Key Points

After nation-building and establishing democracy, the third major challenge for independent India was economic development to ensure the well-being of all citizens.

India had two main models to choose from: the liberal-capitalist model of the West and the socialist model of the USSR. A broad consensus favored a socialist-leaning path with a strong government role.

There was a wide agreement that development could not be left to private actors and required a government-led plan for economic growth and social justice.

A group of leading industrialists drafted a proposal for a planned economy called the Bombay Plan, advocating for major state initiatives in industrial investment.

Soon after independence, the Planning Commission was established with the Prime Minister as its Chairperson to formulate development strategies and Five Year Plans for India.

Inspired by the USSR, India adopted a system of Five Year Plans to manage government income and expenditure over a five-year period for long-term economic intervention.

Drafted by economist K.N. Raj, this plan focused on the agrarian sector, including investments in dams like Bhakra Nangal and land reforms, with a philosophy to 'hasten slowly'.

Led by statistician P.C. Mahalanobis, this plan emphasized rapid industrialization and heavy industries in the public sector to bring about quick structural transformation.

At its Avadi session, the Congress party declared the 'socialist pattern of society' as its goal, which was reflected in the state-led industrialization drive of the Second Plan.

A major criticism of the Second Plan was its focus on industry at the expense of agriculture, which raised fears of food shortages and an 'urban bias' in development policy.

The idea of 'development' had different meanings for different groups, leading to conflicts, as seen in the Orissa POSCO plant case involving industrialists, tribal people, and environmentalists.

The Left ideology supports state control of the economy and regulation, while the Right ideology believes in free competition and a market-driven economy with minimal government intervention.

During the Second Plan, the government imposed substantial tariffs on imports. This protectionist policy helped both public and private sector industries to grow.

India's technological backwardness forced it to spend precious foreign exchange on technology imports, and the focus on industry created a difficult balancing act with agriculture.

Due to an acute economic crisis and other factors, the government decided to take a 'plan holiday' after the Third Five Year Plan ended in 1966, postponing the Fourth Plan.