09 Chapter3

CHAPTER 111
DEVELOPMENT POLICIES OF INDIA SINCE

1NDEPENDE:NCE: AN ANALYTICAL SURVEY
Introduction
The British handed over to free India, an economy full of distortions
and imbalances. reeling under the burden of stagnation, in consequence of
the perpetuation of larg,ely pre-capitalist modes of production both in
industry and agriculture and the colonial pattern of foreign trade.
Independent India, was, thus faced with proble~nswhich were fonnidable
in nature and gigantic in magnitude. The country was almost in the grip of
econo~nic stagnation, widespread
poverty,
unemployment
and the
consequent human misery. The stagnating agricultural sector had to be

transformed to usher in an era of rural prosperity. The backward industrial
sector had
to
refortned for building up a strong and self reliant economy.
The partition of the country had further aggravated the econo~niccrisis.

The econolng was almost a century behind the advanced industrial nations
of the wol.ld. So it b e c a ~ n eimperative that steps be taken to cure the ills of
the econonl! and efl'i~rts rnadc to put it on the right
'path of sustained
Prepared by BeeHive Digital Concepts Cochin for Mahatma Gandhi University Kottayam
economic growth had to achieve within a very short span of time, the
degree of economic pwgress which the then developed countries of the
world took a century or nnore to achieve under Inore favourable conditions.
It was under these co~npellingforces that India formulated a number of
policies for quick economic development and econoinic growth.
At the timc of the transfer of power foreign capital had substantial
control over India's rejources and markets. I'he extractive and plantation
industries, proccssing for export. intcmational trade and ancillary serviccs
were allnost fully controlled by the foreign 'Managing Agents' brought up
by the British capital tro~nthe nineteenth century onwards. For the Nehru
government it was nolt a priority to evolve and strengthen an indigenous
technological and industrial base for India. No wonder, even in 1954-55,
on the eve of the s e c o ~ ~five
d year plan, two-fifths of the major companies
with a paid-up capital of Rs. 50 lakhs and above were directly controlled
by the 17 top ~nanagi~lg
agencies. The foreign managing agencies could
receive a percentage of profits. as commission. in addition to the interest
that they received on loans advanced to the Indian companies. Managing
agents who wcre to hi; represented on the board of directors of a company
were the rcal decision makers. In the fifiies, while the Indian National
Congress adoptcd 'soc,ialism' and sclf-reliance as its econoinic programme,
according to an esti111at.e.55 top directors tiom the managing agencies
shared 809 directorships in foreign-controlled companies in India. At the

apex there were 10 men with 300 directorship between them. Thus foreign
capital could control a large number of seemingly independent Indian
companies through a s).stem of interlocking and widespread interpenetration
of personnel. Michael Kidron has given an approximate idea regarding the
extent of tbreign capital in India in the years immediately following
independence.' According to him, in 1949-50, 85 per cent of the area of
tea plantations and more than half of the paid-up capital in plantation
industries were controlled by foreign companies.
Foreign capital
controlled 70 to 95 per cent of jute production, 70 per cent of coal mining

and 73 per cent of all mining including gold and magnesium. The service
industries here also tightly held by the British capital. On the eve of
transfer-power 85 per cent of inland steamer services and the whole of
overseas shipping remained under the tight control of the British
companies. As late as 195 1-52, almost 40 per cent of imports, and 45 per
cent of the entire rxpoi-ts and more than two thirds of trade financing by the
exchange banks were handled by foreign companies. As a whole nearly
one-half ot the net assets of the organised sectors of mining, trade and
banking were controllt:d by foreigners in 1953".'
In course of time, i.e.. in consonance with the neocolonisation
process gathering momentum. the nature and scopc of foreign capital
investment (such as in plantations) and control by managing agencies

slowly declined in importance. Most of the fresh investment by foreign
capital went into inanufacturing and petroleum; technologically intensive
branches such as chemicals or electrical goods received more attention.
The prelude to this new type of investments could also be seen in the 50's.
The MNCs from USA who were actively looking for outlets for capital
export had started penetrating India. It was this trend that got strengthened
under the Nehruvian strategy of development.
Beginning of Planning in India

The Nehru government began its economic policies with the
announcement of its IB~nous'status quo policy' towards foreign capital
providing the latter all hcilities to carry on its business uninterruptedly.
This was followed by the Industrial Policy Resolution of 1948 which
conceded that "participation of foreign capital and enterprise ... will be of
value to rapid industrialisation of the country" In the context of the arrival
of the first World Bank Mission (at the request of the government of India)
in early 1040. the Nehru Government came forward with its positive
approach to foreign capital, in the forin of Prime Minister's Special
Statement' to Parliament on April 6, 1949. In addition to this, amidst
widespread criticism iorn patriotic sections in India. as part of the US
enforced devaluation of the currencies of 30 countries including the other
capitalist powers, the Nehru government devalued the Indian rupee by

33.5% per dollar.
The First Five Year Plan prepared under these
circu~nstancesclarified in its draft outline that foreign capital would act as

a "catalytic agent" Sor domestic resource mobilization and investments and
that it would he made in essential sectors of the economy. Out of the total
outlay of Rs. 1960 cro8resof the First Plan which was a modest one, the
'foreign assistance' incorporated was Rs. 200 crores (almost 10% of the
plan outlay). Of this 70 per cent was from USA and 17 per cent from
world Bank However, the entire US 'aid' (Rs. 135 crores) was not as such
available to the Indian government since lion's share of this amount was
spent in the exploration of minerals and water resources of India by
American geologists in paying salaries to US experts in India and in the
purchase of 'scientific' books from USA. On the whole, the entire foreign
'aid' available from capitalist's sources including the World Bank was used in
accordance with the capitalist's prescription on India's development.
The pressures arising from the then international and internal
developments had ht:er~ the main factor that prompted the Nehru
government to pursut: what is generally called an import-substitution
industrialization (l.S.1.) :strategy along with the Second Five Year Plan.
The second plan kame. popularly known as Nehru-Mahalanobis Model
was prepared inline with the ideas of some 30 economists from different
capitalist countries including thc USA and experts from soviet Union. The
decision to launch key arid basic industries as well as infrastructure in the
public sector had taken the interests of domestic capital also into
consideration. Thus infrastructure-development which naturally yields very
little profit in the public sector provided the private sector, both foreign and
native, necessary anti favourable condition for participating in the
economic develop~nentpl:ogramme.
As l'ar as the Nehru-Mahalanobis strategy of heavy industrialisation
was concerned, it ignored the required healthy relationship between
industry and agriculture. If the import-substitution industrialization was to
result in an all-round increase in domestic production and reduction in
imports, a corresponding developlnent of the home market was inevitable.
In a country where more than 70 per cent of the population depend on
agriculture, expansion of the home market and increase in the purchasing
power of the masses were imperative. And this was directly related to a
basic restructuring in land relations. That did not happen. More over the
key and basic industries as well as infra structural facilities built up by the
public sector with capit.al:ist 'aid' and foreign technology were used for the
manufacture of consumer durables and luxury items catering to the
consumerist longings of the upper strata of society. In India, the upper
strata of the population which was much larger than the total population o f
several countries put together really provided an expanding market for

these durables. After a serious study of the IS1 strategy in several AfroAsian-Latin American countries including India, Joan Robinson said, "The
process of import-substitution naturally begins with commodities that offer
the best prospects of profit. that is those which are brought by the wealthiest
consumers.".'
The World Bank in a publication has characterized those
industries that were built up as part of IS1 during the fifties and sixties as
tariff fa~tories".~
Concentrated in already existing urban centres and based on foreign
capital and technology, industries were in practice, never meant for the
broad masses of people in the country-side. Thus IS1 which was suggested
by capitalist experts as a substituie for lack of foreign exchange became the
cause for dependence on foreign exchange in the form of profits, royalties,
dividends, technical fees etc. arising from imports of capital and
technology. and in thr: form of out payments resulting from heavy foodimports. In brief. the Nchruvian strategy of IS1 was leading the country to
unprecedcntcd misery for the majority of the people, growing regional
inequalities, worsening balance of payments deficits, and deepening
dependence on foreigners.
Aid India Consortium: a Milestone in the Westernisation Process

As a manikstation of India's extreme dependence on foreign
capital, within two years of the inauguration of the ambitious Second Five
Years Plan (1956-61), the country was plunged into an acute foreign
exchange crisis. The lieserve Bank's revelation in 1958 that its foreign
exchange reserve had dropped to a meager Rs. 200 crores was immediately
followed by the sending of a delegation to Washington by the Nehru
government. 'l'he delegation's deliberations with the US officials and FundBank experts culminated in the creation of Aid India Consortium in 1958
with World Bank (WEi) as Chairman, IMF and other funding agencies
specializing in aid. trade and finance as members. In course of time, Aid
India Consortium became the apex capitalist monitoring institution
entrusted with the task of supervising the entire capitalist 'aid' and
investment started flowing into ~ n d i a . ~
There are economists and political thinkers who argue that, the
establishment of Aid India Consortium has been a milestone in the neocolonialisation process of India. Since it tied India to the world capitalist
system as a whole, minimizing the maneuvering capability of Indian State
among the capitalists. The Consortium began its operations by scrutinizing
India's econo~nicpolicies and directing its priorities.
It could penetrate
into the core of Indian planning machinery and succeeded in placing
experts trained in capitalist headquarters in strategic positions such as the

Economic
Ministries
of Government
of
India
(GOI), Planning
Commission, RBI, etc. This enablcd the World Bank and other neocolonial
institutions to elicit the relevant information from lndia needed for their
policy
formulation."
In fact, ever since the transfer of power in 1947, the Government o f
lndia (G01) led by Nehl-u sought the assistance of WI3 and other US-led
institutions to dole out lheir so called "expert" opinion on matters
concerning India's future clevelopment. As a result, periodic inspections
by WB officials to India hecame a regular feature during these years.
Nehru was committed to socialisin and 'self-reliance'. On the eve
of the creation of the Aid lndia Consortiurn, the WB succeeded in
establishing it5 permanent Resident Mission in New Delhi in 1957 which
could undermine Nehruvian self-rel~ance. Following this, in the First Five
Year Plan I0 percent of the plan outlay. came froin foreign aid; during the
second plan this component rose to more than 30 per cent of the total plan
outlay. Naturally. 1JS capitalism stood as the major donor contributing
almost 55 per cent of the total external 'assistance'.
Ilowever, the total
Soviet aid during the second plan was only 5.4 per cent of the total aid.
This was devoted to the sphere of hcavy machinery. All of India's public
sector steel plants and several industries were set up with foreign capital
and technology. It is estimated that more than 90 per cent of the aggregate
foreign 'aid' used up by hehru's so called 'socialist plan' was from US-led
capitalist sources including the WB.
The net result was that from a
position of zero external debt in 1951 when planning began, the

accumulated foreign debt of the country rose to Rs, 1073 crores in 1961.'
The foreign exchange reserve depleted at a faster rate on acqount of the
accelerated imports of food grains, (mainly P.L.480 imports), technology
and capital.
Further. to take advantage of tariff protection granted to
industrial enterprises, IMNCs penetrated into India in the form of 'joint

ventures' with foreign majority and minority participation. The consequent
outflows of foreign exchange in the form of dividend, royalty, technical
and management fees, profit, etc. as well as in the form of under invoicing
of exports and over invoicing of imports worsened the balance of payments
problem further. For instance, an estimate by Kidron showed that during
1948 foreign companies as a whole had taken out of India's general
currency reserve three times as much as they had directly c ~ n t r i b u t e d .A~
recent writer said: "Twenty family groups controlled 20% of total private
capital in 1951. This has increased to 33% by 1958.
In 1965, the
Monopolies (:ommission found out that 75 leading business groups owned

47% of assets of all non-government companies. The groups are the big
capitalists In India. Their investments span trade, finance and commerce.
In 1958 thc
t\co
largest family groups the Tata and the Birla. owned 20%
of private capital stock in Indian cotnpanies. Their ownership of banks ...

gave these dynasties substantial control over s~~lallerand regional
institutions set up by the government to provide industrial capital and by
the publicly owned Life Insurance Corporation, both of which regularly
invest in the companies of these groups. Of course, this trend went on
strengthening as the planning process proceeded further".'
By the beginning, of the 1960s, when Second Five Year Plan was
coming to a closc and the third plan was to begin the counter confronted by
acute problems such as food scarcity, balance of payments crisis, etc., the
Nehru government which could not solve these issues, was forced to
approach Western funding agencies again. Consequently, at the request of
GOI, the WB in 1960 sent another "high-level mission" to India. This
~nissionconsisting of Oliver Franks from Britain. Hermann Abs from
Germany and Allan Sproul from the USA"
wrote a report on the Indian
economy. It was described by some as "one of the most heart-warming

documents in the annals of international relations"."
It is argued that this
document was in effect laying down the conditions of mortgaging the

entire economy to international capital.I2 For the immediate follow-up of
the 'Mission's report on India was the opening of various Indian
investment Centres at the leading finance capitalist centres of the world
like New Yorh. 1 ondon. 1)usseldorf and Tokyo in 1961 itself as part of the
neocolonial strategy of integrating Indian economy with global capitalism.

These investment centers; acted as liaison offices between MNCs and
Indian capital.
Bureaucrats like I.G. Patel have been the staunchest protagonists of
the new path of development launched in India. Experts trained in capitalist
Economics rcsearch institutions were in the forefront of justifying the
import of capital to India. Today it could be indisputably said that the
investment centres acted as liaison offices between MNCs and Indian
Government. I he actib ities of the various centres were co-ordinated by the
monitoring centre at Dtlhi. This was followed by a sudden spurt in foreign
collaborations and so foreign control over Indian assets reached
unprecedented levels. For instance, during 1960-64 over half the number
of MNCs operating in IIndia had 100 per cent ownership in their sphere of
activities. Meanwhile. during the third plan (1961-66) almost one-third o f
the total plan expend~ture was composed of foreign aid. This was a
manifestation of Nehruvian strategy's increasing dependence on capitalist
powers.
I'he flaws of Wehruvian self-reliance could be seen from the
doubling of the external debt within a span of five years. Thus external debt
which stood at Rs. 1073 crores in 1961 rose to Rs. 2341 crores in 1 9 6 5 ' ~ .
Devaluation of Rupee
Despite the huge foreign aid, while the third plan was dragging on
account of acute resource crunch, as a testimony to India's growing
dependence on "aid-givers" and the latter's increasing capacity to influence
India's policy-making, in 1965 the WB sent another large economic
mission headed by Bernard Bell. The mission produced a comprehensive
report, known as the Bell ]Mission Report, which proclaimed the end of IS1
and heralded the so called export-orientation industrialisation (EOI)
strategy in India. Through the Bell Report, the WB and other consortium
members became Inore critical of the direction of Indian economic policy.
For instance. among orher things, the Bell Report opined. "There is no
particular evidence that the licensing system has in fact served any positive
economic purpose. There is little doubt, however, that it has prevented
efficient enterprises from expanding, that it has imposed restraints upon the
achievement of econson~ies of scale, and it delayed and hampered
investment and production activity. It has, like the irnport control system,
protected and preserve'd inefficiency by, in effect, allocating market shares
and restraining the g~:owth of more efficient enterprises".'4
The Bell
Report was a concrcte evidence to the growing disenchantment with

international Keynesiar1isl:n which was losing its initial impetus in the global
econonly. Also the Bell Report was more explicit in its recommendations. It
asked the GO1 to immediately carry out a package of policies comprising

of comprehensive import liberalization including devaluation of the rupee,
the new strategy in agriculture which later became known as the Green
Revolution and the so called export-oriented strategy of development.
Since hilure on the part of GO1 to implement the priorities laid
down by the WB as Chairman of Aid India Consortium would have
resulted in the cancellation of all aid programmes in the forthcoming fourth
five year plan (which was to begin in 1966) a GO1 delegation went to
Washington in September 1965 to discuss with WB the modalities of
put forward in the Bell
implementing the package of recom~nendatio~ls
Report. The immediate result was the devaluation of the Indian rupee by
57.5 per cent (rupee value of the dollar rose from $1
=:
Rs. 4.75 to $1
Rs. 7.50 as a result of this act) in June 1966. Frequent devaluation of the
rupee, both oflicially declared and undeclared, has beer1 one of the most
effective methods adopted by capitalists to increase their profits. The crisis
in the ruling party and the consequent package of policies did not fulfil the
WB specifications. Infuriated by this, the US temporarily suspended the
entire package including 1'L 480 imports into India.
Under American
pressure the GO1 was forced to declare a plan holiday for three years from
1966 to 1969. This abrupt halt of the entire planning process exposed once
again the limitation ol'the Indian development path. The government led
by Indira Gandhi could revive the five year planning process only in 1969
after getting the green signal from the WB and other consortium members.
To appease the donors the GO1 had to carry out a series of measures as
recommended by the Bell Report including the establishment of the
Foreign Investment Board in 1968 to expedite the close integration of
Indian economy with foreign capital.
Since 1951 India had completed nine Five Year Plans.
And is
currently implcmcnting the loLhplan. The guiding principles of India's Five

Year Plans are provided by the basic objectives of growth. employment, selfreliance and social justice. Apart from these basic objectives, each five year
plan takes into account the new constraints and possibilities faced during
the period and attempts to make the necessary directional changes and
emphasis.
The Approach to Each Plan

At the time of the first five year plan (1951-56) India was faced with
three problems-influx of refugees, severe food shortage and mounting
inflation. India had al:jo to correct the disequilibrium in the economy
caused by the Secontl World War and the partition of the country.
Accordingly the First Plan emphasised as its immediate objectives the
rehabilitation of refugees. rapid agricultural development so as to achieve
food sell-sufficiency in the shortest possible time and control of inflation.
Simultaneously. the First Plan attempted a process of all-round balanced

development which could ensure a rising national income and the steady
improvement in the living standards of the people over a period of time.
The second plan 1956-61 was conceived in an atmosphere of
economic stability. Agricultural targets fixed in the plan had been achieved,
price level had registered a fall and consequently, it was felt that Indian
economy had reached
21,
slage were agriculture could be assigned a lower
priority and a forward thrust be made in the development of heavy and

basic industries of the economy for a more rapid advance in future. The
basic philosophy of the Second Plan was, there fore to give a big push to
the economy so that it can enter the take-off stage.
Besides. the Ciov'ernment announced its industrial policy in 1956
accepting the establishrllent of a socialistic pattern of' society as the goal of
economic policy. Thi:; necessitated the orientation of economic policy to
conform thc national goal of socialistic economy. Accordingly the Second
Plan aimed at rapid. industrilisation with particular emphasis on the
development of basic: and heavy industries such as iron and steel, heavy
chemicals including r~itrogenousfertilisers, heavy engineering and machine
building industry.
By the beginning of the third plan (1961-66) The Indian planners

felt that the Indian economy had entered the take-off stage and that the first
two plans had generated an institutional structure needed for rapid
economic developtnenl. Consequently, the Third Plan set as its goal the
establishment of a self-reliant and self generating economy. But the
working of the second plan had also shown that the rate of growth of
agriculture production was the main limiting factor in India's economic
development.
The e:uperience of the first two plans suggested that
agriculture should be assigned top priority. Third plan accordingly gave top
priority to agriculturt:. But it also laid adequate emphasis on the
development of basic industries, which were vitally necessary for rapid
economic developrnent of the country. However, because of India's war with
China in 1962 and with Pakistan in 1965, the emphasis of the Third Plan was
later shiHed tio~necono~nicdevelopment to defence development.
The original draft outline of the fourth plan prepared in 1966 under
the stewardship of' Ashok Mehta had to be abandoned on account of the
pressure exerted on tht: economy by two years of drought, devaluation of
the Rupec and intlationar:~recession. Instead three Annual Plans (1966-69)
euphemistically described as "plan holiday" were implemented. India
learned a hitter lesson during lndo-Pakistan war when its so-called allies
refused t o supply esse~ltialequipment and raw materials for its economic
development. The Fourth plan set before itself the two principal objectives,
growth with stability ;and progressive achievement of self reliance. The
fourth plan aimed at an average 5.5% rate of growth in the national income
and the provision of national minimum for the weaker sections of the
con~munity-came to bt: known as the objectives of growth with justice and
'garibi-hatao' (removal of-poverty).
l'hc Fifth Plan (1974-79) was introduced at the time when the
country was reeling under a veritable economic crisis arising out of a runaway inflation, fuelled by the hike in oil prices since September 1973 and
failure of the Government's take over of the wholesale trade in wheat. But the
Indian planners were concerned with the problem of garibi-hatao (removal of
poverty) and growth with social justice. The original approach paper of the
fifth plan preparcd under. C. Subrarnaniam in 1972 emphasised that "the main
causes of abject poverty were open unemployment, under-employment and
low resource base of very large number of producers in agriculture and service
sectors". Thc elimination of poverty could not be attained simply by
acceleration i n the rate of' growth of the economy alone. But the strategy
should be to launch a dil-ec:t attack on the problems of unemployment, under
e~nployrnentand massive level of poverty. But this approach was eventually
abandoned ar~dthe final draft of the fifth plan prepared and launched by
D.P. Dhar proposed to achieve the two main objectives viz.. removal of
poverty and attainment of self reliance, through promotion of high rate of

growth better distribution of income and a very significant step up in the
domestic rate ofsaving. The Fifth Plan was terminated by the Janata Party by
the end of the tburth year of'the plan in March 1978.
There were two sixth plans. The Janata Party's sixth plan (1978-83)
openly praised the achievement of planning in India but held the Nehru
model of growth respon:;ible for growing unemployment, the concentration
of economic power in the hands of a few powerful business and industrial
families, the widening of inequalities in income and wealth and for
mounting poverty. 'The Jiiniita Government's sixth plan sought to reconcile the
objectives of higher production with those of greater employment so that
millions of people living below the poverty line could benefit therefrom. The
focus of the Janata (jovernments sixth plan was enlargement of the
employment opportunities, protection to agriculture and allied activities
encouragement of household and small industries producing consumer
goods for mass consumplion and raised the incomes of the lowest income
classes through a minimum needs programme. When the new Sixth Plan
(1980-85) was introduced b) the Congress Government, the planners
rejected
the Janata approach and brought back the Nehru model of
growth by making at a direct attack on the problems of poverty by creating

conditions o f an expanding economy. I 5
The Secenth Five year plan (1985-90) was introduced in April 1985,
after the co~lntryhad enjoyed a reasonable rate of economic growth during
the sixth plan. The Seventh Plan sought to emphasise policies and
programmes which would accelerate the growth in food grains production,
increase employment cbpportunities and raise productivity- all these three
immediate objectives were regarded central to the achievement of long
term goals determined as far back as the first plan itself.
The approach p a p a of the Eighth Five Year Plan was approved in
September 1989 and was to be introduced in April 1990. However there
were a series of changes in the Government at the centre, necessitating
constant reconstitution of the Planning Commission and preparation of a
series of versions of the approach to the eighth plan. Finally, the fourth
version of the eighth plan 1992-97 was approved at a time the country was
going through a severe economic crisis caused by the balance of payment
crisis, rising debt burden. ever -widening budget deficits, ~nountinginflation
and recession in industry. The Narasimha Rao Government initiated the
process of fiscal refonns a!; also of economic reforms with a view to provide a
new dynamism to the economy. The Eighth Plan (1992-97) reflected these
changes in its attempt to accelerate economic growth and improve the
quality of life of the comrnon man.
Plan Outlaysllnvestments
For each plan, the Planning Co~nrnission fixed an overall total

outlay for economic growth, part of which was to be contributed by the
private sector and the remaining by the public sector. Initially, the Planning
Commission \tarted with modest outlays. But, with experience, the planned
outlays on development programmes were raised substantially. Table

below gives the proposed planned outlays, the share of private and public
sector outlays and the actual public outlays in the different plans
Table 3.1
Plan Outlays of the Public and Private Sector
~
~~
(Rs. Crores)
~-
Total
Proposed
Plan Outlay
--
1- (2+3)
First Plan(195 1-56)
~~~
-~
Second Plan(1956-6 I )
~hird
Plan( 196 1-66)
Fourth Plan ( 196'1-14)

Fifth Plan(1971-79)
Sixth Plan(1980-85)
-~
Seventh Plan(1 985-90)

Eighth Plan(1992-97)
Total Private
Sector
Outlay
I
3,870
(1 00.0)
7,900
(100.0)
1 1,600
(100.0)
24,880
(1 00.0)
53,410
( 1 00.0)
1,58,710
(100.0)
:3,48,150
(100.0)
8,71,000
(100.0)
2
1,800
(46.5)
3,100
(39.2)
4,100
(35.3)
8,980
(36.1)
16.160
(80.3)
61,210
(38.6)
1,68,150
(48.3)
4,37,000
(50.2)
Source: VLII.IOII.\
/.lve Year I'lan Docu~~?i,~lr.v
Total
Proposed
Public sector
outlay
3
2,070
(53.5)
4,800
(60.8)
7,500
(64.7)
15,900
(63.9)
37.250
(69.7)
97,500
( 6 1.4)
1,80,000
(5 1.7)
4,34,100
(49.8)
Actual
Public
sector
outlay
4
1,960
4,600
8,500
15,900
39,430
1,09,290
2,18,730
4,95,670
The total oi~tlayi n the First Plan was quite modest and it was more
than doubled during the Second Plan reflecting the tremendous sense of
confidence which the planners acquired afier the success of the First Plan. But
because of resource constraints and specially due to severe foreign exchange
shortage, the Third Plan outlay was only about 5 per cent more than that of
the Second Plan. From the Third Plan onwards, however, the increase in the
total outlay was over 100 per cent compared to the previous plans and the Sixth
Plan outlay in money terms was indeed Inore than 200 per cent of the outlay
of the Fifth Plan. This was true for the Seventh and Eighth Plans. The Plan
outlays are obviously expressed in money terms at different price levels
and, therefore, they reflect partly the inflationary rise in prices and partly
the increased effort in enhancing development programmes. Even if we
deflate the monetary in'velstment to allow for rise in prices, the real outlay
during the last three plans was really huge.
This huge increa:se in total outlay (or investment) was the result o f
the confidence of thc Planning Co~nrnissionthat the country could absorb
increasingly larger doses of investment and that the tempo of econornic
growth in the country warranted such a huge escalation of investment.
The Govemmcnt has also been successful in raising the rate of domestic
savings and mobilise additional resources from foreign countries and
institutions. To supplement these two sources, the Government regularly
resorted to deficit tinancing. (I)ccasionally, there have been serious

constraints of resources as during the Second Plan when the Government
could not raise the Planned resources and was, therefore, forced to "prune"
the plan.
The total outlay planned is divided in to public sector outlay and
private sector outlay. The Government is directly responsible for raising
the public sector outlay. As regards the private sector outlay, it is only an
estimate, an anticipat~or~
and the Planning Co~n~nission
does not have
accurate figures to show whether the planned outlay fixed for the private
sector has been forthcoming or not.
Table 3.1 clearly points out that the share of the public sector outlay
showed a steady increase from about 54% in the First Plan to about 70% in
the Fifth Plan. There after it indicated a steady decline and was about 52%
in Seventh Plan and fell further to reach 50% in the Eighth Plan. The
dominance of the public sector was gradually declining and this was being
replaced by the growing emphasis on the private sector (Refer table 3.1).
Priorities and Pattern of Investment in the Plans

During the first six plans, the Planning Commission distinguished
between five sectors c~fdevelopment, viz., agriculture and irrigation, power
and industrq. transport and communication and social services. From the
Seventh Plan there was great refinement of the sectors of development. The
distribution of public sector outlay on major heads clearly reflects the
Commission's priorities of development in the different Plans.
Table 3.2
Sectoral Outlays during the Plans
(Rs. Crores)
-~
Agriculture
Industry
Power
irrigation
Communi
--
First Plan
Second
Plan
Third
plan
Fourth
Plan
Fifth Plan
(1 974-79)
Actuals
Sixth
Plan
Seventh
Plan
Eighth
Plan
600
260
1 4 : 1 3 )
(31)
(10)
1,250
3.810
8,640
(22)
2,450
(15)
7,400
26,130
(24)
(22.0)
120
(6)
1,080
(24)
1,970
(23)
3,630
(23)
9,580
(26)
16,950
((28.2)
(13.4)
(9.7)
Source: Vurious Five Yrur Plan docu~nents
In 'l'able 3.2 we observe that the Government outlay on each sector

has continuously increased with every plan. For instance, the actual
allocation on agriculture and irrigation was of the order of Rs. 600 crores
in the First Plan, this had increased to Rs. 26,130 crores by the Sixth Plan
anti Rs. 102.730 crores by the k;ighth Plan. Likewise, allocation on power,
industries, transport and communications had increased considerably but
the most significant increase was on industries-from Rs. 102 crores to over
Rs. 5 1,100 crores.
Agriculture and Irrigation

Except during the First Plan; when agriculture and irrigation was
allotted 3 1 per cent of the total outlay, all other Plans allocated between 20
to 24 per cent of the total outlay on agriculture and irrigation. The
relatively lower percentage of funds allocated to agriculture and irrigation
from the Second Plan onwards, has come in for serious criticism at the
hands of the (iandhian economists who argued that the Indian strategy of
development had ignormed agriculture.
Power Programmes
The allocation on power development was unfortunately low during
the First Four Plans- between 10 to 15 percent of the total outlay. The low
priority given to power development was sought to be justified at that time,
on the ground that the industries had not come up so fast and that progress
in rural clectrification and in the use of electric power in the railway
transport system was inadequate and did not need much investment. This
proved to be a wrong judgment on the part of the planners. With rapid
industrialisation and extensive demand for power both in rural and urban
areas, the country reeling under severe power shortages and the country's
production ef't'ort has been severel? curtailed by load shedding almost in all
parts of the country. It vvari only in the Seventh Plan that the allocation on
power was raised rather steeply to 28.2 percent of the total outlay.
Industries and Minerals

The high priority given to agriculture and irrigation in public sector
programs in the First Plan was at the cost of low priority given to
industries. On account of limitation posed by scarce capital resources, the
development of large-scale consumer goods industries was left entirely to
the private sector. But from, the Second Plan onwards, the relative share of
industries and minerals was raised sharply- from 6 percent in the First Plan
to 24 percent in the Second Plan. The allocation on industries has generally
been around 24 percent of the total public outlay till the Sixth Plan. In the
next two plans. outlays or1 industries declined steeply.
An important point to note here is that the public sector outlay on
industries was tnostly on the large- scale industries and that too on heavy
and basic sectors. Only a small token allocation was made for the
development o f village and small-scale industries. This was also a standing
complaint on the part of Gandhian econoinists who criticised that only lip
service was paid Lo the sl-nall and cottage industries from the point of
employment. clccentralisation of income and favourable effect on
production and the prict: level. In practice, however nothing special was
done to the tiny and the small sector.
Assessment of the Five Year Plans

The First Plan was a great success, as the production targets especially
in the agricultural sector were more than hlfilled and the three short-term
objectives, viz.. rehabilitation of the refuges, food self-sufficiency and
control of prices were more or less realised.
Though more ambitious, the Second Plan could not be implemented
fully because of the acute shortage of foreign exchange and the Planning
Comn~issionhad to prune the development targets. Besides the country had
started experiencing rise i.n prices. 'l'he Second Plan was a thorough failure
because the targets could not be realised. The country suffered one of the
severest fanines in a hundred years during the last year of the Plan (1965-66)
besides, India had to go through two major conflicts with China and Pakistan
and during the lndo-Pakistan contlict, India was let down badly by the
major aid-giving countries. The tailure of the Third Plan forced the
planners to the suspension and postponement of the Fourth Plan by three
years -- sarcastically called the "Plan holiday".
The 1:ourth Plan, when it was introduced after a gap of three years,
was an ambitious plan as it aimed at an annual growth rate of 5.5 per cent
(as against an average of 3.5 per cent during the previous plans) to attain
self-reliance and the provision of a national minimum. The first two years
of the Fourth Plan were q ~ ~ ipromising,
te
with record hodgrains production
and equally rising indu'strial production. But next three years of the Plan
proved a great disappointment with successive failure of monsoons, decline
in foodgrains production, failure on the industrial front due to power
breakdowns and load shedding, transport bottlenecks, industrial unrest, etc.
Above all, the price situation deteriorated to crisis proportions and the
whole of 1970 was indeed, a difficult year. The rapid rise in prices from the
middle of 1972 completel:y upset the cost calculations of the Fourth Plan
development projects. Above all. the country had to cope up with huge
influx of refugees from Bangladesh and the Indo-Pakistan war of 1971.
The I:ourth Plan. in other words, failed after the mid-term.
The Fifth Plari was in the throes of a serious econornic crisis in the
fonn of a run-away inflation. Thc Fifth Plan cost calculations based on
1971-72 prices proved to bc co~nplctelywrong and the original public sector
outlay of [is. 37.500 crores had to be revised upwards to a little over Rs. 39,
430 crores. Moreover. atier the promulgation of internal emergency in 1975,

the emphasis shifted to the implementation of the Prime Minister's 20- point
Programme and the Firth Plan was relegated to the background. When the
Janata Party came to power. in 1977 it tenninated the Fifth Plan in 1978.
This was an unwise step since it made the constitution and working
of the Planning Commission as well as the Plan formulation change with
the assumption of every Government at the Centre. So much so, with the
coalition governments csonling to power at the Centre, the formulation of
five year plans has become difficult and often a cruel joke. No body seems
to be seriously concerned with the formulation of the Five Year Plans.
The Sixth Plan, for instance, was originally introduced by the Janata
Party for the period 1978-.83but later it was replaced by a new Sixth Plan
for the period 1980-85 following the assumption to power of a new
government. During this period the Indian economy made an all-round
progress and most of the targets fixed by the Planning Commission were
realised, though during the last year of the Plan (1984-85) many parts of
the country faced severe famine conditions and the agricultural output was
less than the record clutput of the previous year. Broadly, however, the
Sixth Plan could be taken as a success.
The Scvcnth Five: Year Plan (1985-90) attempted to accelerate the
growth in foodgrains production increase in employment opportunities and
raise productivity. In other words, the focus of the Seventh Plan was on
food, work and prodluctivity. The Seventh Plan was heralded as a great
success since thc Indian economy recorded 6% per cent rate of economic
growth during this plan against the targeted 5 per cent. The decade of the
Eighties (the Sixth and Seventh Plan) witnessed a creditable average

annual rate of growth of 5.8 per cent as against the average of 3.5 per cent
in the previous five plans. The Indian economy. finally, crossed the barrier
of what Professor Raj Krishna called "the Hindu rate of growth"
The introduction of the Eighth Plan was postponed by two years
because of polltical changes at the Centre, but once it was implemented
(1992-97) and the country witnessed a new take-off of high GDP growth
and industrial resurgence. During the Eighth Plan. India registered the
highest annual rate of growth of 6.8 per cent and the interesting point was
that this order of growth rate could be achieved even though the share of
the public sector in total investment had declined considerably to about 34
per cent. With the adoption of economic refonns and liberalisation, the
importance of the private sector and movement towards market based
economic system were both responsible for the higher rate of economic
growth during the Eighth Plan.
Pattern of Financing the Five Year Plans in India
The [nost tiiSficult part of planning in India and for the matter, in
any country ot' the wo~rld,is the mobilisation of financial resources. It is
easy to plan and fix targets for various priority sectors of the economy but
it is difficult to find the necessary finances to implement the planned
prqiects. 'l'he (iovernmenl of India taxes the public and uses the proceeds
for econornlc developmenl; it collects the savings of the public in various

ways; it float loans within the country and also raises funds from foreign
sources. If all these sources are found inadequate, the Government resorts to
deficit financ~ngto finance its projects. The sources of finance available to the
government may broadly be divided into three categories:
(a)
domestic budgetary sources,
(b)
foreign assistance, and
(c)
deficit financing
Domestic budgetary resources are the funds raised by the
Government within the country and they consist o f :
(a)
surplus from current revenues that is, funds of current revenues over
current expenditure,
(b)
contribution of public enterprises,
(c)
mobilisation of internal private savings, though market borrowings,

small savings, provident funds, etc; and
(d)
additional resource mobilisation in the form of additional taxes and

additional revenue fiom public enterprises.
External assistansce consists of loans and grants from foreign
countries, loans from international institutions such as the IMF, the World
Bank and the IDA, etc.
If the domestic budgetary resources and external assistance are

found inadequate to finance all the development projects, the Government
will still decide to continue to implement all its cleveloprnent projects
through deficit financing. This gap in expenditure over revenues is
respectively called deticit financing and the excess of expenditure over
income is financed through borrowing from the Reserve Bank of India or
by using accumulated cash balances.
So far we saw the sources of finance available to the public sector
prqjects. We may mention the sources of finance available to the private
sector also. Firstly, the savings of the individuals households firms and of
the companies are available to the private sector either directly or through
the banking system. Secondly, the private sector gets funds from public
sector financial institutions such as IFCI, SFCs, ICICII, IDBI, etc. Thirdly,
the private sector may raise funds from the market through floating shares
and debentures. Finally, it may get foreign funds in the from of equity
capital or foreign collaboration. subscription to equities from non-resident
Indian (NKls). from the: International Financial Corporation (an affiliate of
the World Bank), loans from the World Bank, and so on.
In the analysis of "financing of Five Year Plans", the study proposes
to concentrate only on the financing of the public sector only.
Table 3.3
Sources of Plan Finance: First Eight Plans
--
Budgetary
Resources
-
First
Plan 100
Amount
% (Rs.
Crores)
Amount
% (Rs.
Crores)
1.440
73
190
Second
Plan 100
External
Assistance
Plan 100
2,560
56
1,090
5,090
59
2,390
. -~
--
Plan 100
12,010
--
Fifth
plan 100
-
I0
7
.
Third
'
28
74
2,090
13
82
5,830
15
78
8,530
---.
32.1 20
24
-~
Sixth
Plan 100
86,610
-
Seventh
plan 1 0
____1_~
1,34, i 90
16,120
Eighth
Plan 100
3.32.100
--
19,230
-
-.
-.
Source: Various Five Yrur Plan Docurnent,~
Table 3.3 indicates the share of the three sources of plan finance in
all the five year plans. The figures mentioned under each Plan are actual
and not the originally intended or planned amounts. Table 3 shows clearly
that of the three sources of Plan finance, the most important were the
domestic budgetarj resources. For instance, they accounted for 73 percent
of the total funds raised during the First Plan. How ever, they came down
to 56 and 59 per cent during Second and Third Plans respectively. This
reduction was due to the Government's attempt to rely increasingly on the
other two sources of finance. From the Fourth Plan onwards, how ever,
budgetary resources have again become the dominant source of Plan
finance- as much as 86 per cent in the Eighth plan.
Shift in Favour of Foreign Aid and Deficit Financing

Our planners were carried away by the success of the First Plan and
the presence of such favourable factors at the end of the First Plan as the
relative self - sufficiency in food grains, stability of prices in general and o f
foodgrains prices in particular, despite a high dose of deficit financing
during the First Plan period and the enthusiasm and willing co-operation of
foreign governments anti international institutions (IMF and the World
Bank to assist India in her planned economic development). Accordingly,
our planners planned for (a) massive increase in the six of our plans,
(b) proposed to raise large financial resources by way of foreign aid and
(c) leave large uncoveretl gap (deficit financing) during the Second and
Third Plans. For instance. as against 10 per cent of external assistance in

the First Plan. the Second and Third Plans had raised 24 and 28 per cent
respectively of the needed funds by way of foreign assistance. Deficit
financing during the Second Plan was brought down during the Third Plan
to 13 per cent of the aggregate resources because of the emergence of

inflationary pressures during the latter part of the Second Plan.
A careful consideration of data in table 3.3 reveals a clear shift in
resource mobili~ationkern the Fourth Plan onwards. Long before the
fourth Plan was introduced in April 1969. the Government of India had
already experienced the adverse effects of dependence on foreign
~ovemments'" and the undue pressure of international
financial
institutions. As a result, the Fourth Plan included self-reliance as a major

objective of planning. External assistance was reduced from 28 per cent to
13 per cent during the Third Plan. Extemal assistance was gradually
reduced to 5 percent during the Eighth Plan.
At the same time, the Government was fully alive to the adverse
consequence of deficit financing in the form of pressure on prices. Even
though deficit financing vuat; kept at 13 per cent during Third and Fourth
Plans, it was reduced to 3 per cent in the fifth Plan, but rose sharply to 14
per cent in the Sixth plan (as against the original estimate of 5 per cent) and
16 per cent during the seventh plan.
Reduced dependence on foreign aid and less recourse to deficit

financing naturall?
forced the Government
to rely increasingly
on
domestic b u d g e t a ~resources. Accordingly, from 59 per cent in the Third
Plan, domestic budgetary resources contributed 74 per cent of the

aggregate finances during the Fourth Plan and 82 per cent during the Fifth
q
Plan and 86 per cent during the Eighth Plan.

Domestic Budgetary Resources
Let us now consrder the domestic budgetary resources in some

detail. As already indicated, domestic budgetary resources comprise of
surplus from current revenues, contribution from public enterprises, market
borrowings, small savings, provident fund contribution, term loans from
financial institutions, miscellaneous capital assets and finally, additional
resource mobilisation (in the form of taxes or in the f o n of resources from
the p~lblicsector enterprises). The relative importance of these components
of domestic budgetary resources in the different plans is given in Table 4.
Balance from Current Revenues
The traditional view has always been that current revenue should be
used for meeting current expenditure. However, as far back as 1950-51, the
Planning Commission accepted the recommendation of the Taxation
Enquiry Commission Chaired by V.T. Krishnamachari that the current
revenue of the Government could and should be used partly to finance
economic development. The idea was to restrict current expenditure, create
a surplus from current rt:venue and use the same for financing economic
development. In theory this was a wise step and the planning Commission
dutifully provided for a cerlain amount of revenues as surplus from current

revenues. In fact the First Plan raised as much as 25 per cent of the total
financial resources fiom this source. But for the next three plans (Second,
Third and the t:ourth), the surplus from current revenues was negative.
Indicating that. instead orf restricting current expenditure and accumulating
a surplus in the current account, the Government was having net deficits. In
spite of its best intentions to restrict its current expenditure, both the
Central and State Goveniments were not able to do so, partly because of
multiplication of ministries and depxtments and mindless expansion in the
number of Government servants and partly because of rise in salaries and
dearness allowances. In the case of the Central Government, another
important cause of rise in current expenditure was the rapid growth in
subsidies, defense expenditure and interest payments. Even the surplus
shown in the Fifth Plan was not really a surplus but only an anticipated
surplus. The sixth Plan provided for a surplus in current revenues
amounting to Ks. 14.480 CI-oresor 14.9 per cent, could actually generate
very small surplus of Ks. 1,890 crores, accounting for only 1.7 per cent of
the aggregate resources. 'The Seventh and Eighth plans have shown huge
negative balances from current revenues.
Table 3.4
Relative Significance of the Components of Domestic Budgetary
Resources in Various Plans % of Total plan Resources
--
Fourth
Fifth
Sixth
Plan
Plan
Plan
74
82
78
13
25
40
28
41
34
27
37
30
Domestic
Budgetary
Resources of
which
59
1
I
current
revenues
from public
enterprises
(c) Domestic
private savings
(d ) Additional
resource
mobilisation
(ARM)
13
Sources:. Various Five Year Plrrn Docummts
Contribution from Public Enterprises

The contribution from public enterprises was not much but as Table
3.4 show, it has been rising steadily over the years: from about 3 per cent
in the Second Plan, profits of public enterprises had risen to 9 per cent in
the Forth Plan and nearly .5 per cent in the Sixth Plan. As a matter of fact,
the contribution from public enterprises has always been much less than
what was originally planned for. Many of the Central Government
enterprises have been running at losses and even the contributions of such
department undertakings as the railways and posts and telegraphs have
been minimal. I he bright stops have been the Reserve Bank of India and
other banking and financial institutions and some commercial enterprises
like Indian Oil Corporation, which have been yielding regular profits to the
Government. As far as State enterprises were concerned, the less said the
better. The State Electricity Boards (SEBs) and the State Road Transport
Corporations (SKTCs) which are the two major state enterprises have been
running at loss throughout the planning period. The loss of SEBs are
around Rs. 1,5000 crores per year and the loss of SRTCs are around Rs.200
crores per year. Further, states incurred an annual loss of Rs.700-1000
crores on commercial irrigation. In spite of their poor record, the planners
vainly expect increasingly larger contributions from the public sector
enterprises in every Plan.
Domestic Private Savings
Our experience from market borrowings and small savings- the two
components of domestic private savings in the country, in the last six plans
has been good. In fact these two sources have come to play an important
role in raising finances for development. During the First Plan, domestic
private savings contributed more than one-third of the aggregate resources,
but in the next two plans, lheir importance was reduced marginally, as the
Planners put more faith in external aid and deficit financing. In the Forth Plan,
the Government was so concerned about self-reliance and the need to reduce
dependence on foreign aid that it went in for a massive effort to raise financial
resources within the country. It may be observed that during the Fourth Plan,
domestic private savings accounted for 40 per cent of the total financial
requirements. In the Sixth I'lan, the original estimate was that the domestic
private savings should contribute
Rs. 36,400 crores or 37 per cent of the
aggregate planned investment. However, the Government succeeded in

raising. Rs. 45.930 crores or 41 per cent of the total investment. In the
Seventh and Eighth Plans the importance of this source of plan finance
continued to rise due to two reasons.
(a)
The Government ha:j a good and extensive captive market in the

form of nationalised banks. public sector financial institutions,
public provident funds, etc. which are able to supply almost any
amount of funds needed by the Government.
(b)
With rise in national and per capita incomes, the ability and
willingness to save among all sections of the people particularly the
middle classes has been increasing and the Government has also
been encouraging this tendency to save through appropriate tax
incentives (as tor example, interest income and dividend income is
exempted from income -tax up to the value of Rs. 15,000).
Accordinglj. domestic private savings contributed 58 per cent and
62 per cent respectively during Seventh and eighth Plans.
Additional Resource Mobilisation

Under this head, vie bring in two sources of raising funds for
development. The first is additional taxation which has been an important
source in all the plans. l'he second is the additional resource mobilisation
through public sector enterprises by raising their prices (or what is now
called, through raising the administered prices of goods). That additional
taxation has become an important source of development finance would be
clear from the fact that its contribution was 13 per cent in the First Plan, 23
per cent in the Fourth Plan and 30 per cent in the Sixth Plan (as against the
original estimate of 22 per cent). While the tax burden on the urban
consumers seems to have reached the maximum, there is considerable
scope for additional taxation on rural incomes. There is high degree o f
prosperity among the fanr~ersdue to the green revolution and part of the
additional income of the i'iirrning community could be easily collected for
development purposes.
The Govern~nenthas found it easy to raise the administered prices
of goods and services produced and sold by the public sector enterprises,
such as petrol. Steel. Coal. etc. But the public opposition to the price hike
in essential commodities in the beginning of 1986 was an eye-opener to the
Government and it was hoped that public opposition would restrain the
Government from raising additional resources by this method in the future.
However the Government has continued to use this method till now.
As dependence on foreign assistance and deficit financing have
serious adverse conseqilerlces for the country, the Government has been
relying increasingly on domestic budgetary resources. All the different
constituents of domestic resources. particularly additional taxation, market
borrowings and small savings and contribution from public enterprises
have their o w importance. To the extent the domestic resources are used
to meet Plan requirements, our dependence on deficit financing and foreign
assistance will be reduced.
Review of 50 Years of Planning in India
From what we have described above, it may be inferred that most of
India's Five Year Plans dld not succeed in producing the anticipated
results. When we say that a particular plan did not succeed, it only means
that the targets fixed during a given Plan were not achieved fully. But we
should remember that with every five year Plan, India could start at a higher
level of growth and development. We shall now take a birds eye view of the
concrete achievements of the development plans between 1951 and 1997.
Achievements of Planning in India
1.
Increase in national and per capita income
One of the basic objectives of economic planning in our country is

to increase national and per capita incomes. As a direct consequence of
economic planning. India's national income and per capita income rose,
though not as rapidly as the planners planned and anticipated. Table 3.5
brings out clearly the rise in national income (i.e., net national product at
factor cost) and per capita income. since 1950-51 at 1980-81 prices.
Table 3.5
Growth of National Income and Per Capita Income
Year
1970-71
~
~~
Net National product

(Rs. Crores)
Index
(at 1980-81 prices)
Per capita NNP

(Rs.)
Index
--
1980-8 1
1,10,690
1990-91
1,86,450
465
2,220
197
639
2,760
245
~p
1996-97
~p
Average Annual Rates

1980-8 1
1980-81 to
1996-97
Source: Gor<,rnmmlol'lndia, E~,or~omie

Survey, 1998-99
From table 3.5, we find that national income rose iLom Rs. 40,450
crores at the beginning of the First Plan to Rs. 2,58,470 crores at constant
prices at the end of the Eighth Plan. The index of NNP at constant prices
had risen from 1 00 to 639, i.e., by nearly 6.4 times.
On the other hand:, the per capita income in real terms had, however,
increased at much lower rate indicating that part of the increase in real
national income had been eaten up by the increase in population. Table 5
shows that per capita income at 1980-81 prices had risen from Rs.1,130 to
Rs. 2, 760 between 1951 and 1997. While national income had risen from
100 to 639 between 1951 and 1997 per capita income had risen from 100 to
245 only during the same period.
Between 1950-51 and 1996-97, the growth process of the Indian
economy can be divided into two broad periods: (a) 1950-51 to 1980-81,
and (b) 1980-81 to 1956-97. During the first period, Indian economy
increased at an annual average growth rate of 3.4 per cent in NNP and 1.2
per cent in per capita NNP (contemptuously called the Hindu rate of
growth by Prof. Kaj Krishria) Horn ever, during the second period, (i.e.,
1981 and 1997) the Indian economy crossed the barrier of the Hindu rate of
growth and showed an average rate of growth rate of 5.3 per cent in NNP
and 3.2 per cent in per capita income.
101
Table 3.6 shows the growth performance of the Indian e m o m y

under each plan.
Table 3.6
Growth Performance in the Five Year Plans
I. First Plan (195 1-56)

-
I-1
2. Second Plan (1956-861)

3. Third Plan (1 96 1-66)
-
4. Ponh Plan (1 969-74)
F h Pan 1 9 7 - 7 )
..
Sixth Plan (1980- 85)
1 7. Seventh Plan (1985 -90)
';I
5.0
:;"
6.0
Eighth Plan (1992-97)

--
--
Ninth Plan ( 1997-2002)

Note: The growth of the lirst three Plans were set with respect to national
income. In the Fourth Plan, it was with the NDP. In all the subsequent
plans. the GDP has been used.
Source:Plunnmng :(hmmi>:sion,Ninth Five Year Plan (1997-ZOOZ), V o l l
From 'Table 3.6, it i s clear that the actual growth rates have been
fluctuating up to the Fourth Plan between 2.8 to 4.3 per cent. Besides, the
actual growth rate was les:j than the target fiom the Second Plan onwards
and particularly during the h i r d and Fourth Plans. But from the Fifth Plan
onwards, there has been a steady iinprove~nentin GDP growth from 4.8 per
cent per annum during the Fifth Plan to 6.8 per cent during the Eighth Plan.
This was indeed a healthy development.
2.
Progress in Agriculture
During the last 50 years, the Government had spent, on an average,
23 to 24 per cent of the Plan outlay in each of the Five Year Plans on the
development of agriculture and allied activities and irrigation. This

expenditure was in addition to the private sector investment on agriculture
and minor irrigation. As a direct result of this plan outlay, agricultural
production increased considerably though not to the extent planned by the
Government. In the initial years of planning, additions to agricultural
output were secured more fiom extension of the area under cultivation than
from increases in production per hectare. Since 1960-61, the dominant trend
was that of higher yields h o r n the land cultivated. To increase agricultural
productivity, efforts were made to enlarge the supply of water, fertilisers,
pesticides, improved seeds, etc, in selected areas. This strategy was called by
various names, buch as the new Agricultural Strategy, Intensive Agricultural
District Programme (IADP). High Yielding Varieties Programme ( H W P ) ,
or the
Green Revolution. Table 3.7 outlines the progress of selected
physical agricultural development programmes since 195 1.
Table 3.7
Progress in the Use of Agricultural Inputs Since 1950-51
~
Programme
1950-51
1970-71
1996-97
-.
Consumption of chernical
-
Fertilisers (m. tonnes)
0.7
2.2
14.3
Nil
15.4
76.4
Nil
5.0
33.4
Nil
6.5
High yielding varietit:~

~
Programme(m.hectares)
-
of which.
Paddy (rn.hectares)
.---~
Wheat (m.hectares)
-
Irrigated area (mhectares)

- - .~
22.6
38.0
23.7
80.7
Source: Government o f l n , d i ~Economic

.
Survey, 1998-99
Table 3.7 clearly demonstrates the progress in the use of agricultural

inputs. In the beginning of the First Plan, consumption of chemical
fertilisers (consisting of nitrogenous, phosphatic and potassic fertilisers)
was less than a million tonnes; this had increased to over 14 million tonnes
by the end of the Eighth Plan. The high yielding varieties programme
(HYVP) was started during the Third Plan (1961-66) but by the end of the
Eighth Plan over 76 million hectares of land had come under this
programme-nearlj 75 per ct:nt of this area was under improved varieties of
rice and wheat. Area under irrigation had gone up from nearly 23 million
hectares to nearly 8 1 million hectares
The progress in the use of agricultural inputs has been specially

spectacular in the production of rice, wheat, potatoes, etc. An idea of the
progress in agriculture under the Five Year Plan can be had from Table 3.8.
Table 3.8
Agricultural Production under Five Year Plans (1951 to 1997)
-7I
I
I
Increase(%)
1950-51
1970-71
1996-97
between
1951and 1997
~.Foodgrains
51
108
199
290
(m.tonnes)
~-
Rice(m.tonnes)
21
.-
42
82
24
69
10
24
380
126
278
388
14
367
290
Wheat(m.tonnes)
7
.-
Oil seeds
886
(m.tonnes)
--
-.
Sugarcane
57
(m. tonnes of gur)
~~-Cotton (m. bales)
.)
-~
-.
--
Jute & mesta

-~
(m.bales)
3
-~
Potatoes (m.tonnes)
11
267
24
1,100
-- .---
Source: Govrvntnent oflndiu, Economic ,Turvey, 1998-99
'Table 3.8 shows clearly the spectacular agricultural progress India

has made since 1950-5 1 . Foodgrains production had gone up from 51
million tonnes at the beginning of the First Plan to 199 million tonnes by
the end of the Eighth Plan-increase by more than five times. Likewise,
every crop. production had increased by three or four times. Of course, the
most spectacular increase was in wheat and potatoes. All this has been
made possible because of the success in planning. Of course, there have
been many shortcomings, :such as failure to fulfil the targets of production
in many crops. shortfalls in the production of pulses and oilseeds in the
face of continuous rise in demand for them and year --to-year fluctuations
in the production of commercial crops such as sugarcane cotton and jute.
3.
Progress in lndustrj
Table 3.9 gives the progress in some basic industries only which is
quite impressive. Equally impressive is the progress in metallurgical

industries, chemical and allied industries, etc. A major achievement in the
industrial sector has been the diversification of Indian industries.
During the lirst Eight Five Year Plans (1951 to 1997), the Government
had invested heavily on the development of industries, on the expansion of
transport and communications, generation and distribution of electricity, etc.
Between 53 to 55 per cent of all planned outlay of the Government in each
Five Year Plan was on these sectors. As a result, there has been considerable
progress in such industr~ies as steel, aluminium, engineering goods,
chemicals, fertilissrs and petroleum products.
Table 3.9
Progress of industrial Production (Selected industries)
.
1950-51
1970-71
1996-97
32
76
308
32
66
0.02
12
4.Cement (m.tonnes)
14
74
5. Finished steel(m.tonr~es)
23
169
524
0.3
33
56
395
1.Coal (m.tonnes)
-~
2.Iron ore (rn.tonnes)

-
3.Fertilisei-s (m.tonnes)
-
6. Aluminium (000 tonnes)

-
7.Petroleurn
..
--
8. Electricity(billion kwh)
--..
--
Source: Government of India, Economic Survey, 1998-99
Appreciating the process and rapid development of industrialisation,

the Janata Governments Sixth Plan states: "A major achievement has been
the diversification and expansion of India's industrial capacity with the
public sector playing a leading role. The country is self sufficient in
consumer goods and in basic commodities like steel and cement, while the
capacity of other industries like fertilisers is rapidly expanding. The growth
of capital goods production has been particularly impressive., and India can
now sustain the likely growth of most of her industries, whether textiles,
food processing or cement or chemicals. metallurgical industries, power or
transport by thc domestic production of capital goods needed with only

marginal imports".
As a direct ccmsequence of the increase in planned production in
agriculture, industry and in all other sectors of the economy, per capita
availability and consumption of essential commodities had increased in
India. Table 3.10 shows how the net availability of foodgrains, sugar and
other basic necessities had increased since the beginning of the First Plan.
Table 3.10
Net Per Capita Availability of Some Essential Consumer Goods in India
.
Items
1950-51
1970-71
1996-97
144
167
187
5.0
7.4
14.6
3.2
4.5
9.2
362
40 1
657
47
40
72
II
29
14
16
29
56
395
~.
2. Sugar (kgs)
-~
3. Edible oils and vanasp,ati (kgs)

~
--
---~
6. Eggs (number)
-7. Cloth (metres)
-
---
--
These figures in column- I relate to the year 1955-56,that is, the last year of
the First Plan.
Source: Governmrt~~
~~firrc/ru,
l<c(,'nomicSurvey, 1998.99.
Table 3.10 shows that, between 1951 and 1997 per capita consumption
of foodgrains (i.c.. cereals ant1 pulse) had increased considerably-between a
modest 30 per cent in the case of cereals and pluses to nearly 200 per cent in
the case of sugar. 500 per cent increase in the case of eggs and 2300 per cent
increase in the consumption of domestic electric power. The increase in per
capita consunlption of essential consumer goods would have been much
greater if population had not risen from 361 million to an estimated 948
million between 195 1 and 1997 or if population growth had been
effectively controlled. It is also interesting to observe that despite increase
in per capita consumption of essential consumer goods, savings as a
proportion of GLIP had increased from 10.4 per cent in 1950-5 1 to 26.1 per
cent in 1996-97.
4.
Development of economic infrastructure
Another achievement of great significance is the creation of

econo~nicinfrastructure which provides the base of the programme of
industrialisation. The expansion of roads and road transport has led to the
enlargement of the market.. Irrigation and hydroelectric projects have given
a big boost to agriculture and also provided energy for installing factories
and other modern establishments in small towns and cities. The
infrastructure has opened the possibilities of modernising semi-urban and
rural areas. The Janata Sixth Plan rightly mentions: "A large infrastructure
has been built to sustain this sub-continental economy: the network of
irrigation storage works and canals, hydro and thermal power generation,
regional power grids. a largely electrified and dieselised railway system,

national and state highways on which a rapidly growing road transport fleet
can operate and telecommunication system covering the most urban
centers and linking India with the world.
5.
Diversification of exports and import substitution
As a consequence of the policy of rapid industrialisation, India's

dependence on foreign countries for the import of capital goods had declined.
Similarly, quite a good number of consumer goods imported earlier are being
produced indigenously. This has led to import substitution. Consequently, the
commodity composition of India's exports has changed in favour of
manufactures, mineral ores and engineering goods.
6.
Development of science and technology
Another achievement of s~gnificanceis the growth of science and

technology and the development of technical and managerial cadres to run the
modem industrial structure. This has significantly reduced our dependence
on foreign experts. Being relatively more advanced than some of the other
underdeveloped and developing countries, India has started exporting
technical experts to middle East and African countries. This is a matter of
legitimate pride for the country.
7.
Development of educational system
One of the great ;achievements of Indian planning is the development of

a huge educational system.-the third largest in the world. As against a total
enrolment of 239 lakhs nn 1950-51. enrolment at the end of the Eighth Plan
(1996-97) was of the order of 1,827 lakhs. The enrolment of pupils at the
primary level increased from 192 lakhs to 1,118 lakhs during this period.
in the age group 6 to 1I, it improved from
As a percentage of pop~~lation
3 1 per cent to 84 per cent between 1951 and in proved from 31 lakhs to
4 10 lakhs between i 95 1 artd 1997 and as a proportion of the population in
the relevant age-group ( 1 1 to 14). it improved from 13 to 68 per cent.
Similarly, at the secondary level, total enrolment improved from 12 lakhs
to 249 lakhs between 1951 and 1997 and as a proportion of the population
in the age group (14 to 17) it improved from 5.3 per cent to 32.4 per cent.
Total number of students enrolled in colleges and Universities increased
from 3.6 lakhs to 43 lakhs between 1951 and 1997. Such a huge expansion
of the educational system is a major achievement of the planing era.I7
Reviewing the overall achievements of planning in India, Sixth Plan
(1978-83) stated: "it is a cause of legitimate national pride that over this
period a stagnant and dependent economy has been modemised and made
more self-reliant. Moderate rate of growth of per capita income has been
maintained despite the growth of population". A sinlilar opinion was
expressed by Professor D.T. 1,akdwala who, while reviewing national

achievements after 40 years of planning wrote: "There has been some
satisfaction with the ect~nomicprogress made by India on several fronts-the
rate and diversity of econornic growth, the increase in savings and investment,
the almost entire self-rt:liance realised in foodgrains production, the high
transformation in the s0uc:ture of industry, the capacity in training highly
skilled manpower so as to lead to an exportable surplus in certain lines, the
extension of normal and special banking facilities to hitherto unbanked
areas and sectors, the unprecedented expansion of state, quasi-state and
cooperative institutions i n marketing and technical aid and guidance, etc.
Some indicators of the quality of life like expectation of life at birth, death
rate, infant mortality rate have also recorded a welcome changev.'*
From the credit sicle of the account, let us now turn to the debit side
and focus attention on the fundamental failures of planning in India.
Failure of Planning in lntlia
In his book "Development Planing -the
Indian Experience:
Professor Sukhamoy Chakravarty points out three major weaknesses and

failures of Indian planning. The first. major defect is the gross inefficiency
of production in many areas. in the public sector enterprises. There are
many areas of production where inefficiency is fairly widespread, as in the
generation of po\\er. transport, steel, fertilisers, let alone high cost
consumer durables. There is no inherent reason why plant load factors in

thermal power stations hiwe to be around 50 per cent. There is much
greater scope for improving the efficiency of the integrated steel plants.
In the second place, India has not been able to enlploy proportionately
larger population in industry. The occupational structure has remained more
or less unchanged.
In the third place, the planners did not comprehend the full set of
logical implications of the Mahalanobis strategy of accelerated growth in
the context of a mixed economy. To quote Professor Chakravarty here:
"This showed that the process of industrialisation had ignored certain
important issues relating to the phasing of investment outlay. But probably
and more importantly, the ~nabilityto carry out effective land reform in the
early fifties when conditiclns had been reasonably opportune, along with
the maintenance of largely unchanged input base of traditional agriculture
was left largely in complete".
For nearly five decades, the Congress Government at the Centre-and
even the coalition Governments which came to power for brief periods in
between
have been constantly impressing upon the people of India that
development planning in India aims to build a socialistic pattern of society.

The (3overnments have been proclaiming measures to achieve growth with
justice, abolition of poverty (Garibi hatao), removal of exploitation and

inequality of incomes, etc. But then, it is not a slogans or political catch
phrases that matter. The crucial question, therefore, is: whether the lot of
the underdog. the weak and the under-privileged has improved? In other
words, have tht: benefiits of development percolated down to the lower
layers of Indian society or have they been appropriated by a small group of
the rich and the higher middle classes? It is the contention of many
economists and non-political observes that the poor in India have not really
benefited from economic planning and that, to a large extent, the rich have
become richer while the vast majority of the poor-particularly the Dalits
and the tribals-have remained hopelessly poor. Let us now spell out some
of the basic failures of planning in India.
i.
Failure to eliminate poverty

The basic objective of planning is the provision of a national
minimum standard of living. Removal of poverty was a major objective of

planning. It was felt th;at growth rate per se would not be sufficient to
remove poverty and, instead, it would be more desirable to undertake
specific measures to remove poverty. Thus, poverty removal programmes
were made an integral part of the Fifth Plan and subsequent plans. Prof.
D.T. Lakdawala's Expert Group estimated that in 1973-74, about 55 per

cent of the population was living below the poverty line and in 1987-88,
this proportion had corne down to 39 per cent. Using a slightly modified
methodology. the Planning Commission estimated that in 1993-94, only
36 per cent ot the population lived below the poverty line. In absolute
terms, between 1973-74 and 1993-94, the total number of the poor remained
around 320 million. In this connection, Professor P.R. Hrahmananda writes:
"Instead of attacking the problem of poverty directly through wage -goods
model, the authorities preferred to initiate a number of anti poverty and
public distribution measures, which were simply in the nature of firefighting exercise with large ~eakage's".'~
In other words, all throughout, India had followed a blood
transfusion approach which provided only temporary relief. It would have
been much better if India had followed a blood generation approach by
emphasising suitable employment creation.
ii.
Failure to provide employment to all able bodied persons

Another basic failure of planning in India was the emphasis on
growth rather than on employment generation and the adoption of capitalintensive production methods instead of labour intensive methods. Despite
the implementation of eight five year plans, unemployment has been on
the increase. According to the Planning Commission, the backlog of the
unemployed pcrsons was 5.3 million at the end of the First Plan and 7.5
million at the end of the Eighth Plan. The combined incidence of
unemployment and undcremployrnent was about 10.5 per cent of the

labour force at the end of 1996-97. It is the considered opinion of experts
that unless India adopts an employment-oriented strategy and aims at 3 to
4 per cent annual increase of employment with higher levels of
productivity, the chances, of reaching the goal of full employment and
alleviating under-employment would defy solution.
iii.
Failure to reduce inequalities of income and wealth

It is rather doubtful that during the last five decades of planned
economic development, redistribution of income in favour of the less

privileged classes has taken place. Between 1950-51 and 1973-74, per
capita income rose by 1.5 per cent per annum. But even this small increase
was unequallq distributed.
Prof. V.M. Dandekar and Neelkantha Rath
concluded, from their study in 1971 that the condition of the bottom 20 per
cent of the population had definitely deteriorated and for the next higher
20 per cent of the population had remained more or less stagnant. There
was thus evidence of increased concentration of income and wealth in the

hands of the propertied class. The Fourth Plan admitted this fact: "Another
area where our ct'forts so far has been feeble and halting is in narrowing the
disparities in incomes and property ownership".
Another method ofjudging social justice relates to the rise in prices
and changes in price structure. Prices of foodstuffs and essential consumer
goods rose at a much greater rate than the prices of luxuries and semiluxuries. Between 1990-91 and 1996-97, the general price index (198081+100) moved up by '72 per cent but the index of foodgrains prices and
like general consumer goods matches, kerosene, cloth, vegetables etc., also
moved at a faster rate vis-a-vis articles consumed by the upper classes. In
a socialist economy, fiiilure to control the prices of food and essential
consumer goods is tht: denial of economic justice to the masses. The
situation has been worsening over the years.
iv.
Failure of fiscal measures to correct inequalities and control

unaccounted money
There is no doubl: that speculative gains, illegitimate incomes of
various forms through illicit gains of contractors, windfall profits from

protected markets, se:mi- monopolistic conditions created by import
restrictions and capital issues and corruption generated by licences and
quota system in various fields of economic activiQ have all resulted in
illicit income shifts in favour of the upper income classes. Inflation,
controls and the vast expansion of the public sector have breed corruption,
tax evasion and illicit speculative gains. Thus, the fruits of economic
progress instead of being shared by the masses flow in to the pockets of the
traders, businessmen anti industrialists. Even highly placed civil sewants
and the active politicians are said to be making huge accumulation of

money, financial assets and real assets.
Fiscal measures to unearth unaccounted money have failed, and
have actually buried the unaccounted money still deeper. Whereas the
Government tries to unearth black money, the capitalists, the businessmen
and speculators are keen to devise ways and means to convert black money
into private capital formation. So far in this tug-of-war, it is the capitalist
class which has been successful in dodging the State. But unaccounted
money has resulted in stimulating demand for prestige goods like scooters,
cars, washing machines. television sets, air conditioners, etc. In other
words, a part of the gains of illicit incomes is spent on conspicuous
consumption. 'l'hc Sixth Plan also reaches the same conclusion. "An unduly
large share of resources is thus absorbed in production which relates
directly or indirectly to maintaining or improving living standards of higher
income groups. Thc demand of this relatively small class, not only for a
few visible items of con:jpicuous consumption but for the outlay on high
quality housing and urban amenities, aviation and sustains a large part of
the existing industrial structure.
v.
Failure to reduce concentration of economic power.
One of thc main tenets of socialism as accepted by our planners is

the reduction o f concentration of economic power. But actually, monopoly
has increased in India during the last 50 years, even though Jawaharlal
Nehru had stated categorically: -'Monopoly is the enemy of socialism". To
reduce concentration of economic power and wealth in the hands of a few,
the Government adopted fiscal measures like taxation, of wealth and
property, articles of luxurious consumption and prov~sionof subsidies on
necessaries. Although tiscal measures had a positive role to play, proper
tax rate structure remained only on paper and became the source of black
money. Similarly, a system of heavy taxation on articles of luxurious
consumption and provision of subsidies on necessaries was tried for many
years as a part of a programme of social justice but without any result.
iv.
Failure to implement land reforms
One of the basic policy decisions to transfer ownership of land to

the peasantry. for which efforts were made for five decades, was not
properly implemented. I[t has been now admitted by the Government that
progress of land refoms had been rather low and that the State
governments were not eager to implement them with a speed sufficient for
a quick transition to progressive agriculture and socialism. We, have
already quoted Professor Sukhmoy Chakravarty on this point: "But
probably more importantly, the inability to carry out effective land reform
in the early fifties when conditions had been reasonably opportune, along
with the maintenance of largely unchanged input base of traditional

agriculture, meant that the agrarian transition was left largely incomplete."
Summing up
To sum up, the philosophical foundations of the planning policies

and strategy mere sound but there was crisis of irnplernentation due to the
existence of a gap between the theory and practice of socialist planning.
The planning process has been able to create social and economic
infrastructure. provide an industrial base by fostering the development of

heavy and basic industries and enlarge educational opportunities, it failed
to provide employment to every able-bodied person, eliminate poverty and
bring about institutional reforms leading to reduction in concentration of
income and wealth. Moreover.
the benefits from the economic
infrastructure have accrued largely to the relatively affluent and those in

urban areas. According to the Sixth Plan, these fundamental failures of
planning emphasi~ethe need for a re-appraisal of the development strategy.
It mentions. "We must face the fact that the most important objectives of
planning have not been achieved. the most cherished goals seem to be
almost as distant today as when we set out on the road to planned
development. l hese aims-implicit in all our plans more explicitly stated in
the formulation of our development strategy-are universally accepted by
the Indian people: they are the achievement of full employment, the
eradication of poverty and the creation of more equal society."
References and Notes
'
4
See world Hank. "External Deht of Developing Countries, 1990-PI" Washington

D.C., p.46
See Nrhru fo Kuo- Nee- coJonisationprocrss in India P.J. James Chapter 2, p.29
See Nehru to Rao, Neo-colonisation process in India, P.J. James Chapter 2, p.33
As a matter of fact, by this attack on l~nportSubstitution Industrialisation (ISI), the
experts themselves wen: contradicting the position taken by them at the time of
decolonisation. ie, when they were wholeheartedly supporting the ECLA thesis
based on keynesian prescriptions which gave primacy to employment generation and
growth rather than balance of payments adjustment. At a global level, the IS1
strategy was first advocated by the economists associated with the Economic
commission for Latin America (ECLA) appointed by UN in 1948. On the basis of
the statistical findings based on the international trade data pertaining to Latin
American countries, these economists came to the conclusion that there was a
secular deterioration of tr:mls of trade ofthese countries.
Aid lndia Consortium (PLIC)is one among the 18 consortias established under the
chairmanship of World Bank to monitor the economies of 18 newly independent
third world countries. The members of AIC were the following chairman. World
Bsnk, members, IMF, IJNDP (United Nations development programme), IFAD
(International Fund for Aj:ricultural Development) ADB (Asian 1)evelopment Bank),
CEC (Commission for European Communities) NIB (Nordic Investment Bank)
USA, Britain. Germany, Japan, France, Netherlands, Sweden, AIC has been
reincarnated as IDF (India Development Forum) in which representatives from
MNCs, international financial speculators and capitalist sections in lndia are
included.
The Nehru and others did not take note of this remains an enigma even to day. That
Nehru did not what to compromise as the political sovereigrity of liidia is beyond
question; but he failed to see through the capitalist strategy was tragic to Indian
Democracy.
External Assistance Dur,ing the Plans-complied from economic survey-various

years.
See Michael Kidron. fik~reignInvrsiments in India, p.6
In
II
''
'2.1'. Kurian. t;lohrrl ('upitalism andihe Indian Econorny, p.34

All of them being representatives of multinational banks
Economist like I.(;. Patel and Ashok Metha had that view
Leftist Economists like Sarnir Amin and Prabat Padnaik had that view
I3
External Assistance During the Plans-complied from economic survey-various

years.
14
Quoted from World Bank op. cit.
IS
Planning Commission, Dral't Five Year Plan, (1978-83), p.9
16
(American and British pressure against lndia during Indo-Pakistan conflict in 1965)
and the undue pressure of international financial institutions (the pressure of IMF to
devalue the rupee in 1966).
17
Government o f lndia Econornic Survcq (1996)
18
Government of lndia Economic Survey (1996)
I9
Brahmananda P.R 50 Years of Free Indian Planning (1997), p13
Other References
I. Five Year Plan Documents 1-8, Planning Commission, Government of lndia, New
Delhi
2. Robert E. L-l l.ucas and Gustav F Papanek (1988), The Indian Economy Recent
Developnrent and Future .Prospects, Oxford University Press.
3. Lewis John P. Indian Polific,dEconomy, Delhi, Oxford Universitj Press (1997)
4. Uppal J.S.. 11idrunEc<~nonzic
Plunning, Macmillan India Limited, Delhi (1984)
5. Bardhan Pranab, The Poiiti~:alEconomy of Development in India, Delhi, Oxford
University Press (1998)
6 . Lucas E. Robert and Papanek F. Gustav, The Indian Economy-Recent Development

and Future Prospecu, Madras, Oxford University Press ( 1 988)
7. Ruddar Datt and K.P.M. Sundharam. Indian Economy, ed. 44

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CHAPTER 111

DEVELOPMENT POLICIES OF INDIA SINCE

consequent human misery. The stagnating agricultural sector had to be

refortned for building up a strong and self reliant economy.

The partition of the country had further aggravated the econo~niccrisis.

shared 809 directorships in foreign-controlled companies in India. At the

controlled 70 to 95 per cent of jute production, 70 per cent of coal mining

investment (such as in plantations) and control by managing agencies

Beginning of Planning in India

capitalist powers, the Nehru government devalued the Indian rupee by

The First Five Year Plan prepared under these

circu~nstancesclarified in its draft outline that foreign capital would act as

several countries put together really provided an expanding market for

The World Bank in a publication has characterized those

Aid India Consortium: a Milestone in the Westernisation Process

into the core of Indian planning machinery and succeeded in placing

experts trained in capitalist headquarters in strategic positions such as the

Ilowever, the total

The net result was that from a

position of zero external debt in 1951 when planning began, the

Further. to take advantage of tariff protection granted to

industrial enterprises, IMNCs penetrated into India in the form of 'joint

Monopolies (:ommission found out that 75 leading business groups owned

of private capital stock in Indian cotnpanies. Their ownership of banks ...

wrote a report on the Indian

economy. It was described by some as "one of the most heart-warming

It is argued that this

document was in effect laying down the conditions of mortgaging the

neocolonial strategy of integrating Indian economy with global capitalism.

I'he flaws of Wehruvian self-reliance could be seen from the

Report was a concrcte evidence to the growing disenchantment with

asked the GO1 to immediately carry out a package of policies comprising

57.5 per cent (rupee value of the dollar rose from $1

currently implcmcnting the loLhplan. The guiding principles of India's Five

The Approach to Each Plan

Simultaneously. the First Plan attempted a process of all-round balanced

slage were agriculture could be assigned a lower

priority and a forward thrust be made in the development of heavy and

By the beginning of the third plan (1961-66) The Indian planners

The e:uperience of the first two plans suggested that

poverty and attainment of self reliance, through promotion of high rate of

the Janata approach and brought back the Nehru model of

growth by making at a direct attack on the problems of poverty by creating

For each plan, the Planning Co~nrnission fixed an overall total

outlays on development programmes were raised substantially. Table

Fourth Plan ( 196'1-14)

Seventh Plan(1 985-90)

resorted to deficit tinancing. (I)ccasionally, there have been serious

Priorities and Pattern of Investment in the Plans

Source: Vurious Five Yrur Plan docu~nents

In 'l'able 3.2 we observe that the Government outlay on each sector

Agriculture and Irrigation

Industries and Minerals

Assessment of the Five Year Plans

430 crores. Moreover. atier the promulgation of internal emergency in 1975,

Eighties (the Sixth and Seventh Plan) witnessed a creditable average

for econornlc developmenl; it collects the savings of the public in various

domestic budgetary sources,

foreign assistance, and

Government within the country and they consist o f :

contribution of public enterprises,

mobilisation of internal private savings, though market borrowings,

additional resource mobilisation in the form of additional taxes and