Planning, NITI Aayog and Economic Reforms

Think of a family with a fixed monthly income. Rent, food, school fees and savings all compete for the same money, so a sensible family makes a plan before spending. A country is no different. India in 1947 was poor, mostly agricultural, short of capital and short of industry, and it had to decide what to build first. Economic planning means deciding in advance, with a time frame and targets, how scarce resources will be used to reach chosen goals. India chose planning because the market alone could not build steel plants, dams and power grids quickly, and because the country wanted growth with social justice. The four classic goals of Indian planning were growth, modernisation, self-reliance and equity.

After independence, the Planning Commission was set up on 15 March 1950 by a Cabinet resolution of the Government of India. It was therefore neither a constitutional nor a statutory body; it was an extra-constitutional advisory body. The Prime Minister was its ex-officio Chairman, and the real day-to-day head was the Deputy Chairman, who had the rank of a Cabinet minister. Gulzarilal Nanda is regarded as the first Deputy Chairman and Montek Singh Ahluwalia (2004 to 2014) was the last. The Commission prepared the Plan, assessed resources and suggested priorities, but the final approval of a Plan came from the National Development Council (NDC), set up on 6 August 1952. The NDC, again extra-constitutional, was chaired by the PM and included Union ministers, all Chief Ministers and members of the Planning Commission.

Why does the Constitution not mention the Planning Commission? Because the framers wanted a flexible advisory body. What the Constitution does contain is the subject itself: Entry 20 of the Concurrent List is 'Economic and social planning'. So both the Centre and the States can legislate on planning. In practice the Indian model was indicative planning for the private sector (targets and incentives, no orders) and imperative for the public sector, which is why India is called a mixed economy with planning.

The Five-Year Plan was India's main economic roadmap from 1951 to 2017. Twelve Plans were completed, with a few gaps: three Annual Plans (1966 to 1969), known as the Plan Holiday, and Annual Plans in 1990-91 and 1991-92 when the country was in political and economic turmoil. To understand each Plan, ask one question: what was the country's biggest problem at that time? The First Plan answered hunger, the Second answered the lack of industry, the Third tried to become self-reliant and was wrecked by wars and droughts, the Sixth attacked poverty, and the Eighth began life in the new world of liberalisation.

Plan Holiday and Rolling Plan. After the Third Plan collapsed (two wars, severe drought, high inflation, foreign exchange crunch), the government did not launch a Fourth Plan at once. Instead it prepared three Annual Plans from 1966 to 1969. This gap is the Plan Holiday. It came right after the Third Plan, and in June 1966 the rupee was devalued. The Rolling Plan is a different idea: a plan of fixed years that is revised every year and extended forward, so the plan keeps 'rolling'. It was adopted by the Janata Government (PM Morarji Desai) for 1978 to 83 after the Fifth Plan was ended early.

After the Twelfth Plan ended on 31 March 2017, no Thirteenth Plan was drawn up. The Planning Commission had already been replaced by NITI Aayog, which works with a longer horizon (a 15-year vision, a 7-year strategy and a 3-year action agenda). One more term you must know is the Hindu rate of growth, coined by economist Raj Krishna: the sluggish growth of about 3.5 per cent a year that the economy managed in the planning decades up to about 1980. It was not about religion; it was a sarcastic way to say the economy was stuck.

By the 2010s the Planning Commission was widely seen as a relic. Plans were drawn in Delhi and handed down, States got funds in a one-size-fits-all way, and the world had moved from controls to markets. On 1 January 2015 the Government replaced it with NITI Aayog (National Institution for Transforming India), set up, like its predecessor, by a Cabinet resolution. It is a policy think tank and not a funding body. Its guiding spirit is cooperative federalism: States are partners who help design policy, not recipients who wait for orders. The decision to wind up the Planning Commission had been announced by PM Narendra Modi from the Red Fort on 15 August 2014.

From Plans to Vision. Without a Five-Year Plan, NITI Aayog works with longer documents: a 15-year Vision, a 7-year Strategy and a 3-year Action Agenda (2017-18 to 2019-20), and a strategy paper titled 'Strategy for New India @75' (2018). The big national goal today is Viksit Bharat 2047, a developed India by the 100th year of Independence.

In the early summer of 1991 India was close to default. Foreign exchange reserves had fallen to about a billion dollars, barely enough to pay for two weeks of imports, and the country had to pledge gold abroad to raise dollars. The reasons piled up over the 1980s: the government spent more than it earned and borrowed heavily, external debt grew, exports were weak, the Gulf War of 1990 pushed up oil prices and cut remittances from the Gulf, inflation was in double digits, and political instability in 1990-91 destroyed the confidence of lenders and of NRIs who had parked deposits here. It was a balance of payments crisis and not a food or banking crisis.

The reforms are called the New Economic Policy (NEP) or, popularly, LPG: Liberalisation, Privatisation, Globalisation. They came in two parts. Stabilisation measures were short-term: control inflation and fix the balance of payments (devaluation, cutting the fiscal deficit, tight money). Structural reforms were long-term: remove the licence-permit raj, open trade, reform finance and let the private sector grow. The IMF loan came with conditions asking for exactly these steps, so India's 'structural adjustment' was partly pushed by the crisis.

Second generation reforms. These are the deeper changes after the first wave: the FRBM Act 2003 (fiscal discipline), labour market and land reforms debates, the Insolvency and Bankruptcy Code 2016, GST in 2017, and further opening to FDI. They are meant to raise efficiency and attract more foreign investment, which is why exam options say 'increased FDI'.

Public sector units (PSUs) were built to take the economy to its 'commanding heights', but many became loss-making, over-staffed and dependent on the Budget. After 1991 the government started selling a part of its ownership. Disinvestment means the government selling its equity (shares) in a Public Sector Undertaking to the public, to institutions or to a private buyer. It is not the same as nationalisation (taking over private firms), and it does not always mean full privatisation: if the government sells only part of its stake and stays the majority owner, the company is still a PSU. The money raised is used to reduce the fiscal burden and fund development, while the PSU gains discipline from the market.

Why disinvestment receipts are capital receipts. A receipt is a capital receipt if it either creates a liability (like a loan) or reduces an asset of the government. Selling PSU shares reduces the government's holdings of financial assets, so it is a capital receipt, and because it creates no debt it is called a non-debt capital receipt. A dividend paid by a PSU, on the other hand, is a revenue receipt. The effect on finance: the government's financial assets go down, its borrowing need may go down, but no permanent income is created.

The New Public Sector Enterprise Policy (2021) divides the economy into strategic sectors (atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services) and non-strategic sectors. In the strategic sectors the government keeps a minimum presence of only a few PSEs and privatises or merges the rest, while in non-strategic sectors PSEs are to be privatised or closed. Bank mergers (2019 and 2020) reduced the number of public sector banks, which is another form of consolidation.

After 2014 the government launched a series of missions with catchy names, each aimed at a specific bottleneck: manufacturing (Make in India), technology (Digital India), jobs and skills (Skill India), entrepreneurs (Start-up India, Stand-Up India, MUDRA), finance for all (Jan Dhan), infrastructure (Gati Shakti, Smart Cities) and self-reliance (Atmanirbhar Bharat, PLI). Exams ask very direct questions on these: the year, the ministry, the target group and the main purpose. Learn each one as a one-line identity card: what it does, who benefits, when it began.

What ties these programmes together? The logic of the post-1991 economy: the state no longer produces everything; it creates conditions for private investment. Make in India and PLI target the supply side, Digital India and Gati Shakti the infrastructure, Jan Dhan and MUDRA the finance, Skill India the labour. Together they aim at a Viksit Bharat by 2047.