Three Elements-Economic Planning, Autarchy

and Building Socialism-

• These three elements form the core of economic
nationalism. Autarchy is equated with economic
nationalism. It is used interchangeably with economic
independence and economic self-sufficiency involving
‘a deliberate rejection of external relationships’.
• Planning is ‘an assertion of economic nationalism’- a
formal expression of sovereignty by the state, and of
an intention to exert ultimate direction and control.
• These three features define, in some measure, the
Indian development pattern. Development pattern has
three dimensions.
 Development Pattern in India
1. Three dimensions of development pattern:
i. The kind of industries accorded prominence;
ii. The orientation of these industries to the world economy
(whether they are oriented inward or outward); and
iii. The economic agents chosen for development.
• In the Indian development pattern i) the emphasis was placed
on capital goods, heavy, basic, investment goods industries
( metal-making and heavy engineering industries) in Indian
planning;
ii) These industries were inward oriented and were expected to
make the Indian economy self-sufficient as well as self-reliant for
future sustained growth; and
iii) They were to be both owned and managed by the state. This
pattern was executed with full force only between 1956 and
 The Rationale Behind This Development
Pattern
• There are two major interpretations in the literature:
i. One interpretation focuses on economic theory or economic ideas
of the time as being influential in the policy change (theoretical
justification or validation). A key proponent of this view- Sukhamoy
Chakravarty, a distinguished internationally renowned economist
and economic planner. Bimal Jalan, another economist and
economic planner was another proponent of this view.
• The immediate intellectual basis for the economic strategy that
led to the Indian development pattern had been the ‘plan-frame’
for the Second Five Year Plan (1956-61) and the underlying
economic model (Mahalanobis model). Both were put forward by
the eminent economic planner P.C. Mahalanobis.
 The Second Interpretation by Marxist
Activists and Scholars
• This view debunks any claims to building socialism and
forthrightly proclaims the intent in the economic strategy
as building, instead, capitalism on behalf of the
bourgeoisie or capitalist class. E.M.S. Namboodiripad, the
eminent communist leader declares that Nehru
represented, and acted as the spokesman of a particular
class-the Indian bourgeoisie’ and defended their class
interests.
• Marxist scholar Prof Prabhat Patnaik states that ‘the
class-configuration which prevailed, upon which
industrial capitalism was to develop, dictated in broad
terms a certain course of action, and the Mahalanobis
model fitted in with this’.
 Mahalanobis Model: A Commitment to
Economic Nationalism
• The first of the two interpretations about the affinity between
the Mahalanobis model and the then prevailing economic
theory serves merely to detract from a deeper analysis into the
origins of the model.
• In a more profound sense, the Mahalanobis model was, indeed,
founded on the historical commitment of the freedom
movement to economic nationalism.
• With due regards to the theoretical merits of the Mahalanobis
model it needs to be stated that the model simply provided a
theoretical scaffolding for an economic architecture already
determined on political grounds, without the benefit of or any
reference to economic theory.
• Thus a more appropriate explanation for the strategy is a ‘theory
of power’ instead of the ‘power of theory’.
 A Mechanical Application of the Marxist
Theory
• The Marxist critique errs in making a mechanical
application of the Marxist theory of state power and
class agency. It is derived from the single model of
industrialization of Britain, to the entirely different
situation of India.
• Consequently it neglects the specificity of India’s class
structure, power configuration and ideological currents.
• The importance of the ideological commitment of certain
strategically placed political leaders to socialism in the
context of a different balance of class forces that
essentially excluded the capitalist class from state
power.
 Mahalanobis Model
• Mahalanobis model belongs to the general family of economic
models encompassed under Harrod-Domar model.
Mahalanobis had developed the conceptual foundation of his
model independently without any awareness of the Harrod-
Domar model, but when it was brought to his attention he
graciously acknowledged its temporal priority.
• The H.D. model is focused on capital accumulation as the
engine of economic growth. Its aim was to determine for
developed economies the rate of investment necessary to
assure such increase in national income so as to provide full
employment.
• Mahalanobis model focused on the operational requirements
specifically of the Indian case without any larger claim of
contribution to economic theory.
 Mahalanobis…(contd.)
• Mahalanobis argued that India needed to increase its annual
rate of investment as a proportion of national income from 5
per cent to 10 or 11 per cent if it wished to double its per capita
income in 35 years. In this model the entire economy was treated
as a single sector.
• But in 1953, Mahalanobis went on to elaborate the single sector
model into a two-sector one, differentiating the two sectors on
the basis of whether they produced investment goods or
consumer goods, along with making the implicit assumption of a
closed economy.
• With considerations of long-term development as its foremost
preference the model gave preference for the investment goods
industries sector. In this, the model was similar to the Feldman
model developed in the Soviet Union in 1928.
 Elaboration of the Two-sector Model
• For purposes of allocation, the two-sector model was
now further elaborated, so that while the basic
investment goods industries sector was retained as
such, the consumer goods sector was divided into
three sectors:
i. Factory consumer goods industries;
ii. Household industries, including agriculture; and
iii. Services.
• Foreign trade did not figure in either the
architecture of the model or its details.
The Rationale Behind Such Export Pessimism

• One of the main objectives in the thrust for the investment

goods industries was not just to assure long-term
development but also to cut down, indeed eliminate,
dependence on the outside world in the future.
• This stance of attempted autarchy has been attributed to
what has come to be characterized as export pessimism or
export fatalism on the part of Indian planners.
• After favouring two of the three components of
development pattern as regards to the third component
i.e. ownership, Mahalanobis felt it was a matter of choice
for party and government policy. However, Mahalanobis
himself endorsed the choice for state ownership of heavy
industry.
 Perceptions During the Second Plan
Regarding Structural Backwardness
• The perceptions prevalent during the second plan about the
underlying main causes of structural backwardness were as
follow:
i. The extreme shortage of material capital as the basic
constraint on development;
ii. The low level of savings as a factor retarding capital
accumulation;
iii. The presence of structural limitations on converting
savings into investment even if savings could be raised;
and
iv. The necessity of industrialization in order to employ
underemployed rural labour, since agriculture faced long-
term diminishing returns.
 A Direct Link Between Perceptions and
Planning
• Chakravarty sees a direct link between the perceptions
mentioned above and planning through the medium of
economic theory.
• Chakravarty also emphasizes that there was a wide consensus
which was prevalent on these perceptions at that point in time
• Chakravarty avers that Indian planners operated on the
assumption of a low elasticity of export demand accompanied
by a system of strict import allocation. Thus they were in
reality operating on the assumption of a nearly closed
economy.
• However, he underlines the need to raise the real savings rate
that led Indian planners to accord primacy to a faster rate of
growth in the capital goods sector.
 Origins of India’s Economic Strategy-Bimal
Jalan’s View
• In his attempt at understanding the origins of India’s economic
strategy, Jalan focuses on several aspects: the emphasis on
industrialization and the corresponding neglect of agriculture, the
inward orientation of the strategy and its relationship to export
pessimism, and the activist role of the state as entrepreneur.
• Jalan explains that the initial choice of the strategy was a response to
the prevailing intellectual perception of the initial conditions and
the role of the state in development. India’s own political and social
history also supported the case for an inward-looking strategy of
industrialization, with the state in command.
• Importantly, he underlines that foreign trade had only a small place
in Indian planning, because it was believed that the trade regime
had a built-in bias against underdeveloped countries and partly
because of the intellectual conviction that export prospects were
severely limited.