Turning Point: Planning and Reforms

Abstract

The Planning Commission was established in 1951. Its main intellectual support came from Professor P. C. Mahalanobis, who had accompanied Rabindranath Tagore on his journey through the Soviet Union. Thus, Indian state planning tried to emulate Soviet planning, but without nationalizing all means of production, distribution and consumption. India planned to provide essential heavy and chemical industries, a transport system and social protection for the poor, along with the overall dominance of the economy by the private sector. The plan worked initially, up to 1960; however, the Chinese invasion in 1962 and the Pakistani invasion in 1965 virtually brought this planned activity to a halt. In 1966, the IMF advised India to cease all planning. However, in 1969 Indian state planning began again, only to be brought to a standstill by the influx of 10 million refugees and also the war with Pakistan in 1971. In 1974, India experienced a serious economic crisis due to the fourfold increase in the price of crude oil. Thus, India had little opportunity to demonstrate the effectiveness of its planning due to a series of problem caused by external factors. In 1992, along with the abolition of the Soviet Union, which had supported Indian aims, India abandoned its efforts at planning and, instead, opted to engage in free market development. In this chapter, we analyze the complete story of India’s attempts at planning and the new economic policy that India has adopted. The new economic policy is dependent on the continuous flow of foreign capital, which can pose problem due to the increasing balance of payments deficit and non-performing bank loans.