The Formulation Of A Development Strategy

The Formulation Of A Development Strategy

The Formulation Of A Development Strategy

The Formulation Of A Development Strategy

         The Formulation Of A Development Strategy                                      In the previous Unit you studied the process of planning in India You have learnt that for each Plan there certain stated objectives. certain desired rate of growth of the national income, and the required investment for realizing this growth. Formulation Of A Development Strategy
                    The basic strategy of development adopted in India the following. Ever since Independence, a rapid rise in national income and in the standard of living the stated goal of development. Even for removal of poverty it was felt that the economy has to display high rates of growth. Redistribution of existing wealth was not thought entire feasible; it was also thought that there would not be much to redistribute. So faith placed on the growth process. However, growth, though necessary, was by no means sufficient to transform the economy and also to uphold the ideals of the Constitution. Thus, social justice became an added and enduring objective. Along with this, because India just emerged from colonial rule, there was a mistrust of the international economy, and faith placed on self reliance. By the Second Five Year Plan, self-reliance took the form of import-substitution. Later, in the Fourth Five Year Plan, self-reliance came to seen as less and less reliance on foreign investment. Thus, growth with social justice and self-reliance defined in the before-mentioned sense, remained the central and enduring objectives of development for a long time.
                    We discussed in detail about planning in Unit 18 of this course. Even before Independence, national leaders convinced abed the efficacy of planning for a poor country such as India The National Planning Committee appointed by the Indian National Congress and headed by Jawharlal Nehru submitted its report in 1938. The Committee felt that India had to industrialize. The three essentials for this were thought to be i) heavy engineering and machine-making industry, ii) scientific research institutes, and iii) electric power. The committee was of the view that even with international interdependence among nations, and even allowing for cottage and small-scale industries, to be economical strong, India industrialized in tern of big-scale industries and develop its power sector.  
                     National leaders, special Left-wing ones like Nehru and Subhas Bose were not the only proponents of planning. As early as 1934, noted industrialist Sir M. Visveswaraya wrote his book Planned Economy for India. He argued that for India to prosper, industrialisation is a must. And to industrialise rapid, the process organised and planned. Similar, the so called Bombay Plan (1944) by a group of industrialists also emphasized industrialisation. After Independence, first the Congress party in 1953, and then the Parliament in 1954 accepted socialistic pattern of society as the objective of economic and social policy. Thinkers on development emphasized industrialisation as the basic growth strategy because they had learnt of the experience of Europe and USA which had gone through industrial revolution. This  transformed their economies and raised their national incomes and the standard of living of their people several-fold. It marked the beginning of a new epoch of modem economic growth as economist Simon Kuznets put it. The industrial revolution was made possible by the application of science and technology and inventions like steam engine, power-loom, and modem harvester-thresher and so on. Later on the Soviet Union also industrialized as a socialist nation, with the commanding heights of the economy -the heavy industry, power and infrastructure-under state control. Moreover, the USSR had also become a military power. The USSR transformed its economy in a matter of decades. All this impressed the Indian leaders.
                     Soon after Independence, the first Resolution on Industrial Policy, in April 1948, stressed the importance of planning for the economy and expressed the desire that a National Planning Commission be set up for the formulation and execution of development programmes. The Planning Commission was set up in 1950.
                     The First Five Year Plan was a basic collection of projects, did not have much physical targeting and mere sought to indicate directions of planning. The main contours of almost all future strategy till 1991, as well as giving the basic structure and also the thrust of economic strategy emerged with the second Five Year Plan.
                    The Second Five Year Plan, launched in 1956-57, was part of a general strategy of development, and accompanied by other policy measures. The framework of the Second Five-Year Plan, with minor modifications, remained the mainstay of all future plans and policies till the beginning of the 1990’s. What were the main characteristics and features of the Second Five-Year Plan? Although you would have read about this in detail in the previous unit, at the cost of some repetition, let us set out its salient features.
                    As mentioned in the previous unit, the architect of the Second Five Year Plan was P. C. Mahalanobis. The central idea behind the Second Five Year Plan was that to raise the standard of living of the people, the economy needed to grow fast. And for the economy to grow  fast, the planners felt that industrialisation was the key. Industrialization meant that plants and machinery had to be set up which produce output. The Second Five Year Plan stressed the production of those machines that produce other machines as output. These industries where machines produce other machines and equipment called heavy industry. Thus the basic idea was that the productive capacity of the economy itself had to increase. Consumer goods, being goods that used up for consumption, .do not increase productive capacity. So the argument was that while those machines that produce cars or shirts or watches are important, even more important are the machines that would produce the machines that would produce cars or shirts or watches. Heavy industry was thus the central features of the Second Plan.
                    The other key idea in the Second Plan was the desire to conserve foreign exchange, as well as to put into operation the idea that imports of machinery and equipment from abroad curtailed. This strategy where imports substituted by domestic produced version of the same called import substitution strategy. No doubt, this prompted by the experience of India as a colonized nation and subsequent mistrust of foreign trade. Foreign trade not seen as an engine of growth, it was actually thought that developing nations and their domestic industries adverse affected by foreign trade.
                    Since the planners relied on heavy industry and infrastructure like power and electricity, for which hydroelectric and thermal power plants and dams were set up- Nehru call dams the temples of modern India, it recognized that huge investments required. The policymakers felt that the private sector neither willing nor able to make these huge investments. Hence these heavy industries, infrastructure like power, and areas of strategic interests like Defense production the commanding heights of the economy were kept with the Public sector.
                     We see that heavy in dust, import substitution and placing of key industries with the public sector were the key features of the Second Five Year Plan. But it is not true that the Second Five Year Plan completely neglected other sectors of the economy. In the 1950’s itself important institutions for rural development like the Community Development Programme and Panchayati Raj started: A handloom sector and Khadi and Village Industries Commission were set up and encouraged. Also the Planning Commission undertook a study to look at the minimum requirements to raise the standards of living of the poorer sections over the subsequent 15 years, The Second Plan often criticized on the ground that it pursued a strategy that focused on growth while neglecting distribution and not adequate attacking poverty.
                    There no alternative to the Mahalanobis model of growth as spelled out above? Two economists C.N. Vakil and P.R. Bramananda did not think so. They propounded a plan model about the same time as Mahalanobis. In their model they stressed production of agricultural products and those goods consumed by the poorer sections of the society. These goods, bought by wages called wage-goods. Formulation Of A Development Strategy
                  Some Policy Instrument for Regulation and Control
In the previous Section, we apprised you of the broad strategy of planning. Planning of the nation resources was the basic strategy adopted to steer the economy on a desired path towards development. In this Section, we discuss some specific instruments used by the government to realize its objectives. In addition to the presence of a large public sector in industry, the government had an elaborate system of regulation and control for the private sector through promulgation of many Acts. Industries in the private sector regulated by the provisions of the industries (Regulation and Development) Act, 1951. Second, to prevent the growth of private monopolies and the concentration of economic power, the government enacted the Monopolies and Restrictive Trade Practices Act in 1969. Third, in order to regulate the import of inputs and final goods, the Foreign Exchange Regulation Act (FERA) enacted in 1973. Government regulations were not only for industry, but also for agriculture, finance and foreign trade sectors. Let us now consider some of these regulations. The Formulation Of A Development Strategy
                    The government kept with itself key infrastructure, core and heavy industries. For private industry, an entrepreneur had to obtain a license to invest, or expand capacity, or change output mix, or relocate his industry. In the external sector, there was the exchange control system under which exporters had to surrender export earnings to the Reserve Bank of India at the official exchange rate and take earnings in domestic currency. There import licensing under which a firm had to obtain permission to import raw materials or capital inputs or consumer goods. The Formulation Of A Development Strategy
                    For the capital markets (markets for financial assets like equity shares and debentures), if a company wanted to float shares or borrow funds by offering debt instruments, there was capital issues control under which access to debt and equity markets regulated. Other than this, there was price control on several consumption goods and key inputs such as coal, iron, petroleum, etc. The Formulation Of A Development Strategy
                     There were several types of control that were put in place: industrial licensing system; exchange control system; import licensing; capital issues control; price controls; and other measures and controls for priority sectors. After nationalization, banks  subjected to directed and selective credit controls, controls on deposit and lending rates, and many types of reserve requirements. The Formulation Of A Development Strategy
                    These controls were discretionary, than rule-based and regular. Allocation was main in the form of quantity restrictions than price or market based. Moreover, these controls were anticipatory than used for punishing for noncompliance. Many of these controls worked at cross-purposes and tended to compound delays and inefficiencies. Most of these controls, moreover, did not fulfill the objectives for which they implemented. they implemented.

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