After independence, the Government of India adopted a system of planned development to rebuild the economy. In 1950 the Planning Commission was established, and the First Five-Year Plan began in 1951. The foundation of this planning strategy was the adoption of a mixed economy - a system in which both the private sector and the public sector play important roles, with the government guiding the economy through planning. The guiding principles were borrowed partly from the Soviet model of planning, but adapted to a democratic framework.
The main objectives of India's economic planning were growth, modernisation, self-reliance and equity. The planners believed that for a poor economy, the market alone could not deliver rapid industrialisation or social justice, and that the state must take a leading role in building basic and heavy industry, creating infrastructure, and reducing poverty and inequality.
This chapter studies the key features of the Indian economy from 1950 to 1990: the goals and phases of the Five-Year Plans, the strategy of industrial development with the Industrial Policy Resolution 1956 and the licensing system, the phases of Indian agriculture including the Green Revolution, the limitations of the planning strategy, and the strengths that the policy created - most notably a diversified industrial base and agricultural self-sufficiency.
The Five-Year Plans pursued the following four broad goals:
These goals were not always in harmony; at times, policies for rapid growth clashed with equity, and sacrifices had to be made. The planners aimed to balance them, but the record was mixed.
Indian agriculture passed through three distinct phases during 1950-1990:
Phase 1 (1947 to mid-1960s): In the initial years, the focus was on institutional reforms. Land reforms were undertaken to abolish intermediaries such as zamindars, and land ceilings were imposed so that land could be redistributed. The strategy also emphasised the expansion of irrigation and the supply of credit and inputs. Agricultural output expanded, but it could not keep pace with population growth, and India depended heavily on imported food grains, especially under the PL-480 programme of the USA.
Phase 2 (mid-1960s to mid-1970s): This was the phase of the Green Revolution. The government shifted its strategy from institutional reforms to technological change. New high-yielding varieties (HYVs) of wheat and rice, developed with the help of Dr. Norman Borlaug and Indian scientists led by Dr. M.S. Swaminathan, were introduced, along with chemical fertilisers, pesticides and assured irrigation. The Green Revolution was initially confined to wheat and to select regions such as Punjab, Haryana and western Uttar Pradesh.
Phase 3 (mid-1970s to 1990): The Green Revolution technology was extended to rice and to more regions, so that by 1980 India had achieved self-sufficiency in food grains. Government support through minimum support prices (MSP), procurement, public distribution, and the extension of HYV technology across the country sustained the growth of agriculture.
The Green Revolution transformed Indian agriculture:
Achievements: Wheat production rose dramatically; the use of HYVs, fertilisers and irrigation spread; and India achieved self-sufficiency in food grains by around 1978-79. This was a major achievement in self-reliance, reducing dependence on imported food.
Failures and criticism: The Green Revolution was confined to a few crops (mainly wheat and rice) and a few regions; its benefits went mainly to large farmers who could afford the expensive inputs; it worsened the inequality between large and small farmers and between regions; and the intensive use of chemicals created environmental problems such as soil degradation and water depletion. The term 'Green Revolution' itself suggests that it addressed only the 'green' crops problem, not the overall problem of rural poverty.
The industrial strategy was based on the Industrial Policy Resolution (IPR) 1948 and the IPR 1956, which formed the core of the industrial policy for decades. The IPR 1956 classified industries into three categories:
The other important features of industrial policy were:
The public sector was assigned a central role in industrialisation. Public sector enterprises (PSEs) were established in iron and steel (SAIL), heavy machinery (BHEL), petroleum (Indian Oil), fertilisers, power, banking and insurance. The major banks were nationalised in two phases - 14 banks in 1969 and 6 more in 1980 - and the insurance business was nationalised earlier.
The public sector contributed to building a diversified industrial base and infrastructure, and to the development of backward regions. However, the public sector was criticised for low efficiency, overstaffing, poor management and low returns on investment. Many PSEs operated at losses and were sustained by budgetary support.
During 1950-1990, India followed an inward-looking trade policy aimed at self-reliance. The key features were:
This policy helped build domestic industry and save foreign exchange, but it also insulated Indian industry from competition, leading to inefficiency and poor quality, and it failed to promote exports.
The appraisal of the 1950-1990 period reveals both achievements and shortcomings:
Achievements: India established a diversified industrial base, became self-sufficient in food grains, built a vast scientific and technical manpower, developed infrastructure, and the economy grew at about 3.5 percent per annum (the so-called 'Hindu rate of growth'). The growth rate was double the colonial rate.
Shortcomings: The growth rate was still low compared to many developing economies; industrial growth slowed after the 1980s; agriculture suffered from regional imbalances; unemployment and poverty remained widespread; inequality persisted; and the economy faced a serious balance of payments crisis in 1991. The inefficiency of the public sector and the over-regulation of the private sector created a policy environment that became increasingly unsustainable, setting the stage for the economic reforms of 1991.
| Goal of Planning | Meaning |
|---|---|
| Growth | Increase in national and per capita income |
| Modernisation | New technology and modern outlook |
| Self-reliance | Reduce dependence on foreign countries |
| Equity | Reduce inequality, share benefits fairly |
| Phase of Agriculture | Period | Strategy |
|---|---|---|
| Phase 1 | 1947 to mid-1960s | Institutional reforms, land reforms, irrigation |
| Phase 2 | mid-1960s to mid-1970s | Green Revolution - HYVs, fertilisers |
| Phase 3 | mid-1970s to 1990 | Spread of technology, self-sufficiency |
This chapter surveyed the Indian economy from 1950 to 1990, the era of planned development. We studied the four goals of the Five-Year Plans - growth, modernisation, self-reliance and equity - and the mixed economy framework within which they were pursued. In agriculture, we traced the three phases from institutional reform through the Green Revolution to self-sufficiency in food grains, and appraised both the achievements and the unevenness of the Green Revolution. In industry, we examined the Industrial Policy Resolution 1956, the licensing system and the dominant role of the public sector, and the inward-looking trade policy of import substitution. The period's appraisal shows a country that built a diversified industrial base and achieved food self-sufficiency, but also one that suffered from low growth, persistent poverty, over-regulation and an inefficient public sector. These accumulating weaknesses, culminating in the balance of payments crisis of 1991, made economic reform inevitable, which is the subject of the next chapter.