Development in Early Independence
In the previous chapters, we explored how India’s leaders tackled nation-building and democracy. Now, we examine the third major challenge: economic development. Unlike earlier successes, progress here was limited due to the complexity and long-term nature of the task. Leaders adopted a unique, planned strategy focusing on state-led industrialization and infrastructure development.
Key debates shaped this approach, which initially saw achievements like dams, factories, and agricultural advances. However, limitations became apparent, leading to a shift in strategy later. This era’s vision was reflected in postage stamps from 1955–1968, showcasing India’s developmental milestones like dams, refineries, locomotives, and fertilisers.
The Complexities of Development: The Orissa Example
As the global demand for steel increases, Orissa, which has one of the largest reserves of untapped iron ore in the country, is being seen as an important investment destination. The State government hopes to cash in on this unprecedented demand for iron ore and has signed Memorandums of Understanding (MoUs) with both international and domestic steel makers. The government believes that this would bring in necessary capital investment and provide a lot of employment opportunities. However, the iron ore resources lie in some of the most underdeveloped and predominantly tribal districts of the state.
This situation ignited a multi-faceted conflict:
● The tribal population fears that the setting up of industries would mean displacement from their home and livelihood, leading to protests like those against the proposed POSCO-India steel plant in Jagatsinghpur district, where villagers demanded the cancellation of the memorandum of understanding signed between the company and the Orissa government.
● Environmentalists fear that mining and industry would pollute the environment.
● The central government feels that if the industry is not allowed, it would set a bad example and discourage investments in the country.
These questions about development cannot be answered by an expert alone. Decisions of this kind involve weighing the interests of one social group against another, and the present generation against future generations.
In a democracy, such major decisions should be taken or at least approved by the people themselves. It is important to take advice from experts on mining, from environmentalists, and from economists. Yet, the final decision must be a political decision, taken by people’s representatives who are in touch with the feelings of the people. After Independence, our country had to make a series of major decisions like this. All these decisions were bound together by a shared vision or model of economic development.
What is Left and What is Right?
In the politics of most countries, references to parties and groups with a Left or Right ideology or leaning are common. These terms characterize the position of the concerned groups or parties regarding social change and the role of the state in affecting economic redistribution.
● Left often refers to those who are in favor of state control of the economy and prefer state regulation over free competition.
● Right refers to those who believe that free competition and market economy alone ensure progress and that the government should not unnecessarily intervene in the economy.
Ideas of Development: Forging a National Consensus
After Independence, almost everyone agreed that India’s development should ensure both economic growth and social justice. It was also widely accepted that the government must play a central role in achieving this, rather than leaving it to industrialists, businessmen, or farmers alone. However, there was disagreement over the extent and nature of the government’s involvement in ensuring growth with equity.
This debate often revolved around the very concept of development. As the example of Orissa shows, development means different things to different people—an industrialist setting up a steel plant, an urban consumer of steel, and the Adivasi living in the region all view development differently. These differing perspectives naturally lead to contradictions, conflicts, and debates.
In the first decade after Independence, such debates were common. Development was often measured against the Western model, seen as modern and desirable. Modernization implied breaking traditional structures, embracing capitalism, liberalism, material progress, and scientific thinking—defining nations as developed, developing, or underdeveloped.
On the eve of Independence, India had before it, two models of modern development: the liberal-capitalist model as in much of Europe and the US, and the socialist model as in the USSR. There were many in India then who were deeply impressed by the Soviet model of development. These included not just the leaders of the Communist Party of India, but also those of the Socialist Party and leaders like Nehru within the Congress. There were very few supporters of the American style capitalist development.
This reflected a broad consensus that had developed during the national movement. The nationalist leaders were clear that the economic concerns of the government of free India would have to be different from the narrowly defined commercial functions of the colonial government. It was clear, moreover, that the task of poverty alleviation and social and economic redistribution was being seen primarily as the responsibility of the government.
Key Debates and Controversies:
Despite the consensus on the government’s crucial role, disagreements persisted on the kind of role it should play.
● Agriculture vs. Industry: There were debates among leaders. For some, industrialization seemed to be the preferred path. For others, the development of agriculture and in particular alleviation of rural poverty was the priority. Indian planners found balancing industry and agriculture really difficult, and critics later pointed out that industry was wrongly given priority over agriculture, or that the focus should have been on agriculture-related industries rather than heavy ones.
J.C. Kumarappa(1892-1960)- original name JC Cornelius. Economist and CA, studied in England and USA. He was a follower of Mahatma Gandhi and author of the book “ Economy of permanence”. Participated in the planning process as a member of the planning commission.
● Public vs. Private Sector: Questions arose about the necessity of a centralized institution to plan for the entire country and whether the government itself should run some key industries and businesses. In the early years of Independence, two contradictory tendencies were well advanced inside the Congress party: on one hand, the national party executive endorsed socialist principles of state ownership, regulation, and control over key sectors of the economy; on the other hand, the national Congress government pursued liberal economic policies and incentives to private investment.
The Dawn of Planning: The Planning Commission
Despite the various differences, there was a consensus on one point: that development could not be left to private actors, and that there was the need for the government to develop a design or plan for development. The Planning Commission was set up in March 1950 by a simple resolution of the Government of India. It has an advisory role, and its recommendations become effective only when the Union Cabinet approves these. It is not one of the many commissions and other bodies set up by the Constitution.
The resolution which set up the Commission defined the scope of its work in the following terms: “The Constitution of India has guaranteed certain Fundamental Rights to the citizens of India and enunciated certain Directive Principles of State Policy, in particular, that the State shall strive to promote the welfare of the people by securing and protecting….a social order in which justice, social, economic and political, shall direct its policy towards securing, among other things,
(a) that the citizens, men and women equally, have the right to an adequate means of livelihood;
(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good; and
(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment”.
In fact, the idea of planning as a process of rebuilding the economy earned a good deal of public support in the 1940s and 1950s all over the world. The experience of the Great Depression in Europe, the inter-war reconstruction of Japan and Germany, and most of all, the spectacular economic growth against heavy odds in the Soviet Union in the 1930s and 1940s contributed to this consensus.
Thus, the Planning Commission was not a sudden invention; it has a very interesting history. Commonly, it is assumed that private investors are averse to planning, seeking an open economy without state control. However, a section of the big industrialists got together in 1944 and drafted a joint proposal for setting up a planned economy in the country, called the Bombay Plan, which wanted the state to take major initiatives in industrial and other economic investments.
So, from left to right, planning for development was the most obvious choice for the country after Independence. Soon after India became independent, the Planning Commission came into being, with the Prime Minister as its Chairperson. It became the most influential and central machinery for deciding what path and strategy India would adopt for its development. (The Government of India replaced the Planning Commission with a new institution named NITI Aayog on 1 January 2015 ).
The Five Year Plans: Charting the Course
Taking inspiration from the USSR, the Planning Commission of India opted for Five Year Plans (FYP). The idea is simple: the Government of India prepares a document that has a plan for all its income and expenditure for the next five years. Accordingly, the budget of the central and all the State governments is divided into two parts: ‘non-plan’ budget that is spent on routine items on a yearly basis, and ‘plan’ budget that is spent on a five-year basis as per the priorities fixed by the plan. A five-year plan has the advantage of permitting the government to focus on the larger picture and make long-term intervention in the economy.
The draft of the First Five Year Plan and then the actual Plan Document, released in December 1951, generated a lot of excitement in the country. People from all walks of life – academics, journalists, government and private sector employees, industrialists, farmers, politicians etc. – discussed and debated the documents extensively. The excitement with planning reached its peak with the launching of the Second Five Year Plan in 1956 and continued somewhat till the Third Five Year Plan in 1961.
The First Five Year Plan (1951-1956)
The First Five Year Plan (1951-1956) sought to get the country’s economy out of the cycle of poverty. K.N. Raj, a young economist involved in drafting the plan, argued that India should ‘hasten slowly’ for the first two decades as a fast rate of development might endanger democracy. The First Five Year Plan addressed, mainly, the agrarian sector, including investment in dams and irrigation. The agricultural sector was hit hardest by Partition and needed urgent attention. Huge allocations were made for large-scale projects like the Bhakhra Nangal Dam.
The Second Five Year Plan (1956-1961)
The Second FYP stressed on heavy industries. It was drafted by a team of economists and planners under the leadership of P. C. Mahalanobis. If the first plan had preached patience, the second wanted to bring about quick structural transformation by making changes simultaneously in all possible directions.
P.C. Mahalanobis (1893-1972):
Mahalanobis was a scientist and statistician of international repute. He was the founder of the Indian Statistical Institute (1931). He was the architect of the Second Plan and a strong supporter of rapid industrialization and an active role of the public sector.
Before this plan was finalized, the Congress party at its session held at Avadi near the then Madras city, passed an important resolution. It declared that ‘socialist pattern of society’ was its goal. This was reflected in the Second Plan. The government imposed substantial tariffs on imports in order to protect domestic industries. Such a protected environment helped both public and private sector industries to grow. As savings and investment were growing in this period, a bulk of these industries like electricity, railways, steel, machineries and communication could be developed in the public sector. Indeed, such a push for industrialization marked a turning point in India’s development.
Allocation in First and Second Five Year Plans:
The First Five Year Plan primarily focused on the agrarian sector, with significant allocations for agriculture, irrigation, and power projects. In contrast, the Second Five Year Plan emphasized rapid industrialization, dedicating a larger share of resources to heavy industries, mining, and transport and communication.
Challenges, Criticisms, and the ‘Plan Holiday’.
The strategy of rapid industrialization, however, had its problems as well. India was technologically backward, so it had to spend precious foreign exchange to buy technology from the global market. That apart, as industry attracted more investment than agriculture, the possibility of food shortage loomed large. The Indian planners found balancing industry and agriculture really difficult. The Third Plan was not significantly different from the Second.
Critics pointed out that the plan strategies from this time around displayed an unmistakable “urban bias”. Others thought that industry was wrongly given priority over agriculture. There were also those who wanted to focus on agriculture-related industries rather than heavy ones.
The Fourth Plan was due to start in 1966. By this time, the novelty of planning had declined considerably, and moreover, India was facing an acute economic crisis. The government decided to take a ‘plan holiday’.
Landmark Reform (Land Reforms):
The Plan identified the pattern of land distribution in the country as the principal obstacle in the way of agricultural growth. It focused on land reforms as the key to the country’s development.
One of the basic aims of the planners was to raise the level of national income, which could be possible only if the people saved more money than they spent. As the basic level of spending was very low in the 1950s, it could not be reduced any more. So the planners sought to push savings up. That too was difficult as the total capital stock in the country was rather low compared to the total number of employable people. Nevertheless, people’s savings did rise in the first phase of the planned process until the end of the Third Five Year Plan. But, the rise was not as spectacular as was expected at the beginning of the First Plan. Later, from the early 1960s till the early 1970s, the proportion of savings in the country actually dropped consistently.
Foundation of Indian Economy: Major Outcomes
Despite the criticisms and setbacks, the foundation of India’s economic development was firmly in place by then. The early five-year plans laid a crucial foundation by establishing a mixed economic framework, nurturing key public sector industries, building vital infrastructure like dams and irrigation systems (e.g., Bhakra Nangal Dam, Hirakud Dam), and initiating significant land reforms. This period defined India’s developmental path, aiming for both economic growth and social justice through state-led planning.
Food crises and Green revolution
The emphasis on industry in the Second and Third Plans led to neglect of the agricultural sector, contributing to severe food shortages and crises, particularly in the mid-1960s, which necessitated significant food imports. To address this, India embarked on the Green Revolution in the late 1960s. MS Swaminathan is considered as the father of the green revolution in India. This program focused on adopting high-yielding varieties of seeds, fertilizers, and improved irrigation methods, primarily for wheat and rice. This initiative significantly boosted food grain production and helped India achieve food self-sufficiency, but also led to regional disparities and environmental concerns.
White Revolution:
Concurrent with the focus on agricultural development was the White Revolution, or Operation Flood. Led by Verghese Kurien, this program aimed to create a nationwide milk grid, connecting milk producers to consumers through a cooperative structure. It transformed India into the world’s largest milk producer, empowering dairy farmers and improving rural livelihoods.
By the time the Fourth Plan was due in 1966, the initial enthusiasm for planning had declined considerably, and India was grappling with an acute economic crisis. This led the government to declare a “plan holiday”. Despite the criticisms and setbacks, these early five-year plans laid a crucial foundation for India’s subsequent economic development.
The Kerala Model:
While not a national policy, the Kerala Model of development emerged as a distinctive approach within India. It prioritized investment in social sectors such as education, healthcare, land reforms, and poverty alleviation, often through decentralized planning and public action, even with a relatively lower per capita income. This model demonstrated that high levels of human development could be achieved without necessarily prioritizing rapid industrialization, offering an alternative perspective to the dominant national planning strategy.
