Adoption of the Soviet Planning Model: Following independence in 1947, India, under Prime Minister Jawaharlal Nehru, was heavily influenced by the Soviet Union’s model of centralized economic planning. This was seen as a rapid way to achieve industrialization and economic self-sufficiency. The Planning Commission was established by an executive resolution of the Government of India in March 1950. Its primary role was to formulate Five-Year Plans (FYPs), which allocated resources to various sectors, with a significant impetus given to Public Sector Undertakings (PSUs) to command the “heights of the economy,” a concept borrowed from Fabian socialism.
Top-Down and ‘One-Size-Fits-All’ Approach: The initial planning model was inherently a top-down approach. The central government, through the Planning Commission, would set targets and allocate funds to states. This often led to a “one-size-fits-all” policy framework that did not adequately account for the diverse socio-economic realities and specific needs of different states.
Shift Towards Indicative Planning: The limitations of rigid, centralized planning became apparent over time, especially with the economic crisis of 1991. The 8th Five-Year Plan (1992-97), often termed the ‘Rao-Manmohan Plan’, marked a significant departure. India moved from imperative planning (where the state dictates economic activity) to indicative planning, where the plan provides a broad direction for the economy, with a greater role for the market. This phase embraced a market-led economy, privatization of PSUs, and decentralization, encapsulated in the LPG (Liberalization, Privatization, Globalization) reforms.
Establishment of NITI Aayog: By the 2010s, the Planning Commission was widely seen as an anachronism in a globalized, market-driven, and increasingly federal India. On January 1, 2015, the Government of India replaced it with the NITI Aayog (National Institution for Transforming India). NITI Aayog was designed to be a policy think tank, moving away from the command-and-control structure of its predecessor. It champions a bottom-up approach, fostering ‘Cooperative Federalism’ by involving states in policy formulation. It has ushered in an era of long-term ‘perspective planning’ through its 15-year vision, 7-year strategy, and 3-year action agenda documents.
Structure and Functioning of NITI Aayog
Composition:
Chairperson: The Prime Minister of India.
Governing Council: Comprises the Chief Ministers of all States and Lieutenant Governors of Union Territories. This is the primary body for developing a shared national agenda and fostering cooperative federalism.
Regional Councils: These are formed on a need-basis to address specific issues and contingencies impacting more than one state or a region. They are convened by the Prime Minister and comprise the Chief Ministers of States and Lt. Governors of UTs in the region.
Organizational Hubs: The NITI Aayog’s staff is organized into two main hubs:
Team India Hub: This acts as the primary interface between the Central government and the State governments. It facilitates dialogue, resolves inter-sectoral and inter-departmental issues, and helps align national policies with state needs.
Knowledge and Innovation Hub: This constitutes the think-tank capability of the NITI Aayog. It is structured into multiple verticals (around 12-14) that deal with different sectors like health, agriculture, energy, etc. It engages in research, policy analysis, and promotes innovation ecosystems, such as through the Atal Innovation Mission (AIM).
Comparison: NITI Aayog vs. Planning Commission
Feature
NITI Aayog
Planning Commission
Nature
An advisory body, a ‘think-tank’.
An extra-constitutional body with significant directive authority.
Policy Imposition
Has no power to impose policies on states. It acts as a facilitator and provides strategic inputs.
Had the power to impose centrally-sponsored schemes and policies on states as part of the five-year plan framework.
Role of States
States play a proactive and equal role through the Governing Council, embodying a bottom-up approach.
State participation was limited; decisions were centralized and followed a top-down approach.
Fund Allocation
Has no powers to allocate funds. This function is vested with the Ministry of Finance.
Enjoyed significant power to allocate plan grants to ministries and state governments (e.g., using the Gadgil Formula).
Membership
Includes provisions for part-time members and domain experts, allowing for greater specialized expertise.
Comprised mainly of full-time members, with a more bureaucratic structure.
Approach to Planning
Focuses on long-term perspective planning (e.g., 15-year Vision Document) and promotes competitive federalism through indices.
Followed a rigid five-year plan cycle for resource allocation and target setting.
World Trade Organisation (WTO): Background and Theory
Classical Theories of Free Trade: The intellectual foundation for free international trade was laid by classical economists. Adam Smith, in The Wealth of Nations (1776), proposed the theory of Absolute Advantage, suggesting that countries should specialize in producing goods where they are most efficient. David Ricardo, in On the Principles of Political Economy and Taxation (1817), refined this with the theory of Comparative Advantage, arguing that trade is mutually beneficial even if one country is more efficient in producing all goods. A country should specialize in and export what it can produce at a lower opportunity cost. These theories posit that free trade, with minimal barriers, maximizes global output and benefits all participating nations.
The Prebisch-Singer Hypothesis: This hypothesis, developed independently by economists Raúl Prebisch and Hans Singer in the 1950s, challenges the universal benefits of free trade, particularly for developing countries (Less Developed Countries - LDCs).
Argument: LDCs predominantly have a comparative advantage in primary products (agriculture, raw materials), while developed countries specialize in manufactured and technology-intensive goods.
Income Elasticity of Demand: The demand for primary products is income-inelastic; as global incomes rise, the demand for food and raw materials increases only marginally. In contrast, the demand for manufactured goods is income-elastic, rising significantly with income.
Terms of Trade: This leads to a long-term decline in the terms of trade for LDCs (the ratio of their export prices to their import prices). They must export more and more primary goods to afford the same quantity of manufactured imports from developed nations.
Conclusion: This makes the export earnings of LDCs unstable and can make free trade disadvantageous for them, trapping them in a cycle of underdevelopment. This hypothesis forms a core argument for developing countries’ demand for special and differential treatment in global trade negotiations.
Protectionism in Developed Nations: A key point of conflict is that developed countries, while advocating for free trade in sectors where they have an advantage, heavily protect their own agricultural sectors through massive subsidies. These subsidies artificially lower the prices of their farm products, making it difficult for farmers from developing countries to compete in global markets.
Evolution from GATT to WTO
Post-WWII Context and the Bretton Woods Conference (1944): To prevent the economic nationalism and protectionism that contributed to World War II, Allied nations met at Bretton Woods to design a new international economic order. This led to the creation of the International Monetary Fund (IMF) and the World Bank. A third institution, the International Trade Organization (ITO), was proposed via the Havana Charter of 1948 to govern world trade. However, the ITO charter was never ratified, primarily due to opposition from the U.S. Congress.
General Agreement on Tariffs and Trade (GATT): As an interim measure, 23 countries signed the GATT in Geneva in 1947, which came into force on January 1, 1948. Initially intended to be temporary, GATT became the de facto international trade body for nearly five decades. It operated through a series of multilateral trade negotiations or “rounds,” which primarily focused on reducing tariffs on goods.
The Uruguay Round (1986-1994): This was the 8th and most ambitious round of GATT negotiations. It sought to address the shortcomings of GATT in an increasingly complex global economy. The negotiations expanded to new areas like:
Trade in Services (General Agreement on Trade in Services - GATS)
Intellectual Property Rights (Trade-Related Aspects of Intellectual Property Rights - TRIPS)
Agriculture (Agreement on Agriculture - AoA)
Trade-Related Investment Measures (TRIMS)
The Marrakesh Agreement and WTO’s Birth: The protracted negotiations, marked by deep divisions, were resolved based on a proposal by GATT Director-General Arthur Dunkel, known as the Dunkel Draft. This formed the basis of the final agreement. On April 15, 1994, in Marrakesh, Morocco, 123 nations signed the Marrakesh Agreement, establishing the WTO. The WTO officially came into existence on January 1, 1995, with its headquarters in Geneva, Switzerland. It is a permanent institution with a stronger dispute settlement mechanism than GATT.
Core Principles of the WTO Trading System
Trade Without Discrimination:
Most-Favoured-Nation (MFN): This principle (Article I of GATT) requires a country to grant any trade advantage, favour, or privilege given to one WTO member to all other WTO members immediately and unconditionally. It ensures equal trading opportunities for all. Exceptions are permitted for regional trade agreements (e.g., EU, NAFTA) and for giving developing countries preferential market access.
National Treatment: This principle (Article III of GATT) stipulates that once imported goods have entered a domestic market (after clearing customs), they must be treated no less favourably than domestically produced like-products. This applies to internal taxes, regulations, and other requirements. For example, levying a higher internal tax on imported cars than on domestic cars would be a violation. Charging customs duty at the border, however, is not a violation of this principle.
Predictability of Trade Rules: The WTO system aims to create a stable and predictable trading environment. This is achieved through “binding” commitments. When a country agrees to open its markets, it “binds” its customs duty rates, making it difficult to raise them later without negotiating compensation with its trading partners.
Promoting Fair Competition: The WTO is not a “free trade” institution in the absolute sense but a system of rules for “freer” and “fairer” trade. It allows tariffs and, in limited circumstances, other forms of protection. Its rules are designed to discourage unfair practices such as:
Dumping: Selling a product in an export market at a price lower than its home market price. WTO rules allow countries to impose anti-dumping duties to counter this.
Subsidies: The WTO has rules to discipline the use of subsidies (both domestic and export) that distort trade.
Improved Market Access: This principle focuses on progressively lowering trade barriers. It encourages the conversion of non-tariff barriers (like import quotas or bans) into equivalent tariffs (“tariffication”), as tariffs are more transparent and easier to negotiate downwards over time.
Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Context: Innovation vs. Public Welfare: The TRIPS agreement balances the need to provide incentives for innovation (through monopoly rights like patents) against the need to ensure public access to knowledge and essential goods like medicines.
Pre-TRIPS Scenario: Before the TRIPS Agreement, IPR was governed by more liberal conventions like the Paris Convention for the Protection of Industrial Property (1883), which gave significant autonomy to national governments. India’s Patents Act of 1970 was a prime example. It only granted process patents for pharmaceuticals and food products, not product patents. This meant that as long as a different process was used, an Indian company could legally manufacture a drug patented by a multinational corporation. This fostered a globally competitive generic drug industry in India, often called the “pharmacy of the developing world.”
The TRIPS Agreement: Negotiated during the Uruguay Round, TRIPS was a result of intense lobbying by developed countries, especially the US, which sought stronger global IPR protection for their corporations. Key features include:
Product Patents: It made product patents mandatory in all fields of technology, including pharmaceuticals, for a minimum term of 20 years.
Expanded Scope: It set minimum standards of protection for a wide range of IPRs, including copyrights, trademarks, geographical indications (GIs), industrial designs, and trade secrets.
Flexibilities and India’s Response:
Special and Differentiated Treatment (S&DT): The agreement provided transition periods for developing countries to implement its provisions. India was given until 2005 to fully comply with product patent obligations.
Indian Patents (Amendment) Act, 2005: India amended its patent law to align with TRIPS. However, it strategically incorporated public health safeguards:
Section 3(d): This crucial section prevents “evergreening” of patents by disallowing patents for new forms of a known substance unless it results in a significant enhancement of therapeutic efficacy. This was famously used to deny a patent to Novartis for its cancer drug Glivec.
Compulsory Licensing: This allows the government, under specific circumstances (like a public health emergency or if the patented product is not available at an affordable price), to license a third party to produce the patented product without the consent of the patent holder. In 2012, India issued its first compulsory license to Natco Pharma to produce a generic version of Bayer’s cancer drug, Nexavar.
Parallel Imports: This allows the import of a patented product from a market where it is sold cheaper by the patent holder or their licensee, promoting price competition.
Prelims Pointers
NITI Aayog was formed on January 1, 2015, replacing the Planning Commission.
The Planning Commission was established in March 1950 by an executive resolution.
The Chairperson of NITI Aayog is the Prime Minister of India.
The Governing Council of NITI Aayog comprises Chief Ministers of all States and Lieutenant Governors of UTs.
The two main hubs of NITI Aayog are the Team India Hub and the Knowledge and Innovation Hub.
The World Trade Organisation (WTO) was established on January 1, 1995.
The WTO was a result of the Uruguay Round of trade negotiations (1986-1994).
The agreement that established the WTO is the Marrakesh Agreement (signed on April 15, 1994).
The precursor to the WTO was the General Agreement on Tariffs and Trade (GATT), established in 1948.
The headquarters of the WTO is in Geneva, Switzerland.
The current number of WTO members is 164.
The current Director-General of the WTO is Ngozi Okonjo-Iweala.
Prebisch-Singer Hypothesis: Argues that the terms of trade for primary-product-exporting developing countries tend to decline over time.
MFN (Most-Favoured-Nation): A principle of non-discrimination between trading partners.
National Treatment: A principle of non-discrimination between imported and domestically-produced goods once they enter the market.
TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights.
Under TRIPS, the minimum duration for a patent is 20 years.
India’s Patents Act, 1970 allowed for process patents, not product patents, for pharmaceuticals.
India amended its Patent Act in 2005 to become TRIPS-compliant.
Section 3(d) of the Indian Patents Act is aimed at preventing the evergreening of patents.
Compulsory Licensing is a flexibility within the TRIPS agreement that allows governments to issue licenses for production of patented goods without the patent holder’s consent under certain conditions.
Mains Insights
NITI Aayog: Cooperative Federalism and Institutional Efficacy
Shift in Centre-State Relations: The replacement of the Planning Commission with NITI Aayog represents a fundamental shift from a model of centralized planning to one of ‘Cooperative Federalism’.
Cause: The one-size-fits-all approach of the Planning Commission was ill-suited for a diverse country like India and was often seen by states as an infringement on their autonomy. In a liberalized economy, the need was for a facilitator, not a director.
Effect: NITI Aayog’s structure, particularly the Governing Council, provides a formal platform for states to be equal partners in national policy-making. This fosters a ‘bottom-up’ approach, where policies are shaped with state-level inputs.
Debate: A ‘Toothless Tiger’? A major criticism against NITI Aayog is its lack of financial powers.
Argument: Unlike the Planning Commission, which controlled the allocation of plan grants and could thus enforce its will, NITI Aayog is purely an advisory body. This, critics argue, makes it a ‘toothless tiger’ with limited ability to ensure the implementation of its recommendations.
Counter-argument: Proponents argue that delinking policy formulation from fund allocation is a positive reform. It allows NITI Aayog to engage in evidence-based, long-term strategic thinking without being bogged down by financial negotiations. It also enhances the role of the Finance Commission and the Finance Ministry, which is constitutionally mandated for fiscal federalism. NITI Aayog leverages ‘Competitive Federalism’ through its indices (e.g., SDG India Index, Health Index) to nudge states towards better performance, using data and public ranking as tools of influence.
Evaluating Performance: The success of NITI Aayog should be judged not by its financial clout but by its ability to act as a catalyst for new ideas, a platform for inter-state and Centre-state collaboration, and an evaluator of government schemes, thereby improving governance outcomes.
The WTO and the Developing World: An Unlevel Playing Field?
Historiographical Viewpoint - A Neo-colonial Tool?: Many scholars from the developing world view the WTO, particularly agreements like TRIPS and the Agreement on Agriculture (AoA), as instruments that perpetuate the economic dominance of developed nations.
Argument: The principles of the WTO, such as non-discrimination, are applied uniformly to economically unequal members. This ‘symmetric’ application of rules in an ‘asymmetric’ world benefits the stronger economies. For instance, the demand for developing countries to reduce their industrial tariffs is not matched by a similar commitment from developed countries to reduce their massive, trade-distorting agricultural subsidies.
TRIPS Debate (Innovation vs. Access): The TRIPS agreement is a classic example of this conflict. It was pushed by developed nations to protect their knowledge-based industries. For developing nations, it raised the cost of essential technology and medicines, hampering public health and industrial development. India’s use of TRIPS flexibilities like compulsory licensing and Section 3(d) represents a strategic resistance to this paradigm.
Crisis in the Multilateral System: The WTO’s credibility is currently under threat.
Cause: The Dispute Settlement Body’s Appellate Body, often called the ‘crown jewel’ of the WTO, has been rendered defunct since 2019 due to the USA blocking the appointment of new judges. The US argues that the body has overreached its mandate.
Effect: This has severely weakened the rule-based multilateral trading system. Without a functioning appellate body, countries can appeal a panel ruling into a legal void, effectively vetoing the process. This encourages unilateralism and power-based trade relations (e.g., trade wars) over a rules-based order, which is particularly detrimental to smaller, developing economies that rely on the WTO’s legal framework for protection against larger players.
Mains Question Framework:Critically evaluate the success of five-year plans in addressing the planned economic development in India. (150 words).
Introduction: Briefly state the objective of FYPs – to steer India’s economic development post-independence through a centralized planning model.
Successes:
Industrial Foundation: Successfully built a diversified industrial base, especially in heavy industries and capital goods (e.g., steel plants, dams) under the Mahalanobis model.
Agricultural Growth: Promoted the Green Revolution, leading to food self-sufficiency.
Infrastructure & Social Sector: Led to the creation of significant infrastructure and institutions in science, technology, and higher education (IITs, IIMs).
Failures/Criticisms:
Inefficiency: The dominance of the public sector led to inefficiency, low productivity, and the ‘license-permit raj’, stifling private enterprise.
Regional Imbalances: Centralized planning failed to address regional disparities effectively.
Neglect of Primary Sectors: Overemphasis on capital-intensive heavy industry led to the relative neglect of agriculture (initially) and primary education/health.
Conclusion: Conclude that while the FYPs laid a crucial foundation for India’s economy, their rigid, top-down approach became a constraint, necessitating the 1991 reforms and the eventual transition to the more flexible, federal structure of the NITI Aayog.