Topic: The curious origins of Indian planning
Topic in Syllabus: General Studies Paper 3: Indian Economy
Two recent books — Tryst With Prosperity – Indian business and the Bombay Plan of 1944 by Medha M Kudaisya and ‘The Bombay Plan – Blueprint for Economic Resurgence by Sanjaya Baru and Meghnad Desai (eds) — have brought to life this long-forgotten document to tell the fascinating tale of the origins of India’s economic planning.
- Independence came to India with the partition of the country on 15 August 1947. In 1948, an Industrial Policy Statement was announced.
- It suggested the setting up of a National Planning Commission and framing the policy of a mixed economic system.
- On 26 January 1950, the Constitution came into force. As a logical sequence, the Planning Commission was set up on 15 March 1950 and the plan era started from 1 April 1951 with the launching of the First Five Year Plan (1951-56).
- Indian industry and manufacturing came of age during World War II as it became an important supplier of material to the colonial government and played a crucial role in the war effort.
- Indian industry supplied a range of products for the war effort including iron and steel, coal, cement, textiles, small armaments and even armoured cars.
- India became the eighth most industrialized nation globally.
- By then Jawaharlal Nehru was attracted to planning and the Soviet model of development since his visit there in 1927.
- In 1936, the Indian National Congress formed the National Planning Committee to release detailed blueprint of an economic plan for independent India.
Characteristics of Indian Plans:
There is a long history of the evolution of economic thinking and approach to planning in India and, therefore, its features are changing with the change of the economy. Structure and objectives of each and every country never remain uniform as well as linear. One can also see a wide difference in the political viewpoint as well as political approaches. Such differences lead to different approaches to planning varying from country to country.
(i) Five Year Planning:
- Though India’s plans are of a 5-year period, such planning is linked with a long term view. Sino-India War (1962), Indo-Pak War (1965), and the unprecedented drought in the mid-60s forced to adopt the approach of ‘plan holiday’ from the Fourth Five Year Plan.
- Instead of a regular Five Year Plan, planning was discontinued through three ad hoc Annual Plans during the period 1966-69.
(ii) Developmental Planning:
- Indian planning is of the developmental variety. To build up a self-reliant economy, overall economic development of the country received top priority.
- However, short term problems like refugee rehabilitation, food crises, foreign exchange shortage also got due attention from the planners.
(iii) Comprehensive Planning:
- Indian planning is comprehensive in character in the sense that it not only undertakes economic programmes but also puts emphasis on changes in institutional structures and cultures. It emphasis both on the development of agriculture, industry, transport and communications and physical infrastructures and social infrastructures such as literacy, health, population control, environment, etc.
- Planning programmes are also initiated for the development of lower castes and backward classes so that these people are involved in the development processes.
(iv) Indicative Planning:
- Indian planning before 1991 was of the nature of directive planning and averse to the role of market mechanism. As far as resource allocation in the governmental sector was concerned, the government did not rely on the market but gave directions so that resources could be utilised by all the states efficiently.
- Private initiative and freedom was allowed but not in an unhindered way. Private industrialists were encouraged for making investments but, at the same time, they came under strong control and regulation.
(v) Democratic Planning:
- Indian planning is democratic planning. The chief building block of laying down the national plan is the Planning Commission. It is a decisionmaking body that formulates five year plans and implement them in a democratic spirit and frame.
- Discussions are held periodically between the people’s representatives, industrialists, chambers of commerce, educationists, and many other bodies as well as the members of the Planning Commission.
(vi) Decentralised Planning or Planning from Below:
- Being democratic planning, Indian planning is essentially a decentralized type of plan. Until the Fourth Plan, planning at the national level was essentially macro planning. In other words, there was very little or no provision for microplartning, i.e., planning from below.
- While ‘macroplan’ provides a broad framework, a ‘microplan’ chalks out all the details in and fixes priorities for different regions depending on their specific needs.
Objectives of Indian Plans:
In LDCs like India, the paramount objective of an economic plan is to bring into new forms of productive capital, which will raise the overall productivity of the economy and, thus, raise people’s income by providing them adequate employment opportunities and, thereby, remove the twin problems of destitution and mass poverty.
- Economic Growth:
- Economic planning in India aims at bringing about a rapid economic development in all sectors. The key sectors are agriculture, power, industry and transport.
- Economic Equality and Social Justice:
- The twin aspects of social justice involves, on the one hand, the reduction in economic inequalities and, on the other, the reduction of poverty.
- A rise in national income with concentration of economic power in the hands of a few people is not desirable.
- In India’s socio-political set-up, vast inequalities exist. Indian plans aim at reducing such inequalities, so that the benefits of economic development percolate down to the lower strata of the society.
- Full Employment:
- Removal of unemployment is considered another important objective of India’s Five Year Plans. But, unfortunately, it never received the priority it deserved. In the Sixth Plan (1978-83) of the Janata Government, employment was accorded a pride of place for the first time.
- However, the Seventh Plan treated employment as a direct focal point of policy. As a result, the employment generation programme in India received a rude shock and the problem of unemployment is mounting up plan after plan.
- Economic Self-reliance:
- Self-reliance, or for that matter, self-sufficiency, refers to the elimination of external assistance. In other words, it means zero foreign aid. India is typically a dependent economy.
- India is used to import huge food grains, fertilizers, raw materials and industrial machinery and equipment. But this objective could not be criticized before the launching of the Fourth Plan.
- This objective is comparatively a newer one. This objective was categorically mentioned for the first time in the Sixth Plan.
- Modernization means such variety of structural and institutional changes in the economic activities that can change the feudal and colonial economy into a progressive and modern economy.
Evaluation of Objectives:
The objectives of Indian planning are quite comprehensive and its scope is wide. But it has various shortcomings:
- First, Indian Plans are ambitious. Most of the plan objectives remain unfulfilled. Again, some of the objectives are not quantifiable, furthermore, desired objectives never match with the actual results. Actual results lay behind targets.
- Secondly, Indian plans suffer from inconsistency of the objectives that are set. For instance, the objective of accumulation of capital is inconsistent with the objective of reduction of income disparities.
- Finally, there are conflicts between objectives. Higher economic growth objective may not commensurate with the employment generation objective. Rapid economic growth requires the use of capital-intensive technology which is, by nature, labour displacing. Thus, any attempt to improve GDP growth rate is most likely to frustrate the objective of removal of unemployment.
- The Bombay Plan is the name commonly given to a World War II-era set of proposals for the development of the post-independence economy of India.
- The plan, published in 1944/1945 by eight leading Indian industrialists, proposed state intervention in the economic development of the nation after independence from the United Kingdom (which took place in 1947).
More about on Bombay Plan
- A small group of influential business leaders in Bombay drew up and published in January 1944, a plan for the economic development of India. The Bombay Plan, as it is now popularly called, did not represent the opinion of the whole business community. But it claimed public attention because it set forth the considered views of some of the front-rank businessmen and captains of Indian industry.
- J. R. D. Tata and Mr. G. D. Birla were primarily responsible for the initiation of the study. The other industrialists who were part of Bombay plan were P. Thakurdas, Kasturbhai Lalbhai and Sir Shri Ram, Ardeshir Dalal, Mr. A. D. Shroff and Dr. John Matthai.
- Toward the end of March 1944, the Federation of Indian Chambers of Commerce representing all business organizations of the country endorsed the Bombay Plan at its annual meeting, and from then on, the plan came to be regarded as the proposal of India’s business community, if not of India’s big business.
- The Bombay Plan put forward as a basis of discussion, a statement in as concrete a form as possible, of the objectives to be kept in mind in economic planning in India, the general lines on which development should proceed and the demands which planning is likely to make on the country’s resources.
- The principal objectives of the plan are to achieve a balanced economy and to raise the standard of living of the masses of the population rapidly by doubling the present per capita income — i.e. increasing it from $22 to about $45 — within a period of 15 years from the time the plan goes into operation.
- The planners have laid down minimum living standards on the basis of about 2,800 calories of well-balanced food a day for each person, 30 yards of clothing and 100 square feet of housing; and they also outline the minimum needs for elementary education, sanitation, water supply, village dispensaries and hospitals.
- The shares of agriculture, industry and services in the total production is to be changed from 53, 17 and 22 percent, respectively, to 40, 35 and 20 percent.
- The plan emphasizes the importance of basic industries but also calls for the development of consumption goods industries in the early years of the plan. Power heads the list of basic industries which are to be developed, followed by mining and metallurgy, engineering, chemicals, armaments, transport, cement and others.
- The plan offers a comprehensive program of mass education, including primary, secondary and vocational and university schooling. Provision is also made for adult education and scientific training and research.
Key principle of the Bombay Plan:
A key principle of the Bombay Plan was that the economy could not grow without government intervention and regulation.
- Under the assumption that the fledgling Indian industries would not be able to compete in a free-market economy, the Plan proposed that the future government protect indigenous industries against foreign competition in local markets.
- Other salient points of the Bombay plan were an active role by government in deficit financing and planning equitable growth, a transition from an agrarian to an industrialized society, and—in the event that the private sector could not immediately do so—the establishment of critical industries as public sector enterprises while simultaneously ensuring a market for the output through planned purchases.
- Although the Bombay Plan did not itself propose a socialist agenda, “virtually all” commentators acknowledge “that there is a direct line of continuity from the Bombay Plan of 1944-1945 to the First Five-Year Plan in 1950.”
- An alternative line of reasoning is that the Bombay Plan was a reaction to the widespread social discontent of the 1940s (resulting from unprecedented industrial growth during wartime), and a product of the fear that the movement against colonial rule would become a movement against private property.
- The Bombay Plan reaped criticism from all quarters: the far left criticized the capitalistic background of the Plan’s authors or asserted that the plan did not go far enough. The far right foresaw it as a harbinger of a socialist society, and considered it a violation of the agreements of the United Nations “Bretton Woods Conference”.
- Economists criticized the plan on technical grounds; that it did not take into account the fact that creating capital had an inflationary effect, and with that, its authors had overestimated the capacity of the Indian economy to generate further capital. With rising prices, the purchasing power (for investments) would fall.
Why Bombay Plan was forgotten?
- The reasons behind the negligence of Bombay plan are entirely political the Congress’ main rival in the 1950s was the Communists.
- So both Nehru and the Congress were reluctant to admit that they were influenced by the business class as that would have given fodder to the Communists to attack them.
- Logically speaking, the Communists should not have had any problems with the main proposals of the Bombay Plan extensive state control of the economy, thrust on human development and cooperative farming.
- The Communists were steadfast in their opposition to the Bombay Plan and the contradiction remained a source of serious discomfort to the Congress.
Both the books have brought to life a long-forgotten document which formed the bedrock for more than six decades of economic planning, even though it remained unacknowledged. Written in an easy and accessible style, the two books will of immense interest to students of Indian economy.
“If only our official planners had followed the Bombay Plan’s proposals on human development, India would have been a different country today” critically examine the statement.