Indian Economy Basics & Planning

Read Indian economic history as three regime changes, each with a different answer to 'who decides what gets produced?'. 1950 to 1991 — the state decides: Mahalanobis heavy-industry planning, licensing, public sector at the commanding heights. 1991 — a balance of payments crisis forces the switch, and the market decides: Liberalisation (delicensing), Privatisation (disinvestment), Globalisation (trade and capital opening). 2015 onwards — the Planning Commission is replaced by NITI Aayog, an advisory think tank with no power to allocate funds, so the centre coordinates rather than commands. Attach every fact you learn to one of these three regimes and it stays in place.

• GDP is where, GNP is who.

  Gross domestic product counts everything produced inside the country's borders, whoever produces it. Gross national product counts everything produced by the country's residents, wherever they are. One is a place, the other is a people — and every remaining aggregate is a subtraction from one of these two.

• First plan farms, second plan factories, 1991 opens the doors.

  The First Five Year Plan was agriculture-led on the Harrod-Domar model; the Second was industry-led on the Mahalanobis model; and the 1991 reforms — liberalisation, privatisation, globalisation — ended the licence system. Three markers cover the whole arc of Indian economic policy.

• 1Dadabhai Naoroji made the first estimate of India's national income and advanced the 'drain of wealth' theory; V. K. R. V. Rao made the first scientific estimate.
• 2The primary sector is agriculture and allied activities, the secondary is manufacturing and construction, the tertiary is services.
• 3The Planning Commission was set up in 1950 by an executive resolution and was replaced by NITI Aayog in 2015 — neither is a constitutional body.
• 4Twelve Five Year Plans ran from 1951 to 2017; the plan system was then discontinued in favour of NITI Aayog's strategy documents.
• 5National accounts are compiled by the National Statistical Office under the Ministry of Statistics and Programme Implementation.
• 6Real GDP is measured at constant prices and nominal GDP at current prices; the gap between them is the price effect.

• The Planning Commission was set up in 1950 by a Cabinet resolution, not by the Constitution, and was replaced by NITI Aayog on 1 January 2015; the Prime Minister chairs NITI Aayog and it functions as a policy think tank without powers to allocate funds to states.
• The Second Five Year Plan followed the Mahalanobis model and prioritised heavy and basic industry in the public sector, while the First Plan followed the Harrod-Domar approach and prioritised agriculture and irrigation after Partition.
• The 1991 reforms were triggered by a balance of payments crisis in which foreign exchange reserves fell to just a few weeks of imports; the reform package is remembered as LPG — Liberalisation, Privatisation and Globalisation — and the rupee was devalued and industrial licensing abolished for most industries.
• GDP is the value of final goods and services produced within a country's borders; GNP adds net factor income from abroad. Nominal GDP is at current prices and real GDP at constant base-year prices, so real GDP is the one that measures genuine growth.
• India's structural transformation is incomplete in a specific way: the services sector contributes the largest share of GDP, but agriculture still employs a far larger share of the workforce than its share of output — this gap is the standard exam point about disguised unemployment in agriculture.

• NITI Aayog is not a constitutional or statutory body, and unlike the Planning Commission it does not allocate funds to states.

• NCERT Class XI — Indian Economic Development
• NCERT Class XII — Introductory Macroeconomics
• Indian Economy by Ramesh Singh
• Economic Survey, published annually by the Ministry of Finance

• NCERT textbooks (free PDFs)
• Union Budget
• Reserve Bank of India
• NITI Aayog