MPSC 2024 Prelims Paper-I · Question 37 of 100

Correct — option (1), 4.5 to 5.0%. Among the objectives set for the Twelfth Five Year Plan, the rate of price increase was to be held within a band of 4.5 to 5.0 per cent. The Twelfth Plan ran from 2012 to 2017 under the title 'Faster, More Inclusive and Sustainable Growth', and it turned out to be the last of India's Five Year Plans: the Planning Commission that drew it up was replaced by the NITI Aayog from 1 January 2015, and when the Plan period ended on 31 March 2017 no thirteenth plan followed. Its headline objective was an average real growth rate of 8 per cent, and the inflation objective sits underneath that as one of the macroeconomic conditions on which the growth target depended, since high and volatile price rise erodes real incomes, discourages financial saving and forces the tightening of monetary policy that then slows growth. Two features of the band are worth holding. First, it is not zero. Planners deliberately target a low positive rate of price increase rather than price stability in the literal sense, because a small amount of inflation lubricates relative price adjustment, keeps real interest rates positive without punishing borrowers, and gives a margin against the far more damaging risk of deflation. Second, its ceiling is 5 per cent, which is where India's policy thinking on tolerable inflation had settled by the middle of the decade — the same period in which the country moved to a formal flexible inflation targeting framework, with the Reserve Bank given a consumer price inflation target of 4 per cent within a tolerance band of 2 to 6 per cent. There is also a structural way to read the option list: of the four bands offered, this is the only one half a percentage point wide, and the other three each stretch the band by widening the floor or lifting the ceiling.

• (2)3.5 to 5.0% — This option keeps the correct ceiling of 5.0 per cent but drops the floor to 3.5, producing a band a full one and a half percentage points wide. That is a very loose target for a planning document, and the lower bound is the implausible part: a floor of 3.5 per cent would imply that price rise as low as that was contemplated as a normal outcome for the plan period, which is far below where India's inflation was running when the plan was framed. The option is set to catch a candidate who has retained the upper end of the band and is guessing at the lower.
• (3)4.0 to 5.0% — This is the nearest miss on the list, keeping the correct 5.0 per cent ceiling and lowering the floor by half a point to 4.0. It is made more tempting by the fact that 4 per cent later became the central inflation target under India's flexible inflation targeting framework, so the number is genuinely familiar in Indian macroeconomic policy — but it belongs to the Reserve Bank's monetary policy mandate, not to the Twelfth Plan's stated band. Two different policy numbers from the same decade are easy to blend together, and this option exists to reward that blending.
• (4)4.5 to 5.5% — This keeps the correct floor of 4.5 per cent and raises the ceiling to 5.5, which is the more consequential of the two possible errors: it concedes price rise above 5 per cent as an acceptable planning outcome. Five per cent had come to function as the informal upper limit of tolerable inflation in Indian policy discussion by this period, and a plan objective that formally allowed 5.5 would be conceding the very thing an inflation objective exists to prevent. The half-point shift in the wrong direction is exactly the kind of alteration MPSC uses to construct a numerical distractor.

Every Indian Five Year Plan carried a set of quantified objectives, and they always ran wider than growth alone: alongside a target rate of increase in national output sat targets for agriculture and industry, for employment, for poverty reduction, for social indicators such as school enrolment and infant mortality, and for macroeconomic conditions including the rate of price increase. An inflation objective belongs in a plan document because price stability is a condition for the rest of the plan rather than an end in itself — accelerating inflation redistributes income towards those holding real assets and away from wage earners and small savers, distorts the signals firms use to decide where to invest, worsens the external balance by making exports dearer, and eventually forces the central bank to raise interest rates and choke off the very investment the plan depends on. The Twelfth Plan, which ran from 2012 to 2017, was the last in the series; the Planning Commission was replaced by the NITI Aayog in January 2015, and the plan-based framework gave way to a system of institutional advice and monitoring without fixed five-year targets. The same decade saw India adopt a formal flexible inflation targeting framework, moving the responsibility for the inflation number from the plan document to a statutory mandate on the Reserve Bank.

MPSC asks the Five Year Plans as a body of quantified facts — the period of each plan, its title or theme, its model, its growth target and its principal objectives — and questions frequently take the form of a single number to be recalled from among four near-identical options. The technique that helps most is to learn each plan as a small profile rather than as a list of loose numbers, and to attach a reason to the number wherever one exists, because a number with a reason attached survives examination pressure and a bare number does not. Where two policy numbers from the same era resemble each other, keep their sources distinct: the Twelfth Plan's price-rise band belongs to a planning document, while the 4 per cent central target with a 2 to 6 per cent tolerance band belongs to the Reserve Bank's monetary policy framework.

• The Twelfth Five Year Plan ran from 2012 to 2017 under the theme 'Faster, More Inclusive and Sustainable Growth' and set an average real growth objective of 8 per cent.
• Among its objectives, the rate of price increase was to be held to 4.5 to 5.0 per cent.
• The Twelfth Plan was the last of India's Five Year Plans; the Planning Commission was replaced by the NITI Aayog with effect from 1 January 2015 and the plan period ended on 31 March 2017.
• India adopted a flexible inflation targeting framework in the same decade, giving the Reserve Bank a consumer price inflation target of 4 per cent within a tolerance band of 2 to 6 per cent.
• Planners target a low positive rate of price increase rather than zero, because mild inflation eases relative price adjustment and guards against the greater danger of deflation.

• Confusing the Twelfth Plan's price-rise band with the Reserve Bank's 4 per cent inflation target and its 2 to 6 per cent tolerance band; the two belong to different instruments from the same decade
• Recalling only one endpoint of the band, which is exactly what three of the four options are built to exploit — each shares an endpoint with the correct answer
• Assuming a planning target for inflation would be zero or near zero, when planners deliberately aim at a low positive rate
• Forgetting that the Twelfth Plan was the last one, and looking for a thirteenth plan that was never framed

Five Year Plan questions are a fixture of MPSC's economy section, and they are asked as bare numerical or definitional recall: the period of a plan, its slogan or theme, the growth rate targeted, the model on which it was based, or the objective set for a particular variable. Options differ by small increments, so approximate memory is not rewarded. It is worth preparing the plans as a table with one row each and columns for period, theme, growth target, model and outcome, and then adding the institutional history — the Planning Commission's creation in 1950 and its replacement by the NITI Aayog in 2015 — since that history is asked as often as the plan contents.

No directly related past PYQ was found.

• practice — not a real PYQ

  The Twelfth Five Year Plan (2012-17) was framed around which of the following themes ?

  • (a)Faster, More Inclusive and Sustainable Growth
  • (b)Growth with Social Justice and Equality
  • (c)Towards Faster and More Inclusive Growth
  • (d)Rapid Industrialisation and Self-Reliance

  Answer(a) Faster, More Inclusive and Sustainable Growth — the theme of the Twelfth Plan, which added sustainability to the inclusive-growth emphasis carried over from the Eleventh Plan. It set an average real growth objective of 8 per cent and proved to be the last of India's Five Year Plans, the plan framework being superseded after the Planning Commission was replaced by the NITI Aayog.

• practice — not a real PYQ

  The Planning Commission of India was replaced by the NITI Aayog with effect from which date ?

  • (a)1 January 2015
  • (b)31 March 2017
  • (c)1 April 2012
  • (d)15 August 2014

  Answer(a) 1 January 2015 — the NITI Aayog came into being from that date, midway through the Twelfth Plan period, which itself ran to 31 March 2017. No thirteenth Five Year Plan was framed, and the plan-based approach gave way to a system of institutional advice and monitoring without fixed five-year targets.