best be achieved through an organisation free from the burden of day-to-day administration, but in constant touch with the government at the highest policy level. Accordingly, as announced by the Finance Minister in his Budget speech on February 28, 1950, the Government of India has decided to set up a Planning Commission.” The resolution specifically recalled the rights enshrined in the Constitution of India and the Directive Principles of State Policy and noted that planning must be geared to ensure that “…the citizens, men and women, equally, have the right to an adequate means of livelihood; the ownership and control of the material resources of the community are so distributed as best to subserve the common good; and the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment”.

The mandate of the Planning Commission and its composition were set out in the resolution, which also made clear that the Commission “…would make its recommendations to the (Union) Cabinet”.

In other words, decisions would be made by the Central government, and where applicable, State governments, and the Planning Commission would only be a recommendatory body.

The idea of planning for economic development in India predates the establishment of the Planning Commission. The pioneer in this regard was Sir M. Visvesvaraya, an engineer by profession and an important public figure, who formulated a National Economic Plan for India and published it in 1934.

His plan had the objective of doubling India’s national income in 10 years. Later, as the country’s freedom from colonial rule neared and it became clear that planning for economic development would be an important agenda soon, several other plans were prepared and proposed. Important among them were the Bombay Plan, also known as the Tata-Birla Plan; the People’s Plan of M.N. Roy and the Indian Federation of Labour; and the Gandhian Plan of Shriman Narayan Agarwal.

The heyday of planning

There was a political consensus in the early years following Independence on both the importance of the state as the key agent of development and Central planning as an important instrument for enabling the state to play this role. However, it is important to emphasise here that Central planning and Five Year Plans in the Indian context were quite different in their meaning and impact from what was practised in the Soviet Union.

In the USSR, the major means of production were publicly owned. Private investment was not a factor. The state had the legal power to implement plans for the entire economy across the board. Things were quite different in the Indian context, where the state could at best plan public investment, based on its mobilisation of resources. The state did not have powers to command where private investment should be made but could at best use incentives and disincentives to try to achieve a desired pattern of private investment. Planning, therefore, was always partial, and confined to the state sector.

During the first three Five Year Plans between 1950 and 1966, considerable political importance was attached to planning. But when the Indian economy entered into a threefold crisis of food, foreign exchange and domestic resource mobilisation in 1966, the planning process was temporarily suspended.

Between 1966 and 1969 there were only Annual Plans, not very different from annual budgets. While the planning process resumed in 1969, with the fourth Five Year Plan slated to run from 1969-70 to 1973-74, it had already begun to lose steam. By the end of the 1960s, the heyday of planning was over.

The fourth Plan was sharply pruned following the midterm review in 1971-72, but even the reduced targets were not achieved when the Plan period ended in March 1974. By then, it had become clear that the objectives specifically mentioned in the resolution of the government setting up the Planning Commission in 1950, such as ensuring every citizen’s right to adequate means of livelihood and preventing concentration of ownership of assets, were nowhere near being achieved.

Communist Party of India (Marxist) leader E.M.S. Namboodiripad made the point that the failure of planning to fulfil its aims was a result of state power being in the hands of big capitalists and landlords and that the country was pursuing a path of capitalist development without basic changes in the inherited agrarian structure with its enormous concentration of ownership of land and other productive assets. The fifth Five Year Plan, scheduled to run from 1974-75 to 1978-79, was late to start with, and was overtaken by the imposition of the Emergency.

Following the 1977 election, the Janata Party government at the Centre terminated the fifth Five Year Plan and introduced the idea of a so-called “rolling plan”, the idea being that while the initial Plan would have a five-year time frame, there would be iterative changes at the end of each year. However, this government fell by the end of 1979, and Indira Gandhi, who led the Congress to victory in 1980, announced the resumption of Five Year Plans, with the sixth Plan running from 1980-81 to 1984-85. Following Indira Gandhi’s assassination, the government at the Centre led by Rajiv Gandhi took major steps towards deregulation of the economy. However, it did not abandon planning, and the seventh Plan ran from 1985 to 1990.

The political and economic crises after the defeat of the Congress in the 1989 election, which was followed by the downfall of the National Front government led by V.P. Singh in late 1990, led to the abandonment of Five Year Plans during the 1990-92 period.

By the time the minority government of Narasimha Rao finalised the eighth Plan to run from 1992 to 1997, India had already embarked on a path of liberalisation, privatisation and globalisation. This signalled the coming demise of development planning.

From 1992, there was no formal gap between successive Plans. The eighth ran from 1992 to 1997, the ninth from 1997 to 2002, the 10th from 2002 to 2007 and the 11th from 2007 to 2012. Even now, when the website of the Planning Commission has been archived, the official status of the 12th Plan is not clear.

NITI Aayog

From the time the Planning Commission was set up in 1950, the planning process in India has had serious democracy deficits. For one, in a country as large and diverse as ours, the constitution of a Planning Commission by an executive order of the Central government, with its membership and mandate solely decided by the Centre, was itself far from democratic.

Over the decades, as the compulsions of a capitalist path, led by big business, dictated more and more centralisation of political and economic governance by the Union government, the Planning Commission became, among other things, an instrument to punish recalcitrant State governments and reward the pliant ones.

The Bharatiya Janata Party-led National Democratic Alliance (NDA) government seized upon these inequities to get rid of the Planning Commission itself, using the slogan of “cooperative federalism”.

On August 13, 2014, the Planning Commission was abolished. A Cabinet resolution was passed on January 1, 2015, to replace it with NITI Aayog (National Institution for Transforming India).

A reading of the functions of NITI Aayog, as listed on its website, shows how completely the idea of planning has been abandoned by the NDA regime. While the pursuit of neoliberal policies in India under a regime of unregulated flows of capital as finance into and out of the country imposes severe constraints on macroeconomic policy, the complete abandonment of planning is a rather drastic step. Under a neoliberal regime, development planning in the old sense becomes increasingly difficult to the point of becoming nearly impossible.

Nevertheless, a country needs some planning mechanism, if only to cope with the challenges posed by the pursuit of neoliberal policies and changes in international economic conditions and relations.

The NDA regime may have shot itself in the foot by dismantling the Planning Commission and abandoning the exercise of macroeconomic and sectoral planning in partnership with elected State governments.

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