Towards a Planning Commission
The setting up of the Planning Commission3 in 1950 was in itself a major signal from the government on its intended economic policy course. The adoption of a planned economy model and the setting up of the Planning Commission were significant also because they left nobody in doubt about the dominant role assigned to the public sector in India’s economic development. The Union Budget presented on 28 February 1950 announced the government’s intention to set up the Planning Commission. The idea of the Planning Commission was controversial. It had met with resistance even from within Nehru’s Cabinet. His finance minister, John Mathai, who had presented the Budget and had announced the government’s intention to set up the Planning Commission, was opposed to the idea. Soon after presenting the Budget, Mathai resigned in protest. He said:
I consider the Planning Commission not merely ill-timed but in its working and general set-up ill-conceived. The Planning Commission was tending to become a parallel cabinet . . . it would weaken the authority of the Finance Ministry and gradually reduce the Cabinet to practically a registering authority. The Planning Commission was totally unnecessary and in fact hardly qualified for its work . . . there was a general tendency amongst the various Ministries to disregard the authority of the Standing Finance Committee and that some of the greatest offenders were the Ministers directly under the control of the Prime Minister. When departures from accepted practice were approved by the Prime Minister, it has a demoralizing effect on other departments of Government.4
A fortnight later, on 15 March, the Nehru government adopted a resolution to implement its decision on the Planning Commission.
It was important to note that Nehru chose not to use the legal route to set up this body. This decision created a special status for the body since it had no statutory sanction. However, the Planning Commission was entrusted with the crucial responsibility of preparing and implementing plans across the country. Ironically, the absence of a legal foundation for the Planning Commission was one of the reasons that facilitated a quick decision by the Narendra Modi government to abolish the Commission sixty-four years later and put an end to the system of periodic plans. In its place, the Modi government brought in a new think tank by the name of NITI (National Institution for Transforming India) Aayog. It is important to note that Modi, too, chose to set up the NITI Aayog through a Cabinet resolution, and not through the legal route.
In many ways, Nehru’s decision to set up the Planning Commission through a resolution, without getting Parliament to approve it by framing a law, is a decision that defied governance logic. Here was an institution that was to usher in the most important change in the pattern of India’s economic development by introducing a system of planning and adopting a socialistic model of growth. Yet, Nehru abstained from conferring legal sanctity on that body. An alternative explanation for Nehru’s decision could have been that, being a visionary leader, he did not want to tie down his successors to a model of economic growth that was his preferred choice at that point in time. Indeed, if he had framed a law to set up the Planning Commission, governments that succeeded his would have had to get Parliament to repeal that law first before moving ahead with an alternative model of economic development. Narendra Modi would have had to wait a little longer to dismantle the Planning Commission and abandon planning. Thus, it is possible to attribute Nehru’s decision to set up the Commission through a resolution of his Cabinet to his astute political thinking and concern for the flexibility in decision-making he wished to confer on his successors.
Nehru’s vision for the Planning Commission was detailed and elaborate. Behind the setting up of the Planning Commission, he outlined a seven-point agenda. Thus, the Commission was given the responsibility to:
Make an assessment of the material, capital and human resources of the country, including technical personnel, and investigate the possibilities of augmenting such of these resources as are found to be deficient in relation to the nation’s requirements;
Formulate a Plan for the most effective and balanced utilisation of the country’s resources;
On a determination of priorities, define the stages in which the Plan should be carried out and propose the allocation of resources for the due completion of each stage;
Indicate the factors which are tending to retard economic development, and determine the conditions which, in view of the current social and political situation, should be established for the successful execution of the Plan;
Determine the nature of the machinery which will be necessary for securing the successful implementation of each stage of the Plan in all its aspects;
Appraise from time to time the progress achieved in the execution of each stage of the Plan and recommend the adjustments of policy and measures that such appraisal may show to be necessary; and
Make such interim or ancillary recommendations as appear to it to be appropriate either for facilitating the discharge of the duties assigned to it, or on a consideration of the prevailing economic conditions, current policies, measures and development programmes; or on an examination of such specific problem as may be referred to it for advice by Central or State Governments.
The mandate for the Planning Commission was elaborate, vast and all-encompassing. It was expected to not only prepare plans for the Centre, but also coordinate with states to help them resolve their economic policy challenges. More importantly, the Commission acquired the role of deciding on the pattern of allocation of Central grants and allowances to different states.
The political justification behind the setting up of the Commission showed the shift in Nehru’s economic policy approach. The government resolution noted that the need for raising the country’s standard of living through planned development was underlined as early as 1938—almost nine years before Independence, when the National Planning Committee was set up by the Congress. However, political developments and the beginning of the Second World War interrupted the work assigned to the Committee, although it did produce some useful papers. As the consultations over the formality of how India would gain its freedom from British rule made progress, the interim government of India set up in 1944 the Planning and Development Department, which swung into action without much delay and prepared reports on the nature of planned developments needed in India and, in particular, in the various provinces of the country. In less than two years of Independence, the Nehru government set up the Advisory Planning Board, which in 1949 reviewed the problems and challenges faced by planning in India and recommended the setting up of the Planning Commission to ‘devote continuous attention to the whole field of development, so far as the Central Government was concerned with it’.
The Nehru government had also noted how the Centre and the state governments after Independence had started various developmental schemes, but the absence of necessary coordination and precise information about the availability of resources posed a big hurdle in their implementation. The overall view within the top echelons of the government was that there was a need for an organization that was free from the burden of day-to-day administration and could remain in touch with the government at the highest policy level to provide an objective assessment of the relevant economic factors needed for planning based on a careful appraisal of resources. Thus, the Planning Commission was born with the mandate that it would be headed by none other than the prime minister and would send its recommendations to the Cabinet of the Union government, freeing it from the hierarchical compulsions of routing its proposals through the normal channel that would have included the relevant Central ministries. At the same time, its relationship with the Union ministries and the state governments was carefully delineated so as to ensure coordination in policy. Not only was the Commission expected to work in close consultation with the ministries of the Union government, such engagement with the states was also one of the requirements. The states as well as the Central ministries were expected to implement the decisions that would be taken by the Plan
ning Commission in consultation with the government.
CHAPTER 5
NATIONALIZATION AS THE NEW MANTRA
At the sixtieth session of the Indian National Congress, held in January 1955, Nehru outlined his government’s new economic policy vision. He told the Congress workers that they should expect a departure in the government’s economic policies from what was being followed soon after the country gained Independence. He said the government believed in economic development through five-year plans and a socialistic pattern of society. What did he mean by a socialistic pattern of society? The Planning Commission defined it as a system in which the basic criterion for determining the lines of advance must not be private profit but social gain, and that the pattern of development and the structure of socio-economic relations should be so planned that they result not only in appreciable increases in national income and employment, but also in greater equality in incomes and wealth.1
In the address, Nehru also talked about the need for ‘substantially increasing production, for raising the standards of living and for having progressively fuller employment so as to achieve full employment within a period of ten years’.2 This was nothing short of a revolution—an economic revolution bigger than any that had taken place in our times, Nehru said, realizing full well that what he was proposing to his party people would be hugely disruptive, and yet promising enough to make a qualitative jump in the state of the country’s economy.
This was also when the First Five-Year Plan was coming to an end. The focus of the First Plan was on agriculture, price stability, power and transport against the backdrop of influx of refugees, severe food shortages and mounting inflation. Nehru set up the Planning Commission in 1950 and the First Five-Year Plan began in 1951. It turned out to be a successful Plan, influenced heavily as it was by the Bombay Plan, which had advocated a clear role for the private sector along with a focus on agriculture. Inflation was by and large contained, food availability was ensured and the refugees who came in after Partition were rehabilitated. Bountiful harvests in the last two years of the Plan period—in 1955 and 1956—helped achieve actual annual growth of 3.6 per cent, exceeding the target growth rate of 2.1 per cent.
But when Nehru spoke at the sixtieth annual session of the Congress in January 1955, he could not have been very satisfied with the performance of the First Five-Year Plan. The First Plan notched up healthy growth in the last two years with the help of good harvests, which is what partially explained Nehru’s keenness to shift the focus of the Second Plan. He explained why the Second Plan would try to achieve both the aims of a welfare state and a socialistic economy. The creation of a welfare state required that the state would play a key role in promoting the economic and social well-being of its citizens. And a socialistic economy would entail government ownership of the means of production, assisted by government planning and income distribution. ‘These can only be achieved by a considerable increase in national income, and our economic policy must, therefore, aim at plenty and equitable distribution,’ he said. Nehru’s belief in a socialistic pattern of society was complete. He once said: ‘I will not rest content unless every man, woman and child in this country has a fair deal and attains a minimum standard of living.’3
The pains Nehru took to explain the concepts of a welfare state and socialistic economy show how conscious he was of the shift he was making in India’s economic planning in just about a decade after Independence. He reasoned:
It is true that a socialistic economy must provide for a welfare state, but it does not necessarily follow that a welfare state must also be based on a socialistic pattern of society. Therefore, the two, although they overlap, are yet somewhat different, and we say that we want both. We cannot have a welfare state in India with all the socialism or even communism in the world unless our national income goes up greatly. Socialism or communism might help you to divide your existing wealth, if you like, but in India, there is no existing wealth for you to divide; there is only poverty to divide.4
Hence, Nehru argued that the objectives of achieving higher growth through increased investments would lead to a rise in production and in turn consumption to help achieve the goals of a welfare state and a socialistic pattern of economy. Apart from signalling a shift in the government’s economic policy, this was a politically significant address as well. Nehru thought it was necessary to explain to the Congress leadership the spirit and mission of the Second Five-Year Plan so that he could convey to the large number of Congress workers and politicians, who were present at the annual session, the new direction of economic policy he was engineering and bring them on board.
Forging a New Framework for Industrialization
Already, the government had in 1948 decided to acquire a 49 per cent shareholding in Air India, which was till then a privately owned and privately run airline with domestic and international operations. The government’s decision flowed out of Nehru’s belief that at that stage of the country’s economic development, the state must control strategic areas of the economy. Civil aviation was then considered to be a core transportation sector like the railways and the Nehru government wanted the state to take over the operations of Air India. The Tatas owned the airline and it was one of the companies in the Tata Group that its group chairman, J.R.D. Tata, was closest to. The 49 per cent stake sale to the government in 1948 still meant that the airline could be run by the Tatas as a private airline. However, in 1953, the Nehru government decided that Air India needed to be nationalized. Thus, through an act of Parliament, Air India’s remaining private shareholding was acquired by the government. The Air Corporations Act of 1953 led to a lot of acrimony between Nehru and the founder chairman of Air India, J.R.D. Tata. The manner in which the airline was acquired left a bad taste not only for Tata but also for many other leading industry leaders of the day. It was not clear if the government would move ahead to nationalize more private-sector enterprises to gain control over key enterprises manufacturing goods or providing services in India. Of course, as a compromise, Nehru allowed J.R.D. Tata to continue to function as the chairman of Air India and that arrangement continued till 1977. But that decision had dealt a blow to private-sector initiatives. The message to private-sector industry leaders seemed to be that the government could take away or dilute the scope of their business if it wanted to, even if it was completely owned by them. Private players in India were taken aback by such an approach.
The next move was in 1956, which marked a watershed in India’s economic history. A major shift in economic policies was being initiated. The Second Five-Year Plan was launched with a new focus. It was more ambitious as it aimed at an annual growth rate of 4.5 per cent. Compared to a growth target of 2.1 per cent for the First Five-Year Plan, the target was thus doubled for the Second Plan. Even when compared to the achievement of 3.6 per cent annual growth between 1951 and 1956, the Second Five-Year Plan’s growth target showed that the government had shed its conservatism on the growth front. It decided to accord a lower priority to agriculture and instead laid greater emphasis on industrialization through the setting up of heavy and basic industries. The idea was to raise production, create more jobs and boost consumption and, thereby, create a virtuous cycle of growth and consumption leading to a welfare state that could take care of the basic needs of all its people. In order to achieve this goal, the Second Plan was unveiled and a new Industrial Policy Resolution was adopted—with the latter almost becoming the instrument to achieve goals set out in the former.
Indian business leaders were a little taken aback by this shift in the focus of the government’s economic policy. They had hoped that while the Nehru-led government would make investments in building infrastructure, the private sector also would be given a free and bigger play in operating in all the remaining areas. Even before Independence, Indian industry leaders were engaged in consultation among themselves on the role of the government in the industrial sphere. The expectation then was that the Indian state after Independence would
play an important role in the industrial sector. A view that was shared by G.D. Birla, J.R.D. Tata, Purshottamdas Thakurdas and Walchand Hirachand was that large-scale state enterprises would be necessary to develop the basic infrastructure in a country immediately after Independence. The private sector would not have the financial muscle to make such huge investments to build basic infrastructure.5 But in all other areas of economic activity, the role of the private sector would be recognized and indeed it would be allowed to expand.
It was against the backdrop of such developments that Nehru made those speeches at the inauguration of the Bhakra-Nangal Dam and the annual session of the Congress party. The ground was being cleared for a policy shift to enable the state to play a larger role. The Industrial Policy Resolution of 1956 cemented those changes further.
The economic and political backgrounding of the 1956 resolution also showed a continuity in Nehru’s thought processes on the need to achieve the goals of both a welfare state as also a socialistic pattern of economy—neither ignoring the importance of an investment-led rapid growth, nor underestimating the need for sharing those gains among the people of the country so that unemployment is eliminated and poverty is tackled.
The Rise of Goliath Page 6