The First 5-year plan is based on which model?
VerifiedAnswer: Harrod Domer Model
Explanation:
India's First Five-Year Plan (1951-1956) was indeed based on the Harrod-Domar Model, which was a significant economic growth theory developed by economists Roy Harrod and Evsey Domar. This model became the foundation for India's initial planning strategy after independence.
The Harrod-Domar Model emphasizes the crucial relationship between savings, investment, and economic growth. According to this model, economic growth depends on two key factors: the savings rate of the economy and the capital-output ratio. The model suggests that higher savings lead to more investment, which in turn generates higher economic growth and employment opportunities.
When India adopted this model for its First Five-Year Plan, the primary focus was on increasing the country's savings and investment rates. The plan aimed to achieve a balanced economic development by investing heavily in both agriculture and industry. The government believed that by following this model, India could achieve sustainable economic growth and reduce poverty.
The First Five-Year Plan allocated significant resources to agriculture, irrigation, and power generation, which were considered essential for building a strong economic foundation. About 44.6% of the total plan outlay was dedicated to agriculture and irrigation, while 8.4% was allocated to transport and communications, and 7.2% to industry and mining.
The success of this approach was evident as the First Five-Year Plan achieved most of its targets. The plan aimed for a 2.1% annual growth rate but actually achieved around 3.6%. This success encouraged India to continue with planned economic development, though subsequent plans adopted different models and approaches based on changing economic priorities and global economic theories.
