Five-Year Plans History & NITI Aayog
Planning was the central instrument of Indian economic policy for more than six decades. From 1951 to 2017 the Five-Year Plans set the priorities of investment and development, and in 2015 a new institution, the NITI Aayog, replaced the Planning Commission with a different approach based on cooperative federalism and strategic advice. Questions on the plans, their models, the plan holiday and the NITI Aayog are common in examinations. These notes summarise the beginnings of planning, the important plans and their themes, the formulae used to distribute assistance, and the structure and programmes of the NITI Aayog.
The Planning Commission and the early plans
The Planning Commission was established on 15 March 1950 by a resolution of the Government of India, and the Prime Minister, Jawaharlal Nehru, was its first Chairman. The First Five-Year Plan covered the period from 1951 to 1956 and was based on the Harrod-Domar growth model, which stresses the role of savings and investment in growth; agriculture received the highest allocation because of the need to overcome food shortages. The Second Five-Year Plan, from 1956 to 1961, shifted the emphasis to heavy industry and was based on the Mahalanobis model, named after the statistician P. C. Mahalanobis, who designed it. This plan laid the foundation of India's industrial base but also contributed to later foreign exchange difficulties.
Early plan documents and later plans
Before independence and in the years just after, several alternative plans were drafted. M. N. Roy drafted the People's Plan in 1944, Sriman Narayan Agarwal drafted the Gandhi Plan in the same year, and a group of leading industrialists including J. R. D. Tata prepared the Bombay Plan in 1944. The Third Five-Year Plan, from 1961 to 1966, aimed at self-reliance and self-sustaining growth and is also called the Gadgil Plan after D. R. Gadgil. The period from 1966 to 1969 is known as the plan holiday, when no Five-Year Plan was in operation and three annual plans were implemented for 1966-67, 1967-68 and 1968-69. The concept of the rolling plan was suggested by Gunnar Myrdal and later advocated by D. T. Lakdawala. The Fifth Five-Year Plan, from 1974 to 1979, gave importance to the slogan Garibi Hatao, meaning remove poverty, and the Fourth Plan, from 1969 to 1974, emphasised the theme of food, work and productivity.
The Gadgil formula and plan performance
The Gadgil formula was used to distribute central assistance to the states for their development plans, and under it population carried the highest weightage of sixty per cent. The formula reflected the effort to make the transfer of resources fair and predictable among states. The Eleventh Five-Year Plan, covering 2007 to 2012, achieved the highest average growth rate of about eight per cent, which was a high point of the planning era. The Twelfth Five-Year Plan covered 2012 to 2017 and was the last of the Five-Year Plans; after it ended, the practice of five-year plans was discontinued.
The NITI Aayog and its objectives
The NITI Aayog was established on 1 January 2015 and replaced the Planning Commission. NITI stands for the National Institution for Transforming India. The Prime Minister is the ex-officio Chairperson, and Arvind Panagariya was its first Vice-Chairman. Unlike the old Planning Commission, which allocated resources to states, the NITI Aayog acts mainly as a policy think tank and promotes cooperative federalism, in which the central and state governments work together as partners. Its core objectives include fostering cooperative federalism, formulating a strategic long-term vision for the economy and providing advice on policy. The Planning Commission had been abolished in 2014 under the Prime Minister, Narendra Modi, and it was replaced by the new institution.
Programmes of the NITI Aayog
The NITI Aayog runs several programmes that have become popular in examinations. The Aspirational Districts Programme aims to rapidly transform the most backward districts of the country across a range of development indicators by focusing on health, nutrition, education, agriculture and basic infrastructure. The National Development Agenda is a programme of the NITI Aayog. The Atal Innovation Mission was launched to promote a culture of innovation and entrepreneurship in schools and across the country through tinkering labs and similar initiatives. The NITI Aayog also released the first National Multidimensional Poverty Index in November 2021, which measures poverty not only by income but also by deprivations in health, education and living standards.
Key facts at a glance
- The Planning Commission was established on 15 March 1950.
- Jawaharlal Nehru was the first Chairman of the Planning Commission.
- The First Plan covered 1951-56 and was based on the Harrod-Domar model.
- Agriculture received the highest allocation in the First Plan.
- The Second Plan, 1956-61, was based on the Mahalanobis model and emphasised heavy industry.
- M. N. Roy drafted the People's Plan and Sriman Narayan Agarwal the Gandhi Plan in 1944.
- The Bombay Plan was prepared in 1944 by leading industrialists including J. R. D. Tata.
- The Third Plan, 1961-66, aimed at self-reliance and is called the Gadgil Plan.
- The plan holiday was from 1966 to 1969, with three annual plans.
- The rolling plan was suggested by Gunnar Myrdal.
- The Fifth Plan, 1974-79, emphasised Garibi Hatao.
- The Fourth Plan, 1969-74, emphasised Food, Work and Productivity.
- The Gadgil formula distributed central assistance; population had 60 per cent weight.
- NITI Aayog was established on 1 January 2015 and replaced the Planning Commission.
- NITI stands for National Institution for Transforming India.
- The Prime Minister is the ex-officio Chairperson; Arvind Panagariya was the first Vice-Chairman.
- The Twelfth Plan, 2012-17, was the last Five-Year Plan.
- The Eleventh Plan, 2007-12, achieved the highest growth of about 8 per cent.
- The first National Multidimensional Poverty Index was released in November 2021.
- The Atal Innovation Mission promotes innovation and entrepreneurship.
Quick revision points
- Plan One was about agriculture and Plan Two about heavy industry.
- The plan holiday was a gap between plans, filled by annual plans.
- The Mahalanobis model is linked to the Second Plan.
- The Gadgil formula and the Gadgil Plan refer to two different things.
- NITI Aayog is a think tank, not a resource-allocating body.
- Cooperative federalism and long-term vision are the core ideas of the NITI Aayog.
How to prepare this topic
- Learn the periods and themes of the important plans, especially the First, Second, Third, Fourth and Fifth.
- Remember the models and the economists associated with them.
- Memorise the years of the plan holiday and the annual plans.
- Note the differences between the Gadgil formula and the Gadgil Plan.
- Learn the establishment, leadership and objectives of the NITI Aayog.
- Revise the NITI Aayog programmes such as the Aspirational Districts Programme and the Atal Innovation Mission.
Common exam traps
- Confusing the First Plan model with the Second Plan model.
- Mixing up the Gadgil formula with the Gadgil Plan.
- Forgetting the years of the plan holiday.
- Thinking the NITI Aayog allocates funds to states as the old commission did.
- Getting the first Vice-Chairman of the NITI Aayog wrong.
- Mixing up the Eleventh and Twelfth Plans and their growth performance.
Frequently Asked Questions
When was the Planning Commission set up and who was its first Chairman?
The Planning Commission was established on 15 March 1950 by a resolution of the Government of India. The Prime Minister, Jawaharlal Nehru, was its first Chairman, since the Prime Minister has always been the Chairman of the Commission. The Commission prepared the Five-Year Plans and allocated resources for development until it was replaced by the NITI Aayog in 2015.
What were the Harrod-Domar and Mahalanobis models?
The Harrod-Domar model, which stresses savings and investment as the drivers of growth, formed the basis of the First Five-Year Plan, and agriculture received the highest allocation under it. The Mahalanobis model, designed by the statistician P. C. Mahalanobis, formed the basis of the Second Five-Year Plan and emphasised the development of heavy industry, which shaped India's industrial base.
What is the plan holiday in Indian planning history?
The plan holiday refers to the period from 1966 to 1969, when no Five-Year Plan was in operation because of economic difficulties and the pressures of war and drought. During this gap, three annual plans were implemented for 1966-67, 1967-68 and 1968-69. The next full plan began in 1969 with the Fourth Five-Year Plan.
What is the NITI Aayog and how does it differ from the Planning Commission?
The NITI Aayog, or National Institution for Transforming India, was established on 1 January 2015 and replaced the Planning Commission. Unlike the old Commission, which allocated resources to states, the NITI Aayog works as a policy think tank and promotes cooperative federalism, in which the centre and states act as partners. The Prime Minister is its ex-officio Chairperson, and Arvind Panagariya was its first Vice-Chairman.
What is the Aspirational Districts Programme?
The Aspirational Districts Programme of the NITI Aayog aims to rapidly transform the most backward districts of India across several development indicators. It focuses on areas such as health and nutrition, education, agriculture and basic infrastructure, and it uses competitive and cooperative methods to improve outcomes. It is one of the flagship programmes of the NITI Aayog.