Various Concepts of Planning in India

1. Harrod-Domar Model (1st Five Year Plan was based on this)

• • The model talked about increasing the savings rate to fund more investment. Capital investment leads to more consumption of goods in future and this is what we call a multiplier effect on the economy.
  • The model says that this initial investment doesn’t just increase production a little; it has a multiplying effect. The people who get jobs at the new factories start spending their salaries on goods and services, and the businesses providing those goods and services, in turn, hire more people. This cycle continues, and the initial investment has a bigger impact on the overall economy.

2. Incremental Capital-Output Ratio (ICOR)

• • The Incremental Capital Output Ratio (ICOR) is an economic indicator that measures the amount of additional capital required to generate an additional unit of output or income in an economy.
  • It is a ratio that expresses the relationship between the increase in capital investment and the resulting increase in output.
  • In simpler terms, ICOR helps assess the efficiency of capital investment in generating economic growth.

ICOR = Annual Investment Rate (%)/ Annual Increase in GDP (%)

3. Nehru-Mahalanobis Model (Second FYP was based on this)

• • The model emphasized the need for planned industrialization to reduce dependence on agriculture and promote economic self-sufficiency. The goal was to build a strong industrial base that could support long-term economic development.
  • The Nehru-Mahalanobis Model prioritized the development of heavy industries, such as steel, machinery, and power generation. The rationale was that these industries would provide the necessary infrastructure and capital goods for the overall development of the economy.
  • The model advocated for import substitution industrialization (ISI), which involved producing domestically what was previously imported.

4. Hindu Growth Rate

• • A term coined to describe the relatively low growth rates of 3-4% of the Indian economy during 1950-80. The term was popularized by the economist Raj Krishna in the 1970s.
  • The phrase is not commonly used in contemporary economic discussions. In the 1990s, India initiated economic reforms that moved away from the earlier policies, leading to a significant acceleration of economic growth.

5. Green Revolution

• • The Green Revolution in India refers to a period of agricultural transformation that took place from the 1960s to the 1980s.
  • It involved the introduction of high-yielding varieties of crops, the use of modern agricultural techniques, and the application of agrochemicals.
  • Scientists, including Dr. M.S. Swaminathan and Dr. Norman Borlaug, played crucial roles in developing high-yielding varieties of wheat and rice.
  • The Green Revolution promoted the use of modern irrigation techniques to ensure a more reliable water supply for crops.

6. Balance of Payment Crisis (1991)

• • In 1991, India faced a Balance of Payments crisis marked by depleted foreign exchange reserves, rising external debt, and trade imbalances.
  • To address the crisis, the government implemented economic reforms, including trade liberalization, devaluation of the rupee, industrial deregulation, and privatization.
  • These measures, known as the 1991 reforms, played a crucial role in stabilizing the economy, attracting foreign investment, and paving the way for higher economic growth.