Planning in India: Five-Year Plans to NITI Aayog Notes for UPSC

After Independence in 1947, India faced poverty, low production, a weak industrial base and the need to rebuild after Partition. The country chose to follow planned economic development, with the state playing a major role in guiding the economy. For 65 years, the Five-Year Plans set the priorities, and in 2015 the Planning Commission was replaced by NITI Aayog. For the UPSC, this topic gives Prelims questions on the plans, their models and priorities, and Mains questions on the success and failure of planning and on the role of NITI Aayog. This note explains the history of planning in India, plan by plan, in simple language, with tables.

Early Ideas of Planning Before 1950

Several plans were proposed before Independence: the Visvesvaraya Plan (1934) by M. Visvesvaraya; the Bombay Plan (1944) by a group of leading industrialists such as J. R. D. Tata and G. D. Birla, which wanted a large public sector in the basic industries; the Gandhian Plan (1944) by Shriman Narayan, which stressed village and small industries; the People's Plan (1945) by M. N. Roy, which was socialist; and the Sarvodaya Plan (1950) by Jayaprakash Narayan. The Congress also set up a National Planning Committee in 1938 under Jawaharlal Nehru.

The Planning Commission and the National Development Council

The Planning Commission was set up in March 1950 by a resolution of the Union Cabinet. It was neither a constitutional nor a statutory body. The Prime Minister was its chairman, and a deputy chairman looked after the day-to-day work. It prepared the Five-Year Plans. The National Development Council (NDC), set up in 1952, consisted of the Prime Minister, the Chief Ministers and the members of the Commission, and approved the plans, so that the States took part in the process.

The Five-Year Plans at a Glance

After the Third Plan, there were annual plans from 1966 to 1969, and again from 1990 to 1992, because of the political and economic instability. The Janata government also used the idea of a Rolling Plan for a short time.

Important Models and Strategies

• Harrod-Domar model (First Plan): Economic growth depends on the rate of saving and the productivity of capital.
• Mahalanobis model (Second Plan): P. C. Mahalanobis stressed the capital goods industries as the base of long-term growth; it set the direction of India's industrial development.
• Industrial Policy Resolution, 1956: Divided industries into three schedules for the public sector, mixed and private sector; the public sector got the "commanding heights".
• Mixed economy: Both the public and private sectors work together, with the state controlling the key areas.

Achievements and Failures of Planning

The balance of payments crisis of 1991 led to a change of direction: the economy moved towards liberalisation, privatisation and globalisation, and planning became indicative (giving direction to the private sector) instead of imperative (giving orders). In this new phase, the Planning Commission was less relevant.

From the Planning Commission to NITI Aayog

The Government announced the end of the Planning Commission in August 2014 and set up the National Institution for Transforming India (NITI Aayog) on 1 January 2015, also by a Cabinet resolution. NITI Aayog is a policy think tank of the Government. Its aims are cooperative federalism through the active role of the States, a bottom-up approach, and the use of knowledge, innovation and technology.

The Governing Council of NITI Aayog has the Prime Minister as chairperson and includes the Chief Ministers of all States and the Lieutenant Governors of the Union Territories. There is a Vice-Chairperson and a Chief Executive Officer. Its important initiatives are the Aspirational Districts Programme (2018) to improve the backward districts, the Atal Innovation Mission to encourage innovation and entrepreneurship, and a series of ranking indices such as the SDG India Index, the Composite Water Management Index, the India Innovation Index and the Health Index, which promote healthy competition among the States. It has also prepared a long-term vision for a developed India by 2047.

Planning After 2015: Vision and Strategy Documents

Even without the Five-Year Plans, the government continues to prepare medium-term and long-term strategies. NITI Aayog has produced the Three-Year Action Agenda (2017-18 to 2019-20), the Strategy for New India @75, and a vision for the year 2047, when India completes 100 years of independence, which is called Viksit Bharat. The Union Budget and the Finance Commission decide the allocation of funds, while the sectoral missions, such as the National Education Policy, the National Health Mission and the Jal Jeevan Mission, define the goals in each area. The Sustainable Development Goals of the United Nations (2030) work as a common framework, and NITI Aayog monitors the progress of the States through the SDG India Index. This shows that planning has changed its form but not its purpose: to guide the development of the nation in a systematic way.

Mains Angle: Was the End of the Planning Commission a Good Step?

You can argue that the old model had become outdated in a liberalised economy: the market and the private sector now drive most investment, and a centralised allocation of funds did not suit a complex federal country. NITI Aayog is more flexible and works as a source of ideas. But critics point out that it has no power to allocate funds or to enforce, so its effect depends on the support of the Centre; that the long-term planning for social sectors may be neglected; and that the States need a strong platform to settle the questions of resources. A balanced conclusion would say that the Aayog should be strengthened as an evidence-based, collaborative institution, while the Finance Commission and the Finance Ministry handle the fund transfers.

Memory Tip

Link each early plan with one word: First - farm, Second - factory, Third - freedom from imports (self-reliance), Fourth - stability, Fifth - poverty, Sixth - programmes, Eighth - reforms. This single-word chain helps to answer the most Prelims questions on the plans.

Practice Questions

• Q1. Which plan was based on the Mahalanobis model? Answer: The Second Five-Year Plan (1956-61).
• Q2. When was NITI Aayog formed? Answer: 1 January 2015.
• Q3. Which was the last Five-Year Plan? Answer: The Twelfth Plan (2012-17).
• Q4. Who proposed the Bombay Plan? Answer: A group of industrialists, including J. R. D. Tata and G. D. Birla.

Read it together with our notes on GDP and national income and the external sector for the context of the 1991 reforms.

Quick Revision

• Planning Commission: 1950; NDC: 1952; NITI Aayog: 1 January 2015.
• First Plan: Harrod-Domar, agriculture; Second Plan: Mahalanobis, heavy industry.
• Plan holiday 1966-69; Eighth Plan (1992-97) after the 1991 reforms; Twelfth was the last.
• NITI Aayog: think tank, cooperative federalism, Aspirational Districts Programme.

Frequently Asked Questions (FAQ)

When was the Planning Commission set up?

The Planning Commission was set up in March 1950 by a Cabinet resolution.

What was the National Development Council?

The NDC, set up in 1952, was the body of the Prime Minister, Chief Ministers and the Commission members that approved the Five-Year Plans.

Which model was used in the First Five-Year Plan?

The First Five-Year Plan was based on the Harrod-Domar model.

Which plan emphasised heavy industry?

The Second Five-Year Plan (1956-61), based on the Mahalanobis model, emphasised heavy industry.

What was the plan holiday?

It was the period 1966-69 when three annual plans were followed instead of a Five-Year Plan.

What is the Hindu rate of growth?

It is the term for the slow growth rate of about 3.5 per cent in India's economy until about 1980.

Which was the last Five-Year Plan of India?

The Twelfth Five-Year Plan (2012-17) was the last one.

When was NITI Aayog established?

NITI Aayog was established on 1 January 2015.

What does NITI stand for?

NITI stands for National Institution for Transforming India.

Who chairs the Governing Council of NITI Aayog?

The Prime Minister chairs the Governing Council.

What is the Aspirational Districts Programme?

It is the NITI Aayog programme launched in 2018 to improve the backward districts in health, education and other areas.

What is the difference between the Planning Commission and NITI Aayog?

The Planning Commission was a top-down body that allocated funds, while NITI Aayog is a think tank that works on cooperative federalism and does not allocate funds.