Indicative planning in India

Indian planning before 1991 was of the nature of directive plan­ning and averse to the role of market mecha­nism. As far as resource allocation in the gov­ernmental sector was concerned, the govern­ment did not rely on the market but gave directions so that resources could be utilised by all the states efficiently.

This old system of Indian planning of the comprehensive nature was to be replaced by an integrative approach that combines both planning and market mechanism. Thus, the Indian planning became indicative in nature with the launching of the Eighth Five Year Plan in 1992.


This body was setup in 1952 to strengthen and mobilise the effort and resources of the nation in support of the plan, to promote common economic policy in all vital spheres, and to ensure the balanced and rapid development of all parts of the country. The Council is the highest decision making authority in the country in the area of development matters. It is a constitutional body with representation from both the Centre and States. The Council is headed by the Prime Minister and all Union Cabinet Ministers, State Chief Ministers, representatives of Union Territories; Members of Planning Commission are its members. The functions of NDC are

  • to prescribe guidelines for formulation of the National Plan, including assessment of resources for the Plan
  • to consider the National Plan as formulated by the Planning Commission
  • to consider important questions of social and economic policy affecting national development
  • To review the working of the Plan from time to time and to recommend such measures as are necessary for achieving the aims and targets set out in the National Plan.

The prime function of the Council was to act as a bridge between the Union government, Planning Commission and the State Governments

Why the planning system in India was revamped?

With increasing role of private sector and growth achieved by the market economy forces, centralized planning structure of the government was fully relevant. Thus, the planning methodology had to change so as to reflect the new economic realities and the emerging requirements. As the Indian economy rapidly integrated with the global economy contradictions arose between central planning and increasing private capital flows.

Unemployment rates could not be brought down which is a hurdle in achieving distributive justice.

The Commission is empowered to make discretionary grants to the states. This makes the states dependent on the Centre and weakens our federal structure. It was getting overlapping with the role of Finance commission.

An internal evaluation in Government revealed that Planning Commission was witnessing policy fatigue necessitating structural changes in central planning process.

The assessment identified that factors like:

  • collapse of public investment in the face of rising subsidies,
  • huge demands on public resources from the Right to Education Act,
  • The National Rural Employment Guarantee Act and a poorly targeted Public Distribution System.
  • rigid labour laws were impeding
  • Difficulties in releasing land for public housing and other public progress projects.

Therefore a new Institutional framework was needed.


NITI Aayog is the premier policy ‘Think Tank’ of the Government of India, providing both directional and policy inputs. While designing strategic and long term policies and programmes for the Government of India, NITI Aayog also provides relevant technical advice to the Centre and States. Theme of the NITI Aayog was the change in focus from central planning to cooperative federalism.      The states had little direct say in policy planning, which was the purview of the Planning Commission. Involvement of the states was indirect through the National Development Council; it will not be repeated in the NITI Aayog. NITI Aayog acts as the best platform of the Government of India to bring States to act together in national interest, and thereby fosters Cooperative Federalism.

Establishment of NITI (National Institution for Transforming India) Aayog (2014)

Planning in India was carried by the Planning Commission (1950 – 2014) and the NITI (National Institution for Transforming India) Aayog (2014 – 2017). With the Prime Minister as the ex-officio Chairman, the commission has a nominated Deputy Chairman, who holds the rank of a Cabinet Minister.

Montek Singh Ahluwalia is the last Deputy Chairman of the Commission, resigned on 26 May 2014. The Eleventh Plan completed its term in March 2012 and the Twelfth Plan is currently underway. Prior to the Fourth Plan, the allocation of state resources was based on schematic patterns rather than a transparent and objective mechanism, which led to the adoption of the Gadgil Formula in 1969. Revised versions of the formula have been used since then to determine the allocation of central assistance for state plans. The new government led by Prime Minister Narendra Modi, elected in 2014, has announced the dissolution of the Planning Commission, and its replacement by a think tank called the NITI Aayog.

error: Content is protected !!
Scroll to Top