Objectives of Planning and the Early Five Year Plans

Given the state of the economy described above, India's leaders chose economic planning as the principal instrument for guiding development after Independence. A Planning Commission was set up to formulate and oversee a series of Five Year Plans, each setting out targets and priorities for the economy over a five-year period. Indian planning literature generally identifies four broad objectives that this planning process aimed to achieve, together:

• Growth — steadily raising the total output (income) of the economy over time.
• Modernisation — shifting the structure of the economy toward more modern methods of production and a more diversified occupational structure, moving away from excessive dependence on traditional, low-productivity agriculture.
• Self-reliance — reducing dependence on foreign aid, foreign goods and foreign capital, and building the domestic capacity to meet the country's own needs.
• Equity (social justice) — ensuring that the benefits of growth were shared reasonably across different sections of society, rather than being concentrated among a small group.

The First Five Year Plan (1951–56) gave priority to agriculture. Given the state of food production and rural distress inherited from the colonial period, the immediate task was seen as stabilising and improving agricultural output, along with irrigation and power projects. This plan is generally described as being influenced by the Harrod–Domar model, which links a country's rate of economic growth to how much of its income it saves and invests, and how efficiently that investment is converted into output.

The Second Five Year Plan (1956–61), by contrast, shifted the central emphasis toward rapid industrialisation, and in particular toward developing heavy and basic industries (such as steel, machine-building and capital goods) as the foundation for long-term self-reliant growth. This approach is closely associated with the economist P. C. Mahalanobis, and is often referred to as the Mahalanobis strategy or Mahalanobis model. The underlying reasoning was that building a strong domestic capacity to produce machines and capital goods would, over time, reduce India's dependence on imported machinery and lay the base for industrial growth across many sectors, even though it meant a slower rise in the immediate availability of consumer goods.