Explain the direction for industrial development as pursued under the different phases of planned development in India.

 At the time of independence India was a backward underdeveloped country. There was a lot of exploitation of India during the British colonial rule.

This made Indian people very poor. The aim of freedom struggle was not mere gaining political freedom from the British rule but also to attain economic freedom for the Indian people. Economic freedom implies the removal of mass poverty that prevailed in India.

At the time of independence there was deficiency of good entrepreneurs who could use the natural resource endowment of India for economic development. To improve living standards of the people, it was necessary to accelerate rate of economic growth. It was thought that the private sector lacked the necessary resources and the proper mindset to bring about rapid economic growth.

Inspired by the Russian experience, planning as an instrument of economic development was adopted. The Planning Commission was set up to prepare five year plans which would indicate directions in which the Indian economy should move. Resources were to be allocated both at the Centre and in the States according to the plan priorities decided in a five year plan.

The basic objective of Indian planning has been acceleration of economic growth so as to raise the living standards of the people. Further, various five year plans also gave high priority to generation of employment opportunities and removal of poverty. In what follows we will explain the role of planning in India and then explain the development strategies adopted in various plans to achieve the objectives.

Role of Planning In India:

Accelerating Economic Growth:

There were two main features of India’s economic policy that emphasized the role of planning and intervention by the State in the development process of the Indian economy in the first three decades of planning. First, to accelerate economic growth economists and planners recognized that raising the rate of saving and investment was essential to accelerate the rate of economic growth.

It was thought that the private sector on its own would not be able to achieve a higher rate of saving and investment required to break the vicious circle of poverty. Therefore, the state had to intervene to raise resources and increase the rate of saving and investment. This made the planning and the expansion of the public sector essential to accelerate economic growth.

Emphasis on Industrialisation, Second, the strategy of development, adopted since the adoption of Second Five Year Plan which was based on Mahalanobis growth model, laid stress on the industrialisation with an emphasis on the development of basic heavy industries and capital goods industries.

This model implied allocating a higher proportion of investible resources to capital goods industries than to consumer goods industries. Private sector which is driven by profit motive could not be expected to allocate sufficient resources to the growth of capital goods industries.

Therefore, the role of planning and the public sector was considered essential for rapid growth of basic heavy industries. Mahalanobis growth model was wrong in neglecting the role of agriculture and importance of wage goods for accelerating growth of output and employment. In fact, shortage of food, a cheap wage good, rather than machines could act as a constraint on the growth process. This became evident by the time of the Third Plan which laid a relatively greater stress on growth of agriculture to achieve self-reliance.

But rapid growth of agriculture itself requires a good deal of state intervention and planning. The land reforms in agriculture, supply of adequate credit to farmers, development of infrastructure such as irrigation, power, roads were necessary where planning and State could play an important role.

To Compensate for Market Failures:

The dominant view in development economics in the fifties and sixties also laid stress on the planning by the State to compensate for ‘market failures’. It was argued that while market mechanism was efficient in distributing a given stock of available goods, it was quite inefficient in allocating resources over time for investment.

This was because of myopic nature of private sector which guided the working of markets. It was therefore asserted that the State and planning could play an important role in allocating resources for investment to bring about rapid economic growth.

Besides, failures of market mechanism and free working of private sector to allocate adequate amount of resources for investment in infrastructure such as power, transport, communication created substantial external economies and also where significant economies of scale existed. Therefore, in the development of infrastructure, the State and planning had an important role to play.

Regulatory Role of the State:

There is another important aspect of the role of State and planning in the development of the Indian economy which dominated economic thinking in the pre-reform period. Though the private sector was given an important role to play in the framework of mixed economy, to achieve optimal allocation of resources among different industries according to plan priorities, economic 

activities in the private sector were required to be regulated by the State. Further, to achieve other objectives of planning such as restraining the concentration of economic power in a few big business houses, the private sector was subjected to industrial licensing controls.

To quote C. Rangarajan, the former Governor of the Reserve Bank of India, “while the private sector was given space to operate in keeping with the concept of a mixed economy, in the field of industry particularly the decisions of the private sector were circumscribed by the licensing mechanism. Hence, while foreign trade was subject to control because of the strategy of import substitution, industrial production and investment were subject to control because of the need to direct resources according to plan priorities”.

Tackling the Problems of Poverty and Unemployment:

The other problem which makes role of planning and state intervention important is the need to tackle the problems of poverty and unemployment. Since the beginning of the seventies the Indian planners realised, especially in the Fifth, Sixth and Seventh Five Year Plans, that even if growth rate of GDP was raised to 5 to 6 per cent per annum, it was not possible to make a significant dent on the problems of mass poverty and unemployment prevailing in the Indian economy.

Some argued that benefits of economic growth did not trickle down to the poor. Others were of the view that even if the poor get benefits from growth by way of more employment opportunities generated by it, mere economic growth was not enough to eradicate poverty and unemployment. Therefore, role of planning and State was necessary to start and implement special poverty and unemployment schemes such as Food for Work Programme and Employment Guarantee Schemes to help the poor and weaker sections of the society.

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