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# Chapter 2: The evolution of development stratergy since independence.

- Paradox in India, huge poverty but huge economy too
- India was called basket case in 1960's
- Ranked bottom 20 among all countries in HDI index
- There are ‘two Indias’ in contemporary India. There is the India of burgeoning growth and the India of widespread want and misery

## Slow Growth Period
Planning was considered a superior way of developing the Indian economy than the market mechanism. While the market gives priority to high-profit activities, planning makes a systematic utilization of the available resources at a progressive rate to ensure quick building of the productive capacity of the country

Furthermore, planning was essential to deal with difficulties caused by the partition of the country in 1947, that is, huge influx of refugees from East and West Pakistan and the loss of raw material-producing areas.

**4 basic objectives of planning:**

1. Economic growth
2. Modernization
3. Self-reliance
4. Social justice (improve living standards of poor, reduce inequality)

*Planning commision setup in 1950 as advisory body to Union govt.*

### First 5 year plan

Addressed problems of:-

- Massive influx of refugees
- acute food shortage
- Mountaing inflation

Highest priority given to overcoming food crisis by raising foodgrain output, curbing inflation and the devleopment of infastructure.

### Nehru Mahalanobis Strategy [2nd to 7th Five Year Plan]

#### Second 5 year plan(3rd same):

#### Assumptions

* Deficiency of material Capital (prevented introduction of productive technologies)
* Low capacity to save (limitation on spped of capital formation)
* Underemployment in agricultural sector (surplus labor -> industries)
* Role of market mechanism would lead to excessive consuption by higher-income groups, along with relative under-investment in the sectors essential to the accelerated development of the economy.

> Rapid capital formation through the development of capital goods industries with direct intervention of the state in the economy. Principle : higher the allocation of investments to the heavy or capital goods industries, lower will be the rate of growth of income in the short run, but higher will it be in the end.

#### Strategy elements:
* Raising the rate of investment since the rate of development is dependent on the rate of investment. It involved stepping up domestic and foreign savings also.
* Rapid growth of the productive capacity of the economy by directing public investment towards development of industries, especially capital goods industries. Simultaneously, promotion of labour-intensive small and cottage industries for the production of consumer goods and expansion of employment opportunities.
* Import substitution for self-reliance and reduction of external dependence.
* Setting up of an elaborate system of controls and industrial licensing to allocate resources among industries as per the Plan requirements and distribute consumption goods equitably among the consumers. This was done through the Industries Development and Regulation Act (IDRA) of 1951.
* Enhancing the scope and importance of the public sector so that this sector comes to predominate capital goods industries, and ontrols the commanding height of Indian economy.

The development strategy of the Third Plan was basically the same as that of the Second Plan but the highest priority in this Plan was accorded to agriculture.

#### Agrarian Reconstruction:
The Gandhian idea of gram swaraj was a great influence in this regard.

- Community Development Programme(CDP):
- cooperation between the govt. and people to improve the economic, social and cultural conditions of communities,
- integrate them into the mainstream life of the nation and to enable them to contribute fully to national progress.
- Success dependent on active participation of people.
- Land Reforms:
- raise agricultural production
- deliver social justice by eliminating the exploitative features of the agrarian system
- **Measures taken:**
- zamindari system abolished
- tenacy reforms (eviction protection, ownership right landlords -> tenants)
- ceiling on agricultural holdings (limit on the amount of
land that an individual could hold)

#### Role of state:

- Determined by colonial legacy, Great Depression(1930's) post 2^nd world war problems, rapid russian growth -> active role of state in economy
- 1931 Karachi Resolution: 'the state shall own or control key industries'
- control over the production, distribution and exchange of goods and services

graph TD

State-->Dams
State-->Mining
State-->Educational_Institutions

#### Assessment:
- agriculture suffered
- wealthy inequality & unemployement increased (more priorty to heavy industries than labour intensive)
- License raj
- widespread corruption
- Better growth than colonial period
- Industries, saving & investment rates, human capital rose

Despite these significant achievements, India faced a macroeconomic crisis in the mid-1960s due to the slow growth of agriculture and exports, two successive droughts of 1965 and 1966 and the Indo- Pak War of 1965, followed by a suspension of US aid. This situation delayed the Fourth Plan and three annual plans were adopted between 1966 and 1969. Crisis response :-
(i) the adoption of restrictive fiscal policies by cutting down on expenditure
(ii) the devaluation of the rupee.
(iii) the launching of the Green Revolution.

## Moderate Growth [1975-90]

##### Green Revolution(1966):
- Use pesticides & Insecticides
- High Yield & Hybrid Seeds
- Machinery & extensive irrigation

### Change in future plans:
- Basic framework same till 7^th plan
- 4^th plan: emphasis shifted: self reliance -> rapid economic growth
- quick yielding projects & light > heavy industry
- Nationalization of banks(1969), insurance(72'), Coal('73), forex regulation(73')
- 5^th plan: priortiy to poverty alleviation (poor no beneift from growth- World Bank)
- 6^th plan:Integrated Rural devlopment(IRDP) & National Rural employment programme(NREP)
- 7 ^th plan: long term development stratergy -> growth in foodgrain, employment opportunity & productivity

## State Crisis (Post Nehru):
- political instability (congress electoral blow & split)
-