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Unit 11: India Independent to 1964

possible. Apart from its importance as a means of quickening the pace of industrial development Notes
in India, it would have the effect of ultimately reducing our dependence on foreign countries for
the plant and machinery required by us and, consequently, of reducing our requirement of external
finance.’ It was felt that in the development of capital goods industries and other basic and heavy
industries, which required huge finances and had a long time lag for returns, the public sector
would have to play a critical role. While Nehru and the left nationalists on the one hand and the
capitalists on the other were agreed on this issue of the need for the public sector to reduce external
dependence, they differed on its scope and extent. The former saw planning and the public sector as
a step in the socialist direction, whereas the latter saw it as an instrument of promoting independent
capitalism and of pre-empting socialism by helping combine equity with growth. This tension between
the two approaches was to persist for some time, particularly in the early years.
In 1947, for example, when the Economic Programme Committee appointed by the AICC and
headed by Jawaharlal Nehru not only laid down the areas, such as defence, key industries and
public utilities which were to be started under the public sector but also added that ‘in respect of
existing undertakings the process of transfer from private to public ownership should commence after a
period of five years’, the capitalists were alarmed and howls of protest ensued. Signs of accommodation
were seen in the 1948 Industrial Policy Resolution (IPR) which, while delineating specific areas for
the public and the private sectors, added that the question of nationalizing any existing industry
would be reviewed after ten years and dealt with on the basis of circumstances prevailing at that
time. Even after the Indian parliament in December 1954 accepted ‘the socialist pattern of society
as the objective of social and economic policy’ and Congress in its Avadi session (1955) elaborated
the sharp leftward swing on these lines, the 1956 IPR and the Second Plan, while considerably
expanding the scope of the public sector, made no mention of nationalizing existing industries. In
fact, the model projected was of a ‘mixed economy’ where the public and the private sectors were
not only to coexist but were to be complementary to each other and the private sector was to be
encouraged to grow with as much freedom as possible within the broad objectives of the national
plan. It is another matter that the great emphasis on heavy and capital goods industries in the
Second Plan by itself led to a major shift towards the public sector as these were areas which, it
was commonly agreed, could be basically developed by this sector.
It may be noted that Nehru refused to push his own ideological positions beyond a point, much to
the disappointment of sections of the left, still under the influence of a Stalinist type of orthodox
Marxism or, ‘Stalin-Marxism’. In the evolution of Nehru’s thought, from as early as the late 1930s,
socialism had become inseparable from democracy. Therefore, any step in that direction, such as
planning and the public sector, had to be introduced in a democratic manner, capable of carrying
society along in the effort. Planning for Nehru had to be consensual, and not a command performance,
even if it meant toning down many of his objectives.
This was the perspective with which the Planning Commission (established on 15 March 1950)
functioned, despite the enormous de facto power it exercised with Nehru himself as its chairperson.
The First Plan (1951-56) essentially tried to complete projects at hand and to meet the immediate
crisis situation following the end of the war. Independence had come along with the dislocation
caused by Partition, including the massive problem of refugees resulting from the largest mass
migration in history in the space of a few years. It is with the Second Plan (1956-61) that the
celebrated Nehru—Mahalanobis (Professor P.C. Mahalanobis played a leading role in drafting the
Second Plan) strategy of development was put into practice and it was continued in the Third Plan
(1961-66). A basic element of this strategy was the rapid development of heavy and capital goods
industries in India, mainly in the public sector. (Three steel plants were set up in the public sector
within the Second Plan period.) Import substitution in this area was seen as an imperative not
only because it was thought to be critical for self-reliance and reduction of external dependence but
also because it was assumed that Indian exports could not grow fast enough to enable the import of
the necessary capital goods and machinery—an export pessimism which has been criticized in later
years, though it was quite commonly accepted at that time. The model also saw some foreign aid
and investment as essential in the initial phase to finance the massive step-up in investment though

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