Chapter 3
Politics of Planned Development
How independent India chose its path to economic development
1. Chapter Overview
After nation-building and democracy, India’s third major challenge was economic development — ensuring the well-being of all. This chapter traces the political choices behind India’s development strategy: the debates over what “development” should mean, why the government adopted centralised planning through the Planning Commission, the contrasting approaches of the First and Second Five Year Plans, and the achievements and limitations of this strategy in its early decades.
1
What were the key choices and debates about development?2
Which strategy was adopted in the first two decades, and why?3
What were the main achievements and limitations of this strategy?4
Why did political contestation surround every development decision?2. Political Contestation — The Orissa/POSCO Case
The textbook opens with the case of Orissa’s iron ore reserves and the proposed POSCO steel plant. The State government wanted investment and jobs; the tribal population feared displacement from their homes and livelihood; environmentalists feared pollution; and the central government feared that blocking industry would discourage investment nationally.
🤔 The Big Questions This Raises
- Decisions like this involve weighing one social group’s interests against another’s, and the present generation against future generations.
- Such questions cannot be answered by experts alone — advice from mining experts, environmentalists, and economists matters, but the final call must be a political decision taken by people’s representatives.
- ‘Development’ means different things to different people — an industrialist, an urban consumer, and an Adivasi living on the land will each define it differently.
- Since Independence, every major development decision has been bound together by a shared vision or model of what development should look like — and each decision carried political consequences requiring party consultation and public approval.
📌 What is Left and What is Right?
Left: favours state control of the economy and state regulation over free competition, in order to bring about social change and economic redistribution.Right: believes free competition and the market economy alone ensure progress, and that government should not unnecessarily intervene in the economy.
3. Two Models of Modern Development
In the 1940s–50s, ‘development’ was widely equated with becoming more ‘modern’ — and modern meant becoming more like the industrialised West. This idea of modernisation involved the breakdown of traditional social structures and the rise of capitalism and liberalism, and was tied to growth, material progress, and scientific rationality. On the eve of Independence, India had two ready-made models before it.
🏦 Liberal-Capitalist Model
As followed in much of Europe and the US. Free market and private enterprise drive growth. Had very few supporters in India at the time.
☭ Socialist Model
As followed in the USSR. State-controlled economy aimed at equality. Deeply impressive to many in India — not just the Communist Party of India and Socialist Party, but leaders like Nehru within the Congress itself.
🤝 The Broad National Consensus
- Development of India should mean both economic growth and social and economic justice.
- This could not be left to businessmen, industrialists, and farmers alone — the government must play a key role.
- Disagreement remained on how much of a role: Was a centralised planning institution necessary? Should government run key industries? How much weight should justice get if it clashed with growth?
- Within this consensus, some prioritised industrialisation; others prioritised agricultural development and rural poverty alleviation.
4. Planning — The Bombay Plan & the Planning Commission
Despite their differences, everyone agreed on one point: development could not be left to private actors — the government needed a design or plan. Interestingly, this idea did not come only from the political left.
💼 The Bombay Plan (1944)
A section of big industrialists themselves got together in 1944 and drafted a joint proposal for a planned economy, wanting the state to take major initiatives in industrial and economic investment. This shows that planning was the obvious choice for the country’s future — “from left to right.”🏢 The Planning Commission
📌 Basic Facts
- Set up in March 1950 by a simple resolution — not a constitutional body.
- Has an advisory role only; its recommendations take effect once the Union Cabinet approves them.
- The Prime Minister was its Chairperson — it became the most influential machinery deciding India’s development path.
🎯 Stated Objectives (founding resolution)
- (a) Right of citizens, men and women equally, to an adequate means of livelihood.
- (b) Ownership and control of material resources distributed to subserve the common good.
- (c) Prevent the concentration of wealth and means of production to the common detriment.
⏩ Fast Forward — NITI Aayog
The Government of India replaced the Planning Commission with a new institution named NITI Aayog (National Institution for Transforming India), which came into existence on 1 January 2015.5. How the Five Year Plans Worked
Following the USSR model, the Planning Commission opted for Five Year Plans (FYP) — a document laying out the government’s income and expenditure priorities for the next five years, allowing long-term intervention in the economy.
- The budget of the Centre and all States is divided into two parts: the ‘non-plan’ budget (routine, yearly spending) and the ‘plan’ budget (spent as per five-year priorities).
- A five year plan lets the government focus on the larger picture and make long-term economic interventions.
🕰️ Timeline of the Early Plans
Mar 1950
Planning Commission set up by government resolution.
Dec 1951
First Five Year Plan document released — generated huge public excitement and debate among academics, journalists, industrialists, farmers, and politicians.
1956
Second Five Year Plan launched — public excitement about planning reached its peak.
1961
Third Five Year Plan launched — excitement continued but was declining in novelty.
1966
Fourth Plan was due, but India faced an acute economic crisis — government took a ‘Plan Holiday’ instead.
6. The First Five Year Plan (1951–1956)
Aimed to pull the country’s economy out of the cycle of poverty, with a deliberate emphasis on patience over speed.
- K.N. Raj, a young economist who helped draft the plan, argued India should ‘hasten slowly’ for the first two decades, since too fast a rate of development might endanger democracy.
- Focused mainly on the agrarian sector — investment in dams and irrigation — since agriculture was hit hardest by Partition and needed urgent attention.
- Huge allocations went to large-scale projects like the Bhakra Nangal Dam.
- Identified the pattern of land distribution as the principal obstacle to agricultural growth, and focused on land reforms as key to development.
- Aimed to raise national income by pushing up people’s savings — difficult, since spending levels were already very low and capital stock was low relative to the employable population.
- Savings did rise through the plan period up to the end of the Third Plan, but less spectacularly than hoped; from the early 1960s to early 1970s, the savings proportion actually fell consistently.
7. The Second Five Year Plan — Rapid Industrialisation
Drafted by a team led by P.C. Mahalanobis, the Second Plan pursued quick structural transformation by changing many things simultaneously — a sharp contrast to the First Plan’s patience.
- Just before this plan, the Congress party’s Avadi session (near Madras) passed a resolution declaring ‘socialist pattern of society’ as its goal — this was reflected directly in the Second Plan.
- The government imposed substantial tariffs on imports to protect domestic industries, helping both public and private sector industries grow in this protected environment.
- As savings and investment grew, industries like electricity, railways, steel, machinery, and communication were developed largely in the public sector.
- This push for industrialisation marked a turning point in India’s development strategy.
8. Problems and Criticisms of the Strategy
💱 Technological Backwardness
- India had to spend precious foreign exchange to buy technology from the global market, since it was technologically backward.
🌾 Industry vs Agriculture
- Industry attracted more investment than agriculture, raising the risk of food shortages.
- Planners found it genuinely hard to balance the two sectors.
🏙️ “Urban Bias”
- The Third Plan was not significantly different from the Second.
- Critics said plan strategies displayed an unmistakable urban bias — industry was wrongly prioritised over agriculture.
🌱 Alternative Views
- Some wanted the focus placed on agriculture-related industries instead of heavy industries altogether.
🆚 First Plan vs Second Plan — Quick Comparison
| Aspect | First Five Year Plan (1951–56) | Second Five Year Plan (1956–61) |
|---|---|---|
| Approach | Patient, ‘hasten slowly’ (K.N. Raj) | Quick, simultaneous structural change (Mahalanobis) |
| Core Focus | Agriculture, dams, irrigation, land reforms | Heavy industries, public sector |
| Key Idea | Fixing the agrarian crisis after Partition | ‘Socialist pattern of society’ (Avadi resolution) |
| Trade Policy | — | High tariffs to protect domestic industry |
9. Key Personalities
Jawaharlal Nehru
Prime Minister & Chairperson, Planning Commission
Deeply impressed by the Soviet model of development; championed centralised planning as free India’s path to growth with justice.
K.N. Raj
Economist, drafter of First FYP
Argued India should ‘hasten slowly’ in its first two decades of development, warning that too rapid a pace could endanger democracy.
P.C. Mahalanobis
1893–1972
Scientist and statistician of international repute; founder of the Indian Statistical Institute (1931); architect of the Second Plan; supporter of rapid industrialisation and an active public sector.
10. Mind Map — Chapter 3 at a Glance
🗺️ Mind Map — Politics of Planned Development
Chapter 3 — Politics of Planned Development⚖️ Political ContestationOrissa/POSCO case
Whose ‘development’?
Whose ‘development’?
🌍 Two ModelsLiberal-capitalist
Socialist (USSR)
Socialist (USSR)
💼 Bombay Plan1944, industrialists
Wanted state planning
Wanted state planning
🏛️ Planning CommissionSet up 1950
PM as Chairperson
PM as Chairperson
🌾 First FYP1951–56
Agriculture, land reforms
Agriculture, land reforms
🏭 Second FYP1956–61, Mahalanobis
Heavy industry, public sector
Heavy industry, public sector
⚠️ CriticismsUrban bias
Industry vs agriculture
Industry vs agriculture
⏩ TodayNITI Aayog
replaced it in 2015
replaced it in 2015
11. Summary — Quick Revision
1
India’s third great challenge after Independence was economic development. The Orissa/POSCO case shows development is never neutral — it means different things to industrialists, urban consumers, and Adivasis, and involves real political trade-offs.
2
On the eve of Independence, India faced two models: the liberal-capitalist model (West) and the socialist model (USSR). The socialist model had far more admirers, including Nehru, though there was broad consensus that development must mean both growth and justice, with government playing a central role.
3
The idea of planning was backed even by big industrialists — the Bombay Plan (1944) proposed a state-led planned economy. The Planning Commission was set up in March 1950 by a government resolution (not a constitutional body), with the PM as Chairperson and only an advisory role.
4
India adopted Five Year Plans like the USSR. The First FYP (1951–56) followed K.N. Raj’s ‘hasten slowly’ approach, focusing on agriculture, irrigation, dams (e.g. Bhakra Nangal), and land reforms.
5
The Second FYP (1956–61), drafted under P.C. Mahalanobis, pushed rapid industrialisation and a ‘socialist pattern of society’ (Avadi resolution) — heavy industries grew mainly in the public sector, protected by high import tariffs.
6
The strategy faced real problems: foreign exchange spent on technology, food shortage risks as industry outpaced agriculture, and criticism of ‘urban bias’ in the Third Plan. By 1966, an economic crisis forced a ‘Plan Holiday’ instead of a Fourth Plan.
7
The Planning Commission was eventually replaced by NITI Aayog on 1 January 2015.
12. Important Terms to Remember
- Left / Right (politics): Left favours state control of the economy and regulation over free competition; Right believes free competition and the market alone ensure progress and that government should not intervene unnecessarily.
- Bombay Plan (1944): A joint proposal by a section of leading Indian industrialists for a planned economy, wanting the state to lead major industrial and economic investment — showing planning had support “from left to right.”
- Planning Commission: Advisory body set up in March 1950 by a government resolution (not the Constitution) to design India’s development plans; PM was its Chairperson; recommendations needed Union Cabinet approval.
- Five Year Plan (FYP): A government document laying out income and expenditure priorities for the next five years, enabling long-term economic intervention; the budget is split into ‘plan’ and ‘non-plan’ portions.
- Plan Holiday: The period from 1966 when, instead of launching the Fourth Five Year Plan on schedule, the government paused formal five-year planning due to acute economic crisis.
- Socialist Pattern of Society: Goal declared by the Congress party at its 1955 Avadi session, reflected in the Second Five Year Plan’s emphasis on state-led heavy industry.
- Urban Bias: Criticism that Third Plan-era strategies unfairly favoured industry and urban interests over agriculture and rural development.
- NITI Aayog: National Institution for Transforming India; replaced the Planning Commission on 1 January 2015.