The Early Initiatives

The Planning Commission of India, like its Soviet counterpart, adopted the five-year plan (FYP) model. The core idea is straightforward: the government prepares a single document that lays out all its projected income and expenditure for the next five years. This has a direct consequence for budgeting. The budgets of both the central government and all state governments are split into two parts:

• Non-plan budget: spent on routine, recurring items on a yearly basis (salaries, maintenance, interest payments).
• Plan budget: spent on a five-year basis, according to the priorities fixed by the plan.

A five-year plan gives the government the advantage of focusing on the larger picture and making long-term interventions in the economy, rather than just managing year-to-year finances.

The draft of the First Five Year Plan, and then the actual Plan Document released in December 1951, generated tremendous excitement across the country. People from all walks of life — academics, journalists, government and private sector employees, industrialists, farmers, and politicians — discussed and debated the documents extensively. This enthusiasm peaked with the launch of the Second Five Year Plan in 1956 and continued, though somewhat less intensely, through the Third Five Year Plan in 1961.

By the time the Fourth Plan was due to start in 1966, the novelty of planning had worn off considerably. India was also facing an acute economic crisis. In response, the government decided to take a 'plan holiday' — a gap between plans. Despite the many criticisms that emerged about both the process and the priorities of these early plans, the foundation of India's economic development was firmly in place by then.

The First Five Year Plan (1951–1956)

The First Five Year Plan aimed to lift the country's economy out of the cycle of poverty. K.N. Raj, a young economist involved in drafting the plan, argued that India should 'hasten slowly' for the first two decades, because a very fast rate of development might endanger democracy.

The plan addressed, mainly, the agrarian sector, including investment in dams and irrigation. The agricultural sector had been hit hardest by Partition and needed urgent attention. Huge allocations were made for large-scale projects like the Bhakhra Nangal Dam.

The plan identified the pattern of land distribution in the country as the principal obstacle to agricultural growth. It therefore focused on land reforms as the key to the country's development.

One of the basic aims of the planners was to raise the level of national income. This could happen only if people saved more money than they spent. However, the basic level of spending was very low in the 1950s and could not be reduced any further. So the planners sought to push savings up. That was also difficult because the total capital stock in the country was rather low compared to the total number of employable people.

Nevertheless, people's savings did rise in the first phase of the planned process, until the end of the Third Five Year Plan. But the rise was not as spectacular as expected at the beginning of the First Plan. Later, from the early 1960s till the early 1970s, the proportion of savings in the country actually dropped consistently.

Rapid Industrialisation: The Second Five Year Plan

The Second Five Year Plan stressed heavy industries. It was drafted by a team of economists and planners under the leadership of P. C. Mahalanobis — a scientist and statistician of international repute, founder of the Indian Statistical Institute (1931), and a strong supporter of rapid industrialisation and an active role for the public sector.

If the first plan had preached patience, the second wanted to bring about quick structural transformation by making changes simultaneously in all possible directions. …