Planning and Economic Development

Indian planning was a political settlement before it was an economic technique: a capitalist economy directed by a socialist state under a Gandhian party. Each of its three phases failed in a different way, and the current arrangement has abandoned the technique while keeping the ambition.

This is chapter 29 of the PSIR Optional Notes, from the part on Indian Government and Politics in the Paper I syllabus. The complete book is a free download.

The two perspectives

Nehruvian

Its premises: that a poor country cannot industrialise through the market alone because private capital will not undertake long-gestation, capital-intensive investment; that industrialisation is the condition of both prosperity and strategic autonomy; and that the state, being answerable to all, can direct investment toward social goals private owners will not serve.

Its instruments: the Industrial Policy Resolution of 1956, which reserved seventeen industries exclusively for the state and twelve more for state initiative; industrial licensing; import substitution behind high tariffs; exchange control; and five-year plans with physical targets. The Mahalanobis two-sector and four-sector models supplied the theoretical justification for prioritising capital goods.

The 2025 question asked how the early phase laid the foundation of modern India’s growth, and the honest answer credits it with four things: an industrial base and, crucially, a capital-goods and machine-tool sector that did not exist in 1947; scientific and technical institutions, the IITs, CSIR laboratories, the atomic energy and space programmes, which underpin the services and technology economy today; public-sector infrastructure in steel, power, coal and railways; and the avoidance of dependence on a single external patron. The criticisms are equally established: neglect of agriculture until the food crises of the mid-1960s, neglect of primary education and public health, an anti-export bias, and a licensing system that became a rent-generating apparatus.

Gandhian

The Gandhian perspective, treated doctrinally in Chapter 9 and asked in 2024 as gram swaraj and planning, holds that the unit of planning should be the village; that technology should be labour-using rather than labour-saving in a labour-surplus economy; that production should be by the masses rather than mass production; and that trusteeship rather than state ownership should govern property.

The institutional expressions: the Sarvodaya Plan drafted in 1950 under S.N. Agarwal; J.C. Kumarappa’s economy of permanence; the Khadi and Village Industries Commission (1957); the Community Development Programme (1952); and, much later, Article 40’s realisation in the 73rd Amendment. The critique is that it could not deliver the scale of output a growing population required, had no theory of capital accumulation, and, as Ambedkar argued, entrusted development to village structures that were themselves instruments of caste domination.

Agrarian change

Land reform

The 2025 question about land reform leading to constitutional amendments points to a specific and important sequence: zamindari abolition laws were challenged as violating the right to property, producing the First Amendment (1951) with Articles 31A and 31B and the Ninth Schedule; the Fourth (1955) restricted compensation review; the Seventeenth (1964) widened the definition of estate; the Twenty-fifth (1971) inserted Article 31C and replaced compensation with amount; and the Forty-fourth (1978) removed property from Part III altogether. Land reform therefore drove the entire property-rights jurisprudence, including Golak Nath and Kesavananda, which Chapters 22 and 23 cover.

The Green Revolution

Triggered by the droughts of 1965 and 1966 and the humiliation of dependence on PL-480 imports. Its package: high-yielding dwarf wheat and rice varieties, assured irrigation, chemical fertiliser and pesticide, institutional credit, and price assurance through the Agricultural Prices Commission (1965, now CACP) and the Food Corporation of India (1965).

The results: self-sufficiency in foodgrains and the end of famine as a policy problem; a fourfold increase in wheat output within two decades; and buffer stocks that made the public distribution system possible.

The costs, which the question always wants: regional concentration in Punjab, Haryana and western Uttar Pradesh, since the package required assured water; class concentration, since it favoured farmers who could finance inputs, so inequality within the countryside widened; ecological damage through groundwater depletion, soil degradation and fertiliser overuse; the neglect of pulses, coarse cereals and oilseeds; and a political consequence, the emergence of a prosperous middle-caste farming class whose demands reshaped north Indian politics from the 1970s, which connects directly to Chapter 30.

Liberalisation

The 1991 reforms followed a genuine crisis: foreign exchange reserves sufficient for roughly two weeks of imports, a fiscal deficit above eight per cent of GDP, gold pledged to the Bank of England and the Bank of Japan, and an IMF standby arrangement.

The measures grouped as LPG: liberalisation through abolition of industrial licensing for all but a short reserved list, removal of MRTP asset thresholds, de-reservation from small-scale industry, and interest-rate and financial-sector reform; privatisation through disinvestment in public-sector undertakings and the narrowing of reserved industries from seventeen to a handful; and globalisation through devaluation, tariff reduction, current-account convertibility in 1994, and automatic-route foreign direct investment.

The assessment: growth accelerated markedly and poverty declined; a services and information technology sector emerged that the licensing regime could not have permitted; foreign exchange constraints ceased to determine policy. Against that: employment growth lagged output growth; agriculture was largely left out of the reform and its crisis deepened; inter-state and inter-personal inequality widened; and social-sector spending remained low as a share of GDP. The 1991 reforms were also, as their architects have acknowledged, a crisis response rather than a considered design, which is why the second-generation reforms in land, labour and administration proved much harder.

From Planning Commission to NITI Aayog

The Planning Commission was created by a Cabinet resolution on 15 March 1950, with the Prime Minister as chairman. It had no constitutional or statutory basis, which is the first point in any answer about it. Its functions were to assess resources, formulate plans, determine priorities, and, through the mechanism of plan transfers, to allocate resources to states. The National Development Council, constituted in 1952 with the Prime Minister, Union ministers, Chief Ministers and Commission members, approved the plans.

Its criticisms were long-standing: it became a parallel and unaccountable centre of power; the Gadgil formula reduced allocation to arithmetic while discretionary grants remained; it treated very different states identically; and its very existence, as an unelected body allocating funds to elected state governments, was a federal anomaly.

NITI Aayog, established by a Cabinet resolution on 1 January 2015, replaced it. Its structure: the Prime Minister as chairperson, a Governing Council of all Chief Ministers and lieutenant governors, regional councils, a vice-chairperson, full-time and ex-officio members, special invitees, and a chief executive officer.

The 2023 question described it as a policy think tank with a shared vision reorganising planning, and the answer must test that description.

• What changed. It does not allocate funds; the Finance Ministry does, on Finance Commission devolution. It works by advice, evaluation and competition among states through indices, on aspirational districts, health, education, water, innovation and sustainable development goals. Its declared model is cooperative and competitive federalism, with Chief Ministers in the Governing Council rather than petitioning a Commission.
• What that gains. Removing an unelected body from resource allocation is a genuine federal improvement; states now negotiate over a formula-based share rather than over discretionary plan assistance. Sub-groups of Chief Ministers on specific subjects gave states an agenda-setting role the NDC never provided.
• What that loses. Nothing now performs medium-term resource planning or inter-sectoral coordination; the abolition of the plan and non-plan distinction removed a protected capital-expenditure category; states lost a forum in which they could obtain resources against a national plan; and an advisory body cannot compel implementation of what it recommends.
• The 2024 question on the Planning Commission’s continuing legacy is answerable directly: centrally sponsored schemes, the public-sector footprint, the practice of national missions with targets, the statistical and evaluation apparatus, and the assumption that the state should set development priorities all survive the institution that created them.

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