STRATEGY OF PLANNING IN INDIA

“By education, I am an Englishman, by views an internationalist, by culture a Muslim and a Hindu only by accident”

-Jawaharlal Nehru

At the time of independence, India was in a sad state with most of its resources depleted and having to face several issues regarding the unification of the country and other political and social disputes. Any economy can be divided into three sectors, the primary sector(the free gifts of nature), the service sector(providing service with the means of not producing)and the manufacturing sector(utilisation of the resources of the primary sector to produce goods and products of higher value using industrial or artisanal production). India at that time had an agrarian economy where the majority of the population was dependent upon the primary sector for its income and only 15% on the industrial and service sector.

India had the option of choosing between three economic models, the first option proposing no interference in the economy by the state, i.e the promotion of a free market, however, this option did not come as satisfactory to many due to their disbelief in the free market and the rise of Keynesian economics. The second option was proposed by Nehru who was deeply influenced by the western economy and wished for the Indian economy to become like that of the west. This option demanded a fully planned economy somewhat like that of the Soviets intending to build India into a technological and scientifically advanced self-reliant nation, however, the Gandhian had a very contrasting view upon this stating that the creation of this kind of technological and capital intensive society was the cause of the problem itself. The third option put forward was a mixed economy which consisted of both the elements of planning and a free market, which was ultimately adopted by India as its basis for planning its economic model.

Accordingly, a planning commission was set up by Nehru to accomplish the said. While planning any economic model it is essential to look upon three things; the aim, the resources in the possession and the best method for the utilisation of the resources, to make major economic decisions, i.e a process which involves decisions or choices about alternative ways of using available resources to achieve a particular goal. India at that time did not have enough resources, mainly finances to concentrate on all the three sectors together, hence it was necessary to determine which sector to focus on concerning the aim. The primary aim decided was to address the prevailing issue of poverty, improve the living standards and generate employment with the secondary aim being to transform India into a technologically strong and stable industrial power.

Regarding this Jawaharlal Nehru shared a close connection of ideas with Mahalanobis, a member of the planning commission. The pair is responsible for most of the economic drafting even today. To achieve the aim, they proposed a growth model which showed a strategy of rapid long-term development by focusing on the industrial sector of the economy and the industrial sector on the production of capital goods, which were the goods necessary for the production of consumer goods. However artisanal production in this sector was neglected as it was believed by them that it had no or very little scope in the future.

Nehru’s and others' argument for focusing on the industrial sector was based on the fact that most of the western population was vested in this sector and they believed to become scientifically and technologically more developed like the west they too would have to focus on this sector. Which meant not only investing financially but also pulling people out of agriculture and putting them into this modern industrial sector. They aimed at achieving the primary objective by the means of the secondary, which according to the Gandhian was an absurd idea as they believed it to be impossible to do so. Their argument for the production of capital goods was that eventually over time the existing capital goods are going to exhaust and they would require more capital goods as it is not possible to produce consumer goods without the presence of capital goods.

Concerning the public questions about the necessity of producing capital goods when they could import them, Nehru proposed the doctrine of export pessimism. This stated that to export they needed foreign exchange, with their only source of foreign exchange is through the goods they export(aka import substitution). At that time majority of India’s export was through agricultural goods. He said that in the long run, the demand and consumption of agricultural goods will remain static while that of industrial goods will increase. Hence the prices of industrial goods will increase while that of agricultural goods will remain static or may even decrease, resulting in a deficit of foreign exchange from export to import capital goods.

In addition to this he supported his argument by referring to the ongoing competition in the world to be dominant, by saying that even if they import, they will not be provided with the best technology which would mean lagging in this aspect preventing them from being advance and self-reliant. Therefore Nehru said that it is essential for India to build a strong manufacturing sector with capital goods for the growth of science and technology, and only import things they cannot produce.

Nehru and Mahalanobis’ idea of focusing on the industrial sector was questioned by a few intellectuals putting forward the three major arguments. The 1st argument stated that the majority of the Indian population belonged to the primary sector(mainly agriculture)and unless there is no increase in their general income, there will be no market for industrial goods as the majority of the population will not have such kind of income to purchase the industrial goods. Hence to increase the demand for industrial goods it is crucial to increase the general income of the population.

The second argument said that the industrial sector is dependent upon the primary sector for raw materials, hence the growth of the primary sector is needed for the production of industrial goods. The third argument was more generalised and a subset of the second one. It said the basic need of the country is food and agriculture had already declined massively during the British Raj and if it continues to be neglected, India might face a food shortage crisis. Nevertheless, these arguments were overlooked and it was decided to focus on the capital goods in the industrial sector.

However, in doing so there were two major problems yet to be solved. The first one is the extreme investment required in the capital goods industry, with neither giving returns in a short period nor being highly profitable. Although the industrial capitalist agreed with them on the matter, they were not willing to invest in this sector as neither did they have that kind of financial resources to do so and nor would it have produced high profits even if they did.

This problem was addressed by Nehru in the Bombay meeting by setting up public sector companies that would invest in this capital goods industry. Concerning this, they drafted the industrial policy revolution that introduced the system of licensing in India, which helped in keeping the private sector on a tight leash while allowing most of the companies to be reserved for the public sector it was believed by Nehru that India is capitalist state wanting to promote capitalism and hence the commanding should be in the hands of the public sector.

The second major problem that prevailed was that the capital goods industry was extremely capital intensive, huge investments were required to create a single job. This made it hard to achieve the object of pulling people out of agriculture into industry. Concerning this issue, a small-scale sector was introduced in India, as these were labour intensive, which would create higher employment. It would also help the per capita income and provide better utilization of the resources in the economy. However, the small-scale sector did not flourish as it ran into several problems regarding labour, credit, power etc. Hence it failed to generate much employment.

Nonetheless, Nehru suspected that even if the small-scale sector succeeded it would not create enough employment, hence he had a great plan for the agricultural sector which was to increase production and productivity through land reforms(changing the pattern of landholding), which might have brought prosperity to India if implemented properly, however, due to the lack of proper implementation, this too failed.

Licences were now required to use the modern way of production. The arguments for licensing stated that considering that production was dependent upon the purchasing power and with the greater difference in the purchasing power, i.e varied income distribution would lead to the production of the products wanted by those of higher purchasing power and would even lead to higher prices. Hence by putting constraints on the market it would stabilize the richer and poorer sections preventing the market from going into the production of the wrong kind which may put a lot of weight on the natural resources.

Although licensing did come under tremendous criticism by neoliberalism. They argued that it leads to inefficiency as due to the lack of competition they would not give their best. It also gives the state a lot of power, which was derogatorily called the rule of license which may lead to corruption and bribing.

The service sector of the economy had by far been neglected but as they decided to focus on this sector they were caught by the question of whether they should focus on providing education or focusing on the development of higher education. Nehru's vision was for India to become a self-reliant nation with thriving technology and science and to do so they would require to focus on the development of higher education. Although world-class doctors and engineers have been created in India, still the majority of India lies uneducated. Most of the doctors and other professionals that are even created either go out and serve another country or cater to the upper-middle class. In both health and education, the focus has always been on the middle class with the neglect of the lower classes, and this is known as the middle-class bias. Hence even though through planning India did achieve its second objective of becoming a scientific and technologically advanced self-reliant nation, its primary object of unemployment and poverty was not solved.