• Economic planning refers to the path of actions in terms of policy measures to be followed in future, in pursuance of pre-determined objectives.

Planning Commission (now NITI Aayog) defines economic planning as the utilisation of country’s resources for developmental activities in accordance with national priorities. It is a consciously and judiciously carried out process for optimum utilisation of existing resources in order to fulfil some well defined objectives.

Objectives of Planning

  • The broad objectives to Five Years Plans in India are
    − A high rate of growth with a view to improve the standard of living.
    − Modernisation of economy in terms of adoption of new technologies and social outlook.


  •  1934 – Sir M.Visvesvaraya in his book Planned Economy of India advocated the necessity of planning in the country much before independence.
  •  1944 – The Planning and Development Department was set up under the chairmanship of Sir Ardeshir Dalal.
  •  1946 – The Interim government set up the Planning Advisory Board.
  •  1947 – The Economic Programme Committee was set up under the chairmanship of Pandit Jawaharlal Nehru.
  •  1950 – The Planning Commission was set up after independence.
  •  1965 – The National Planning Council was established
  •  2015 – The NITI Aayog replaces the Planning Commission.

− Economic self-reliance, meaning avoiding import which can be produced in India.
− Equity implying equitable distribution of wealth with social justice.

− Economic stability which means controlling inflation and unemployment.



1. Harrod Domar Strategy

  • The 1st Five Year Plan was based on this strategy. This strategy emphasised the role of capital accumulation’s dual character, which on the one hand, increases the national income (demand side role) and on the other hand, increases the production capacity (supply side role).
  • According to this growth model, the rate of economic growth in an economy is dependent on the level of savings and capital output ratio.
    Rate of growth (y) = Savings (s)/Capital output ratio (k)

Here, the capital output ratio, defined as change in capital divided by change in output measures the productivity of investment that takes place.

2. Nehru-Mahalanobis Strategy

  • This strategy was based on the two sector model, that is,consumer good sector and capital good sector. The strategy emphasised investment in heavy industry to achieve industrialisation for rapid economic development. It was based on the Russian experience.
  • The objective was to become self-reliant and overcome capital constraint. This strategy was adopted in the 2nd Five Year Plan and with minor modifications, up to the 5th Plan. It was a long-term strategy.

The Mahalanobist strategy called for larger role for public sector because of two reasons.
(i) Private Sector was not mature enough to undertake the responsibility.
(ii) It was feared that opening industries to private sectors could lead to concentration of wealth in private hands.

3. Gandhian Strategy

  • It was enunciated by Acharya Shriman Narayan Agarwal in his ‘Gandhian Plan’ in 1944. The basic objective of the Gandhian Model is to raise the material as well as cultural level of the masses so as to provide a basic standard of life.
  • It laid emphasis on scientific development of agriculture and rapid growth of cottage and village industries. Moreover, Gandhian Strategy emphasised on employment oriented planning rather than production oriented planning of Nehru.

4. LPG Strategy

  • Liberalisation, Privatisation and Globalisation (LPG) strategy of planning was introduced by the Finance Minister, Dr Manmohan Singh under Narasimha Rao Government.
  • The strategy ended the ‘’license-permit-raj’’ and opened the hitherto areas reserved for the public sector to private sector. It allowed for foreign direct investment and followed an export promotion policy to boost economic growth. In all, it changed the nature of planning from centralised to ‘’indicative’’, wherein planning was to play a facilitating role.
  • It is also referred to as planning by inducement as against imperative planning.


  • First attempt to initiate economic planning in India was made by Sir M Visvesvarayya, a noted engineer and politician, in 1934, through his book, ‘Planned Economy for India’.
  • In 1938, National Planning Commission was set-up under the chairmanship of Jawaharlal Nehru by the Indian National Congress.
  • Its recommendations could not be implemented because of the beginning of the World War II and changes in the Indian political situation.
  •  It stated that the objective of planning was to ensure an adequate standard of living for the masses. It emphasised on heavy industry and land reforms.
  •  In 1944, Bombay Plan was presented by 8 leading industrialists of Bombay including JRD Tata, GD Birla and others. It saw future progress based on textile and consumer industries and saw an important role for the state in post independent India.
  • In 1944, ‘Gandhian Plan’ was given by Shriman Narayan Agarwal. It emphasised decentralisation, agricultural development, cottage industries etc.
  •  In 1945, People’s Plan was given by MN Roy.
  •  In 1950, Sarvodaya Plan was given by Jai Prakash Narayan. A few points of this plan were accepted by the government.



  • After independence in 1950, the Planning Commission was set-up under the chairmanship of Pt Jawaharlal Nehru. It was to formulate plans for the economic development of the country on the basis of the available physical, capital and human resources.
  • The Planning Commission is essentially a non-political and non-constitutional advisory body,               which               makes recommendations to the government. It was set-up through an executive order of the Union Government on 15th March, 1950.

National             Institution             for Transforming India (NITI Aayog) Introduction of NITI Aayog

  • NITI Aayog or National Institution for Transforming India Aayog is a policy ‘think- tank’ of government that replaces Planning Commission and aims to involve states in economic policy-making. It will be providing strategic and technical advice to the central and the State Governments. Prime Minister heads the Aayog as its Chairman.

New Structure under NITI Aayog

  • NITI Aayog will be headed by the Prime Minister and will have a Governing Council, comprising Chief Ministers of states and Heads of all Union Territories. The Governing Council replaces the earlier National Development Council.
  • In addition, there will also be a regional council comprising of Chief Ministers and Lieutenant Governors of Union Territories, which will be mandated to develop plans that are region specific.
  • The Aayog will have 7 or 8 full time members and two well- known and accomplished part- time members, drawn from leading research organisations and major universities. Four Union Ministers, nominated by the Prime Minister, will also be included in ex-officio capacity

  • On the PM’s invitation, specialists across domains, will be invited to share knowledge and add value to the Planning process, making extensive use of technology in developing sustainable plans             and programme implementation. The Prime Minister shall appoint a full time Chief Executive Officerwith a fixed tenure and may sanction a dedicated secretariat, if deemed necessary.

Vision and Objectives of NITI Aayog

  • Based on the belief that strong states make a strong Centre, NITI Aayog is structured to promote cooperative federalism. The new body will build mechanisms to include need- based planning at the village level and aggregate the needs at higher levels of government.
  • Policy planning will be long- term, with in-built mechanisms for course correction, based on emerging economic scenario. National security interests will be kept in focus, while formulating plans on economic and social development. Special focus will be on those sections of society that are at the risk of being left out of the development process.
  • The planning process must encourage innovation, knowledge and entrepreneurial thinking and include close interaction with all stakeholders and research bodies, both in India and overseas and seek suggestions and opinion for a more pro-active and relevant policy
  • Aiming to facilitate greater inter department and inter sector coordination and avoid bottlenecks in smoother policy implementation, the institution is to develop a knowledge-based repository of information and data, to enable all stakeholders to access the resource pool and help in developing best practices for sustainable and equitable development.
  • Technology upgradation and capacity building will be encouraged to promote efficient implementation of programme initiatives.


  • The Prime Minister Narendra Modi appointed Indian- American economist Arvind Panagariya as the first Vice Chairman of the Niti Aayog an institution that came into being on 1st January and replaced the 65-year old Planning.
  • The Commission-along with six members and three special invitees Economist Bibek Debroy and former Defence Research and Development Organisation Chief VK Saraswat were appointed as full-time members by the Prime Minister, who was be the chairman of the body, according to a release issued on Monday. Union Ministers Rajnath Singh, Arun Jaitley, Suresh Prabhu and Radha Mohan Singh will be ex-officio members while Nitin Gadkari, Smriti Irani and Thawar Chand Gehlot will be special invitees to the institution that aims to embark on a “Bharatiya approach to development” of transform India.


The various members of NITI Aayog are

  • Chairman Prime Minister Narendra Modi
  • Vice Chairman Aravind Panagariya
  • Ex-Officio Members Rajnath Singh, Arun Jaitly, Suresh Prabhu and Radha Mohan Singh
  • Special Invitees Nitin Gadkari, Smriti Zubin Irani and Thawar Chand Gehlot
  • Full-time Members Economist        Bibek Debroy, former DRDO chief K. Saraswat and Agriculture Expert Professor Ramesh Chand
  • Governing Council All State Chief Ministers and Lt Governors
  • CEO 1st  Sindhushree Khullar 2nd Amithab Kant (from 1st Jan 2016)

National     Development     Council (NDC)

  • The National Development Council (NDC) is neither a constitutional body nor a statutory body. Union Cabinet set-up NDC in 1952, through an executive order.
  • National Development Council (NDC) is mainly concerned with approval of Five Year Plans. The NDC is headed by the Prime Minister and consists of the Central Ministers, Chief Ministers of the State and Lt Governors, Administrators of Union Territories and Members of the Planning
  • The Secretary of the Planning Commission acts as the Secretary of the Council. From a strictly legal point of view, NDC is essentially an advisory body.

Functions of NDC

  • To review the working of plan from time-to-time and to recommend such measures as are necessary for achieving the aims and targets articulated in the National Planes
  • To review the social and economic policies affecting the development of the
  • To ensure maximum cooperation of people in the planning and improvement of administrative capacity.
  • To suggest programmes and schemes for the development of less developed and backward classes and
  • To assess resources required for implementing plans and to suggest ways and means for raising national regions
  • To prescribe guidelines for the formulation of National
  • To consider National Plans as formulated by Planning Commission and to approve the same.


  • After independence, India launched a programme of Five Year Plans to make the optimum use of country’s available resources and to achieve rapid economic Development
  • In India, development plans were formulated and carried out within the framework of the mixed Economy
  • In India, economic planning was adopted in the form of Five Year Plans and was seen as a development tool on account of various reasons.
  • The need for social justice as experience of the past five and-a- half decades suggests that in a free enterprise economy, economic gains do not necessarily trickle down and
  • Judicious mobilisation and allocation of resources in the context of overall development programme in the light of the resource constraint in India
  • So far, 12th Five Year Plans have been formulated since the year 12th Five year Plan (2012- 2017), came into force once it was approved by the NDC on 27th December, 2012.

Formulation of Five Year Plans

  • The preparation of Five Year Plan starts with the formulation of an Approach Paper, outlining the macroeconomic dimensions, strategies and objectives of the plan.
  • The Approach Paper is prepared by the Planning Commission after intensive consultations with individuals and organisations of all the State Chief Ministers.
  • The Planning Commission then presents this Approach Paper to the National Development Council (NDC), for its consideration and approval. On approval by the NDC, the Approach Paper is circulated among the State Governments and the Central Ministers, based on, which they prepare their respective Five Year Plans.
  • Thus, based on the parameters postulated in the NDC approved Approach Paper, the Central Ministries and the states prepare their respective plans, with the help of a large number of Steering Committees/Working Groups. These are composed of representatives of the concerned ministries, selected State governments,          academicians, private sector, NGOs Based on the reports of these Steering Committees and Working Groups, the States and the Central Ministries come up with their proposals of detailed plans and programmes. The Planning Commission reviews these plans and programmes of the Central and State Plans and as a result, a detailed plan is evolved.
  • In recent years, Planning Commission has also started taking views of the general public into consideration during plan formulation by asking for their views.
  • In the light of above, the Five Year Plan document is prepared by the Planning Commission listing out the objectives and detailing out plan orientation, development perspective, macro economic / dimension, policy framework, financing and sectoral profiles. The Planning Commission then presents the final Plan document to the NDC for its consideration and approval.

Implementation of Five Year Plans

  • The five Year Plan is implemented through Annual Plans, which is a detailed description of the allocation of resources between centre and states and for different sectoral activities in the government
  • In particular, it involves allocation of budgetary resources and detailed consideration of public sector projects / programmes / The sanction of government expenditure is affected through Annual Budget, which is passed by the Parliament every year


12TH FIVE YEAR PLAN (2012-17)

    • The approach paper of the 12thFive Year Plan is concerned with the Faster, Sustainable and More Inclusive Growth. In it, the challenge of urbanization has been identified as one of the key focus area. In the opinion of Planning Commission, the economy has gained in strength in many dimensions and is therefore, well placed to achieve faster, sustainable and more inclusive growth. Having achieved 9% growth during the Eleventh Plan, it is reasonable to aim at 8.0% growth for the Twelfth Plan.
    • There are several imponderables, including considerable short- term uncertainties in the global economy and also formidable supply constraints in energy and some other sectors on the domestic front. While there are possible downsides to this scenario, we should aim at an average 8.2% GDP growth for the 12th Five Year Plan at this stage.
    • In the Eleventh Plan, the achieved growth rate was 9%. As compared to the initial target of 9% and the revised target of 8.0%. The total plan size of Twelfth Plan is Rs.37.7 lakh crore, 13.7% more than the Eleventh Plan.
    • At the energy front, Planning Commission acknowledged that energy strategy for the Twelfth Plan requires a large number of actions by different ministries in the Central Government plus action by State Governments in several areas.

Focus Areas

  • The Planning Commission, as approach paper indicates, is going to target these 14 areas : Energy, transport, natural resources, rural transformation, manufacturing sector, health education and skill development, social and regional equity, urbanization, science and technology, services: tourism hospitality and construction, governance and innovation

Targets Under 12th Plan Economic Growth

  • Real GDP Growth Rate of 0%. (A/c to April 2013)
  • Agriculture Growth Rate of 4.0%.
  • Manufacturing Growth   Rate  of 10.0%.
  • Every state must have a higher average growth rate in the 12thPlan than achieved in the 11th  Plan

Poverty and Employment

  • Head-count ratio of consumption poverty to be reduced by 10 percentage points over the preceding estimates by the end of 12th Five Year Plan
  • Generate 50 million new work opportunities in the non-farm sector and provide skill certification to equivalent numbers during the 12th Five Year Plan


  • Mean years of schooling to increase to 7 years by the end of 12th Five Year
  • Enhance access to higher education by creating two million additional seats for each age cohort aligned to the skill needs of the Economy
  • Eliminate gender and social gap in school enrolment (that is, between girls and boys and between SCs, STs, Muslims and the rest of the population) by the end of 12th Five Year Plan


  • Reduce IMR to 25 and MMR to 1 per 1000 livebirths and improve Child Sex Ratio (0-6 years), to 950 by the end of the 12th Five Year Reduce Total Fertility Rate to 1 by the end of 12th Five Year Plan.
  • Reduce under-nutrition among children aged 0-3 years to half of the NFHS-3 levels by the end of 12th Five Year Plan

Infrastructure, Including Rural Infrastructure

  • Increase investment            in infrastructure as a percentage of GDP to 9% by the end of 12th Five Year Plan
  • Increase the Gross lrrigated Area from 90 million hectare to 103 million hectare by the end of 12thFive Year Plan
  • Provide electricity to all villages and reduce transmission and distribution losses to 20% by the end of 12th Five Year Plan
  • Connect all villages with all weather roads by the end of 12thFive Year Plan
  • Upgrade national and state highways to the minimum two- lane standard by the end of 12thFive Year Plan
  • Complete Eastern and Western Dedicated Freight Corridors by the end of 12th Five Year plan
  • Increase rural density to 70% by the end of 12th Five Year Plan
  • Ensure 50% of rural population has access to 55 LPCD piped drinking water supply and 50% of Gram Panchayats, achieve the Nirmal Gram Status by the end of 12th Five Year Plan

Environment and Sustainability

  • Increase green        cover        (as measured by satellite imagery) by 1   million    hectare    every     year during the 12th Five Year Plan.
  • Add 2 x 30000 MW of renewable energy capacity in the 12th Plan
  • Reduce emission intensity of GDP in line with the target of 20% to 25% reduction by 2020 over 2005 Levels

Service Delivery

  • Provide access to banking services to 90% Indian households by the end of 12th Five Year
  • Major subsidies and welfare related beneficiary payments to be shifted to a direct cash transfer by the end of the 12th Plan, using the Aadhar platform with linked bank account

Alternative Scenarios During

12th Plan

  • To illustrate the consequences of inaction on key growth promoting policies, the Planning Commission has undertaken a systematic process of ‘scenario planning’ based on diverse news and disciplines to understand the interplay of the principal forces, internal and external, shaping India’s Progress ’
  • This analysis suggests three alternative scenarios of how India’s economy might develop titled, ‘Strong Inclusive Growth’, ‘Insufficient Action’ and ‘Policy Logjam’.
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