business environment

MODULE – 5 ECONOMIC PLANNING AND DEVELOPMENT

Module V- ECONOMIC PLANNING AND DEVELOPMENT Planning in India- needs and objectives Five year plans, planning commission 11th five year plan Green and white revolution- achievements and failures, Second green revolution foreign trade policy 2009 Export processing zones, Export oriented units, Special economic zones (EPZ’s, EOU’s, SEZ’s) and trading houses in India.

Objectives of Economic Planning in India The Directive Principles of State Policy lay down that: “the State shall direct policy towards securing – that all citizens have the right to adequate means of livelihood; that ownership and control of resources in the community are so distributed as to subserve the common good; that the operation of the economic system does not result in concentration of wealth and means of production to the common detriment.” The Directive Principles of the Indian Constitution, thus, express the will of the People of India for rapid economic growth. Accordingly, the Government of India adopted planning as a means of fostering economic development.

Objectives of Economic Planning in India Consequently, the Government of India set up Planning Commission in 1950, and entrusted it with the task of formulating economic plans on a continual basis, towards the country’s socio-economic development. Long-term objectives of economic planning in India: Rapid economic growth; Expansion of employment; Reduction of disparities in income and wealth; Prevention of concentration of economic power; and Setting up of a socialistic society based on equality, justice and absence of exploitation. 5

Five Year Plans in India First five year plan (1951-1956) Second five year plan (1956-1961) Third five year plan (1961-1966) Fourth five year plan (1969-1974) Fifth five year plan (1974-78) Sixth five year plan (1980-1985) Seventh five year plan (1985-1990) Eighth five year plan (1992-1997) Ninth five year plan (1997-2002) Tenth five year plan (2002-2007) Eleventh five year plan (2007-2012) Twelth five year plan (2012-17)

First five year plan (1951-56) Objectives: 1. To correct the disequilibrium in economy caused by World War –II and partition; 2. Rehabilitation of refugees; 3. Rapid agricultural development (to tackle the problem of severe food shortage and mounting inflation in food items, i.e. to make India self-sufficient in food); 4. To initiate the process of all-round balanced development.

Second five year plan (1956-61) – Conceived in the atmosphere of economic stability; agricultural targets fixed in 1st plan been achieved, and stable prices. Thus stage was set for the industrial development of the country on socialistic pattern. Objectives: 1. To lay foundation for industrial progress (thrust towards heavy and basic industries); and 2. to achieve a socialistic pattern of society (Industrial Policy, 1956 – assigning lead role to the public sector). 8

Third five year plan (1961-66) – Set as its goal the establishment of self-reliant economy in the areas of agriculture and industry. However, because of India’s conflicts with China in 1962 and with Pakistan in 1965, the approach was shifted from development to defence and development. Fourth five year plan (1969-74) – Originally planned to commence in 1966. However, got delayed by three years on account of drought, rupee devaluation and inflationary recession in the economy. Instead, three Annual Plans (1966-69) were implemented. This three year period is also known as “Plan Holiday.” 9

Fourth five year plan (1969-74) – This plan was aimed at “growth with stability” and “progressive achievement of self-reliance”. Real GDP growth rate was targeted at 5.5 per cent per annum. Care for economically weaker section of the society was also included – “Garibi Hatao”. 10

Fifth Five Year Plan (1974-78) The objective of 5th five year plan was removal of poverty and achievement of economic self-reliance. The plan specifically aimed at: Increasing income and consumption of the lowest 30 per cent of the population (BPL families); and Eliminating special forms of external assistance, particularly as regards food and fertilizer imports. However, this plan was terminated in its 4th year by the Janata Party Govt. in 1978.

Sixth Five Year Plan (1980-85) The sixth five year plan aimed at providing impetus to the pace of economic development and strengthening the impulse of modernization and technological self reliance.

Seventh Five Year Plan (1985-90) The seventh five year plan laid emphasis on development, equity and social justice, self-reliance, higher efficiency, and increased food and industrial production.

Eighth Five Year Plan (1992-97) The eighth five year plan focused on generation of adequate employment opportunities, containing population growth, and strengthening infrastructure.

Ninth Five Year Plan (1997-2002) The ninth plan focused on accelerating the rate of economic growth giving priority to agriculture and rural development.

Tenth Five Year Plan (2002-07) Tenth five year plan aimed at an average annual GDP growth rate of 8%, with major focus on human development and family welfare programs.

Eleventh Five Year Plan (2007-12) Title of the 11th plan document -“Towards faster and more inclusive growth.” This plan began in favorable economic conditions.

Targets and objectives of the 11th Plan Average GDP growth rate of 9% p.a. Average agricultural growth rate of 4 % p.a. Generation of 58 million employment opportunities; Increasing literacy rate for persons 7 years or more to 85% by 2011-12; Infant mortality rate (IMR) to be reduced to 28 and maternal mortality rate (MMR) to 1 per 1,000 by 2011-12; Clean drinking water to all by 2009.

Targets and objectives of the 11th Plan Malnutrition among children of age 0-3 years to be reduced to half its present level; Sex ratio for age group 0-6 years to be raised to 935 by 2011-12 and to 950 by 2016-17; Ensuring that at least 33% of beneficiaries of all government schemes are women and girl children; Electricity & telephone /broadband connectivity to all villages of the country by 2009; All-weather road connection to all habitations with population 1000 and above (500 and above for hilly areas) by 2009; 19

Targets and objectives of the 11th Plan To increase forest and tree cover by 5 per cent; To attain World standards of air quality in all major cities by 2011-12; To treat all urban waste water by 2011-12 for clean river waters; To increase energy efficiency by 20 per cent; Investment rate (% of GDP) of 36.7%; Domestic saving rate (% of GDP) of 34.8%; Exports growth projected at 20% per year (in US dollar terms). As a result share of exports in GDP to rise from 14% in 2006-07 to 22.5% by 2011-12; 20

Five year plans – Significance/Achievements and failures Successful in laying a strong infrastructure and broad industrial development. Self-reliance in agricultural and industrial production. Thereby achieving price stability. Balanced regional development. Poverty alleviation – to an extent. Structural change in the economy; Employment generation. Enhancements in the areas of health and education.

Failures - Unsatisfactory per capita income growth; Population growth; Poverty still exists both in urban and rural areas; Slower agricultural growth (less than 2 % p.a.); Continuing inflation; Increasing fiscal deficits.

12th Five Year Plan 2012-17

Targets and objectives of the 12th Plan Average GDP Growth of 8 percent Agriculture Growth of 4 percent Reducing head-count poverty by 10 percentage point Generating 50 million work opportunities Eliminating gender and social gap in education Reducing IMR to 25, MMR to 100 and TFR to 2.1 Enhance infrastructure investment to 9% of GDP Achieve universal road connectivity and access to power for all villages Access to banking services for 90 percent households Major welfare benefits and subsidies via Aadhaar

GreenRevolution The introduction of high-yielding varieties of seeds after 1965 and the increased use of fertilizers and irrigation are known collectively as the Green Revolution, which provided the increase in production needed to make India self-sufficient in food grains, thus improving agriculture in India. Module 3rd.

Green revolution The Green Revolution has also been criticized as unsustainable. It requires immense amounts of capital each year to purchase equipment and fertilizers. This may lead to a cycle of debt if a farmer is unable to pay off the loans required each year. Additionally, the crops require so much water that water tables in some regions of India have dropped dramatically. If this drop continues, it is possible that the process of desertification may take place. Already, the low water is starting the process of salinization. If continued, this would leave the land infertile, spelling disaster for India. In 2006, Dr Norman Borlaug, widely known as the 'Father of India's Green Revolution', was presented India's second highest civilian honour, the Padma Vibhushan, by India's ambassador in Mexico City. In 2009, Norman Borlaug, India's 'annadaata', dies at 95 The Times of India, Chidanand Rajghatta, 13 September 2009. Green Revolution continues.

White Revolution in India Lovingly called the Father of the White Revolution in India, Dr Verghese Kurien was born on November 26, 1921 Credited with architecting the Operation Flood -- the largest dairy development program me in the world -- Dr Kurien set up the Anand model of cooperative dairy development, engineered the White Revolution in India, and made India the largest milk producer in the world. Dr Kurien has since then built this organization into one of the largest and most successful institutions in India. The Amul pattern of cooperatives had been so successful, in 1965, then Prime Minister of India, Shri Lal Bahadur Shastri, created the National Dairy Development Board (NDDB) to replicate the program on a nationwide basis citing Dr Kurien's "extraordinary and dynamic leadership" upon naming him chairman. Kurien also set up GCMMF (Gujarat Cooperative Milk Marketing Federation) in1973 to sell the products produced by the dairies. Today GCMMF sells AMUL brand products not only in India but also overseas. White revolution in India.

Foreign Trade policy 2009-14 Anand Sharma, Minister of Commerce & Industry has announced new foreign trade policy in Sept. 2009. The short term objective of new policy is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world.

Other Objectives To achieve an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011. In the last three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the high export growth path of around 25% per annum.

Other Objectives To double India’s exports of goods and services by 2014. The long term policy objective for the Government is to double India’s share in global trade by 2020. A special thrust needs to be provided to employment intensive sectors which have witnessed job losses in the wake of this recession, especially in the fields of textile, leather, handicrafts, etc.

Policy measures fiscal incentives institutional changes Procedural rationalization Enhanced market access across the world Diversification of export markets

SEZ, EPZ, EOU & Trading Houses

EPZ The concept of Export Processing Zones was introduced to enhance exports in India with the help of tax holidays and lucrative incentive packages, which are the most important aspects About EPZ in India.

Stages of Development The Export Processing Zones in India had gone through four significant stages of development. The initial stage witnessed the establishment of the Kandla Free Trade Zone in the city of Gujarat in the year 1965 and the consequent establishment of the Santacruz Electronics Export Processing Zone The second stage witnessed the Second Oil Price Shock, which hampered the export activities significantly and led the establishment of a number of Export Processing Zones to boost the export sector. Thus, Export Processing Zones were set up in West Bengal, Tamil Nadu, Kerala, Uttar Pradesh and in Andhra Pradesh

The third stage witnessed economic liberalization in India and restructuring of the entire export processing zone framework in the year 1991. The stage incorporated various measures for example: More Fiscal Incentives Simplification of Policy Provisions Incorporation of more industries like horticulture, re-engineering, agriculture, aqua culture The fourth stage witnessed the introduction of the concept of special economic zones in the EXIM policy of 1997-2002. Presently, most of the export-processing zones have been transformed into special economic zones. The special economic zones extended their scope to include private companies together with the government organizations

Features of the EPZs in India EPZs allow subcontracting activities in case of manufactured goods within India as well as in foreign countries Licenses are required for IT industries only Tax Holidays allowed for raw materials and capital goods Exemption from Corporate Income Tax Private bonded warehouses for the purpose of import, re-export, marketing etc. Exemption from Customs Duty

Facilities offered by the EPZs in India: Uninterrupted Power Supply Single Window Clearance Cost Effective and Skilled Labor Water Connection Location advantage Proper Infrastructure Medical Facilities

SEZ Special Economic Zones (SEZs) Policy was announced in April 2000. This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations. SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006

Objectives of SEZ in India generation of additional economic activity promotion of exports of goods and services promotion of investment from domestic and foreign sources creation of employment opportunities development of infrastructure facilities

Approval mechanism The developer submits the proposal for establishment of SEZ to the concerned State Government. The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval. The applicant also has the option to submit the proposal directly to the Board of Approval. The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. All the decisions are taken in the Board of Approval by consensus. The Board of Approval has 19 Members.

Major incentives offered to firms under SEZ Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Exemption from minimum alternate tax under section 115JB of the Income Tax Act.

External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels. Exemption from Central Sales Tax. Exemption from Service Tax. Single window clearance for Central and State level approvals. Exemption from State sales tax and other levies as extended by the respective State Governments.

EOU The Export Oriented Units (EOUs) scheme, introduced in early 1981, is complementary to the SEZ scheme. It adopts the same production regime but offers a wide option in locations with reference to factors like source of raw materials, ports of export, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project. As on 31st December 2005, 1924 units are in operation under the EOU scheme.

Objective of EOU The main objectives of the EOU scheme is to increase exports, earn foreign exchange to the country, transfer of latest technologies stimulate direct foreign investment and to generate additional employment.

Status Holders/ Trading Houses Earlier the status holders in exports were categorized under following heads: One star export house Two star export house Three star export house Four star export house Five star export house

The classification of status holders at present is- Export house Star export house Trading house Star trading house Premier trading house They will be granted such status on achieving aggregate exports of Rs.20 crore, Rs.100 crore, Rs.500 crore, Rs.2500 crore and Rs.10000 crore respectively over a period of four years.

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