Why is Economic Planning a Difficult Task in India


Planning—A Difficult Task

Planning in a developing country like India is not an easy task rather it is a formidable one. It is formidable mainly because of two reasons. First, when we plan for an economic change, it hurts a so far privileged group in the society. These people, therefore, tend to resist such change and create hurdles in its way. Both the planning and its implementation, thus, become difficult social and political questions and not merely difficult technical questions. In the process of planning for economic growth with social justice government has to manipulate the free play of the forces of demand and supply with a view of social interest. It will definitely hurt the life-style of the rich people. For example, rich people can have greater claim on scarce goods in a free market. But when we make plans for equal distribution or provision of essential goods and amenities such as sugar, clothes, water supply, electricity, sanitation etc. for the common people, it will cut the shares of rich section. For this government has to take hard political decisions which is really a very difficult task in a democratic setup like that of India.

The second reason which makes the planning a formidable task arises from the necessity of rapid economic growth. We know rapid economic growth requires large capital base or expansion of the economy’s productive capacity. Capital formation demands curb on consumption. For this we have to save and invest. It means we have to sacrifice our today’s comforts for tomorrow’s goods. It is a basic question of today versus tomorrow before the country. If we want to have more goods tomorrow we have to consume less today. But in a poor country like India it is very difficult to prepare people for such sacrifices.

Objectives of Indian Economic Planning

Planning in India derives its objectives from the Directive Principles of state policy set forth in the Constitution. It is perhaps because of this reason that immediately after the adoption of new Constitution on 26 January, 1950, the Planning Commission came into existence. The Government of India constituted Planning Commission in March, 1950 under the Chairmanship of Pandit Jawaharlal Nehru, to prepare a plan for the most effective and balanced utilisation of the country’s resources. This Planning Commission prepared country’s First Five Year Plan covering the period of 1951 to 1956. It was further followed by a series of Five Year Plans.

Our First Five Year Plan states that “Economic planning is an a way of organising and utilising resources to the maximum advantage in terms of defined social ends.” What are those social ends? In a way they will act as objectives for our economic planning. In view of the directive Principles of the Constitution and requirements of the Indian economy, our development plans have set following long-term objectives:

1.High Rate of Growth. The improvement in the levels of living by raising the national and per capita income has been the first and foremost objective for all the plans in the country. Raising the per capita income implies that the growth rate of national income should be higher than the population growth. This aim of higher rate of growth has also been expressed as the goal of removal of poverty. We want to speed up this rate of growth so that we can come out from the clutches of abject poverty.

2.Social and Economic Justice. As we have already studied in the last chapter that the Directive Principles of our Constitution have proclaimed justice as a basic national commitment. Hence, one of the objectives of economic planning in India is to ensure economic and social justice. This objective has three main dimensions (a) reducing inequalities in the distribution of income and wealth, (b) curbing concentration of economic power, and (c) uplifting the weaker section of the society

High rate of growth and social justice have been regarded as the two primary objectives of India’s economic planning. Some argue that there is a certain amount of conflict between these two objectives. For example, high rate of growth requires high rates of saving and capital formation. And this can be provided only by the rich section of the society. Similarly, a too vigorous pursuit of equality can injure economic incentives and bring down the level of national production. But if we look deeply we find that these two objectives are not contrary to each other rather complementary. One task of economic planning in India is, therefore, to strike a judicious balance between these two primary objectives. To stress this line of thinking, they are now not considered as two separate objectives but One single objective ‘Development with Social Justice’. This is the first and foremost objective of Indian planning.

3.Increase in Employment Opportunities. Unemployment and underemployment ar& important reasons for poverty in the country. Hence, the creation of additional employment opportunities has been an important objective in India’s plans right from the beginning. There may be investment plans which may increase production without increasing employment. But this does not suit to the Indian environment. In India where population and labour force are rising fast, we require employment-oriented investment plans. Accordingly, India’s plans have stressed on employment objective and have taken into consideration the impact of different types of development programmes on the employment situation. The device of employment creation, specially for the poor, could also combine the increase in production with social justice.

4.Self-reliance. In the early stage of her development, a country is forced to depend upon foreign aid. But foreign aid has its own difficulties and problems. In view of this, India’s plans have been emphasising the objective of self-reliance. Self-reliance implies eliminating dependence on concessional foreign aid, in other words meeting external payments obligations out of our own earnings. This objective has many aspects such as expansion of exports, substitution of imports and increase in the domestic production of food grains etc.

Thus, the major long-term objectives of Indian planning are four-fold; increasing national and per capita income; reducing inequalities, creating employment opportunities and achieving self-reliance.

For economic planning India has started Five-Year Plans. Our First Five-Year Plan began in 1951 and Eighth Five-Year Plan was completed in 1997. Currently Ninth Five-Year Plan (1997-2002) is in operation.

Need and Importance of Planning in India

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.

Price Mechanism and Planning

There are two ways of solving the basic problems. These are price mechanism and planning : Price mechanism refers to the system in which price is determined by the forces of demand and supply without any external interference which, where, how much goods and services are to be produced. Economic planning refers to the deliberate and conscious control of the economy by the central planning authority in order to achieve the laid down targets and objectives within a stipulated period of time.

The capitalist economy is governed by the price-mechanism and under price mechanism or market mechanism prices are determined by the interaction of demand and supply. In other words, prices are governed on the basis of people’s demand and producers’ supply of goods at different prices. If at a given price, the demand for a product is more than its supply, this will result in the rise of the price, which will result in a fall in demand on one side and rise in supply on the other. Thus a point or a price comes where both demand and supply are equal to each other. When neither demand nor supply exceeds in the market, it is said that economy has solved its basic problems i.e. what to produce and how much to produce in a more or less satisfactory way. It is generally believed that when price mechanism starts functioning effectively and efficiently; it can help in solving all other basic problems which includes fair and just distribution also.

In a socialist economy, the basic problems are solved by economic planning. However, in a mixed economy both price mechanism and economic planning are pressed into service in order to solve the basic problems. But certain persons feel that as compared to economic planning, the price mechanism does not solve the basic problems. They argue that in under-developed economies these forces help a little in achieving the required pace of economic development and also do not provide social justice for all in the fair distribution of national product. Thus price mechanism is an inadequate force so far as the solution of basic problems of all economies are concerned. In this regard following three reasons are given

(1) Economic needs of the people not represented equally: The first argument given is that forces of market demand and supply do not cover up economic requirements of the people equally, as the voting by ballots covers up the political requirements in a democracy. It is observed that market demand generally goes in favour of those persons who possess the capacity to spend more on their purchases. Thus, as compared to poor man’s necessity the rich man’s luxury snatches a greater portion of the resources of the economy. For example, the production of a private car is more profitable than the production of a public bus, even though the bus serves the transport needs of bulk of the people. Same are the cases of production of air conditioners, carpets, costly sarees etc. as compared to the production of table fans, durrees, dhotis etc. respectively.

Similarly, from the point of view of the supply, the poor need medicines whereas the rich lay more emphasis on the demand of cosmetics. The poor person requires hospitals whereas the private investor considers construction of a cinema house as profitable. Thus the choice fluctuates between cosmetics and medicines, big buildings and small huts, cinema houses and hospitals, big five star hotels and small dhabas, so far as the allocation of resources for production is concerned. Thus, the scale of supply goes to satisfy the needs of those persons who are economically stronger and financially sound because the allocation of resources through market mechanism does not work according to the rule of ‘one person one vote’ Therefore the price-mechanism generally favours the larger investor or the spender

(2) Self-interest: The market-mechanism takes into consideration only the self-interest and not the social interest Every buyer or seller is motivated by the self-interest during the transaction or exchange of goods For example, a cigarette producer, while producing cigarette, sees how he can earn maximum profit from its sale, though from the social point of view its production and sale is injurious to health. Similarly, the business community wishes that certain goods may be taxed less so that they may earn a maximum revenue, but the social interest desires that certain goods must be taxed heavily so that state may earn a revenue and may spend the same for the welfare of the people.

(3) Infrastructure: The market forces of demand and supply, to a greater extent, are insufficient so far as the question of the development of infrastructure is concerned. Infrastructure includes construction of roads, railways, bridges, facilities of irrigation, drinking water, generation of electricity, construction of dams; flood control; facilities of communication and such other social and economic services. These basic structures cannot be built rapidly through the market mechanism alone because these require huge expenditure which cannot be incurred by the private sector The reason is that this structure is not profitable Huge projects like construction of dam requires thousands of crores of investment, but the return from it is after a very long time and that too is not sure Thus, none will come forward to risk his money. Thus, if left to market-mechanism, these basic structures will remain in an under-developed stage. Take the case of India, all these infrastructures were taken up by the government and spent crores of rupees for their development during the five-year plans.

Thus, from the point of view of an under-development economy, planning mechanism has also to be taken into account so that the objectives of rapid economic development and social justice may be obtained. But it is generally observed that the public sector as compared to private sector, generally becomes inefficient as it does not deliver goods efficiently as the private sector does. It has been noticed that government-run industries have been suffering losses while the similar industries run by the private entrepreneurs are earning profits. Thus, in our opinion, the solution lies in the mixture of both the price- mechanism and planning-mechanism. India has adopted mixed economy where both price mechanism and planning mechanism are working.

Need For Planning of Resources

Resources that man uses are distributed over the earth in an uneven and discontinuous system. The development of resources, as we have seen, depends on several factors. Nor can all the resources in an area be used all at once. Therefore some important factors are associated with planning of resources.

1. Steps in Planning of Resources
In order to correlate resources to their needs, following steps are essential for planning of resources.
(a) Survey: This is done by an expert body like the Geological Survey of India in the case of mineral resources. They use various methods and techniques to identify and locate resources in certain geographic areas. Similarly animal resources, land resources, forest resources may be surveyed and identified by respective expert bodies specialized in their respective field of interest.
(b) Potential Resources : These are the type of resources likely to exist in an area or the region. For example, India has vast potential human resources which if channelized properly can make a miracle happen on earth. Moreover such resources are not properly developed therefore, identification and development of potential resources is an important step in planning of resources.
(c) Reserves : These are the deposits of resources which can be developed economically. Not all potential resources can be turned into reserves. Reserves have the chief characteristic of being used over time to meet the demands. Use of reserves into resources may lead to their scarcity. Similarly, low grade resources like for example, lignite coal can be converted into a useful reserve with the change in technology and proper planning. Lignite (coal) is today used profitably for making various types of chemicals.
(d) Actual Resources : These are the resources actually identified for use based on available technology. The actual resources are also economical to use.
(e) Reserve : It is that portion of actual resources which can be developed economically at available technology.

2. Importance of Planning of Resources
(i) Conservation of Resources : The greatest need for proper planning of resources arises from conservation of resources or their protection and preservation for future use. Because of huge population growth and environment degradation conservation has become very necessary.  The demand for resources had also considerably risen on account of higher standard of living and rising consumption pattern This is specially true in the case of western countries where consumption patterns today are extravagantly stretched.
(ii) Stabilizing Prices : Increased demand for resources and their short supply tends to raise the prices. The fear of exhaustion leads to undesirable marketing practices like hoarding arid black-marketing
which also push up the prices. Therefore, it is necessary to have a coordinated resource policy to keep the prices in check.
(iii) Problem of Wastes and Pollution: The exploitation of resources leads to accumulation of huge wastes in our environment. Moreover, many resources are also used wastefully either because of inefficient
technology or wasteful consumption patterns. The inefficient technology is characteristic feature of developing countries and wasteful consumption patterns prevail in advanced countries. Both contribute to pollution of our environment in many different ways. For example, mining of coal raises huge dust in our environment. For example, lots of resources are used in canned foods — aluminium cans, glass, paper and boards are daily wasted in tons and tons. Disposal of wastes, associated with agriculture, domestic and industrial, is also today a great problem. While planning for resources steps are needed to be taken in advance before utilizing resources.
(iv) Accidents : Many accidents happen while mining, transporting and using resources. These accidents not only cause loss of life and property but also cause great damage to our environment. Oil leak in oil tankers in oceans can cause great damage to marine life. Transporting coal in open railway wagons in India is threatening our environment. Coal mining is also very hazardous. If no proper planning is done there will be frequent accidents. Detergents, chemicals, pesticides have a disastrous effect on
vegetation, wildlife, fish as well as human life.