Indian Economy, 5th edition (11 page)

Introduction

It was the Soviet Union which explored and adopted
national planning
for the first time in the world. After a prolonged period of debate and discussion, the First Soviet Plan commenced in 1928 for a period of five years. But the world outside was not fully known to the modus operandi of development planning till the 1930s. It was the exodus
1
of the east European economists to Britain and the United States in 1920s and 1930s that made the world aware as to what economic/national planning was all about.The whole lot of colonial world and the democracies of the time were fascinated by the idea of planning as an instrument of economic progress. The nationalist leaders with socialistic inclination of the erstwhile British colonies were more influenced by the idea of economic planning. The whole decade of 1930s is the period in the Indian history when we see nationalists, capitalists, socialists, democrats and academicians advocating for the need of economic planning in India at one point or another.
2

Independent India was thus destined to be a planned economy. The economic history of India is nothing but the history of planning
3
. Even if the so-called economic reforms started in 1991–92, all the humble suggestions regarding the contours of reforms were very much outlined by the Planning Commission by then.
4
Once the reforms commenced, the think tank started outlining the major future direction for further plans.
5
Going through the history of planning in India is a highly educational trip in itself—for though the planning commission has been a political body, it never hesitated in pointing out good economics time and again. Let us therefore look into the unfolding of the planning process in India.

BACKGROUND

By the decade of 1930s, the idea of planning had already entered the domain of intellectual and political discussion in India. Many fresh proposals suggesting immediacy of planning in India were put forward though the erstwhile British Government remained almost immune to them. But these humble proposals of planning served their purpose once independent India decided to adopt a planned economic pattern for India of which a list is given below:

The Visvesvaraya Plan

The credit of proposing the first blueprint of Indian planning is given to the popular civil engineer and the ex-Dewan of Mysore state M. Visvesvaraya—in his book
The
p
lanned Economy of India,
published in 1934.
6
His ideas of state planning were an exercise in democratic capitalism (similar to the USA) with emphasis on industrialisation—a shift of labour from the agrarian set up to the industries targeting to double national income in one decade. Though there was no follow up by the British Government on this plan, it aroused an urge for national planning among the educated citizens of the country.

The FICCI Proposal

In 1934, a serious need of national planning was recommended by the Federation of Indian Chambers of Commerce and Industry (FICCI), the leading organisation of Indian capitalists. Its President N.R. Sarkar proclaimed that the days of undiluted laissez-faire were gone forever and for a backward country like India, a comprehensive plan for economic development covering the whole gamut of economic activities was a necessity. Voicing the view of the leadership of the capitalist class he further called for a high powered ‘National Planning Commission’ to coordinate the whole process of planning so that the country could make a structural break with the past and achieve its full growth potential.
7

By the late nineteenth century, the economic thinking of the nationalists (such as M.G. Ranade and Dadabhai Naroji) was in favour of a dominant role of state in the economy and doubted the prudence of the ‘market mechanism’. This thinking was further reinforced by the Keynesian ideas in the wake of the Great Depression, the
New Deal
in the USA and the Soviet experiment in national planning. Thus the Indian capitalist class were also influenced by these events which were voiced in the FICCI articulation for the planning.

The Congress Plan

Though the Gandhians and some of the business and propertied representatives were opposed to commit the party to centralised state planning (including Mahatma Gandhi)
8
, it was on the initiative
9
of the INC president Subhash C. Bose that the National Planning Committee (NPC) was set up in October 1938 under the chairmanship of J.L. Nehru to work out concrete programmes for development encompassing all major areas of the economy. Basically, the NPC was set up in a conference of the Ministers of Industries of the Congress-ruled States (though other states were also invited to participate) where M. Visvesvaraya, J.R.D. Tata, G.D. Birla and Lala Sri Ram and many others including academicians, technocrats, provincial civil servants, trade unionists, socialists and communists etc. were also invited. The 15-member NPC with 29 sub-committees and a total of 350 members produced 29 volumes of recommendations.
10
The work of the committee was interrupted when the Second World War broke out and in the wake of the Quit India Movement many of its members including the chairman were arrested, and between 1940 and 1945 the Committee had only a nominal existence. Though the final report of the NPC could only be published in 1949, many developments related to planning took place during the Interim Government upto 1946.

“A series of valuable reports were published which brought together the constructive thinking done by the committee and the sub-committees and the material collected in the course of their work. The importance of the NPC lies not so much in these reports as in the wide interest it created throughout the country for co-ordinated planning as the only means of bringing about a rapid increase in the standards of living and its emphasis on the need for bringing fundamental changes in the social and economic structure.”
11

Some of the important developments after the NPC was set up which prepared a foundation for the coordinated planning in independent India are given below:

(i)
Post War Reconstruction Committee:
Early in June 1941, the Government of India formed (on popular demand) a Post-War Reconstruction Committee which was to consider various plans for the reconstruction of the economy.
12

(ii)
Consultative Committee of Economists:
A consultative committee of economists under the chairmanship of Ramaswamy Mudaliar was set up in 1941 as a ‘think tank’ to advise the four
p
ost-War Reconstruction Committees for executing, national plan for the country.

Though the committee suggested many plans for the different areas of the economy but they had negligible practical significance and had all the academic biases of the committee.

(iii)
Planning and Development Department:
After all possible delays, it was in 1944 that the Government created a Planning and Development Department under a separate member of the Viceroy’s Executive Council for organising planning work in the country and co-ordinating it. Ardeshir Dalal (the controller of the Bombay Plan) was appointed as one of its acting members. More than 20 panels of experts were set up. The central departments and the Governments of Provinces and Indian States were invited to prepare detailed plans for industrialisation.
12
This Department was abolished in 1946.

(iv)
Advisory Planning Board:
In October 1946, the Government of India appointed a committee called the ‘Advisory Planning Board’
13
to review the planning that had already been done by the British Government, the work of the National Planning Committee, and other plans and proposals for planning and to make recommendations regarding the future machinery of planning and also in regard to objectives and priorities. The Board strongly recommended the creation of “a single, compact authoritative organisation .... responsible directly to the Cabinet ... which should devote its attention continuously to the whole field of development.”
14
This was an emphatic advice for the creation of a National Planning Commission, similar to the FICCI’s view of 1934, which will have autonomy and authoritative say on the process of development planning, working in tandem with the Union cabinet and influencing the developmental decisions of the states, too. This happened in 1950 with the setting up of the Planning Commission.

The Board, in its Report of January 1947, emphatically expressed the opinion that the “proper development of large-scale industries can only take place if political units, whether in the provinces or states, agree to work in accordance with a common plan.”
15
This suggestion worked as a great influence on the planning process of independent India as it always tried to give unifying nature to development planning. But, this process also induced a serious tendency of centralisation in the Indian planning to which a number of states were to pose objections and therely straining the centre-state relations, time and again.
16
However, the political leadership right since 1920s was very conscious of the need for decentralised planning in the country.
17

The Bombay Plan

Bombay Plan was the popular title of ‘A Plan of Economic Development for India’ which was prepared by a cross-section of India’s leading capitalists. The eight capitalists involved in this plan were Purshotamdas Thakurdas, J.R.D. Tata, G.D. Birla, Lala Sri Ram, Kasturbhai Lalbhai, A.D. Shroff, Avdeshir Dalal and John Mathai.
18
The Plan was published in 1944–45. Out of these eight industrialists, Purshotamdas Thakurdas was one among the 15 members of the National Planning Committee (1938)
19
. Rest three J.R.D. Tata, G.D. Birla and Lala Sri Ram, were the members of the sub-committees (29 in total) of the National Planning Committee.
20

The popular sentiments regarding the need of planning and criss-cross of memberships between the NPC and the Bombay Plan club made possible some clear-cut agreements between these two major plans which ultimately went to mould the very shape of the Indian economy after independence. We may have a look at some of the very important agreements:
21

(i)
A basic agreement on the issue of the
agrarian restructuring
—
abolition of all intermediaries (i.e Zamindari Abolition), minimum wages, guarantee of minimum or fair prices to agricultural producers, cooperatives, credit and marketing supports.

(ii)
Agreement on
rapid industrialisation
for which both the plans agreed upon an emphasis on heavy capital goods and basic industries (the Bombay Plan had allocated 35 per cent of its total plan outlay on basic industries).

(iii)
Taking clues from the Soviet Planning, the NPC and the Bombay Plan both were in favour of a simultaneous
development of the essential consumer goods
industries but as a low-key affair.

(iv)
Both the Plans agreed upon the importance of promoting the
medium-scale, small-scale
and
cottage industries
as they could provide greater employment and require lesser capital and lower order of plants and machineries.

(v)
Both the Plans wanted the
state to play an active role
in the economy through planning, controlling and overseeing the different areas of the economy i.e. trade, industry, banking through state ownership (public sector) or through direct and extensive control over them.

(vi)
Large-scale measures for
social welfare
were favoured by both the plans which suggested to be based on issues like, right to work and full employment, the guarantee of a minimum wage, greater state expenditure on housing, water and sanitation, free education, social insurance to cover unemployment and sickness and provision of utility services such as electricity and transportation at a low cost through state subsidies.

(vii)
Both the Plans agreed upon a planning which could do away with the gross
inequalities.
Through measures like progressive taxation, and prevention of concentration of wealth. Inequality was considered undesirable as it tended to restrict the domestic market.

The Gandhian Plan

Espousing the spirit of the Gandhian economic thinking, Sriman Narayan Agarwal formulated this plan in 1944. This plan laid more emphasis on agriculture. Even if he referred to industrialisation it was to the level of promoting cottage and village-level industries, unlike the NPC and the Bombay Plan which supported a leading role for the heavy and large industries. The plan articulated a ‘decentralised economic structure’ for India with ‘self-contained villages’.

It needs to be noted here that the Gandhians did not agree with the views of the NPC or the Bombay Plan, particularly on issues like centralised planning, dominant role for state in the economy and the emphasis on industrialisation being the major ones.
22
For Gandhi, the machinery, commercialisation and centralised state power were the curses of modern civilisation, thrust upon the Indian people by European colonialism. It was industrialism itself, Gandhi argued, rather than the inability to industrialise, which was the root cause of Indian poverty. This was until the 1940s that the Congress supported the above-given view of Gandhi to mobilise a mass movement against the colonial rule. But it was in the NPC that the Congress tried to articulate a different view on these issues, almost taking a break from Gandhi’s ideas. The very first session of the NPC was brought to an impasse by J.C. Kumarappa (the lone Gandhian on the 15-member NPC) by questioning the authority of the NPC to discuss plans for industrialisation. He said on the occassion that the national priority as adopted by the Congress was to restrict and eliminate modern industrialism. The impasse was normalised after Nehru intervened and declared that most members of the NPC felt that large-scale industry ought to be promoted as long as it did not ‘come into conflict with the cottage industries’.
23
This was a long-drawn ideological impasse which made it necessary to articulate the Gandhian view of planning via this plan.