India's Economic Development and Planning

Economic Growth and Planning in India

• The Planning Commission of India was established to plan for the nation's economic development, following a socialistic strategy through five-year plans.

Industrialization and Development Strategy

• Rapid industrialization was the cornerstone of Nehru's development strategy, with a focus on 'planned modernization' and a significant role for the state in industrialization.
• The Industrial Policy Resolution (1948) envisioned an expanded role for the public sector and licensing to the private sector, with state monopoly in strategic areas.

Economic Philosophies

• Two economic philosophies guided policies in the 1950s: Nehru's visualization of a socialistic society with an emphasis on heavy industry, and Gandhi's philosophy of small-scale and cottage industry and village republics.

Industrial Policy Resolution of 1956

• The Industrial Policy Resolution of 1956 provided a comprehensive framework for industrial development, but was lopsided, supporting the expansion of the public sector, which discouraged private initiative and enterprise.

Foreign Investment and Trade Policy

• India followed an open foreign investment policy and a relatively open trade policy until the late 1950s, but a balance of payments crisis in 1958 led to a tightening of trade and reduction in investment-licensing.

Economic Growth (1950-80)

• India's average annual rate of growth of GDP, known as the 'Hindu growth rate', was a modest 3.5 percent from 1950 to 1980.
• The thrust of the first decade and a half was on capital goods, such as dams, power plants, and heavy industrialization, rather than consumer goods.

Shift in Economic Strategy (Mid-1960s)

• The first major shift in Indian economic strategy occurred in the mid-1960s, with a greater focus on agricultural development.
• Agriculture was not given adequate priority during the second plan, and outlays were reduced, with a reliance on institutional models, such as land reforms and farm cooperatives, which were only modestly successful.

Agricultural Crisis (1966-67)

• Consecutive droughts in 1966 and 1967 led to negative growth in the agricultural sector, and India faced a serious food problem, relying on the United States for food aid under PL 480.
• The need for a quantum jump in food grain production led to a strategic change in the government's agricultural policies, with increasing productivity in agriculture given the highest priority.