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Unit 3: Planning and Economic Development in the Era of Globalisation

development as the crucial element. This strategy naturally came in conflict with the employment Notes
objective of our plans. For, a fast and self-sustained economic growth could be conducted in only
through emphasis on capital-intensive production, viz., “by building of economic and social
overheads, exploration and development of minerals and promotion of basic industries like
steel, machine building, coal and heavy electrical”. To solve the conflict between rapid growth
on the one side and instant increase in employment opportunities on the other, Mahalanobis
strategy accepted a “policy of encouraging labour-intensive techniques in consumer goods industries
even as the capital-intensive sector of heavy industry was being expanded rapidly.”

Strategy to Achieve Social Objectives: Use of Fiscal Policy

It is important for you to understand that the Mahalanobis investment strategy extensively
implied that increase in production would be supplemented by better and more equal distribution
of income and wealth. Apart from this supposition, Indian planners relied on Fabian socialist
strategy of utilising fiscal policy of taxation and public expenditure to attain the two social goals
of planning, viz., the removal of inequalities of income and wealth on the one hand and the
establishment of a socialist society based on equality and justice, on the other.
Fiscal policy intending at the reduction of inequality of income and wealth had two aspects.
Highly progressive income tax was to be imposed to lop off the high incomes beyond a specific
level (marginal rate of income tax at one time was 97.25%). Estate duty was to be extremely
progressive so as to remove a measure of large fortunes; other taxes falling exclusively on
affluent sections of the community included capital gains tax, wealth tax and gift tax. When
direct taxes endeavoured to transfer part of the income and wealth of the rich to the Government,
public expenditure was particularly used to encourage the welfare of the lower income groups
and weaker sections of the community.
A fast and concerted development of education was to be a significant means for ensuring
greater equality of opportunity to various sections of the population. Public expenditure on
public health and sanitation, housing, etc. was used to attain “a measure of redistribution in the
consumption of basic necessities such as health and medical care, sanitation, water supply and cheap
housing. Tribals, dalits and other backward classes were to receive favoured treatment under special
programmes.”

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Caution Apart from the use of fiscal policy, the planners did not adopt any measures for
direct redistribution of property and wealth to achieve reduction of disparities of income
and wealth and to prevent concentration of economic power. The only exception was the
half-hearted attempts at land reforms and ceiling on land holdings in rural areas.
3.2.2 Models of Economic Development: Nehru vs. Gandhi

You need to realise that Nehru–Mahalanobis model of development appeared as the driving
force of the strategy of development implemented in the mid-fifties at the time of development
of the Second Five Year Plan. This strategy has sustained right up to the eighties with a short
interregnum of about 2–3 years when Janata Party was in power during 1977–80. Nehru-
Mahalanobis model was established on the basis of long-run development strategy which
rendered greater preference to the long-term goals of development, instead of succumbing to
the instant and short-term goals. The strategy, thus, emphasised:

(a) a high rate of saving so as to encourage investment to a higher level,
(b) it preferred a heavy industry bias to formulate the industrial base of the economy,
(c) it opted for the protectionist path so as to safeguard infant industry,

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