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Economic Planning in India: Evolution, Challenges, and Transformative Initiatives |
To prepare for INDIAN ECONOMY for any competitive exam, aspirants have to know about Economic Planning. It gives an idea of all the important topics for the IAS Exam and the Economy syllabus (GS-II). Important Economic Planning terms are important from Economy perspectives in the UPSC exam. IAS aspirants should thoroughly understand their meaning and application, as questions can be asked from this static portion of the IAS Syllabus in both the UPSC Prelims and the UPSC Mains exams.
Planning is the process through which Govt. prepares a list of socio-economic problems e.g. mass poverty, inequality, low productivity in agriculture, lack of industrial and infrastructural development etc.; and then Govt. sets goals/targets/plans to fix these problems.
| Note: We have dealt with Economic planning elaborately in the Indian Economy – Before and After Independence chapter. Here we will discuss planning viz-a-viz NITI Aayog briefly. |
Challenges and Shortcomings in Economic Planning: A Critical Analysis of the Planning Commission’s Limitations
- Contextualizing India’s 9% GDP Growth: Achieved about 9% GDP growth-rate during 2005-07, thanks to the American boom prior to the Subprime crisis. But almost all nations including Pakistan had experienced high growth in that era. So 9% GDP did not come from the PC’s magic wand.
- Challenges and Decline Post-Subprime Crisis: Post-Subprime crisis, amid challenges in Economic Planning, GDP-fell while food-inflation &NPA rose during 2008-13. The PC couldn’t fix it. Further, PC Failed to implement land reforms, labor laws.
- Ineffectiveness of the Planning Commission: The PC was a toothless body, and couldn’t punish any government organizations if targets failed.
- Limitations in Program Design: PC designed Government schemes with ‘One Size Fits’ all approach and a few extra crores to NE, J&K, Hill-states and LWE-affected states. But for long, PC did not use pilot projects / sample testing / interaction with states. So, Indira Awas Yojana (IAY), ICDS- child development scheme etc. programs failed to show tangible results despite pumping crores of rupees over the decades.
- Centralization of Schemes: PC tried to bypass State Governments by designing schemes that were directly funded to NGO & private agencies. So, non-Congress states became unenthusiastic about implementing Central Schemes.
- Only in 2013, PC attempted to undo its mistakes by reducing the number of Centrally sponsored schemes (CSS), Performance based funding to States etc. But it was too little, too late.
- Transition to NITI Aayog: PC’s shortcomings resulted in creation of new bodies like PM’s Project Monitoring Group, PM’s Economic Advisory Council (PM-EAC), Group of Ministers (GoM) committees This all resulted in more lack of coordination. So, Govt. felt the PC was beyond repair & replaced it with NITI Ayog.
| Q. How are the principles followed by the NITI Aayog different from those followed by the erstwhile Planning Commission in India? (GSM3-2018) |
Comparing Functions: Planning Commission vs NITI Aayog in Indian Economic Planning Landscape
- In the economic planning of India, two key institutions have played significant roles: the Planning Commission and NITI Aayog. The Planning Commission, established in the 1950s, was a central body responsible for formulating Five-Year Plans and guiding the country’s development.
- On the other hand, NITI Aayog, formed in 2015, took a different approach, focusing on policy formulation, strategic advice, and fostering cooperative federalism. Here’s a comparison between the Planning Commission and NITI Aayog:
| Planning Commission | NITI Aayog |
| It was primarily responsible for formulating Five-Year Plans, allocating resources, and assessing plan performance. | It focuses on policy formulation, providing strategic advice to the government, and fostering cooperative federalism.
NITI has given responsibility to draft: Three Year Action Agenda (2017-20), Seven Year Strategy Document, Fifteen Year Vision Document (2017-32). 2018: drafted Strategy for New India @ 75 covering the period 2017 to 2022-23. |
| It followed a more top-down approach, with a central role in setting development targets and allocating resources. | It follows a more flexible and decentralized approach, encouraging states to take the lead in their own development. |
| It followed a more centralized and directive approach to planning, with a focus on public sector-led development. |
It emphasizes a more market-oriented approach to development, focusing on innovation, entrepreneurship, and competitive federalism. |
| How much money should the union give to each state for implementation of centrally sponsored schemes (CSS)?
How much money should the union give to the five year plans of the state governments? PC would answer these questions using Gadgil Mukherjee formula (designed in 8TH FYP)- based on population, per capita income, special problems etc. of a state. |
NITI doesn’t decide how much money should be given to each state. That component is decided by the Finance Commission (tax devolution and grants) and Finance Ministry (Allocations for schemes).
NITI primarily serves as the think tank, helps in policy design. Helps in monitoring schemes’ implementation through its dashboard e.g. ‘School Education Quality Index’, ‘SDG India Index’, ‘Digital Transformation Index’ etc. |
Exploring Economic Planning : NITI Aayog’s Transformative Initiatives Shaping India’s Future
NITI Aayog, has played a crucial role in shaping India’s development strategies. It advises the government, especially the Prime Minister, on economic matters. From initiatives like Darpan Portal for NGOs to programs like Aspirational Districts, NITI Aayog has been instrumental in driving positive change across various sectors. Here are various initiatives launched by NITI Aayog:
| Darpan Portal | Launchd in 2017, NGO register here, get unique ID – apply for grants under various govt schemes. |
| Aspirational District Programme |
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| Strategic disinvestment |
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| POSHAN Abhiyaan |
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| Bills and Policies |
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| Agriculture |
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| SDG |
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| CSS |
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| Seminars |
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| Startups |
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| Digital Age |
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It is evident that NITI’s approach is more modernized, forward-looking, less bureaucratic and less status-quo oriented than the erstwhile Planning Commission. With such initiatives, NITI Ayog is playing a pivotal role in Economic Planning for fostering economic growth, human development and good governance in India.
Economic Planning Guidance: Exploring the Role and Impact of the Prime Minister’s Economic Advisory Council
- Overview: Started in the 2000s, the Economic Advisory Council to the Prime Minister (EAC-PM) is a group that provides advice on economic matters to the Indian government, particularly to the Prime Minister. It is also neither constitutional nor statutory body.
- Reinstatement of the Economic Advisory Council in 2017: After Prime Minister Manmohan Singh’s term ended in 2014, the New NDA government didn’t immediately re-establish the council.
- However, due to a decline in growth rate after demonetization and GST implementation in 2017, and amid criticism of the government’s economic policies, NDA government reinstated the Economic Advisory Council in September 2017.
- Composition: Economist Bibek Debroy (as Chairman) & other notable full time and part time members, Total 7 persons.
- Roles of the Economic Advisory Council to the Prime Minister (EAC-PM):
- Independent Advisory Body: EAC-PM advises the Prime Minister on economic and related matters.
- Analyzing Issues: It examines and provides advice on various issues, whether economic or otherwise, referred by the Prime Minister.
- Addressing Macroeconomic Concerns: EAC-PM discusses and presents views on matters of macroeconomic importance to the Prime Minister.
- Flexible Responsibilities: The council handles tasks assigned by the Prime Minister, whether initiated by the council itself or at the Prime Minister’s request.
- NITI ayog provides administrative and secretarial support to PM- EAC. PMEAC has suggested to government to
- Set up a GST Council like body on public expenditure
- Reduce the number of GST slabs
- Reduce the Direct Taxes to boost the demand & economy
PRAGATI: Catalyst for Economic Planning Excellence in India
- 2015: Pro-Active Governance and Timely Implementation (PRAGATI) is a web platform under Prime Minister’s Office (PMO) for Monitoring scheme implementations.
- Incorporating Citizen Feedback: Addressing common man’s grievances related to tax refunds, EPFO claims etc., falls within the purview of Economic Planning.
- Inter-Governmental Communication: PM uses this digital platform for monthly video conferencing with ministries & departments in Union, and Chief Secretaries in States.
| eSamikSha |
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| Project Monitoring Group (PMG) |
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| Investment Commission |
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| CPGRAMS |
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Economic Planning Hub: Understanding the Role of MoSPI in India’s Policy Landscape
Ministry of Statistics and Programme Implementation (MOSPI)’s administrative head is called ‘Secretary & Chief Statistician of India’ usually, Indian Statistical Service officer recruited by UPSC. MoSPI consists of:
1. Economic Planning in Action: Understanding How NSO Shapes India’s Data Scene-
- Central Statistics Office (CSO): within the spectrum of Economic Planning, handles the computation of GDP, GSDP, IIP, ASI, CPI (Rural, Urban, All India) and Economic Census (6th was done in 2013);
- National Sample Survey Office (NSSO): data collection for various socio-economic indicators, Annual Survey of Industries (ASI), Rural-urban prices and other data required for CSO’s calculations.
- Restructuring of Statistical Bodies of NSSO and CSO: 2019-June, MoSPI merged CSO+NSSO henceforth it will be called National Statistical Office (NSO) only.
- It will be headed by Chief statistician of India-cum-Secretary of MoSPI.
- Earlier, C Rangarajan’s National Statistical Commission in 2005 had recommended this CSO+NSSO Merger.
- Further, MoSPI is also planning to set up a National-Level Data Warehouse: It’ll act as a central repository of all the statistical data collected by various ministries, and provide big data analytics.
2. Economic Planning in Practice: Decoding the Programme Implementation Wing’s Impact-
- Member of Parliament Local Area Development Scheme (MPLADS-1993): As part of Economic Planning, each MP can suggest development works worth ₹ 5 crore per year in his constituency.
- Twenty Point Programme (2006) to measure performance of various schemes related to poverty alleviation, employment generation, housing, education, health, etc.
- Infrastructure Monitoring and Project Monitoring.
Exploring Economic Planning: The Role of National Statistical Commission in India
- Establishment: Setup in 2005 in MOSPI by Cabinet resolution based on recommendations of C. Rangarajan Committee. So, neither constitutional or statutory.
- Structure: 1 part time chairman, 4 part time members + NITI Secretary is ex-officio member, 6 people in total. The Chief Statistician of India serves as ‘Secretary’ to this commission.
- Functions: It replaced the erstwhile Governing council of the NSSO. So, basically the nodal body designing the standards of data collection- data publication, coordination among the different agencies involved.
- Identify important national statistics for economic development.
- Set up expert committees to help with technical issues.
- Develop national policies and priorities for the statistical system.
- Create standard concepts, definitions, and methods for statistics.
- Plan how to collect, organize, and share key statistics, including release schedules.
- Plan for training in statistics and technology needs for the statistical system.
- Improve public trust in official statistics.
- Coordinate with state governments and agencies for statistical activities. and between government ministries and departments for statistics.
- Audit statistical activities to ensure quality and integrity.
- Recommend measures to implement standards and strategies.
- Advise on the need for statistical laws, including laws for the NSC.
- Monitor and review the statistical system’s performance and suggest improvements.
- Powers of the NSC:
- Ask for documents that can help with statistical work.
- Request statistical agencies to share details about their work, like methods used and quality standards.
- Call for people, including government officials, to discuss statistical matters.
- Issue notices to examine witnesses or documents related to statistical work.
Understanding Economic Planning: Consequences of Manipulating Data and Window-Dressing-
- Diminished Confidence: International organizations will lose confidence in India’s data collection methodologies within the framework of economic planning. They will not believe fully, even if the Indian economy is really growing.
- Impact on IMF Quota and Voting Rights: Large-sized economies have to contribute more money to the IMF and, in return, get more voting rights on the IMF board (e.g. USA). But, if the IMF loses confidence in our data collection methodologies, they may not increase our quota, even if we become an economic superpower.
- Foreign Investment Impact: International credit rating agencies such as Standard & Poor’s (S&P), Moody’s, and Fitch Group will give poor ratings to Indian G-Sec and corporate bonds. Foreign investors will feel shy about investing in India or they will demand higher interest rates.
Building Trust in Economic Planning: Government Measures for Official Statistical Data
- Draft National Statistical Commission (NSC) Bill 2019 to give statutory status to National Statistical Commission, so it may work more independently.
- Draft new National Policy on Official Statistics.
- In 2019, within the scope of Economic Planning, MOSPI set up a new SCES Committee.
Understanding Economic Planning: The Impact of the Standing Committee on Economic Statistics (SCES) –
- Establishment: Setup in 2019, To improve the quality of data, MoSPI set up a Standing Committee on Economic Statistics (SCES) with 27 members + 1 Chairman (Ex- Chief Statistician Pranab Sen) à total 28 persons.
- The Ministry of Statistics & Programme Implementation (MoSPI) formed new the Standing Committee on Statistics (SCoS) on July 13, 2023.
- Its Terms of Reference (ToR) have been expanded to handle different survey-related matters as needed by MoSPI.
- This new SCES Committee, within the domain of Economic Planning, subsumes previous 4 Standing Committees on
- Labour force statistics,
- Industrial statistics
- Services sector
- Unincorporated sector enterprises.
- Enhanced Terms of Reference (ToR) aim to address various survey-related issues as required by MoSPI.
- SCoS tasked with providing guidance on studying and accessing administrative statistics related to surveys.
- Vacancies in the National Statistical Commission (NSC) filled continuously through a selection process led by a Search Committee.
- SCES Initiative: SCES will review the existing framework/methodology/data collection for IIP, periodic labor force survey, economic census etc.
- Economic Planning Insight: Recommendations by Chairman Pronab Sen –
- Within the scope of Economic Planning, the Government should announce a specific calendar that on the ‘x’ date of each month or quarter, ‘y’ Macroeconomic indicator data will be released.
- This way critiques will have more confidence in the data released by the Government.
- Key Functions of the Standing Committee on Statistics
- Review and Address Issues: Assess existing frameworks and address concerns on surveys. Resolve methodological and result-related issues.
- Survey Methodology Guidance: Advise on survey methodologies, including sampling techniques and survey instruments and finalize tabulation plans for survey data.
- Result Finalization: Oversee the finalization of survey results.
- Pilot Surveys and Pre-testing: Provide guidance on conducting pilot surveys or pre-testing before data collection.
- Exploring Administrative Statistics: Study and explore the availability of administrative statistics related to surveys.
- Identifying Data Gaps: Identify data gaps and additional data requirements for surveys and suggest strategies for improvement.
- Technical Guidance: Offer technical guidance to central and state-level agencies conducting surveys.
- Miscellaneous: Address any other survey-related matters referred by MoSPI.
Conclusion
Economic planning is crucial for steering a nation towards sustainable growth and development. India’s economic planning has shifted from a strict top-down system to a more adaptable one with NITI Aayog at the helm.
Programs like the Aspirational District Programme and strategic disinvestment highlight NITI Aayog’s key role in driving progress. Additionally, the setup of bodies like the Economic Advisory Council and the Standing Committee on Economic Statistics aims to improve data accuracy and policy decisions for long-term economic stability.
The success of economic planning lies in adaptive strategies and continuous evaluation of initiatives.
