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Planned And Mixed Economy

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Planned And Mixed Economy

Independent India was declared to be a planned and a mixed economy. India needed national planning, which was decided by the political leadership almost a decade before Independence. India was not only facing regional disparities at the level of resources, but inter-regional disparities were also prevalent, since centuries. Mass poverty could only be remedied once the government started the process of economic planning. Economic planning was thus considered an established tool of doing away with such disparities.

Basically, it was the abject poverty of the masses which made the government go for planning so that it could play an active role in the allocation of resources and mobilise them for equitable growth and development. Though India was constitutionally declared a federation of states, in the process of planning, the authority of regulation, directing and undertaking economic activities got more and more centralised in the Union government.

India’s decision for a planned economy was also molded by some contemporary experiences in the world.16 firstly, the Great Depression of 1929 and the reconstruction challenges after the Second World War had made experts conclude in favor of a state intervention in the economy (opposite to the contemporary idea of ‘non-interference’ as proposed by Adam Smith). Secondly, it was the same time that the command economies (i.e., state economies) of the Soviet Union and the East European countries started making news about their faster economic growth. In the 1950s and 1960s, the dominant view among policymakers around the world was in favor of an active role of the state in the economy. Thirdly, a dominant role for the state in the economy to neutralize market failure situations (as happened during the period of the Great Depression when demand fell down to the lowest levels) was gaining ground around the world. For many newly independent developing nations, economic planning was, therefore, an obvious choice. Economic planning was considered to help states to mobilize resources to realize the prioritized objectives in a well-defined time frame.

Once the political leadership had decided in favor of a planned economy for India and a major role for the state in the economy, they needed to clarify the organizational nature of the economy—whether it was to be a state economy or a mixed economy—because of planning was not possible in a free market economy (i.e., capitalistic economy). The idea of planning in India was inspired by the Soviet planning which was a command economy and did not suit the requirements of democratic India, which was till now a privately owned economy. The dominant force behind planning in India, at least after Independence, was Nehru himself who had strong socialist leanings. He thought it important to define the role of the state in the economy, which was going to be at times similar to the state in the Soviet Union and at times completely dissimilar to it. Though there was an example of a capitalistic-democratic system going for planning, France by that time (1947), it had little experience to offer the Indian policymakers (France had gone for a mixed economy by 1944–45). With the basic urge to accelerate the process of economic growth, the planners went to define the respective roles of the state and the market, in the very first Plan itself. The following lines look refreshingly ahead of the times and crystal-clear about the scope of the government’s role in the economy vis-á-vis the private sector.

“This brings us to the problem of the techniques of planning. A possible approach to the problem is, as mentioned earlier, through a more or less complete nationalisation of the means of production and extensive system of government controls on the allocation of resources and on the distribution of the national product. Judged purely as a technique of planning, this may appear a promising line of action. But, viewed against the background of the objectives outlined above, and in the light of practical considerations, such an expansion of the public sector is, at the present stage, neither necessary nor desirable. Planning in a democratic set-up implies the minimum use of compulsion or coercion for bringing about a realignment of productive forces. The resources available to the public sector have, at this stage, to be utilised for investment along new lines rather than in acquisition of existing productive capacity. Public ownership of the means of production may be necessary in certain cases; public regulation and control in certain others. The private sector has, however, to continue to play an important part in production as well as in distribution. Planning under recent conditions thus means, in practice, an economy guided and directed by the state and operated partly through direct state action and partly through private initiative and effort.”18 the above-quoted lines are imaginatively ahead of the times. It will be suitable to note here that as 1950s and 1960s made the world experts favour state intervention in the economy, the East Asian Miracle19 of the coming three decades was going to define the very limits of such an intervention. The East Asian economies were able to sustain a high growth rate over three decades and had revived again the discussions regarding the respective roles of the state and the market as well as the nature of the state’s role in the economy. The kind of conclusions drawn were very similar to the view presented in India’s First Plan itself which was presented by the World Bank in 1993.

The real nature of the Indian brand of the mixed economy, though beautifully outlined in 1951 itself, went through a process of detailed evolution in the decade of the 1950s.20 By the end of the 1950s, the concept of the mixed economy was almost buried and rose from hibernation only by mid-1980s and finally early in 1990s, in the wake of the process of economic reforms.

We see the government modifying the process of planning and functions of the Planning Commission in wake of the reform process—an attempt to redefine the roles of government and the private sector in the economy. In a sense, India was increasingly getting more dependent on the latter for the promotion of growth and development.

By early 2015, we saw some major changes taking place in the area of planning in India. The Government replaced the existing body, Planning Commission, with the NITI Aayog (a new economic ‘Think Tank’), with the aim of ‘overhauling’ the very process and method of planning in the country. This move is believed to originate out of India’s experiences of development planning spanning over six decades. Co-operative federalism, bottom-up approach, holistic and inclusive development with the need for an Indian model of development are some of the hallmarks of the new design. The move is also seen in the light of the changing needs of the economy.

PS : How to prepare Indian Economy for UPSC ?

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