Economic planning in India with the help of Five-Year Plans was the brainchild of Jawaharlal Nehru, India’s first prime minister. Impressed by the erstwhile Soviet Union’s rapid industrialisation, he wanted to replicate this planning model in India. The National Planning Committee was formed in 1937, which, in some ways, was the precursor to the Planning Commission. Apart from Nehru, this committee included Subhash Chandra Bose and noted physicist Meghnad Saha. It was succeeded by the Advisory Planning Board in 1946.
Simultaneously, another important planning model was formulated by a group of industrialists, with the help of a few economists. Known as the Bombay Plan, it was authored by top industrialists such as JRD Tata, GD Birla and Lal Shri Ram. The economists who helped draft the plan were John Mathai (who went on to become the finance minister in Nehru’s cabinet), Ardheshir Dalal, AD Shroff and PS Lokanathan.
Curiously, the Bombay Plan hardly gets any mention in standard textbooks. Two recently-published books dredge up this long-forgotten document and bring it back to the public domain. Business historian Medha Kudaisya’s Tryst With Prosperity and a book edited by policy analyst Sanjaya Baru and economist Meghnad Desai titled The Bombay Plan: Blueprint for Economic Resurgence give us the history of this fascinating document.
The Bombay Plan came out in two parts — the first, in early 1944 and the second, later that year. The timing of the document is crucial. By 1944, World War II was winding down and Indian independence was around the corner. It was in this political backdrop that the country’s top industrialists decided to get together and prepare a plan for the economic development of independent India.
The document is fascinating — it laid out the roadmap for India’s development after independence. It envisaged three Five-Year Plans, after which the economy would revert to a free-market model.
Curiously, the industrialists envisioned a major role for the state in the building of the economy. The plan, in many ways, provided the blueprint for the Nehruvian ‘command economy’ model, though there is no official acknowledgement of this. Now, why did a group of industrialists give so much importance to the state? The authors of both books cite several reasons. By the 1940s, the Keynesian view, where the state stepped in to bail out a crisis-ridden capitalist economy, had gained popularity, especially given the devastation wrecked by the Great Depression of the 1930s. Also, to rapidly industrialise an underdeveloped country such as India, the state had to play a major role, as the private sector did not have the financial muscle to undertake long-gestation infrastructure projects. In this context, the industrialists perhaps saw the state as a partner in development rather than an adversary.
The Bombay Plan wanted the state to invest heavily in basic capital goods industries such as iron and steel, cement, coal, chemicals, and heavy engineering. But the sectors in which the Plan made some path-breaking proposals were social and agriculture.
Its authors were clear that the state had to play a dominant role in the social sector and provide primary education and healthcare to all Indians. The official Five-Year Plans’ tragic neglect of the social sector is in sharp contrast to the Bombay planners prescience on the issue. India paid a heavy price for this neglect — it still has a poor ranking in the UN human development index, especially compared with other East Asian countries that started at a similar economic base in the 1950s.
With regard to agriculture, though the Bombay planners did not advocate outright land reforms (neither did the official plans for that matter), they made two important suggestions. First, they favoured the ryotwari system over the prevalent zamindari system, which they thought encouraged absentee landlordism and provided little incentive for investments. Second, the Bombay planners advocated cooperative farming in a big way. Sadly these suggestions, too, were ignored.
While industrialists looked forward to the post-Independence period, things unravelled quickly. By mid-1950s, they were a disillusioned lot. This is because, by this time, Nehruvian planning was deeply entrenched and the state had spread its tentacles to all sectors of the economy. Though the Bombay planners had favoured a big role for the state, they had not anticipated the labyrinthine ‘Licence-permit’ Raj that stifled private initiative.
Some industrialists such as JRD Tata openly opposed Nehru’s economic policies, going to the extent of supporting the libertarian Swatantra Party. Others, such as GD Birla and Shri Ram, though critical, decided to cooperate with the government. Baru says this is when the seeds of India’s ‘crony capitalism’ were sown. By the 1970s the business class, from an earlier vanguard role, became completely subservient to the ruling class. Indian industrialists had become so cosy under the Licence-permit Raj that the 1991 reforms left them nervous.
History is full of ‘what ifs’. It is interesting to speculate how India’s economy would have traversed if the government then had chosen to adopt the Bombay Plan model.