India tried to plan its economic development for decades through a central body and a series of Five Year Plans. This article traces that institution, its plans, and the ideas behind them.
MCQ QuestionsIndian Economy
From centralised fund allocation to a policy think tank
1938
National Planning Committee
Formed under Nehru — an early attempt to plan under colonial rule.
1944
Bombay Plan & Gandhian Plan
Large-scale state industry vs. village self-sufficiency.
1950
Planning Commission set up
Created by resolution, not law — the PM served as its Chairman.
1952
National Development Council
PM, Chief Ministers and Commission approve each Five Year Plan.
2015
Replaced by NITI Aayog
A shift toward “cooperative federalism” — advisory, not allocative.
Timeline: The Five Year Plans
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India’s Five Year Plans
From centralised planning to a market-guided model
1950–56
Planning Commission & the First Plan
The Planning Commission forms in 1950; the First Five Year Plan (1951-56) emphasises agriculture.
Second Plan
The Mahalanobis strategy
Drives rapid industrialisation, with a determined thrust toward basic and capital goods industries.
1969–79
Fourth & Fifth Plans
The Fourth Plan targets wealth concentration; the Fifth adopts poverty removal as a national goal.
1991
LPG reforms mark a turning point
Liberalisation, Privatisation, and Globalisation open India’s economy to global trade and investment.
2012–17
The Twelfth Plan, and NITI Aayog
India’s last Five Year Plan runs its course; NITI Aayog then replaces the Planning Commission with indicative planning.
A Global Shift
The move from rigid Five Year Plans to NITI Aayog’s advisory role reflects a broader global trend away from centralised planning, toward market-guided development.
✊ Must Know
1. The Planning Commission’s origins
- Origins Planning in India began before independence. Nehru’s National Planning Committee formed in 1938.
- Origins The Bombay Plan (1944) favoured a mixed economy with heavy industry led by the state.
- Origins The Gandhian Plan (1944) instead pushed village self-sufficiency and small-scale, cottage industry.
- Set Up The Planning Commission was set up in 1950, by a government resolution, not by law.
- Set Up The Prime Minister headed the Commission as its Chairman, with a Deputy Chairman below.
- Set Up Its job was to prepare Five Year Plans, setting targets and allocating funds across sectors.
2. The Five Year Plans, in order
- First Plan The First Five Year Plan (1951-56) put its main emphasis on agriculture.
- Second Plan The Second Plan followed the Mahalanobis strategy, built around rapid industrialisation.
- Second Plan From the Second Plan onward, India gave a determined thrust to basic and capital goods industries — steel, heavy engineering, and machine tools, not just consumer goods.
- Fourth Plan The Fourth Plan (1969-74) took up a new objective: correcting the earlier rise in wealth and economic-power concentration.
- Fifth Plan The Fifth Plan (1974-79) made removal of poverty, “Garibi Hatao,” a national objective for the first time.
- Fifth Plan The Fifth Plan also aimed at self-reliance, alongside its poverty-removal goal.
- Last Plan The Twelfth Five Year Plan (2012-17) was India’s last, before the shift to NITI Aayog.
3. The 1991 reforms and NITI Aayog
- 1991 Major reforms in 1991 opened India’s economy through Liberalisation, Privatisation, and Globalisation (LPG).
- 1991 This marked a real turning point, after decades of a more closed, centrally planned approach.
- 2015 The Planning Commission was replaced in 2015 by NITI Aayog, a policy think tank.
- 2015 NITI Aayog does not allocate funds the way the Commission did; it advises instead.
📘 Good to Know
1. The National Development Council’s role
- NDC The National Development Council formed in 1952, bringing together the PM, Chief Ministers, and Commission members.
- NDC The NDC held final authority to approve every Five Year Plan before it took effect.
2. The MRTP Act and the Fourth Plan
- Legislation Parliament passed the Monopolies and Restrictive Trade Practices (MRTP) Act in 1969, in force from mid-1970.
- Legislation The MRTP Act gave the Fourth Plan’s wealth-concentration objective a real legal instrument to act on.
- Legislation It aimed to stop economic power concentrating in a few large business houses.
3. NITI Aayog’s different approach
- Approach NITI Aayog uses “indicative planning,” suggesting direction rather than issuing rigid central directives.
- Approach This shift was framed as part of a move toward “cooperative federalism,” giving states a bigger voice.
🏆 Great to Know
1. The top-down planning critique
- Critique India’s planning process worked top-down, with the Commission allocating central funds to the states.
- Critique Critics argued this arrangement reduced state governments’ own financial autonomy over time.
2. A common mix-up about the Fifth Plan
- Careful The Fifth Plan is sometimes wrongly credited with being the first to fold the financial sector into a Plan.
- Careful Its real, well-documented “first” is different: making poverty removal an explicit national Plan objective.
- Careful Don’t confuse the two claims — only the poverty-removal objective is reliably dated to the Fifth Plan.
3. Part of a wider global pattern
- Global India’s move away from rigid central plans mirrors a broader global shift of the same era.
- Global Many economies moved from state-directed planning toward more market-guided models over the same decades.
📝 Previous Year Questions
UPSC CSP 2019, GS Paper I, Q70
Question: With reference to India’s Five-Year Plans, which of the following statements is/are correct?
- 1. From the Second Five-Year Plan, there was a determined thrust towards substitution of basic and capital good industries.
- 2. The Fourth Five-Year Plan adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power.
- 3. In the Fifth Five-Year Plan, for the first time, the financial sector was included as an integral part of the Plan.
Select the correct answer using the code given below: (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
Answer: (a) 1 and 2 only.
Statement 1 is true. The Second Plan’s Mahalanobis strategy gave a determined thrust to basic and capital goods industries, not consumer goods.
Statement 2 is true. The Fourth Plan (1969-74) explicitly took up correcting the earlier rise in wealth and economic-power concentration, backed by the 1969 MRTP Act.
Statement 3 is false. The Fifth Plan’s genuine “first” was adopting poverty removal as a national objective, not financial-sector integration.
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