Liberal or Moderate phase of the Movement

and Industrialization
• The aim of industrialization goes back to the beginnings of the
nationalist movement in India. During the liberal or moderate
phase of the movement, from 1885 to 1905, the goal of
industrialization through large –scale industries was taken to be
a self-evident proposition.
• Indeed, by the end of the 19th century, the demand for rapid
industrialization of the country along modern industries had
assumed national proportions.
• The Congress leadership deemed such industrialization as
essential for a variety of reasons: removing poverty and
unemployment, eliminating the exclusive dependence on
agriculture, developing the productive powers of the nation,
achieving a higher level of civilization, and promoting national
integration.
 Liberal or Moderate----(contd.)
• Towards that end, the moderate leadership endorsed the
prescriptions of the nineteenth century German economist
Friedrich List for state intervention in the economy for purposes of
development, refusing to buy the laissez-faire logic preferred by
the British colonial authorities.
• By the first decade of the 20th century, the moderate phase of
nationalism had been overtaken by extremism and militancy.
During this phase it was felt that Britain did not simply fail in
actively helping with industrialization, but that it was a fact that it
thwarted industrialization as a matter of deliberate state policy.
• As early as in 1936, in his presidential address to the Congress
party at Lucknow, Nehru declared that he believed in the rapid
industrialization of the country which would substantially
improve the standards of the people and combat poverty.
Nehru, Socialism and the Mixed Economy

• Fundamentally, Nehru’s vision of the public sector

stood on a different footing from that of the Bombay
Plan or Tata-Birla Plan (developed in 1945). For the
Bombay planners, the role of the state in the
economy was only temporary and for specific
purposes. Their aim was to build a more flourishing
industrial capitalism.
• Nehru, on the contrary, envisaged an ever-
expanding public sector. Both absolutely and relative
to the private sector, in possession of the
commanding heights, fundamentally as a route to a
socialist society.
 National Planning Committee
• After he became Chairman of the National Planning
Committee in 1938, Nehru increasingly turned his
attention to the question of adapting socialism to Indian
conditions.
• He came to the conclusion that the mode of transition to
socialism was to be by way of a ‘mixed economy’, though
it was not yet termed as such, under which all key
industries were to be state-owned and state-managed.
• As the public sector expanded under a regime of planning
in the mixed economy, the private sector would be
reduced to an economic appendage, and thus a peaceful
transition to socialism would take place.
 Nehru’s Commitment to Democracy
• At the same time, in contrast to orthodox Marxists who were
votaries of revolution, Nehru was committed to democracy as
the political route to the socialist society.
• Having arrived at this model before independence, Nehru had
to be quiescent about socialism for several years after
independence because of the turmoil of Partition and the
factional divisions within the party and government.
• It was only in 1954, after he had consolidated his power both in
the party and government, did Nehru begin to give public
expression to the kind of society he eventually envisioned for
India. In November that year, he made it clear that he rejected
capitalism, because a system which is based purely on the
acquisitive instinct is immoral and he regarded its days to be
numbered.
 Lok Sabha Resolution
• A month later, the Lok Sabha passed a resolution supporting
Nehru’s vision, and in January 1955 the Congress party in a
historic resolution stated that ‘planning should take place with a
view to the establishment of a socialistic pattern of society,
where the principal means of production are under social
ownership or control, production is progressively speeded up
and there is equitable distribution of the national income’.
• Significantly, referring to the two resolutions by parliament and
party, Mahalanobis acknowledged in the model document that
‘these decisions settled, in principle, the type of economic
development of India in future’, and in the plan-frame he
recommended: ‘The public sector must be expanded rapidly and
relatively faster than the private sector for steady advance to a
socialistic pattern of economy’.
 The Second Five Year Plan and the Industrial
Policy Resolution, 1956
• The Second Five Year Plan repeated the theme: ‘the basic
criterion for determining the lines of advance must not be private
profit but social gain… The public sector has to expand rapidly… it
has to play the dominant role…the public sector must grow not
only absolutely but also relatively to the private sector’.
• The Industrial Policy Resolution of 1956 then reserved solely for
the public sector ‘all industries of basic and strategic importance,
or in the nature of public utility services’; not only that, ‘other
industries which are essential and require investment on a scale
which only the State, in present circumstances, could provide,
have also to be in the public sector.
• Meanwhile, the private sector was placed under a rigid system of
licensing and strict controls over installation and expansion of
industrial capacity.
 The Third Five Year Plan and the Role of the
Public Sector
• The Third Five Year Plan (1961) later elevated the role of the public
sector to a higher level, both politically and ideologically. It posited an
‘even more dominant role’ for the public sector in economic
development, and projected it ‘to grow both absolutely and in
comparison and at a faster rate than the private sector’.
• The end purpose in assigning this role to the public sector was the
achievement of a socialist society: ‘In an underdeveloped country, a
high rate of economic progress and the development of a large public
sector and a cooperative sector are among the principal means for
effecting the transition towards socialism’.
• Thus, once the principal means of production would come to be
publicly owned while the private sector had been drastically reduced
to a relatively insignificant position, the transition to socialism would
be completed. Indeed, Nehru believed in respect of the future of the
private sector that it would gradually and ultimately fade away.