This chapter looks at the choices that shaped Indian politics and economics in the years right after Independence. It explains how India decided to plan its own development, why the Planning Commission was set up, what the Five Year Plans tried to do, and how the Green Revolution changed farming.
Introduction
Start with a real dilemma. The state of Orissa (now Odisha) holds some of the country's largest untapped reserves of iron ore. As global demand for steel rose, the state signed a Memorandum of Understanding with Indian and international steel makers. The aim was to bring in investment and create jobs.
But those iron ore reserves lie in some of the poorest, mostly tribal districts of the state. Tribal families and environmentalists feared that new industries would displace people from their land and livelihoods, and that mining would damage the environment. The central government worried about the opposite risk: if industry was blocked, investors would lose confidence in the country.
This is the heart of the chapter. Development is never a simple technical question. It is a political choice about who gains, who loses, and who decides.
Political Contestation
In a democracy, big decisions like these should be taken, or at least approved, by the people themselves. Every side of the argument has to be weighed, so the final decision is always political.
Just after Independence, India took a series of major decisions that were tied together by a shared vision of economic development. Most leaders agreed that the country needed to grow economically while also becoming fairer socially. They also agreed that this task could not be left only to businessmen, industrialists and farmers, so the government would play a leading role in ensuring both growth and justice.
There were sharp disagreements too. Critics questioned whether so much power should sit with centralised institutions. Every step the government took carried its own political consequences.
Ideas of Development
What did development mean?
Development means different things to different people. A steel plant means one thing to the industrialist building it, another to the city consumer who buys the steel, and something very different to the Adivasi family living on the land where the ore is found.
So any discussion of development is bound to produce contradiction, conflict and debate. In the very first decade after Independence, the country argued constantly about what development should look like. For many at the time, being 'developed' simply meant becoming more like the West.
Modernisation
It was widely believed that every country would pass through the same process of modernisation that the West had gone through. This involved the breakdown of older, traditional social structures and the rise of ideas linked with growth, material progress and scientific rationality.
This way of thinking let people sort countries into 'developed', 'developing' and 'underdeveloped'. At Independence, India had two main models of modern development to look at: the liberal capitalist model of Western Europe and the United States, and the socialist model of the USSR.
A broad consensus formed. The Soviet model impressed many Indian leaders, not only the Communist Party of India but also members of the Socialist Party and leaders like Jawaharlal Nehru within the Congress. The American style of capitalist development had very few supporters.
Economic Development
Nationalist leaders were clear that free India's government would have to do far more than the colonial government, which had mostly limited itself to narrow commercial tasks. Reducing poverty and redistributing wealth more fairly were now seen as the government's responsibility.
There was still disagreement over the path. Some leaders believed industrialisation was the priority. Others argued that agricultural development and the relief of rural poverty should come first.
Planning
If the government was going to lead development, that development had to be planned carefully, keeping every section of society in mind. The idea of planning, of rebuilding an economy step by step, was popular across the world in the 1940s and 1950s.
Several experiences pushed countries towards planning: the Great Depression in Europe, the rebuilding of Japan and Germany after the wars, and above all the rapid economic growth of the Soviet Union in the 1930s and 1940s.
The Planning Commission
The Planning Commission was set up on 15 March 1950 to design India's development. It quickly became the central body deciding what strategy the country would follow.
Under its rules, the Prime Minister served as the chairperson of the Planning Commission. Jawaharlal Nehru became its first chairperson. Over time the Commission grew into the most influential machinery for planning India's growth.
What was the Bombay Plan?
The Planning Commission did not appear overnight. People often assume that private businessmen dislike planning and want a completely open economy with no state control. India's own history complicates that picture.
In 1944, a group of leading industrialists came together to draft a joint proposal for a planned economy. It became known as the Bombay Plan. It actually wanted the state to take major initiatives in industrial and other economic investment.
What were the early initiatives of the Planning Commission?
Like the USSR, India chose to plan in five year blocks, known as Five Year Plans. The idea was simple: the government would prepare a plan for its income and spending over the next five years.
The budgets of the central and state governments were split into two parts. The 'non plan' budget covered routine yearly spending. The 'plan' budget covered spending fixed over five years according to the plan's priorities. Planning over five years let the government focus on the bigger picture and make long term interventions in the economy.
The Plan Holiday
The First Five Year Plan document, released in December 1951, created real excitement across the country. Academics, journalists, employees, industrialists, farmers and politicians all discussed it. That excitement peaked with the Second Five Year Plan in 1956 and continued into the Third Plan in 1961.
The Fourth Plan was due to begin in 1966. But after the serious difficulties of the Third Plan, the government was forced to declare a 'Plan Holiday', running three separate yearly plans instead. Even with heavy criticism of both the process and the priorities, the foundations of India's economic development were firmly in place by then.
The First Five Year Plan
The First Five Year Plan (1951 to 1956) tried to lift the country out of the cycle of poverty. It was largely drafted by the young economist K. N. Raj, who argued that India should 'hasten slowly' because growing too fast in the early decades might endanger democracy.
The plan identified agriculture as the sector needing the most urgent attention, and made large allocations for big projects such as the Bhakra Nangal Dam.
Key characteristics of the plan
Land reform was seen as the key to development. The way land was distributed was treated as the main obstacle to agricultural growth.
A basic aim was to raise national income, which the planners believed was only possible if people saved more than they spent. Pushing up savings was hard, because the country's total stock of capital was low compared with the number of people who needed work.
Savings did rise during the first phase, up to the end of the Third Plan, though not as sharply as hoped. From the early 1960s to the early 1970s, the share of savings actually fell.
The Second Five Year Plan
The Second Five Year Plan stressed heavy industry. It was drafted by a team led by the statistician P. C. Mahalanobis, and aimed to transform the economy quickly by making changes in many directions at once.
At its Avadi session near Madras, the Congress party declared its goal of a 'socialist pattern of society', and the Second Plan reflected this. The government placed high tariffs on imports to protect Indian industries, which helped both public and private firms grow.
With savings and investment rising, key industries such as electricity, railways, steel, machinery and communication were built in the public sector. This strong push for industrialisation marked a turning point in India's development.
Problems
Because India was technologically behind, it had to spend scarce foreign exchange to buy technology from abroad. And because industry attracted more investment than agriculture, the risk of food shortages grew. Balancing industry and agriculture proved very difficult for the planners.
The Third Five Year Plan
The Third Plan was not very different from the Second. Critics said the strategy showed an unmistakable 'urban bias', and that industry had been wrongly placed above agriculture. Some argued that India should focus on agriculture related industries rather than heavy ones.
Decentralised Planning
The Kerala Model
Planning does not always mean giant industries and huge projects, and it does not always have to be centralised. The 'Kerala model' is the name given to the path of development chosen by the state of Kerala. It focused on education, health, land reform, effective food distribution and poverty relief.
Despite low per capita incomes and a weak industrial base, Kerala achieved almost total literacy, long life expectancy, low infant and female mortality, low birth rates and wide access to medical care.
Between 1987 and 1991 the state launched the 'New Democratic Initiative', with campaigns designed to involve ordinary people directly in development through voluntary citizens' organisations, and through the Panchayat, block and district levels.
Key Controversies
Agriculture versus Industry
There was a constant tug of war over which sector should get more resources. Many felt the Second Plan lacked a strategy for agriculture, and that the focus on industry left farming and rural India to suffer.
Gandhian economists such as J. C. Kumarappa offered an alternative plan that stressed rural industrialisation. Chaudhary Charan Singh, a Congress leader who later left to form the Bharatiya Lok Dal, argued forcefully that planning was building prosperity in urban and industrial India at the expense of farmers and the rural poor.
Others insisted that without a sharp rise in industrial production there could be no escape from poverty. They also argued that Indian planning did include an agrarian strategy: the state made land reform laws, ran community development programmes and spent large sums on irrigation.
The real problem was implementation. Landowning classes held enormous social and political power, so many good policies were never carried out. Some argued that even more spending on agriculture would not have solved the huge scale of rural poverty.
Public versus Private Sector
India did not fully follow either well known path. It did not leave development entirely to the private sector, as in the capitalist model, and it did not abolish private property and hand all production to the state, as in the socialist model. Instead it mixed elements of both. This came to be called a 'mixed economy'.
Much of agriculture, trade and industry stayed in private hands. The state controlled key heavy industries, built industrial infrastructure, regulated trade and stepped into agriculture at crucial points.
Critics on one side said the planners gave the private sector too little space to grow. A large public sector, plus a system of licences and permits for investment, created hurdles for private capital. Because imports of goods that could be made at home were restricted, private firms faced little competition and had little reason to improve their products or cut prices. The state, they said, controlled more than it needed to, which bred inefficiency and corruption.
Critics on the other side said the state did not do enough. It spent very little on public education and healthcare. It often stepped in only where the private sector did not want to go, and it helped private firms make profits. Rather than helping the poor, they argued, state action helped create a new middle class that enjoyed high salaries without much accountability. Poverty did not fall much: even when the share of the poor dropped, their absolute numbers kept rising.
What were the major outcomes?
Independent India had set itself three broad objectives, and the third, social and economic redistribution, proved the hardest to reach. Land reform did not take place effectively in most of the country. Political power stayed with the landowning classes, big industrialists continued to benefit, and poverty did not fall much.
This became a political problem in itself. Those who gained from unequal development grew powerful, and their power made it even harder to change direction.
Foundations
Even so, this early phase laid the foundations of India's later economic growth. Some of the largest development projects in the country's history were built in these years, including mega dams like Bhakra Nangal and Hirakud for irrigation and power.
Heavy public sector industries such as steel plants, oil refineries, manufacturing units and defence production were started in this period, and transport and communication improved a great deal. Much of the later growth, including growth in the private sector, might not have been possible without these foundations.
What were the various land reforms?
The most significant and successful land reform was the abolition of the colonial zamindari system. This freed land from a class that had little interest in farming, and it reduced the power of landlords over politics.
The consolidation of land, bringing scattered small plots together into workable farms, was also fairly successful. The other parts of land reform worked far less well. Laws set a 'ceiling' on how much land one person could own, but people with excess land found ways to evade them. Tenants were given legal protection against eviction, but this was rarely enforced.
Turning these well meaning policies into real action needed the rural landless poor to be organised, but the landowners were powerful and politically influential. So many land reform proposals never became laws, or, when they did, remained only on paper. This shows that economic policy always sits inside the real balance of power in society: even with good intentions at the top, dominant groups tend to control how policy is made and carried out.
The Green Revolution
Facing a serious food crisis, India was dangerously dependent on food aid, mainly from the United States, which used this leverage to push India to change its economic policies. To become self sufficient in food, the government adopted a new farming strategy.
Instead of helping the areas and farmers that were falling behind, it now decided to concentrate resources on regions that already had irrigation and on farmers who were already relatively well off. The reasoning was that those with the capacity could raise production quickly in the short run.
- The government offered high yielding variety seeds, fertilisers, pesticides and better irrigation at heavily subsidised prices.
- It also guaranteed to buy the farmers' produce at a fixed price.
- This was the beginning of what came to be called the Green Revolution.
- Rich peasants and large landholders were the main beneficiaries.
- The Green Revolution delivered only moderate overall agricultural growth, but it sharply increased the gap between classes and between regions.
- Regions like Punjab, Haryana and western Uttar Pradesh grew prosperous, while others stayed behind.
- The stark gap between poor peasants and landlords created conditions in which left wing groups could organise the rural poor.
- It also led to the rise of a 'middle peasant' section: farmers with medium sized holdings who gained from the changes and soon became politically influential in many parts of the country.
How did the story of development change from the end of the 1960s?
After the death of Jawaharlal Nehru, Indira Gandhi emerged as a popular leader and decided to strengthen the state's role in directing the economy still further. From 1967 onwards, many new restrictions were placed on private industry, and fourteen private banks were nationalised.
The government announced several pro poor programmes, alongside an ideological tilt towards socialist policies. But the consensus behind state led development did not last forever. Planning continued, though it mattered less. Between 1950 and 1980 the economy grew at a slow rate of about 3 to 3.5 per cent a year, and falling public faith led policymakers to reduce the state's role in the economy from the 1980s onwards.
The White Revolution
Behind Amul lies a successful story of cooperative dairy farming. Verghese Kurien, nicknamed the 'Milkman of India', played a central role in the Gujarat Cooperative Milk and Marketing Federation, which launched Amul from the town of Anand in Gujarat. Amul is a dairy cooperative joined by around two and a half million milk producers.
The Amul pattern became a model for rural development and poverty relief, sparking what is known as the White Revolution. The rural development programme called Operation Flood began in 1970. It organised milk producers into cooperatives linked in a nationwide milk grid, in order to raise milk production, bring producers and consumers closer by cutting out middlemen, and give producers a steady income through the year.
Operation Flood was more than a dairy scheme. It treated dairying as a route to development, creating employment and income for rural households and helping reduce poverty. Over time the number of members grew, and so did the number of women members and women's dairy cooperative societies.
Why it still matters
The most striking fact for a student today is that the main character of this chapter no longer exists. The Planning Commission, set up on 15 March 1950 and chaired by the Prime Minister, was closed down and replaced on 1 January 2015 by a new body called NITI Aayog, which stands for the National Institution for Transforming India. NITI Aayog is a policy think tank: it advises the central and state governments and shapes ideas, but it does not hand out money to states the way the old Commission did.
The Five Year Plans in this chapter have ended too. The Twelfth Five Year Plan, which ran from 2012 to 2017, was the last one. Instead of five year plans, NITI Aayog now works with a fifteen year vision, a seven year strategy and three year action agendas. So the very tools this chapter describes have been retired, which is exactly why understanding where they came from still matters.
What has not ended is the central question of the chapter: is development actually reaching the poor? Here the news is more hopeful than the Nehru era planners managed. A NITI Aayog discussion paper released in January 2024 reported that multidimensional poverty in India, which measures deprivation in health, education and living standards together, fell from about 29 per cent in 2013 to 2014 down to about 11 per cent in 2022 to 2023. That means roughly 24.8 crore people came out of multidimensional poverty in nine years, with the largest gains recorded in Uttar Pradesh and Bihar.
The debates in these notes are therefore still very much alive. Should India put agriculture or industry first? How much should the state do, and how much should be left to private business? Who really benefits when a big project is approved, as in the Orissa steel example we began with? You can follow these questions into the present on the Learnacy Hub, revise alongside the rest of our Class 12 Political Science notes, and browse more study notes across subjects.
Sources
- NITI Aayog, official website of the body that replaced the Planning Commission on 1 January 2015: https://www.niti.gov.in/
- Press Information Bureau, Government of India, on NITI Aayog's multidimensional poverty findings (29.17 per cent in 2013 to 2014 down to 11.28 per cent in 2022 to 2023; 24.82 crore people out of poverty): https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1996271
- DD News, "24.82 crore people escape multidimensional poverty in last 9 years: NITI Aayog": https://ddnews.gov.in/en/24-82-crore-people-escape-multidimensional-poverty-in-last-9-years-niti-aayog/
Key takeaways
- Development is a political choice that involves decisions on who gains, who loses, and who decides.
- In a democracy, big decisions like development should be taken or approved by the people themselves.
- The concept of development means different things to different people and can produce contradiction, conflict, and debate.
- India's nationalist leaders believed that the government should play a leading role in ensuring economic growth and social justice.
- The Planning Commission was set up to design and implement Five Year Plans for India's development.
Test yourself
What is the main dilemma in the state of Orissa regarding iron ore reserves?
The main dilemma is the conflict between bringing in investment and creating jobs through steel industries, and the potential displacement of tribal families and environmental damage.
What was the shared vision of economic development among India's leaders after Independence?
Most leaders agreed that the country needed to grow economically while also becoming fairer socially, with the government playing a leading role in ensuring both growth and justice.
What were the two main models of modern development that India looked at after Independence?
The two main models were the liberal capitalist model of Western Europe and the United States, and the socialist model of the USSR.
Why was the Planning Commission set up in India?
The Planning Commission was set up to design and implement Five Year Plans for India's development, with the idea of planning being popular across the world in the 1940s and 1950s.
What was the broad consensus among Indian leaders regarding the model of development?
The broad consensus formed around the Soviet model, which impressed many Indian leaders, including Jawaharlal Nehru and members of the Socialist Party and the Communist Party of India.
