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'A Mighty Adventure': Institutionalising the Idea of Planning in Post-Colonial India,
1947-60
Author(s): Medha Kudaisya
Source: Modern Asian Studies , Jul., 2009, Vol. 43, No. 4 (Jul., 2009), pp. 939-978
Published by: Cambridge University Press
Stable URL: https://www.jstor.org/stable/40284916
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Modern Asian Studies 43, 4 (2009) pp. 939-978. © 2008 Cambridge University Press
doi: 10.101 7/S0026749X07003460 First published online 9 October 2008
CA Mighty Adventure': Institutionalising the

Idea of Planning in Post-colonial India,
1 9 4 7- 60
MEDHA KUDAISYA
National University of Singapore

Email: hiskmm@nus.edu.sg
Abstract
This essay examines the Indias' political leadership's romantic engagement with
the idea of developmental planning in post-colonial India between 1947 and
i960. It looks at the experience of planning in India between 1947 and i960. It
explores some of the early ideas about developmental planning and the setting
up of the Planning Commission in March 1950. Although there was widespread
acceptance of the need for planning there was little consensus on the kind of
planning that was required, or how it should be carried out. This essay examines
attempts, which were made to institutionalise the planning idea. It looks at the
heady ascent of the Planning Commission as the pre-eminent economic decision-
making body in Independent India and the debates and contentions that took
place in the early years of its formation. It argues that the 1956 foreign exchange
crisis marked a climactic moment for planning. Thereafter, as far as economic
decision-making was concerned, the locus of power shifted from the Planning
Commission to other governmental agencies and the developmental planning
process itself came to be over-shadowed by pragmatic economic management
pursued by official agencies. Thus, in overall terms, developmental planning
failed to establish strong institutional foundations in independent India and, in
all this, the experience of the 1950s was formative.
Introduction
'The more we thought about this planning business, the vaster it grew in its sweep and
rage till it seemed to embrace almost every activity
upon me
1956, p. 402)
This essay seeks to unravel the chequered histories of developmental

planning in post-colonial India. It argues that the Indian political
leadership's romance with developmental planning lasted merely 10
939

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94O MEDHA KUDAISYA
years and that the attempts to institutio

within a decade of Independence. By th
over planning had largely evaporated am
circles, even though the formal structu
This was ironical given how central plann
and institutional aspects of nation-bu
'developmentalist' impulse, were perhaps
d'etre of the new post-colonial state and hig
leaders anxious to build legitimacy. Thro
the leadership intended to accomplish wh
colonial state for not being able to do
benefits of material progress through sc
equitably among all citizens. Planning th
Partha Chatterjee points out, it also transpl
national priorities from the politicians to
could project itself as a technical, non-p
instrument working towards a modern, ind
in exercising state power, insulated from t
It is well known that in the 1930s and
had captured the imagination of the I
An avid advocate of the 'scientific outlo
his presidential address to the Indian N
brought institutional attention and urge
India's economic problems.2 Following th
set up a 'National Planning Committee' to
India would be reconstructed.3 The fascin
1 1 Partha Chatterjee, The Nation and Its Fragments:

(Princeton: Princeton University Press, 1999), pp.
Another Reason: Science and the Imagination of Mode
Press, 2000), Chapter 6.
1 The Presidential Address' in S. Gopal (éd.) Jawaha
(First Series) (Delhi: Orient Longman, 1975), pp. 1
3 This important body included Nehru, Sir V
Thakurdas, A.D. Shroff, Ambalal Sarabhai, K.T. Sh
As Nehru put it, 'Hard-headed Big Business was t
called idealistic and doctrinaire and socialists and nea
Planning Committee, seej. Nehru, Discovery of Indi
p. 401. Also see Jagdish N Sinha, 'Technology fo
National Planning Committee, 1938-49' in Roy M
Technology and the Raj: Western Technology and Tec
(Delhi: Sage Publications, 1995), pp. 250-264 and
Debates on Planning' in Terence J Byres, The Indi
Independence (Delhi: Oxford University Press, 1998)

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PLANNING IN POST-COLONIAL INDIA 941
in the penultimate decade of India's anti-colonial strugg

political leadership increasingly contemplated the future
saw three major plan blueprints - the 'Bombay Plan', pi
several leading industrialists, visualised planning as an aid to
development; the 'People's Plan' authored by M. N. Roy
Leftist vision; and the 'Gandhian Plan,' put forth by Shrima
visualized a self-sufficient village economy.4 The 1940s
decade in which economic deprivation, food paucity and
Bengal Famine' (which claimed several million lives) inten
awareness of the need for developmental planning. The w
ience demonstrated what could be achieved if the state undertook
the mobilization of resources; it engendered faith in governmental
intervention in economic life.5 The leadership perceived economic
planning as the means to overcome deficiencies of the market-price
system and enlist public support to realize national objectives.
The international context also promoted a favourable view of
planning. Labour's 1 945 victory in Britain, the passing of Employment
Acts in the UK and the USA and the Beveridge Report on Full
Employment in a Free Society (1945) reinforced the idea that state
intervention was imperative for economic reconstruction.6 The setting
up of multi-lateral economic institutions such as the International
Monetary Fund (IMF) and the World Bank, to lay down the rules of
the post-war global economic architecture, also convinced India's new
leaders that they needed to create institutions to plan the economy.
Thus, by the time India gained independence in 1 947, 'planning' had
become a buzzword. 'Planning was in the air', recalled Tarlok Singh,
the longest serving member of the Planning Commission, sometimes
called 'India's Mr Planning'.7 Such zeal led the political leadership to
4 For a general background to ideas of development, see B. Zachariah, Developing

India: An Intellectual and Social History (Delhi: Oxford University Press, 2005). On the
ideas of big business, see Medha Kudaisya, The Life and Times of G D Birla (Delhi:
Oxford University Press, 2003).
5 In 1944, the Government of India set up the Department of Planning and
Development to look into post-war economic reconstruction. Provincial governments
also began to prepare post-war 'development' schemes. In 1946, the Interim
Government, headed by Nehru, appointed a high-powered Advisory Board on
Planning, which recommended the establishment of a planning body.
b As I.G. Patel, economist and civil servant who played an important role from the
1950s till the 1980s in various capacities within the Government of India, recalls: 'It
was not Soviet Communism but American Liberalism and British Labour which were
the foundation stones of our views on economic policy.' I.G. Patel, Glimpses of Indian
Economic Policy: An Insider's View (Delhi: Oxford University Press, 2002), p. 17.
7 Interview with the late Mr Tarlok Singh, New Dehi, November 2005.

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942 MEDHA KUDAISYA
institutionalise the idea of planning, the m

which was the setting up of the Nationa
by the Government of India in March 1
managing the economy through processes o
represented a systematic attempt at n
uplifting large sections of the populace
industrializing an agrarian society and, fur
occupied its place of pride as a front-ranki
looked upon this endeavour in developme
pilgrimage' and a 'mighty adventure' up
embarked.8
Yet, in retrospect, it was ironical that in less than a decade of the
PC's formation, the euphoria about planning had largely evaporated
from Indian policy-making circles. By the late 1950s, policy-makers
and economists were raising concerns about the failure of the Indian
planning experience. The signs accentuated and, by the mid-1960s,
there was open talk of a crisis. In 1966, when economists Paul Streeton
and Michael Lipton brought together academicians and policy
practitioners at the University of Sussex for a conference to evaluate
the outcomes of planning, they appropriately entitled the publication
which resulted from the proceedings, The Crisis of Indian Planning?
This essay attempts to make sense of this paradoxical experience
of the first decade of Indian planning. It looks at attempts to
institutionalise the idea of planning through the setting up of the
PC in 1950 and the overall experience of its functioning till the early
1960s.10 The commonly held view of India's post-colonial economic
8 In a letter to chief ministers on 3 March 1953, Nehru said: 'More and more
it is being realized in other parts of the world that we in India are engaged in a
mighty adventure. To build up this country and to solve the problems of poverty and
unemployment in a democratic way on this scale is something that has not been done
anywhere.' See Letters to Chief Ministers, 3 March 1953 in G. Parthasarathi (éd.),
Letters to Chief Ministers, vol. 3, 1952-45 (New Delhi: Jawaharlal Nehru Memorial
Fund, 1987), p. 252. On Nehru's deep involvement with the PC, see Tarlok Singh,
'Jawaharlal Nehru and the five year plans', Yojana, 7 June 1964, pp. 5-9.
9 Paul Streeton and Michael Lipton (éd.), The Crisis of Indian Planning: Economic
Planning in the 1960s (London: Oxford University Press, 1968). A number of writings
drew attention to the 'crisis' such as John P. Lewis, Quiet Crisis in India. Economic
Development and American Policy (Washington DC: The Brookings Institution, 1962).
10 Although there is some interesting literature on planning, there have been few
studies of the institutionalisation of planning other than the pioneering work of
A.H. Hansen, The Process of Planning: A study of India's Five Year Plan, 1950-64 (London:
Oxford University Press, i960). Prabhat Patnaik has looked at the contradictions
inherent in the official view which propounded a socialist rhetoric with its vision of

3.6.55.203 on Tue, 10 Nov 2020 03:01 Jan 1976 12:34:56 UTC
experience is that it embarked on a seamless process of eco

development through planning, which continued till 1991,
there was a paradigm shift. This conventional view holds t
Nehruvian era (1947-64) unfolded a 'grand design', inaugura
policy framework resting upon public ownership of industr
controls over key production sectors, a strategy of growth b
import substitution and a regulated foreign investment regi
'Mahalanobis model', launched during the Second Five-Ye
(1956), provided vital 'building blocks of the grand design'
also believed that this framework was influenced by the 'Soviet
command economy model', emphasizing fostering of heavy indu
neglect of foreign trade and reliance on small-scale indust
agriculture for consumer goods production. The late 1950s an
1960s are then seen as the 'high water-mark of Indian plan
with the most complete and exacting dominance of the econ
the state-led planning process'.11 The dominant view is that
the public sector as permanent but which did not take up land distribution
See his 'Some Indian Debates on Planning' in Terence J Byres, The Indian
Major Debates Since Independence (Delhi: Oxford University Press, 1998), pp
A.K. Bagchi has looked at the discourse of planning and how it is heavily im
in the statist paradigm. He analyses the assumption that the state is the au
active agent which impinges upon passive society and galvanises it into app
responses as desired by planners. He examines the shift from this to the
paradigm, based on an equally simplistic model, of the free market tha
powerful state has been the progenitor of unproductive activities. Here
shows how the state is seen as a structure unconnected with society. There
been much discussion on the role and experiences of the two sectors of agr
and industry in the planning process and on the rationale for the adopti
import substituting industrialisation policy and nature of the import contro
and its impact. A. K. Bagchi in Terence J. Byres, The Indian Economy: Majo
Since Independence . For a general outline of the story of planning see A. Vaidy
'Planning in India: Retrospect and prospects' in Deepak Nayyar (éd.), Econ
Ideology and Development: Essays in Honour ofAshok Mitra (London: Frank C
pp. 187-201. The dominant features of the planning strategy have also been
by Baldev R. Nayar in his Globalistaion and Nationalism: The Changing Balance i
Economic Policy, 1950-2000 (Delhi: Sage Publications, 2001).
1 1 B.R. Tomlinson argues that 'between 1 939 and 1 970 a particular type of
emerged in India in which official planning and government economic man
played a crucial role'. Tomlinson, B.R., The Economy of Modern India, 1
(Cambridge: Cambridge University Press, 1993), pp. 177-78 and p. 212.
V.N. Balasubramanyam, Conversations with Indian Economists (Basingstoke: St.
Press, 2001), Introduction. Other writings with similar views include Gurch
India Unbound: From Independence to the Global Information Age (Delhi: Pengu
esp. Chapter 7, Shyam J. Kamath, 'The failure of development planning in
Peter J. Boettke (éd.), The Collapse of Development Planning (New York: N
University Press, 1994), pp. 90-147 and Ajit K. Dasgupta, A History of

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944 MEDHA KUDAISYA
a brief interregnum, the ideology of self

vengeance and remained largely intact t
younger generation of leaders took the f
'reforming' the economy. Though there
lately, this overall view of the post-colonia
continues to be influential.12
This essay seeks to counter this view of In
economy by suggesting that the Indian e
one, as has been depicted in the litera
discontinuities as well as the continuous pro
the least, by moments of real economic cri
1950s, the idea of planning had passed its p
held the sway in economic decision-making
the corridors of the Ministry of Finance. T
by debate and acrimonious contention: d
plans and contention on who would contr
decision-making. There was growing cont
the one hand and the Ministries of Finance and of Commerce and
Industry, on the other. In this conflict of jurisdictions, erupted the
foreign exchange crisis of 1956, which decisively shifted the balance
of institutional power, after which the Ministry of Finance increasingly
came to exercise its dominance. Although the formalities of planning
continued, with the PC preparing its five-year plan documents, it was
the financial planning executed by the Ministry of Finance that largely
determined the outcomes. What remained of planning, thereafter,
was not much more than budgeting for central and state expenditure,
although the façade of the five-year plans was kept up.
Economic Thought (London: Routledge, 1993), pp. 163-187. Recent works have made
a beginning in changing this view by highlighting the interregnum of the prime
minister-ship of Lai Bahadur Shastri as an attempt to reverse some of these inward
looking and regulatory policies. See Francine Frankel, India's Political Economy 194J-
jj The Gradual Revolution (Princeton: Princeton University Press, 1978) and Medha
Kudaisya, 'Reforms by stealth': Indian economic policy, big business and the promise
of the Shastri years, 1964-1966' in South Asia: Journal of South Asian Studies Special
Issue: Society, Realm and Nation in Colonial and Postcolonial South Asia: Essays Presented to
Professor Anthony Low, New Series, vol. XXV, No. 2 August 2002.
u There is lately been some debate on the reasons for the adoption of this strategy
and Nehru's influences and role have been reconsidered. Nehru's biographers have
challenged that he was influenced by Soviet style command economy. His ideas are
seen as more improvisatory than ideological. See Judith Brown, Nehru: A Political Life
(Delhi: Oxford University Press, 2003) and Sunil Khilnani, The Idea of India (London:
Penguin, 1997). On Nehru's ideas, also see B. Zachariah, Nehru (New York: Routledge,
2004).

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Institutional Beginnings
Let us start by looking at the PC's origins. Although there

widespread acceptance of the need for planning, there
consensus over its objectives, its methodology, or its agency. Th
personally convinced of the wisdom of planning, Nehru in h
years as prime minister was unable to unite various elements
his party and government on this issue. The political context w
that in his first three years as prime minister he had to share
in a duumvirate with his deputy Sardar Patel, a strong pro-c
right-winger. Though he was deeply committed to the idea,
surprising that the Indian Constitution, promulgated in 1950, d
provide for a planning body. Perhaps Nehru could sense tha
members of the Congress party and the Constituent Assembly
be hostile to a statutory planning body and might even opp
idea of a planned economy inherently committed to working to
a more egalitarian society. Nehru was probably also mindful
inclusion in the Constitution could impose a statutory orthodox
the working of such a body, thus hindering its operational flex
Finally, after much effort by Nehru and acrimonious debate w
Congress party circles, it was in January 1950, after having
power for three years, that the Congress Working Committee a
a resolution to create a National PC.13 Its objectives were bro
assess the country's resources, prioritise investment propos
13 Despite a number of recommendations, Nehru could not succeed in

a national-level planning body established. In 1946, the Interim Gover
recommended that an Advisory Planning body to be set up. Then, in Janua
the All India Congress Committee's Economic Programme Committee recom
that a Planning Commission be immediately established. Just three months
April 1948, the Industrial Policy Resolution which outlined the roles of the
and public sector also recommended the setting up a national planning b
1949, a number of initiatives were taken such as the appointment of an
Committee of the Cabinet and a Committee of Economists and Statisticians. Professor
Gyan Chand of the Banaras Hindu University was appointed Economic Advisor and
P.C. Mahalanobis as Statistical Adviser. Once again, at the end of 1949, Nehru
tried to push through the setting up of such a body but it was only in January
1950 that the Congress Working Committee resolved the setting up of a Planning
Commission. The original draft defining the purpose of planning as 'the progressive
elimination of a social, political and economic exploitation and inequality, the motive
of profit gain in economic activity' was modified due to opposition. Nehru did however
manage to link the work of planning with the Directive Principles of State Policy
contained in the Constitution. On this, see Stanley Kochanek, The Congress Party of India:
The Dynamics of a One-party Democracy (Princeton: Princeton University Press, 1968),
p. 139 and Francine Frankel, India's Political Economy 194J-JJ: The Gradual Revolution,

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
946 MEDHA KUDAISYA
'formulate plans' for the most effective use of resou
reconstruction.14 However, the Working Commi
parallel body, the Congress Economic Planning Comm
chairmanship of veteran Congress leader G. B. Pan
direction and draw up immediate and long-term
The multiplicity of planning bodies mirrored the rift
cabinet.16
Nehru took deep interest in the PC's composition. He called upon
CD. Deshmukh, member of the Indian Civil Service (ICS) with a
natural science Tripos from Cambridge and a law degree from the
Inner Temple as well as the first Indian governor of the Reserve
Bank, to help organize the PC.17 Gulzarilal Nanda, seasoned Congress
politician, trade union organizer and member of the Congress' Eco-
nomic Program Committee was appointed Deputy Chairman.18 Other
members were V.T. Krishnamachari, lawyer and civil servant with long
administrative experience as Dewan of Baroda and Vice-President of
pp. 84-85. On Nehru's interest in planning also see H.K. Paranjape, fawaharlal Nehru
and the Planning Commission ( Delhi: Indian Institute of Public Administration, 1064).
14 Times of India , 16 March iqko.
15 The other members of the committee were Jagjivan Ram, Gulzarilal Nanda,
N.G. Ranga and Shankarrao Deo. In less than three months, while the organisational
details of the National Planning Commission were still being worked out, the Congress
committee brought out a one-year plan in lieu of a forthcoming five-year plan. See
Times of India, 12 April 1950 and 2 May 1950.
Editorial 'Let there be one plan', Times of India, 2 May 1950.
17 CD. Deshmukh (1896-1982) was educated at Elphinstone College, Bombay and
then did a Tripos in Natural Sciences from Jesus College, Cambridge, and was at the
Inner Temple. He joined the Indian Civil Service in 1919. In 1931, he was one of the
Secretaries of the Government of India deputed to accompany Gandhi to the Round
Table Conference. In 1941, he was appointed Deputy Governor of the Reserve Bank
of India and, in 1943, he became its first Indian Governor. In 1944, he was selected to
represent India at the Bretton Woods conference. Deshmukh was a reluctant recruit
into politics. In 1946, he refused to accept the position of Finance Member in the
Viceroy's Executive Council offered to him, on the grounds that his temperament and
training were unsuited to the exigencies of political life. On Nehru's persuasion, after
John Matthai resigned, he became finance minister from 1950 till 1956. In 1969, he
contested the presidential election as a candidate of Swatantra, Jana Sangh and the
Democratic Opposition Party but lost to Zakir Hussain. After stepping down from the
political scene, he occupied a number of important positions including Chairman at
the University Grants Commission, Vice-Chancellor of Delhi University from 1962
to 1967 and President of the Indian Institute of Economic Growth between 1965 and
1Q74-
18 Nanda studied at Forman Christian College, Lahore, and then Allahabad
University where he did economics and law. He was twice member of the Bombay
presidency Legislative Assembly and Minister of Labour and Housing in the
Government of Bombay from 1947 to 1950.

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
the Constituent Assembly in 1947, 19 G.L. Mehta, businessm

an interest in shipping and N.R. Pillai, former Ambassador to F
the latter was appointed Secretary-General. The main coor
was Tarlok Singh, member of the ICS, alumnus of the Londo
of Economics, and Nehru's Deputy Secretary during the In
Government, with a deep interest in rural development.20 M
were appointed not so much for their economic expertise but f
socialist leanings and views on India's political future.
The only way for Nehru to ensure a degree of pre-eminence of
was to lend it the weight of his own authority by becoming its c
An astute political commentator noted that 'the Prime Minister
Chairman because of his grasp of economic affairs' but 'to ensur
the Commission's recommendations are presented to Gover
with the greatest possible weight behind them, to influence the
of work and not its direction and to give his sponsorship' to th
Nehru's chairmanship catalysed an immediate increase in t
standing as the pre-eminent national economic policy-makin
To lend authority to its members, Nehru granted them the
of Ministers of State in the Council of Ministers in the Warrant of
Precedence, with the Deputy Chairman ranking as a cabinet minister.
Nehru made it clear that the PC had the 'highest importance and
status' and was to be 'a top-ranking body with a great deal of
authority and prestige'.22 Following the PC's inaugural meeting, he
told state chief ministers that 'we are building great hopes on this
Commission' and that it would be a 'continuing commission which
will help in building the new India'.23 In no uncertain terms, he
stated its importance: 'No department of Government should refrain
from giving the fullest co-operation to the Planning Commission. It
can only do so if it does not believe in the basic policy of both the
Congress and the Government. That is to say, it can only do so if it
goes in a different direction from that of others. That surely is most
19 As Diwan, Krishnamachari had initiated a much admired programme of port

and industrial development. From 1946 to 1949, he was the Prime Minister ofjaipur.
20 Till the mid- 1 960s, no more than 20 persons served on the Planning Commission,
all with similar political backgrounds and intellectual leanings.
1 See editorial, 16 March 1950, Times of India.
22 Nehru to Patel, 1 February 1950, in S. Gopal (éd.), Selected Works of Jawaharlal
Nehru, vol. 14, (I), (New Delhi: Jawaharlal Nehru Memorial Fund, 1QQ2), p. ki.
23 Nehru to Chief Ministers, 1 April 1950, in G. Parthasarthi (ed.j , Letters to Chief
Ministers, vol. 2, (1950-52), (New Delhi: Jawaharlal Nehru Memorial Fund, 1986),
P-55-

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
948 MEDHA KUDAISYA
undesirable
main directing agency for p

at the Centre'.24
Institutions and Ju
The PC soon began to play

arbiter on economic policy
proposals with 'economic or
PC, which would deliberate
consequences'. This include
are entirely within your G
to examine all proposals fo
expected 'fullest cooperation
of support would be perceiv
He also tried to establish th
proposals from the central m
Within months of its est
came to be centralized in Yo
prominently on Parliament
grew, its members becam
where important decisions o
were frequently honoured a
Nehru reported: 'I feel th
done during these three or
this Planning Commission
decisions and exercise influ
24 Nehru to Chief Ministers, 27

to Chief Ministers, vol. 2, p. 205.
1 He wrote: 'As you know, our
minded. Almost every proposal w
general plan which is being finalise
in this matter so that no step mi
plane which might have these con
to us.' Nehru to Chief Ministers
Nehru Selected Works, Letters to
Jawaharlal Nehru Memorial Fun
ZD Nehru to Chief Ministers, 1 M
Ministers, vol. 2, pp. 45-46.
11 See
Nehru s report to the A
JawaharlalNehru Selected Works
Jawaharlal Nehru Memorial Fun

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
The growing perception was that almost all important is

than defence and foreign affairs, would come before t
powerful did the PC become that its membership was re
ticket to the cabinet itself. Within a few years of its forma
of the PC's 10 members were also cabinet members. Not sur
ministers vied to be on the PC, not relinquishing office even
received new appointments.
However, this domineering role was soon challenged. In 19
the First Five-Year Plan was formulated, several chief mi
Morarji Desai in Bombay and K. Hanumanthaiyya in My
'frankly resentful' that the PC consulted them only nominall
too at a very late stage. They complained of being taken into
only when 'everything bar the shouting was over'.29 Similar
were raised in the Parliament. To facilitate greater co
between the PC and the states, CD. Deshmukh recommen
formation of the National Development Council (NDC) i
comprised state chief ministers and PC members and wa
over by the Prime Minister.30 However, the Council itself b
subject of much controversy since it often unilaterally reso
important issues, which otherwise state legislatures w
discussed.31 Thus ironically, the Council's formation onl
the PC's influence, making it an intermediary between the
the states.
The PC's powers over the states increased because of the provision
for central grants-in-aid, which the states were eligible to receive.
It was the PC's task to allot these and it disbursed them on several
grounds, either for specific projects, or as loans, or as schemes deemed
to be 'centrally sponsored'. Under the category of 'economic and social
services', subjects that should have fallen under the states' purview
such as education, health, agriculture, social welfare, industrial
housing, etc. came within the ambit of central planning. Through
28 Asok Kumar Ghanda, Federalism in India. A Study of Union-State Relations (London:

G. Allen & Unwin, 1065), p. 273.
29 C.D. Deshmukh, The Course of My Life (New Delhi: Orient Longman, 1974),
P- 213.
30 The National Development Council was meant to approve plans before they were
presented before parliament. However, it was well known that 'in practice the Prime
Minister has growingly dominated the sessions' of the Council. C.D. Deshmukh, The
Course of My Life, p. 213.
See Asok Kumar Chanda, Federalism in India: A Study of Union-State Relations
pp. 279-280.

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
95O MEDHA KUDAISYA
its powers to grant largesse to the states,

resource budgeting, even as financial budge tin
of Finance.32 This gave the PC a privilege
with chief ministers became occasions to lobb
projects.33 The PC exploited these financia
powers. Before plan discussions, it made p
estimate of the centre's total contribution
clear ceiling on central assistance to individua
more than others, depending on their capacit
Even as the PC grew more influential
jurisdictional conflicts vis-à-vis other adminis
the Ministries of Finance and Commerc
acrimonious conflict arose soon after the PC's formation over the
issue of decontrol and raw cotton price policy. In early 1950, the
Cabinet endorsed the move to implement price decontrol, a highly
emotive issue within political circles since economic controls were
introduced for the first time in 1942 during the War.35 Imposed at
a time when anti-colonial feelings were elevated, controls aroused
much resentment. They were widely viewed as an 'anathema disliked
by producers ... a bugbear to consumers' and 'hated by the average
politician' who saw in them an imposition by an alien government
at a time when political repression was severe.36 Gandhian antipathy
to controls rendered the opposition even more vociferous. Thus, soon
after the new leadership took over, it experimented with decontrols in
32 The coordination of the functions of real resource budgeting and financial

budgeting was meant to be carried out in the yearly budget, yet observers doubted
how far such coordination went. As N.V. Sovani put it in his Presidential address to
the 48th annual conference of the Indian Economic Association in December 1965:
'It, nevertheless, remains a fact that the budget remains the principal instrument of
the plan and it is no accident that the Planning Commission has acquired the status
of intermediary between the states and the Centre . . . Planning Commission thinks
and acts in terms of money primarily!' Sovani, 'Planning and Planners in India', in
Indian Economic Journal, vol. 13, No. 4, Jan-March 1966, pp. 477-497.
33 Innumerable instances of this can be found. See for example, 'Financing
Bombay's power Project. Planning Body's reported advice to State', Times of India,
22 May 1952; 'Increasing Central Aid to Finance five year plan', Times of India, 19
August 1952; 'Koyna Project and five year plan,' Timesof India, 18 August 1952; 'States
seek more central aid for development', Times of India, 9 November 1952.
34 The final amount sanctioned depended upon a number of factors such as
commitments made by the states to raise funds.
3 Controls were of both external trade and internal movement of essential
commodities. In major cities, several articles of dailv consumption were rationed.
36 T.T. Krishnamachari, in his Foreword to R.G. Âgarwal, Price Controls in India since
1947 (Delhi: Federation of Indian Chambers of Commerce and Industry, 1956).

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
late 1947, but without success.37 When the demand for deco
raised again, it found many supporters within ruling poli
and the Ministries of Industry and Agriculture. However, th
a contrary view, to which Nehru lent his weight. More than
had to intervene to help the PC's view prevail.38
Finance minister John Matthai was greatly upset at this, p
the PC's interference as undue appropriation of power.3
stand on controls, he said that the PC was 'interfering in go
working'.40 He objected to the PC members' ever-growing
and their presence at cabinet meetings. Matthai confess
was near impossible to take a position contrary to the PC'
influential membership, and asserted that the PC, 'as far as
matters are concerned ceases in effect to be an advisory
perturbed was Matthai that he resigned over the issue, h
the PC was emerging as a 'parallel cabinet' because of whi
responsibility had definitely weakened'. Its increased inf
warned, would 'weaken' the authority of the finance min
'gradually reduce the Cabinet to practically a registering bod
tried hard to persuade Matthai to withdraw his resignation.
37 The decontrol period lasted from November 1947 till July 1948.
time, the general index rose till it touched the price level of 389.6
compared to 302.02, thus rising by 29%. There was a rise of 33.9% i
of semi-manufactured goods, 32.5% in food, 30.7% in manufactured a
in industrial raw materials and 16.6% in the miscellaneous group. Th
general index by 29% led to the re-imposition of controls. For details
Price Controls in India since 1Ç47, p. 24.
38 On the controversy see Times of India, 25 May 1952, and Ram Gop
Price Controls in India since 194 7.
39 Matthai (1886-1959) was educated at Madras Christian Colle
School of Economics and Balliol College Oxford. An economics profess
University, Matthai was selected Member of the Indian Tariff Board
became its President till 1934. Between 1935 and 1940, he was Dire
of Commercial Intelligence and Statistics. On retiring from governm
1940, he joined Tata Sons. In 1946, he was made Member of the Gover
council for Finance, and for Industry and Supply in 1946-47. In the Nehr
was Minister for Transport and Railways (1947-48) and Minister for F
50). After his resignation in 1950, he rejoined Tata Sons. He was later
the Indian Taxation Enquiry Committee in 1953; then Vice Chancello
University in 1955-57 and then of Kerala University in 1958. He al
Chairman of the State Bank of India from 1955 to 1956.
40 See Nehru to Matthai, 4 June 1950 in S. Gopal (ta.), Jawaharlal Neh
Works, vol. 14 (II), (Delhi: Jawaharlal Nehru Memorial Fund, 1993), p
41 John Matthai to Nehru, 17 June 1950, John Matthai Papers, Nehr
Museum and Library (henceforth NMML), New Delhi. Also see Times of
3 June 1950.

3.fff:ffff:ffff:ffff:ffff on Thu, 01 Jan 1976 12:34:56 UTC
952 MEDHA KUDAISYA
him that 'at no time has there been any

any other mind for that Commission to f
However, a disgruntled Matthai did no
ironical, given that it was he who had pro
of the PC on the floor of the Parliam
session after Independence, and also in
in planning since the days of the Bomba
The controversy over price controls d
years during 1951-52, highlighting th
members and the ministries involved
important provincial Congress heavy-w
president of the Bombay Provincial Co
growing restive with the PC's stand on
Nehru had to intervene to make peace
deny to the press that there were rif
ministries over this issue.44 So controver
the 'Chapter on Food Policy' for the Firs
placed before the meeting of the PC A
when it met to discuss the plan. Rumour
were ready to hand in their resignations
on this issue.45 Finally, the Parliamen
November 1952 and implemented certa
There are several such examples of
PC's overstepping of its jurisdiction a
decision-making. In 1952, the PC took
Program (CCP), formulated as part of
promote small-scale industries in the fac
reservation of areas of production for sm
of capacity in large-scale industry, im
of large-scale industries and positive m
materials, equipment and technical and f
42 Nehru to John Matthai, 4 June 1950 in Joh

43 See Times of India, 25 May 1952.
44 See for instance, 'Center's responsibility', Ti
1Q*2.
45 Times of India, 5 November 1952.

46 A number of newspaper reports show the divisiveness of the decontrol issue
instance, see 'Food policy in context of planning. Mr Nehru denies rift on decont
Times of India, 3 November 1952, 'Indian Political Notes. Food Control Controve
Times of India, 5 November 1952 and 'Parliament approves new food policy', Tim
India, 19 November 1952.

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small units, etc. Though under implementation, the progra

had not been seriously launched.47 In late 1952, the PC
interest in the CCP; Tarlok Singh took up the issue with the rec
constituted All India Khadi and Village Industries Board (A
Detailed discussions were held to draw up a proposal to impleme
programme. In the meantime, the Ministry of Commerce and I
was getting irked at being excluded from the discussions b
the PC and the AIKVIB. Alleging that his officials had been
the dark, T.T. Krishnamachari, Minister of Commerce and In
intervened to stop the discussions.48 Distancing his ministr
all initiatives, he personally informed the AIKVIB that he d
know the connotation of the use of the phrase "Common Pro
Program" as intended by the Planning Commission'. 'In any even
told them, 'as a responsible minister, I believe that it is not the
of the Khadi and Village Industries Board to take upon the
the question of determining the common production progra
all industries'. Rather, it 'would be best for them not to ma
reference of this phase ... as the basis to determine the posi
the Khadi and Village industries board vis-à-vis the Commer
Industry Ministry'. The commerce minister's ire at the PC's init
effectively ended all talks between the PC and the AIKVIB.49
47 On the common production programme, see Government of India, P

Commission, Report of the Village and Small Scale Industries (Second 5 Year Pan) Com
(Delhi: Planning Commission, 1955).
48 T.T. Krishnamachari (1899-1974) studied at Madras Christian Colle
then embarked upon his business. An important member of the Southe
Chamber of Commerce, in 1937 he was elected to the Madras Assem
representative of the Chamber. In the Assembly, he proved himself a forcef
on commercial and financial matters. He also became a member of the C
party and Member of the Central Legislative Assembly from 1942 to 194
a member of the Indian financial delegation that went to London for the s
of the sterling balances in 1946. On his return, he was elected to the Con
Assembly and taken on its Drafting Committee. Between 1952 and 1956
the Union Minister in charge of the portfolios of commerce and industry, a
1955 to 1957 also the Minister for Iron and Steel. In 1956, on the resign
CD. Deshmukh, Nehru invited him to take on the charge of the finance min
1958 when he resigned over the Mundhra Life Insurance Corporation share
Following the Chinese aggression in 1962, Nehru invited him to rejoin th
as Minister for Economic Defense Coordination. From 1963 to 1965, he w
finance minister when Morarji Desai resigned from the cabinet in pursuanc
Kamaraj Plan. In 1965, he resigned from the cabinet because of differences
Bahadur Shastri. In his last years, he was responsible for the rapprochement
Indira Gandhi and Kamaraj.
*y T.T. Krishnamachari to Nehru, Secret letter 30 December 1953 in J
Correspondence 1952-54, T.T. Krishnamachari Papers, NMML. The c

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
954 MEDHA KUDAISYA
Another contentious issue arose around th

of Commerce and Industry accused the
industrialists to directly report to it on
encouraging industrialists to circumvent
with grouses against the ministry would
umbrella of the Commission' and have dire
the ministry's knowledge. They alleged
sector companies such as Dunlop, the fam
preferred to deal directly with the P
Krishnamachari once again had to ta
was forced to speak with influential PC
that this is not the proper method'. H
V.T. Krishnamachari, Deputy Chairma
clarification whether the Planning Comm
or a parallel government or an advisory bo
By 1952, the press was beginning to repor
extensively on the strained relations
ministries. Nehru found himself repeated
no difference between the PC and the m
principles'.51 The rift between the PC and
T.T. Krishnamachari to finally write in des
in December 1953: 'It is up to you to dec
between the two bodies.' He complained
helpful role: 'So far the Planning Commi
do with industries and industrialization exc
Their contribution so far is to bar quick
had to go to them'.52 Once again, Nehru
irate minister. He assured Krishnamach
not a super-Cabinet but has no executive
ask him to 'remember that the Members o
production programme was later incorporated by

Year Plan. However, once again it was not adhered
and Industry, which permitted huge capital invest
see L.C. Jain, 'Securing their future' in Celebrating C
Handicraft, Seminar March 2003.
50 T.T. Krishnamachari to Nehru, Secret letter
J. Nehru Correspondence 1952-54, T.T. Krishna
biography of Krishnamachari, see R. Tirumalai, TTK
TT. Maps and Publications Private Ltd, 1998).
01 See, for instance, Indian Political Notes limes o
52 T.T. Krishnamachari to Nehru, Secret letter da
Correspondence 1952-54, T.T. Krishnamachari P

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
have the status of Ministers' and thus his ministry 'should t

with every respect'.53 This did not, however, improve th
relations with the PC. There was open comment of 'the
T.T. Krishnamachari privately regards members of the
many ninnies".'54
The commerce ministry was not alone in crossing sword
PC.55 Perhaps the PC's relations with the finance ministr
most discordant, the conflict arising from the issue of h
control was to be vested with the finance ministry. Some an
started early in the PC's life but a particularly acrimonio
occurred in 1954 when discussions were held first in th
later in the cabinet about delays in execution of proje
Five -Year Plans. These delays were attributed to the 'adm
set up and the system of financial control'.56 Nehru in
enquiry on investigation of financial rules and procedures an
of financial control, to be conducted by Asok Chanda, then S
the production ministry and designate Auditor-General.
forward several suggestions to 'accelerate the execution o
and minimize the lapse of budgetary allotments'. Among
recommendations on budgetary and financial procedures,5
the former did not provoke much response but those o
procedures caused much resentment within the finance
Chanda suggested that while 'overall financial control, with
to financial policy and principles should continue to vest in
Ministry, detailed scrutiny of proposals at expert level s
in the administrative machinery'. There were two specifi
53 Nehru to T.T. Krishnamachari, Secret and Personal, 30 Decemb

Nehru Correspondence 1052-54, T.T. Krishnamachari Papers, NMML.
54 'Our Delhi Letter: Checks and Balances' Eastern Economist, October
00 Nehru received many complaints about the Planning Commission.
Rajkumari Amrit Kaur, the Minister for Health, complained that th
interfered in decision-making quite indiscreetly. She alleged that
ministerial allocation to the state of Delhi for its local schemes from R
Rs 2 crore without any discussion with the health ministry. This led her t
Nehru about the 'growing tendency for the Planning Commission to con
super-Cabinet and arrogate to itself functions which normally pertain to
(of Health)'. See Nehru to V.T. Krishnamachari, 31 August 1956, in
Prasad, A.K. Damodaran, Mushirul Hasan (eds), Selected Works of Jawah
vol. 34, (New Delhi: Jawaharlal Nehru Memorial Fund, 2005), p. 190.
00 'Secret meeting of Cabinet held on Saturday 16th January 1954
Subject File 24, 1953-54, C.D. Deshmukh Papers, NMML.
On these recommendations, see 'Administration for progress' Eastern
16 April 1954.

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956 MEDHA KUDAISYA
in this regard. First, administrative ministries sh
financial advisers' rather than financial advisers
the Ministry of Finance, as was the norm. App
advisers from the finance ministry, he pointed o
on petty matters and dissipated time and resources.
control', which also discouraged local planning acc
would change 'with the administrative ministr
themselves'.58 Thus, financial advisers 'would be s
spending authorities responsible for project execu
suggestion was that the Centre should agree to finan
on a state's undertaking to carry them out, even
not immediately promise a matching contribution
any 'detailed scrutiny of States' schemes should be d
finance ministry needed to confine itself to a 'br
scrutiny' and 'a broad financial review'.59
Not unexpectedly, the finance ministry was much
suggestions. Finance minister CD. Deshmukh per
to wrest financial control from his ministry and
He accused the PC of clandestinely discussing the nee
when he was overseas; he also accused the Prime Min
the Chanda enquiry in his absence. Here was, he alleg
'place the Finance Ministry on the mat'. He counte
that scrutiny by the finance ministry should be done
allegation that his ministry's involvement 'degene
as nothing but absurd. Rather, the ministry's in
crucial savings. He claimed that steps had alrea
accelerate financial scrutiny of expenditure a year
Prime Minister's knowledge. The enquiry's object
Deshmukh, was 'not to promote a factual investiga
implementation of the Plan is being obstructed, but
reforms and reduce the Finance Ministry to impo
not agree with its recommendations on financing of
language, he retorted that the report 'has come
from an officer who is going to be appointed as
58 Nehru too agreed that that financial advisers in minist

'atmosphere of mutual hostility'.
59 A.K. Ghanda to Prime Minister, Secret, 10 February 195
Deshmukh Papers, NMML.
60 CD. Deshmukh to Prime Minister, Secret, 3 March 1954
to Prime Minister, 7 March 1954 , Subject File 24, CD. Desh

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and Auditor General'.61 This was a concerted attempt to 'red

Finance Ministry to impotence'. An exasperated Deshmukh s
as just another incidence of the 'never-ending putting-the-F
Ministry-on-the-mat' that he had been encountering.62
Deshmukh viewed the attack on his ministry as serious e
to warrant his resignation from both his posts, as finance m
and member of the PC. Nehru endeavoured to placate his m
by suggesting that the cabinet discuss the matter, but a disg
Deshmukh disagreed claiming that it 'is bound to degenerat
combined assault on the Finance Ministry'.63 As he told the
Minister frankly: 'To put the matter in a nutshell, the un
tendency is to make the Finance Minister the beast of burde
Governments, Central and Provincial. Now that he is at the end
tether, he can no longer bear these burdens, without some sn
I think it will be good for the soul of all of us if you and th
bore your own financial responsibility'.64 It took much persuas
Nehru's personal assurance that 'there is and can be no que
short-circuiting the Finance Minister' for Deshmukh to rele
withdraw his resignation; the Chanda report was shelved.65
Acrimonious relations between the PC and the finance m
were common knowledge in top political and administrative
As defence minister V.K. Krishna Menon, a PC member and
confidante of Nehru, put it: 'Successive finance ministers ha
allergic to the Planning Commission and have treated it as some
which should take orders from them . . . Each finance minister tried
to make the Planning Commission an adjunct of himself. . . each of
61 Secret letter from CD. Deshmukh to Prime Minister, 3 March 1954. He wrote:
'I have no time to deal in detail with Chanda's note, nor do I think it deserves such
attention.' Subject File 24, CD. Deshmukh Papers, NMML.
62 Letter to Prime Minister, 7 March 1954, Subject File 23, CD. Deshmukh Papers,
NMML.
63 CD. Deshmukh to Nehru, 7 March 1954, Subject File 24, CD. Deshmukh
Papers, NMML.
64 CD. Deshmukh to Prime Minister, Secret and Personal, 17 March 1954, Subject
File 24, CD. Deshmukh Papers, NMML.
J CD. Deshmukh wrote to JNehru, It is clear that we do not see eye to eye in this
vital matter of financial control.' He asked him, 'Please do not treat this as another
"threatening" letter as my decision is irrevocable'. C D. Deshmukh to Nehru, 5 March
1954, Subject File 24, CD. Deshmukh Papers. Also see 'The National Scene' Times
of India, 14 April 1954; 'Financial Control', Times of India, 22 April 1954; 'Finance
Minister resigns', Economic Weekly, 28 July 1956 and 'Financial Control - no new set-
up yet', Economic Weekly, 1 September 1956. Differences with the finance minister
convinced Nehru of the need for a Congress insider to be given the post in the future.

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958 MEDHA KUDAISYA
the finance ministers would have tried or would
do without it'.66 The power balance between the
and the PC depended upon the political influence
While ministers like Matthai and Deshmukh, essentia
coopted into the cabinet by Nehru, could not exe
vis-à-vis the PC, others who had their own politic
Krishnamachari and Morarji Desai could easily igno
times.
The PC was getting into trouble not only with different ministries
but also with financial bodies such as the Finance Commission
because of its powers to disburse grants-in-aid to the states. Un
the Constitution, every five years, a Finance Commission was t
appointed and mandated to set a formula of how much percentag
returns from union income and excise taxes was to go to the states.
Thus the Finance Commission gave statutory grants while the
controlled disbursement of grants-in-aid. As it happened, the grant
in-aid always exceeded other grants. As we have noted, with the
formation, subjects that normally came under the states (educat
health, agriculture, cooperatives, social welfare, industrial housi
etc.) shifted to the ambit of central planning under the category
'economic and social services'. Yojana Bhavan controlled grants
these. As disbursers of grants, the PC and the Finance Commiss
worked in overlapping ways and often covered similar ground.
Finance Commission's scope was, however, limited to a review of
revenue segment of the budget forecasts, while the PC looked at bo
capital and revenue requirements of states. There was thus an overla
in the scope of recommendations made in regard to specific it
of a state's functions, which required central assistance. Proble
arose because the PC's plans did not distinguish between reven
expenditure and capital expenditure, while the Finance Commissi
main function was to make recommendations for the devolution
of revenue resources. Further, the responsibilities were not clearly
divided between the two. The PC's increasing powers and the fact
66 Michael Brecher, India and World Politics: Krishna Menon's View of the World,
(London: Oxford University Press, iq68), pp. 268-270.
67 Under the constitution, the states only got proceeds from minor union taxes.
See Frankel, India's Political Economy 194J-JJ: The Gradual Revolution, p. 1 16. Also see
Times of India, 1 1 June 1 95 1 .

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that grants-in-aid always exceeded other grants led to the v

the PC was taking over the powers of the Finance Commission.
The First Finance Commission, which met in 1950, recom
financial assistance for both current and capital requireme
states. The Second Finance Commission, appointed in 1956,
in frustration that its constitutional role could no longer be fu
hindered as it was due to the operations of the PC; it note
there was 'a real need for effectively coordinating the wor
two bodies'.69 It emphasised: 'Some anomalies inevitably aris
the functions of the two commissions overlap. The form
statutory body with limited functions, while the latter has
comprehensively with the finances of the Centre and the State
widest sense of the term. So long as both these Commissions
function, there appears to be a real need for effectively coordi
their work'.70 Matters only got worse over the years; by the t
Third Finance Commission was appointed in 1961, its criti
even more forthright. It suggested that, given the overlap
jurisdictions, the Finance Commission be dispensed with and
with the PC.71
68 See A.K. Chanda in S.C. Kashyap (éd.), Union-State Relations in Indi

Institute of Constitutional and Parliamentary Studies, 1969), pp. 136-145 an
Mehta, 'Indian federalism and economic development' in Ibid., pp. 124
the Finance Commissions, see K.V.S. Sastri, Federal-State Fiscal Relations in
study of the Finance Commission and the Techniques of Fiscal Adjustment (Bomb
University Press, 1967), Hemlata Rai, Federal-State Financial Relations: The
Principles (Delhi: Ashish Pub. House, 1994) and Ananda Rao G., Finance Com
in India: Sstructure, Working and Recommendations (Delhi: Deep and Deep Pu
1992).
69 The Third Commission noted: 'The role of the Finance commission comes to
be, at best, that of an agency to review the forecasts of revenue and expenditure
submitted by the states and the acceptance of the revenue element of the plan as
indicated by the Planning Commission for determining the quantum of devolution
and grants-in-aid to be made; and at worst, its function is merely to undertake an
arithmetical exercise of devolution, based on amounts of assistance for each state
already settled by the Planning Commission to be made under different heads on
the basis of certain principles to be prescribed.' G. Thimmaiah, Critique of the Finance
Commission (Allahabad: Wheeler Publishing, 1981), pp. 138-39. Also see 'Award of
the Finance Commission' in The Economic Weekly, 30 November 1957. For a critical
view of the Planning Commission and its role see Asok Kumar Chanda, Federalism in
India: A Study of Union-State Relations, pp. 260-294.
/u G. Thimmaiah, Critique of the Finance Commission, p. 137. Also see P.R.
Brahmanand, 'Aspects of Center-State Financial Relations' in S.P. Aiyar and Usha
Mehta (eds), Essays on Indian Federalism (Bombay: Allied Pub, 1965), pp. 236-256.
At the third of the Ihird rinance Commission, the general opinion was that
the Planning Commission should be responsible for distributing plan grants in the

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960 MEDHA KUDAISYA
Visionaries and Realists
As the PC reached the dizzy heights of power within a few year

its establishment, an outsider called Prasanta Chandra Mahalanob
was quietly ascending within its corridors.72 Mahalanobis, a phys
graduate from Presidency College, Calcutta and a natural scien
Tripos from Cambridge, taught at Presidency College. Mahalano
was deeply interested in statistics and hugely influenced by the idea
of nineteenth century physicists who emphasized the quantitati
aspects of reasoning and the view that qualitative reasoning wa
nothing more than 'poor quantitative reasoning'. The belief tha
'measurement is science' prompted Mahalanobis to take up statist
He moved comfortably in top social circles of Calcutta, growin
especially close to the Nobel laureate Rabindranath Tagore.73
his years at Presidency College, he indulged his interest in statis
and built up a small statistical laboratory, which in 1931 formed
nucleus of the Indian Statistical Institute (ISI).
'The Professor', as Mahalanobis liked to refer to himself, had m
Nehru at Tagore's residence but it was only in 1940 that he tol
him of his great interest in statistics. After dinner at Anand Bhava
form of conditional grants with a view to ensuring coordination of plan prioritie

different states and the Finance Commission should be responsible for the distributi
of general unconditional grants for the purpose of filling the non-plan gaps in t
current budgets of the states. It was felt that this would avoid the overlap of functi
See G. Thimmaiah, Critique of the Finance Commission, p. 138.
72 P.C. Mahalanobis (1893-1972) was educated at the Presidency Colle
Calcutta, and Cambridge University. Upon his return to India, he taught at t
Presidency College from 1922 and served as its Principal from 1945 to 1948
From 1922 to 1926, he was also Meteorologist, Calcutta, in charge of the Alip
Conservatory. Mahalanobis was an important member of the Sadharan Brahmo Sa
in Calcutta. In 1922, Mahalanobis published his first piece of work which was
anthropométrie study on the physical stature of Anglo-Indians in Calcutta. In 19
he founded the Indian Statistical Institute in Calcutta and remained its Director and
Secretary until his death. He founded and edited Sankhya Indian Journal of Statistics.
In 1945, he was elected Fellow of the Royal Society and in 1957 became a Foreign
Member of the USSR Academy of Sciences. In 1949, he was appointed Statistical
Advisor to the Government of India and thus was de facto member of the Planning
Commission and, in 1955, was given de jure status. He was also Chairman of the
Committee of Departmental Statisticians and of the National Income Committee set
up by the Government of India.
73 He was deeply influenced by Sir B.N. Seal, the polymath who persuaded him
to take up statistical treatment of observation in disparate fields of research. See
Sukhamoy Chakravarty, Selected Economic Writings (Delhi: Oxford University Press,
1993), PP. 533-536.

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PLANNING IN POST-COLONIAL INDIA g6l
Mahalanobis and Nehru talked till 'after two in the morning'.74
The old Cambridge link also brought Mahalanobis close to CD.
Deshmukh. With the backing of Nehru and Deshmukh, Mahalanobis
was appointed Honorary Statistical Adviser to the Government of
India in 1949 and helped establish the Directorate of National
Sample Survey. In 1951, the ISI was commissioned to look into two
possibilities: (1) of solving the problem of unemployment in 10 years,
and (2) of increasing national income at a reasonably rapid rate.75
In the course of this work, Mahalanobis got interested in issues of
planning and development, of which he did not know much till then. As
he wrote to close confidante Pitambar Pant: 'I had only very vague ideas
of planning when I first came to Delhi. From January 1950, when I
first started handling national income data, I began to learn5.76 On the
basis of these joint studies, he prepared a 'draft plan frame' in 1955.
With his lack of formal training in economics, Mahalanobis felt
deeply complexed in propagating his ideas publicly in front of
professional economists. 'To be quite frank I am so ignorant about
academic economics and my Indian colleagues are so cock-sure about
their own infallibility that I had a little bit of a inferiority complex
about economic matters', he confessed.77 However, he bolstered his
confidence by travelling abroad frequently and developing contacts
with leading Western economists. As he himself wrote:
One reason why I have been coming abroad so often is a partly conscious and
partly sub-conscious urge to seek contacts, to discuss, to collect information
and to equip myself for physical training. There is practically no literature
on this subject. Economists in my own country are great experts in Western
74 Nehru had then confessed to Mahalanobis that 'he was afraid he was still rather
in a minority in Congress circles and it seemed to him sometimes that the Planning
Committee had been set up as if only to humor him.' P.C. Mahalanobis, Talks on
Planning (Calcutta: Asia Publishing House, 1961).
Over the years, Nehru kept in close touch with the Institute. After a visit to
Calcutta in December 1953, he told his Chief Ministers: 'I have been watching this
Institute for many years since its early beginnings in a small way. It has now grown
enormously and has become a real international center of work. There were professors
and students there from many other countries ... I found that this ISI was considered
to be one of the best in the world and, certainly, the outstanding one in the whole of
Asia. . . I was much impressed by it.' See his Letter to Chief Minister, 31 December
1953 in G. Parthasarthi (éd.), Letters to Chief Ministers, vol. 3, (Delhi: Jawaharlal Nehru
Memorial Fund), pp. 478-479.
6 Mahalanobis to Pitambar Pant, 24 June 1954, Pitambar Pant Papers, NMML.
Like Mahalanobis, Pitambar Pant also had a degree in physics but shared a deep
interest in planning.

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962 MEDHA KUDAISYA
text- books (about which my own ignorance is profound) a
see the problem as I see it - and we have no common lang
economists in Europe . . . England . . . USA . . . have taken
and I have been learning much from them through person
frequent visits to the West have given me not only a muc
vision but have also given me increasing self-confidence.7
Soon, the ISI became the Mecca for economists an

several Western countries, the Soviet Union and C
who spent time there were leading economists of
Simon Kuznets, Paul Baran, Joan Robinson, Jan T
Kalecki, Nicholas Kaldor and R.M. Goodwin.79 Mah
needed the support of influential Western econo
acceptance of his own ideas within Indian intelle
making circles. 'Trained and experienced econom
great deal in speaking in their own language to I
(which we are unable to do) and also in carryi
administrators and political leaders', he told Pitamba
his conversation with Joan Robinson, the disting
economist, he said: 'I told her that her visit might be
to us because her support may carry conviction th
developmental planning is not foolish. She smiled
think that I would be able to knock some sense into the heads of the
economists in your country"'.80
Mahalanobis' rise in the corridors of power in New Delhi was rapid.
He was appointed de facto member of the PC (in his capacity of
Statistical Advisor) and was later given de jure status as a Member
from 1959. This quick rise was due to Nehru who called Mahalanobis
'the presiding genius of statistics in India'.81 For Nehru, Mahalanobis
entered the scene at a time when he was growing increasingly
disillusioned with the slow pace of economic progress. 'How to provide
for a number of more excellent and important schemes with the
resources at their disposal? Arithmetic does not help and magic
is not available,' he wrote to Morarji Desai. By 1952, Nehru had

79 Rudra A., Prasanta Chandra Mahalanobis: A Biography (Delhi: Oxford University
Press, 1996), pp. 287-323. On the atmosphere at the ISI, see Ronald Clark,/. B. S.
The Life and Work off. B. S. Haldane, (Oxford: Oxford University Press, 1 968) and John
Kenneth Galbraith, A Life in Our Times: Memoirs (Boston: Houghton Mifflin, 1981),
pp. 322-341.
8U Mahalanobis to Pitambar Pant, 12 April 1954, Pitambar Pant Papers, NMML.
01 See S. Gopal (ed), Jawaharlal Nehru Selected Works, Series 11, (JNew Delhi
Jawaharlal Nehru Memorial Fund, 1995), vol. 17, p. 288.

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begun to feel that the PC had become so engrossed with day-to-
day matters that it had come to 'a stage of something approaching
mental disintegration'.82 As this restiveness increased, Nehru began
to think that the PC 'lacks the scientific and technical outlook. The
world elsewhere is run more and more by technical men, engineers,
scientists, etc ... I feel also that the Planning Commission tend to
develop rather on the old Government of India lines'.83
In 1955, Mahalanobis put forth his blueprint on the basis of the
studies he had been charged with at the ISI in 1951. This came at
just the time when Nehru was becoming determined to move away
from his initial caution on economic affairs to a clear commitment
to what he called a 'socialist pattern of society' which the Congress
formally adopted as the goal of Indian development at its Avadhi
session. With very little understanding of economics, Nehru's chief
interest was only of achieving the broad goals of development and
socialism, and notions of semi-automatic characteristics of planning
and development appealed to him. As he put it:
Planning and development have become sort of mathematical problem which

may be worked out scientifically . . . {Planning} for industrial development is
generally accepted as a matter of mathematical formula . . . {Men} of science,
planners, experts who approach our problems from purely a scientific point
of view {rather than an ideological one} . . . agree, broadly, that given certain
pre-conditions of development, industrialization and all that, certain exact
conclusions follow almost as a matter of course.84
According to Sunil Khilnani, in Mahalanobis 'Nehru saw the utility

of someone who could formulate political aims in the technical and
scientific language of economic policy'.85 Mahalanobis, on his part,
knew that much depended on Nehru's support. 'JN is the greatest
asset we have at present,' he wrote to Pitambar Pant in 1954, 'and
all I can do is to hope he will be big enough and wise enough to get
the whole thing through in his own lifetime'.86 While thoughts of New
82 Nehru to Morarji Desai, 3 August 1952, quoted in S. Gopal, Jawaharlal Nehru:

A Biography, (Delhi, Oxford University Press, 1979), vol. 2, p. 198. Also available in
S. Gopal (ed), Selected Works of Jawaharlal Nehru, vol. 19, (New Delhi, Jawaharlal Nehru
Memorial Fund, 1996), p. 143.
8J Nehru to G. Nanda, 24 June 1954, in S. Gopal (éd.), Selected Works of Jawaharlal
Nehru, 2nd Series, vol. 18, (Delhi: Jawaharlal Nehru Memorial Fund, 1096), pp. 46-47.
84 George Rosen, Democracy and Economic Change in India (Berkeley: University of
California Press, iq66), pp. 40-^2.
85 Sunil Khilnani, The Idea of India (London, 1998) p. 84.
86 Mahalanobis to Pitambar Pant, 2 7 January 1954, Pitambar Pant Papers, NMML.

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964 MEDHA KUDAISYA
Delhi, with its economists and finance administra
Mahalanobis, Nehru appeared to him as the only h
In 1 955 Mahalanobis' plan was published in a celebr
'The Operational Research Approach to Planning i
in Sankhya, the Indian Journal of Statistics, ajournai
Five -Year Plan, according to Mahalanobis, was a m
future plan he declared 'has to be a drama'.87 In
model advocated 'large planning' and justified in
and heavy machine-building industry, investment in
produce capital goods, to maximize long-term growt
a dominant role for the public sector and an autarch
reliance.88 Investment in 'capital goods to produce ca
be implemented through the state's centralized indus
planning.
'The Professor' took easily to the power that the Prime Minister
invested in him. But the pace at which he rose led to considerable
concerns within the PC and other bodies such as the finance ministry.
To ease Mahalanobis into the corridors of power in a resistant capital,
Nehru appointed I.G. Patel, a young economist recently recruited in
the finance ministry, as a liaison person between Delhi and Calcutta.89
However, his patronage by Nehru brought him to the forefront.
Within the PC, Mahalanobis was rumoured to be leading 'a parallel
secretariat' of those who agreed with him.
The Mahalanobis model did, however, hold considerable appeal for
many. To begin with, there was a general feeling among policy-makers
that something bigger was required compared to the first plan, which
was seen as too modest. Its promotion of domestic production of heavy
industry goods appealed to many because of its 'essentially patriotic
and nationalistic flavour, which underlay much of economic thinking
in India since the Bombay Plan'. 'All notions of catching up with the
West and developing a diversified industrial structure had an almost
87 Ashok Rudra, Prasanta Chandra Mahalanobis: A Biography (Delhi: Oxford University

Press, 1996), p. 432.
m On the model, see Terence Byres, (éd.), The Indian Economy: Major Debates since
Independence, M. Bronfenbrenner, 'A simplified Mahalanobis development model' in
Economic Development and Cultural Change, October i960, and Gerald M. Meier and
Dudley Seers (éd.), Pioneers in Development, vol. I (New York: Oxford University Press,
1984), pp. 355-358.
Nehru also intervened with V.T. Krishnamachari, the Deputy Chairman, to bring
the Commission and the ISI closer. He asked the Commission to 'give them the fullest
help and not treat them as some extraneous element'. Nehru to V.T. Krishnamachari,
Confidential, 8 January i955,Subject File 23, CD. Deshmukh Papers, NMML.

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primordial appeal', recalls I.G. Patel. 'We swallowed easily notions
such as the Big Bush and "anything you can do, I can do better"5.90
Yet, much doubt and scepticism about the model were also
expressed. Gulzarilal Nanda, then Minister of Planning, while
agreeing on the need for rapid industrialization, warned that the
financial resources envisaged in the plan were not available and
would limit the extent to which these objectives could be realized.91
Tarlok Singh, longest serving official of the PC, doubted the plan's
industrial emphasis and preferred a smaller plan with greater weight
to agriculture.92 JJ. Anjaria, former student of C.N. Vakil, Chief of the
Economic Commission of the PC and Chief Economic Adviser to the
Government of India at the time, was critical of the plan and tried his
'best to dampen the socialist fervour by concocting the expression "a
socialistic pattern of society".' 'Insiders could see that his interventions
were 'almost a classic case of damming by faint praise'.93 There was
also much sniping from the wings in pronouncements of ministers of
finance and commerce and industry who subtly critiqued the Plan.
As the Economic Weekly dryly commented: 'During the last five years,
the Planning Commission has steadily lost authority. Now it is on the
brink of losing the Second Five-Year Plan. Recent pronouncements of
the ministers of finance and of commerce and industry have reduced
the blueprints to nonsense. This has happened even before the final
drafts have seen the light of day. In a sense, the Second Plan will be
still born'.94
Faced with a PC that resisted Mahalanobis 'crashing into their
world', Nehru appointed a panel of economists in January 1955 'to
advise the PC on problems connected with the preparation of the
Second Five -Year Plan.' Chaired by CD. Deshmukh, the panel of 21
economists was divided on the merits of the plan. Many, especially the
Bombay economists, disagreed fundamentally with its assumptions.
Doubts were raised on a number of grounds: that it would increase
savings and investment requirements beyond feasibility, the danger
90 I.G. Patel, 'The Landscape of Economics' The Indian Economic Journal, vol. 45,
No. i,pp. 19-35.
Promilla Kalhan, Gulzarilal Nanda: A Life in the Service of the People (Delhi: Allied
Publishers, 1QQ7), p. 41.
92 George Rosen, Democracy and Economic Change in India, p. 106.
93 I.G. Patel, 'The Landscape of Economies' Indian Economic Journal, vol. 45,
No. 1, p. 31. Also see 'The Nanda approach', Economic Weekly, 10 September 1955,
pp. 1075-1076. On the debate on the model, see Economic Weekly for 1955-57.
94 'Who fathers the plan?' Economic Weekly, April 28, 1956.

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966 MEDHA KUDAISYA
of inflation and balance of payments deficits arising
of consumer goods, and that it was a closed econ
ignored the possibility the external sector offered a
of obtaining capital goods more efficiently by im
P.R. Brahmanand, the only theorist on the panel
in the development implications of theoretical m
critical. His case was that the plan would not promot
consumption but would place the economy 'in the
whose implications would be revealed only throu
time'. However, then merely a junior lecturer in
Bombay, Brahmanand felt side-lined.96 Vakil opposed
heavy industry and in 1956 he, along with Brahm
alternative to the plan in their book Planning in an Ex
However, Vakil did not want the differences amongs
to be publicized and opposed suggestions to write a n
panel prepared a paper on basic considerations of
they did not openly express dissent, they did clarify
given their differences on the plan, the paper must
'approval of the Mahalanobis model by all members o
only economist on the panel to publicly take a stand
was B.R. Shenoy, professor of economics, University
note of dissent, Shenoy opposed the size of the plan,
a way of raising real resources as being dangerously
further taxation of lower income groups.98 Shenoy d
heavy dependence on the government to push eco
95 See I.G. Patel, 'Landscape of Economies' Indian Economic J

PP- 19-35-
96 See Brahmanand's interview with V.N. Balasubramanyam in Balasubramanyam,
Conversations with Indian Economists, pp. 26-41. For an interesting point of view on the
debates of the time, see Meghnad Desai, 'Development Perspectives: Was there an
alternative to Mahalanobis?' in Isher Judge Ahluwalia and I.M.D. Little (eds) , India's
Economic Reforms and development: Essays for Manmohan Singh (Delhi: Oxford University
Press, iqq8), pp. 40-47.
97 C.N. Vakil and P.R. Brahmanand, Planning for a Shortage Economy: The Indian
Experiment (Bombay: Vora, 1952). For the contemporary debates of the time, see
B. Datta, The Economics of Industrialization: A Study of the Basic Problems of an Underdeveloped
Economy (Calcutta: World Press, 1952) and Jagdish Bhagwati and S. Ghakravorty,
'Contributions to Indian Economic analysis: A survey' in American Economic Review,
September iq6q, pp. 5-8.
98 B. R. Shenoy questioned the plan's ideology as well as economic logic. With
impeccable analysis, he attacked the very basis of economic policy in India. See his
Indian Planning and Economic Development (Bombay: Asia Publishing House, 1963). On
Shenoy's note of dissent, see Milton and Rose Friedman, Two Lucky People: Memoirs
(Chicago: University of Chicago Press, 1998), p. 265.

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questioned the complete lack of attention to agriculture and warned
that the attempt to maintain high investment rates through deficit fin-
ancing would inevitably lead to a serious balance of payments problem.
Deshmukh, who chaired the panel, was himself sceptical about
the inflationary effect that the shift to heavy industry would create.
Under the pretext of disagreement over the States Reorganization
Committee's decision on Maharashtra, he resigned from his posts as
finance minister and member of the PC. Friends with Mahalanobis
from his days in Cambridge, he had gone along with his ideas till now
but he was much less opposed to the market and he did not 'cherish
implementing' such a plan.100 Within the PC, K.C. Neogy wrote a
minute of dissent, drawing attention to deficit financing which he felt
might occur on an excessive scale.101 There were others who opposed
the plan such as the socialist leaders Jaiprakash Narain, M.R. Masani
and the economist Hannan Ezekiel.102 These dissenting voices were
however silenced. The Bombay economists were henceforth exiled
from economic policy discussions. As Brahmanand later recalled: 'The
period from the mid-1950s to the late 1960s was a nightmarish
99 See I.G. Patel, Glimpses of Indian Economic Policy: An Insider's View, p. 38 and
I.G. Patel, 'Chintaman Deshmukh and the Reserve Ban' in IIG Quarterly, CD.
Deshmukh: Life and Times (Delhi: India International Centre, 1995), pp. 291-293.
Though he publicly declared that he had resigned because of disagreement over the
States Reorganisation Committee, it was widely perceived that it was because of his
opposition to the plan. On his resignation, see CD. Deshmukh to Prime Minister,
22 January 1956, Subject File 23, CD. Deshmukh Papers. Also see Milton and Rose
Friedman, Two Lucky People: Memoirs p. 263. Disagreements amongst the economists
came into the open soon thereafter at the 38th Indian Economic Conference at which
many economists who had signed the Economists' Panel Report openly repudiated it.
For a report on the Conference see 'Economic Conference at Poona' Economic Weekly,
7 January 1956.
100 So often had Deshmukh put in his resignation during his tenure as finance
minister that when he resigned in 1956. Nehru could not recall how many times his
sullen minister had resigned. As he wrote to his sister: 'Deshmukh has again behaved
in an extraordinary manner and for the fifth or sixth time sent his resignation ... At
present he is just sulking at home'. Nehru to Vijaylakshmi Pandit, 28 April 1956,
H.Y. Sharada Prasad, A. K. Damodaran (eds), Selected Works of fawaharlal Nehru,
vol. 32 (New Delhi: Jawaharlal Nehru Memorial Fund, 2003), pp. 303-304.
See 'K.C Neogy vindicated', Eastern Economist, 19 May 1956.
2 Ezekiel's view was a contrast to the Mahalanobis model of priority to
development of capital goods industry or heavy industry. He argued that priority
be given to consumption industries with export outlets. Such a strategy would lead to
high rates of growth of foreign exchange earnings and thus to high rates of availability
of capital goods through trade. He argued that export promotion of traditional
industries and primary commodities would prove a higher source of growth than
the concentration of domestic production on heavy industry. See Hannan Ezekiel, The
Pattern of Investment and Economic Development (Bombay: University of Bombay, 1967).

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968 MEDHA KUDAISYA
period for economists like me who had attacked
model. Professor Vakil, myself and Shenoy were
official meetings connected with planning. Anyone w
Mahalanobis strategy was condemned as an anti-na
as a CIA agent.' In the end, Mahalanobis' great inf
ensured that his plan was adopted as the official Seco
Crisis of 1956-7 and Its Fallout
The plan period began in April 1956 although

document came later. As it happened, the Mahalan
be overshadowed by a foreign exchange crisis. By Jul
the government were aware that a foreign exchange c
The large sterling balances, which had accumulated
the Second World War and paid for imports in th
Independence, had all been used up. India's compe
exporter of raw materials and its share of world ma
the late 1950s, just as the prices of essential imports
and capital equipment) increased. Sensing the mo
Weekly noted in August 1956:
Planners and economists in New Delhi are in a grim m

generated by the Second Five-Year Plan has disapp
government's ability to bungle through somehow is
misgivings; ominous signs, too clear to be ignored ar
horizon. Prices are rising, shortage of shipping and surface
acute, costs of projects are rising; internal resources rema
a foreign exchange crisis is in prospect.103
As the year unfolded, the situation only worsened

a secret note to the cabinet, the Ministry of Fina
foreign exchange reserves had fallen between Mar
1957 by a total of Rs 350 crore. In May 1957 alon
of Rs 10 crore per week and the total foreign ass
Bank of India stood at Rs 457 crore. Officials feared
need to 'draw upon the stand by credit from the IM
the next week or two'. The ministry submitted a for
Minister that the balance of payments deficit during
of 1957 would be Rs 220 crore even after stringent c
103 India has drawn on her sterling balances in the last four
Rs 276 crore a year. See 'Ominous signs' in Economic Weekly, 2

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programme.104 By the second half of 1957, even more alarming figures
were put forth. In October 1957, India's reserves stood at Rs 328 crore,
dangerously close to the statutory minimum.105 Soon there were fears
of a collapse of India's international standing.106 T.T. Krishnamachari,
now the finance minister, warned the Prime Minister that the foreign
exchange situation was 'pretty alarming' and the economy would grind
to a halt if immediate steps were not taken. The nation faced its gravest
economic crisis since Independence. Urgent steps were taken to avoid
a collapse. Krishnamachari, with his band of trusted civil servants such
as I.G. Patel, B.K. Nehru and L.K. Jha, attended the annual meeting
of the World Bank and the IMF in 1957 and visited many European
capitals to raise credit. Alongside, G.D. Birla led the industrialists'
mission to Washington, DC.107
A direct consequence of the foreign exchange crisis was the derailing
of the Mahalanobis plan. As a rescue package of policy measures
was put together, the finance ministry appropriated for itself the
role of saviour. The crisis provided an opportunity for an attack
upon the work of the PC. In a secret note to the Prime Minister,
the finance ministry laid the blame squarely on the PC, saying that
'the foreign exchange crisis is a result of the Plan itself. The note
claimed that 'estimates of deficits as calculated by the Planning
Commission were underestimates from the beginning' because it had
not 'fully worked out' foreign exchange costs of projects and because
no allowance had been made for defence on the ground that defence
lay outside the plan. Further, it was alleged that, though a large gap
was built into the plan, the PC had given 'inadequate thought' to
raising foreign exchange resources. The foreign exchange gap had
been calculated independently by the PC 'without any consultation
with the External Finance Division of the Ministry of Finance', the
administrative department in charge of foreign exchange. Rather,
the note claimed, the finance ministry had pointed out as early as
104 Note to Nehru from T.T. Krishnamachari, 3 June 1957, with enclosure from
the Ministry of Finance, 'Note for the Cabinet. Sub: Foreign Exchange Position' and
enclosure 'Foreign exchange forecast forJuly-December 1957', inj. Nehru File, 1957,
T.T. Krishnamachari PaDers. NMML. Also see Times of India. 20 March iokT.
105 File J Nehru 1957, T.T. Krishnamachari Papers, NMML.
1Ub Further alarm was raised when the Export Credit Guarantee Corporation
threatened that India would be taken off the list of countries to which export credits
were guaranteed.
107 Medha Kudaisya, The Life and Times of G. D. Birla (Delhi: Oxford University
Press, 2003).

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97O MEDHA KUDAISYA
1955 that the plan that was being contem

large for the foreign exchange resources
had not been heeded by the PC. Rather,
by the Planning Commission to reduce l
to conserve resources for the financing o
took credit for being the first to 'issue war
and bringing the position to the notice
Krishnamachari personally complained to
ministry had been kept in the dark abou
the plan.109 Ministry officials claimed ha
personnel even before the crisis unfolded
bound to emerge given the requirements
one key finance ministry official, recalled p
Pant, one of the grand pundits of the PC, at
that their 'was no money in the kitty'; the
'computer print outs' were unrealistic an
down to reality'.110
As the depth of the crisis became publi
target of attack from a number of quarters,
Gadgil, Bombay economist and long-time
that it had 'failed in almost every respect'.
to put together meaningful plans or watch
to adoption of wrong and inappropriate poli
108 See 'Secret' note attached to letter from T.

11 January 1958, Correspondence 1958, 1959, i960
NMML.
109 G. Balachandran, Reserve Bank of India 1951-1964 (Delhi: Oxford University
Press, 1998)^.713.
11U Titambar Pant ... used to come to me every other day with a handful ot
computer print outs which showed what kind of paradise India would become as
a result of the marvelous Plan which he and his colleagues were concocting. After
a time I told him not to bother me with these pieces of paper. His whole Plan was
absurd. There was no money in the kitty even to keep the economy going and the
Planning Commissions should at some stage come down to reality.' B.K. Nehru, Nice
Guys Finish Second: An Autobiography (Delhi: Viking Penguin, 1997), p. 283.
111 Gadgil alleged that it 'failed to put together detailed and meaningful plans
after due technical and other examinations; it did not produce objective criteria for
relating to composition of programs allocations etc; it failed to produce annual plans
with appropriate breakdowns and failed to watch the progress of the Plan even in its
broadest elements; it failed to give advice insistently on right policies being followed
and at times even participated in the adoption of wrong and inappropriate ones'.
Gadgil's speech reported in parliamentary debate, 22 September 1958, Lok Sabha
Debates, vol. XXI, pp. 7855-7856.

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and the Parliament, it was subjected to widespread critici

parliamentary debate in September 1958, member after m
the blame for the foreign exchange crisis on the PC. Hiren M
the influential leader of the Communist Party, said his
warned the PC as early as in July 1955 of the problems it w
face.113 Member of Parliament Mohammad Imam went s
allege that the 'Planning Commission has set up a trap and
government to walk into it'.114 Plans were formulated 'w
scrutiny, without any basis'. The PC was blamed for bein
from reality, for being non-consultative and short-sight
'pigmy and unscientific methods' and for not following advic
by ministries and bodies such as the Finance Commission.115
of Parliament Assar from Ratnagiri moved a resolution d
the reconstitution of the PC.116 A number of parliamentari
for the resignation of its members which would, they c
'the greatest service' it could render to the country. Th
the discussion is encapsulated in the declaration of parlia
Naushir Bharaucha: 'The Planning Commission is moving
has acquired a one track mind. It moves about round an
maddening circles'.117
Although the PC took the brunt of the blame for the
crisis, insiders knew that the real culprit was the import lib
introduced with the Export Import Policy of April 1 956 by th
of Commerce, then headed by none other than T.T. Krish
They knew well that, in fact, it was not the plan that led to
Although some of the projects had begun to be implemented
plan period began (especially steel and fertilizer), there ha
enough investment in the plan projects to have resulted in a
soon. Rather, it was the liberalization of imports that beg
the plan itself that led to the foreign exchange crunch.
were now hurled between CD. Deshmukh, former financ
and Krishnamachari and civil servants such as B.K. Nehru on where
the blame lay. Insiders knew it was the export import policy that
112 The fortnight at home. No plan for the Planning Commission', Times of India,
18 April 1Q&7-
113 See proceedings of 18 September 1958, Lok Sabha Debates vol. XXI.
114 Lok Sabha Debates vol. XXI, îq September 10*8, pp. 7^6-7^7-
115 For instance, see proceedings of 18-19 September 1958, Lok Sabha Debates
vol. XX.
116 Lok Sabha Debates vol. XX, 18 September 1958, p. 7247.
bee proceedings ot 10th September 1958, Lok Sabha Debates vol. XX, pp. 7247.

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972 MEDHA KUDAISYA
had led to unrestricted and 'abrupt liber

exchange crisis.118 The policy had been la
then Minister of Commerce and Industry,
growth.119 While this was well known uno
were put forth in public were, as we have s
A direct outcome of the crisis was the shi
from the PC to the Ministry of Finance
scapegoat and was ultimately forced to acce
on Foreign Exchange Reserves', published
after a 'thorough appraisal' that the cris
to the attempt to carry out the Second F
demands for defence and 'injudicious sp
equipment for pretentious buildings and ex
goods. The PC agreed that there was a large
not much thought had been given on how t
policies to bridge the gap.120
In such a situation, the crisis became an op
ministry to assert itself. It was decided tha
118 CD. Deshmukh blamed the crunch on th

liberalization' that T.T. Krishnamachari, then Minis
started from December 1 955. He claimed that his fin
to 'relax its controls by extensive devolution'. H
Minister that the economic committee of the cab
the foreign exchange budget and import licensin
redundant body that hardly ever met since 195
4 January 1958, File 88, CD. Deshmukh Paper
denied all such allegations asserting that 'from the
significant liberalization' and claimed that whatev
of Deshmukh. Krishnamachari to Nehru, Secret, 1
1958, 1959, i960, T.T. Krishnamachari Papers, NMM
to C.D. Deshmukh, 13 January 1058, in File 88, C
119 In 1956-57, imports had exceeded exports by
P.C. Mahalanobis in his Anniversary Address to th
January 1958, 1.G. Patel, Glimpses of Indian Economic
l 2.
120 See 'Government of India. Press information Bureau, Roundup

comments on Planning Commission's note on Foreign Exchange reserves
1958, File 89, C.D. Deshmukh Papers, NMML. Ashok Mitra in a paper writ
National Council of Applied Economic Research entitled Foreign Exchange Cri
Plan suggested a number of remedies. He suggested reduction of imports
of exports, deferment of payment due or likely to arise, arrangement for im
exploration of the possibility of substituting domestic for imported resou
projects, less import for capital intensive projects, request to foreign
defer remittance of profits, etc. See National Council for Applied Econom
Foreign Exchange Crisis and the Plan (New Delhi, 1957).

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plan would be restricted to a minimum 'core'. The task of de

the 'core' fell to finance ministry officials led by B. K. Nehr
though the prime minister had wanted the PC to deal with this.
Nehru later confessed that he spent a fortnight engaged in 'the
cruel infanticide' in which development projects worth an est
$630 million dollars were shelved.121 The finance ministry w
entrusted with the task of preparing a foreign exchange bud
the watered down plan. Interestingly, foreign exchange budgetin
again entrusted to civil servants within the Ministry of Fina
not to the Economic Division.122
Summing Up
This experience of the 1956-57 foreign exchange crisis and the

manner in which it was handled marked a decisive shift in institutional
arrangements of power. The locus of decision-making shifted away
from the PC to the Ministry of Finance. The experience also ended
all the 'glamour of planning' and there were few grandiose schemes
thereafter. Mahalanobis himself lost all interest soon after submitting
his famous model. Much to the astonishment of his colleagues at the
LSI, he withdrew from all active involvement with planning. He fell
out with Nehru thereafter because of differences over the working of
the PC.123 Mahalanobis' disciple Pitambar Pant now spoke of basic
needs and income distribution and the objectives of employment
and better distribution of income became paramount once again.124
The grand Mahalanobis plan was never seriously implemented. The
changed priorities were apparent when Mahalanobis himself chaired a
committee on the distribution of income. As I.G. Patel recalls: 'Truth
to tell, the enthusiasm for planning and bold plans which abated
then never really caught a second breath in India.' What remained
121 See B.K. Nehru, Nice Guys Finish Second: An Autobiography , pp. 283-284. Nehru
writes: 'What we produced ultimately was probably a quarter of the grandiose but
intrinsically worthwhile schemes on the working of which so much time and labor had
been spent. Our report was submitted to the Planning Commission'. Yet, even these
schemes were not assured but were dependent on foreign aid. Also see K. N. Raj, The
foreign exchange crisis and the plan' , Economic Weekly, 23 February 1957.
xu On this, see I.G. Patel, Glimpses of Indian Economic Policy ', p. 49.
Uô Rudra, Prasanta Chandra Mahalanobis, p. 433
124 I.G. Patel, Glimpses of Indian Economic Policy, p. 84. In his review of Gunnar
Myrdal's Asian drama, he agreed that India's promised social and economic revolution
had failed to materialise. Sunil Khilnani, The Idea of India, pp. 86-87.

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974 MEDHA KUDAISYA
of planning despite the continuing five-

than budgeting for central and state expen
By the time the Third Five-Year Plan wa
ministry was in full control. The fate o
ministry's corridors and the credit it co
Morarji Desai cautioned the Prime Minis
and not be driven by political expediency
He made clear that resources must be calculated on the basis of
facts, rather than speculation. As he recalled: 'I said that the Financ
Ministry could not adopt the methods of the stock and share brokers
association'.125 Officials in the finance ministry were asked by senior
members of the PC including Deputy Chairman 'would we or would
we not be able to have a Third Plan or were we simply building castles
in the air'.126
The PC of course continued to function and the façade of
planning was kept up with input-output models, perspective planning,
optimisation, etc. It continued to be involved in the distribution of
financial resources between the centre and the states, something
which the Finance Commission could well have done. Five-year plans
continued to be produced in the decades that followed but the heyday
of the 'mighty adventure' of planning had passed. As events unfolded
in the 1960s, the war with China and the demise of Nehru, followed
by the Shastri interregnum, created a context in which planning
was accorded a lower priority. Shastri was himself sceptical of all
centralized planning and within months of assuming office appointed a
National Planning Council widely seen as a rival to the PC.127 In 1966,
the work of the PC came under the scrutiny of the Administrative
Reforms Commission. The Ministry of Finance and the Ministry of
Commerce and Industry continued its struggles with the PC. Later,
Krishnamachari likened the PC to the meddlesome and opinionated
125 Morarji Desai, The Story of My Life (Delhi: Macmillan, 1979), vol. II, p. 1 17.
ut As B.K. Nehru recalls: 'As late as the autumn of i960, it was still very uncertain
whether we would get the massive assistance of five billion dollars which we needed
for the successful completion of the Third Five -Year Plan. On one of my visits to India,
Gulzari Lai Nanda, then Deputy Chairman of the Planning Commission asked me
what the prospects were. Would we or would we not be able to have a Third Plan, or
were we simply building castles in the air. I said that I felt I was doing all I could.'
B. K. Nehru, Nice Guvs Finish Second: An Autobiography, pp. 314-3 1Fv
127 On this see Medha Kudaisya, 'Reforms by stealth': Indian economic policy, big
business and the promise of the Shastri years, 1964-1966' in South Asia: fournal of
South Asian Studies Special Issue: Society, Realm and Nation in Colonial and Postcolonial South
Asia: Essays Presented to Professor Anthony Low, New Series, vol. XXV, No. 2 August 2002.

3.6.55.203 on Tue, 10 Nov 2020 03:05:16 UTC
Jeeves, the P.G. Wodehouse character, ever ready with solutions

everything right.128
To sum up, this essay has argued that planning as an idea a
process could not be strongly institutionalised and in this exper
the decade of the 1950s was formative. Further, over time
occurred a blurring of the distinction between developmental p
as embodied in the planning process and general policies of e
management pursued by the government. Further, the exper
the 1950s showed that planning meant different things to di
people. Protagonists of very different orientations and ide
leanings appropriated planning to the language they used t
to development. No strong consensus emerged in the 1950s a
later in the 1960s over the nature, direction and scope of plann
individual ideas, influences and political exigencies were decisive
may help us rethink some of our perceptions about India's expe
with developmental planning in the twentieth century.
Acknowledgements
I would like to thank Anthony Low for his critical com

and his support and Kaushik Basu and G. Balachandran for
encouragement.
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976 MEDHA KUDAISYA
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'A Mighty Adventure': Institutionalising the Idea of Planning in Post-Colonial India,

Stable URL: https://www.jstor.org/stable/40284916

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CA Mighty Adventure': Institutionalising the

National University of Singapore

This essay seeks to unravel the chequered histories of developmental

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years and that the attempts to institutio

1 1 Partha Chatterjee, The Nation and Its Fragments:

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in the penultimate decade of India's anti-colonial strugg

4 For a general background to ideas of development, see B. Zachariah, Developing

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institutionalise the idea of planning, the m

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experience is that it embarked on a seamless process of eco

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a brief interregnum, the ideology of self

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Let us start by looking at the PC's origins. Although there

13 Despite a number of recommendations, Nehru could not succeed in

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the Constituent Assembly in 1947, 19 G.L. Mehta, businessm

19 As Diwan, Krishnamachari had initiated a much admired programme of port

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main directing agency for p

The PC soon began to play

24 Nehru to Chief Ministers, 27

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The growing perception was that almost all important is

28 Asok Kumar Ghanda, Federalism in India. A Study of Union-State Relations (London:

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its powers to grant largesse to the states,

32 The coordination of the functions of real resource budgeting and financial

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him that 'at no time has there been any

42 Nehru to John Matthai, 4 June 1950 in Joh

45 Times of India, 5 November 1952.

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small units, etc. Though under implementation, the progra

47 On the common production programme, see Government of India, P

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Another contentious issue arose around th

production programme was later incorporated by

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have the status of Ministers' and thus his ministry 'should t

53 Nehru to T.T. Krishnamachari, Secret and Personal, 30 Decemb

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58 Nehru too agreed that that financial advisers in minist

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and Auditor General'.61 This was a concerted attempt to 'red

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that grants-in-aid always exceeded other grants led to the v

68 See A.K. Chanda in S.C. Kashyap (éd.), Union-State Relations in Indi

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As the PC reached the dizzy heights of power within a few year

form of conditional grants with a view to ensuring coordination of plan prioritie

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Soon, the ISI became the Mecca for economists an