Page 24 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes which are utlised in industrial development.” Nehru was, thus, extremely forthright in pointing out
that industrialisation meant development of heavy industries. The Plan frame of the Second Plan
stated this, in unequivocal terms, as follows:
“In the long run, the rate of industrialisation and the growth of the national economy would depend upon
the increasing production of coal, electricity, iron and steel, heavy machinery, heavy chemicals and heavy
industries generally-which would increase the capacity tor capital formation. One important aim is to
make India independent as quickly as possible of foreign imports of producer goods so that the
accumulation of capital would not be hampered by difficulties in securing supplies of essential producer
goods from other countries. The heavy industry must, therefore, be expanded with all possible speed.”
Thus the core of the strategy adopted by Indian planners for the Second Plan and with minor
modification for the subsequent three Plans (i.e. up to the Fifth Plan) - was rapid industrialisation
through lumpy investment on heavy, basic and machine-building industries.
The Need for Rapid Industrialisation
The planners justified their strategy of rapid economic development through rapid industrialisation.
(a) At the time of Independence, India was essentially agrarian, though the country with its vast
natural and human resources was ideally suited for industries. The planners felt that
diversification of the use of resources would be in the interest of the country from the point of
view of production, employment and defence. Resources should, therefore be applied more
towards the development of industry rather than to agriculture.
(b) Indian agriculture was already, suffering from heavy population pressure on land and
productivity of labour on land was quite low—it was even thought that marginal productivity
of labour on land might be zero and even be negative. One method of reducing this pressure of
population on land and to raise agricultural productivity was to reduce the percentage of people
living on land, and to shift the surplus population to industries. The setting up and expansion
of the industrial sector was thus a necessary condition for raising the national product in general
and for agricultural development in particular.
(c) Rapid industrialisation was an essential condition for the development of not only agriculture
but also for all other sectors in the country. For instance, with the expansion of industries and the
shifting of labour from rural to urban areas, the demand for foodgrains and agricultural raw
materials (such as cotton, jute, oil seeds, etc.) would increase. At the same time, increased production
and supply of fertilisers, pesticides, agricultural machinery, etc. would help in the expansion of
agricultural production. With rapid industrialisation, and with rapid expansion of markets, there
would be expansion in trade and commerce, in transportation, in banking and finance, etc.
(d) Productivity of labour is much higher in manufacturing than in agriculture. The growth rates
are much higher in industry than in agriculture. Rapid increase in national and per capita
income would be possible only through rapid industrialisation.
(e) The income elasticity of demand for industrial goods was much higher and export opportunities
for manufactured goods were also high.
It was for all these reasons that industrialisation was emphasised by the Indian planners.
Implications of Heavy Industry Strategy

The important implications of this strategy may be noted here.
Small scale industries and supply of consumer goods : The planners of the Nehru era were clear in
their mind that the growth of heavy industries would be limited by the growth of consumer goods in
the household sector. Naturally, they did not ignore or neglect the growth of small sector for instance,
the Second Plan framework stated : “The greater the marketable surplus of consumer goods in the
household or hand industries, the greater will be possibilities of investments in heavy industries
with any fear of inflation.”
For one thing, the growing population has fed and clothed; actually, the demand for constituted
goods will increase with the growth of population. For another, increasing rate of investment on he
industries with long gestation periods would responsible for increase in money supply with general

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