Planning Commission

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PLANNING COMMISSION The Planning Commission was established in 1950 by the government of India. Thus it does not have statutory status by virtue either of a provision in the Constitution or an Act of Parliament. Yet over the years it acquired the status of more than a ministry and at times gave the impression of being a parallel government. The prime minister has always been its chairman, but the deputy chairman has in practice been in charge planning. The finance minister is an ex-officio member of the commission, and from time to time other ministers have been appointed members, depending on the contemporary significance of their departments. The commission's original, primary function was to prepare a five-year plan of development. Planning was in fashion during the early years of India's independence, influenced by the Soviet Union's experiment. Pandit Nehru, prime minister of India, was fascinated by the five-year plans, as was India's business community. The first "plan" of development was a rudimentary effort by the business community—the so-called Bombay Plan—to restore worn-out railway and industrial infrastructure.

Centralized Planning

The first five-year plan (1951–1956) was essentially a listing of development projects already in the pipeline (from the late war years, when the British regime had set in motion a process of postwar development). But it also provided a brilliant exposition of the state of the economy, the nature and magnitude of the development task, and an analytical basis for future effort.

The second five-year plan created a four-sector model for Indian development: large-scale industries for the production of capital goods; large-scale industries for the production of consumer goods; agriculture; small and household industries; and services. Accelerated growth, it was argued, required public investment in the production of heavy capital machinery, while investment for the production of consumer goods would be mostly in the private sector, some of which would follow labor-intensive techniques, securing additional employment. The machines-to-build-machines strategy, however, soon ran to ground as the marginal rate of saving proved insufficient to sustain it. Balance of payments problems forced a hiatus in planning, but by the late sixties, planning resumed with emphasis on poverty alleviation. As of 2002, India had implemented nine five-year plans. The current tenth plan (2002–2007) has a target of 8 percent growth rate.

The plans embraced the public and the private sectors. The plan for the private sector was intended to be merely indicative, though attempts were soon made to enforce targets through the elaborate mechanism of industrial licensing. The Industries Development and Regulation Act of 1956 defined those sectors reserved for the public; other sectors were open for private investment, governed by the targets of the plan. The mixed economy model, well-defined in theory, led to serious problems in practice. The marriage of planning to licensing proved disastrous and eventually necessitated liberalization in the mid-1980s and more prominently since 1991.

The Economic Affairs Department of the Ministry of Finance, which was responsible for the annual government budgets, and thus for raising tax and nontax revenues, argued that the size of the plan was constrained by the saving propensity of the economy and the possibility of mobilizing private savings through taxation and borrowing. The debate over financial planning, and between the virtues of a big plan as opposed to a moderate-sized plan, continued throughout the late 1950s and early 1960s.

The Planning Commission is organized both territorially and functionally. Apart from the members, who constitute the decision-making body, the commission uses a number of advisers, drawn from the Indian Administrative Service, primarily economists and scientists. Each adviser looks after one or more sectors (e.g., rural development, energy, or transport) and also one or more states. Macroeconomic work is done by the Economic and Resources Division and the Perspective Planning Division, in close association with the Ministry of Finance and the Reserve Bank of India.

A draft plan is submitted for approval to the central cabinet and the National Development Council, including central ministers and the state chief ministers. The entire five-year plan is implemented through annual plans, which are formulated by the central and state governments and approved by the Planning Commission. A Programme Evaluation Organization generates periodic evaluations of the plan's schemes and programs.

Center-State Relations

The Planning Commission plays a major role in managing the economic relations between the central government and the states, approving the plans of the states after discussions with them. In addition, the center allocates some 25 percent of the assistance it receives from abroad to various states. The percentage has gone up over time, and all foreign aid that specifically pertains to projects in designated states is now passed on to them.

States also receive central funds for specific programs sponsored by the center, such as malaria eradication. The Planning Commission tries to use the leverage of resource transfers to introduce reforms and better practices in the states, for example power sector reforms and fiscal management reforms. The Finance Commission, which is a statutory body under the Constitution, appointed every five years, also tries to encourage reforms, though its basic task is to decide on the central transfers, by way of tax sharing and grants to fund non-plan revenue expenditures of states. The Finance Commission's work thus overlaps with that of the Planning Commission. Most states seem to favor dealing with the Finance Commission, since whatever they receive from it is treated as their statutory right. Though the two commissions never meet, one member of the Planning Commission has usually been appointed to the Finance Commission to facilitate the coordination of their tasks.

The commission lost much of its power and glory during the economic crises in the 1960s. Rajiv Gandhi made no secret of his contempt for it by describing its members as jokers.

In the post-1991 liberalized economy, which relies more on the free market than governmental controls, the Planning Commission has had to redefine its role, adapting to India's new economic realities. Its focus is now on defining broad infrastructure and social sector goals. Nonetheless, it continues to play a role in managing center-state financial relations, seeking to improve fiscal discipline in the states and to provide general guidance on health, education, and poverty alleviation programs.

Manu Shroff

See alsoEconomic Reforms of 1991 ; Economy since the 1991 Economic Reforms


Domar, Evsey D. Essays in the Theory of Economic Growth. New York: Oxford University Press, 1957.

Government of India, Planning Commission. Planning Process. Delhi: Controller of Publications, 1975.

Mahalanobis, P. C. "The Approach of Operational Research to Planning in India." Sankhya, the Indian Journal of Statistics 16, parts 1 and 2 (December 1955): 3–130.

Myrdal, Gunnar. Asian Drama: An Inquiry into the Poverty of Nations, vol. II. New York: Pantheon, 1968.