That Biggest Mistake of Nehru causes drastic downfall of indian economy

The second five-year plan is based on so-called Mahalanobis model. This was the USSR model Indianized by PC Mahalanobis
The second five-year plan is based on so-called Mahalanobis model. This was the USSR model Indianized by PC Mahalanobis

The success of the First Five-year plan boosted the confidence of the leaders. The agriculture growth target in the first plan was achieved, so government quickly started looking beyond agriculture. The second five-year plan focused on industry, especially heavy industry. The target of 25% Increase in the national income was set through rapid industrialization.

The second five-year plan is based on so-called Mahalanobis model. This was the USSR model Indianized by PC Mahalanobis, the founder of Indian Statistical Institute and a close aide of Nehru. This model is known to have set the statistical foundations for state-directed investments and created the intellectual underpinnings of the license-raj through an elaborate input-output model.

Nehru signing 2nd five year plan
Nehru signing 2nd five-year plan

This Model suggested that there should be an emphasis on the heavy industries, which can lead the Indian Economy to a long-term higher growth path. India’s second five-year plan and Industrial policy Resolution 1956, which paved the way for the development of Public Sector and license raj; were based upon this model.

Notable Points

  • Steel mills at Bhilai, Durgapur, and Rourkela were established in the second five-year plan.
  • Enhanced coal production and more railway lines were introduced in this plan.
  • Atomic Energy Commission was formed in 1957 with Homi J. Bhabha as the first chairman.
  • Tata Institute of Fundamental Research was established as a research institute.
  • In 1957 a talent search and scholarship program were begun to find talented young students to train for work in nuclear power.


The second five-year plan, based on socialistic pattern, had targeted increase of 25% in National Income by Rapid industrialization, however, the achieved target was of only 20%. Further, per capita income grew by 8% only.  Domestic production of industrial products was encouraged, particularly in the development of the public sector.

nehru was at planning commission
nehru was at the planning commission

Critical Assessment of Second Five Year Plan

While there is no doubt that the Second Plan did secure certain far-reaching gains in the industrial field, but the “momentum was so slow and the impact of economic growth on the standard of living of the majority of our people so imperceptible” as to generate a widespread feeling of cynicism regarding the achievements of planning in the country.

 The second five-year plan was a big leap forward and it laid a heavy emphasis on the heavy industries. During this plan period, the Industry policy resolution was amended and the primary responsibility for development was left to the Public Sector. The private sector was more or less confined to the consumer industries only. The small and cottage industries remained sluggish during this plan. The imports increased and lot and this uncovered India’s Sterling Balances. The results were seen in the third plan when India was forced to devalue its currency twice.

All proposals relating to the equal distribution of the means of production pertained to ownership of land only while the large organised business and its foreign collaborators were reassured with promises of “fair treatment” and concessions. In fact, Government policies were so distorted as to benefit big business and trading community at the cost of the most disadvantaged class.

Not only had the economic inequalities increased, the regional disparities too went up. Some states like U.P. actually came down —its domestic product increasing by less than 2% per year as compared with the national average of 3.5% during the decade 1951-61. In contrast, the domestic product of Punjab increased at an annual rate of 10%.

The Planning Com­mission failed to exercise effective supervision; close liaison between the Centre and the states was absent and the administration was characterised by red-tape and inordinate delays. That is why there were serious delays in commissioning various industrial projects and achieving plan targets.

fall down of indian economy

To sum up, during the Second plan, much was achieved, but the Indian economy was still a very long way from “take off”. In fact, there were many ominous signs. The prices continued to rise alarmingly; the pressure on foreign reserves had been no more than temporarily eased, and given the size of the Third Five-Year Plan, another foreign exchange crisis appeared imminent.

Dis­tribution of national income had become more rather than less unequal. The administrative apparatus was proving unequal to the new and unfamiliar tasks. And among the population at large, communalism, casteism, linguist and other fissiparous tendencies were making headway. These were some of the problems that confronted the country on the eve of the Third Five Year Plan.



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