Long-Term Constraints on India’s Industrial Growth, 1951–1968 ¹

Abstract

The First Five-Year Plan of India, everyone agrees, was more a collection of projects than a well-formulated programme of action spanning a reasonably long time-horizon. By contrast, an explicit long-term model was provided for the Second Five-Year Plan (1956–61) of India. This model, which had a striking similarity to the model which had been formulated in 1928 by the Soviet economist G. A. Feldman, laid primary emphasis on the accelerated development of capital-goods industries as a means of raising the marginal rate of saving of the economy and of accelerating the rate of growth of national income.² According to Professor P. C. Mahalanobis, the chief architect of this model, the aims were to ‘lay sound foundations’ for a continuing increase in the level of national income and the level of living to get rid of the fear of unemployment (if possible, in ten years), and to bring about increasing opportunities and the lessening of great disparities of income and wealth.³ While self-reliance was to be promoted by the development of capital-goods industries, the objective of redistribution of economic power towards the poorer income groups was to be pursued, inter alia, by the state assuming the major share of responsibility for investment in the capital-goods industries. Small-scale and cottage industries were to be developed with the twin objectives of providing more consumer goods and more employment. It was widely believed that the control of the new investment in capital-goods industries combined with the apparatus of direct and indirect controls (pricing, fiscal and monetary policies) would provide the state with enough leverage to determine the allocation of national income between consumption and saving and of total investment between ‘essential’ and ‘non-essential’ industries, the criterion of essentiality being a positive contribution towards ensuring self-reliant growth in the not-too-distant future.

Revised version of a paper presented at the I.E.A. Conference on South Asian Economic Development held at Kandy, Ceylon, 1–12 June 1969. I have been helped by the comments of Amit Bhaduri, Jagdish Bhagwati, K. N. Raj and Amartya Sen in the revision of the paper; I alone am responsible, however, for the views expressed here.