Meaning and Need for Economic Planning

Economic planning is a conscious and deliberate effort by the government to direct, coordinate and control economic activity according to a pre-determined plan, with clearly stated goals, priorities and a fixed time period, so that a country's resources are put to their fullest and most efficient use. For TS Inter II year Economics students, this chapter forms the bridge between the theory of development studied earlier and the actual policy machinery -- the Planning Commission and, since 2015, NITI Aayog -- that India has used to translate development goals into concrete programmes.

At independence in 1947, India was overwhelmingly poor and agrarian, with very low per capita income, negligible industrial capacity, weak infrastructure, low domestic savings and investment, and a highly unequal distribution of income and assets left over from colonial rule. Left entirely to market forces, such an economy would have grown too slowly and too unevenly to lift the mass of its population out of poverty within a reasonable time. Capital markets were underdeveloped, private investors were unwilling to take on large, long-gestation projects such as irrigation dams, steel plants or power stations, and the social infrastructure needed for growth -- schools, hospitals, roads, railways -- required a scale of investment only the state could mobilise.

This is precisely why India, like many newly independent developing countries, chose the path of planned development within a mixed economy: the public sector would take the lead in heavy industry, infrastructure and social sectors, while the private sector would be encouraged, regulated and increasingly relied upon over time. A Telangana Intermediate commerce planning and NITI Aayog module such as this one traces how that institutional machinery evolved -- from the centralised Planning Commission of 1950 to the more flexible, federal NITI Aayog of today.