Economics · Ch 8 — Indian Economy 1950-1990
The Goals of Five Year Plans
The Goals of Five Year Plans
A plan must set out clear goals. India's five year plans pursued four of them -- growth, modernisation, self-reliance and equity. This does not mean every plan gave all four equal weight; because resources are limited, each plan had to decide which goal to treat as the priority. What the planners did try to ensure was that a plan's policies never actively worked against these four aims.
A plan spells out how a nation's resources are to be put to use (see Box 2.2).
Box 2.2: What is a Plan?
A plan spells out how the resources of a nation should be put to use. It should have some general goals as well as specific objectives to be achieved within a specified period of time; in India, plans were of five years' duration and were called five year plans -- borrowed from the former Soviet Union, the pioneer of national planning. Plan documents up to the year 2017 specified not only the objectives to be attained in the five years of a plan but also what was to be achieved over a longer period of twenty years. This long-term plan is called the 'perspective plan'; the five year plans were meant to provide the basis for it.
It would be unrealistic to expect all the goals of a plan to be given equal importance in every plan -- in fact, the goals may actually be in conflict. For example, the goal of introducing modern technology may be in conflict with the goal of increasing employment if the technology reduces the need for labour. The planners have to balance the goals, a very difficult job indeed. Different goals are emphasised in different plans in India.
India's five year plans did not spell out how much of every good and service is to be produced. This is neither possible nor necessary (the former Soviet Union tried to do this and failed). It is enough if the plan is specific about the sectors where it plays a commanding role, for instance power generation and irrigation, while leaving the rest to the market.
The four goals
Growth
Growth means an increase in the country's capacity to produce goods and services. It implies a larger stock of productive capital, or larger supporting services such as transport and banking, or greater efficiency of capital and services. Its standard indicator is a steady rise in Gross Domestic Product (GDP) -- the market value of all final goods and services produced within the country in a year. GDP can be pictured as a cake: growth makes the cake bigger so more people can enjoy it. A country's GDP comes from three sectors -- agriculture, industry and services -- and the share contributed by each makes up the structural composition of the economy, which differs from country to country.
In some countries growth in agriculture contributes more to GDP growth, while in other countries growth in the service sector contributes more (see Box 2.4).
Box 2.4: The Service Sector
As a country develops, it undergoes 'structural change'. In the case of India, the structural change is peculiar. Usually, with development, the share of agriculture declines and the share of industry becomes dominant. At higher levels of development, the service sector contributes more to the GDP than the other two sectors. In India, the share of agriculture in the GDP was more than 50 per cent at independence -- as we would expect for a poor country. But by 1990 the share of the service sector was 40.59 per cent, more than that of agriculture or industry, like what we find in developed nations. This phenomenon of the growing share of the service sector was accelerated in the post-1991 period (this marked the onset of globalisation in the country, discussed in the next chapter).
Modernisation
Raising output requires producers to adopt new technology -- a farmer using improved seed varieties, a factory using a new type of machine. Adopting such new technology is called modernisation. But modernisation is not only about technology; it also means a change in social outlook, such as recognising that women should have the same rights as men. A traditional society keeps women at home while men work; a modern society draws on the talents of women in workplaces like banks, factories and schools, and such societies tend also to be more prosperous.
Self-reliance
A nation can pursue growth and modernisation using either its own resources or resources imported from abroad. The first seven plans stressed self-reliance, meaning the avoidance of imports of goods that India could produce itself. This was seen as necessary to reduce dependence on other countries, especially for food. For a people only recently freed from foreign rule, it was understandable to guard their independence: there was a fear that relying on imported food, foreign technology and foreign capital could leave India's sovereignty open to outside interference in its policies.
Equity
Growth, modernisation and self-reliance on their own may still leave people's lives unimproved -- a country can grow fast, use the most modern home-grown technology, and yet keep most of its people in poverty. Equity demands that the benefits of prosperity reach the poor as well as the rich. Every Indian should be able to meet basic needs -- food, a decent house, education and health care -- and inequality in the distribution of wealth should be reduced.
India's planning had many architects, foremost among them the statistician Prasanta Chandra Mahalanobis (see Box 2.3).
Box 2.3: Mahalanobis: the Architect of Indian Planning
Many distinguished thinkers contributed to the formulation of India's five year plans. Among them, the name of the statistician Prasanta Chandra Mahalanobis stands out.
Planning, in the real sense of the term, began with the Second Five Year Plan. The Second Plan, a landmark contribution to development planning in general, laid down the basic ideas regarding the goals of Indian planning; this plan was based on the ideas of Mahalanobis, so in that sense he can be regarded as the architect of Indian planning.
Mahalanobis was born in 1893 in Calcutta. He was educated at Presidency College in Calcutta and at Cambridge University in England. His contributions to the subject of statistics brought him international fame, and in 1945 he was made a Fellow (member) of Britain's Royal Society, one of the most prestigious organisations of scientists -- only the most outstanding scientists are made members of this Society. Mahalanobis established the Indian Statistical Institute (ISI) in Calcutta and started a journal, Sankhya, which still serves as a respected forum for statisticians to discuss their ideas. Both the ISI and Sankhya are highly regarded by statisticians and economists all over the world to this day.
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