Make planning fashionable again

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Context:

  • Economic planning is not considered fashionable today.

India under Nehru’s leadership:

  • India under Nehru’s leadership inaugurated a strategy for industrialisation of the country in the early 1950s
  • This involved the setting up of public sector units (PSUs) in diverse areas of manufacturing; research institutions in cutting-edge technologies of the time such as space and atomic energy; and centres of higher learning, including the Indian Institutes of Technologies (IITs)
  • By consciously entering into sectors such as machine building and nuclear research, which needed capital and technology more critically than labour, India was also challenging a deeply held orthodoxy in economic theory
  • The theory of comparative advantage argued that countries should develop industries based on their comparative advantage
  • According to this theory, a labour-surplus country like India should be limiting its industrial development ambitions to labour-intensive sectors, such as garments or leather
  • The British government in India had indeed been putting the theory of comparative advantage into practice — to the disadvantage of most Indians.

Indian model of planning

  • The programmes launched in India from the 1950s onwards to build indigenous capabilities in the capital- and technology-intensive sectors, despite the general poverty of the country, became a model for other developing and Third World nations
  • The foundations for India’s diversified economic base had been laid during the planning years
  • The successes that India enjoys today in the information technology and knowledge-intensive sectors owe much to the research and educational institutions that were built during the early decades
  • At the same time, however, planning did very little to remove the hurdles to the growth of agriculture and small-scale industries
  • India’s record during the post-Independence period in implementing land reforms and ensuring primary education for all has been rather unimpressive
  • As a result, the benefits from state-led development have so far reached only a minority of Indians.

Introduction of economic reforms in 1991:

  • India’s commitment towards development through planning had begun to diminish from the early 1990s itself — much before the Planning Commission was formally dismantled in 2014
  • After the introduction of economic reforms in 1991, public investment, especially on agriculture and industry, has been on a decline in the country
  • PSUs have begun to be valued only for the returns they bring as commercial entities
  • There has been little recognition of the important role that PSUs can play as creators of new technologies and knowledge, particularly in fields in which the private sector may have little interest or capabilities.

The disregard for planning:

  • The disregard for planning and the general withdrawal of the state from economic decision-making have had important consequences on Indian industry
  • India is today one of the largest markets in the world for a wide range of goods, whether passenger cars, mobile phones or food products
  • Despite the emergence of such a large domestic market, the record of Indian manufacturing in absorbing the large labour reserves in the country remains abysmal
  • The imports of machinery, transport equipment, electronic goods and all their components have been rising continuously in India from the 2000s onwards
  • This trend has not been reversed after the introduction of the ‘Make in India’ initiative.

Need of planning

  1. Planning is not incompatible with markets and globalisation
  2. On the contrary, a developing country trying hard to stay afloat amidst the turbulence of a global economy requires more, and not less, guidance through industrial policies
  3. The successes achieved by East Asian countries such as South Korea in manufacturing are, to a great extent, the result of strategic planning over several decades by their governments
  4. The Chinese achievements owe much to the careful planning and investments made by its government, particularly in the area of science and technology

Requirement of Technological advances:

  • The employment challenge that India faces — close to 15 million waiting to be absorbed in the industrial and services sectors every year — is possibly bigger than that faced by any other country (except China) in the world
  • It cannot be resolved with the technologies that foreign companies bring into India, which tend to be labour saving
  • What India requires, on the other hand, are technological advances that create new economic opportunities and absorb — not displace — labour
  • India’s research institutions and our PSUs should engage in the creation and dissemination of such technologies
  • The country’s industrial policies should be able to enthuse young and educated entrepreneurs from rural areas to make use of these technologies to create new jobs.

Way forward

  • Nevertheless, contemporary economic debates will have much to gain by revisiting the ideas on planning. Planning should be brought back to the centre of our economic discussions

Source:TH