What a plan is: indicative planning, perspective plans and the Planning Commission

Detail

1. What is a plan?

• Economic planning: a plan says how a nation's resources should be used. Resources are money, land, labour, machines and raw materials.
• Every plan has two layers:
• General goals. These are broad aims, such as growth, modernisation, self-reliance and equity.

• Specific objectives. These are targets that must be met within a set period.

• Five-year cycle: India's plans ran for five years each. India borrowed this idea from the former Soviet Union (USSR), which NCERT calls "the pioneer in national planning".

2. Perspective plan: the long view

• Perspective plan: a long-term plan of about twenty years.
• Five Year Plans were its building blocks.
• One 20-year perspective plan = about 4 Five Year Plans (4 × 5 = 20 years).

• Each five-year plan was meant to move the country one step closer to the 20-year goal.

• Worked example (how the targets link up):

• Say a perspective plan wants power supply to go from 100 units to 400 units in 20 years.
• Then each Five Year Plan has to add its share, for example about 75 units per plan (100 → 175 → 250 → 325 → 400).

• So the short-term targets are worked out from the long-term goal.

• Indian plan documents up to 2017 set both five-year and twenty-year targets.

• The Perspective Planning Division was set up inside the Planning Commission in 1958.

3. Indicative vs imperative planning

What Indian plans actually did

• Indian plans never fixed how much of every good would be produced. NCERT says this is "neither possible nor necessary".
• The USSR tried to plan every good and failed.
• India planned firmly only in key sectors, such as power and irrigation. It left the rest to the market.

Indicative planning (India's model)

• Meaning: the state sets targets and directions. It does not give orders on every output.
• How it guides private firms:
• Incentives, such as tax benefits and cheap credit, pull firms towards priority sectors.
• Licences: a firm needed government permission to set up or expand a factory.
• Public investment: the state builds dams, steel plants and power stations, and private firms grow around them.

Imperative (command) planning (USSR model)

• Meaning: a central planning authority decides what to produce, how much, how, and at what prices.
• In the USSR, this body was Gosplan.
• Class 9 (iest108) calls this body the "central planning authority" of a planned economy. In a market economy, prices and private choices decide these things. In a mixed economy such as India, both the state and the market decide.

Feature	Indicative (India)	Imperative (USSR)
Who decides output	Market, with state guidance	Central authority (Gosplan)
Coverage	Key sectors only	Every good
Tools	Targets, incentives, licences, public investment	Orders, quotas, fixed prices
Private sector	Exists, guided	Almost absent

4. Other types of planning (one line each)

• Financial planning: starts from money resources. First ask "how much money can we raise?", then decide what to build.
• Physical planning: starts from real inputs and outputs, such as tonnes of steel, megawatts of power and workers. First ask "how much steel and power do we need?", then find the money.
• Rolling plan: the plan is revised every year and a new year is added, so it always looks five years ahead. India used one in 1978–80.
• Centralised planning: all planning is done from Delhi.
• Multi-level planning: planning is also done at state, district and panchayat level.
• District Planning Committees (DPCs) come under Art. 243ZD, added by the 74th Amendment.

5. The machinery: Planning Commission

Set-up and status

• Set up on 15 March 1950 by a Cabinet Resolution [2].
• Chairperson: the Prime Minister. This is the answer in the keec102 match-the-following exercise.
• It had a Deputy Chairman. The first was Gulzarilal Nanda.
• Neither constitutional nor statutory.
• Constitutional body = created by the Constitution (e.g. Finance Commission, Art. 280).
• Statutory body = created by an Act of Parliament.

• The Planning Commission was neither of these. It was made by an executive order (a Cabinet resolution) and was only advisory.

• Replaced by NITI Aayog (National Institution for Transforming India), which was set up by a Union Cabinet resolution dated 1 January 2015 [2][3].

Constitutional basis for planning itself

• "Economic and social planning" is Entry 20, List III (Concurrent List). So both the Centre and the states can make laws on planning.

6. National Development Council (NDC), 1952

• Members (NCERT): the PM, all Chief Ministers, and members of the Planning Commission. PRS also lists Union Ministers as members [4].
• Role: gave final approval to every Five Year Plan.
• Why it mattered: planning is on the Concurrent List, so the states had to agree. The NDC was the forum where they did.
• The NDC also decided which states got special category status grants [4].
• NITI-era counterpart: NITI Aayog's Governing Council.
• Members: the PM (chair); Chief Ministers of all states and of UTs with a legislature; Lieutenant Governors/Administrators of other UTs; ex-officio members; the Vice-Chairperson and full-time members of NITI; and special invitees [5].
• Its stated aim is cooperative federalism, meaning the Centre and the states work together as partners [5].
• It was first set up in February 2015 and reconstituted in February 2021 [5].

7. The money role of the Commission

Plan vs non-plan expenditure

• The Commission split government spending into two parts:
• Plan expenditure: spending on new schemes and projects in the Five Year Plan.

• Non-plan expenditure: all other spending, such as interest, salaries, subsidies and upkeep of existing assets.

• Problem with the split:

• Both the Centre and the states preferred plan spending → maintenance of existing assets was neglected [6].

• Scheme money was split across two heads → it was hard to know the full cost of a service or to link money spent to results [6].

• Reform:

• An expert committee under Dr C. Rangarajan (then Chairman, Economic Advisory Council to the PM) was set up to suggest how to end the split [8].
• The plan/non-plan classification was abolished from Budget 2017-18 [6][7].
• The same Cabinet decision also merged the Rail Budget into the general budget and moved budget day earlier [7].

Central plan assistance and the Gadgil formula

• Central plan assistance: money the Centre gave states to fund their plans. The Commission distributed it.
• Gadgil formula (1969): the rule for sharing this money among states.
• Gadgil-Mukherjee formula (later version) for non-special category states [4]:

Criterion	Weight
Population	60%
Per capita income	25%
Fiscal performance	7.5%
Special problems	7.5%

• Special category states got 30% of Normal Central Assistance (NCA). The other states shared the remaining 70% [4].
• Grant : loan mix [4]:
• Special category states: 90% grant, 10% loan.

• Other states: 30% grant, 70% loan.

• Worked example (NCA split):

• Suppose total NCA = ₹10,000 crore.
• Special category states get 30% = ₹3,000 crore, of which 90% (₹2,700 crore) is a grant and ₹300 crore is a loan.
• Other states get 70% = ₹7,000 crore. Of this, the population criterion alone decides 60% = ₹4,200 crore.

• For those other states, only 30% of what they get is a grant. The remaining 70% is a loan they must repay.

• Criticism: states came to depend on the Commission for funds, even though it had no constitutional status. The Finance Commission is the constitutional body for sharing money, and it does not separate special from non-special category states when it shares taxes [4]. (See section 9.)

Prelims Hooks

• The Planning Commission was set up on 15 March 1950 by a Cabinet Resolution. It was neither constitutional nor statutory, only advisory [2].
• Chairperson of the Planning Commission = Prime Minister. The first Deputy Chairman = Gulzarilal Nanda.
• The NDC (1952) gave final approval to Five Year Plans. Members: PM, all CMs and Commission members (PRS also lists Union Ministers) [4].
• "Economic and social planning" = Entry 20, Concurrent List (List III). It is not in the Union List. This is a common trap.
• A perspective plan is about 20 years long. The Perspective Planning Division was set up in 1958.
• The five-year plan cycle was borrowed from the USSR. Its central planning authority was Gosplan.
• Rolling plan = revised every year with a new year added. India used one in 1978–80.
• District Planning Committee = Art. 243ZD (74th Amendment).
• Gadgil-Mukherjee weights: Population 60%, Per capita income 25%, Fiscal performance 7.5%, Special problems 7.5% [4].
• NITI Aayog was set up by a Cabinet resolution of 1 January 2015 [2]. Plan/non-plan classification was ended from Budget 2017-18 [6].

Mains Points

• Indicative vs command planning (GS-III): India planned firmly only in key sectors such as power and irrigation and let the market run the rest. This kept a private sector alive and made the 1991 reforms easier than the USSR's full command model, which failed. But licences and controls in this model later grew into the "licence raj".
• Federalism and the Planning Commission (GS-II):
• The Commission was only an advisory body made by executive order, yet it controlled central plan assistance to states through the Gadgil formula.
• This made states depend on it and cut into the role of the constitutional Finance Commission.

• NITI Aayog's Governing Council, built on cooperative federalism, was designed to fix this [5].

• Plan/non-plan bias (GS-III, public finance): plan spending got priority, so the maintenance of assets and essential establishment spending were neglected. Ending the split from 2017-18 lets the budget link money spent to results [6][7].

• Long-term vs short-term planning: perspective plans (20 years) gave direction, and Five Year Plans put them into action. NITI's long-term vision work continues this idea without fixed five-year plans, since the last plan ended in 2017.