India trend of growth data oriented
- August 27, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
India trend of growth data oriented
Section: National income
Explained Books: An economic history of independent India’s book review
Trends in India’s growth rate:
|Period||Target growth rate||Actual growth rate|
|British Raj (1900-01 to 1946-7)||–||0.9%|
|First five year plan-1951 to 1956||2.1%||3.6%|
|Second Plan-1956 to 1961||4.5%||4.2%|
|Third Plan-1961 to 1966||5.6%||2.4%|
|Fourth Plan- 1969 to 1974||5.7%||3.3%|
|Fifth Plan-1974 to 1978||4.4%||4.8%|
|Sixth Plan-1980 to 1985||5.2%||5.7%|
|Seventh Plan- 1985 to 1990||5%||6.0%|
|Eighth Plan-1992 to 1997||5.6%||6.8%|
|Ninth Plan-1997 to 2002||6.5%||5.6%|
|Tenth Plan-2002 to 2007||8%||7.6%|
|Eleventh Plan-2007 to 2012||9%||8%|
|Twelfth Plan -2012 to 2017||8%||7%|
India’s Planning Strategy- an overview:
In the context of development planning, strategy refers to a basic long term policy to realise certain objectives.
- Harrod Domar Growth Model:
Drafted by economist K.N. Raj, the first five year plan was based on the Harrod–Domar model, which suggested that growth was dependent on two things.
- First, a high level of savings since higher savings enabled greater investment and
- Second, a low capital-output ratio that ensured efficient investment and a higher growth rate.
The Five-Year Plans were focused on making India self-sufficient, enabled industrial growth and ensured that development went beyond the urban areas and reached the interior parts of the country.
The plan had a target of 2.1 per cent GDP growth for the fiscal year, however, it ended up recording a growth rate of 3.6 per cent that year.
The first five-year plan based on the Harrod Domar model suggested that production required capital and that capital can be accumulated through investment; the faster one accumulates, the higher the growth rate will be.
- Mahalanobis Growth Strategy :
While the First Five-Year Plan focused on agriculture and energy, the Second Five-Year Plan focused on the development of the public sector and rapid industrialisation. Drafted by statistician P.C. Mahalanobis, the Second Plan was also called the Mahalanobis Plan.
Mahalanobis strategy of development as it articulated by Jawahar Lal Nehru’s vision and P.C. Mahalanobis was its chief architect. It focused on the following :
- Rapid Industrialisation- developing basic industries and industries which make machines to make the machines needed for further development.
- Import substitution. Protective barriers against foreign competition to enable Indian companies to develop domestically produced alternatives for imported goods and to reduce India’s reliance on foreign capital.
- Mixed economy with a strong bias towards public sector-A sizable public sector active in vital areas of the economy including atomic energy and rail transport. A vibrant small-scale sector driving consumer goods production for dispersed and equitable growth and producing entrepreneurs.
- Wage Good Model:
An alternative model of development was developed by Vakil and Brahmananda. Professors Vakil and Brahmananda adapted and modified classical theory of growth of income and employment in the context of today’s developing countries characterised by disguised unemployment. In sharp contrast to Mahalanobis model which emphasised the role of fixed capital Vakil and Brahmananda laid stress on wage goods or what they called liquid capital in determining the growth of employment and income.
In conformity with their emphasis on wage goods or liquid capital in their model they propounded a strategy of development which accorded the highest priority to wage goods industries, especially agriculture in allocation of investment resources.
The Seventh plan marks a departure from earlier plan strategies and spelt out a new long-term strategy.
- It reversed the role of the public sector and induced privatisation of industrial activity.
- It gave highest priority to increasing agricultural production through adoption of new technology.
- Liberalisation of the external sector with the aim of increasing efficiency in the manufacturing sector.
The administrative procedures were changed from regulatory to facilitatory procedures. The strategy was a variant of what is now known as “Agricultural Development led Growth” Strategy or the “ Wage Good model” earlier advocated by Vakil and Brahmananda .
The national income of India registered 5.5% per annum growth rate during the 1980s. However, the strategy which enabled the country to step up the rate of economic growth during the 1980s pushed the economy towards the economic crisis of 1990-91. Causes:
- Heavy public expenditure leading to large scale fiscal deficit
- Higher inflation
- Balance Of Payments crisis-Gulf Crisis increased crude oil price and import bills
- The New Development Strategy:
The launching of economic reforms by the government in 1991 is driven by the Rao-Man Mohan model -Mr. Narasimha Rao, the Prime Minister 1991 and Finance Minister Dr. Man Mohan Singh. Its essence is contained in the New Industrial • Policy 1991 and extends beyond it too. The Model has the following contents
- Dismantle, selectively controls and permits in order to permit private sector to invest liberally- Liberalisation
- Open up the economy and create competition for PSEs- for better productivity and profitability-Privatisation
- External sector liberalization in order to integrate the Indian economy with the global economy to benefit from the resource inflows and competition-Globalization ie the “export led growth strategy”
- Reorient the role of the State in economic management. State should re focus on social and infrastructural development, primarily-Indicative planning
- Inclusive and sustainable development:
Eleventh Five Year Plan for the first time focused on Inclusive growth. It was prepared by C. Rangarajan. Its main theme was “rapid and more inclusive growth”.
The Twelfth Plan relies on an extensive range of government programmes, which cover a wide variety of sectors, to help achieve inclusive and sustainable growth. These include health, education, drinking water and sanitation, provision of critical infrastructure in rural and urban areas, programmes of livelihood support for the weaker sections and disadvantaged sections of our population. The broad vision of the plan is to achieve a ‘Faster, Sustainable, and More Inclusive Growth’.