Tuesday, August 3, 2010

Five-year plans of India

The economy of India is based in part on planning through its five-year plans, developed, executed and monitored by the Planning Commission. With the Prime Minister as the ex officio Chairman, the commission has a nominated Deputy Chairman, who has rank of a Cabinet minister. Montek Singh Ahluwalia is currently the Deputy Chairman of the Commission. The tenth plan completed its term in March 2007 and the eleventh plan is currently underway. 1.1 First plan (1951-1956): The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the Parliament of India on December 8, 1951. The first plan sought to get the country's economy out of the cycle of poverty. The plan addressed, mainly, the agrarian sector, includinginvestments in dams and irrigation. Agricultural sector was hit hardest by partition and needed urgent attention. The total plan budget of 206.8 billion INR (23.6 billion USD in the 1950 exchange rate) was allocated to seven broad areas: irrigation and energy (27.2 percent), agriculture and community development (17.4 percent), transport and communications (24 percent), industry (8.4 percent), social services (16.64 percent), land rehabilitation (4.1 percent), and other (2.5 percent). The target growth rate was 2.1 percent annual gross domestic product (GDP) growth; the achieved growth rate was 3.6 percent. During the first five-year plan the net domestic product went up by 15 percent. The monsoon was good and there were relatively high crop yields, boosting exchange reserves and the per capita income, which increased by 8 percent. National income increased more than the per capita income due to rapid population growth. Many irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud Dam. The World Health Organization, with the Indian government, addressed children's health and reduced infant mortality, indirectly contributing to population growth. At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as major technical institutions. University Grant Commission was set up to take care of funding and take measures to strengthen the higher education in the country. 1.2 Second plan (1956-1961): The second five-year plan focused on industry, especially heavy industry. Domestic production of industrial products was encouraged, particularly in the development of the public sector. The plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximise long-run economic growth . It used the prevalent state of art techniques of operations research and optimization as well as the novel applications of statistical models developed at the Indian Statiatical Institute. The plan assumed a closed economy in which the main trading activity would be centered on importing capital goods. Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela were established. Coal production was increased. More railway lines were added in the north east. The Atomic Energy Commission was formed in 1957 with Homi J. Bhabha as the first chairman. The Tata Institute of Fundamental Research was established as a research institute. In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power. 1.3 Third plan (1961-1966): The third plan stressed on agriculture and improving production of rice, but the brief Sino-Indian War in 1962 exposed weaknesses in the economy and shifted the focus towards defence. In

1965-1966, The war led to inflation and the priority was shifted to price stabilisation. The construction of dams continued. Many cement and fertilizer plants were also built. Punjab begun producing an abundance of wheat. Many primary schools were started in rural areas. In an effort to bring democracy to the grassroot level, Panchayat elections were started and the states were given more development responsibilities. State electricity boards and state secondary education boards were formed. States were made responsible for secondary and higher education. State road transportation corporations were formed and local road building became a state responsibility. 1.4 Fourth plan (1969-1974): At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalised 14 major Indian banks and the Green Revolution in India advanced agriculture.. In addition, the situation in East Pakistan (now independent Bangladesh) was becoming dire as the IndoPakistani War of 1971 and Bangladesh Liberation War took place. Funds earmarked for the industrial development had to be used for the war effort. India also performed the Smiling Buddha underground nuclear test in 1974, partially in response to the United States deployment of the Seventh Fleet in the Bay of Bengal to warn India against attacking West Pakistan and widening the war. 1.5 Fifth plan (1974-1979): Stress was laid on employment, poverty alleviation, and justice. The plan also focused on selfreliance in agricultural production and defence. In 1978 the newly elected Morarji Desai government rejected the plan. Electricity Supply Act was enacted in 1975, which enabled the Central Government to enter into power generation and transmission. 1.6 Sixth plan (1980-1985): When Rajiv Gandhi was elected as the prime minister, the young prime minister aimed for rapid industrial development, especially in the area of information technology. Progress was slow, however, partly because of caution on the part of labour and communist leaders. The Indian national highway system was introduced for the first time and many roads were widened to accommodate the increasing traffic. Tourism also expanded. The sixth plan also marked the beginning of economic liberalization. Price controls were eliminated and ration shops were closed. This led to an increase in food prices and an increased cost of living. Family planning also was expanded in order to prevent overpopulation. In contrast to China's harshly-enforced one-child policy, Indian policy did not rely on the threat of force. More prosperous areas of India adopted family planning more rapidly than less prosperous areas, which continued to have a high birth rate. 1.7 Seventh plan (1985-1989): The Seventh Plan marked the comeback of the Congress Party to power. The plan lay stress on improving the productivity level of industries by upgradation of technology. The main objectives of the 7th five year plans were to establish growth in the areas of increasing economic productivity, production of food grains, and generating employment opportunities. As an outcome of the sixth five year plan, there had been steady growth in agriculture, control on rate of Inflation, and favourable balance of payments which had provided a strong base for the seventh five Year plan to build on the need for further economic growth. The 7th Plan had

strived towards socialism and energy production at large. The thrust areas of the 7th Five year plan have been enlisted below: Social Justice Removal of oppression of the weak Using modern technology Agricultural development Anti-poverty programs Full supply of food, clothing, and shelter Increasing productivity of small and large scale farmers Making India an Independent Economy Based on a 15-year period of striving towards steady growth, the 7th Plan was focused on achieving the pre-requisites of self-sustaining growth by the year 2000. The Plan expected a growth in labour force of 39 million people and employment was expected to grow at the rate of 4 percent per year. Some of the expected outcomes of the Seventh Five Year Plan India are given below: Balance of Payments (estimates): Export - Rs. 33 thousand crore, Imports - (-)Rs.54 thousand crore, Trade Balance - (-)Rs.21 thousand crore Merchandise exports (estimates): Rs. 60,653 crore Merchandise imports (estimates): Rs. 95,437 crore Projections for Balance of Payments: Export - Rs.60.7 thousand crore, Imports - (-) 95.4 thousand crore, Trade Balance- (-) Rs.34.7 thousand crore Seventh Five Year Plan India strove to bring about a self-sustained economy in the country with valuable contributions from voluntary agencies and the general populace. 1.8 Period between (1989-91): 1989-91 was a period of political instability in India and hence no five year plan was implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India faced a crisis in Foreign Exchange (Forex) reserves, left with reserves of only about $1 billion (US). Thus, under pressure, the country took the risk of reforming the socialist economy. P.V. Narasimha Rao)was the twelfth Prime Minister of the Republic of India and head of Congress Party, and led one of the most important administrations in India's modern history overseeing a major economic transformation and several incidents affecting national security. At that time Dr. Manmohan Singh (currently, Prime Minister of India) launched India's free market reforms that brought the nearly bankrupt nation back from the edge. It was the beginning of privatisation and liberalisation in India. 1.9 Eighth plan (1992-1997): Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January 1995.This plan can be termed as Rao and Manmohan model of Economic development. The major objectives included, containing population growth, poverty reduction, employment generation, strengthening the infrastructure, Institutional building, Human Resource development, Involvement of Panchayat raj, Nagarapalikas, N.G.OSand Decentralisation and people's participation. Energy was given prority with 26.6% of the outlay. An average annual growth rate of 6.7% against the target 5.6% was achieved. 1.10 Ninth Plan (1997 - 2002): Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim of attaining objectives like speedy industrialization, human development, full-scale employment,

poverty reduction, and self-reliance on domestic resources. Background of Ninth Five Year Plan India: Ninth Five Year Plan was formulated amidst the backdrop of India's Golden jubilee of Independence. The main objectives of the Ninth Five Year Plan India are: to prioritize agricultural sector and emphasize on the rural development to generate adequate employment opportunities and promote poverty reduction to stabilize the prices in order to accelerate the growth rate of the economy to ensure food and nutritional security to provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy to check the growing population increase to encourage social issues like women empowerment, conservation of certain benefits for the Special Groups of the society to create a liberal market for increase in private investments During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower than the target GDP growth of 6.5 per cent. 1.11 Tenth plan (2002-2007): The main objectives of the 10th Five-Year Plan were: Reduction of poverty ratio by 5 percentage points by 2007; Providing gainful and high-quality employment at least to the addition to the labour force; All children in India in school by 2003; all children to complete 5 years of schooling by 2007; Reduction in gender gaps in literacy and wage rates by at least 50% by 2007; Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2%; Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to 2007); Reduction of Infant mortality rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012; Reduction of Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007 and to 1 by 2012; Increase in forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012; All villages to have sustained access to potable drinking water within the Plan period; Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012; Economic Growth further accelerated during this period and crosses over 8% by 2006. 1.12 Eleventh plan (2007-2012): The eleventh plan has the following objectives: Income & Poverty: o Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016-17 o Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits o Create 70 million new work opportunities. o Reduce educated unemployment to below 5%. o Raise real wage rate of unskilled workers by 20 percent. o Reduce the headcount ratio of consumption poverty by 10 percentage points. Education: o Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12

o Develop minimum standards of educational attainment in elementary school, and by regular testing monitor effectiveness of education to ensure quality o Increase literacy rate for persons of age 7 years or above to 85% o Lower gender gap in literacy to 10 percentage points o Increase the percentage of each cohort going to higher education from the present 10% to 15% by the end of the plan Health: o Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births o Reduce Total Fertility Rate to 2.1 o Provide clean drinking water for all by 2009 and ensure that there are no slipbacks o Reduce malnutrition among children of age group 0-3 to half its present level o Reduce anaemia among women and girls by 50% by the end of the plan Women and Children: o Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17 o Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children o Ensure that all children enjoy a safe childhood, without any compulsion to work Infrastructure: o Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power. o Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015 o Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012 o Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016-17 Environment: o Increase forest and tree cover by 5 percentage points. o Attain WHO standards of air quality in all major cities by 2011-12. o Treat all urban waste water by 2011-12 to clean river waters. o Increase energy efficiency by 20 percentage points by 2016-17. Infrastructure: The key to sustaining India's growth rate during a global meltdown lies in developing India's infrastructure. Keeping this in mind, the government is targeting an investment of US$ 20.38 billion over the next two years in the infrastructure sector. The scheme aims to take up infrastructure projects under public-private partnership (PPP) with minimal private investment. The government has asked the Infrastructure Investment Finance Company Ltd (IIFCL) to put together a corpus of over US$ 8.15 billion for this purpose. IIFCL plans to provide US$ 1.2 billion for infrastructure projects during 2009-10, which is nearly double the amount disbursed by it during 2008-09. The company had disbursed US$ 640.8 million for various projects during 2008-09. This is in addition to the US$ 320 billion that the government plans to invest for the upgradation of ports, railroads, highways and airports over the next 15 years. In a bid to accelerate the infrastructure projects through PPP initiatives in India, the Asian Development Bank (ADB) has decided to provide close to US$ 700 million in loans. Also, representatives from the Government of India, IIFCL, Power Grid Corporation and World Bank, have signed loan agreements for three projects amounting to US$ 4.2 billion, which will go into long-term finance for infrastructure projects, capacity building of IIFCL, assisting public sector banks in credit growth and strengthening the power transmission system. Further, the core sector growth is back on track. The index for six core industriescrude oil, petroleum refinery products, coal, power, cement and finished steelturned in a growth of 10.4

per cent in August 2009. Cumulatively, during April-September this fiscal, core sector output rose 5 per cent compared with 3.4 per cent in the same period in 2008-09. The infrastructure basket has a 27 per cent weightage in the Index of Industrial Production (IIP). Ports: The government has identified 276 projects entailing an investment of US$ 12 billion. According to the Planning Commission, there is an investment opportunity of US$ 25 billion by 2011-12 in India's shipping and ports sectors, as the country seeks to double its ports capacity to 1,500 million tonnes. Segment-wise, while the ports sector would provide a US$ 13.75 billion investment opportunity, shipping and inland waterways are likely to present a US$ 11.25 billion investment opportunity. In a major thrust to expand capacity at important ports in the country, the Ministry of Shipping has awarded seven projects worth over US$ 386.9 million, to be developed through the PPP route. Another 19 projects, estimated to cost around US$ 3.87 billion, are expected to be awarded on similar PPP basis by early 2010. Further, in a move to boost capacity at major ports in the country, Public-Private Partnership Approval Committee (PPPAC), a government panel, has approved three projects worth over US$ 1.65 billion, to be developed through the PPP mode. Also, the Kerala State Cabinet has approved US$ 97.17 million for work on the initial phase of the proposed Vizhinjam International Container Transshipment Terminal project on the lines of the Cochin International Airport (CIAL) model of PPP. Airports: The government plans to attract private players through the PPP mode for the development of over 300 airports and airstrips. It would invest US$ 9 billion to modernise existing airports by 2010. The Civil Aviation Ministry plans to develop 35 Greenfield airports across India by 2010 with an investment of US$ 35 billion for the proposed airports. Investment in airport infrastructure was over US$ 5 billion in 2008 and will go up US$ 9 billion by 2013, of which close to US$ 6.8 billion is expected to come through the PPP model, states a recent study by research firm Frost & Sullivan. The study further states that a key driver for the airport infrastructure market is the upgradation of 35 non-metro airports identified by the Airport Authority of India (AAI). Railroads: The Indian Railways took up the most ambitious ever annual plan for fiscal 2008-09, entailing an enormous investment of US$ 7.91 billion, registering a 21 per cent increase over the previous year. The plan includes a total budgetary support of US$ 1.66 billion including US$ 163.33 million to be provided from the Central Road Fund. A total investment of US$ 5.6 billion has been planned for the two corridors, US$ 3.3 billion for the Western and US$ 2.3 billion for the Eastern, respectively. The Government of Japan has committed an amount of US$ 28.48 million for the engineering services loan under the dedicated freight corridor project (Phase-I). The objective of the project is to cope with the increase of freight transport demand in India by constructing new dedicated freight railway system. Roads: During 2007-08, US$ 1.86 billion had been provided for the national highways and for state roads. Of this amount, US$ 1.5 billion is for national highways and US$ 0.36 billion for state roads. An amount of US$ 0.04 billion has also been allocated during 2007-08 for the development of state roads. According to a consultation paper by the Planning Commission, investment in the roads sector during the Eleventh Plan is projected at US$ 93.11 billion. Moreover, as per the Transport Minister Mr Kamal Nath the road and highways sector would require an investment of about US$ 12.36 billion in the next three years. Recently, the government has approved eight road projects, entailing an estimated cost of US$ 2.35 billion.

Investments: According to the Planning Commission consultation paper, US$ 494 billion of investment is proposed for the Eleventh Plan period (2007-12), which would increase the share of infrastructure investment to 9 per cent of GDP from 5 per cent in 2006-07. An investment of US$ 627.3 million will be made by industries in the Aeropsace and Precision Engineering Special Economic Zone in Andhra Pradesh. The Kerala State Industrial Development Corporation (KSIDC) and GAIL (India) have signed a bilateral agreement that envisages investment of up to US$ 1.75 billion in gas-based infrastructure in the State. The Karnataka government has drawn up a blueprint for the overall development of Bangalore city with a massive financial outlay of US$ 4.5 billion. Moreover, sensing huge opportunities, a clutch of private equity (PE) players are rushing in to raise funds for the infrastructure sector. At present, close to US$ 1.78 billion is in the process of being raised. An investment of more than US$ 5.33 billion would be made in the next four years on improving national highways in Madhya Pradesh. Sembmarine Kakinada Limited (SKL), a joint venture of Singapore-based Sembawang Shipyard Pvt Ltd and Kakinada Seaports Ltd, has announced the establishment of a shipyard at Kakinada port at an estimated cost of US$ 375 million to cater to offshore units and merchant vessels operating in Indian waters. Investment in Rural Infrastructure: The government has started a special programme, Bharat Nirman, for the improvement of India's rural infrastructure. Out of the total projected investment of US$ 301.37 billion to be incurred by the centre and the states in the Eleventh Plan, US$ 85.53 billion would be spent entirely towards improvement of rural infrastructure. With a view to promote rural infrastructure beyond core areas, such as roads, bridges and irrigation, National Bank for Agriculture & Rural Development (NABARD) has taken initiatives to channel more funds to build marketing infrastructure in rural belts and remove bottlenecks in allied agriculture activities, such as fishery, poultry and dairy. Government Initiatives: The Eleventh Plan targets a growth rate of 9 per cent. Initiatives such as the National Highways Development Programme (NHDP), the Airport Financing Plan, and the National Maritime Development Programme and the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) are efforts in the same direction. To enhance liquidity and check depreciation of the rupee, the Ministry of Finance has modified norms to permit companies in the mining, exploration and refineries sectors to bring in up to US$ 500 million in external commercial borrowing (ECB). Earlier, the limit was US$ 50 million. Further, the ministry has stated a five-fold increase in the figure that companies building roads, ports and other infrastructure projects are allowed to bring in from overseas.