Independent India chose a mixed economy with centralised planning. The Planning Commission was set up in 1950, the First Five-Year Plan began in 1951, and through the next four decades the State led investment in heavy industry, agriculture was reformed, and self-reliance and equity were the watchwords. The model achieved a degree of industrial diversification and food self-sufficiency but produced slow growth (the "Hindu rate of growth"), an over-protected industry and persistent poverty, setting the stage for the 1991 reforms (liberalisation 1991).
- India rejected both the pure capitalism of the West and the pure command economy of the Soviet bloc. It chose a mixed economy in which the public and private sectors coexist, the State leading in strategic and heavy sectors and the market operating elsewhere.
- The choice reflected the Constitution's Directive Principles (Articles 38 and 39, a welfare State and equitable distribution) and the Industrial Policy Resolutions.
- A Plan is a set of targets to be achieved within a stated period. India adopted the Five-Year Plan after the Soviet example; perspective planning gave the long horizon.
- The Planning Commission (1950) was an extra-constitutional, advisory body chaired by the Prime Minister. It was replaced by NITI Aayog in 2015.
- The four long-term goals of planning: growth (a larger output of goods and services), modernisation (new technology and changing social attitudes, including equality for women), self-reliance (reducing dependence on imports, especially food and technology), and equity (so the benefits reach the poor; reducing inequality of wealth and income).
- First Plan (1951 to 1956): based on the Harrod-Domar model; priority to agriculture and irrigation after the food shortages of partition. Major projects such as the Bhakra Nangal and Hirakud dams. Largely successful.
- Second Plan (1956 to 1961): based on the Mahalanobis model (designed by the statistician P.C. Mahalanobis). Heavy industry was the engine of growth, built in the public sector. The steel plants at Bhilai, Rourkela and Durgapur date from this era. It coincided with the Industrial Policy Resolution of 1956.
- Subsequent plans continued the heavy-industry and self-reliance line, interrupted by wars (1962, 1965, 1971) and droughts, which forced three Plan Holidays from 1966 to 1969 with Annual Plans.
- The Industrial Policy Resolution of 1956 (IPR 1956) was the cornerstone. It classified industries into three schedules: those reserved exclusively for the State, those where the State would lead but private firms could supplement, and those left to the private sector but still subject to State control.
- Industrial licensing meant no firm could start, expand or change its product line without a government licence. The intention was to direct investment to priority sectors and backward regions and to prevent the concentration of economic power, but in practice it produced the "permit-licence-quota raj," with inefficiency, corruption and a captive, unaccountable industry.
- Small-scale industry was protected by reserving products exclusively for it.
- Land reforms had three thrusts: abolition of intermediaries (the zamindars), so that the tiller dealt directly with the State; tenancy reform (security of tenure and regulated rents); and land ceilings (a legal maximum on holdings so that surplus could be redistributed). Abolition of intermediaries was the most successful; ceilings were widely evaded.
- The Green Revolution (from the mid-1960s, associated with M.S. Swaminathan in India and Norman Borlaug globally) introduced high-yielding-variety (HYV) seeds, chemical fertilisers, pesticides and assured irrigation. It made India self-sufficient in foodgrains (wheat and rice) and created a marketable surplus, supported by the minimum support price and public procurement.
- Limitations: it was confined initially to wheat and to well-irrigated regions (Punjab, Haryana, western Uttar Pradesh), widening regional and class inequality, and it raised concerns over soil degradation, falling water tables and chemical overuse.
- India followed an inward-looking, import-substituting industrialisation: high tariffs and import quotas protected domestic industry so that goods previously imported would be made at home.
- This built a diversified industrial base and reduced dependence, but the protected firms had little incentive to improve quality or cut costs, and exports stagnated.
- Achievements: a diversified industrial base, a strong public sector, food self-sufficiency, expansion of infrastructure and human capital, and the survival of a planned economy within a democracy.
- Failures: slow growth (around 3.5 percent a year, the so-called Hindu rate of growth), an inefficient and over-protected industry, neglect of exports, persistent mass poverty and a weak record on land ceilings and literacy. These weaknesses culminated in the crisis of 1991.
- Mixed economy: coexistence of public and private sectors.
- Mahalanobis model: the heavy-industry strategy of the Second Plan.
- Licence raj: the system of industrial licensing under IPR 1956.
- Green Revolution: the HYV-seed-and-irrigation transformation of foodgrain output.
- Import substitution: making at home goods that were previously imported, behind protective tariffs.
The planning era's record on equity and rural distribution is the link to internal security. Where land reform failed and agrarian inequality persisted, leftwing extremism took root (the Naxalite movement traces to Naxalbari in 1967, in the Green Revolution years), a theme central to CAPF deployment and to poverty. The public-sector heavy-industry base also created the defence-industrial capacity the forces rely on.
- The Second Five-Year Plan was based on the model designed by: (a) Harrod and Domar (b) P.C. Mahalanobis (c) Amartya Sen (d) V.K.R.V. Rao. (Answer: b.) Authored practice, not a verbatim PYQ.
- Which land-reform measure was the most successful in India? (Answer: abolition of intermediaries, the zamindars; land ceilings were largely evaded.) Authored practice, not a verbatim PYQ.