Indicative Planning
- Definition: A form of planning in a mixed economy where both state and market work together to achieve growth targets they collectively set.
Bombay Plan (1944)
- Contributors: Industrialists and economists: Thakurdas, Tata, Birla, Lala Shriram, Kasturbhai Lalbhai, A.D. Shroff, Ardeshir Dalal, and John Mathai.
- Goals:
- Double per capita income and triple national income in 15 years.
- Focus on the expansion of textiles and consumer industries.
- Emphasized government intervention for infrastructure, basic industries, and protection of domestic industries from competition.
- Objectives:
- Doubling agricultural output.
- Fivefold growth in the industrial sector.
Ardeshir Dalal
- Chair of the Planning and Development Department set up by the British in 1944 (abolished in 1946).
M. Visvesvaraya
- Author of “Planned Economy for India” (1934).
- Advocated poverty eradication through economic growth.
National Planning Committee
- Initiator: Subhas Chandra Bose.
- Chair: Jawaharlal Nehru.
- Objective: Achieving an adequate standard of living and eradicating poverty through land redistribution and development of heavy industries.
People’s Plan (M.N. Roy)
- Proposed by the Indian Federation of Labour.
- Stressed nationalization and labor welfare.
Gandhian Plan (Shriman Narayan Agrawal)
- Focused on:
- Decentralization.
- Agricultural development.
- Employment generation.
- Development of cottage industries.
Sarvodaya Plan (J.P. Narayan, 1950)
- Focused on:
- Freedom from foreign technology.
- Land reforms.
- Promotion of agriculture and small-scale industries.
Economic Program Committee (1947)
- Chair: Jawaharlal Nehru.
- Recommendation: Formation of the Planning Commission.
Goals of Planning
- Growth.
- Modernization.
- Self-reliance.
- Equity (social justice).
Five-Year Plans (FYPs)
| Plan | Aim | Other Highlights |
|---|---|---|
| 1st FYP (1951-56) | Poverty alleviation | Formulated by K.N. Raj. |
| 2nd FYP (1956-61) | Heavy & basic industries, self-reliance | Based on the Nehru-Mahalanobis model. |
| 3rd FYP (1961-66) | Balance between industry & agriculture | Rupee devalued (1966), borrowing from IMF. |
| Plan Holidays (1967-69) | Focus on agriculture due to droughts. | |
| 4th FYP (1969-74) | Growth with stability | Employment, education, and reducing agricultural output fluctuations. |
| 5th FYP (1974-79) | Growth with social justice | Plan gap (1979-80). |
| 6th FYP (1980-85) | Poverty removal, infrastructure | |
| 7th FYP (1985-90) | Food grain production, employment | Beginning of liberalization. |
| Plan Holidays (1990-92) | Economic crisis. | |
| 8th FYP (1992-97) | Stabilize BoP, improve CAD | First indicative plan; transition to market economy. |
| 9th FYP (1997-2002) | Annual growth @ 6.5% | Push savings and investments. |
| 10th FYP (2002-07) | 8% GDP growth, poverty reduction | Addressed gender gaps in literacy and wages. |
| 11th FYP (2007-12) | Inclusive growth | Focus on agriculture, education, and infrastructure. |
| 12th FYP (2012-17) | 8% growth |
Additional Notes
- Growth during FYPs did not steadily increase.
Nehru-Mahalanobis Model (Second FYP)
- Focus: Basic industries for long-term growth.
- Key Features:
- Trickle-Down Effect: Employment, poverty reduction, and export growth through industrial development.
- Import Substitution: Reduce dependency on foreign goods and capital.
- Public Sector Dominance: For basic and heavy industries.
- Support to Small Sector: Focus on consumer goods production.
Rolling Plan
- Nature: Flexible planning with annual targets and course corrections.
Rao-Manmohan Singh Model of Growth
- Objective: Reorient the state’s role to focus on social and infrastructure development.
- Key Features:
- Open economy and enhanced competition.
- Liberalization of the external sector for global integration.
Indicative Planning
- Approach:
- Government provides directions without enforcing rigid policies.
- Encourages private sector contributions towards achieving plan targets.
- Gradual withdrawal of public sector dominance.
Financial vs. Physical Planning
- Financial Planning: Aligns physical targets with available financial resources.
- Physical Planning: Prioritizes output targets, with finances raised accordingly.
Economic Reforms (1991 and Beyond)
- Two Measures:
- Stabilizing Measures: Address BoP crisis and inflation.
- Structural Measures: Enhance efficiency and global competitiveness.
- Key Focus Areas:
- Industrial Sector: Deregulation, disinvestment, professional management.
- Financial Sector: Banking reforms, forex liberalization, reduced RBI intervention.
- Trade and Investment: Removal of restrictions, reduced tariffs, free trade facilitation.
- Currency Reforms: Free-floating currency, FDI, and FII liberalization.
- Tax Reforms: Simplification and rationalization of direct, corporate, and indirect taxes.
- Goal: Reform with a Human Face.
Second Generation Reforms
- First Generation: Non-legislative, broad-based reforms (e.g., CRR, SLR, disinvestment).
- Second Generation: Legislative and complex reforms directly impacting daily lives (e.g., GST, labor reforms, deregulation of fuel prices).
India @75
- Concept: Proposed by C.K. Prahalad in 2008, adopted by CII.
- Vision: Economic strength, technological vitality, and moral leadership.
- IBIN (India Backbone Implementation Network):
- Collaboration between Planning Commission and India @75 initiative.
- Inspired by Japan’s TQM (Total Quality Management) model.
- Focused on removing policy bottlenecks.
NITI Aayog (Established 2015)
- Purpose: Replaced the Planning Commission to align development with Sustainable Development Goals (SDGs).
Planning Structure:
- 15-Year Vision Document: Long-term social goals aligned with SDGs.
- 7-Year Strategy Document: Translating vision into actionable policies under the “National Developmental Agenda.”
- 3-Year Action Agenda: Short-term actionable reforms.
Key Initiatives:
- Agricultural Reforms:
- Model Land Leasing Law: Safeguard tenant rights.
- APMC Act Reforms: Ensure better agricultural market functioning.
- AMFFRI: Ranks states on agricultural reforms across markets, land leasing, and private forestry.
- Medical Reforms:
- Draft legislation for the National Medical Commission (NMC) to replace MCI.
- Digital Payments Movement:
- Initiatives: Lucky Grahak Yojana, Digi Dhan Vyapar Yojana, Digi Dhan Mela.
- Atal Innovation Mission (AIM):
- Atal Tinkering Labs (ATL): Promote creativity and scientific temper.
- Atal Incubation Centers (AIC): Strengthen the entrepreneurial ecosystem.
- Centrally Sponsored Schemes (CSS): Rationalized into 28 umbrella schemes.
- Task Forces:
- Elimination of poverty: Developing measurement and combat strategies.
- Agricultural development: Focus on productivity, remunerative prices, second Green Revolution in the East, and farmer distress.
Service Sector Overview
The service sector can be divided into three broad categories based on the nature of the services provided and their role in the economy:
- Traditional Services:
- Examples: Wholesale and retail trade, hotels and restaurants, transport and storage.
- Characteristics: Primarily non-tradable services, meaning they are largely consumed domestically and cannot be traded across borders. These services are typically unorganized and involve low-skill labor.
- Modern Services:
- Examples: Communication, financial services, real estate, software services.
- Characteristics: These services are internationally tradable, meaning they can be exchanged across borders. The sector is mostly organized in the private sector and requires a higher level of skill and technology.
- Social Services:
- Examples: Public administration, defense, community, social, and personal services.
- Characteristics: These services are mostly in the public sector and focus on societal welfare, such as health, education, and safety.
Key Distinctions:
- Traditional and Social Services: These services are primarily non-tradable and include more localized, non-exportable functions.
- Modern Services: These services are internationally tradable and usually involve higher skill levels and organized sector operations.
- Traditional Services: Tend to be unorganized and require lower skill levels for employment.
- Modern and Social Services: These are often organized and require higher skill sets, and they are more likely to be in the public or formal sector.
Money Market
Shares, Debentures, and Debt Instruments
- Difference Between Share and Debt Instrument:
- Shares: Represent ownership in a company. Shareholders are entitled to a share in the company’s profits and may receive dividends. They also bear a share of the company’s losses.
- Debt Instruments: These are fixed-income securities where holders are entitled to receive regular interest payments regardless of the company’s profits or losses.
- Difference Between Bond and Debenture:
- Bonds: Bonds are unsecured debt instruments. They are not backed by specific assets and represent a general obligation of the issuer to pay back the principal with interest.
- Debentures: Debentures are secured debt instruments, meaning they are backed by specific assets or collateral to ensure repayment.
Types of Shares
- Equity Shares:
- Shareholders are entitled to a claim on the company’s capital, profits, and losses. The returns depend on the company’s performance, as dividends and capital appreciation are subject to the company’s earnings.
- Preference Shares:
- Holders of preference shares receive a fixed dividend, similar to interest payments on bonds, regardless of whether the company makes a profit. They have preferential rights to get their capital back in case the company is liquidated.
- Key Features:
- No voting rights in company matters.
- Dividends are paid out before equity shareholders receive theirs.
Securities Market
Types of Securities Markets
- New/Primary Market:
- The market where fresh securities are issued and sold for the first time. Companies issue new shares, bonds, or other securities to raise capital.
- Old/Secondary Market:
- The market for trading securities that have already been issued in the primary market. This includes stock exchanges where shares, bonds, and other securities are bought and sold among investors.
- Both of these markets are regulated by SEBI (Securities and Exchange Board of India) to ensure fair and transparent operations.
Issue Process in the New Issue Market:
- Authorized Capital:
- The maximum amount of capital a company can raise, as per its Memorandum of Association (MoA).
- Issued Capital:
- The actual amount of capital issued by the company to the public or investors.
- Subscribed Capital:
- The amount of capital that investors have agreed to subscribe to or purchase in the new issue.
- Underwriter:
- A financial intermediary who agrees to purchase any unsubscribed portion of the securities offered in the new issue, ensuring that the company raises the targeted amount of capital.
- Called-Up Capital:
- The amount of capital requested from investors by the company, based on the terms of the securities issue.
- Paid-Up Capital:
- The actual amount of money that shareholders have paid to the company when called upon to do so.
- Reserve Capital:
- The portion of authorized capital that has not been called up yet. It is reserved for future needs and can be called by the company if necessary.
Private Placement
- Definition: A method by which companies offer shares or securities directly to a select group of institutional investors, such as Financial Institutions (FIs), Mutual Funds (MFs), and Qualified Institutional Buyers (QIBs), rather than offering them to the general public.
- QIBs: Includes entities like commercial banks, insurance companies, pension funds, etc.
Rights Issue
- Definition: A type of offering where existing shareholders are given the right to buy additional shares, typically at a discount, in proportion to their existing holdings. This is done to raise additional capital for the company.
Bonus Issue
- Definition: A method where companies issue additional shares to existing shareholders without requiring any cash payment. These shares are issued against the company’s accumulated profits, and the issue is typically made in the form of stock dividends.
- Also Known As: Scrip issue or capitalization issue.
Sweat Equity Issue
- Definition: Companies offer shares to employees or directors as a recognition of their contributions in terms of hard work or intellectual labor. This is an incentive given to individuals for their commitment to the company.
Old Issue Market
- Over-the-Counter (OTC) Trade:
- A platform for trading securities that are not listed on formal stock exchanges. These securities may be traded directly between buyers and sellers, or through intermediary brokers.
Depositories
- Role of Depositories:
- They are institutions that hold securities in dematerialized (demat) form, which means the securities are stored electronically, making transactions faster and easier without the need for physical certificates.
- Key Depositories in India:
- NSDL (National Securities Depository Ltd.)
- CDSL (Central Depository Services Ltd.)
- Legal Framework: Both depositories are governed under the Depositories Act, 1996, which ensures that the processes and systems are safe and reliable for investors.
