CHAPTER 6

Development Strategies till 1991

Introduction
Economies grow and develop of their
own accord. Some philosophers
thought that they should be allowed
to function without much intervention.
Market will decide their course.
However, in all economies, the States
have been finding it necessary to
intervene for one reason or another,
including, sometimes, in the interest
of market. The manner, the extent and
the pace differed in different
economies, depending upon nature of
the State, the level of development and
ideological orientation of the people
and the government they chose.
Demonstration effect of development
in other economies and thinking of
multilateral/international agencies
may have no less impact.
When India got Independence and
became a Republic, she chose to follow
the path of planning by social and
economic development, which meant
that the State would play a proactive
role in deciding the levels and methods
of production, distribution, and
consumption of economic and social
activities while respecting institutions
of private property and market. Our
Constitution itself gave scope for the

market to function; yet, asked the State

to intervene in its functioning. It
directed the State to frame its policies
with a view to, among others, securing,
1. that the ownership and control of
the material resources of the
community are so distributed as to
subserve the common good, and
2. that the operation of the economic
system does not result in the
concentration of wealth and means
of production to the common
detriment.
Admittedly, in our Constitution, there
is no elaborate direction for institutions,
which will carry out the activity of
planning economic and social
development, except that there exists an
entry in the concurrent list of the seventh
schedule, which reads as economic and
social planning. Yet, within fifty days of
promulgation of the Constitution, the
Planning Commission was set up on 15
March 1950 by a resolution of the
Cabinet. Jawaharlal Nehru was made
its Chairman. Since then, we find that
the Prime Minister is the ex-officio
Chairman of the Planning Commission.
It has a few Minister members and a few
independent, normally full time,
members.

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INDIAN ECONOMIC DEVELOPMENT

History of Planning before

Independence
A little history of State planning may be in
order. Political independence was
considered important from the point of
view of economic emancipation of the
masses. We started making preparations
after we were allowed to form the
governments in provinces under
Government of India Act, 1935. Before
that, we had only three models: one in
operation in the then USSR since 1928,
another, a book, by engineer-statesman
M. Visvesvaraya written in 1934, and the
third, ideas promoted by an eminent
economist, J.M. Keynes. Planning had
shown immense success in industrialising
the economy of Russia in ten years that
had gone by. Proposing doubling of

national income in ten years, Visvesvaraya

wrote: The Indian problem is
fundamentally industrial and should be
solved by the same methods as have
proved efficacious in countries like the
United States of America, Japan and
Canada and latterly with startling success
in Soviet RussiaIndia cannot prosper
except through rapid industrialisation
industrialisation has to be organised,
planned and worked forIndia may be an
industrially developed country or it may
be a market for manufactured goods from
outside and not both. Keynes had shown
that the days of Laissez faire were over and
that the State could play a positive role
even in a capitalistic country through
meaningful
fiscal
intervention,
particularly on expenditure side.

NATIONAL PLANNING COMMITTEE

Towards the end of 1938, the then President of the Indian National Congress Subhas
Chandra Bose constituted the National Planning Committee with Jawaharlal Nehru as the
Chairman at the conclusion of conference of the Ministers of Industries from the eight
Congress ruled provinces.
The Committee itself constituted 29 sub-committees to work on different areas/subjects,
which did commendable work. However, before it could bring out its deliberations, the war
broke out and subsequently, several members of the Committee (including Jawaharlal
Nehru in October 1940) were put behind the bars.
Subsequently, four general and 25 subject-wise reports were published during
1946-49 in the name of K. T. Shah who was the secretary of the Committee. The Committee
recommended the State to play a vital role in development of infrastructure and setting up
of basic industries under its aegis, to promote growth of cottage and village industries
under protection, and to abolish all intermediary interests in land with a view to unleashing
the forces of growth.
It hoped to raise national income two to three times in a span of 10 years with a view
to providing balanced diet having calorific value of 2400-2800 units to an adult worker, 30
yards of cloth per person and housing with at least 100 square feet per capita.
Industrialization with emphasis on promotion of heavy engineering and machine making
industries, electric power and scientific research institutes, accommodation of cottage
and small scale industries, dominant role of the State and of public sector in industrial
development, national self-sufficiency to the extent possible were held out as the major
plank of the policy.

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DEVELOPMENT STRATEGIES TILL 1991

A conference of Ministers of
Industries from the Congress-ruled
provinces was held in October 1938 and
a decision was taken to constitute a
National Planning Committee with
Jawaharlal Nehru as the Chairman. The
Committee recommended the State to
play a vital role in development of
infrastructure and setting up of basic
industries under its aegis, to promote
growth of cottage and village industries
under protection, and to abolish all
intermediary interests in land with a view
to unleashing the forces of growth.
Towards the end of the War,
respecting the sentiments of industry
and other sections, the Government of
India established a Department of
Planning and Development in 1944. The
Department stimulated the preparation
of post-war reconstruction plans by
different departments of the Central
Government, provincial Governments
and larger princely states. It also sought
plans for development from industry and
labour. Three plans were submitted to it
for consideration, all in 1944: viz.,
Bombay Plan, Peoples Plan and
Gandhian Plan. Sectoral plans for
education and health were also prepared
by the Government of India.
Further,
when
an
interim
government was formed with Indian

premier Jawaharlal Nehru in 1946, the

Government of India constituted an
Advisory Planning Board. The Advisory
Board recommended, besides other
things, the formation of a National
Planning Commission, which was
constituted on 15 March 1950, well after
Independence. From late sixties, State
Level Planning Commissions or Boards
also started functioning.
Meaning of Economic Planning
Planning is resorted to by individuals,
by organisations, by firms, by farmers,
and by nations so that a well-thought
out set of actions could be carried out
in future for securing a particular
objective or a set of objectives. Planning
is the anti-thesis of purposeless drift. It
is a deliberate choice of action. It is
about consciously organising human
activity.
Planning is a conscious design for
shaping the socio-economic processes
with a view to achieving an objective or a
multiplicity of objectives; it is a path of
action in terms of policy measures to be
followed in future in pursuance of predetermined goals. It needs to be
emphasised that goals have to be
mutually consistent and proper planning
should ensure that means and measures
are also consistent. It has to be noted

WORD PLANNING
The word planning in a managers language and the management books or planning cells
in corporations has little different meaning. Planning is also used by town planners for
physical and spatial planning. Today, environmentalists talk of resources planning. People
also talk of retirement plan.
Planning in our context is different. It is related with welfare of people; it is related with
State action and initiative; and its sphere is economic and social development. By the way,
other planning strategies, such as town and country planning are now getting integrated with
national planning.

82

that means are autonomous in the sense

they are selected by the planners. But
there exists a fundamental restriction on
selection of means, which is the
requirement of mutual consistency.
Since uncoordinated market
processes cannot be fully trusted to
pursue the objectives the State sets out
for its people, it was suggested in many
quarters that economic planning should
be resorted to by the State. Economic
planning is thus concerned with
pursuance of economic development,
with economic well-being in mind,
through all means at the hands of the
State, including persuasive ones. We,
in India, are, however, concerned with
planning of economic and social
development. Naturally goals and
means of this planning are somewhat
different.
Since the word planning had
acquired economic overtones by the time
our country thought of planning, we
stated in very clear terms, right in the
beginning, that our planning would cover
both economic and social spheres.
Economic sphere refers to agriculture,
industry, transportation, etc. while social
sphere refers to education, health,
shelter, etc. The nature of work in the
economic sphere includes the
development of irrigation, dams, mining,
forestry, rail, roads, warehousing, etc.
whereas the development of schools,
colleges, universities, hospitals,
dispensaries, health centres, family
planning centres, broadcasting, etc. are
included in the social sphere. You may
see many works in economic sphere have
something to do with the social and vice
versa. There may be sectors which
may be as much social as economic.

INDIAN ECONOMIC DEVELOPMENT

Therefore, division of heads as social and

economic is a proposition of convenience
rather than a proposition of
principle. Since we cover almost all
activities which by choice we seek to
develop, we call it comprehensive
development planning.
We do spend a lot in modernising our
armed forces, equipping law and order
machinery, improving judicial system,
and in bettering other state organs but
we do so in the interest of running the
system smoothly or we feel compelled to
do so. We, therefore, do not call them
either developmental activities or
designate them as economic or social
activities, though all of them are almost
exclusively taken care of by the State.
While covering many social and
economic activities, the State may choose
just to advise and coordinate, encourage
and discourage through indirect fiscal
and financial mechanisms and through
enacting laws. It may choose to produce
and distribute all goods and services.
India chose to use a (judicious) mix of
direct and indirect means: enacting laws
for distributing/ allocating agricultural
and non-agricultural land to different
sections of people or different activities;
restricting, banning or proscribing
certain activities; opening special
financial institutions and manipulating
interest rates and/or credit limits for
different categories of activities; making
fiscal provisions for taxing or subsidising
certain activities in certain areas;
undertaking production/distribution as
a supplementary mechanism with a
certain social objectives in view; and
undertaking production and distribution
of certain goods and services (natural
monopolies). Engagement of direct

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DEVELOPMENT STRATEGIES TILL 1991

OBJECTIVES AND MEANS

Some people compiled objectives listed in various plans of different countries. They found
objectives ranging from full employment to price stability, from increase in private
consumption to size and structure of population, from increase in mobility of labour to
increase in mobility of capital, from improvement in distribution of income and wealth to
satisfaction of collective needs, from export of production to improvement in balance of
payments, from protection of industries to security of supply, from promotion of internal
competition to promotion of coordination, and reduction in working hours.
When it comes to counting instruments, they recounted more than 60 instruments:
17 instruments of public finance, 16 instruments of money, credit and foreign exchange,
16 instruments of direct control and 11 types of changes in institutional framework. See
also the list of objectives lifted from our plan documents, given in one of the appendices.

production and distribution through a

Ministry of Union or State Government
or through an agency of the Government
is considered an activity in public sector.
We have seen that undertakings in
public sector have assumed a significant
proportion in total manufacturing,
processing and financing activities. In
fact, we gave a significant role to public
sector and allowed it to have commanding heights.
Five Year Plans
The Planning Commission was
constituted on 15 March 1950 by a
resolution of the Union Cabinet. The
Commission was asked to prepare a
blueprint of the First Five Year Plan at
the earliest, so as to implement it in April
1951. The Commission submitted the
Draft Outline, which was meant to
arouse a lively debate in the country
among different sections and interests
with the belief that planning in a
democratic state is a social rather than
just a technical matter. It is significant
that it was in this Draft Outline that the
formation of the National Development
Council was suggested, which was

constituted by a resolution of the Cabinet

on 6 August 1952.
It is, however, said that the First Plan
stitched together projects, which were
already on shelf of different departments
of the Government of India. The final
report, called First Five Year Plan, came
only in December 1952 after 21 months
since the formal beginning of the Plan.
Every five year plan is set in a
perspective of a longer period. In fact,
every five year plan document contains
the plan for the quinquennium proper
(medium-term plan) and a perspective
plan, in which the plan proper is set.
Though we have been facing a few crises,
now and then, we had first three five year
plans uninterrupted. Towards the end
of the Third Five Year Plan, we faced a
war with Pakistan in late 1965 and two
consecutive bad years for agriculture
1965-66 and 1966-67 and foreign
exchange crisis leading to devaluation of
rupee. The Fourth Five Year Plan,
prepared for 1966-1971, was therefore
withdrawn after its launch. A view was
taken that the Fourth Plan should be
launched when normalcy returns back.
The Fourth Five Year Plan was, then,

84

prepared for 1969-74 and executed. In

the interregnum, three Annual Plans
were implemented. During the Fifth Plan
period (1974-79), certain political
developments took place: internal
emergency was clamped, new elections
took place, and newly constituted Janata
Party won the elections. The new
Government decided to cut the running
(Fifth) Plan short by a year (1978-79). A
new Five Year Plan 1978-83 was
launched. However, political developments forced its abandonment in 1980
when the new Government, again the
Congress, came in power. A new Sixth
Five Year Plan was launched for 198085. The year of 1978-79 is now included
in the Fifth Plan, as was originally
envisaged, and the year of 1979-80 is
treated as an Annual Plan in most
compilations including those by the
Planning Commission. The Seventh Plan
went uninterrupted. Again there were
unstable political developments, shortlife Governments, assassination of Rajiv
Gandhi, and economic crisis related with
precarious shortage of foreign exchange.
The Eighth Five Year Plan was, therefore,
launched after return of normalcy in
1992. Though the Governments changed
midway, the plan was not abandoned or
cut short. We are now through the Tenth
Five Year Plan. The duration details of
all plans, which were formulated, along
with their perspective plans are provided
in an appendix.
Main Objectives
Planning is a means, an effective means,
to achieving something. It has to have
certain objectives. State planning, in a
democracy, cannot have any other
objectives but the ones that are given in

INDIAN ECONOMIC DEVELOPMENT

the Constitution. If an institution is made

in-charge of the planning economic and
social development of the country, it can
at best delimit its scope and be more
specific.
The purpose of planning is to
accelerate the process of development
and keep it on track. India suffered for
long a slow growth, if not stagnation. So,
we wanted high growth. Indian
workforce is also affected by
underemployment, if not open
unemployment. So there is a need to
increase the employment opportunities.
We thought maximum production would
create more opportunities enough to
absorb everybody. So, we wanted
maximum production (growth) and full
employment. The Indian society
suffered from inequity/inequality. So, we
opted for reduction in inequality of
income and wealth. Perhaps, realising
the contradictions inherent in
simultaneously achieving all these
objectives, the Report of the First Plan
said, None of these objectives can be
pursued to the exclusion of others, a
plan of development must place balanced
emphasis on all of these.
Objectives can be divided as longterm and medium-term/short-term.
Long term objectives do not much differ
from plan to plan but short-term objectives
may differ quite a bit. Long-term
objectives are couched in more general
terms while short-term ones are more
specific. All plans, for example, set a
target of growth rate but some of them
wrote it under the heading of objectives
while others did not. Other plans mixed
up long-term objectives with short
term ones. Still others mixed up

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DEVELOPMENT STRATEGIES TILL 1991

the objectives with instruments. The

Second and Third Plans, in particular,
dwelt a great deal on creation of
socialistic pattern of society. Later plans
did not distinguish between objectives,
targets and instruments.
We can call, if we so wish, long-term
objectives as the planning objectives and
short-term ones as the objectives of a
particular plan. Long-term plan
objectives/ development objectives
continue, for all fifty years:
1. To increase production to the
maximum possible extent so as to
achieve higher level of national and
per capita income.
2. To achieve full employment.
3. To reduce inequalities of income and
wealth and concentration of
economic power.
These may be considered as main
objectives. While some authors add to
this list the objective of self-reliance or
self-sufficiency in foodgrains, others
include expansion of basic and heavy
industries as an objective. Some assign
to planning, the task of establishing
socialistic pattern of society, free from
exploitation. Still others point to the need
of balanced regional development. Some
consider that containing inflation and
improving balance of payments deserves
specific mention. There is truth in all

these assertions; it is a matter of picking

up significant ones according to ones
own judgement based on the particular
plan document.
It may be mentioned in passing that,
according to some, planning is about
dismantling the existing structure and reassembling constituents in an altogether the
different, new and desirable manner.
Main Features of Economic Policy
There is a lot of confusion in the use of
words policy and strategy in writing. If
one adheres to dictionary meanings, one
would define policy as a coordinated plan
of action from a set of alternatives while
strategy provides maximum support to
the chosen policy. First major plank of
the policy to be followed was that the
country, though under planning, would
pursue a policy of mixed economy. Mixed
economy, as the term suggests, signifies
the co-existence of public sector and
private sector with respect to business
enterprises--industrial, commercial and
financial. Beyond co-existence, the
understanding is that while public sector
enterprises shall primarily be guided by
public interest/good, private sector
enterprises will not be solely guided by
profit consideration. They shall not
assume antagonistic posture but shall
cooperate in the endeavour to boost the
economic potential of the country.

MIXED ECONOMY
Paul A. Samuelson, a Nobel Laureate in Economic Science and William D. Nordhus, in
their very popular textbook Economics, define mixed economy as one, which primarily
relies on price mechanism for economic organisation but uses a variety of government
interventions such as taxes, spending and regulation to handle macroeconomic instability
and market failures.
Prior to these economists, Joseph E.Stigtitz defined the concept in a much more simple
manner. Stigtitz defines it as a mixture of public and private decision making.

86

During the first forty years we cannot

claim to have followed one single policy;
in fact, we find, it had been evolving. But
there are some common features:
expansion of public sector, industrialisation and import substitution, selfsufficiency in foodgrains, state control on
financial resources, control on foreign
capital, protection of small scale
industries, regulation of large scale
industry, curb on monopolistic practices,
provision of public health measures and
spread of education and literacy.
However, the dominant features that
deserve special mention may be listed as:
interventionist state, centralised
planning, expansion of public sector,
development of heavy industries,
emphasis on import substitution. We may
note that the last three are all in the
industrial area.
Interventionist State: State will
intervene in the market processes so that
it secures adequate livelihood for the poor
and brings down disparity among
classes. It will make laws whereby
intermediary interests in land are
abolished and concentration of wealth is
prevented. It will create institutions,
which will promote agriculture, industry
and trade. It will adopt fiscal policy, which
would promote growth and social justice.
It will have monetary policy to make
adequate funds available to the
industries, which are essential for the
economy. It would not allow free flow of
foreign capital investment and will direct
its use, in case it allows foreign
investment to come. Keeping different
interests in mind it will determine the
ownership, scale, and use of funds-particularly in industrial sphere. In

INDIAN ECONOMIC DEVELOPMENT

short, the State will influence, if not

completely control, much of the economic
activities of the private sector through
various instruments like license and
allocation of critical inputs, including
foreign exchange, under its control.
Centralised Planning: States will
promote centralised planning so that
interests of different regions and different
sections are promoted. Sub-national
plans would be dovetailed/integrated
with the national plan. It had to be
basically formulated at the level of the
national Planning Commission. Even till
date, while there are state level
(provincial) planning commissions in
existence, there are no independent State
plans. Planning in our country is quite
centralised.
Expansion of Public Sector : Role of the
State particularly in relation to the
industries was debated in the thirties
itself. While there was unanimity in the
National Planning Committee that
defence industries should be owned and
controlled by the State, it was suggested
in the case of other key industries even
a control of the State would be sufficient.
Much before we thought of formulating a
plan, an Industrial Policy (Resolution,
1948) was already in place, which
delimited the scope of public ownership
of certain industries.
We may note that at the time of
Independence, except the railways, there
was nothing spectacular in economic
sphere, which could be said to be in the
public sector. Industrial Policy
Resolution, 1956 clearly stated that the
State will progressively assume
predominance and direct responsibility
for setting up new industrial under-

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DEVELOPMENT STRATEGIES TILL 1991

takings and for developing transport

facilities. It was widely believed that the
private sector would be interested in
quick-yielding industries, which would
give the owners large profits in a short
time as well as industries which are
less risky and have short gestation
period. Moreover, the indigenous
private sector did not have adequate
capital either. In order to initiate and
accelerate the process of development,
large-scale investment was needed in
basic and key industries and in
infrastructure. Public sector was
assigned to undertake this role. In
short, the basic strategy was that the
public sector assumes the responsibility
of developing heavy and basic
industries (steel, fuel and power,
machine-building and chemical
industries) and social and economic
infrastructure (such as banks and other
financial institutions, railways and
airways, power, etc.) while the private
sector is given the right to develop
consumer goods industries and trade-almost the whole of internal trade and
most of external trade, besides
agriculture, livestock, plantation and
fishing, etc. As public sector through
its undertakings, belonging to the
Union and the State Governments both,
was supposed to give a lead to the
private sector, it was supposed/
expected to have the position of
commanding heights.
Development of Heavy Industries : One
may recall that almost all plans
formulated before Independence, with
differing emphasis, had suggested that
planned development of Indian economy
should ensure that heavy engineering
and machine-making industries,

universal intermediaries like electricity,

basic industries such as cement, heavy
chemicals including fertilisers,
metallurgy like iron and steel, aluminium
and manganese, must be accorded a
priority. It was understood that much of
industrial development of India got
hampered because of absence of basic
and heavy industries. Since the
formulation of the Second Plan began,
it was increasingly suggested that we
should cease to be exporters of primary
produce and importers of machinery and
should develop our own machine-making
capability.
Import Substitution : Under the policy,
imported goods and machinery will have
to be substituted with those produced
within the country. We should
indigenously produce both capital goods
and consumer goods. If development of
some of these industries require
protection from foreign goods for some
time, then we should provide it. It will
save us from pressure for export on the
one hand and unnecessary borrowing on
the other.
Main Achievements and Failures
Even though all achievements could not
be attributed to the strategies adopted
nor could it be said that the strategies
did not change mid-way, it is a good idea
to recount what we achieved in the forty
years since planning. In fact, to say that
we achieved this and failed in that, is
rather difficult. The position cannot be
seen as only black or only white. We can
at best, say that we achieved certain
objectives, to some extent, while we could
not achieve others fully. And we cannot
attribute success or failure wholly to the
policy of planning.

88

We refer, for this purpose, first to our

long-term basic objectives of maximum
production, full employment, reduction in
inequality in income and wealth, and
concentration of economic power. We,
then, refer to some other areas too, which
are more or less elaborations of these
objectives.
Maximum Production : During the first
three decades of planning, we did not
achieve a rate of growth beyond 3.5 per
cent per annum on a long run basis and
never met the targets set for a particular
plan, which were normally more than 5
per cent per annum. It is difficult to assert
that we did not fully exploit the potential
or to say that our targets were realistic
or reasonable. For example, for the First
Plan we had set a very low target (1.8 per
cent per annum) for rate of growth and
achieved twice of it thanks to good
monsoon (This growth owes to unplanned quarters). During the Second
Plan we did better on growth front than
during the First Plan but we were
unhappy as we could achieve only 4.04.2 per cent per annum while the original
target being 5.0 per cent per annum.
During the Third Plan period, we
achieved only annual average growth rate
of 2.4 per cent against the target of 5.0
per cent. Again, this is due to the wars
with China in 1962 and with Pakistan
in 1965 and the failure of monsoon in
1965-66. From the mid-seventies
onwards, and definitely after 1979-80, one
finds that the growth trajectory of the
Indian economy got shifted from the path
of 3.5 per cent per annum to the path of
5.5 per cent per annum.

INDIAN ECONOMIC DEVELOPMENT

On the whole, our rate of growth over

the long stretch of 40 years was around 4
per cent per annum. Taking the rate of
growth of population as 2 per cent per
annum, our per capita income could be said
to have risen by 2 per cent per annum.
Thus, on an average, the people around
1990 were living twice better in comparison
to their parents in their age in the wee hour
of Independence.
Perhaps more important is to know
what was it that grew at whatever rate it
did? If people are hungry, we ought to know
whether we grew enough food. In 1951, we
had in net terms less than 50 million tonnes
of foodgrains, including all cereals and
pulses. Around the close of 1980s, we
produced as much as 150 million tonnes.
In 1951, we imported around 5 million
tonnes to feed ourselves. Normally the
situation was not that bad; our imports only
improved food availability. While in early
fifties, we had less than 400 grams of
foodgrains per person, by 1990, thanks to
the continued rise in domestic production
over time, the per person availability rose
to nearly 500 grams. This simply means
that our production in foodgrains grew at
much faster pace than our population.
However, we should remember that
we faced very bad days in the mid-sixties
when we had to import more than 10
million tonnes and we received food aid
from other countries, chiefly the US. The
US once threatened to monitor food-aid
on monthly basis. This forced us to usher
in green revolution in the late sixties, a
term for use of high-yielding variety
seeds, intensive irrigation, chemical
fertilisers, pesticides, etc. Thanks to its
success our imports of foodgrains have
been nominal. We even exported, on net
basis, though at nominal scale.

DEVELOPMENT STRATEGIES TILL 1991

As far as other items of mass

consumption are concerned, during
these forty years under review, we
improved our per capita consumption of
many items such as edible oils and
vanaspati, sugar, clothing, milk, eggs,
fish and tea and of electricity. However,
except foodgrains, we were behind our
targets and are behind many other
developing countries. We needed to
improve further.
Production should be limited by one
of the following factors: shortage of
capacity or deficiency of demand.
Unfortunately in many sectors we faced
neither. Is it a failure of implementation
or fault in design? Most people say-implementation. Our view is that even
implementation constraints should be
considered in the formulation of a plan.
Full Employment : In our economy, with
minor variations, between one-third to
two-fifths of people are working. Majority
of them are self-employed, though over
time, their proportion has been
declining even during this period--say
from over 70 per cent to around 55 per
cent. Most of them are farmers or
cultivators but there are such people in
urban areas working in informal sector.
The rest of them are wage labourers.
Some of them get regular salary and
others are casually employed. Even
among the regular salaried there may
be workers on farms with low wages.
They may be working in factory, shop or
home. Many employers will be working
shoulder to shoulder with their
employees, numbering in one or two.
While the proportion of those getting
regular salary has also fallen somewhat,
the proportion of casually employed has

89

been swelling. The proportion of casually

employed in late eighties was about 30
per cent. Most commentators do not take
these developments kindly. Obviously, in
their view, regular wages even if
somewhat lower are better than casual
wages even if they are high. Employment
for full time at reasonable wages
ensuring income sufficient for two-three
persons dependent on the worker should
be the minimum norm.
What should we expect when
somebody claims that there exists a
situation of full employment? All those
who are aged between 15 60 are to be
employed. If they are wage employed,
they should get adequate wages and if
they are self-employed, they should
get remunerative prices for their
products. Willingness, adequate and
remunerative are very imprecise words.
Willingness is associated with wage level
on the one hand and availability of other
support for living. Even compulsion to
work may appear as willingness to work.
Getting remunerative price will depend
on what the products are and who the
buyers are. In the case of widespread
poverty, there is little probability that a
majority of self-employed will get
remunerative prices. Widely prevailing
low productivity will not permit adequate
wages. The matter is a bit complicated.
Since the wages are found to be low,
laws have to be made to ensure minimum
wages. Most of the establishments and
farms are so small that in some occasions
these laws serve no better than
harassment to both of them employers
and employees.
During the period under review, the
absolute levels of employment did
not grow at a rate higher than that
of population, resulting in the same
rate of growth of the unemployed.

90

The rate of unemployment, on a long run

basis, continued to be the same with wide
fluctuations over years, depending upon
the peculiar circumstances. There was
never a year when the level of economic
activities in the economy demanded so
much labour that we felt shortage,
barring harvest seasons.
Data on comparable basis is
available from 1972-73 only. The
following findings deserve our attention:
(i) unemployment on usual status basis
fluctuated between 1.6 per cent in 197273 and 3.9 per cent in 1977-78, being
2.5 per cent in 1983 and 3.7 per cent in
1987-88, (ii) unemployment reduced
from over 8.0 per cent person-days in
early seventies to 6.0 per cent persondays in late eighties, (iii) poverty in terms
of absolute number continued to be
around 32 crore from 1973-74 to 198788, (iv) poverty in terms of people below
poverty line reduced from around 55 per
cent in 1973-74 to 39 per cent in 198788, and (v) proportion of unemployed
among the poor is less than the
proportion of unemployed among the
non-poor.
Supposing that the trends were
similar in the fifties and sixties, we can
infer that, despite fluctuations in
employment/unemployment by usual
status, per person per day employment
and wages improved. As a result, poverty
has declined to some extent. However,
low unemployment rate among the poor
shows that the poor cannot remain
unemployed as there is no other way they
can get their livelihood. There were not
enough employment opportunities for all
so that wages could rise adequately.
Many people refer to such situation as
jobless growth.

INDIAN ECONOMIC DEVELOPMENT

That our growth pattern did not

create enough job opportunities is
evident from the fact that the
government had to run an umpteen
number of programmes for creating
supplementary
self-employment
opportunities or wage employment.
Some
of
these
programmes
concentrated on small farmer/
manufacturer/trader so that they could
employ themselves and earn their
livelihood by producing things or
providing service.
Reduction in Inequality : We wanted to
reduce inequality in the distribution of
income and consumption as well as
concentration of wealth. It is believed
that, in the initial stages of
development, inequality tends to
increase while the lot of everybody
improves. We do not have practically any
data on distribution of income over
households. What we know is that the
percentage of income tax payers has
increased over the years and poverty,
as percentage of people below poverty
line, has reduced. By 1993-94, which is
the year closest to the period under
review, while the proportion of poor had
reduced, their absolute number
remained the same. In the case of
income tax payers, both the proportion
and the absolute number of income tax
payers rose, though slightly. The size of
the middle class has also risen both in
proportion and number.
However, unless we show that income
of top x percent has reduced from y1 per
cent to y2 per cent during a long period of
time, we cannot say much. In the case of
total private consumption expenditure
incurred by the households, it appears
that the share of bottom 40 per cent in
rural areas, for each of its deciles, has

DEVELOPMENT STRATEGIES TILL 1991

improved. On the other hand, the share

of bottom 80 per cent in urban areas, for
each of its deciles, has worsened in the
case of total private consumption
expenditure incurred by the households.
Even then, the rural-urban disparity in
consumption is on the rise.
So far as wealth is concerned, we
know something about agricultural
holdings. First, the intermediary
interests have been abolished. Ceilings
for ownership were fixed twice in all
States (in mid-fifties and early seventies)
for dry, one-crop irrigated and two-crop
irrigated lands. Surplus land was
declared and taken possession of and
finally distributed to small farmers,
evicted tenants or landless agricultural
labourers. Of the total 14 crore hectares
of net sown area, we find that in the forty
years since 1951, after stringent ceiling
laws formulated in 1972, not even 20
lakh hectares were found to be surplus
and only a little more than 10 lakh
hectares were distributed to about 44
lakh personson an average a little over
one acre. However, time has resolved the
issue to a great extent. In 1951, there
were 72 million households of which 60
million were in the villages and 50 million
might have had land. By 1991, there
were 170 million households in the
country of which, say 125 million, would
have been in the villages with 100 million
holders. Average holding size is just 1.4
hectare. Thus, over time increase in
population leading to further
fragmentation of holdings has hardly left
2 per cent holdings, which are in size
bigger than 10 hectares. Those who
possess such large land holdings are
called large farmers. Of course, they
possess almost 20 per cent total land.

91
MNEMONIC TO REMEMBER AREAL
MEASUREMENT
100 Hectares =1 sq km =1000000 sq m;
Hectare =100 ares =100 (10 10) sq m
10 Acres = 1 sq furlong = 220 220 sq yd;
Acre = 4840 sq yd = 4000 sq m (approx.)
Hectare = 2.47 acre (approx.)

Let us have a look at the concentration of economic power in industrial

(non-agricultural) sector, which we
wanted to check while promoting
industrial development. We know that
there are government companies and
there are private sector companies and
in the latter case, public limited and
private limited. Paid up capital used in
government companies is found to be as
much as in the non-government
companies. Out of lakhs of companies
(with 2.5 lakh registered factories), 1690
might be considered very big in 1991.
Companies with less than Rs 100 crore,
with average assets worth Rs 27 crore,
accounted for 83.7 per cent with total
assets about 30 per cent whereas
companies with more than Rs1,000
crore, with average assets worth
Rs 1,823 crore, accounted for less than
1 per cent and controlled assets worth
20 per cent.
In 1965, it was found that 75
business houses controlled 1500
companies. Top twenty industrial houses
in 1989-90 were: Tata, Birla, Reliance
(which came up in the late seventies
only), Thapar, JK, L&T, Modi, Bajaj,
Mafatlal, M.A. Chidambaram, Hindustan
Lever, United Brewaries, TVS Iyengar,
ITC, Shri Ram, ACC, Oswal, Mahindra
& Mahindra, Essar, Kirloskar. The first
five controlled 60 per cent of the total
assets of 20 industrial houses.

92

INDIAN ECONOMIC DEVELOPMENT

OBSERVATION BY MONOPOLY
ENQUIRY COMMITTEE, 1965
In the period immediately following
Independence, the very forces which are
harnessed to produce the quick
industrialisation of the country worked at
the same time to concentrate power in
industry in a few individuals or families
who were already wealthy and
powerfulThe allocation of resources and
the settlement of priorities which planning
necessarily involves have necessitated a
system of licensing for starting new
industries or expanding the old
established units or starting new units in
existing industries; capital issues had also
to be
controlledEveryone of these
circumstances tended to produce
concentration of economic power.

While allocation priorities were

primarily responsible for this
concentration, the industrial houses
manipulated to secure things in their
favour. Before 1969, when banks were
nationalised, banking industry was
controlled by these big houses. A
Committee to inquire industrial licensing
policy found that 56 per cent of total
assistance from specialised financial
institutions such as IFCI, ICICI and IDBI,
70 per cent of term-loan by the LIC and
62 per cent of term-loan by the SBI were
secured by the big industrial houses.
This is how the economic power got
concentrated in a few hands in the
industrial sector. They did not even
employ more than 80 lakh persons.
Now, we discuss, in short, some of
the other objectives, which were explicitly
stated in later plans.
Reduction in Poverty : To begin with,
the idea was that mass poverty would
be automatically removed with the
strategy of growth along with

FINANCIAL INSTITUTIONS
ICICI = Industrial Credit and Investment
Corporation of India
IDBI = Industrial Development Bank of India
IFCI = Industrial Finance Corporation of
India
LIC = Life Insurance Corporation of India
SBI = State Bank of India

redistribution of wealth (like land), of

income through fiscal instruments of
taxation, and of consumption by
intervention in market of essential
commodities through price control and
public distribution. Despite modest
growth and operation of redistribution
instruments, it was discovered that
poverty was not declining to a significant
extent. The Fifth Plan started with the
removal of poverty as its prime objective,
though
a
few
supplementary
programmes for poor sections of the
society were launched during the
Fourth Plan itself. Rigorous exercises
were carried out. Controversy after
controversy took place on methods of
estimation of poverty. We find that
poverty, as proportion of people below
poverty line, did not reduce on a
sustained basis till 1973-74 but reduced
thereafter from 56 per cent to 36 per
cent by 1993-94. Those who remained
below the poverty line came closer to
the poverty line. However, the absolute
number of poor remained 32 crore.
Diversification of Economic Activities
Our industrial base, contributed by the
public sector and supplemented by the
private sector, got quite diversified by
1991 even though our growth rate was
not considered very high. Many things,
which we can produce, were not to be
imported by necessity. Petroleum and

93

DEVELOPMENT STRATEGIES TILL 1991

petroleum products were being imported

in order to conserve our own reserves. In
any case we cannot do much in the area.
Many chemicals and fertilizers,
which we had to import earlier, were
being produced domestically. We are doing
quite well in heavy engineering. In fact,
there are technological feats to our credit,
particularly in the areas where we were
denied technology.
Achievements : Many things have
happened which do not get captured in
what we have discussed above. You may
recall that our life expectancy at birth has
almost doubled and at other ages,
considerably improved. Our infant
mortality rate considerably reduced from
140 per thousand in the fifties to 80 per
thousand by the close of eighties though
it was yet very high in comparison to other
countries. Our death rate came down to
about 10 per thousand in 1991 from
around 23 in 1951. By the way birth rate
too reduced to 30 per thousand by 1991
as against 45 per thousand in 1950s.
Concluding Remarks
We learnt about the rationale for
resorting to planning, and some
thoughts on planning during preindependence. We also tried to
understand the generic meaning of
planning and then the specific context

of national planning by the State. We

also learnt that we adopted
comprehensive planning for ourselves,
encompassing economic and social
spheres. Then, we had a glimpse at
history of our plans.
Next, we discussed the objectives and
differentiated them between planning
objectives and plan objectives. Planning
objectives, which could be said to be longterm goals were delineated as growth,
employment and reduction in inequality.
Main features of economic policy were
outlined as interventionist state,
centralised planning, expansion of public
sector, and import substitution.
Finally, we discussed achievements
and failures of policy of planning as
pursued in the forty years since 1951. We
emphasised that we improved on all
counts. Our achievements have been less
than what we wanted to achieve. But our
achievements
were
definitely
commendable when we compared them
with what had been happening before
Independence. And, this owes a great
deal to our policy of planning for social
and economic development. But, we
failed to some extent in reducing poverty
and unemployment. We also failed in
reducing concentration of wealth or
economic power in a few hands and thus
perpetuated as well.

EXERCISES
1.
2.
3.
4.

Which are the factors determining the manner, the extent and the pace of state
intervention in an economy?
The Constitution of India allows ownership and control of material resources to exist as
well as market to function yet it seeks to intervene. Why?
Where is the provision for economic and social planning in the Constitution?
What were the three models that prompted Indian leaders for deciding in favour of
planning in the late thirties?

94

INDIAN ECONOMIC DEVELOPMENT

5.

Who formed the National Planning Committee and when? Who were the Chairman and
Secretary of the National Planning Committee?
What were the key recommendations of the National Planning Committee?
What do you mean by economic planning?
What do you mean by comprehensive development planning?
List some of the economic spheres and the social spheres separately.
List some of the methods of intervention by the State in functioning of the economy.
Write a brief history of our plans, mentioning the reasons why a five year plan was
not formulated when it was due.
Distinguish between planning (long-term) objectives and plan objectives. Write out
planning objectives and provide rationale for the same.
What is our major framework of planning? Is it existence of mixed economy? What do
you mean by the mixed economy?
What are the important features of our economic policy as pursued till 1991? Discuss
in detail each of them, justifying the background.
Discuss our achievement/failure in maximising production, particularly in the case of
foodgrains.
What do you mean by self-employment and wage-employment?
What do you mean by person day?
Discuss our achievement/failure in the matter of employment before the onset of new
economic policy.
What is our record during 1951-1991, about reduction of inequality in (i) distribution
of income, (ii) distribution of consumption expenditure in rural and urban areas, and
(iii) distribution of land holdings?
What is our record in the matter of concentration of economic power particularly in
the context of industrial wealth?
Write a short essay on our achievements during 1951-1991, highlighting relative
success in different objectives.

6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.

20.
21.

ACTIVITIES
1.

2.

3.

If we do not want to depend on imports for our food, how much foodgrains we should
produce at home if each one of us must consume foodgrains @ 500 grams per day and
must ensure 12.5 per cent of foodgrains grown for seed, feed and wastage? You can
remember that net output is reckoned at 87.5 per cent of gross output.
Supposing that there are 40 crore people working for the total person days available
during a particular year is 14600 crore person days (=40 cr * 365 days). Taking 10 per
cent as the unemployment rate, we need to create 1460 crore person days =14600
million person days, taking due care of composition profile of labour force along with
regional dimensions. Try to find out how much employment was generated in terms of
person days by various schemes of employment. Was it half of the requirement?
Group Activity: Look at the Constitution. Try to find out in how many senses the word
State has been used in the Constitution. Discuss among yourselves in the presence of
your teacher.