Indian Economy – Planning & Mobilisation of Resources (Block 1)

GS III • Indian Economy • Planning • Public Finance • Resource Mobilisation

1. What Is Economic Planning? Why Was It Needed in India?

In economics, planning means a deliberate, organised attempt by the State to influence the level, pattern and distribution of economic activity over a period of time to achieve defined goals – growth, equity, stability, self-reliance, employment, and modernisation.

At Independence, India was a low-income, structurally backward economy with:

• Very low per capita income and savings
• Dominance of agriculture & low industrial base
• Widespread poverty, unemployment & regional imbalances
• Weak infrastructure and fragile external sector

The leadership chose democratic planning – a mixed economy where the State would guide development through Five Year Plans, public investment, and policy direction, while allowing private sector and markets to operate.

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2. Evolution of Planning in India – From Five Year Plans to NITI Era

The Planning Commission (1950–2014) anchored centralised Five Year Plans. Over time, planning philosophy shifted from state-led heavy-industry strategy to market-friendly, liberalised, and decentralised planning.

A. Broad Phases of Planning

• 1951–65: Early Plans & Nehru–Mahalanobis Strategy – focus on heavy industry, public sector, import-substituting industrialisation.
• 1965–80: Crisis, Green Revolution, Poverty Focus – droughts, wars, but also agricultural transformation and anti-poverty programmes.
• 1980s: Partial Liberalisation – relaxation of industrial controls, technology imports, external borrowing.
• Post-1991: Liberalisation & Market-oriented Reforms – planning moves towards indicative role, private sector becomes main growth engine.
• Post-2015: NITI Aayog Era – Five Year Plans discontinued; emphasis on cooperative & competitive federalism, long-term vision documents, policy think tank role.

graph TB

  WM[IASNOVA.COM]:::wm

  A[Evolution of Planning]:::root --> B[1950s–60s
Nehru–Mahalanobis]:::node
  A --> C[1970s–80s
Poverty & Green Revolution]:::node
  A --> D[1990s
Liberalisation]:::node
  A --> E[Post-2015
NITI Aayog]:::node2

  B --> B1[Heavy industry, PSUs]:::note
  C --> C1[Agricultural push, IRDP]:::note
  D --> D1[Market reforms, disinvestment]:::note
  E --> E1[Think tank, cooperative federalism]:::note

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3. From Planning Commission to NITI Aayog – Structural Shift

In 2015, the Planning Commission was replaced by NITI Aayog (National Institution for Transforming India). This symbolised the move from centralised, top-down planning to cooperative, bottom-up, ideas-driven policy.

Planning Commission – Key Features

• Non-constitutional, non-statutory body (1950).
• Prepared Five Year Plans and allocated plan funds to States.
• Emphasised public sector and centralised resource allocation.

NITI Aayog – Key Features

• Serves as the premier policy think tank of Government of India.
• Promotes cooperative federalism through the Governing Council involving CMs and LGs.
• Prepares long-term vision documents, SDG roadmaps, strategy papers.
• Acts as a platform for Centre–State–private collaboration.

graph TD

  WM[IASNOVA.COM]:::wm

  A[Planning Framework]:::root --> B[Planning Commission]:::node
  A --> C[NITI Aayog]:::node2

  B --> B1[Centralised plans, fund allocation]:::note
  C --> C1[Think tank, cooperative federalism]:::note

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4. What Is Mobilisation of Resources?

To implement any plan, India needs to mobilise resources – raise adequate financial, real and human resources to finance investment, social sectors, and governance. It is essentially the process of converting potential savings and tax capacity into actual public and private spending on development.

Resource mobilisation operates at three broad levels:

• Public sector – taxation, non-tax revenue, borrowing, disinvestment, external assistance.
• Private sector – household savings, corporate savings, financial markets, FDI/FPI.
• External sector – foreign capital, remittances, multilateral/bilateral flows.

graph TB

  WM[IASNOVA.COM]:::wm

  A[Resource Mobilisation]:::root --> B[Public Sector]:::node
  A --> C[Private Sector]:::node
  A --> D[External Sector]:::node

  B --> B1[Taxes, borrowings, disinvestment]:::note
  C --> C1[Savings, markets, corporate CAPEX]:::note
  D --> D1[FDI, FPI, loans, aid, remittances]:::note

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5. Public Resource Mobilisation – Tax, Non-Tax & Capital Receipts

The Union and State governments mobilise resources primarily through the budget. For UPSC, remember the three broad categories: tax revenue, non-tax revenue, and capital receipts.

A. Tax Revenue

• Direct Taxes – income tax, corporate tax, surcharge, etc.
• Indirect Taxes – GST (CGST, SGST, IGST), customs duties, excise on a few items (e.g. fuel).
• Tax reforms aim to improve tax buoyancy, compliance, and base while maintaining progressivity.

B. Non-Tax Revenue

• Dividends & profits from PSUs and RBI surplus
• Fees, fines, user charges, spectrum auction proceeds
• Royalty on natural resources etc.

C. Capital Receipts

• Market borrowings (dated securities, T-Bills)
• Loans from small savings, provident funds
• Disinvestment & strategic sale of public enterprises
• External assistance (multilateral/bilateral loans)

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6. Centre–State Dimensions in Resource Mobilisation

In a federal system, resource mobilisation is shared between the Union and the States. The Constitution assigns different tax bases to each level, and institutions like the Finance Commission and GST Council coordinate vertical and horizontal distribution.

Key Features

• Union controls broad-based taxes (income tax, corporate tax, customs, excise on a few items).
• GST is a shared tax – both Centre and States levy and share it via CGST/SGST/IGST.
• States also rely heavily on shares in central taxes, grants-in-aid, and their own taxes like excise on alcohol, stamp duty, etc.
• Finance Commission recommends tax devolution and grants to address vertical & horizontal imbalances.

graph TB

  WM[IASNOVA.COM]:::wm

  A[Resource Mobilisation in Federal India]:::root --> B[Union]:::node
  A --> C[States]:::node

  B --> B1[Direct taxes, GST share, customs]:::note
  C --> C1[SGST, excise, transfers]:::note
  A --> D[Institutions]:::node2
  D --> D1[Finance Commission, GST Council]:::note

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Growth, Development & Employment in India (Block 2)

GS III • Indian Economy • Growth • Development • Employment

1. Economic Growth vs Economic Development

Economic Growth means an increase in a country’s output (GDP). Economic Development means growth + structural change + improvement in human wellbeing (health, education, living standards).

graph LR

  WM[IASNOVA.COM]:::wm

  A[Economic Progress]:::root --> B[Economic Growth]:::node
  A --> C[Economic Development]:::node2

  B --> B1[GDP ↑ Output ↑]:::note
  C --> C1[Equity, HDI, well-being]:::note

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2. Inclusive Growth – The Indian Policy Framework

Inclusive growth ensures that the benefits of economic growth are broad-based, regionally balanced, and pro-poor.

Key Elements

• Equal access to opportunities (education, credit, markets)
• Poverty reduction & social protection
• Labour-intensive manufacturing & MSMEs
• Gender-balanced development
• Regional balance (aspirational districts, NE initiatives)

graph TB

 WM[IASNOVA.COM]:::wm

 A[Inclusive Growth]:::root --> B[Opportunities]:::node
 A --> C[Social Security]:::node
 A --> D[Regional Balance]:::node
 A --> E[MSMEs & Jobs]:::node

 B --> B1[Education, credit, markets]:::note
 C --> C1[Insurance, pensions, DBT]:::note
 D --> D1[Aspirational districts]:::note

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3. Employment in India – Concepts & Indicators

Key Indicators

• LFPR – Labour Force Participation Rate (working + seeking work)
• WPR – Worker Population Ratio
• Unemployment Rate – proportion of labour force unemployed
• Informal sector share – > 80% of India’s workforce

Types of Unemployment (UPSC Must-Know)

• Disguised unemployment – common in agriculture
• Seasonal unemployment – rural/agricultural cycles
• Structural unemployment – skill mismatch
• Frictional unemployment – job-switching
• Cyclical unemployment – due to slow growth

graph LR

 WM[IASNOVA.COM]:::wm

 A[Employment Scenario]:::root --> B[Indicators]:::node
 A --> C[Types of Unemployment]:::node2
 A --> D[Key Issues]:::node

 C --> C1[Disguised, Structural...]:::note
 D --> D1[Jobless growth, informality]:::note

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4. Structural Transformation – India’s Employment Puzzle

Normally, labour shifts from agriculture → manufacturing → services. In India, labour is shifting directly from agriculture to low-productivity services.

Consequences

• Low productivity employment in services
• Manufacturing sector not absorbing labour
• Rise of informal jobs & gig work

graph TD

 WM[IASNOVA.COM]:::wm

 A[Structural Transformation]:::root --> B[Agriculture]:::node
 A --> C[Manufacturing]:::node
 A --> D[Services]:::node2

 B --> B1[Large workforce, low productivity]:::note
 D --> D1[Gig work, informality]:::note

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5. Government Policies on Growth & Employment

Major Policies

• Make in India – manufacturing boost
• Skill India – skill ecosystem reform
• Startup India – innovation-led job creation
• PMEGP – micro-enterprises
• MGNREGA – rural employment guarantee
• PLI schemes – incentivised manufacturing
• Digital India & UPI – productivity improvement

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6. Key Challenges Ahead

• Persistently low LFPR (especially female LFPR)
• High informality & absence of social protection
• Slow manufacturing job creation
• Skill mismatch & automation
• Regional disparities in opportunities

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