8.2] Role of Planning and Public Sector

Planning and the public sector were the two important pillars on which India’s economic strategy was based, especially in the initial decades post-independence. While planning provided a structured framework to direct country’s resources, the public sector was crucial in laying the foundation for industrialization as well as socio-economic development.

1. Role of Planning in the Indian Economy

Post-independence, India’s adopted planned economy, through the establishment of the Planning Commission and Five-Year Plans. This aimed to systematically address the country’s economic challenges, diverting resources to the important sectors. The five-year plans provided a structured approach to allocate resources, and set targets for growth, helping to guide the nation’s development trajectory. Some of the main aims of planning included:

1. Balanced Regional Development: Planning aimed to reduce regional disparities by directing investments to underdeveloped areas.
2. Sectoral Prioritization: The plans emphasized the development of key sectors such as agriculture, industry, infrastructure, and services. Initial focus was on heavy industries and large infrastructure projects, seen as essential for economic modernization. Later plans adjusted priorities based on emerging needs, such as poverty alleviation and employment generation.
3. Social Objectives: Beyond economic growth, planning also aimed to achieve broader social objectives like poverty reduction, education, healthcare, and social welfare. These plans integrated socio-economic goals, reflecting the need for inclusive development.

1.1 Relevance of Planning

With abolition of Planning Commission and establishment of NITI Aayog, while the traditional model of centralized planning has transformed, the principles and objectives behind planning remain significant. We can understand the relevance of planning from following perspectives:

1. Strategic Vision and Long-term Goals: Planning remains crucial for setting long-term national goals. Currently, NITI Aayog formulates strategic and long-term policies, ensuring that the country’s development trajectory aligns with global trends and national priorities.
2. Inclusive and Sustainable Development: While growth remains goal of all economic reforms, planning is crucial to ensure the sustainable nature of this growth.
3. Policy Coordination and Implementation: In a vast and diverse country like India, effective planning facilitates coordination between various levels of government and sectors. Planning helps in aligning central and state policies, ensuring effective implementation of development programs.
4. Data-Driven Decision Making: Data drive decision making is useful to ensure optimum use of resources.
5. Fostering Innovation and Competitiveness: Planning also encourages innovation and competitiveness by identifying key sectors for growth and investment. The government then can have policies that promote startups, digital economy, etc.
6. Crisis Management and Resilience: Centralized planning also becomes important in times of crisis like the recent Covid-19 pandemic.

1.2 Limitations of Planning

1. Role of Private Sector: In a liberalized economy, the role of planning must adapt to market dynamics and the increasing role of the private sector. While the state sets the policy, the private sector drives innovation and growth. Planning must therefore, should not hinder innovation by limiting the role of private sector.
2. Flexibility and Decentralization: In contemporary economy, marked by globalization, planning must be flexible and decentralized. A central planning obstructs this.
3. Reducing Bureaucratic Hurdles: One of the criticisms of traditional planning is the bureaucratic inefficiency it often entails. Thus, contemporary planning should focus on reducing red tape and should be enabling, rather than restricting.

2. Role of the Public Sector in the Indian Economy

India adopted a significant role for the public sector post-independence due to several key reasons:

1. Leaders of independent India aimed to reduce dependence on foreign nations and develop its own industrial base. Since industries required huge capital investments, public sector was crucial for building infrastructure like steel plants and power generation.
2. The decision to establish a vast public sector was also influenced by socialist ideals the Indian leaders adopted. According to Nehru, major industries would ensure equitable distribution of resources, reduce disparities, and provide employment, promoting social welfare.
3. The adoption of Five-Year Plans also necessitated a strong public sector to implement strategic economic goals.
4. Certain industries, such as defense and atomic energy, were deemed too important for national security to be left to private entities, leading to government control over these sectors.
5. By establishing industries in underdeveloped areas, and ensuring fair prices, government also sought to address regional imbalances.
6. The public sector provided substantial employment opportunities, crucial for a country with a large and growing population.

2.1 Evaluation of Public Sector

Post-independence, the public sector in India played a pivotal role in laying the foundation for industrial growth. By establishing large-scale industries in sectors such as steel, mining, and heavy machinery, it created the infrastructure necessary for economic development. As mentioned above, public sector enterprises also became major sources of employment, absorbing a large workforce. To some extent, public sector has also promoted balanced regional development. Public sectors were also instrumental in implementation of government policies, and the role of public sector banks in ensuring financial inclusion can be a case in point.  

However, the list of benefits of public sector is not too long. While the benefits cannot be denied, the problems with public sectors outweighs its contribution to Indian economy.

Despite its contributions, the public sector continues to face issues of inefficiency and bureaucratic delays. This has hampered innovation and economic growth. Many public sector units (PSUs) operated (and continues to operate) at loss, burdening the national exchequer. Examples of Air India, BSNL, etc. can be cited for this. While the reservation in politics and political offices is much needed, its extension in public sector enterprises has affected the merit. This has made these enterprises uncompetitive with private sector.

There is a strong case of privatization that can be made. Public sector needs to continue in sensitive sectors like Atomic Energy and Defence. However, continuing with these companies in 21^st century, where globalization has dissolved the state boundaries, beats any economic logic. In the words of former RBI governor Bimal Jalan, “PSUs are like an old family silver where family had to spend more to just keep silver shining.”