Nehruvian era: planning & foreign policy
Nehru's twin legacies: state-led planning through the Mahalanobis model and Non-Alignment as the architecture of independent India's foreign policy, 1947-1964.
The institutional birth of planning
Jawaharlal Nehru, Prime Minister from 15 August 1947 until his death on 27 May 1964, built independent India's economic order on the conviction that a poor, capital-scarce nation could only industrialize through a directing state. The Planning Commission was established by a Cabinet Resolution on 15 March 1950 (not by statute or by the Constitution), an extra-constitutional advisory body chaired ex officio by the Prime Minister. It drew authority from Article 39 and the Directive Principles (Part IV), and from the Concurrent List entry on economic and social planning.
The First Five Year Plan (1951-56) was based on the Harrod-Domar growth model and prioritized agriculture and irrigation in the wake of Partition dislocation and the 1950-51 food crisis; it overshot its modest growth target of 2.1%, achieving 3.6%. The decisive turn came with the Second Plan (1956-61), drafted around the Mahalanobis model devised by statistician P. C. Mahalanobis at the Indian Statistical Institute. It privileged heavy industry and capital-goods production on the logic that machines that make machines compound growth. This vision was codified in the Industrial Policy Resolution of 1956, which created the threefold classification of industries (Schedule A reserved exclusively for the state, Schedule B mixed, Schedule C private), entrenching the 'commanding heights' doctrine and the public-sector steel plants at Bhilai, Rourkela and Durgapur built with Soviet, German and British aid respectively.
The mixed economy and its instruments
Nehru's was a mixed economy, not a command economy: private capital survived under licence. The framework rested on the Industries (Development and Regulation) Act, 1951, which introduced the industrial licensing regime later derided as the 'Licence-Permit-Quota Raj'. Import substitution, protective tariffs and a controlled exchange rate insulated domestic producers. Institutions multiplied: the Industrial Finance Corporation (1948), the Atomic Energy Commission (1948) under Homi Bhabha, the Indian Institutes of Technology beginning with Kharagpur (1951), and the temples of modern India—the Bhakra-Nangal and Hirakud dams.
The results were mixed. Industrial output and the savings rate rose, and an indigenous scientific-technical base emerged. But agriculture was neglected, foodgrain imports under the US PL-480 programme grew, and the so-called Hindu rate of growth (a phrase coined by Raj Krishna) of roughly 3.5% persisted. The Third Plan (1961-66) collapsed under the twin shocks of the 1962 war with China and the 1965 war with Pakistan, forcing three annual 'Plan holidays' (1966-69). These structural rigidities—capital-intensive growth that generated little employment, and food dependence—set the stage for the Green Revolution and, ultimately, the 1991 reckoning.