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Indian Economy

Notes (d) it stimulated import-substitution so as to accomplish self-reliance, and
(e) it intended at enlargement of opportunities for the less fortunate sections of the society.
Growth with social justice was therefore the objective of Nehru–Mahalanobis model since
it planned to foster a self-generating path of development with an assurance to the common
man that poverty, unemployment, disease and ignorance would be eradicated so that
individuals could realise their capacity with the extension of social and economic
opportunities. Since, it was the philosophy of the fifties that market mechanism could not
bring about judicious allocation of resources to fulfil the goal of growth with social
justice, a much greater role was attributed to the State. The principal operations of the
State in the economic sphere were the development of economic and social infrastructure.
The economic infrastructure was disturbed with enlargement of power, irrigation, transport
and communications so as to magnify markets as also to eradicate constraints in the form
of power on industrial development and irrigation for agricultural development. By
increasing social infrastructure in the form of education and health, the State envisioned
to develop skilled manpower so that it could offer the essential skills required for the
functioning of the new industries. To channelize investment into socially desired lines of
production, the State nationalised major banks. Therefore, in the Nehru–Mahalanobis
model the State controlled the commanding heights of the economy through the public
sector.
It will be interesting for you to understand that the Janata Sixth Plan (1978-83) recognised the
achievements of this strategy:
“It is a cause of legitimate national pride that over this period a stagnant economy has been modernised and
made more self-reliant.”
The achievements which could be the cause of legitimate pride were:
(a) An increase in the rate of saving from a low level of 7% of GDP in 1950–51 to a high level
of about 22 to 24%.
(b) To finance the process of development up to the end of the Seventh Plan largely by
domestic savings. Foreign saving inflow formed merely 1.5% to make up the gap in the
planned investment.
(c) To formulate an industrial base of the economy in the form of heavy industry and
infrastructure.
(d) To train a large pool of scientific and technical manpower.
Nevertheless, it will be important for you to note that success in these areas was also accompanied
by certain fundamental failures:
While massive investments were made in the public sector enterprises, no serious attempt was
made to run them on commercial lines. Their socio-economic character was utilised to plead for
continued losses in some and very poor level of profits in others. Consequently, you must
evaluate that the Government continued to meet the losses out of the general exchequer. Three
critical mistakes were committed in their administration. First the ranks at the top were offered
to general administrators instead of professional experts. Therefore, the administrative
bureaucracy of the nation took charge of the PSUs and acted in collusion with the political bosses
who utilised PSUs as their fiefs. The second costly mistake was the failure to formulate work-ethics
among the employees. Consequently, the PSUs developed huge wage-bill without
commensurate increase in productivity. Thirdly, to satisfy specific lobbies – urban consumers,
big farmers, fertiliser, irrigation, electricity charges, etc. were kept below costs and huge subsidies
were paid and consequently the state level public enterprises incurred heavy losses and these
losses mounted further as years rolled by.

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