Solution: Daily Problem Practice for 2023 History Optional [Modern India: Day 28]

Q. Planning was seen as a powerful instrument that could be used to remove regional inequality. Examine. [20 Marks] 


  • During British time,  with no great increase in output or productivity, regional disparities in India grew as the economy leaned towards British centres of commerce. ©
  • Post-independence, the problem with the economy in India that was steadily developing was that India is a land of great diversity, not just in culture, but also in topography, climate, natural resources etc. Given the immense diversity in India, the challenges were massive in solving regional disparities in India for economic and developmental policy.
  • In order to deal with the massive problems arising out of the formation of a country, centralized planning was adopted in which the state occupying the ‘commanding heights’ of the economy.

Planning as an instrument to remove regional inequality:

  • The adoption of planning and a strategy of State-led industrialisation with Plans and policies designed to facilitate more investments in the relatively backward areas were intended to lead to a more balanced growth in the country. It was expected that, over time, inter-state disparities would be minimised.
  • The issue of regional balance has been an integral component of almost every Five Year Plan.
    • The Second Plan reflected this objective and it was reiterated in the succeeding Plans.
    • The Third Plan explicitly stated that ‘balanced development of different parts of the country, extension of the benefits of economic progress to the less developed regions and widespread diffusion of industry are among the major aims of planned development.”
  • Planning Commission was mandated for the determination of the pool of resources to be devoted to development and the allocation of this pool between various uses and users. Allocation was to be made for more focus to backward areas to tackle regional inequality.
    • For regional equity, the Planning Commission allocated greater plan assistance to the backward states. This assistance was given in the form of both grants and loans on the basis of a formula which assigns an important place to the degree of backwardness of a state.
    • Bias in favour of backward states in the devolution of resources from Centre to the states, in the form of both financial and Plan transfers, has tended to increase with time.
  • In Planning, approaches to address regional inequality included:
    • Proper identification of backward areas and targeting them with additional resources and investments to help them overcome the infrastructural deficiencies that contribute to their backwardness.
    • Improving the overall environment for the economic growth of less developed states and areas through a combination of major infrastructure interventions, institutional reforms and appropriate incentive structures.
  • In Planning, direct investment in public sector units and capital and other subsidies for the private sector in backward regions was seen as the way of addressing regional imbalance through capital formation as well as income and employment generation.
    • Industrial Policy Resolution (1956) formed the basis of the Second Five Year Plan. No new private industry was allowed unless a license was obtained from the government.
      • The system of licensing of private industrial enterprises, which prevailed from 1956 to 1991, was also used by the government to guide location of industries in backward areas as it was easier to obtain a license if the industrial unit was established in an economically backward area.
      • In addition, Government incentives was provided to the private sector to invest in backward areas through subsidies, tax concessions, electricity at a lower tariff and concessional banking and institutional loans at subsidized rates.
    • India relied heavily on public investment since the beginning of the Second Plan in 1957 and an effort has been made to favour backward states in regard to this investment.
      • Public investment by the central government in major industries such as steel, fertilizers, oil refining, petrochemicals, machine-making, heavy chemicals and in power and irrigation projects, roads, railways, post offices and other infrastructural facilities, has been a tool for the reduction of regional inequality.
      • In the planning and location of the public sector enterprises, balanced regional growth has been an important consideration, though this entailed a certain economic cost to the enterprises concerned.
  • The development of small-scale industry (which were mainly in backward areas) requires them to be shielded from the large firms.
    • For this purpose, the production of a number of products was reserved for the small-scale industry; the criterion of reservation being the ability of these units to manufacture the goods.
    • They were also given concessions such as lower excise duty and bank loans at lower interest rates.
  • Following nationalization of banks in 1969, the expansion of network of their branches was used to favour backward areas.
    • Banks and other public sector financial institutions were directed to promote investment in these areas.
  • Various ministries evolved schemes under planning for development of backward areas.
    • In particular, poverty eradication programmes, such as the Food for Work progamme and Integrated Rural Development Programme, adopted since the 1970s, and to some extent education, health and family planning programmes and the public distribution system have favoured poorer states.
  • The First Plan attached greater importance to agriculture than industry which would lead to economic development of backwards areas as those areas were more dependent on agriculture.
    • There was special emphasis on the role of mass mobilization of idle rural labour and land reform which would help backward areas.

There has been a mixed success in reducing regional inequality.

  • One sector where the principles of reduction of regional disparity has not been kept in view is that of investment in irrigation and subsidies to agricultural development.
    • This has been especially so since the 1960s when the Green Revolution began and investment in rural infrastructure and technical innovation was concentrated in Punjab, Haryana and western U.P., namely, areas where irrigation was or could be made available readily.
    • In particular, investment in and development of rain-fed dry land agriculture was neglected.
    • The result was an increase in regional agricultural disparity.
    • The spread of the Green Revolution technology during the 1970s to Andhra Pradesh, Tamil Nadu, Karnataka, eastern U.P. and parts of Rajasthan has addressed the regional imbalance to a certain extent.
  • There has been marginal improvement but regional inequality, especially in terms of per capita income, continues to remain a prominent features of the Indian economy.
  • Inter-regional disparity in the distribution of poverty has been growing.
    • Overall, while there has been economic growth in all states, the rates of growth of different states have been highly differential, leading to interstate disparities remaining quite wide.
  • There has been certainly been a decline in interstate industrial disparity, especially in the organized manufacturing sector.
  • There is also less disparity in terms of the social welfare as represented by life expectancy, infant mortality and literacy, though few states like Kerala and Tamil Nadu have moved ahead.

In spite of some failure, possibly, the situation would have been much worse but for the government’s actions which has prevented the widening of the economic gap between states and regions. Hence in post-independence India, Planning was seen as one of the important way to remove prevailing regional inequality and promoting balanced development in which all states, and regions within states, have the opportunity to develop evenly.


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