Planning Commission and Economic Development: The Indian Experience
: Dr V B Athreya
The idea that an economy and its development can be centrally planned was ridiculed by mainstream economists when after the historic Socialist Revolution, the Soviet Union launched an unprecedented social experiment, namely planning for rapid economic and social development. While the economists of the ruling classes were busy arguing the impossibility of central planning and the indispensability of the market as the best mechanism for “efficient” allocation of resources during the 1930s even as the capitalist world plunged headlong into the Great Depression, the USSR, in twelve short years from 1928 to 1940, achieved spectacular success in industrialization and all round economic and social development through central planning under socialism. By 1940, the USSR had become the second most industrialized country in the world after the US, overtaking all the European powers.
This was a truly remarkable achievement. The Russian region of the USSR could regain its prewar 1913 levels of output only in 1928, having had to overcome the ravages of the first world war, the civil war from 1918 to 1920 backed by imperialist countries against the young socialist state, denial of trade and technology by the same powers, and the need to spend considerable resources on its own defence in the face of imperialist militarism and encirclement. Moreover, the enormous achievements were made without exploiting its own working people or colonizing and looting other countries as the Western capitalist countries had done in the course of their development over a much longer period.
The Soviet success in planned economic and social development which enabled them to eliminate illiteracy and advance education at all levels, ensure people’s health and guarantee full employment was an inspiration for freedom fighters in many colonies including India, showing that imperialism can be defeated and that planning was a viable option for achieving rapid economic development. The heroic role played by the USSR in defeating fascism during the second world war owed much to its system of socialist economic planning.
All these facts of history were very influential in encouraging countries like India that became independent shortly after the end of the second world war to implement planning for development. As early as the 1930s, Sir Mokshagundam Visveswariah, an engineer by profession, had drawn up a plan for India’s development. The Indian National Congress, which had won provincial elections in 1937 in a number of states held following the Government of India Act of 1935, set up a national planning committee in 1938 with Jawaharlal Nehru as the chairperson. This committee met 76 times between 1938 and 1946, and Nehru attended all but one of tis meetings. Such was the importance given to planning by the national movement.
When India attained independence, planning was considered necessary for economic development of the country, not just by the nationalist and the progressive forces, but also by the big capitalists such as Tata and Birla. The Bombay Plan of 1946 put forward by a group of consultants appointed for that purpose by big business houses was in fact far more ambitious than the first five year Plan that was eventually adopted and implemented from 1950-51 to 1955-56. There was a broad political consensus in the period immediately following the attainment of independence that both five year plans and a large public sector which would invest in physical, industrial financial and human resource infrastructure were essential for India’s economic and social development. This is why the Planning Commission set up in 1950 was considered very important.
It is important to remember that for all the talk of central planning, neither planning nor the public sector in India had anything to do with socialism. On the contrary, planning and public investment were seen as essential to build the energy, transport, communications, education and health infrastructure so that the private sector could function profitably. Taxation of working people primarily through indirect taxes and deficit financing were to provide the resources for the state to undertake the investments that the private sector needed but was incapable of and unwilling to undertake at that point in time. Nevertheless, planning and the public sector played a key role in building India’s scientific and technological self-reliance. It received tremendous support in this regard from USSR and other socialist countries. The compulsions of cold war politics led the western powers also to play a role in India’s industrial development, but they were always keen on undermining our self-reliance and demolishing the public sector since it strengthened India’s independent capabilities.
Though planning was accepted by both big capital and the Indian State, the fact that the state was to serve the capitalists and landlords meant that planning could never play the kind of role it did in socialist countries like the USSR and China. After the first three five year plans from 1951 to 1966, the Indian economy plunged into a three-fold crisis of food, foreign exchange and fiscal resources in 1966 following two particularly bad monsoons. The Congress government led by Mrs Gandhi promptly suspended five year plans, and from 1966 to 1969, we had only three annual plans. In his brilliant account of Indian planning given in his book, Indian Planning in Crisis, Com EMS Namboodiripad demonstrates how the crisis of Indian planning which began as early as the end of the third five year plan, was rooted in the class character of the Indian State. The fundamental contradiction was that while the State was to undertake planning and public investment to promote economic development, it would not raise the resources for this purpose by appropriate taxation of capitalists and landlords since state power was in their hands. On the other hand, there were limits to how much the people could be squeezed to provide resources for public investment. So, the whole edifice came crashing down in 1966.
Though five year plans were resumed formally in 1970, with the fourth five year plan running from 1969-70 to 1973-74, things were never the same again. The fourth plan targets were sharply reduced in 1972 in the mid-term review when it became clear the original targets could not be achieved, and even the reduced targets were eventually not met. The fifth five year plan, which was to run from 1974-75 to 1978-79 came under the shadow of the emergency, and was put on the backburner for all practical purposes under the Emergency regime during which first the twenty point programme and then Sanjay Gandhi’s five point programme acquired far greater visibility and priority.
Nevertheless, during the thirty years from 1950 to 1980, India did grow far more rapidly than under colonial rule, thanks to public investments, import substitution and limited land reforms. India’s GDP grew at a compound annual rate of almost 4 % between 1950 and 1980. Sectors like power and steel saw massive expansion. India’s chemical and petroleum industries got established and grew during this period. The green revolution was an outstanding example of planned and synergized role played by the State. Industrial output grew rapidly and became considerably diverse. In all this, planning played a crucial role in this, prioritizing areas and sectors for public investment and import substitution and lending its weight to limited land reforms.
During the 1980s, with the rise of international finance capital, the Indian economy was pushed into liberalization, slowly at first and then rapidly, but planning and public investment still played a role. By 1991, however, neoliberal policies became dominant and planning became less and less important as a provider of direction to the path of development and in prioritizing investment, in both sectoral and regional terms, something that is crucial for a country of our size and linguistic, ethnic and resource diversity. Nevertheless, even during the neoliberal period, the planning commission was playing a role in such matters as resource allocation across different states, monitoring welfare schemes and generating and analyzing important data on changes in the economy. However, the fact that the planning commission itself provided the most active ideological, theoretical and practical support to neoliberal policies made it totally different from what it had originally been.
Within the neoliberal milieu, under the first UPA regime, the planning commission resisted every progressive measure in the national common minimum programme. It was the National Advisory Council that became the body to advocate some welfare measures, with both the planning commission and the ministry of finance coming together to oppose most of these initiatives, such as for instance the NREGA in UPA I and the National Food Security Act in UPA II.
The question that arises is why the planning commission became what it did. The answer clearly lies in the fact that once the country was driven down the neoliberal path beginning in 1991 under the Narasimha Rao minority government of 1991-1996 and intensified under the NDA regimes of 1998-2004, the Planning Commission lost much of its original rationale and gradually joined the neoliberal bandwagon. This is not a phenomenon peculiar to India. After the setbacks that imperialism suffered in the first half of the 20th century, beginning with the first world war, followed by the Great Depression and then the second world war, it was forced to come to terms with efforts for public sector –led planned growth in a number of newly independent ex-colonial countries. As long as a powerful socialist camp existed, it was not possible for imperialism to change matters easily, though the IMF and the World Bank were used as the Trojan horses to penetrate the planning process and the planning apparatus in many countries. But beginning with the decade of the 1980s, the decade of Reagan in the US and Thatcher in UK, the decade of the rise of finance capital, things began to change. The deepening crisis in the socialist world of USSR and Eastern Europe and their collapse at the end of the 1980s - a collapse in which finance capital also played a role as did the arms race imposed on the USSR by the US under Reagan – led to renewed and vigorous efforts by imperialism to recover “lost territory”, economically even if not politically. The packing of the finance ministries and central planning bodies in developing countries with personnel from the IMF and the World Bank, the training of officers and academics from the third world in Western Universities and their installation in key economic ministries in their home countries using many levers, and the imposition of structural adjustment programmes on many of these countries as they fell into debt crises beginning the early 1980s – all these have been part of the story. The so-called “Chicago boys”, economists trained in the University of Chicago by neoliberal professors of Economics, who administered bitter neoliberal medicines in the regime of the butcher Pinochet in Chile following the assassination of the elected socialist president Allende in September 1973 in a coup backed and planned by the CIA is a dramatic case, but there are many others, much more subtle and therefore less noticed.
It is not that a planning commission can play no useful role in a liberalized economy. After all, in a federal country like ours, planning mechanisms are needed, even in a neoliberal economy, to allocate resources sectorally and across regions within a medium or long term perspective on the growth of the economy. Likewise, helping design welfare programmes at the centre and in different states, and monitoring them to suggest course corrections are roles a planning commission could perform. But the very logic of neoliberalism concentrates all power in the finance ministry, and brooks no diversity of opinion. Complete subordination of all policies to serve the needs of international finance capital inevitably leads to weakening of any alternative institutional mechanism of making and implementation of policy.
While the earlier UPA regime had itself turned the Planning Commission into a body that largely supported and advocated neoliberal policies and resisted welfare schemes of any kind, the Modi regime has gone further and abolished the Planning Commission. This should not be surprising. After all, the Party in power now played no role in the freedom movement and has had no commitment at any point in its history to the concept of economic and political self-reliance for India. It has been videshi through and through, as we saw in the NDA regime of 1998 to 2004 and as we are now seeing over the last seven months of the present BJP government. The replacement of a very inadequate planning commission by the new aneethi aayog is therefore not something to be surprised about.
An especially important feature of the new dispensation is the enormous degree of centralization that it demonstrates. The erstwhile planning commission was not a very democratic body. Its composition was entirely decided by the Union government. In the context of the highly skewed distribution of finance and financial powers as between the states and the Centre, the Planning Commission often played the role of humiliating state governments that sought funds for schemes, treating them as supplicants. But the new arrangement is worse. At least the old Planning Commission had to get the Plan approved by the National Development Council in which chief ministers of states are members. The new “think tank” reports only to the prime minister. It is this centralization that suits both international finance capital and the India monopoly capitalists. Neoliberalism represents quintessentially the interests of finance capital. India’s big capital is at present very closely aligned with international finance capital. The Modi regime is serving their interests with utmost devotion. It is no surprise then that the planning commission had to go.
But the fate of the planning commission is not and cannot be our prime concern. It is the neoliberal policy regime that ought to be our prime concern. Further, what we now have is not merely a neoliberal regime, but a communal neoliberal regime. The stoking of communal fires by the present regime is deliberate. It is meant both to divert attention from their anti-people neoliberal policies and actions. It is also meant to divide working people and prevent them from coming together to fight against and defeat neoliberal policies. It is this that has to be grasped,
Com Naresh Pal, in his remarkable life as a militant fighter for the interest of working people and their unity, fought both neoliberalism and communalism without the slightest hesitation and with no thought of the hardships he had to undergo in this fight. That is why he remains an inspiration for all of us as we seek to join the battle against neoliberalism and communalism in our country from Kashmir to Kanyakumari. I am sure the ninth Conference of BEFI will play a key role in evolving strategies to fight this battle.
I express my solidarity with you in this battle and wish the Conference all success..
The idea that an economy and its development can be centrally planned was ridiculed by mainstream economists when after the historic Socialist Revolution, the Soviet Union launched an unprecedented social experiment, namely planning for rapid economic and social development. While the economists of the ruling classes were busy arguing the impossibility of central planning and the indispensability of the market as the best mechanism for “efficient” allocation of resources during the 1930s even as the capitalist world plunged headlong into the Great Depression, the USSR, in twelve short years from 1928 to 1940, achieved spectacular success in industrialization and all round economic and social development through central planning under socialism. By 1940, the USSR had become the second most industrialized country in the world after the US, overtaking all the European powers.
This was a truly remarkable achievement. The Russian region of the USSR could regain its prewar 1913 levels of output only in 1928, having had to overcome the ravages of the first world war, the civil war from 1918 to 1920 backed by imperialist countries against the young socialist state, denial of trade and technology by the same powers, and the need to spend considerable resources on its own defence in the face of imperialist militarism and encirclement. Moreover, the enormous achievements were made without exploiting its own working people or colonizing and looting other countries as the Western capitalist countries had done in the course of their development over a much longer period.
The Soviet success in planned economic and social development which enabled them to eliminate illiteracy and advance education at all levels, ensure people’s health and guarantee full employment was an inspiration for freedom fighters in many colonies including India, showing that imperialism can be defeated and that planning was a viable option for achieving rapid economic development. The heroic role played by the USSR in defeating fascism during the second world war owed much to its system of socialist economic planning.
All these facts of history were very influential in encouraging countries like India that became independent shortly after the end of the second world war to implement planning for development. As early as the 1930s, Sir Mokshagundam Visveswariah, an engineer by profession, had drawn up a plan for India’s development. The Indian National Congress, which had won provincial elections in 1937 in a number of states held following the Government of India Act of 1935, set up a national planning committee in 1938 with Jawaharlal Nehru as the chairperson. This committee met 76 times between 1938 and 1946, and Nehru attended all but one of tis meetings. Such was the importance given to planning by the national movement.
When India attained independence, planning was considered necessary for economic development of the country, not just by the nationalist and the progressive forces, but also by the big capitalists such as Tata and Birla. The Bombay Plan of 1946 put forward by a group of consultants appointed for that purpose by big business houses was in fact far more ambitious than the first five year Plan that was eventually adopted and implemented from 1950-51 to 1955-56. There was a broad political consensus in the period immediately following the attainment of independence that both five year plans and a large public sector which would invest in physical, industrial financial and human resource infrastructure were essential for India’s economic and social development. This is why the Planning Commission set up in 1950 was considered very important.
It is important to remember that for all the talk of central planning, neither planning nor the public sector in India had anything to do with socialism. On the contrary, planning and public investment were seen as essential to build the energy, transport, communications, education and health infrastructure so that the private sector could function profitably. Taxation of working people primarily through indirect taxes and deficit financing were to provide the resources for the state to undertake the investments that the private sector needed but was incapable of and unwilling to undertake at that point in time. Nevertheless, planning and the public sector played a key role in building India’s scientific and technological self-reliance. It received tremendous support in this regard from USSR and other socialist countries. The compulsions of cold war politics led the western powers also to play a role in India’s industrial development, but they were always keen on undermining our self-reliance and demolishing the public sector since it strengthened India’s independent capabilities.
Though planning was accepted by both big capital and the Indian State, the fact that the state was to serve the capitalists and landlords meant that planning could never play the kind of role it did in socialist countries like the USSR and China. After the first three five year plans from 1951 to 1966, the Indian economy plunged into a three-fold crisis of food, foreign exchange and fiscal resources in 1966 following two particularly bad monsoons. The Congress government led by Mrs Gandhi promptly suspended five year plans, and from 1966 to 1969, we had only three annual plans. In his brilliant account of Indian planning given in his book, Indian Planning in Crisis, Com EMS Namboodiripad demonstrates how the crisis of Indian planning which began as early as the end of the third five year plan, was rooted in the class character of the Indian State. The fundamental contradiction was that while the State was to undertake planning and public investment to promote economic development, it would not raise the resources for this purpose by appropriate taxation of capitalists and landlords since state power was in their hands. On the other hand, there were limits to how much the people could be squeezed to provide resources for public investment. So, the whole edifice came crashing down in 1966.
Though five year plans were resumed formally in 1970, with the fourth five year plan running from 1969-70 to 1973-74, things were never the same again. The fourth plan targets were sharply reduced in 1972 in the mid-term review when it became clear the original targets could not be achieved, and even the reduced targets were eventually not met. The fifth five year plan, which was to run from 1974-75 to 1978-79 came under the shadow of the emergency, and was put on the backburner for all practical purposes under the Emergency regime during which first the twenty point programme and then Sanjay Gandhi’s five point programme acquired far greater visibility and priority.
Nevertheless, during the thirty years from 1950 to 1980, India did grow far more rapidly than under colonial rule, thanks to public investments, import substitution and limited land reforms. India’s GDP grew at a compound annual rate of almost 4 % between 1950 and 1980. Sectors like power and steel saw massive expansion. India’s chemical and petroleum industries got established and grew during this period. The green revolution was an outstanding example of planned and synergized role played by the State. Industrial output grew rapidly and became considerably diverse. In all this, planning played a crucial role in this, prioritizing areas and sectors for public investment and import substitution and lending its weight to limited land reforms.
During the 1980s, with the rise of international finance capital, the Indian economy was pushed into liberalization, slowly at first and then rapidly, but planning and public investment still played a role. By 1991, however, neoliberal policies became dominant and planning became less and less important as a provider of direction to the path of development and in prioritizing investment, in both sectoral and regional terms, something that is crucial for a country of our size and linguistic, ethnic and resource diversity. Nevertheless, even during the neoliberal period, the planning commission was playing a role in such matters as resource allocation across different states, monitoring welfare schemes and generating and analyzing important data on changes in the economy. However, the fact that the planning commission itself provided the most active ideological, theoretical and practical support to neoliberal policies made it totally different from what it had originally been.
Within the neoliberal milieu, under the first UPA regime, the planning commission resisted every progressive measure in the national common minimum programme. It was the National Advisory Council that became the body to advocate some welfare measures, with both the planning commission and the ministry of finance coming together to oppose most of these initiatives, such as for instance the NREGA in UPA I and the National Food Security Act in UPA II.
The question that arises is why the planning commission became what it did. The answer clearly lies in the fact that once the country was driven down the neoliberal path beginning in 1991 under the Narasimha Rao minority government of 1991-1996 and intensified under the NDA regimes of 1998-2004, the Planning Commission lost much of its original rationale and gradually joined the neoliberal bandwagon. This is not a phenomenon peculiar to India. After the setbacks that imperialism suffered in the first half of the 20th century, beginning with the first world war, followed by the Great Depression and then the second world war, it was forced to come to terms with efforts for public sector –led planned growth in a number of newly independent ex-colonial countries. As long as a powerful socialist camp existed, it was not possible for imperialism to change matters easily, though the IMF and the World Bank were used as the Trojan horses to penetrate the planning process and the planning apparatus in many countries. But beginning with the decade of the 1980s, the decade of Reagan in the US and Thatcher in UK, the decade of the rise of finance capital, things began to change. The deepening crisis in the socialist world of USSR and Eastern Europe and their collapse at the end of the 1980s - a collapse in which finance capital also played a role as did the arms race imposed on the USSR by the US under Reagan – led to renewed and vigorous efforts by imperialism to recover “lost territory”, economically even if not politically. The packing of the finance ministries and central planning bodies in developing countries with personnel from the IMF and the World Bank, the training of officers and academics from the third world in Western Universities and their installation in key economic ministries in their home countries using many levers, and the imposition of structural adjustment programmes on many of these countries as they fell into debt crises beginning the early 1980s – all these have been part of the story. The so-called “Chicago boys”, economists trained in the University of Chicago by neoliberal professors of Economics, who administered bitter neoliberal medicines in the regime of the butcher Pinochet in Chile following the assassination of the elected socialist president Allende in September 1973 in a coup backed and planned by the CIA is a dramatic case, but there are many others, much more subtle and therefore less noticed.
It is not that a planning commission can play no useful role in a liberalized economy. After all, in a federal country like ours, planning mechanisms are needed, even in a neoliberal economy, to allocate resources sectorally and across regions within a medium or long term perspective on the growth of the economy. Likewise, helping design welfare programmes at the centre and in different states, and monitoring them to suggest course corrections are roles a planning commission could perform. But the very logic of neoliberalism concentrates all power in the finance ministry, and brooks no diversity of opinion. Complete subordination of all policies to serve the needs of international finance capital inevitably leads to weakening of any alternative institutional mechanism of making and implementation of policy.
While the earlier UPA regime had itself turned the Planning Commission into a body that largely supported and advocated neoliberal policies and resisted welfare schemes of any kind, the Modi regime has gone further and abolished the Planning Commission. This should not be surprising. After all, the Party in power now played no role in the freedom movement and has had no commitment at any point in its history to the concept of economic and political self-reliance for India. It has been videshi through and through, as we saw in the NDA regime of 1998 to 2004 and as we are now seeing over the last seven months of the present BJP government. The replacement of a very inadequate planning commission by the new aneethi aayog is therefore not something to be surprised about.
An especially important feature of the new dispensation is the enormous degree of centralization that it demonstrates. The erstwhile planning commission was not a very democratic body. Its composition was entirely decided by the Union government. In the context of the highly skewed distribution of finance and financial powers as between the states and the Centre, the Planning Commission often played the role of humiliating state governments that sought funds for schemes, treating them as supplicants. But the new arrangement is worse. At least the old Planning Commission had to get the Plan approved by the National Development Council in which chief ministers of states are members. The new “think tank” reports only to the prime minister. It is this centralization that suits both international finance capital and the India monopoly capitalists. Neoliberalism represents quintessentially the interests of finance capital. India’s big capital is at present very closely aligned with international finance capital. The Modi regime is serving their interests with utmost devotion. It is no surprise then that the planning commission had to go.
But the fate of the planning commission is not and cannot be our prime concern. It is the neoliberal policy regime that ought to be our prime concern. Further, what we now have is not merely a neoliberal regime, but a communal neoliberal regime. The stoking of communal fires by the present regime is deliberate. It is meant both to divert attention from their anti-people neoliberal policies and actions. It is also meant to divide working people and prevent them from coming together to fight against and defeat neoliberal policies. It is this that has to be grasped,
Com Naresh Pal, in his remarkable life as a militant fighter for the interest of working people and their unity, fought both neoliberalism and communalism without the slightest hesitation and with no thought of the hardships he had to undergo in this fight. That is why he remains an inspiration for all of us as we seek to join the battle against neoliberalism and communalism in our country from Kashmir to Kanyakumari. I am sure the ninth Conference of BEFI will play a key role in evolving strategies to fight this battle.
I express my solidarity with you in this battle and wish the Conference all success..
