Development Planning & Policies under Mahalanobis Strategy: A Tale of India’s Dilemma
Keywords:Dutch Disease, Contagion, Speculative Attack
AbstractThe designer of India’s Second Five Year Plan (1956-61) was Professor Prasanta Chandra Mahalanobis, who had adopted the simple two sector model of Soviet Planning of Feldman type. He gave top priority to investment goods, as they were crucial for further economic growth of India. The disadvantage of this strategy was capital deepening, that is, the commitment of large amounts of capital to heavy industry, which would yield low returns. At the same time this investment would generate buying power, which could not absorbed due to neglect of consumption goods, and this could lead to inflation. Mahalanobis also designed a four sector model. This time also, he retained the emphasis on investment goods, but divided the other sector into three sub-sectors: (a) industry; (b) agriculture and cottage industry and (c) services, education and health etc. Only one third of the total investment should go to the three sub-sectors as mentioned above. Cottage industry, in particular, was singled out as a major potential producer of consumption goods. The fact that cottage industry required little capital and was labour intensive was highlighted. Of course, for this very reason one could not expect a great deal of savings from cottage industry, which would be required for future economic growth. Heavy industry in the public sector was considered to be the major item once more, as it was the very symbol of economic independence and was thought to be crucial for the maintenance of political independence. In the above backdrop the present paper gives a short review of Mahalanobis strategy of development planning in the context of the then India’s dilemma: dynamic industrialization and static agriculture.
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