Nehru Era of Indian Economy

"But for him, India would have felt much less the winds of change that had been blowing over the world; he made us aware of them and also more receptive. Yet he failed his people in so far as he could not adequately execute the great mandate he had from them because he just was not relentless enough. He was our beautiful but ineffectual angel, beating his beautiful wings largely in vain." - Hiren Mukerjee

As is well-established, the guiding political philosophy of Nehru was Fabian Socialism, which envisaged a very significant role for the state in economic policy. There were different views and healthy debates about how active the State ought to be in the process of economic development. The debate notwithstanding, the economic policy, articulated immediately after Independence, hardly represented a radically new policy direction - it was more of an evolutionary step in a policy of Central Government participation in economic activity.

The Five Year Plan was essentially a programme of public expenditures that reflected the priorities of the time. The Second Plan (1956-60) reflected Nehru's vision of planned economic development and Fabian Socialism. "Socialist pattern of society" was the key objective of social and economic policy. The Third Plan (1961-1965) reflected the disconnect between "targets and performance, requirements and resources" and between the goal of rapid industrialization on the one hand and the gradual pace of agrarian reforms (especially land reforms) on the other.

Industrial development on an ambitious scale, especially, basic and heavy industries. As the private sector was not deemed to be in a position to cope with the envisioned scale of infrastructural build-out, a strong pro-public sector policy bias emerged. Moreover, compared to previous years, there was a definite shift in favour of Central (as distinct from state or local) Government control and regulation over industry. The notion of reserving the so called "commanding heights" of the economy for the Central Government thus took hold and so did the regime of industrial licensing begin to take shape.

In any event, the Second Plan was nearly aborted when the foreign exchange crisis engulfed the country in 1957 and forced a severe cut back in the public expenditure programme envisioned under the Plan. This ushered in the cumbersome machinery of foreign exchange controls that survived for several decades after. It should be noted that foreign exchange controls were not the result of ideology - they were born out of necessity as a pragmatic response of the bureaucracy to a crisis, which itself was induced in part by a liberal import regime intended to spur the domestic economy.

The public policy of the Nehru era had set in motion a more or less stagnant colonial economy, though at a 'hindu rate of growth' of 2.5 percent. A proliferating bureaucracy,