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A plan with empty pockets

How the ambitious Second Five-Year Plan was scuttled before it began.

Written by Inder Malhotra |
March 14, 2011 12:15:30 am

Almost immediately after the commencement of the Constitution on January 26,1950,Jawaharlal Nehru set up this country’s Planning Commission,with himself as its chairman. His finance minister,John Matthai,resigned in protest while some others complained that the prime minister was “imposing” on the country centralised planning with emphasis on the public sector. Nothing could have been farther from the truth.

For,way back in 1938,the Indian National Congress had appointed a national planning committee — with Nehru as chairman and politicians,economists,scientists and industrialists as members — that fully endorsed the concept of planning in India after Independence as an instrument for increasing production as well as improving the people’s standard of living. More strikingly,the “Bombay Plan”,formulated by leading industrialists of the day — such as J.R.D. Tata and G.D. Birla — on its own had conceded that in independent India,the state had to both “intervene in and control the economy” in the nation’s best interest.

In any case,by 1951 the doctrine of the state controlling the “commanding heights of the economy” had found wide acceptance in Labour-governed Britain,this country’s role model at that time. The country and the Congress were also agreed that reducing social and economic inequalities was as important an objective as development.

Perhaps inevitably,the first Five-Year Plan turned out to be a hurried compilation of schemes,such as the Bhakra-Nangal Dam in Punjab,that were already on the anvil. However,by common consent it was decided to give priority to agriculture,which had been damaged the most by Partition. Even so,many felt that the plan lacked both “vision” and “ambition”. Nehru resolved therefore to see to it that the Second Plan would have both these attributes.

The architect of the second Five-Year Plan was Prasanta Chandra Mahalanobis,an eminent physicist and statistician who had founded the famous Indian Statistical Institute in Calcutta (now Kolkata). He had wide interests,and was a leftist to boot — in short,a man after the prime minister’s heart. No wonder he had quite a few jealous rivals,too. When assigned the task of framing the Second Plan,he buckled down with his customary diligence.

The Mahalanobis Plan,as some called it,was both innovative and inspiring. Rejecting the traditional mode of planning — allocating funds to various projects and judging the results by determining how much of the money was actually spent — he insisted that targets should be physical,so that their achievement or lack of it should be manifest. Another major feature of the Plan was a pronounced emphasis on basic and heavy industry for rapidly industrialising and modernising the country. This envisaged,among other things,the construction of three integrated steel plants,one each to be built by the British,the Germans and the Russians. The man who negotiated with these three countries,Steel Secretary S. Bhoothalingam,was proficient in the languages of all three. The basic doctrine of the Plan was self-reliance — a cherished legacy of the freedom struggle.

Despite the country’s preoccupation with the linguistic reorganisation of states and concomitant agitations and violence,the Second Plan had a heady start. Enthusiasm over it was heightened because the Congress had by then committed itself to a “socialistic pattern of society.”

But within a year misfortune struck. During the first half of the ’50s,this country had gone on issuing import licenses recklessly,unmindful of the huge drain on its scanty foreign exchange reserves. In a sense,the rude awakening was purely fortuitous. C.D. Deshmukh,finance minister from 1950 onwards,resigned in 1956 over the future of Bombay City,now called Mumbai. His successor,T.T. Krishnamachari,generally called TTK,was commerce minister till then. The first thing he encountered on arrival at the ministry of finance was the crippling foreign exchange crunch. Ironically,the profligacy of the commerce ministry during his stewardship was the culprit. He immediately wielded the chopper and drastically cut foreign exchange allocations. He even introduced a “P form”,to be issued by the Reserve Bank,without which no one could go abroad.

The most painful question before policymakers was that of the future of the much-trumpeted Second Plan. The high priests of high finance — with the finance ministry’s B. K. Nehru in the lead — bluntly told all concerned that there was none of the foreign exchange needed for the Plan’s ambitious schemes.

After much bickering between the spending ministries and the ministry of finance — sometimes at cabinet meetings and sometimes at those of the Planning Commission — everyone,the PM included,bowed to the inevitable. However,the consensus was that while the Plan should be pruned to the extent necessary,foreign exchange must be found for its “core” by slashing non-Plan expenditure.

This led to a battle royal over the import of Canberra bombers,which would come with a very heavy cost in foreign exchange,but which the ministry of defence considered absolutely essential. So acrimonious was an exchange between Defence Minister Krishna Menon and TTK that Nehru angrily exclaimed: “To hell with Canberras; the core of the Plan must go through.” However,subsequently Defence Secretary M.K. Vellodi,through astute and calm argument,managed to persuade the PM that the air force could not do without the Canberras.

The task of cutting the Second Plan to size was entrusted to B. K. Nehru,then economic affairs secretary,and Penderal Moon,an Englishman,one of the very few to opt to serve independent India. He was then adviser to the Planning Commission. The duo’s ruthless recommendations had to be approved by the Planning Commission. This gave a last-ditch opportunity to the aggrieved parties to make their case. Sir V.T. Krishnamachari (no relative of TTK),then vice-chairman of the Planning Commission,overruled them one by one.

These grim proceedings ended,however,on a hilarious note. At one stage B. K. Nehru chose to protest on behalf of the finance ministry that it had been treated “most unjustly”. A smiling Sir VT told him to “shut up” and respect his own recommendations.

The writer is a Delhi-based political analyst

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