India's Five-Year Plans: A History of Economic Planning

From 1947 to 2017, the Indian economy was centered around the concept of economic planning, implemented through Five-Year Plans. These plans were developed, executed, and monitored by the Planning Commission (1951–2014) and the NITI Aayog (2015–2017). The Prime Minister served as the ex-officio chairman of the commission, with a nominated deputy chairman holding the rank of a cabinet minister. The allocation of state resources initially followed schematic patterns but shifted to a transparent and objective mechanism with the adoption of the Gadgil formula in 1969. Revised versions of this formula have been used since then to determine the allocation of central assistance for state plans.

The Origins of India's Five-Year Plans

The idea of Five-Year Plans originated in the Soviet Union, where Joseph Stalin implemented the first Five-Year Plan in 1928. Many communist states and even some capitalist countries adopted this model of centralized and integrated national economic programs. China continues to use Five-Year Plans, although they have renamed them "guidelines" to reflect a more hands-off approach to development. India launched its First Five-Year Plan in 1951, immediately after independence, under the socialist influence of Prime Minister Jawaharlal Nehru.

First Five-Year Plan (1951–1956)

The First Five-Year Plan of India, led by Jawaharlal Nehru with Gulzarilal Nanda as the vice-president, aimed to address the challenges faced by India after independence, including the partition and the Second World War. The plan focused on developing the primary sector, particularly agriculture. It also sought to lay the foundation for industrial growth and provide affordable healthcare and education to the people.

• The plan allocated a budget of ₹2,069 crore (later increased to ₹2,378 crore) to seven key areas: irrigation and energy, agriculture and community development, transport and communications, industry, social services, rehabilitation of landless farmers, and other sectors and services.
• The target growth rate was 2.1% annual GDP growth, with an actual growth rate of 3.6%. The net domestic product increased by 15%, while per capita income rose by 8%.
• Several irrigation projects were initiated during this plan, including the Bhakra, Hirakud, and Damodar Valley dams.
• The World Health Organization (WHO) collaborated with the Indian government to improve children's health and reduce infant mortality, indirectly contributing to population growth.
• Five Indian Institutes of Technology (IITs) were established as major technical institutions, and the University Grants Commission (UGC) was set up to strengthen higher education.
• Contracts were signed to build five steel plants, which were completed during the Second Five-Year Plan.

Second Five-Year Plan (1956–1961)

The Second Five-Year Plan emphasized rapid industrialization and the development of the public sector. It was based on the Mahalanobis model, which aimed to determine the optimal allocation of investment between productive sectors to maximize long-term economic growth. The plan focused on a closed economy model, with the primary trading activity centered on importing capital goods.

• The plan saw a strong push towards substituting basic and capital goods industries.
• Hydroelectric power projects were constructed, and five steel plants were established at Bhilai, Durgapur, and Rourkela, with assistance from the Soviet Union, Britain, and West Germany, respectively.
• Coal production was increased, new railway lines were added in the northeast, and research institutions like the Tata Institute of Fundamental Research and the Atomic Energy Commission of India were established.
• A talent search and scholarship program was initiated in 1957 to train young students for work in nuclear power.
• The total budget allocated for the plan was Rs. 48 billion.
• The plan was criticized by classical liberal economist B.R. Shenoy, who argued that state control of the economy would undermine a young democracy. India faced an external payments crisis in 1957, which was seen as confirming Shenoy's argument.

Third Five-Year Plan (1961–1966)

The Third Five-Year Plan initially focused on agriculture and wheat production but faced major setbacks due to the Sino-Indian War of 1962, which highlighted weaknesses in the Indian economy. This led to a shift in focus towards the defense industry and the Indian Army. The Indo-Pakistani War of 1965 and a severe drought in 1965 further strained the economy, leading to inflation and a prioritization of price stabilization.

• Dam construction continued, and several cement and fertilizer plants were built.
• Punjab emerged as a major wheat producer.
• Primary schools were established in rural areas to enhance access to education.
• Panchayat elections were introduced to decentralize governance and empower local communities.
• India resorted to borrowing from the IMF for the first time, and the value of the Indian rupee was devalued in 1966.
• State electricity boards and secondary and higher education boards were formed, with states taking on greater responsibility for education and transportation.
• The plan's target growth rate was 5.6%, while the actual growth rate was 2.4%.

Plan Holidays (1966–1969)

The Third Five-Year Plan's failures, coupled with the war, resource scarcity, and rising inflation, led to the government declaring "plan holidays" from 1966 to 1969. Three annual plans were implemented during this period.

• The 1966–67 annual plan saw another drought and prioritized agriculture, allied activities, and the industrial sector.
• The Indian government declared the devaluation of the rupee to boost exports.

Fourth Five-Year Plan (1969–1974)

The Fourth Five-Year Plan was delayed due to disagreements over India's economic development strategy. Prime Minister Indira Gandhi spearheaded this plan, which aimed to correct the trend of wealth and economic power concentration.

• The plan emphasized growth with stability and self-reliance, based on the Gadgil formula.
• The Indira Gandhi government nationalized 14 major Indian banks.
• The Green Revolution in India significantly boosted agricultural production.
• The Indo-Pakistani War of 1971 and the Bangladesh Liberation War diverted funds earmarked for industrial development.
• The plan introduced the concept of a buffer stock of food grains and launched the Drought Prone Area Program (DPAP).
• The target growth rate was 5.6%, but the actual growth rate was 3.3%.

Fifth Five-Year Plan (1974–1978)

The Fifth Five-Year Plan prioritized employment, poverty alleviation (Garibi Hatao), and social justice. It also focused on self-reliance in agricultural production and defense.

• The plan was rejected by the newly elected Morarji Desai government in 1978.
• The Electricity Supply Act was amended in 1975, allowing the central government to participate in power generation and transmission.
• The Indian national highway system was introduced, and roads were widened to accommodate increasing traffic.
• Tourism in India expanded during this plan.
• The twenty-point programme, a set of economic and social reforms, was launched in 1975 and implemented until 1979.
• The Minimum Needs Programme (MNP) was introduced to provide basic minimum needs and improve living standards.
• The target growth rate was 4.4%, while the actual growth rate was 4.8%.

Rolling Plan (1978–1980)

The Janata Party government rejected the Fifth Five-Year Plan and introduced a new Sixth Plan (1978–1980). However, this plan was also rejected by the Indian National Congress government in 1980, and a new Sixth Plan was subsequently formulated.

• The Rolling Plan was a more flexible approach to economic planning, allowing for revisions and adjustments based on changing economic conditions. It included three types of plans: an annual plan, a short-term plan (3-5 years), and a long-term perspective plan (10-20 years).
• The Rolling Plan aimed to overcome the rigidity of the fixed Five-Year Plans by adapting to the changing Indian economy.
• However, frequent revisions led to a lack of stability in the economy.

Sixth Five-Year Plan (1980–1985)

The Sixth Five-Year Plan marked the beginning of economic liberalization in India. It involved the elimination of price controls, the closure of ration shops, and an expansion of family planning initiatives. This plan marked the end of Nehruvian socialism, which had been a dominant economic philosophy in India for several decades.

• Price controls were removed, leading to an increase in food prices and the cost of living.
• The National Bank for Agriculture and Rural Development (NABARD) was established in 1982 to support rural development.
• Family planning was expanded to control population growth.
• Military Five-Year Plans became synchronized with the Planning Commission's plans from this period onwards.
• The plan achieved significant success, with a target growth rate of 5.2% and an actual growth rate of 5.7%.

Seventh Five-Year Plan (1985–1990)

The Seventh Five-Year Plan, led by Prime Minister Rajiv Gandhi, focused on improving industrial productivity by upgrading technology and promoting economic growth.

• The plan aimed to establish growth in areas like industrial productivity, food grain production, and employment through "Social Justice."
• Building on the successes of the Sixth Five-Year Plan, the Seventh Plan further emphasized socialism and energy production.
• The plan's objectives included: social justice, alleviating oppression of the weak, utilizing modern technology, agricultural development, anti-poverty programs, ensuring sufficient food, clothing, and shelter, increasing productivity of small- and large-scale farmers, and establishing an independent Indian economy.
• The plan aimed to achieve self-sustaining growth by 2000.
• Employment growth was projected at 4% per year.
• The target growth rate was 5.0%, and the actual growth rate was 6.01%, with a per capita income growth rate of 3.7%.

Annual Plans (1990–1992)

The Eighth Five-Year Plan was delayed due to economic instability in 1990, leading to the implementation of two annual plans (1990–91 and 1991–92) before the Eighth Plan was finally launched in 1992. This marked the beginning of structural adjustment policies in India.

Eighth Five-Year Plan (1992–1997)

In 1991, India faced a foreign exchange crisis, with its forex reserves dwindling to just US$1 billion. This situation led to a shift in economic policy, with Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh introducing free market reforms. These reforms, known as liberalization, privatization, and globalization (LPG), helped to revive the Indian economy.

• The Eighth Plan focused on modernizing industries and gradually opening up the Indian economy to address the government deficit and foreign debt.
• India joined the World Trade Organization (WTO) on January 1, 1995.
• The plan aimed to control population growth, reduce poverty, generate employment, strengthen infrastructure, promote tourism management, prioritize human resource development, involve panchayati rajs, decentralize governance, and encourage public participation.
• Energy received priority, with 26.6% of the plan's outlay allocated to this sector.
• The target growth rate was 5.6%, and the actual growth rate was 6.8%.

Ninth Five-Year Plan (1997–2002)

The Ninth Five-Year Plan, led by Prime Minister Atal Bihari Vajpayee, aimed to leverage India's economic potential to promote economic and social growth.

Tenth Five-Year Plan (2002–2007)

The Tenth Five-Year Plan aimed to achieve high and inclusive growth, with a focus on poverty reduction and employment creation. It emphasized regional development to address regional inequalities.

• The plan aimed to achieve an 8% annual GDP growth rate.
• It targeted a 5% reduction in the poverty rate by 2007.
• The plan sought to provide gainful and high-quality employment to the expanding workforce.
• It aimed to reduce gender gaps in literacy and wage rates by 50% by 2007.
• The plan introduced the 20-point program.
• The target growth rate was 8.1%, and the actual growth rate was 7.7%.
• The total plan outlay was ₹43,825 crore (US$5.3 billion).
• The plan allocation was divided between the central government (₹921,291 crore, 57.9%) and state and union territories (₹691,009 crore, 42.1%).

Eleventh Five-Year Plan (2007–2012)

The Eleventh Five-Year Plan, led by Prime Minister Manmohan Singh, emphasized inclusive growth, poverty reduction, and empowerment through education and skill development. It also focused on environmental sustainability and gender equality.

• The plan aimed to increase higher education enrollment among the 18–23 age group by 2011–12.
• It promoted distant education and convergence of formal, non-formal, distant, and IT education institutions.
• The plan aimed to achieve growth rates of 4% in agriculture, 10% in industry, and 9% in services.
• It targeted a reduction in the total fertility rate to 2.1.
• The plan aimed to provide clean drinking water for all by 2009.
• It sought to increase agricultural growth to 4%.

Twelfth Five-Year Plan (2012–2017)

The Twelfth Five-Year Plan initially aimed to achieve a 9% growth rate but was revised to 8% due to the deteriorating global economic situation. It focused on reducing poverty, creating new jobs, and improving infrastructure.

• The plan aimed to create 50 million new jobs in non-agricultural sectors.
• It targeted the elimination of gender and social gaps in school enrollment.
• It sought to enhance access to higher education.
• The plan aimed to reduce malnutrition among children aged 0–3 years.
• It targeted the provision of electricity to all villages and access to proper drinking water for 50% of the rural population.
• The plan aimed to increase green coverage by 1 million hectares annually.
• It sought to provide banking services to 90% of households.

The End of Five-Year Plans

Following the dissolution of the Planning Commission, India no longer formally implements Five-Year Plans for the economy. However, Five-Year Defence Plans continue to be made. The latest Defence Plan would have been for 2017–2022. There is no Thirteenth Five-Year Plan for the overall economy.