Politics of Planning and Rural Reconstruction

Politics of Planning and Rural Reconstruction

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Planning in India did not begin with Independence — it was the product of decades of debate among nationalist economists, industrialists, and political leaders on how a free India should organise its economy. From M. Visvesvaraya’s early blueprint in the 1930s to the Congress’s National Planning Committee, the rival Gandhian, socialist, and capitalist visions of development, and finally the institutionalisation of planning through the Planning Commission in 1950, the politics of planning shaped independent India’s approach to growth, industrialisation, and rural reconstruction. This article traces the evolution of India’s planning strategy — its ideological antecedents, the Five Year Plans, the Mahalanobis model and its critics, industrial policy, and the parallel efforts at agricultural development and rural reconstruction — a theme central to the UPSC History Optional syllabus on post-Independence economic development.

Pre-Independence Antecedents of Planning

Visvesvaraya’s Planned Economy for India (1934)

• M. Visvesvaraya formulated a ten-year plan aimed at doubling the national income of India in his book Planned Economy for India, published in 1934.

The National Planning Committee (1938)

• In 1938, the Congress set up the National Planning Committee (NPC), charged with prescribing a policy for economic development in a soon-to-be-free India — an initiative in which Subhas Chandra Bose and Nehru played an instrumental role.
  • Chaired by Jawaharlal Nehru, the committee had some thirty members in all, divided almost equally between the worlds of science, industry, and politics.
  • Sub-committees were allotted specific subjects, such as agriculture, industry, power and fuel, finance, social services, and even “women’s role in planned economy.”
    • An All-Women Sub-Committee was set up in 1939 under Queen Rajwade to submit proposals on women’s position and role in a planned economy.
  • The NPC presented papers on issues related to India’s economic development and suggested state control over all key industries and services, outlining national self-sufficiency and the doubling of living standards in ten years as its main goals.
  • Planning itself was defined by the NPC as “the technical co-ordination, by experts, of consumption, production, investment, trade, and income distribution, in accordance with social objectives set by bodies representative of the nation.”
  • From the experience of Japan and Russia, the NPC drew the lesson that late-industrialising countries had to depend crucially on state intervention — a lesson that applied with even greater force to India, whose economy had been distorted by two centuries of colonial rule.
  • As one NPC report put it, planned development upheld the principle of “service before profit”; there were large areas of the economy where the private sector could not be trusted, and where the aims of planning could be realised only if the matter was handled as collective Public Enterprise.
  • Notably, the private sector itself concurred with much of this thinking, as seen later in the Bombay Plan of 1945.

Rival Blueprints of the 1940s

• People’s Plan (1944): based on communist ideology; M.N. Roy was associated with it.
• Gandhian Plan (Sarvodaya Plan), 1944: drafted by Sriman Narayan; a ten-year plan based on Gandhian ideology.
• Bombay Plan, 1945 — A Plan of Economic Development for India:
  • In 1944, a group of eight leading industrialists — including G.D. Birla and J.R.D. Tata — issued this plan, a fifteen-year long-term programme focused on basic and heavy industries.
  • It conceded that “the existing economic organization, based on private enterprise and ownership, has failed to bring about a satisfactory distribution of the national income” — and held that only the state could help diminish inequalities of income, while also being necessary for augmenting production. Energy, infrastructure, and transport were sectors where the Indian capitalists themselves felt the need for a government monopoly.
  • The industrialists argued that in the early stages of industrialisation, the state needed to exercise, in the interests of the community, a considerable measure of intervention and control — indeed, an enlargement of both the positive and preventive functions of the state was seen as essential to any large-scale economic planning.
  • The Bombay Plan thus gives the lie to the claim that Nehru imposed a model of centralised economic development on an unwilling capitalist class — the capitalists themselves had already embraced a similar vision.
• Advisory Planning Board (1946): set up under Shri Niyogi, it recommended the creation of an independent Planning Commission.
• Economic Programme Committee of Congress (November 1947): chaired by Jawaharlal Nehru, it recommended the promotion of basic industries and public sector units.
• Sarvodaya Plan (1950): formulated by J.P. Narayan.

The Planning Commission and the First Five Year Plan

• The Planning Commission was formed in 1950, with Jawaharlal Nehru as Chairman and G.L. Nanda as Deputy Chairman.
• The National Development Council (NDC) — an extra-constitutional and non-statutory body tasked with approving the Five Year Plans — was founded in 1952.
• The First Five Year Plan was launched on 1 April 1951 and ran until 31 March 1956.

Development Strategy: Objectives and Goals

• After Independence, the spirit of the age favoured centralised planning, with the state occupying the “commanding heights” of the economy.
  • The Constitution of India directed the government to ensure that ownership and control of the community’s material resources were so distributed as best to subserve the common good, and that the operation of the economic system did not result in the concentration of wealth and the means of production.
• Within a month of the Constitution’s adoption, the government set up the Planning Commission (1950) to carry out these directive principles and secure the most effective and balanced utilisation of the country’s resources.
  • Chaired by Nehru, the Commission included senior Cabinet ministers as well as experienced members of the Indian Civil Service.
• The most important characteristic of Indian planning was its development orientation — an emphasis on building the country’s productive capacity through the establishment of infrastructure and capital goods industries.
  • Except for the First Plan, which gave agriculture greater importance than industry, successive plans focused largely on raising the country’s capital stock.

Basic Objectives of India’s Planning

• Growth: In a country with very low per capita income, stepping up production was necessary.
• Modernisation: Structural and institutional changes in economic activity to transform a feudal, colonial economy into a progressive, independent one — implying a diversified economy and the advancement of technology to upgrade product quality, reduce costs, and make the economy more efficient.
• Self-reliance: To ensure a more equal relationship with the world economy and reduce vulnerability to international pressures and disturbances, including the reduction and eventual elimination of dependence on foreign aid, through import substitution.
• Social justice: Aimed at improving the living standards of weaker sections such as landless agricultural labourers, artisans, and SCs/STs, and at reducing inequalities in asset distribution.

Planning as Politics

• Nehru believed that, in the Indian context, planning was much more than rational economics — it was good politics as well.
  • While the plan was based on the work of economists and statisticians, realising its goals required that “the people must have the sensation of partnership”; planning was to be a “mighty co-operative effort of all the people of India.”
  • Nehru hoped that the new projects would act as a solvent, dissolving the schisms of caste and religion, community and region.
  • Introducing the First Plan to his chief ministers, he wrote: “the more we think of this balanced picture of the whole of India and of its many sided activities, which are so interrelated with one another, the less we are likely to go astray in the crooked paths of provincialism, communalism, casteism and all other disruptive and disintegrating tendencies.”

Features of Indian Planning

• India adopted central planning under a strong interventionist state, but its approach differed in crucial respects from that of the socialist economies, which had virtually abolished private property, nationalised all means of production, and required individual enterprises to conform strictly to targets set by the planning authority.
  • In India, by contrast, much of the means of production has remained privately owned. Despite significant expansion of the public sector, the private sector owns more than half the stock of capital and accounts for nearly three-fourths of annual output.
  • The market mechanism remains active over most of the economy, even if imperfect and distorted, and private property rights are protected by constitutional guarantees against state takeover without compensation.
  • Except for a modest programme of land reform and state control over sectors like railways, coal mines, and financial institutions, the state has, as a matter of policy, avoided large-scale nationalisation of private property — relying instead on a mixture of direct and indirect controls to regulate private sector activity.
  • Attempts to promote social justice have operated largely through fiscal policy, especially public expenditure and the pricing of goods and services provided by the public sector.
  • Public sector plans, moreover, have had to be made and enforced within a federal system, where constituent units possess well-defined functions and powers.

Mandate of the Planning Commission

• The Planning Commission, appointed in 1950, had a wide mandate:
  • Determining the pool of resources devoted to development and allocating this pool among various uses and users.
  • Reviewing all important programmes and projects before their approval for implementation, and monitoring and evaluating their progress.
• Though formally an advisory body, it was expected that the Commission would be consulted on all major matters of development policy, and its composition was conceived so that expert professional opinion could be brought to bear on all important matters.
• Successive Five Year Plans sought to concretise the development strategy, programmes, and priorities needed to realise the general vision of “growth with social justice” within the framework of a democratic polity and mixed economy.
  • The shape and content of successive plans reflect an evolutionary process — changing ideas on the potential and constraints of development, shifting emphasis among objectives, and the compulsions of political and economic exigencies at different points in time.

Five Year Plans: Evolution of Strategy and Priorities

First Five Year Plan (1951–56)

• The Planning Commission issued a draft of the First Five Year Plan in 1951.
• Priority area: Agriculture — the sector hardest hit by Partition. Besides increasing food production, the Plan’s other major emphases were the development of transport and communications and the provision of social services.
• The total planned budget of Rs. 2,069 crore was allocated across seven broad areas:
  • Irrigation and energy — 27.2%
  • Agriculture and community development — 17.4%
  • Transport and communications — 24%
  • Industry — 8.4%
  • Social services — 16.6%
  • Rehabilitation of landless farmers — 4.1%
  • Other sectors and services — 2.5%
• The target growth rate was 2.1% annual GDP growth; the achieved growth rate was 3.6%. The Plan was based on the Harrod-Domar model, and it saw the spread of community development projects aimed at raising the standard of living of the people.
• Introducing the proposals in Parliament, Nehru praised the plan as the first of its kind to “bring the whole of India — agricultural, industrial, social and economic — into one framework of thinking,” adding that the Commission’s work had made the whole country “planning conscious.”
• The Plan was particularly successful in the fields of agriculture, irrigation, and community development. It provided an incisive general analysis of the country’s development problem and various options for mobilising resources and achieving development with more equal distribution, with special emphasis on the mass mobilisation of idle rural labour and land reform.
  • On balance, however, the Plan rejected radical solutions, especially with respect to the redistribution of existing wealth and incomes.
  • It projected, rather optimistically, that savings and investment as a proportion of national income would rise from an estimated 5–6 per cent in the early 1950s to 20 per cent by 1968–69, and stabilise at that level thereafter. Aggregate income was expected to double in about twenty years, and per capita income in about twenty-seven years.
• Critics from both the left and right lambasted the First Plan as lacking in vision and ambition: while food-grain production increased substantially, output in other sectors failed to reach targets.

Second Five Year Plan (1956–61)

• Priority area: Basic and heavy industry. The target growth rate was 4.5%, and the actual growth rate achieved was 4.27%.
• The Plan was based on the Mahalanobis Model, which emphasised the adoption of large-scale industrialisation programmes; its drafting was the handiwork of P.C. Mahalanobis, a Cambridge-trained physicist and statistician. If Mahalanobis was the chief technician of Indian planning, Nehru was its chief missionary — while introducing the First Plan, Nehru had already said that “it was obvious to me that we have to industrialise India, and as rapidly as possible.”
  • The strategy underlined the political constraints on any radical solution to redressing inequalities, and instead re-emphasised rapid growth and diversification of economic activity through industrialisation as essential to achieving and maintaining full employment at a rising level of productivity.
  • Its central elements included stepping up the rate of investment (at a more moderate pace than initially envisioned) and a conscious policy of developing an indigenous heavy industry base — comprising metallurgical, chemical, and machine-building industries — to lay the foundation for accelerated, self-reliant growth, while still preserving a role for the private sector.
  • Accordingly, the 1956 Industrial Policy Resolution emphasised that the state must play a progressive role in industrial development: “the adoption of [the] socialist pattern of society as the national objective, as well as the need for planned and rapid development, require that all industries of basic and strategic importance, or in the nature of public utility services, should be in the public sector.” Other industries requiring investment on a scale only the state could provide were also to fall within the public sector, with the state assuming direct responsibility for industrial development over a wider area.
• The dominant growth orientation articulated in the Mahalanobis strategy of the Second Plan continued into the Third Plan: economic growth was expected to take place through modern industrialisation, replicating the historical process of the advanced countries.
  • However, the greater emphasis on long-term growth within an import-substitution-oriented strategy required a modification of the industrialisation process — a strong accent on creating domestic capacity to produce capital goods that would, in turn, produce more capital goods.
  • In this strategy, the public sector was expected to play a dual role: (a) promoting the growth of infrastructural facilities and creating capacity in basic and heavy industries, and (b) reducing the concentration of economic power through the expansion of public ownership of the means of production.

Power and Steel

• Nehru singled out two activities as providing the “essential bases” for planning: the production of power and steel.
  • At Independence, India had only two steel plants, both privately owned, producing just over a million tonnes a year — inadequate for an expanding economy committed to building heavy industries.
  • The private sector was barred from starting new enterprises in steel, which, along with coal, shipbuilding, atomic energy, and aircraft production, was deemed too important to be subject to the profit motive.
• The forest belt running across central India was rich in iron ore, coal, and rivers, sparking lively competition among the states of this belt to host the first public-sector steel plant — paralleled by competition among industrialised Western countries, each seeking the contract to build it.
  • The Second Plan set a target of 6 million tonnes of steel; the output was needed to feed other planned industries, and also served as a means of promoting forced savings.
  • While the Second Plan was being finalised, the government signed three separate agreements for steel plant construction: the Germans at Rourkela (Orissa), the USSR at Bhilai (Madhya Pradesh), and the British at Durgapur (West Bengal). The Americans, to their disappointment, lost out — that Cold War Europe had taken two contracts was bad enough for them, but that their Soviet rivals had taken the third was worse still.
  • The Soviets, delighted, saw Nikita Khrushchev visit Bhilai and call it “the Magnitogorsk of India”; Bhilai was hailed as a symbol of Indo-Soviet co-operation.
  • Finally, in February 1959, under the eyes of the President of India, the first flush of molten iron emerged from a blast furnace at Bhilai. A senior official described the Indian steel industry as the mainspring of other industrial activity — the steel factory stood as a living refutation of the belief that Indians were non-productive and pre-scientific, or “backward.”

The Mahalanobis Model

• Prepared by P.C. Mahalanobis, this became the basic plan strategy of the Second Five Year Plan. Mahalanobis outlined eight objectives for the Plan, the foremost being:
  • To attain rapid growth of the national economy by increasing the scope and importance of the public sector, thereby advancing toward a socialistic pattern of society; and
  • To develop basic heavy industries for the manufacture of producer goods, strengthening the foundation of economic independence.
  • Other, presumably lesser, objectives included the production of consumer goods by both the factory and household sectors, increasing agricultural productivity, and the provision of better housing, health, and education facilities.
• Key features of the model: a closed-economy approach; import substitution; emphasis on basic and heavy industries; a dominant role for the public sector; and promotion of growth and national income.
  • Both the Second and Third Plan documents were prepared under P.C. Mahalanobis, who also founded the Indian Statistical Institute.

Rationale of the Mahalanobis Model

• Increase in growth rate and national income: Since raising the growth rate and national income was a fundamental objective of planning, it was imperative to build capacity for large-scale production.
• Industrialisation as a basic condition for rapid economic development: In the long run, the rate of industrialisation and the growth of the national economy depend on increasing the production of coal, electricity, iron and steel, heavy machinery, and chemicals. This would increase the capacity for capital formation, necessary to make India self-reliant in capital goods — since the productivity and growth rate of labour are both much higher in manufacturing than in agriculture, large-scale industrialisation would help accelerate national and per capita income.
  • The emphasis on capital goods was justified on two grounds: first, that it would safeguard the former colony’s economic, and hence political, independence; and second, that it would help solve the pressing problem of unemployment. As Mahalanobis argued, “Unemployment is chronic because of the unavailability of capital goods… it occurs only when means of production become idle. The quickest way to create jobs was to build dams and factories.”
• Absorbing surplus labour: India, being predominantly agrarian, faced heavy population pressure on land and low labour productivity; industry was seen as a means to absorb this surplus labour force.
• Use of vast natural and human resources: India’s abundant natural and human resources were well suited to industry, and diversifying resource use toward heavy industry was seen to serve the country’s long-term interests in growth, production, employment, and defence.
• Expansion of all sectors of the economy: Heavy industrialisation would expand the industrial base, helping develop other industrial sectors and strengthen overall industrialisation. Increased supply of fertilisers, pesticides, and agricultural machinery would boost agricultural production, while a larger market would expand trade, commerce, transportation, banking, and finance.
• Fillip to exports: Since the income elasticity of demand for industrial goods, and export opportunities for manufactured goods, are both relatively high, rapid industrialisation was expected to give a great boost to exports.

Role of P.C. Mahalanobis

• P. Chandra Mahalanobis, a Cambridge-trained physicist and statistician steeped in Sanskrit philosophy and Bengali literature, was, in sum, an awesome polyglot.
• Contribution to statistics: Mahalanobis brought modern statistics to India, setting up the Indian Statistical Institute (ISI) in Calcutta in 1931, which within a decade became a world-class centre of training and research. He pioneered inter-disciplinary research, applying statistical techniques to anthropology, agronomy, and meteorology.
  • In February 1949, he was appointed honorary statistical adviser to the Union Cabinet. The following year, he helped establish the National Sample Survey (NSS), and the year after that, the Central Statistical Organization (CSO) — both set up to collect reliable data on India’s changing living standards, wages, employment, and consumption. The NSS and CSO are among the reasons India has a set of official statistics more reliable than those found anywhere else in the non-Western world.
• Contribution to planning: Perhaps more significant were his contributions to the theory and practice of planning.
  • In 1954, Nehru committed his party to the creation of a “socialistic pattern of society.” That same year, the ISI was asked to study the problem of unemployment; Mahalanobis’s resulting note appears to have impressed Nehru enough for him to assign the ISI responsibility for drafting the Second Five Year Plan itself.
  • Taking the task seriously, Mahalanobis set off in the late summer of 1954 on a long tour of foreign countries — educational for himself, but also frankly propagandist, aiming to bring foreign economists (and through them, their Indian counterparts) around to his point of view.
    • In the United States, he collected information on input-output coefficients from Wassily Leontief, a future Nobel laureate.
    • At Cambridge, he met Joan Robinson, freshly returned from China, where she had been impressed by its progress; she believed India’s export-import sector needed more government control, and Mahalanobis, agreeing, invited her to visit India as a guest of the ISI, telling her that her support “may carry conviction that our approach to Development planning is not foolish.”
    • He went on to converse with the French Marxists, then reached Moscow via Prague, impressed by the “amazing” pace of Soviet construction work. Soviet academicians told him that serious planning in India would require the active help of hundreds of technologists, scientists, and engineers — advice Mahalanobis took up by inviting such specialists to visit India.
  • These travels bore fruit in a long paper presented to the Planning Commission in March 1954, laying out the eight objectives of planning.
  • Mahalanobis’s draft plan was submitted to a panel of expert economists; with one exception, all endorsed its emphasis on capital goods and the public sector, though some urged greater complementarity between agricultural and industrial production, and others worried about how the plan’s funding gap would be met, since deficit financing risked high inflation.
  • On the whole, however, the leading economists of India stood behind what was already being called the “Mahalanobis Model of Planning.”
• This model was also an evocation of the older nationalist ideal of swadeshi, or self-reliance: where Gandhian protesters had once burnt foreign cloth to encourage indigenous textiles, Nehruvian technocrats would now make their own steel and machine tools rather than import them.
  • Self-reliance became the index of development and progress — from soap to steel, cashew to cars, Indians would meet their material requirements using Indian land, labour, materials, and, above all, Indian technology.
  • In proportional terms, the sectors of power, transport and communications, and social services retained broadly the same importance; the decisive shift was from agriculture to industry, compounded by a decline in the relative importance of irrigation.
  • While heavy industries were to be owned by the state, there remained plenty of room for private enterprise, which was expected to have an assured market in an expanding economy — its main contribution coming in the form of consumer goods, produced by units both large and small.

Critical Assessment of the Nehru–Mahalanobis Model

• J.B.S. Haldane, the great biologist then planning to move to India and the ISI, on being shown the draft plan, remarked that even allowing pessimistically for a 15% chance of failure through American interference (via Pakistan or otherwise), a 10% chance of Soviet or Chinese interference, a 20% chance of interference through civil-service traditionalism and political obstruction, and a 5% chance of interference from Hindu traditionalism, there remained a 50% chance of success that would alter the whole course of world history for the better.
• Behind the Nehru-Mahalanobis model rested a wide consensus, not confined to India: that the state must occupy the “commanding heights” of a complex modern economy was a belief then shared by governments and ideologues across the world.
  • In the United States, purposive government intervention had brought the country out of the Great Depression; in Britain, Keynesian economics had been energetically applied by the Labour government that came to power in 1945.
  • An appreciation of the state as a positive agent of economic change was also heightened by the recent achievements of the Soviet Union, which had transformed from a backward peasant nation at the time of the First World War into a mighty industrial power by the time of the Second — its military victories against a far more industrially advanced Germany only underlining, for Western democracies, the importance of state-directed economic development.

Dissenters

• In the West, Friedrich Hayek advocated a retreat of the state from economic activity, though his ideas were treated with benign — and sometimes not-so-benign — contempt.
• In India, B.R. Shenoy was the sole economist on the panel of experts to disagree with the basic approach of the Second Plan, being committed to laissez-faire methods.
  • Shenoy’s criticism went beyond a mere belief in laissez-faire: while he opposed the “general extension of nationalisation on principle,” his main objection was that the Plan was overambitious, having seriously overestimated the rate of savings in the Indian economy — a shortfall that would have to be met through deficit financing, contributing to greater inflation.
• The Chicago economist Milton Friedman, visiting India in 1955 at the government’s invitation, wrote a memorandum objecting to the Mahalanobis model as too mathematical — obsessed with capital-output ratios rather than the development of human capital.
  • He deplored the emphasis in industrial policy on two extremes: large factories that used too little labour, and cottage industries that used too much. In his view, the basic requisites of economic policy in a developing country were a steady, moderately expansionary monetary framework; greatly widened opportunities for education and training; improved transport and communication facilities to promote the mobility of goods and, more importantly, people; and an environment that gave maximum scope to the initiative and energy of farmers, businessmen, and traders.
  • Friedman’s high position and prestige, however, were offset by foreign economists of equal distinction holding opposing views — he was, to them, what Shenoy was to Indian economists: a lone free-marketeer drowned out by a chorus of social democrats and leftists.
• Independently of Friedman, the young Indian economist B.V. Krishnamurti took up a related critique — the neglect of education.
  • Though the Constitution mandated free and compulsory schooling for children up to fourteen, Krishnamurti wrote that the sums allocated for this by the Second Plan were “absurdly low,” calling for a “substantial increase” in education spending, balanced by an “appropriate curtailment” in the outlay on heavy industries.
  • He argued that a concerted effort to educate the mass of the population, especially in rural areas, would have far-reaching, cumulatively expansionist benefits, easing the government’s task of achieving rapid economic development — as ignorance and inertia gave way, an urge to improve material conditions would develop, and the employment problem would, in time, take care of itself.

Critique from the Marxists

• A different critique came from the Marxists, who felt the Mahalanobis model gave not too little importance to the market, but too much.
  • In their view, the Second Plan should have mandated nationalisation, with the state not merely starting new industries but taking over private firms already in operation, and involving the working class in planning, on the model of the “people’s democracies” of Eastern Europe.

Ecological Critique (Gandhian Critique)

• The Gandhians offered a precociously ecological critique of modern development. In the vanguard of this “early environmentalism” were two of the Mahatma’s closest disciples, J.C. Kumarappa and Mira Behn (Madeleine Slade), who through the 1950s pungently dissented from conventional agricultural policy wisdom, arguing that:
  • Small irrigation systems were more efficacious than large dams;
  • Organic manure was a cheap and sustainable method of augmenting soil fertility, compared to chemical fertilisers that damaged the earth and increased foreign debt; and
  • Forests should be managed from the standpoint of water conservation rather than revenue maximisation, by protecting natural, multi-species forests rather than the monocultural stands favoured by the state.
• As Mira Behn wrote in 1949: “The tragedy today is that educated and moneyed classes are altogether out of touch with the vital fundamentals of existence – our Mother Earth, and the animal and vegetable population which she sustains… We have got to study Nature’s balance, and develop our lives within her laws, if we are to survive as a physically healthy and morally decent species.”

Reservations about Large Dams

• The Gandhians had deep reservations about large dams as a modern technology, considering them costly and destructive of nature — and, as Indians were soon finding out, destructive of human community as well.
  • By the early 1950s, reports emerged of the sufferings of those displaced by dams: in the summer of 1952, when Hirakud authorities issued eviction notices to residents of the 150 villages the project would submerge, they met with stiff resistance.
  • Three years later, a similar story surfaced from Himachal Pradesh, where villagers had to make way for the reservoir of the Bhakra dam — a full year after Nehru had inaugurated the power house, “complacency and indifference” continued to guide the counsels of the Bhakra Control Board, particularly its Rehabilitation Committee, and even basic questions of compensation remained unresolved to the satisfaction of those affected.

Third Five Year Plan (1961–66)

• Priority area: Self-reliance. The Plan continued the effort initiated in the Second Plan, treating the expansion of industries — especially capital and producer goods industries — as of basic importance.
  • While the Third Plan stressed improvement in wheat production, the Sino-Indian War of 1962 exposed weaknesses in the economy and shifted focus toward the defence industry and the Indian Army.
  • India then fought a war with Pakistan in 1965–66, and also suffered a severe drought in 1965; the war led to inflation, shifting priority to price stabilisation.
  • The construction of dams continued, and many cement and fertiliser plants were built; Punjab began producing an abundance of wheat.
• The target growth rate was 5.6%, but the actual growth rate was only 2.4%.
• A reasonably successful attempt was made to implement the long-term, growth-maximising Mahalanobis strategy across the Second and Third Plans, resulting in considerable acceleration of public sector investment in infrastructure (roads, railways, major and medium irrigation) and in indirectly productive investment in universal intermediates like steel, coal, power, and heavy electrical machinery.
  • Though the strategy also encouraged cottage, village, and small-scale industries as a means of generating employment, very little was achieved on this front — a fate shared by policies aimed at reducing inequalities.
• In aggregate terms, this phase recorded a fairly sustained 8 to 10 per cent compound growth rate of industrial output, 3 to 3.5 per cent compound growth in food-grain output, and around 1.75 per cent growth in per capita income — all sharp accelerations over the pre-Independence past. A diversified industrial structure came to be established, taken as a success of the planning effort.
• Thus, the first phase, spanning roughly the first three Five Year Plans, was characterised by fairly sustained growth in per capita incomes, a distinct acceleration in public sector investment, and growth in industrial output, dominated by a growth-oriented development strategy.
  • The economist Raj Krishna coined the term “Hindu Growth Rate” for the roughly 3% growth-rate pattern of this early phase of planning; national income grew at about 4% during the period 1951 to 1964–65.

Industrial Policy, 1948–64

Industrial Policy Resolution of 1948

• The Industrial Policy Resolution of 1948 laid down the foundation of a mixed economy, in which the public sector (the state) and the private sector were to co-exist and work within demarcated areas. It classified industries into four categories:
  • Defence and strategic industries — manufacture of arms and ammunition, production and control of atomic energy, and ownership and management of railways — to be the exclusive monopoly of the Central Government.
  • Basic and key industries — coal, iron and steel, aircraft manufacture, shipbuilding, etc. — where all new units were to be set up by the state, while existing private units could continue operating for the next ten years, after which the question of their nationalisation would be decided.
  • Certain other industries — automobiles and tractors, sugar, cement, cotton and woollen textiles, etc. — were to remain in private ownership, subject to overall government regulation and control.
  • The rest of the industries were to remain with the private sector, with government exercising only overall general control.
• Policy towards foreign capital: The government would welcome foreign capital provided it came without strings or conditions attached, and would allow it in joint participation with Indian capital — provided majority management and control remained in Indian hands.
• Role of cottage and small-scale industries: The policy emphasised their role in economic development, since they made use of local resources and provided larger employment opportunities.
• The Resolution clearly emphasised the government’s responsibility for promoting, assisting, and regulating industrial development in the national interest, envisaging an increasingly active role for the public sector, while reiterating the state’s inherent right to acquire any industrial undertaking whenever the public interest required it.
• By the mid-1950s, with planning having proceeded on an organised basis and clearer appreciation of development goals, the 1948 Resolution was reviewed in light of the experience gained, and the new Industrial Policy Resolution was placed before Parliament by the Prime Minister on 30 April 1956.

Industrial Policy Resolution of 1956

• Objectives: development of machine-building industries; increase in the rate of industrial development; and reduction of income and wealth inequalities.
• The Resolution classified new industries into three categories:
  • Schedule A — industries to be the exclusive responsibility of the state, including atomic energy, defence-related industries, aircraft, iron and steel, electricity generation and transmission, heavy electricals, telephones, and coal and other key minerals.
  • Schedule B — industries to be progressively state-owned, where the state would generally set up new enterprises while private enterprise supplemented state effort; this included lesser minerals, chemicals, pharmaceuticals, fertilisers, pulp and paper, and road transport.
  • Schedule C — all remaining industries, whose future development would generally be left to the initiative and enterprise of the private sector.
  • These categories were not intended to be rigid: in Schedule A, expansion of existing private units was not precluded, and the state could secure private cooperation in setting up new units where the national interest required, while retaining the requisite power to guide and control such undertakings. Schedule B represented a genuinely mixed sector, in which the state would enter and enlarge its operations progressively while private enterprise retained the opportunity to develop, either independently or with state participation. In the rest of the field, development would ordinarily proceed through private initiative, though the state remained free to start any industry even here.
• Licensing requirements: even in the private-sector Schedule C, industry was kept under state control through a system of licenses — a license from the government was a prerequisite for opening a new industry or expanding production. Opening industries in economically backward areas was incentivised through easy licensing and subsidised inputs like electricity and water, to counter regional disparities.
• Cottage and small-scale industries: the government would promote these industries for their use of local resources and employment generation.
• Concession to the public sector: the government would provide power, transport, and finance facilities to public sector units, without adopting an indifferent attitude towards the private sector.
• Balanced regional development: industrially backward regions were to be given priority and greater incentives in establishing industries.
• Training to managers: private and public sector managers were to receive technical and managerial training, with management courses introduced in universities.
• Better facilities for labour: fair remuneration, better working conditions, and opportunities to participate in management were to be provided.
• Management of public units: the policy laid emphasis on the proper management of public units, which could be a good source of revenue if efficiently run.
• Foreign capital: the policy stressed that foreign capital could play an important role in industrial development, offering many concessions for its use.
• The increase in the output of goods and services over the plan period was to result from development in both public and private sectors, functioning in unison as parts of a single mechanism. The plan incorporated public authorities’ investment decisions, whose corresponding outputs could be readily estimated — public investment in irrigation, power, and transport, for instance, was expected to increase the production potential of the private sector, allowing private producers to take advantage of these facilities.
• Cottage and small-scale industries under the Industrial Policy: The Resolutions of 1948 and 1956 together indicated the government’s approach to cottage and small-scale industries, which offered distinct advantages —
  • They provided immediate large-scale employment;
  • They offered a means of more equitable distribution of national income; and
  • They facilitated effective mobilisation of capital and skill that might otherwise remain unutilised.
  • Promoting, modernising, and reorganising these industries was seen as paramount, since unregulated or haphazard application of modern techniques risked creating or aggravating technological unemployment — calling for regulation, though not a freezing of existing techniques; rather, the transition to modern methods was to be orderly.
  • As national income increased and power, transport, and communication facilities developed, the scope for small enterprises — whether catering to new consumer demand or functioning as complements to large-scale industry — was expected to increase steadily.

Agricultural Development

A parallel and closely connected thread of the planning era was the effort at agricultural development and rural reconstruction, driven by Nehru’s own conviction, expressed in 1948, that “everything else can wait but not agriculture.”

Key milestones in this effort include:

• Congress Agrarian Reform Committee, under J.C. Kumarappa, submitted its report in July 1949, recommending land ceilings and co-operative farming.
• The Land Reforms Programme was introduced in 1948, and the Land Ceiling Programme in 1953.
• The Soil and Water Conservation Research Institute was founded in 1954 at Dehradun.
• The Planning Commission’s Panel on Land Reforms was set up in 1956.
• The Central Arid Zone Research Institute was founded in 1959.
• The Intensive Agricultural District Programme (IADP) was launched in 1961.
• A programme of constructing big dams was undertaken as part of the First Five Year Plan.
• The Indian Grasslands and Fodder Research Institute was founded in 1962 at Jhansi.
• At the Nagpur Session of 1959, the Congress passed a resolution on cooperative joint farming, which was later abandoned due to protest.
• The first three Five Year Plans registered agricultural growth of over 3%.
• The First Constitution (Amendment) Act was passed in 1951 to protect land reform laws and regulations from legal challenge.
• The High-Yielding Variety Programme (HYVP) was launched in 1966, applied to food crops such as wheat and rice, with a major role played by N.E. Borlaug of Mexico, who visited India in 1963. It resulted in a remarkable increase in the production of these food crops.
  • William Gaud of the United States coined the term “Green Revolution” for this transformation, also known as the Grain Revolution or Wheat Revolution; a special stamp on the “Wheat Revolution” was issued in 1968.
  • Under the PL-480 Programme of the United States (Public Law 480), India imported about 10 million tonnes of wheat in 1966.

Bhoodan Movement

• The Bhoodan Movement was launched by Vinoba Bhave on 18 April 1951, in the village of Pochampalli in Telangana.
  • He founded the Sarvodaya Samaj in 1950–51, a body of constructive workers, for this purpose.
  • It was not an official government programme, but was supported by the Congress. The aim was to persuade landowners to voluntarily give land to the landless; the target was to receive 50 million acres, or one-sixth of the country’s total cultivable area of about 300 million acres.
  • The movement became especially popular in Bihar and Uttar Pradesh. Jayaprakash Narayan joined the movement in 1953.
  • It acquired a new character in the form of the Gramdan Movement in 1955, which began in Orissa and was most successful there.
  • The Bhoodan movement began to decline in the 1960s.

The White Revolution: Milk Co-operative Movement

• The milk co-operative movement began at Anand in Gujarat in 1946, led by Tribhuvandas Patel, and supported by Sardar Patel and Morarji Desai.
  • Dr. Verghese Kurien, an engineer from Kerala, played an important role in the movement from 1950 to 1973.

Industrial Development

• The Industrial Policy Resolutions of 1948 and 1956 defined the respective areas for the public and private sectors.
• The Mahalanobis Model, focused on basic and heavy industries, was introduced with the Second Five Year Plan, in which industry was made the priority area.
• Establishment of Iron and Steel Plants:
  • Bhilai — with the collaboration of the USSR, 1956.
  • Durgapur — with the collaboration of the UK.
  • Rourkela — with the collaboration of West Germany.
  • Bokaro — with the collaboration of the USSR.

Other Aspects of Rural and Institutional Development

• Community Development Programme (1952): Two major programmes for rural uplift — the Community Development Programme and Panchayati Raj — were introduced in 1952 and 1959 respectively, laying the foundations of the welfare state in the villages.
  • Though designed primarily for agricultural development, they carried a strong welfare content; their basic purpose was to transform the face of rural India and improve the quality of life of the people.
  • The Community Development Programme was devised by the American engineer Albert Mayer, with the aim of achieving rural development through the participation of the people.
• Panchayati Raj: First started at Nagaur (Rajasthan) in 1959 by Jawaharlal Nehru, launched on the recommendation of the Balwant Rai Mehta Committee.
• Development of the Rationing System: Undertaken by Rafi Ahmad Kidwai.
• Key legislative measures of this period included:
  • The Capital Issues (Control) Act, 1947
  • The Factories Act, 1948
  • The Minimum Wages Act, 1947
  • The Import Trade Control Act, 1947
  • The Export Trade (Control) Order, 1955

Practice Question 1

“When I lay the foundation stone here of this Nagarjuna Sagar, to me it is a sacred ceremony. This is the foundation of the temple of humanity in India, a symbol of new temples that we are building all over India.” In the light of the given statement, explain Nehru’s ‘temple of Modern India’ and the steps taken to build the ‘temple of Modern India’. Also comment on the change in Nehru’s thinking about big dams as a ‘Temple of India’ later.

The given statement is drawn from Nehru’s remarks while laying the foundation stone of the Nagarjuna Sagar dam in 1955, though it was earlier, while speaking at Bhakra and Nangal in 1954, that Nehru coined his famous phrase, “Temples of Modern India.” In general terms, he used it to describe public sector enterprises (PSEs) — declaring that India’s economic policy must be based on a humane outlook and must not sacrifice human welfare to money.

Why PSEs were called “Modern Temples”

• PSEs working in areas like dams, steel, and power plants were conceived as instruments to bring about the socio-economic transformation of the country.
• They would generate electricity, provide irrigation water to farmers, and supply water to households and industries.
• The multipurpose river projects launched across India aimed to combine the development of agriculture and the village economy with rapid industrialisation and urbanisation.
• They were viewed as vital to nation-building and self-reliance.

Steps Taken to Build the “Temple of Modern India”

• India’s First Five Year Plan provided for three major hydroelectric projects: the Bhakra Nangal dam in Punjab, the Hirakud dam on the Mahanadi in Orissa, and the Nagarjuna Sagar dam on the Krishna river in Andhra Pradesh.
• Iron and Steel Plants were established at Bhilai, Durgapur, Rourkela, and Bokaro, with industry made a priority area in the Second Five Year Plan.
• The Industrial Policy Resolution of 1956 defined the respective areas for the public and private sectors.
• The important objectives behind building these “modern temples” were to create infrastructure, absorb technology, encourage innovation, generate employment, and solve socio-economic problems.

To fulfil these objectives, the “temples of modern India” were not limited to dams and plants alone, but also included the creation of institutions of higher learning, particularly scientific institutions — without which it would not have been possible to create the trained manpower, scientists, and engineers needed to work in PSEs, or otherwise contribute to India’s socio-economic transformation and self-reliance. Important steps taken in this direction included:

• Nehru himself assumed the chairmanship of the Council of Scientific and Industrial Research (CSIR) and pioneered the establishment of a network of national laboratories, starting with the National Physical Laboratory in 1947.
• A Department of Scientific Research was created under Nehru’s direct charge.
• The Scientific Policy Resolution was passed in 1958.
• The first of the five Indian Institutes of Technology (IITs), on the pattern of MIT, was established at Kharagpur in 1952; the other four were subsequently established at Delhi, Kanpur, Madras, and Bombay.
• Along with Homi J. Bhabha, Nehru played a key role in laying down India’s nuclear policy for the peaceful use of nuclear energy. The Atomic Energy Commission was set up in 1948, with Bhabha as Chairman.
• India also laid the foundations of space research by creating an Indian National Committee for space research.
• Institutions such as AIIMS, the IIMs, DRDO, ISRO, CSIR, ICAR, and IISc were established with a futuristic vision, contributing world-class engineers, doctors, managers, scientists, and agriculturists, and giving India considerable strength in modern technologies.

Change in Nehru’s Views on Big Dams as “Temples of Modern India”

Nehru’s views on large dams did change over time. Speaking to the Central Board of Irrigation and Power in November 1958, he remarked that the idea of undertaking “big tasks for the sake of showing that we can do big things” was not a good outlook at all, and that it was small irrigation projects, small industries, and small power plants that would change the face of the country far more than a dozen big projects in half a dozen places. Nehru — once an enthusiast for large projects, who had celebrated big dams as the “temples” of modern India — began contemplating more democratic and more scientific alternatives.

What prompted this change of mind? There were as yet no organised anti-dam movements, no satyagrahas or dharnas by peasants facing displacement. The likely reasons were:

• As he grew older, Nehru tended to think more of Mahatma Gandhi; it was perhaps his mentor’s insistence on the rights of the “last man” that prompted this rethink.
• More significantly, evidence had accumulated over a decade of building big dams of the suffering they caused — too many people had made too large a sacrifice for what was, in the end, not too great a benefit.
• These massive schemes were also already generating considerable corruption.

As a democrat, Nehru remained attentive to the rights of the lowly and vulnerable; as a scientist, he remained open to changing his mind in the face of new evidence. Thus, this once-great proponent of large dams came to contemplate more democratic and more scientific alternatives.

Practice Question 2

“Jawaharlal Nehru, though a declared socialist, was pragmatist enough to focus on providing building blocks to the making of new India.” Examine.

Jawaharlal Nehru was a committed socialist with a deeply pragmatic approach. His non-doctrinaire handling of India’s socio-economic problems was distinctive. As a continental polity and society, India had to accommodate immense linguistic diversity, ethnic divergence, and political plurality; Nehru clearly perceived that the need of the hour was to integrate such diversity and forge a new state out of an old society.

After Independence, the nation faced the interlinked problems of hunger and poverty, poor sanitation and illiteracy, superstition and decaying customs, and the challenge of turning vast but underutilised resources — inherited in a rich country by a starving people — to productive use. These problems could be addressed only through a broadly socialistic pattern of development. Yet had Nehru’s socialism not been pragmatic, India would not have built the basic institutional building blocks for the future — investment in science, atomic energy, and the like.

Nehru did not favour a rigid application of Marxian theory to Indian conditions; he disfavoured the ideas of class-war revolution and the dictatorship of the proletariat, believing instead that socialism had to be adapted to Indian conditions and expressed in the language of India.

Providing the Building Blocks for a New India

• Consolidation of independence through non-alignment: The maintenance, strengthening, and consolidation of India’s independence was foundational to nation-building. In a world sharply divided between the United States and the Soviet Union, each seeking to extend its hegemony, Nehru resisted all pressure to become anyone’s pawn.
  • He was pragmatic enough not to align with the USSR, despite his admiration for its economic model, believing newly independent India should avoid entanglement in the Cold War and instead focus on consolidating its independence, drawing on assistance from both blocs where useful.
• Planning for economic development: At the Avadi session of the Congress, Nehru told delegates: “We cannot have a Welfare State in India with all the socialism or even communism in the world unless our national income goes up greatly. Socialism or communism might help you to divide your existing wealth, if you like, but in India there is no existing wealth for you to divide; there is only poverty to divide… How can we have a Welfare State without wealth?”
  • This illustrates how pragmatic Nehru’s socialism was — production was essential regardless of whether the society was socialist or capitalist in character. The three pillars of his development strategy were: planning for rapid industrial and agricultural growth; a public sector to develop strategic industries; and a mixed economy.
  • Nehru popularised the concept of planning, embedding it in Indian consciousness, and sought to build an independent, self-reliant economy, since he believed independence itself depended on economic strength and the capacity to resist economic and political domination.
  • His emphasis on rapid industrialisation and agricultural self-sufficiency, planning, the public sector and heavy capital-goods industry, minimal reliance on foreign capital and aid, science and technology, the training of a large technical and scientific cadre, and atomic energy were all seen as necessary components of independent economic development — and in this, he was, by most accounts, eminently successful. India did make the transition from a colonial to an independent economy, albeit still a broadly capitalist one.
• Forging national unity: Nehru succeeded in maintaining and strengthening the national unity forged during the freedom struggle, unity rendered fragile by the manner of the transfer of power in 1947. He checked disruptive forces, consolidated the nation and the independent state, and promoted the psychological integration of the Indian people — no small task, given the resurfacing of casteism, provincialism, tribalism, and linguistic chauvinism (largely transcended during the freedom struggle), the continued presence of the princely states, and the ever-present danger of communalism.
• Nurturing democracy and parliamentary government: Democracy was intrinsic to Nehru’s vision of social and political development, since it would enable the people to mobilise themselves and exert pressure from below to achieve social justice, equality, and a reduction of economic inequality — which, over time, would lead toward socialism.
  • The rooting of the electoral process, with universal adult franchise, continues to hold India together as a united country; the establishment of democratic institutions and the development of administrative machinery were among his key contributions.
• Confronting communalism: Nehru worked to build a secular nation, understanding that a country beset by communalism could not progress — secularism, therefore, was as important to him as socialism. He was among the first to attempt an understanding of the socio-economic roots of communalism, coming to see it primarily as a weapon of reaction, even though its social base was formed largely by the middle classes.
• Development of science and technology: Nehru was convinced that science and technology were crucial to solving India’s problems. The Scientific Policy Resolution, passed by the Lok Sabha in 1958, acknowledged the role of science and technology in the country’s economic, social, and cultural advancement.
  • India’s first national laboratory, the National Physical Laboratory, had its foundation laid on 4 January 1947. This was followed, over the Nehru years, by a network of seventeen national laboratories, each specialising in a different area of research.
  • To emphasise the importance of science, Nehru himself assumed the chairmanship of the Council of Scientific and Industrial Research (CSIR), which guided and financed the national laboratories and other scientific institutions.
  • The first of the five Institutes of Technology, patterned after MIT, was set up at Kharagpur, with the other four subsequently established at Madras, Bombay, Kanpur, and Delhi.
  • India was among the first nations to recognise the importance of nuclear energy. In August 1948, the government set up the Atomic Energy Commission, with Homi J. Bhabha, India’s leading nuclear scientist, as Chairman, under the Department of Scientific Research, which remained under Nehru’s direct charge, tasked with developing nuclear energy for peaceful purposes.
  • In 1954, the government created a separate Department of Atomic Energy under the Prime Minister, with Bhabha as its Secretary. India’s first nuclear reactor, at Trombay, Bombay — also the first in Asia — went critical in 1956.
  • India also took up space research, setting up the Indian National Committee for Space Research (INCOSPAR) in 1962, and establishing a rocket launching facility at Thumba (TERLS).
• Community Development Programme: The Community Development Programme and Panchayati Raj, two major programmes for rural uplift, were introduced in 1952 and 1959 respectively, laying the foundations of the welfare state in the villages. Though designed primarily to serve agricultural development, they carried a strong welfare content, and their basic purpose was to transform the face of rural India and improve the quality of life of the people.

Thus, though socialism remained Nehru’s main ideology, it was not a Marxist socialism seeking to uproot the state through violent means, but one tempered by Gandhian principles and pragmatism suited to nation-building — a mix demanded by the prevailing socio-economic conditions of the time. As India’s first Prime Minister, Nehru succeeded in laying the foundation for nation-building through his brand of pragmatic socialism.