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Economic planning in India: the Five-Year Plans, 1951–2017

Planning and NITI Aayog · Part 1 / 1 · Fact-checked on · how we check

Written with AI from the sources listed at the bottom of this page, then fact-checked by a separate AI.

What planning means (imperative and indicative, entry 20 of the Concurrent List); plans before independence from Visvesvaraya (1934) to the Sarvodaya Plan (1950); the Planning Commission (15 March 1950) and the National Development Council (1952); the Harrod–Domar and Mahalanobis models and the Gadgil formula; the aim and context of each of the twelve Plans, the plan holiday and the Rolling Plan; and what planning achieved and where it fell short.

For four decades after independence, the Five-Year Plan was the main tool through which the Indian state set priorities for the economy. This chapter has two parts. This part follows the Plans themselves: what planning means, where the idea came from, the bodies that drew up the Plans, the growth models behind them, and the aim and setting of each of the twelve Plans from 1951 to 2017. Part 2 explains why the Planning Commission was wound up in 2014–15 and what NITI Aayog does in its place. Each Plan makes sense once you know the problem the country faced when it began.

Economic planning means that a central authority decides, for a fixed period, how much the country should invest, in which sectors and towards which targets, instead of leaving every such choice to the market. Under imperative or directive planning, as in the former Soviet Union, the state owns most enterprises and orders them to meet set targets. Under indicative planning, used in France after the Second World War, the state sets broad goals, invests in key areas itself and steers private firms with incentives rather than orders. India chose a middle path: a mixed economy in which public and private sectors worked side by side, with the public sector given the lead in basic and heavy industry. The Constitution lists "economic and social planning" as entry 20 of the Concurrent List, so both the Union and the states may plan; in practice the national Plan set the frame and the state plans fitted inside it.

The idea of planning is older than the Republic. In 1934 the engineer and former Diwan of Mysore, M. Visvesvaraya, published Planned Economy for India, which argued for rapid industrialisation under a national plan. In 1938 the Indian National Congress, whose president was then Subhas Chandra Bose, set up the National Planning Committee with Jawaharlal Nehru as its chairman. In 1944 a group of leading industrialists, among them J.R.D. Tata and G.D. Birla, put forward what became known as the Bombay Plan, which accepted a large role for the state in building infrastructure and basic industry. In the same year Shriman Narayan Agarwal drew up the Gandhian Plan, centred on village industries and decentralised production. M.N. Roy's People's Plan (1945) put agriculture and the needs of ordinary people first, and Jayaprakash Narayan's Sarvodaya Plan (1950) drew on Gandhian and Sarvodaya ideals. By 1947, from big business to socialists, almost every school of thought agreed that the state must plan development.

Plans proposed before the First Five-Year Plan
PlanYearPrepared byMain idea
Planned Economy for India1934M. VisvesvarayaRapid industrialisation under a national plan
National Planning Committee1938Indian National Congress (chairman: Jawaharlal Nehru)A national plan as part of the Congress programme
Bombay Plan1944Leading industrialists (J.R.D. Tata, G.D. Birla and others)Large state role in infrastructure and basic industry
Gandhian Plan1944Shriman Narayan AgarwalVillage industries, decentralised production
People's Plan1945M.N. RoyAgriculture and the needs of ordinary people first
Sarvodaya Plan1950Jayaprakash NarayanGandhian and Sarvodaya ideals

The Planning Commission was set up on 15 March 1950 by a resolution of the Government of India. It was created neither by the Constitution nor by an Act of Parliament, so it was an extra-constitutional and non-statutory body, and its role was advisory. The Prime Minister was its chairman, while a Deputy Chairman led its daily work; the first was Gulzarilal Nanda. The Commission assessed the country's resources, drew up the Plans, fixed priorities and, importantly, decided how much plan assistance each state would receive. To give the states a voice, the National Development Council was formed on 6 August 1952. Chaired by the Prime Minister, it brought together Union Cabinet ministers, the Chief Ministers of all states and the members of the Commission, and a draft Plan became final only after the Council approved it. Like the Commission, it rested on an executive decision, not on any Article of the Constitution.

Every Plan rested on an idea of how growth happens. The First Plan drew on the Harrod–Domar model, in which the growth rate depends on the share of income that is saved and invested, divided by the capital-output ratio, that is, how much capital is needed to produce one more unit of output. With India's savings low, the lesson was to raise investment and use capital well. The Second Plan was built on a model by the statistician P.C. Mahalanobis, founder of the Indian Statistical Institute, which divided the economy into a sector making capital goods and one making consumer goods, and argued that faster long-run growth needed a larger share of investment in capital goods first: steel, machinery and power. A separate formula governed money for the states. From the Fourth Plan, central plan assistance was shared among states by the Gadgil formula (1969), which weighed population, per capita income and other factors; it was revised in 1991 as the Gadgil–Mukherjee formula.

The First Plan (1951–56) came after Partition and years of food shortage, so it gave the largest share of outlay to agriculture, irrigation and power, pushing ahead multipurpose river valley projects such as Bhakra-Nangal; helped by good monsoons, it beat its modest growth target. The Second Plan (1956–61) followed the Mahalanobis model and the goal of a socialistic pattern of society. Three public sector steel plants came up at Bhilai, Durgapur and Rourkela, built with help from the Soviet Union, the United Kingdom and West Germany respectively. The Third Plan (1961–66) aimed at a self-reliant and self-generating economy, but the war with China in 1962, the war with Pakistan in 1965 and severe droughts in 1965–66 and 1966–67 left it far short of its targets. The government then took a "plan holiday": three Annual Plans from 1966 to 1969. Those years saw the new agricultural strategy of high-yielding seeds, fertiliser and assured irrigation that started the Green Revolution.

The Fourth Plan (1969–74) set two objectives: growth with stability and progressive achievement of self-reliance. The nationalisation of 14 major banks in July 1969 belongs to this period, and the slogan "Garibi Hatao" (remove poverty) dates from the 1971 election. The Fifth Plan (1974–79) put removal of poverty and self-reliance at its centre and introduced the Minimum Needs Programme for basic services such as elementary education, rural health, drinking water and rural roads. The Janata government ended it a year early, in 1978, and replaced it with a rolling plan for 1978–80, under which targets were revised every year instead of being fixed for five years. The new government of 1980 dropped that idea and launched the Sixth Plan (1980–85), which again aimed at removing poverty, through programmes such as the Integrated Rural Development Programme. The Seventh Plan (1985–90) stressed food, work and productivity. Political uncertainty and the balance of payments crisis left 1990–91 and 1991–92 with only Annual Plans.

The Eighth Plan (1992–97) began after the 1991 reforms and changed the character of planning. With industrial licensing largely abolished and private firms free to expand, the Plan described itself as indicative planning: the state would set priorities and build infrastructure and human capability, while most investment decisions were left to the market. It named human development as the ultimate goal of planning. The Ninth Plan (1997–2002) aimed at growth with social justice and equality. The Tenth Plan (2002–07) set a target of 8 per cent annual growth and, alongside it, monitorable targets for indicators such as poverty, literacy and infant mortality, and split the national growth target into targets for each state. The Eleventh Plan (2007–12) was titled "Towards Faster and More Inclusive Growth", and the Twelfth Plan (2012–17) "Faster, More Inclusive and Sustainable Growth". The Twelfth Plan ended on 31 March 2017 and was the last; no Thirteenth Plan was drawn up.

The Five-Year Plans at a glance, 1951–2017
PlanYearsMain aim or feature
First1951–56Agriculture, irrigation and power; Harrod–Domar model
Second1956–61Heavy industry; Mahalanobis model; socialistic pattern of society
Third1961–66Self-reliant and self-generating economy; hit by wars and droughts
Annual Plans (plan holiday)1966–69New agricultural strategy; start of the Green Revolution
Fourth1969–74Growth with stability; progressive achievement of self-reliance
Fifth1974–79 (ended 1978)Removal of poverty and self-reliance; Minimum Needs Programme
Rolling Plan1978–80Targets revised every year
Sixth1980–85Removal of poverty
Seventh1985–90Food, work and productivity
Annual Plans1990–92Political uncertainty and balance of payments crisis
Eighth1992–97Indicative planning after the 1991 reforms; human development
Ninth1997–2002Growth with social justice and equality
Tenth2002–078 per cent growth target; monitorable targets; state-wise targets
Eleventh2007–12Faster and more inclusive growth
Twelfth2012–17Faster, more inclusive and sustainable growth; the last Plan

Planning left a mixed record. On the credit side, it built a base of steel, power, machinery and heavy industry that private capital could not have financed in the 1950s; it created institutions for science, technical education and statistics; and, through the agricultural strategy of the late 1960s, it ended India's dependence on imported food grains. On the debit side, growth from 1950 to 1980 averaged only about 3.5 per cent a year, a pace the economist Raj Krishna called the "Hindu rate of growth". Licensing and controls bred delay and favoured a few large firms, many public enterprises ran at a loss, and poverty fell slowly. The 1991 crisis showed the limits of a state-directed model. After it, planning moved from deciding where investment should go to signalling priorities, investing in infrastructure and social sectors, and leaving most other decisions to markets, a shift that set the stage for NITI Aayog.

Read together, the twelve Plans trace India's economic story: food and irrigation first, then heavy industry, a crisis and a plan holiday, a long focus on poverty, and after 1991 an indicative approach that ended with the goal of inclusive and sustainable growth. Throughout these years the Planning Commission did more than write documents. Because it decided plan assistance to states and approved state plans, it became a powerful channel of money from the Centre, running alongside the Finance Commission. States increasingly felt that a single national Five-Year Plan could not fit regions as different as Kerala and Bihar, and that a body appointed by the Centre should not decide their development spending. Those complaints, together with the changed economy after 1991, explain why the Commission was replaced in 2015, which is the subject of Part 2.

Exam traps

Recap

Practice questions

Q1. The Planning Commission of India was set up by

  1. an Article of the Constitution in 1950
  2. an Act of Parliament in 1951
  3. a resolution of the Government of India in March 1950
  4. a decision of the National Development Council in 1952
Show answer

Answer: C. a resolution of the Government of India in March 1950

The Commission was created on 15 March 1950 by a Government of India resolution, so it was extra-constitutional and non-statutory. No Article of the Constitution or Act of Parliament created it, and the National Development Council came later (August 1952) and did not create the Commission.

Q2. Consider the following statements:
1. The First Five-Year Plan was based on the Harrod–Domar model.
2. The Second Five-Year Plan gave priority to agriculture over heavy industry.
Which of the statements given above is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
Show answer

Answer: A. 1 only

Statement 1 is correct: the First Plan drew on the Harrod–Domar model and stressed agriculture and irrigation. Statement 2 is wrong: the Second Plan, based on the Mahalanobis model, put heavy industry and capital goods first. So "2 only", "both" and "neither" are wrong.

Q3. Match List I with List II:
List I (Plan) — List II (Associated with)
A. Bombay Plan — 1. M.N. Roy
B. Gandhian Plan — 2. Jayaprakash Narayan
C. People's Plan — 3. Shriman Narayan Agarwal
D. Sarvodaya Plan — 4. A group of leading industrialists
Select the correct answer using the code given below:

  1. A-4, B-3, C-1, D-2
  2. A-4, B-1, C-3, D-2
  3. A-3, B-4, C-2, D-1
  4. A-1, B-3, C-4, D-2
Show answer

Answer: A. A-4, B-3, C-1, D-2

The Bombay Plan (1944) came from industrialists such as J.R.D. Tata and G.D. Birla; the Gandhian Plan (1944) from Shriman Narayan Agarwal; the People's Plan (1945) from M.N. Roy; the Sarvodaya Plan (1950) from Jayaprakash Narayan. The second code swaps Roy and Agarwal, the third gives the Bombay Plan to Agarwal, and the fourth gives it to Roy, so all three are wrong.

Q4. Which Five-Year Plan was ended a year before its scheduled completion and followed by a Rolling Plan?

  1. Third Plan
  2. Fourth Plan
  3. Fifth Plan
  4. Seventh Plan
Show answer

Answer: C. Fifth Plan

The Fifth Plan (1974–79) was ended in 1978 by the Janata government, which introduced a Rolling Plan for 1978–80. The Third Plan ran its full term and was followed by the plan holiday of 1966–69; the Fourth and Seventh Plans also ran their full terms.

Q5. With reference to the National Development Council, consider the following statements:
1. It was chaired by the Prime Minister.
2. The Chief Ministers of all states were its members.
3. It was set up under Article 263 of the Constitution.
Which of the statements given above are correct?

  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2 and 3
Show answer

Answer: A. 1 and 2 only

The NDC (6 August 1952) was chaired by the Prime Minister and included Union Cabinet ministers, all Chief Ministers and the members of the Planning Commission, so statements 1 and 2 are correct. Statement 3 is wrong: the NDC was created by an executive decision; Article 263 provides for the Inter-State Council. Every option containing 3 is therefore wrong.

Q6. The period known as the "plan holiday" in India refers to

  1. 1962–65
  2. 1966–69
  3. 1978–80
  4. 1990–92
Show answer

Answer: B. 1966–69

After the Third Plan was hit by the wars of 1962 and 1965 and the droughts of the mid-1960s, three Annual Plans were run from 1966 to 1969: the plan holiday. 1962–65 falls inside the Third Plan; 1978–80 was the Rolling Plan; 1990–92 had Annual Plans because of political uncertainty and the balance of payments crisis, but that break is not what the term usually refers to.

Q7. Which Five-Year Plan described itself as indicative and named human development as the ultimate goal of planning?

  1. Sixth Plan
  2. Seventh Plan
  3. Eighth Plan
  4. Eleventh Plan
Show answer

Answer: C. Eighth Plan

The Eighth Plan (1992–97), the first after the 1991 reforms, adopted indicative planning and called human development its ultimate goal. The Sixth Plan focused on removing poverty, the Seventh on food, work and productivity, and the Eleventh on faster and more inclusive growth.

Q8. Arrange the following Plan themes in chronological order:
1. Growth with social justice and equality
2. Faster and more inclusive growth
3. Growth with stability and progressive achievement of self-reliance
4. Food, work and productivity
Select the correct answer using the code given below:

  1. 3-4-1-2
  2. 4-3-1-2
  3. 3-1-4-2
  4. 1-3-4-2
Show answer

Answer: A. 3-4-1-2

Growth with stability was the Fourth Plan (1969–74), food, work and productivity the Seventh (1985–90), growth with social justice and equality the Ninth (1997–2002), and faster and more inclusive growth the Eleventh (2007–12): 3-4-1-2. The second code puts the Seventh before the Fourth, the third puts the Ninth before the Seventh, and the fourth starts with the Ninth, so all are wrong.

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