Did Jawaharlal Nehru’s Five Year Plans Set the Foundation for Economic Growth and Social Equality?

As a whole, successive governments have found it hard to meet the targets set out by themselves under the Five Year Plans.

Jawaharlal Nehru, India’s first Prime Minister, saw “Five Year Plans” (FYPs) as vital to the implementation of his vision of a modernised and socialist India. First introduced in 1951, FYPs comprised economic and social programmes that were centrally designed, executed and evaluated by the Planning Commission of India. FYPs were first implemented by Joseph Stalin in the Soviet Union in 1928. Nehru was inspired by Stalin’s plan to industralise the Soviet Union, even though India had a combination of public and private sectors.

Over the years, India’s Planning Commission, in their efforts to generate economic growth and social equality, has prioritised different aspects of the economy based on changing contexts. For example, with the First FYP of independent India, the government aimed to meet the needs of refugees, and address food shortages and rising inflation. The government initiated the construction of dams in Damodar Valley and Hirakud (among other irrigation projects). Moreover, the government also worked with the World Health Organization to reduce infant mortality and other aspects of children’s health. Overall, the government claimed that it was able to “more or less” meet these demands by a targeted focus on agriculture, power, transport and stabilising prices. In the Fifth FYP, the Planning Commission prioritised self-reliance and poverty alleviation (through a programme called Garibi Hatao that involved conducting mass sterilisation on India’s poor in a campaign that has been heavily criticised). Moreover, by the government’s own admission, high levels of inflation rendered the plan’s financial budgeting erroneous. As a whole, successive governments have found it hard to meet the targets set out by themselves under the FYPs.

The Twelfth FYP, that ended in 2017, was the last of the FYPs. While the government claimed it focused on “inclusive growth,” Mazher Hussain argues that it used economic growth as its central goal, rather than fixing targets for human development indicators. The National Democratic Alliance government chose to replace the Planning Commission with Niti Aayog, a think tank that provides advice on policies. A key difference between the Niti Aayog and the Planning Commission is that the former is an advisory body, that is, it does not have the power to allocate funds or make choices on behalf of states.

This reading list examines the early stages of FYPs, the institutional foundation of the Planning Commission, and the tensions that emerge in balancing investments in private and public sectors.

1) Institutional Foundation of Nehru’s Vision
D K Rangnekar writes that one of the vital gaps in Nehru’s approach to FYPs was that it lacked a targeted focus on institutional changes which could have created conditions for self-sustained growth.

The failure to complete agrarian reform and to bring about the institutional changes necessary for mobilising resources and for channelling them into desirable uses is, without doubt, a crucial factor holding back the process of development. Without the necessary institutional support, the growth of the public sector cannot possibly be dynamic. And without this dynamism, the strategy of growth and modernisation envisaged by Nehru cannot become fully effective.

2) Balancing Investments in Public and Private Industries
A K Dasgupta reiterates that the Planning Commission desired a “socialist pattern of society,” that prioritised social gain, not private profit through a gradual and planned process of altering socio-economic relations. Based on an analysis of the budget for the Second FYP, Dasgupta argues that while the plan allocated a greater share of the total investment to the public sector, it did not seek to nationalise industries or take into account the private sector’s existing capital.

[Given] the fact that almost the entire investment in consumers' goods industries is left to the private sector, one would say that socialisation of capital is still a far cry. If socialism, is your goal, you do not proceed by permitting the private sector not only to persist but also to expand!

3) Sources of Income to Finance Investments
The First FYP allocated about 45% of its budget toward irrigation, energy, agriculture and community development projects. However, in the Second FYP, planners believed that rapid industrialisation could be achieved through a focus on heavy industries. Questions about resourcing the investment recurred during the planning process of both plans, and Pulapre Balakrishnan argues that planners were aware of the challenges.

This is apparent from two elements of the plan to raise the level of income. First, no major foreign assistance was envisaged. This was in keeping with the idea of an independent development, a project incompatible with excessive reliance on foreign aid or, even, foreign direct investment. Taking the Second Plan as a case, foreign assistance was put down at less than 5 per cent of total public expenditure in the proposed plan budget [Planning Commission 1956] for 1956-57 to 1960-61 even as the investment rate was to be raised by over 50 per cent from 7 to 11 per cent of GDP … The second point to note is that the envisaged contribution of the public enterprises was significant, revealing the Indian state’s understanding of their role in the economy.

4) Concerns about Investing in Heavy Industries
M L Dantwala points out that while planners might have been confident about concerns around sourcing investments in heavy industries, Nehru’s decision to focus on heavy industries was controversial.

[It] was interpreted by interested political groups as leading the country on the Soviet path, and by implication, towards totalitarianism. There was another section—well-meaning and sincere—in the country which felt that such a pattern of industrialization was wholly contrary to what Gandhiji would have wished. The emphasis on heavy industries has been variously presented as tantamount to neglect of agriculture, death-knell of Khadi and Village Industries and callousness towards the problem of unemployment.

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