When India became free, it got a poor, backward and stagnant economy in inheritance. The partition of the country made the situation worse. Hence the utmost task before the country was its economic development. Then came the question how can this goal be achieved? Can this task be performed by individual incentives and initiatives alone? Should it be left on the market forces of demand and supply? We have studied in the last chapter that market forces are inadequate, insufficient and incapable of meeting the challenges and problems of the Indian Economy. It was, thus, realized that the solution of the problem would require an active state role in economic development. It was from this view that independent India chose the path of economic planning for her development.
Why India has regarded the process of economic planning important and essential for her development? The main reasons for this are as follows:
(i) To Break the Vicious Circle of Poverty and Stagnation. We know that India was entangled in a sort of vicious circle of poverty and stagnation at the time of independence. The vicious circle can be broken only through centralised economic planning.
(ii) Priority to the Social-interest. Private entrepreneurs give more importance to individual interest than the social interest. But this is not good from the country’s point of view. It is through economic planning that we can compel individual interest also to work under social interest. Hence to augment and promote social interest India adopted economic planning.
(iii) Fair Balance between the Present and the Future. Private producers interested in profits in the short run are generally apt to ignore the future interests of the community. Therefore, it becomes all the more essential for the government to strike a fair balance between the claims of the present and those of the future through planning.
(iv) To Build Social and Economic Infrastructure. Private entrepreneurs are not much interested to undertake those types of investments which are not remunerative—directly and immediately. For example, under private enterprise there is nothing to induce an industrialist to invest money in creating health, education, transport or communication facilities. But building of these infrastructural facilities are essential for the development of the country. That is why this work is undertaken by the government through planning.
(v) To Increase Capital Formation. Being an underdeveloped economy at the time of independence Indian economy had a very low level of saving, investment and capital formation. There was not only an extremely small capital-stock at the time but the rate of capital formation was also very low. This deficiency of capital was one of the prominent causes for its backwardness and underdevelopment. Since capital formation and mobilisation of savings require deliberate state attempts via planning process, India preferred to adopt economic planning.
(vi) The Success of Economic Planning in the USSR. The initial success of economic planning in the USSR also played an important part in adopting and popularising the concept of planning in India.
In brief, the main problem in a country like India was the inability or unwillingness of private enterprise to put the available natural and human resources to their most effective use. Hence, a scheme for economic planning was required to deal with these all important problems. And that is why India has accepted the process of economic planning for its economic development.