3.1 The Third Challenge — Economic Development for the Well-Being of All

In the previous two chapters you studied how the leaders of independent India faced two enormous challenges: nation-building through Partition, the integration of princely states and the reorganisation of states on linguistic lines; and building democracy through the first general elections, the dominance of the Congress and the rise of opposition parties. There was, however, a third and equally enormous challenge — the challenge of economic development to ensure the well-being of all citizens. As in the case of the first two challenges, India's leaders chose a path that was different and difficult. In this case, however, success was much more limited, for the challenge was tougher and far more enduring.

This chapter studies the story of the political choices involved in some of the key questions of economic development. Four questions guide the chapter: What were the key choices and debates about development? Which strategy was adopted by our leaders in the first two decades, and why? What were the main achievements and limitations of this strategy? And why was this strategy abandoned in later years?

3.2 The Story of Orissa — Whose Development?

Consider a more recent example. As global demand for steel rose in the early 2000s, Orissa, with one of the largest untapped iron-ore reserves in India, was seen as a major investment destination. The state government signed a Memorandum of Understanding^? (MoU) with Indian and international steel makers, expecting capital investment and employment. But the iron-ore reserves lay in some of the most underdeveloped, predominantly tribal districts. The tribal population feared displacement from their homes and livelihood; environmentalists feared mining would pollute the environment; and the central government feared that turning down industry would discourage investment in the country.

The Orissa case poses a question that planners and politicians have wrestled with ever since Independence. Several distinct interests are involved — the state government wants industry, the tribal residents want their land, environmentalists want forests, the central government wants investment. Each is making a legitimate claim. Whose claim should win? And by what process — markets, courts, or democratic politics — should the choice be made?

3.3 Political Contestation — Why Development Is a Political Question

Such questions cannot be answered by an expert alone. Decisions of this kind involve weighing the interests of one social group against another, and the present generation against future generations. In a democracy, major decisions of this kind must be taken — or at least approved — by the people themselves. It is essential to take advice from experts: from mining engineers, from environmentalists, from economists. Yet the final decision must be a political decision, taken by people's representatives who are in touch with the feelings of the people.

After Independence, India had to make a long series of decisions like this. None of them could be made independently of the others; together they were bound by a shared vision or model of economic development. There was almost universal agreement on one point: the development of India should mean both economic growth and social and economic justice. It was equally agreed that the matter could not be left to businessmen, industrialists and farmers alone — the government would have to play a key role. But there was sharp disagreement on what kind of role the government should play.

Three questions in particular sparked debate. First, was it necessary to have a centralised institution to plan for the entire country? Second, should the government itself run some key industries and businesses? Third, how much importance should be attached to the needs of justice if they conflicted with the requirements of economic growth? Each of these questions involved political contestation that has continued ever since. Each decision had political consequences. Most of these issues required political judgement, consultation among parties and the approval of the public — and that is precisely why the process of development must be studied as part of the history of politics in India.

3.4 Ideas of Development — More Than One Model

Often this contestation involves the very idea of development. The Orissa case shows that it is not enough to say that everyone wants development. Development^? means different things to different sections of the people: to an industrialist planning a steel plant; to an urban consumer of steel; and to the Adivasi who lives in that region. Any discussion of development is therefore bound to generate contradictions, conflicts and debate.

The first decade after Independence witnessed a great deal of debate around this question. It was common then — as it is even now — to refer to the 'West' as the standard for measuring development. Development was seen as becoming more 'modern', and 'modern' meant becoming more like the industrialised countries of Western Europe and North America. This is how common people as well as the experts thought. Every country, it was believed, would go through the same process of modernisation as the West — the breakdown of traditional social structures and the rise of capitalism and liberalism. Modernisation was associated with the ideas of growth, material progress and scientific rationality. This kind of idea allowed people to talk about countries as developed, developing or underdeveloped.

On the eve of Independence, India had two competing models of modern development before it. The first was the liberal-capitalist model as in much of Europe and the United States. The second was the socialist model of the Soviet Union (USSR). You have already studied these two ideologies and the Cold War^? between the two superpowers. Many in India then were deeply impressed by the Soviet model — not just leaders of the Communist Party of India, but also leaders of the Socialist Party and leaders like Nehru within the Congress. There were very few supporters of the American-style capitalist model in those years.

This reflected a broad consensus that had developed during the freedom struggle itself. The nationalist leaders were clear that the economic concerns of the government of free India would have to be different from the narrowly defined commercial functions of the colonial government. It was clear, moreover, that the task of poverty alleviation and social and economic redistribution would be the responsibility of the government. Within this consensus there were debates: for some, industrialisation was the priority; for others, agriculture and rural poverty alleviation came first.

3.5 Gandhi versus Nehru — The Famous Debate

The most famous debate of the 1940s and 1950s was the one between Mahatma Gandhi and Jawaharlal Nehru over the role of heavy industry in India's future. The disagreement was not personal — Gandhi and Nehru were extraordinarily close — but ideological, and it cut to the heart of the kind of country India would become.

Gandhi was suspicious of large-scale, machine-based, capital-intensive industry. He believed that India's soul was its 7,00,000 villages and that real development meant strengthening village industries — handlooms, oil-pressing, hand-pounding of rice, the spinning wheel — so that ordinary people would own their tools and labour. The Gandhian vision was decentralised: village panchayats, cottage industries, swadeshi production, voluntary trusteeship of wealth. For Gandhi, an India that copied the giant smoke-stack factories of England and the United States would simply replace one form of exploitation with another.

Nehru, on the other hand, believed that India could not abolish poverty by spinning wheels. India had to master modern science and technology, build the steel mills, dams and power stations the modern economy required, and use the new wealth generated to lift hundreds of millions out of want. Nehru did not reject village industries — he wanted them to coexist with heavy industry — but he was clear that without the basic capital goods (steel, machine tools, electricity, fertilisers), no modern economy could stand. He famously called the new dams and steel plants the "temples of modern India".

Two figures stood between Gandhi and Nehru, sharpening the debate further. Dr B.R. Ambedkar argued that the Indian village was not the romantic community Gandhi imagined; it was, in his words, a "sink of localism, a den of ignorance, narrow-mindedness and communalism" — and the only escape for the Dalit poor was rapid industrialisation backed by a strong state. J.C. Kumarappa, on the other hand, took Gandhi's idea further and called it the "Economy of Permanence": an economy that respected nature, kept production local and small in scale, and refused to deplete future generations' resources for present consumption. Kumarappa's ideas would influence later environmental thinking in India and abroad.

3.6 Consensus on Planning — Even the Industrialists Agreed

Despite these sharp differences, there was a consensus on one point: development could not be left to private actors alone, and the government would have to develop a design or plan for development. Planning, in those years, was not just a Communist idea. The experience of the Great Depression in Europe, the inter-war reconstruction of Japan and Germany, and most of all the spectacular Soviet growth of the 1930s and 1940s had built worldwide enthusiasm for planning. Every government, of whatever ideology, was looking at planning.

The most striking proof that the consensus crossed the Left–Right divide is the Bombay Plan. We commonly assume that private investors — industrialists and big-business entrepreneurs — are averse to planning and want a free flow of capital without state control. That is not what happened in India. In 1944, a section of the country's biggest industrialists — including J.R.D. Tata, G.D. Birla, Purshotamdas Thakurdas, Ardeshir Dalal, A.D. Shroff, Kasturbhai Lalbhai, John Mathai and Lala Shri Ram — got together and drafted a joint proposal for a planned economy in independent India. It was called the Bombay Plan^?. The Bombay Plan asked the state to take major initiatives in industrial and other economic investments. From left to right, planning had become the most obvious choice for India after Independence.

3.7 The Planning Commission — Set Up in March 1950

Soon after India became independent, the Planning Commission^? came into being. Importantly, the Planning Commission was not one of the constitutional commissions set up by the Constitution. It was created in March 1950 by a simple resolution of the Government of India. Its role was advisory: its recommendations became effective only when the Union Cabinet approved them. The Prime Minister served as its Chairperson, and it became the most influential and central machinery for deciding the path and strategy of India's development.

3.7.1 What the Planning Commission Did

As in the USSR, the Planning Commission of India opted for five-year plans (FYP). The idea was very simple: the Government of India would prepare a single document that laid out a plan for all its income and expenditure for the next five years. From then on, the budget of the central and all state governments was divided into two parts:

• "Non-plan" budget — spending on routine items on a yearly basis (salaries, interest payments, defence, day-to-day administration).
• "Plan" budget — spending on five-year priorities fixed by the Plan (dams, steel plants, schools, irrigation canals, factories).

A five-year plan had the great advantage of letting the government focus on the larger picture and make long-term interventions in the economy. It also allowed the Centre and the states to coordinate, since most plan funds flowed from the Centre to the states for projects approved by the Commission.

3.7.2 Role of the States in Planning

Although the Planning Commission was a Central body, the states played a central role in planning. Most agricultural and rural development was a state subject under the Constitution; most schools, hospitals and roads were run by state governments. The National Development Council — chaired by the Prime Minister and including the chief ministers of all states — was set up to bring states into the planning process. The five-year plans were debated by state governments before being finalised, and large allocations of plan funds flowed from the Centre to the states. In practice, however, the Centre held the financial cards, and states often complained that their priorities were under-represented.

3.8 The Excitement of the First Plans

The draft of the First Five Year Plan and then the actual Plan Document, released in December 1951, generated enormous excitement in the country. People from all walks of life — academics, journalists, government and private sector employees, industrialists, farmers, politicians — discussed and debated the documents extensively. The excitement with planning peaked with the launching of the Second Five Year Plan in 1956 and continued somewhat till the Third Five Year Plan in 1961. The Fourth Plan was due to start in 1966. By then, however, the novelty of planning had declined considerably and India was facing an acute economic crisis. The government decided to take a "plan holiday". Although many criticisms emerged about both the process and the priorities of the plans, by the mid-1960s the foundation of India's economic development was firmly in place.

3.9 What Are We Planning For?

Behind the drafting of every plan document lay a basic question: what are we planning for? The answer that India arrived at — and which would dominate the next two decades — combined three goals at once: economic growth, social and economic justice, and self-reliance. The Second Plan summed it up as a "socialist pattern of society". This was not the Soviet model of total state ownership; it was a mixed economy in which the state would hold the "commanding heights" — heavy industry, banks, railways, electricity, defence — while a regulated private sector would operate alongside.

This Nehruvian compromise produced its own contradictions, as the historian Francine Frankel later noted: the national party executive endorsed socialist principles of state ownership and control over key sectors of the economy, while the national Congress government simultaneously pursued liberal economic policies and incentives to private investment in the name of maximising production. The contradiction was not an accident; it reflected the political reality that the Congress had to hold together both reformers and businessmen, both urban industrialists and rural landlords, inside a single tent. Part 2 of this chapter follows what happened when this compromise met the realities of the First, Second and Third Five Year Plans.