• After independence, almost everyone agreed that development of India should mean both economic growth and social and economic justice. It was agreed that this matter cannot be left to businessmen, industrialists and farmers themselves; that government should play a key role in this.
• There was disagreement on kind of role that government must play in ensuring growth with justice.
• On eve of Independence, India had two models of modern development: liberal-capitalist model as in much of Europe and US and socialist model as in USSR.
• Many in India then who were deeply impressed by Soviet model of development. These included not just leaders of Communist Party of India, but those of Socialist Party and leaders like Nehru within Congress. Very few supporters of American-style capitalist development.
• nationalist leaders were clear that economic concerns of government of free India would have to be different from narrowly defined commercial functions of colonial government.
• task of poverty alleviation and social and economic redistribution was being seen primarily as responsibility of government.
• There was a consensus that development could not be left to private sectors, and that there was a need for government to develop a design or plan for development.
• A section of big industrialists got together in 1944 and drafted a joint proposal for setting up a planned economy in country. It was known as Bombay Plan.
• Bombay Plan wanted state to take major initiatives in industrial and other economic investments. Thus, from left to right, planning for development was most obvious choice for country after Independence.
• After independence, Planning Commission came into being. Prime Minister was its chairperson. It had become most influential and central machinery for deciding what path and strategy India would adopt for its development.
Five Year Plan
• As in USSR, Planning Commission of India opted for five-year plans [FYP]. Government of India prepares a document that has a plan for all its income and expenditure for next five years.
• Accordingly, budget of Central and all State governments is divided into two parts: ‘nonplan’ budget which is spent on routine items every year and ‘plan’ budget which is spent on a fiveyear basis as per priorities fixed by plan.
• First Five-Year Plan [1951-1956] sought to get country’s economy out of cycle of poverty. K.N. Raj, a young economist involved in drafting plan, argued that India should ‘hasten slowly’ for first two decades as fast rate of development might endanger democracy.
• First Five Year-Plan addressed, mainly, agrarian sector including investment in dams and irrigation. Plan identified pattern of land distribution in country as principal obstacle in way of agricultural growth. It focused on land reforms as key to country’s development.
• Second FYP gave stress on heavy industries. It was drafted by a team of economists and planners under leadership of P. C. Mahalanobis.
• Congress Party declared that socialist pattern of society was its goal which was reflected in Second Five-Year Plan.
• government imposed substantial tariffs on imports to protect domestic industries. Such a protected environment helped both public and private sector industries to grow.
NOTE: Government of India replaced Planning Commission with a new institution named NITI Aayog [National Institution for Transforming India]. This came into existence on 1 January 2015.
• India did not accept capitalist model of development in which development was left entirely to private sector, nor did it follow socialist model in which private property was abolished and all production was controlled by State.
• Elements from both these models were taken into consideration and mixed together in India. That is why it was described as a ‘mixed economy’.
• A mixed model like this was open to criticism from both left and right.
• critics argued that planners refused to provide private sector with enough space and stimulus to grow.
• State’s policy to restrict import of goods that could be produced in domestic market with little or no competition left private sector with no incentive to improve their products and make them cheaper.
• State-controlled more things than were necessary, and this led to inefficiency and corruption.
• most significant and successful of these was abolition of colonial system of zamindari.
• This bold act not only released land from clutches of a class that had little interest in agriculture but reduced capacity of landlords to dominate politics.
• Attempts at consolidation of land, bringing small pieces of land together in one place so farm size could become viable for agriculture were fairly successful.
• government adopted a new strategy for agriculture to ensure food sufficiency.
• government offered a high-yielding variety of seeds, fertilizers, pesticides, and better irrigation at highly subsidised prices.
• government gave a guarantee to buy produce of farmers at a given price. This led to beginning of ‘green revolution’.
• green revolution delivered only a moderate agricultural growth [mainly a rise in wheat production] and raised availability of food in country, but increased polarisation between classes and regions.
• Some regions like Punjab, Haryana, & western Uttar Pradesh became agriculturally prosperous, while others remained backward.