Five Year Plans Class 12 Notes Economics

A plan is a document showing a detailed scheme, program, and strategy worked out in advance for fulfilling an objective. Here are the five year plans class 12 notes economics.

Economic Planning

Economic planning means the utilization of a country’s resources in different development activities by national priorities.

In other words, “It refers to a system under which a central authority sets a set of targets & specifies a set of programs to achieve those targets within a specified period.

• The planning commission was set up in 1950 under the chairmanship of Prof. Mahalanobis.
• In February 2015, the planning commission was replaced by Neeti Aayog.
• The role of Neeti Aayog is to make such policies that accelerate the pace of GDP growth.

Types of Planning

Directive Planning

Directive planning refers to a system in which planning is introduced just to direct the forces of demand & supply so that the system does not go wayward from the state of equilibrium.

Under this planning, there is no direct participation of the state under process of growth. It is pursued in the capitalist economy.

Comprehensive Planning

Under this system, the government itself participates in the process of growth & development. It is pursued in a socialist economy as well as in the mixed economy.

In case of mixed economies, both private & public sectors co-exist as agents of growth.

Types of Economies

There are three types of economies:

1. Capitalist Economy
2. Socialist Economy
3. Mixed Economy

Capitalist Economy

It is defined as the one in which the means of production are owned by the individuals & the individuals are free to take their economic decision as guided by the principle of profit maximization.

Features of Capitalist Economy

• There is private ownership of the means of production.
• The means of production are used in such a manner that profits are maximised.
• The role of government is largely confined to the maintenance of law, order & defense of the country.

Merits of Capitalist Economy

• The principal merit of this system is that it promotes self-interest.
• Profits are maximized & GDP growth is accelerated.

Demerits of Capitalist Economy

• The principle demerit of this system is that it ignores the collective interest of the society.
• The production is directed to satisfy the needs of the rich as only those goods produced yield high profits.
• The poor people get deprived.
• There is growth without social justice.

Socialist Economy

A Socialist economy is one in which there is social ownership of the means of production & economic decisions are taken by some central authority of the government to maximize social welfare.

Features of Socialist Economy

• There is public ownership of the means of production.
• The means of production are used in such a manner that social welfare is maximized.
• There is direct participation of government in the process of production. The role is not merely confined to law, order & defense.

Merits of Socialist Economy

• The growth process became inclusive & is based on the principle of social justice.
• A Socialist economy achieves equality in the distribution of income.

Demerits of Socialist Economy

• GDP growth remains a slow process because production is not directed by the principle of profit maximization.
• It is directed by the principle of equity & justice.

Mixed Economy

A mixed economy is one in which there is private as well as public ownership of the means of production.

The decisions are governed largely by the principle of profit maximization but not without checks && balances of social justice.

Features of Mixed Economy

• The means of production are owned by private entrepreneurs as well as the government.
• In the private sector, production decisions are governed by the principle of profit maximization while in the public sector, social welfare rules the most.
• Both the private & public sectors play a significant role in the process of production.

Merits of Mixed Economy

• The principle merit is that it combines the merits of a capitalist as well as a socialist economy.
• On one hand, GDP growth is encouraged because private entrepreneurs are free to focus on profit maximization.
  On the other hand, social justice & equality are promoted because the government sector emphasizes the maximization of social justice.

Demerits of Mixed Economy

• The principal demerit is that the government sector is inflicted with corruption leading to a low level of productivity.
• It is owning to this demerit, that the mixed economies are gradually opting for privatization of public enterprises.

Long Period & Short Period Planning in India

• Long-period goals are common to all five-year plans & are generally structured at common goals of 5-year plans or objectives of planning.
• Short-period goals are plans-specific & are generally studied as objectives of plans.
• The objective of plans & objective of planning is not to contradict but to complement each other.

Long Period Goals

GDP Growth

An increase in GDP implies an increase in the level of output in the economy. It implies an increase in the flow of goods & services in the economy as consistent increase in the flow of goods & services over a long period of time is called economic growth.

GDP growth leads to economic growth. Planning in India is to ensure that natural resources are fully explored & production technology is continuously improved.

Full Employment

It refers to a situation when all the people who are able as well as willing to work at the market wage rate are getting work. It is a social objective of planning & focuses on inclusive growth. It implies that:

• More & more people should participate in the process of growth.
• The benefits of growth must be shared across wider sections of the society. It implies achieving growth with social justice.

Equitable Distribution

Economic growth would become a meaningless exercise if the benefits of growth accrue only to a handful of people in the society.

Growth serves no purpose if the rich tend to become richer & the poor continue to struggle even for the essentials of life.

The benefits of growth must spread to all the sections so that the distribution of income becomes equitable. The equitable distribution of income implies social equality.

Modernization

It refers to the updation & adoption of modern technology in the process of growth. The modern age is the age of Science & Innovation.

Science has offered us new ways of doing things. For example, the green revolution is a very well known example of how technology can bring revolutionary changes in the output.

Modernization in the context of goals/plans has a social angle as well in India for example modernization of social outlook.

Conventional wisdom must give way to a modern outlook. It includes issues like the empowerment of women so that they also participate in the process of production & contribute to the process of economic & society’s prosperity.

Self Sufficiency

It means dependence on domestically produced goods, particularly food grains. This goal was given a high priority during the first seven plans.

The basic idea was not to expose the Indian economy but the political pressure from the rest of the world. As we were dependent upon them for supply of essential goods.

India wanted to be self-sufficient in food grain production to avoid uncertainties of supply from the rest of the world.

Short Period Goals

Features of Economic Policy Pursued till 1991

Heavy Reliance on the Public Sector

Economic policy before 1991 indicated heavy reliance on the public sector thus in Industrial Policy Resolution 1956, 17 industries were reserved for the public sector.

It was realized that the objective of the socialistic pattern of the society could be achieved only through a comprehensive development of public sector enterprises.

Regulated Development of the Private Sector

According to the Industrial Development & Regulation Act 1948, new industries in the private sector could not be achieved without license & regulation.

The Monopoly & Restrictive Trade Practices Act 1969 placed several restrictions on the expansion of existing industries in the private sector.

Regulated development of the private sector was to ensure that there was no concentration of economic power in the private hands.

Protection of Small Scale Industry & Regulation of Large Scale Industry

Large Scale industry was regulated through several acts, particularly the MRTP Act. On the other hand, small-scale industries were offered protection from competition.

Certain areas of protection were exclusively reserved for small-scale industries. Several boards were established to promote the products of small-scale industries in the global markets.

Focus on Saving & Investment

Saving & investment were identified as key determinants of economic growth. High interest rates were offered to promote saving where as investment was induced through subsidies & capital grants.

Development of Heavy Industry of Strategic Significance

Industries like the Iron & Steel Industry, Engineering goods, and electricity generation were identified as industries of strategic significance. These industries were to be developed on a priority basis.

Protection from Foreign Competition

Domestic industry was protected from foreign competition. High import duties & quantitative restrictions were levied on imports.

Focus on Import Substitution

It implied domestic production of goods that were imported from abroad. The basic idea was to save foreign exchange & become self-sufficient.

Human Capital Formation Class 12 Notes

Success of Economic Planning

Increase in National Income

An increase in national income indicates economic growth. During the period prior to planning, national income was increasing at the rate of just 0.5% p.a.

Therefore, the Indian economy was considered as stagnant economy. The increase in national income during the 1st plan was 4.6% p.a. against the target of 2.1% p.a.

Between the 2nd and 10th plan, the target was to raise economic growth by 5% p.a. but this was achieved only between 5th and 10th plan.

An increase in national income during the 11th plan was 7.5% p.a. against the target of 9%. The increase in national income during the 12th plan was 6.5% against the target of 8%.

Increase in Per Capital Income

Overtime per capital income has recovered a significant rise. During the period of planning initially the place of growth was slow, i.e., 2.7% during the first plan but it picked up subsequently.

The 11th plan recorded a growth rate of 6% per annum & 12th plan estimated a growth rate of 5.3% per annum.

An increase in per capita income is a significant achievement & it implies greater availability of goods & services per head of the population of the country.

Rise in Saving & Investment

During the five-year plans, there has been a considerable increase in the rate of saving & investment.

In 1950-51, the rate of saving was 9.5% of national income but it raised to nearly 31.3% by the end of the 11th plan.

It was a very good symbol for the overall growth of the economy as saving & investment are the principal drivers of economic growth.

Institutional & Technical Changes in Agriculture

The five-year plans contributed to the development of agriculture in two ways:

• Through Land Reforms
• Through Improvement in Technology
• Abolition of Intermediaries
• Modernisation & Regulation of Rent
• Ceiling on Land Holding
• Redistribution of Land
• Improvement in Technology particularly HYV seeds

Growth & Diversification of Industry

Five-year plans gave a big push to the basic & capital goods industry. During the planning period, the industrial growth rate has been around 7%.

In the 11th plan, it was 7.2%. Industrial growth was so significant that the Indian economy is now ranked as the 10th largest industrial economy in the world.

Employment

During plans, serious efforts had been made to increase employment opportunities. In different five-year plans, the government had launched several employment schemes.

In the 12th five-year plan, the government fixed the target of creating 50 million employment opportunities.

Failures of Economic Planning

Abject Poverty

Alleviation of poverty was the central theme of planning but the plans were not successful to alleviate poverty.

In India, 21.9% of the population still lives below the poverty line. Nearly 50% of the people who are absolutely poor in the world are living in India.

High Rate of Inflation

We failed to tackle the inflationary spiral in the country. During 5 year plans, because of the high rate of inflation, the real income of the people tends to erode.

The first plan is the only exception where the price level slided down, in all the other plans, the prices recorded a steep price.

Unemployment Crises

While more & more opportunities were generated, still the challenge of unemployment was not subsidized. At the end of the first plan, 53 lakh people were unemployed.

This is emerging to be a serious cause of social unrest threatening the process of growth.

Inadequate Infrastructure

Development of infrastructure including power, roads, dams, bridges, schools, colleges, etc. continues to be inadequate despite 67 years of planning.

As a result, actual growth has failed to match the targets of growth.

Skewed Distribution

Economic & social equality was considered the principal goal of planning & this has been the principal failure of planning in India.

Because of this social & economic equality, the government tends to offer reservation in jobs to the economically & socially weaker sections of the society.