Five Year Plans in India

Five-Year Plans (FYPs) are national plans which lay out development strategy for the country over five years. They are centralised and integrated for the entire country. They began in the Soviet Union in the late 1920s under Joseph Stalin. India also after independence began the practice of Five Year Plans from 1951 onwards under the mixed model of economy (both capitalist and socialist) of first Prime Minister Jawaharlal Nehru. However, after the reduced role of government in industry, especially after LPG reforms in the 1990s, the value of centralised planning reduced. In 2014, NITI Aayog was setup to replace the Planning Commission. It is a think-tank which practises bottom-up planning by decentralising the process and taking in inputs of the constituent states of India.

President Eisenhower said, “Plans are useless but planning is indispensable”. The Planning Commission was setup on 15 March 1950 by a Cabinet resolution by Jawaharlal Nehru. He was impressed by the Soviet Style planned economy and wanted to provide a base for robust State led growth in independent India. Planning Commission formed the backbone of the Indian economy and promulgated Five Year Plans.

The goals of the plan in India were growth, modernisation, self-reliance and equity. However due to resource crunch, they were prioritised differently at different times.

• Growth: Increase capacity of the country to produce goods and services. It is measured by the Gross Domestic Product (GDP) which is the market value of goods and services produced in the country in a year.
• Modernisation: Adoption of new technology and changes in societal outlook like recognition of equality of women.
• Self Reliance: Using own resources to produce. This was done so that Indian is not dependent on another country which could dilute India’s sovereignty as these dominant countries could interfere in Indian politics.
• Equity: To improve the living standards of all people. Hence inclusive growth is what is needed so that benefits of economic prosperity reach the poorest sections.

The Plan divided government expenditure into two. This first started in 1951 however discontinued in 2018.

• Plan Expenditure: used for capital expenditure including rural development, education, factories, power plants etc. Items which would boost a country’s ability to produce resources.
• Non Plan Expenditure: Fixed and obligatory in nature e.g defence, interest payments for debt, subsidies (especially for food and fertilizers) and salaries and pensions of employees in various government services. It consisted of a dominant portion of budget expenditure

• The 1st and 2nd plans aimed at raising public resources for investments in public sector
  • First Plan (1951-56): Focused on food self sufficiency and rapid agricultural development.
  • Second Plan (1956-61): sought to rapidly industrialise India and invested in basic & capital goods. It was drawn out by PC Mahalanobis, architect of Indian planning. Under it hydroelectric power projects and steel mills were setup.
• The Third plan (1961- 66) focused on increased emphasis on exports. During this time Panchayat elections were started.
• Plan Holiday: from 1966 to 1969 due to economic instability, war, inflation and lack of resources.
• Fourth Plan (1969-74) focused on agriculture through HYV seeds, irrigation and fertilizer use to face the food shortage. It was formulated when India was facing a balance of payment crisis. Inspired by the Directive Principles of State Policy socialist ideals it sought to prevent concentration of wealth.
• Fifth Plan (1974-78) provided enhanced allocations for social sector spending.
• The 6th and 7th Plans (1980- 85)- were focused on building infrastructure
• Annual Plans: For Three years from 1989 to 91 due to political uncertainty.
• The The 8th Plan (1992-97) formulated in the midst of economic reforms achieved 6.7 percent rapid growth
• 9th Plan (1997-2002) period witnessed a decline in economic growth overall but a boost in the service sector. The financial sector was given importance.
• The 10th and 11th Plans from 2002-2012 period witnessed economic growth trajectory of about 8 percent. Poverty was reduced and literacy boosted.
• The 12th Plan (2012-17) began during a period of global economic crisis. Its goal was ‘Faster, Sustainable, and more Inclusive Growth’ through poverty reduction, promoting equality and regional balance, environmental sustainability, development of human capital through improved health, education, skill development, nutrition, information technology, building power & telecommunication infrastructure, roads, transport etc.

Its significance diminished vastly in the 1990s with Liberalization, Privatization, and Globalization (LPG) reforms but the Commission was still involved in the allocation of funds to the states. Planning Commission was involved in micromanaging the states but should have been involved in perspective planning. Planning Commission's lack of accountability, hijacking the role of other central bodies like the Finance Commission, lack of specialization, disruption to ideals of Federalism and its all in all futility in the Modern economy lead to the diminishing importance of the Planning Commission. It was realised that the commission had outlived its utility.

On 15 August 2014, Prime Minister Narendra Modi announced that the Planning Commission would be shut down and a new NITI Aayog – National Institute for Transforming India, will be replacing the institution. Thus, India transitioned from the Five Year Plans to the 15-year vision, 7-year strategy and the 3-year Action Plan documents.

• Goal: Promote cooperative federalism, support central policy, and act as a government think tank.
• Key functions:
  • Knowledge and Innovation Hub: Gather and share knowledge.
  • Team India Hub: Connect states and ministries.
  • Governing Council: Chief ministers and Lt. Governors advise on central schemes.
• Approach: The shared narrative and bottom-up approach aim to increase transparency and stakeholder engagement. This will motivate the states to also effectively implement policy they had a part in promulgating.
  • Shift from Planning Commission: No control over distribution of resources. Now funding now through Finance Ministry.
  • Focus on 3-year action agenda and program evaluation, not 5-year plans

The Five Year plans were necessary at a time when the country was transitioning from a colonial impoverished economy to a developing one. Initially, all big industries were State owned. However, as time passed, the government enabled the private sector i.e. the citizens of India to take over industries as the government control was inefficient. This ‘minimum government, maximum governance’ allowed India to enter a new era of growth and development. The demise of the Planning Commission shows the shift of the role of government from a “player” to an “enabler”. Now, the NITI Aayog serves as the Think Tank of the Government of India, with little discretion over allocation of resources or implementation of a Five Year Plan. NITI Aayog plays a crucial role in connecting and aligning different levels of government for national development.