Unit 5: Development Strategy in India Since Independence
Table of Contents
1. Introduction: Two Models of Development
Since 1947, India's "development strategy" (its economic philosophy) has seen two distinct and opposing phases. This unit explores the shift from a state-controlled model to a market-based model.
- The "Planned Development" Phase (1947-1991): Characterized by socialism, state control, and the "License-Permit Raj."
- The "Neo-liberal" Phase (1991-Present): Characterized by capitalism, market control, and the "LPG" reforms.
2. Strategy of Planned Development (1947-1991)
When India became independent, its leaders (especially Nehru) were deeply influenced by **socialism** and the success of the Soviet Union's rapid industrialization. They believed that a poor, unequal country could not develop using a "laissez-Faire" (free market) capitalist model.
The Model: A "Mixed Economy"
India adopted a "Mixed Economy," a compromise between pure capitalism and pure socialism.
- The **"Commanding Heights"** of the economy (heavy industries, defense, railways, energy) would be controlled by the state (Public Sector Units or PSUs).
- A **Private Sector** would be allowed to exist but would be heavily regulated by the state.
The Key Tool: The Planning Commission
- To implement this, the government established the **Planning Commission** in 1950 (an extra-constitutional body, now replaced by NITI Aayog).
- The Planning Commission created **Five-Year Plans** that set goals and allocated resources for all sectors of the economy.
- Focus of Early Plans:** The early plans (especially the Second Five-Year Plan) focused on **rapid industrialization** and building a strong **heavy industry** base (steel, machinery, dams). This was known as the Mahalanobis model.
Features of the Planned Development Era:
- State-led Development: The state, not private companies, was seen as the main engine of economic growth.
- Inward-Looking (Import Substitution): The goal was self-sufficiency. India tried to produce everything *inside* the country (from cars to needles) and restricted imports with high tariffs (taxes).
- "License-Permit Raj": The private sector was controlled by a complex system of licenses and permits. You needed government permission for everything: to start a factory, to expand, to import materials.
Outcomes of this Strategy:
- Successes: Built a strong industrial and technological base (e.g., steel plants, dams, space program). The "Green Revolution" made India self-sufficient in food.
- Failures: The system became corrupt and inefficient (the "License-Permit Raj"). PSUs were often unprofitable. The "Hindu rate of growth" was very slow (3-4% per year). By 1991, the system collapsed.
3. Neo-liberalism: New Economic Reforms (1991-Present)
By 1991, India was facing a severe **Balance of Payments crisis**. It had almost no foreign money left to pay for essential imports like oil. It was forced to go to the International Monetary Fund (IMF) and the World Bank for a loan.
The loan came with conditions: India had to fundamentally *change* its economic model. This change is known as the **New Economic Reforms** or the adoption of **Neo-liberalism**.
What is Neo-liberalism?
It is the exact *opposite* of the planned development model. It is an economic philosophy that emphasizes free markets, privatization, and a minimal role for the state.
The reforms, launched by Finance Minister Manmohan Singh, are summed up by the acronym **LPG**:
L - Liberalization
- Meaning: "Freeing" the economy from state control.
- Actions:
- **Abolishing the License-Permit Raj:** Industrial licensing was scrapped for most industries.
- **De-regulation:** Businesses were free to expand, diversify, and set their own prices.
P - Privatization
- Meaning: Transferring ownership of state-run companies (PSUs) to the private sector.
- Actions:
- Disinvestment: Selling shares of PSUs (like Maruti, VSNL) to the public and private companies.
- The belief was that private companies are more efficient and profitable than government ones.
G - Globalization
- Meaning: Integrating India's economy with the global economy. (The opposite of the "inward-looking" model).
- Actions:
- **Allowing Foreign Direct Investment (FDI):** Foreign companies were now encouraged to invest and set up factories in India.
- **Reducing Tariffs:** Import taxes were slashed, allowing foreign goods to enter India and compete with domestic goods.
Outcomes of Neo-liberalism:
- Successes: Led to a high-growth phase (6-8% per year). A new middle class emerged, and consumer goods (cars, phones) became widely available. India became a global hub for IT and services.
- Failures/Criticisms: Led to a sharp rise in *inequality*. Critics argue it led to "jobless growth," favored big corporations, and hurt farmers and the poor.
4. Comparison: Planned Development vs. Neo-liberalism
| Feature | Planned Development (1947-1991) | Neo-liberalism (1991-Present) |
|---|---|---|
| Core Ideology | Socialism, State-led | Capitalism, Market-led |
| Role of State | "Commanding Heights" - Controller, Producer | "Minimal State" - Facilitator, Regulator |
| Key Tool | Planning Commission, Five-Year Plans | LPG (Liberalization, Privatization, Globalization) |
| Trade Policy | Inward-Looking (Import Substitution) | Outward-Looking (Globalization, Exports) |
| Key Slogan | "Self-Reliance" | "Global Competitiveness" |
| Main Problem | Inefficiency, Slow Growth, "License Raj" | Inequality, "Jobless Growth," Farmer distress |
5. Exam Corner: Key Concepts & Turning Points
Common Exam Questions:
- "Critically evaluate the 'planned development' strategy adopted by India after independence."
- "What is neo-liberalism? Discuss the main features of the New Economic Reforms of 1991."
- "Compare and contrast the development strategies of the pre-1991 and post-1991 eras in India."
How to Answer:
- Use the "Two Phases":** Your answer *must* be structured around the 1991 turning point. Show the "before" (Planning Commission) and the "after" (LPG).
- For "Planned Development":** You must mention the **Planning Commission**, **Five-Year Plans**, the **"Mixed Economy"** model, and the **"License-Permit Raj."**
- For "Neo-liberalism":** You must use the acronym **LPG** and explain what each letter (Liberalization, Privatization, Globalization) means with one or two examples.
- Be "Critical":** A "critically evaluate" question means you must show both *positives* and *negatives* for each model (as listed in the "Outcomes" sections above).