Chapter-3 Politics of Planned Development -(Detailed Notes)

Political Contestation in Development

Case Study: Orissa’s Iron Ore Development

• Context: Orissa, rich in iron ore, attracted investment for steel plants due to global demand. The state government signed MoUs with steel companies, expecting capital investment and jobs.
• Stakeholders and Interests:
  • State Government: Seeks economic growth through industrial investment and job creation.
  • Tribal Population: Fears displacement from homes and loss of livelihoods, as iron ore lies in underdeveloped tribal districts.
  • Environmentalists: Concerned about pollution from mining and industry.
  • Central Government: Worries that blocking industry could deter national investments.
• Conflicts:
  • Economic growth vs. tribal displacement.
  • Industrial development vs. environmental protection.
  • State-level job creation vs. national investment climate.
• Common Ground: All stakeholders desire Orissa’s development, but differ on its meaning (e.g., industrial growth vs. sustainable livelihoods).
• Resolution: Requires balancing interests through political decisions, not just expert advice. Democratic processes, involving people’s representatives, are crucial.
• Broader Questions: What kind of development does Orissa need? Whose needs represent Orissa’s needs?

Role of Democracy

• Development decisions involve trade-offs between social groups and generations, requiring political judgment.
• In a democracy, such decisions should be approved by the public or their representatives, informed by experts (e.g., economists, environmentalists) but not dictated by them.
• Post-independence, India faced similar decisions, bound by a shared vision of economic development, necessitating a coordinated strategy.

Ideas of Development

Contestation Over Development

• Development has varied meanings:
  • For an industrialist: Setting up a steel plant for profit.
  • For an urban consumer: Access to steel products.
  • For an Adivasi: Preservation of land and livelihood.
• These differences lead to contradictions, conflicts, and debates, as seen in Orissa.

Western Model of Modernization

• In the 1950s, development was equated with becoming “modern,” modeled on Western industrialized nations.
• Characteristics of modernization:
  • Breakdown of traditional social structures.
  • Rise of capitalism and liberalism.
  • Emphasis on growth, material progress, and scientific rationality.
• Countries were classified as developed, developing, or underdeveloped based on this model.

Development Models at Independence

• India had two models to choose from:
  • Liberal-Capitalist Model: As in Europe and the US, emphasizing free markets.
  • Socialist Model: As in the USSR, focusing on state control and redistribution.
• Influences:
  • Soviet model was popular due to its economic growth against odds.
  • Leaders from the Communist Party, Socialist Party, and Congress (e.g., Nehru) admired aspects of the Soviet model.
  • Few supported American-style capitalism.
• National movement’s consensus:
  • Rejected the colonial government’s commercial focus.
  • Prioritized poverty alleviation and social-economic redistribution as government responsibilities.
• Debates within this consensus:
  • Industrialization vs. agricultural development.
  • Focus on rural poverty vs. urban growth.

Left vs. Right Ideologies

• Left: Favors state control, regulation, and economic redistribution (e.g., Communist Party, Socialist Party).
• Right: Supports free competition and minimal government intervention (e.g., Swatantra Party).
• Congress Party (1950s-1960s): Centrist, leaning Left due to its adoption of socialist principles, but also pursued liberal policies to encourage private investment.

Planning for Development

Consensus on Planning

• Despite debates, there was agreement that development required government planning, not just private initiatives.
• Global support for planning in the 1940s-1950s:
  • Great Depression highlighted market failures.
  • Post-war reconstruction in Japan and Germany used planning.
  • Soviet Union’s rapid growth demonstrated planning’s effectiveness.

The Bombay Plan (1944)

• A group of leading industrialists (e.g., J.R.D. Tata, G.D. Birla) proposed a planned economy, contrary to assumptions that private sector opposes planning.
• Key features:
  • Advocated state-led initiatives in industrial and economic investments.
  • Supported state ownership and control of key sectors.
• Significance: Showed broad support for planning across political and economic spectra.

Planning Commission

• Establishment: Set up in March 1950 by a government resolution, not a constitutional body.
• Role: Advisory, with recommendations requiring Union Cabinet approval.
• Leadership: Chaired by the Prime Minister, making it a central machinery for development strategy.
• Mandate: Aligned with Directive Principles of State Policy, aiming to:
  • Ensure an adequate means of livelihood for all citizens.
  • Distribute resources for the common good.
  • Prevent concentration of wealth and production means.
• Five-Year Plans (FYPs):
  • Adopted from the Soviet model, FYPs outlined government income and expenditure for five years.
  • Allowed long-term economic interventions and prioritization.

Early Initiatives: Five-Year Plans

Overview

• The Planning Commission’s FYPs generated widespread excitement, peaking with the Second FYP (1956) and continuing until the Third FYP (1961).
• By the Fourth FYP (due 1966), enthusiasm waned due to economic crises, leading to a “plan holiday.”
• Despite criticisms, the FYPs laid the foundation for India’s economic development.

First Five-Year Plan (1951-1956)

• Objective: Break the cycle of poverty by raising national income.
• Approach: “Hasten slowly,” as advocated by economist K.N. Raj, to protect democracy from rapid development’s risks.
• Focus: Agrarian sector, addressing Partition’s impact on agriculture.
• Key Investments:
  • Large-scale irrigation projects (e.g., Bhakhra Nangal Dam).
  • Land reforms to address unequal land distribution, identified as a major obstacle to agricultural growth.
• Savings and Capital:
  • Aimed to increase savings to boost investment, as low spending couldn’t be reduced further.
  • Low capital stock and high employable population posed challenges.
  • Savings rose until the Third FYP but fell short of expectations, declining from the 1960s to early 1970s.

Second Five-Year Plan (1956-1961)

• Objective: Rapid structural transformation through industrialization.
• Leadership: Drafted under P.C. Mahalanobis, emphasizing heavy industries.
• Context: Congress’s Avadi session (1955) declared a “socialist pattern of society” as its goal, reflected in the plan.
• Key Features:
  • Heavy industry development (e.g., steel, electricity, railways, machinery, communication).
  • Public sector dominance in these industries, supported by growing savings and investment.
  • Import tariffs to protect domestic industries, fostering growth in both public and private sectors.
• Significance: Marked a turning point in India’s development by prioritizing industrial growth.

Third Five-Year Plan (1961-1966)

• Approach: Continued the Second FYP’s focus on heavy industries.
• Criticisms:
  • “Urban bias” in planning, neglecting rural areas.
  • Overemphasis on industry over agriculture, risking food shortages.
  • Preference for heavy industries over agriculture-related ones.

Challenges

• Technological Backwardness: Required expensive foreign technology imports, straining foreign exchange reserves.
• Industry vs. Agriculture: Heavy industry focus attracted more investment than agriculture, leading to food scarcity risks.
• Balancing Act: Planners struggled to balance industrial and agricultural priorities.

Achievements and Limitations

Achievements

• First FYP:
  • Improved agricultural infrastructure through irrigation and dams.
  • Initiated land reforms to address inequality.
  • Laid groundwork for economic stability.
• Second and Third FYPs:
  • Established a strong industrial base, particularly in heavy industries.
  • Protected domestic industries through tariffs, fostering growth.
  • Public sector growth in critical sectors like steel and electricity.
• Foundation for Development: Despite challenges, FYPs set the stage for India’s long-term economic growth.

Limitations

• Savings Shortfall: Savings did not rise as expected, limiting investment capacity.
• Food Security Risks: Industrial focus led to agricultural neglect, causing potential food shortages.
• Urban Bias: Planning favored urban industrial growth, marginalizing rural areas.
• Foreign Exchange Strain: Reliance on imported technology drained reserves.
• Economic Crisis: By the mid-1960s, crises (e.g., wars, droughts) led to a “plan holiday” and reduced planning enthusiasm.

Abandonment of the Planning Strategy

• Economic Crises: Mid-1960s crises (e.g., 1962 and 1965 wars, droughts) strained the economy, undermining planning confidence.
• Declining Enthusiasm: Novelty of planning faded by the Fourth FYP, with criticisms of urban bias and agricultural neglect gaining traction.
• Global Shift: Rise of market-oriented policies globally in the 1980s influenced India’s move away from state-led planning.
• Liberalization (1991): Economic reforms shifted focus to market-driven growth, reducing the Planning Commission’s role.
• Legacy: While planning was de-emphasized, the early FYPs’ industrial and agricultural foundations remained critical to India’s growth.

Key Figures

• Jawaharlal Nehru (1889-1964): Prime Minister and Planning Commission Chairperson; advocated socialist-inspired planning.
• P.C. Mahalanobis (1893-1972): Statistician; architect of the Second FYP; pushed for rapid industrialization and public sector dominance.
• K.N. Raj (1914-2010): Economist; contributed to the First FYP; advocated a cautious approach to development.
• Verghese Kurien (1921-2012): Led milk cooperatives, contributing to rural development.
• Charan Singh (1902-1987): Advocated for farmers’ interests and agricultural development.