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WEL-COME
INDIAN ECONOMIC
PLANNING
Date: 19/01/2012
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Mahalnobis Model
The basic character of the Indian industry wasinfluenced by the Mahalanobis model of economic
development.
The crucial factor which led to the adoption of Mahalanobis
model was the low level ofcapital-stock formation in the
economy.
The emphasis was on those capital goods which could lead to
the production of other capital goods.Scientist inPhysics but formedIndian Statistical
Institute India
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1. The implementation of Mahalanobis model required
centralised control and planning. In 1956 Govt. categorisedIndustries for control
2. The first category was the monopoly of the government.
3. In the second category, the industries meant for progressive
takeover by the state were enlisted.
4. The third category of industries was left open for the
operation of the private sector
5. As a follow-up to the policy, the second plan placedemphasis on industrial growth in crucial sectors like oil,
steel, coal, power and machine tools.
What did model suggested?
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In the initial stages of the industrialisation of
India, when the private capital did not flow into
infrastructure areas, the government's
investments in infrastructure such as basic
industries, transport, roads, railways, miningof coal and iron ore, steel mills, heavy
machinery etc. were considered essential for
providing momentum for industrial progress.
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Planning and Control Govt. of India style!
a) Control of growth and the industrial
composition of output and capacity,
b) Control over foreign exchange utilization,
c) Control of monopoly and restrictive practicesin trade and commerce,
d) Control over investments in certain
consumption goods industry to encouragesmall industrial units,
e) Control over the location of the industry.
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Rest is history
To quote Tapas Majumdar, "one major drawback of
the public sector undertakings inIndia is that the three levels of decision-making(the investment policy decisions, the capacityutilisation decisions and the pricing policy
decisions) are either left simply un-coordinated orat best co-ordinated only partially and haphazardlythrough a process of fitful trials and errors."1
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Case of our Five Year Planning and Indian Economy
(i) A high rate of growth with a view to improvement instandard of living;
(ii) Economic self-reliance;
(iii) Social justice and;
(iv) Modernization of the economy;
(v) Economic stability;
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i) Fiscal Discipline: While fiscal stabilization is not just an essential
precondition for the success of economic reforms, in India achieving it wasthe urgent priority, which resulted in initiation of the reform process.
ii) Industrial and foreign investment and trade policy: Industrial and trade
policies of India were witness to the most radical changes brought about by
the reform process by way of dismantling of most central government
controls existing in the economy.
iii) Agriculture reforms: The sector, however, benefited from the policy
change incorporated in the industrial and trade policy by way of
favourable prices of agricultural products and spurt in the level of
agricultural exports in the economy.
iv) Infrastructure development: A proper and developed infrastructure iscrucial for overall economic development. During the pre reform period
basic services like electric power, road and rail connectivity,
telecommunication, air transport and ports were provided by the public
sector monopolies. PPP MODEL
PLANNING AND REFORMS POST 1991
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Social sector development: India significantly lagged behind
emerging and south east Asian economies with respect to the
key social indicators. Development and creation of a firm social
sector infrastructure is essential in improving the welfare of the
poor and increasing their earning capacity. The central
government expenditure on social services and rural
development increased from 7.6 per cent in 1990 91 to 8 per cent
in 2000 01 and 10 per cent in 2004 05.
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WHAT IS CAPITAL FORMATION
Definition of 'Capital Formation :
A term used to describe net capital accumulation duringan accounting period. Capital formation refers to netadditions of capital stock such as equipment, buildings
and other intermediate goods. A nation uses capital stockin combination with labour to provide services and
produce goods; an increase in this capital stock is knownas capital formation.
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NEXT SESSION WOULD BE ON PPP