Five year plans: antiquated or relevant?

By

Amar Nath Wadehra & Randeep Wadehra

Ever since the current process of liberalization of economy has started there have been certain sections of intellectuals who have described it as “course correction” implying that our earlier mixed economy model – with a distinct socialist slant – was the wrong one for India as it entailed too much central planning that seemed to be inflexible as far as meeting special needs of different regions were concerned. Of course hindsight is always, supposedly, perfect. But most of these intellectuals ignore the conditions obtaining in India at that time. We forget that the nascent state required strong foundations in terms of not just politico-administrative institutions but also financial-industrial base comprising such core sectors as banking, steel, coal, heavy capital goods, transport, power generation, education etc that needed huge investments, had long gestation periods and gave rather low returns. Obviously the then tiny private sector would not be interested in, or capable of, taking up such projects as do not offer huge profit margins quickly. More importantly, it was realized by the government that if India was to survive as one cohesive political unit and become a strong economic force regional imbalances in economic growth should be avoided as far as possible even as all round development was facilitated.

It needs to be reiterated here that the Indian economy at the time of independence was burdened with massive poverty, socio-economic disparities, illiteracy, nonexistent health and sanitation services, outdated technology, over-dependence on agriculture that was marred with outdated practices and inputs, and a rapidly growing population. There was an urgent need to eradicate poverty, build up industry, upgrade technology, eliminate illiteracy, remove disparities and develop public institutions that would help improve the overall socio-economic situation. This required massive resources. The government had two alternatives, viz., the Open Market Economy Model as followed by the United States of America and other Western countries, and the Planned Economy Model as practiced by the Soviet Union and East European countries. The Nehru Government decided to have the most suitable features from both the alternatives and fashioned its own model of development wherein certain sectors were opened to private players while the commanding heights of the Indian economy were kept under State control. This resulted in development of such infrastructure as multi-purpose dams, roadways, steel plants, shipping, heavy engineering industry etc. At the same time massive investments were made in education, public health and similar other social sectors. It needs to be reiterated that economic planning in India aimed at building up the economy’s productive capacity; producing goods and services not only for current consumption but also for future production; mobilizing additional resources for increasing productive capacity; reducing the economic inequalities within a predetermined framework of time; developing the backward regions of the economy and thus enabling the government to facilitate rapid economic development. It succeeded in these aims substantially though not wholly. However, the substantial success was achieved in the face of heavy odds – political, social as well as economic; let us not forget that for a very long period of time the attitudes of powerful nations in the West were most unhelpful towards India. Therefore the faith placed in the chosen planning model stands vindicated.

Here, it becomes imperative to differentiate between “economic growth” and “economic development”. Economic growth implies rise in only one parameter, viz., per capita real income in a sustained manner over a reasonably long period of time. Of course, we know that real income means physical production. Per capita income is calculated by dividing total production by total population. Therefore, economic growth merely tells us the long term increase in per capita availability of goods and services. Economic development, on the other hand, is much more profound concept than economic growth. While it includes rise in per capita income, it also comprises reduction in economic inequality and poverty. The scope of coverage of economic growth is narrow and economic development is more comprehensive. The latter involves a change in social attitudes, cultural set-up and institutional framework along with economic growth.

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