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Why Nehruvian planning failed in the long term

India’s Five Year Plans were an ambitious effort. A new book examines how this shaped the nature of our democracy

The Planning Commission has been replaced by Niti Aayog.
The Planning Commission has been replaced by Niti Aayog. (Mint)

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Early Indian liberal nationalists such as Dadabhai Naoroji, Romesh Chunder Dutt and Kashinath Trimbak Telang used the power of numbers to undermine the legitimacy of British rule in the second half of the 19th century. They took the data collected by the colonial bureaucracy to attack the very system those numbers were meant to sustain, turning the tables in the process. The Cambridge University historian Christopher Bayly has described their imaginative act of defiance as statistical liberalism.

Nikhil Menon, a historian at the University of Notre Dame, US, has written an engaging book, Planning Democracy: How A Professor, An Institute, And An Idea Shaped India, with welcome flashes of wit, on what can similarly be described as statistical nationalism. It is an extraordinary story of democratic leaders, technocratic planners, and even Hindu holy men, during the high noon of Nehruvian planning, with its dream of rapid industrialisation led by the state. The scope of the book is far wider than the technical tangles of planning models. The very title of the book speaks of planning for democracy rather than planning for development.

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National planning was in the air when India became an independent nation, with leaders as diverse as Jawaharlal Nehru, B.R. Ambedkar, Subhas Chandra Bose, V.D. Savarkar and M. Visvesvaraya broadly agreeing that the state should have an important role to play in industrialisation. Even the major Indian business houses jumped on to the bandwagon with their own plan for rapid economic development. Nehru saw better than most that any planning would need to be built on the bedrock of statistics. You cannot set numerical targets for something you have not counted.

P.C. Mahalanobis made this possible by setting up the Indian statistical system, which included the Central Statistical Organisation, the National Sample Survey Organisation and the Indian Statistical Institute. His team pioneered large household surveys that were a model for other countries. The Indian statistical system was at one time among the best in the world, though it has been weakened by successive governments in recent years. Planning also involved computation. Mahalanobis was at the forefront of the quest to get computers into India in the 1950s. So was Homi J. Bhabha. The atomic scientists competed with the economic planners for access to computers.

A contemporary described Mahalanobis as a physicist by training, a statistician by instinct and a planner by conviction. However, he was not an economist. Menon shows how Mahalanobis had a low opinion of Indian economists, while seeking acceptance from their foreign peers. He reached out to some of the best economists in the world and was happy when they agreed with him, though as Menon writes: “The irony … was that the world’s foremost expert on sample design wasn’t perturbed by the possibility of this sample being contaminated by selection bias.” In other words, Mahalanobis met foreign economists who were already excited by the possibilities of Indian planning.

To be fair, the planning unit of the Indian Statistical Institute housed in Delhi nurtured a set of brilliant young economists, such as T.N. Srinivasan, Jagdish Bhagwati, Amartya Sen, Suresh Tendulkar and B.S. Minhas. Each of them would rise to great heights in their profession, and later support the economic reforms that the duo of P.V. Narasimha Rao and Manmohan Singh introduced in 1991. The work done by some of these economists in 1964, under the overall guidance of Pitambar Pant, on a guaranteed minimum income for all Indians, decades before the idea became popular, is just one example of their brilliance.


Nikhil Menon, author of ‘Planning Democracy— How a Professor, An Institute, And An Idea Shaped India’, Penguin Viking, 360 pages,  <span class='webrupee'>₹</span>799.
Nikhil Menon, author of ‘Planning Democracy— How a Professor, An Institute, And An Idea Shaped India’, Penguin Viking, 360 pages, 799.

John Matthai resigned as finance minister in 1950. He complained that the proposed Planning Commission would undermine the cabinet system in a parliamentary democracy. He was succeeded by C.D. Deshmukh, who was more sympathetic towards Mahalanobis, and had built the research team at the Reserve Bank of India while also being president of the Indian Statistical Institute since 1945. However, other finance ministers, such as T.T. Krishnamachari and Morarji Desai, tried to regain control of economic policy whenever the plan of the day got into trouble, with the first crisis hitting India just a year after the overambitious second Five Year Plan guided by Mahalanobis was rolled out in 1956.

If the Planning Commission undercut the power of the finance ministry, then it in turn found its territory restricted by the Indian Statistical Institute in Kolkata, outside the apparatus of the Indian state, and under the control of Mahalanobis, who became a formal member of the Planning Commission only in 1960. Menon frames it as a tussle of technocracy against democracy (in his history of the Planning Commission, economist H.K. Paranjape writes that it was only in 1963 that the Planning Commission got a professional economist as a full member, when V.K.R.V. Rao joined the organisation).

Nehruvian planning initially succeeded in building a diversified industrial base that could help India maintain its strategic autonomy in the worst years of the Cold War. However, it failed in the long term, as countries in East Asia grew rapidly after 1965, while Indian industrialisation got mired in controls. The deepening of democracy after the 1960s, in terms of the growing political voice of the rural elite, the rising power of state governments, and the subsequent battle for limited fiscal resources, may also have undermined centralised planning. Menon does not pay adequate attention to this dynamic.

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There were two technical flaws in Indian planning. First, the focus on physical planning meant that the role of prices in allocating resources was ignored. How much coal, steel, machines, consumer goods were to be produced was decided by the planners rather than by companies who were close to the consumer. The British economist Peter Bauer had once described Indian planning as “priceless”, a witty play on words. Second, the mathematical challenge of building planning models for a complex economy with millions of products, farms, factories, transport vehicles, retail chains and consumers was, and is, beyond the power of even the best computers of the day. Francis Spufford has illustrated this in Red Plenty, his very clever novel on the failure of Soviet planning.

There was a latent tension between the quest to build a new democracy based on universal adult franchise while at the same time deciding its economic trajectory from a building in Delhi. Menon brilliantly explores the chasm. Nehru energetically promoted the idea of democratic planning through an outreach to citizens. Government propaganda was unleashed. Government insiders were not spared either. Menon recounts a delectable episode: The cabinet secretary was asked to read out the entire text of the first Five Year Plan to a ministerial assembly, and this over three days. It is no surprise that many dozed off.

The power of religious belief was used to popularise the plans. One early mass campaign was at the 1954 Kumbh Mela in Prayagraj. The Bharat Sadhu Samaj entered the fray as well, with Gulzarilal Nanda leading the alliance of yogis and commissars. The modernist Nehru had an uneasy relationship with the alliance but blessed it nevertheless. Citizen volunteers were roped in through the Bharat Sewak Samaj, and volunteers assembled in Bihar to tame the Kosi river through shramdan, but only after priests chanted Vedic hymns to begin the proceedings.

Democratic planning was also promoted through culture. Hindi film stars spread the message, in their films as well as outside the theatres. The title song of the film Hum Hindustani perfectly captured the Nehruvian zeitgeist. One of the main characters in Jhoota Sach, the two-volume novel by the Hindi writer Yashpal, a former member of Bhagat Singh’s Hindustan Socialist Republican Association, is an economist who works as an adviser to the Planning Commission. College students were encouraged to set up planning forums, and I now belatedly know why the economics club at my college was called the Planning Forum.

The overarching ambition of Indian planning should be seen in the context of a country regaining its political independence after several centuries of foreign rule and economic stagnation. The failures of Indian planning became evident after the Third Plan. Lal Bahadur Shastri cut the influence of the Planning Commission. The first Administrative Reforms Commission was scathing in its 1967 report. Indira Gandhi was more sympathetic but Minhas quit in 1973 because he felt the Fifth Plan was unrealistically large. Rajiv Gandhi dismissed the Planning Commission as a bunch of jokers. The economic reforms of 1991 made the private sector the main vehicle of investments in the economy. The Planning Commission tried to reinvent itself but the die was cast. Narendra Modi finally buried it in 2014.

The Planning Commission is dead but the revival of industrial policy in India as well as the challenges of the necessary transition to a green economy will increase the role of government as a guiding hand in the economy, if not as the main vehicle of actual investments, as it was during the Nehruvian high noon. A credible statistical system will become even more important in this new age of omnipresent data needs from the government, the private sector and the financial markets. To borrow a phrase from an editorial written in Mint in May 2017, the house that Mahalanobis built needs to be repaired.

Niranjan Rajadhyaksha is CEO and senior fellow at Artha India Research Advisors, and a member of the academic advisory board of the Meghnad Desai Academy of Economics.

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