Introduction
This article recounts the experience of economic planning in India in the late 1960s, a time of vigorous contestation over ideas, instruments, and choices of economic paradigms. These were critical years in terms of the political transition experienced by India. In February 1967 national and state assembly elections were held in which the Congress's share of seats in the Lok Sabha decreased to 281 in a house of 520. So drastic was this reduction that a defection of merely 25 members in the Lok Sabha could have brought down the government. The Congress also lost its majority in eight state assemblies—Bihar, Uttar Pradesh, Rajasthan, Punjab, West Bengal, Orissa, Madras, and Kerala.Footnote 1 This was followed by an intense factional struggle within the ruling Congress party between the so-called Syndicate and Indira Gandhi, keen to consolidate her authority in both the government and the party.Footnote 2
These critical years marked an important episode in decentralization and an attempted reorganization of the planning process. This was an effort grounded in technocratic ideas of decentralization, the articulation of a more realistic approach to planning, an emphasis on fiscal prudence, and the working out of an equitable formula to allocate fiscal resources to the states. This article examines how these critical economic initiatives relating to the planning process and the Planning Commission unfolded and the manner in which political contests ultimately overshadowed the way issues concerning planning came to be decided.
Planning formulae and instruments
From the early 1950s there was a debate across various forums revolving mainly around two issues—models, assumptions, and choices of plans, and the role of the Planning Commission as an institution. One well-known planning model was the Mahalanobis model, which focused on the need to achieve self-sufficiency in the production of capital goods as the first priority, with a view to enhancing the output of consumer goods at a later stage. But there were also dissenting views. An important group of economists, P. R. Brahmanand, B. R. Shenoy, and C. N. Vakil—sometimes called the Bombay economists—argued for the wage goods model, which would have given priority to consumer industry; this stance was held by others, such as Hanan Ezekiel who also wanted priority for consumption industries with export outlets.Footnote 3 Their model was not as sophisticated or as rigorously presented as the Mahalanobis model, but it would have meant increased investment in agriculture, the promotion of rural infrastructural schemes and agro-industrial enterprises, and the expansion of the manufactured consumer goods sector. It would have emphasized exports and home consumption and given low priority to the machine goods industry. There was, as is well known, considerable debate over the most appropriate strategy to adopt at the time of the Second Five-Year Plan, a great deal of which took place among the Panel of Economists, which had been set up by the Planning Commission in 1955.Footnote 4
These critiques grew more persuasive after the foreign exchange crisis of 1956–57 and there occurred ‘much rethinking’ on economic planning and the Planning Commission in different forums—among academicians, especially economists, in political circles, in the Central Legislative Assembly, in the press, and, more discreetly, among bureaucrats.Footnote 5 The critique encompassed the five-year plans, their ideas, their implementation, and their ‘planners’.
The criticism of the plans was based on economic concerns—their preoccupation with size, which was seen as a reflection of monotheism and an inordinate belief in ‘money, monetary reckoning and monetary instruments’, and their being ‘unrealistic’ and committed to model building with ‘crude, simple, decision-making and approximate capital–output ratios’. They were condemned as ‘deterministic’, with their size decided almost by a ‘magic formula’ of doubling the total investment in successive five-year plans. The basis of resource calculation in the plans was criticized, and their ‘too broad’ objectives were critiqued for including ‘everything’—both ‘consumption goods and capital goods, agriculture-based goods and investment-based industries, economic growth and social welfare’.Footnote 6 Their targets for the rate of growth of national income, which had been set at around 7 per cent per annum since the onset of planning, were condemned for being unrealistic and for not being financially feasible.
Alongside such broad critiques, more specific criticisms were put forth, especially within economic circles. For instance, in a symposium organized by P. C. Joshi at the National Book Club in December 1966 and attended by eminent economists such as D. R. Gadgil, V. K. R. V. Rao, B. N. Ganguly, K. N. Raj, Gyan Chand, Dharam Narain, V. M. Dandekar, and their younger colleagues Amartya Sen, Sukhomoy Chakravorty, and I. G. Patel, many concerns were articulated.Footnote 7 D. R. Gadgil raised larger issues such as the lack of a ‘policy frame’, the need for ‘self-reliance’, the need to reassess the role of foreign aid, the importance of a strategy for the rural economy, and the need to control vested interests.Footnote 8 Though the economists present were in broad agreement with the objectives of the Second Five-Year Plan and its strategy to bring about self-reliance by building up basic industry, they emphasized the need for various measures such as a price policy that would allow the use of relative prices as instruments to achieve targets, self-reliance, and the reduction of dependence on foreign aid, as well as the need to regulate consumption, bring small producers into the planning process, and control vested interests among other things.Footnote 9 Even serious analysts described planning as having ‘descended to the level of a bad joke to be tolerated with resignation’.Footnote 10 Though the plans were heavily criticized, there was among most economists an acceptance of the Mahalanobis strategy and the overall thrust of the plans. It was only the Bombay economists who attacked their heavy-industry-oriented import substitution model and put forth an alternative; this was the case until the mid-late 1960s, when Jagdish Bhagwati and other economists finally began to critique the import substitution model.Footnote 11
Alongside criticism of the plans, the Planning Commission was also critiqued, and became a ‘whipping boy’.Footnote 12 Most often, responsibility for all the ‘failures’ of planning was attributed to the Commission. ‘Any reform of planning in India must start with reform of the Planning Commission’, declared an analyst in 1966.Footnote 13 It was condemned as having ‘bloated’ to become a ‘duplicate bureaucracy’, and for being favoured by politicians and those hankering after power; its membership was denigrated as a ‘reward for political or civil service’, and ministers appointed to it were referred to as ‘ornamental appendages’ who had a ‘deleterious impact’ on the institution.Footnote 14 Doubts were raised on numerous counts—about it overstepping its ‘role’ as a non-statutory body, its ‘flabby and decadent’ nature, its ‘lethargy and casualness’, its ‘political’ composition, its ‘unwieldy’ size and ‘unplanned evolution’, its self-appointed role as resource distributor, and its overarching influence. Commentators on the economy condemned the Commission for its lack of technical expertise, for not making any original contribution and instead merely repeating ‘old clichés and cover-ups in suitable phraseology’, for not gathering sufficient information, and for not doing ‘enough homework’ because of its non-technical composition which owed to the ‘large-scale injection of politicians’ into it.Footnote 15 It was also condemned for having the ‘look of a permanent government department—with all the lethargy and casualness that goes with bureaucratic functioning’.Footnote 16 The Planning Commission was also critiqued for usurping the functions of other statutory bodies, such as the Finance Commission, by acquiring the status of an intermediary between the states and the centre with regard to developmental expenditure and resources.Footnote 17
Outside academic circles, the Planning Commission was critiqued by politicians; in the run-up to the 1967 elections, opposition parties took up the criticism. Swatantra condemned the planners for having ‘written the Draft outline with one eye on Washington and the other on the coming elections’ and called the plan part of the Congress's ‘evocative literature for its elections manifesto’.Footnote 18 The All India Jana Sangh was critical too. General Secretary Deen Dayal Upadhyaya demanded that the Planning Commission be abolished, five-year plans be discontinued, and a small committee be charged with the task of planning.Footnote 19 Praja Socialist Party leader Dr Ram Manohar Lohia described the draft's projections as ‘meaningless’ as they would ‘not eventuate’.Footnote 20
Businessmen and prominent chambers of commerce such as the Indian Merchants’ Chamber and the Bengal National Chamber of Commerce and Industry joined the barrage of criticism. Ramakrishna Bajaj, a prominent Bombay mill owner, claimed that the Commission was ‘only a promise’ to the electorate, ‘neither pragmatic nor feasible’.Footnote 21 A. D. Shroff, closely associated with the Tata Group, declared it the ‘brainchild of doctrinaire visionaries’, which ‘violated all well-recognized principles of economic growth’.Footnote 22 Leading industrialist Ramaswamy Mudaliar believed that ‘unless the Planning Commission was abolished there was no prospects of material or moral progress for the country’.Footnote 23 Ghanshyamdas Birla viewed both planning and the Planning Commission as ‘total failures’ and mere hurdles to economic progress. He called the Planning Commission a ‘Commission of negatives’ which was not advancing economic needs.Footnote 24 The press, too, joined the protests.Footnote 25
Even within the ruling Congress party, doubts were increasingly expressed about the nation's capacity to carry forward a new plan and mobilize the necessary resources. Old divisions between the Planning Commission and other economic ministries such as the Ministry of Finance had resurfaced. Sachin Choudhary, the finance minister, was concerned about the size of the plan and ‘could not at the moment visualize the resources to implement a Plan of the proposed size’. He honestly confessed that he had ‘put up a fight on this score’ within the ruling establishment. He candidly announced on the floor of parliament that ‘we shall not hesitate even to postpone and stagger developmental expenditure if it becomes necessary in the interest of a balanced budget’.Footnote 26 It was well known within bureaucratic circles that the finance ministry had been ‘quietly but effectively’ resisting all suggestions for a larger annual plan for the coming year and even ‘slashing programmes earlier approved’ to stem the ‘tide of budget deficits’.Footnote 27 Several other influential political figures had also raised apprehensions about the state of the nation's finances. In his characteristic tone, Congress President Kamaraj warned that ‘prudence should guide our actions’.Footnote 28 Even India's vice president, V. V. Giri, lambasted the Planning Commission in a speech to the Federation of Andhra Pradesh Chambers of Commerce and Industry in September 1967 when he asserted that the ‘Planning Commission has become almost a parallel government intervening and interfering in the State's plans’.Footnote 29
Tensions in Yojana Bhavan
It is not surprising that in such an atmosphere the corridors of Yojana Bhavan, the headquarters of the Planning Commission, became the site of much tension. The Commission had been sidelined during the two-year premiership of Lal Bahdur Shastri, who had appointed a National Planning Council, which was widely seen as its rival. The Indira Gandhi regime did not herald better times, especially given the attitude of the planning minister and the Planning Commission's deputy chairman, Asoka Mehta. Mehta was known to think poorly of the institution he headed. Determined to curb its influence, he made it clear that the secretarial links between the Planning Commission and the Cabinet needed to be terminated. Members were informed that his role as planning minister was distinct from his position in the Planning Commission. In discussions at the Planning Commission, Mehta told members they ‘had no right to enter into the picture so far as Cabinet decisions on vital economic questions were concerned’.Footnote 30 Not unexpectedly, there was a fierce tussle between Mehta and the Planning Commission members.Footnote 31
Mehta kept the Planning Commission ignorant about important issues on which he took unilateral decisions, such as the announcement of the time frame for the start of work on the Fourth Five-Year Plan and the decision to support the high-yielding varieties programme in agriculture. Even the decision to devalue the rupee in June 1966 was taken without consulting the Planning Commission.Footnote 32 This led to an acrimonious divide between the deputy and the members, both technical and civil servants. A mood of frustration engulfed Yojana Bhavan, and its meetings were marked by sharp exchanges. For instance, in a meeting soon after the devaluation, members used ‘impertinent language’ to express their annoyance at having been kept unaware of the decision. Their overwhelming view was that ‘nobody seems to have bothered about the effect devaluation would have on all the plans and projects on which we had been working for two years’. They alleged that ‘economic policy was not made by the Planning Commission’ and complained that ‘the corridors of decision-making did not certainly lie in Yojana Bhawan. They lay elsewhere in Parliament or the Cabinet or with the Prime Minister. It was certainly not in the Planning Commission, though its members were supposed to have the status of ministers of states in the Indian government.’ The deputy showed no sympathy with this view and, in one acrimonious discussion, brusquely informed members that the ‘Planning Commission was not a decision-making body, nor a super-cabinet’.Footnote 33 Thus the first stint of Indira Gandhi's premiership was a difficult time for Planning Commission members. The prime minister did not come to the defence of the Planning Commission, and in August 1966 she announced that it would be dissolved and reconstituted. However, all important decisions were put on hold in view of the looming elections.
Intra-governmental tussles
Let us now look at the years 1967–71. Several important decisions relating to planning had been deferred as a result of the uncertainty in the run up to the 1967 elections. Perhaps the most critical of these decisions was the finalization of the Fourth Five-Year Plan, which had been ready since August 1966 but remained in draft form even though nearly one-third of the period it covered was over. The draft had not yet been placed before either the Cabinet or the National Development Council. It appeared almost as though a ‘Plan pause’ had been conceded.Footnote 34
Soon after the elections, before the Plan could be taken up, the long-awaited report of the Administrative Reforms Committee was published. The Committee recommended a number of changes in the functioning and scope of planning aimed at addressing some of the critiques that had been put forth over the previous few months, especially regarding the ‘political’ nature of the Planning Commission and its ‘centralizing tendencies’. Thus, it advised that the Planning Commission be a ‘non-political’ advisory body which, while keeping close association with the office of the prime minister, should not have the prime minister, finance minister or any other minister on the board itself. Its membership should not exceed seven and its role should be confined to the formulation of the long-term perspective plan, five-year plans, annual plans, and the evaluation of plan performances. It recommended that the Planning Commission cease to involve itself in executive functions and decisions and become a wholly expert body with responsibilities restricted ‘only for formulating the objectives, laying down the priorities, indicating sectoral outlays, fixing basic targets and approving main programmes’. It was to put down the minimum and maximum rates of growth along with the policy implications of the investment programmes and the likely availability of foreign exchange. The Administrative Reforms Committee went so far as to recommend the transfer of effective decision-making power over the content of programmes concerning state subjects from the centre to the states. At the state level, plan formulation and determination of the priorities and policies necessary for implementation were to be carried out by state planning boards, which were also non-political expert bodies.Footnote 35
The recommendations did not please the top-level leadership, and they wasted no time in making this clear. S. N. Mishra, deputy leader of the Congress Parliamentary Party, circulated a note to Congress members of parliament pointing out that, if accepted, the suggestions of the Administrative Reforms Committee would ‘prove fatal to planning’. The exclusion of the prime minister from the Planning Commission, he declared, would be no less than ‘disastrous’ and, at a time when planning was already under attack, it would further ‘denude the prestige of the Planning Commission’, making planning no more than a theoretical exercise.Footnote 36 The leadership reiterated this view at the chief ministers’ Conference in New Delhi in July 1967, which declared that it was ‘strongly against’ leaving the prime minister and other ministers out of the Planning Commission.Footnote 37 The leadership was willing to cooperate with the Administrative Reforms Committee in dissolving the office of planning minister, but on all other issues it disregarded the Committee. Thus, the prime minister was to continue to chair the Planning Commission, the finance minister was to continue as a member of the Commission, and five others were to be invited as members. In this way, the much-awaited reorganization came to nought and became ‘no more than reconstitution and change in personnel of the Planning Commission’.Footnote 38 The formal outcome of the three-year-long deliberations of the Administrative Reforms Committee and the lengthy debate on planning thus turned out to be somewhat ‘insignificant’.Footnote 39
Among the most pressing issues that now needed to be addressed was the position of deputy chairman of the Planning Commission, which had fallen vacant since the election. In the post-1967 election scenario, Desai, who was also deputy prime minister, insisted on keeping the finance portfolio for himself. He declared that the economy ‘was his sphere’Footnote 40 and was determined to have the final word on all economic matters. On other subjects, he was ready to consult his colleagues. The New York Times observed that perhaps such an ‘arrangement’ was ‘not uncomfortable’ for Mrs Gandhi, conscious of her own ignorance of economic issues.Footnote 41 Thus, at one of the first meetings of the Planning Commission, just after the elections, Desai made it clear that he was in charge, interrupting the prime minister just as she started speaking: ‘Indirabehn, you don't understand this matter. Let me deal with it.’ Livid though she was at being interrupted—and more so at being addressed as Indirabehn—she let Desai ‘have his say’.Footnote 42
The discordant undercurrent between prime minister and finance minister amid the pressure to placate the opposition parties which had gained power in seven states also hindered the Cabinet-formation exercise. To counter Desai, Indira Gandhi brought in some of her own men—Jagjivan Ram (known to be anti-Desai) as food and agriculture minister, Dinesh Singh as commerce minister, Asoka Mehta for petroleum and chemicals, and Fakhruddin Ali Ahmed in industrial development, yet this was possible only after many tussles over selection. As V. K. R. V. Rao, a former member of the Planning Commission who had won the recent election, recalled:
The papers were full of rumors and names were being bruited about. My name did not figure in any of the media lists. The day of swearing in was March 18 and the time was 10.30 am. But till the evening before, I had received no call. The morning papers carried a long list of the new Council of Ministers and stated that they would be sworn in that morning but did not include my name. . . .I was going to take my bath. And then the phone rang. . . The Prime Minister was calling, and then I heard her voice. ‘I want you to join the Cabinet, Dr Rao, and take the Commerce Ministry.’ I muttered some inarticulate words in reply. Before she could continue she was interrupted and she told me, ‘I will call you later,’ and closed the connection. A couple of minutes later, I got another call, this time from her private secretary Seshan. He said, ‘Mrs Gandhi is busy talking to some people but hopes you are accepting her offer.’ Then he said, ‘by the way, there was a mistake about your ministry. The mistake was in the typed list. It is not commerce, but iron and steel.’ And then he added: ‘Please do not refuse. The Iron and Steel Ministry is a big ministry it is important. And it is a Cabinet ministership.’. . . I replied ‘Certainly. I am willing to accept.’ Seshan concluded: ‘Swearing-in is at 10.30 a.m. Please be on time. . .’
There was a sequel. After I had taken my bath, hurriedly said my prayers, collected my daughter who was staying in a hostel and got a car to take me to Rashtrapati Bhawan, I found I was late. The swearing-in ceremony had commenced and by the time I reached the first floor hall, President S. Radhakrishnan had completed swearing-in the Cabinet ministers and had started swearing-in the ministers of state. Just as I went into the hall, Yashpal Kapoor came up to me and said: ‘There has been a change. Your ministry will now be transport and shipping.’ Before I could even take in the information, Radhakrishnan saw me and called out: ‘Come in, Rao, you have to be sworn in.’ He had broken protocol by interrupting the swearing-in ceremony. I was all in a daze when I walked up to him and repeated the oath in English. . . .When I went to resume my seat after signing the register, I passed by Indira Gandhi. . . She smiled at me and said: ‘I will tell you all about it later.’Footnote 43
Once the issue of Cabinet formation was settled. the important matter of leadership of the Planning Commission arose. Not unexpectedly, the prime minister and finance minister had different ideas about who was the best candidate. Mrs Gandhi's preferred choice was C. Subramaniam, who had been close to Nehru and was an important member of her ‘kitchen cabinet’ at the time of the devaluation decision.Footnote 44 Keen on securing Subramaniam, she had prepared the ground by mustering support for him from influential Cabinet members.Footnote 45 She then called a meeting of a few senior Cabinet ministers at her residence to select the deputy chair. However, Subramaniam's candidature did not find favour with Desai on both ideological and personal grounds. During his days as finance minister in the Madras Cabinet, and later as food and agriculture minister, Subramaniam had pushed for a large plan, which Desai did not view favourably.Footnote 46 Also, his close relations with Mrs Gandhi could not have endeared him to Desai.Footnote 47 Everyone at the meeting supported Indira Gandhi's candidate, except for Desai, who put forth ‘strong opposition’ on the grounds that it was not fitting to appoint someone who had recently faced electoral defeat. Desai refused to yield to pressure from the prime minister and other colleagues. This led to an inconclusive meeting, causing ‘much displeasure’ to the prime minister.Footnote 48 Further negotiations on possible candidates followed. Desai supported B. K. Nehru, who expressed much keenness for the post.Footnote 49 However, Mrs Gandhi did not support Nehru's candidacy.Footnote 50 She also refused another Desai candidate, former finance minister C. D. Deshmukh. In this manner, negotiations between the prime minister and her deputy continued until, finally, Indira Gandhi was forced to give in to yet another Desai candidate, the highly respected, Cambridge-trained economist D. R. Gadgil.Footnote 51
Aged 66 at the time, Gadgil was a natural choice for Desai. The two Maharashtrians had known each other for over 30 years and shared great mutual respect. They had first worked together during the years of provincial autonomy from 1937 to 1939 when Desai, then a minister in the Bombay Cabinet, often called upon Gadgil for advice on economic matters, especially regarding cooperatives.Footnote 52 Further, the two shared much scepticism about the nation's five-year plans. Like Desai, Gadgil was prudent in fiscal matters and it was well known that ‘on the crucial question of the size of the fourth plan, Professor Gadgil may be willing to go more than halfway’ with Desai's views.Footnote 53
On Desai's persuasion, Gadgil agreed to come to Yojana Bhavan in September 1967.Footnote 54 Hoping to reorient the plan process and overhaul the Planning Commission itself, Gadgil brought his own men into the august body. They included B. Venkatappaiah, former deputy governor of the Reserve Bank of India, R. Venkataraman, former industry ministry of Madras (and known to be especially close to Kamaraj), and S. R. Sen Gupta, former director of the Indian Institute of Technology, Kharagpur; he also retained Pitambar Pant, a close associate of P. C. Mahalanobis and head of the Planning Commission's Perspective Planning Division since its inception in 1958.Footnote 55 As it happened, all four members were Brahmins by caste—an issue raised in parliament by Harijan members of parliament—which was immediately rectified by the appointment of B. D. Nag Chaudhury, physicist and former director of the Institute of Nuclear Research.Footnote 56 B. D. Pande, formerly chief secretary of Bihar, became the Planning Commission's secretary.Footnote 57 In his first interview after his appointment, Gadgil said that he intended to promote a reexamination of the basic methods and aims of planning. As he put it, the ‘five-year plan is a very good frame of reference if it doesn't become too rigid. On the other hand, it tends to become rigid.’ Over the years he had also developed reservations about the Planning Commission, whose ‘shape’ had ‘distressed him deeply’.Footnote 58 For Gadgil, the appointment offered an opportunity for the Planning Commission to ‘assume an independent role and greater advisory impact’—a function he had long envisioned for it.Footnote 59 He saw this as a chance to reorient the planning process and to decentralize it by making the function of the Planning Commission an advisory one.Footnote 60 Reading the writing on the wall, the New York Times declared: ‘India grows cool to five year plans’.Footnote 61
A ‘Plan holiday’
Desai and Gadgil were now able to exert considerable influence in planning and economic decision-making. Utmost priority had to be accorded to the draft outline of the Fourth Five-Year Plan, which had been in the pipeline for almost 15 months, awaiting finalization. First presented in September 1965, it was set in the mode of earlier Plans, placing ‘overriding importance’ on basic industrialization. It proposed a minimum plan outlay of between Rs. 22,500 and 21,500 crore, with a 14 per cent increase in investment rate, and a growth rate of 7 per cent per annum—with a minimum rate of 6.5 per cent per annum.Footnote 62 It was ‘double the size of the Third Plan, and more than the size of all the three previous plans put together’.Footnote 63 It required an increase in investment rate from the 14 per cent that the Third Plan had targeted 1966 to 19–20 per cent by 1976, an increase in the rate of savings from 10.5 per cent to 20–21 per cent, and a reduction in the rate of population from 20 to 30 per cent.Footnote 64
A diehard fiscal conservative and an orthodox fiscal manager, Desai was sceptical of the projections. It was supremely important to him that the size of the Fourth Plan remain in line with the available resources. Aa a staunch believer in the traditional framework of resource raising and economic planning, he clarified that he would ‘not allow demands of development planning to overwhelm us into straying from the straight and narrow path of conservative budgeting’.Footnote 65 Since the time of the first publication of the draft document, Desai had been critical of its size; in meetings of the Congress Working Committee, he had alleged that the implementation of such a plan would lead to ‘yet another devaluation’.Footnote 66 Now in charge, Desai was forthright in his opposition to the draft plan. He announced that the country would ‘have to live on her available resources’ and the projected outlay ‘will have to be substantially cut to match the available resources’.Footnote 67 Balancing the budget was paramount for him; all else was to be subordinate to that. Thus, the size of the plan was to be set within the resources available for it. Desai feared that the real and large inflationary risk in such a development programme would result in deficit financing, and he was thus ‘insistent that the public investment programme for a fourth plan should be rooted initially and firmly in strictly practical assumptions regarding fiscal probabilities’.Footnote 68 Adamant about prohibiting the financing of public investment by increased investment because of the inflationary risk, Desai firmly declared that all development programmes had to be supported by realistic projections of tax efforts. He warned against assumptions about the inflow of foreign assistance.Footnote 69
Gadgil, also a conservative in financial matters, went along with this view and supported a pruning of the plan. The idea was also supported by younger economic bureaucrats, like L. K. Jha, who argued against stepping up development outlay because they feared that an ambitious approach to planning would result in substantial deficit financing.Footnote 70 Finance ministry officials, too, supported this. Objective conditions favoured a rethinking of the plan. Although the Second Five-Year Plan had been a partial success, the Third Five-Year Plan failed on several counts. Growth of national income fluctuated from year to year—although it increased by 2.5 per cent in the first year, it fell by 1.7 per cent in the second. It moved by 4.9 per cent in the third year, peaked at 7.6 per cent in the fourth, and ended tamely with a fall of 4 per cent in 1966. This reduced overall growth in the five-year period to an annual rate of 2.5 per cent, which was just about equal to the rate of increase in population. Defence needs, following the Chinese attack and the war with Pakistan, had placed additional demands on resources. Matters were made worse by the succession of droughts; the 1966 drought brought a fall of 17 per cent in agricultural productivity and resulted in a sharp decline in agricultural exports. With the 1967 drought, food grains production became almost stagnant.Footnote 71 Further, the increase in industrial output was barely 4 per cent, and deficit financing had hit Rs. 400 crore—the heaviest in recent years. The inflationary spiral ‘brought home to the country with a rude shock how dependent we had become on external assistance even to feed our people’. It appeared prudent to stabilize prices and accord special priority to agriculture.Footnote 72 In such a scenario of rising prices, all-round shortages, and increasing unemployment, the conservatives argued that the Plan would be ‘no more than a paper exercise to calculate how much resources for investment’ could be mobilized over its remaining three years.Footnote 73 Thus, Desai, Gadil, and the fiscal conservatives argued for investment in general to be slowed down.Footnote 74
Opposed to this view was what came to be called the ‘bold approach’, which espoused a larger plan. Within the Planning Commission, this position was held by the influential Perspective Planning Division, long headed by Pitambar Pant, a well-known advocate of big plans to accelerate development, bold fiscal policy, and heavy industry.Footnote 75 They argued for a target growth rate of no less than 8 per cent.Footnote 76 Although Pant conceded that the plan needed some pruning in the light of resource stringency, he did not want it to be cut back to the extent that Desai proposed, for fear that the pace of development would be slowed. Resources must be found, he argued, for priority industries such as steel, fertilizers, alloy and cement, for agriculture, and for the export-oriented sector. This view, which came to be known as the ‘bold approach in planning and economic and fiscal policy’, had much support outside the Planning Commission, especially in political circles. Influential political figures such as Asoka Mehta, former planning minister C. Subramaniam, and even the prime minister supported such a view out of concern that an overcautious approach might curb development.Footnote 77 In an especially important two-day discussion at the Planning Commission in July 1966, Mrs Gandhi kept her views to herself until the end, when, for over 45 minutes, she ‘pooh-poohed the timid and the cautious’. Confessing that she did not know about the economics of plan size, she boasted that she ‘understood how the people's mind worked and what the political situation demanded’. Thus, in her view, those who wanted a small plan were ‘hopelessly wrong and were confined to the upper classes’, while the ‘ordinary people’ wanted large plans.Footnote 78
However, Desai and Gadgil ensured that the ‘conservative view’ prevailed. In November 1967 an official announcement by the Planning Commission declared that ‘many of the assumptions and estimates of the Draft Outline were no longer valid’. A decision was thus taken to suspend work on revising the draft of the Fourth Five-Year Plan until the economy ‘stabilized’. The plan would be postponed until 1969, by which time the economy was expected to have obtained a ‘firm base’, and would run to 1974, when the economy would have the ‘vigour and strength to bear the necessary strains of a bigger fourth plan’.Footnote 79 The interregnum was to be bridged by annual plans. The decision was conveyed to the National Development Council by the prime minister and the deputy chair of the Planning Commission. Gadgil confessed before the chief ministers that the reason for the deferment was difficulty in gathering resources, both domestic and foreign. He was frank that any new plan would ‘have to be much larger’ than its predecessor but that the financial outlook was ‘very problematic’.Footnote 80 The deferment would give the much-needed ‘breathing space’ that was required to bolster the resource position.Footnote 81 The press was quick to call the deferment a ‘plan holiday’, a term the ruling establishment vehemently objected to. As Indira Gandhi put it, ‘I would like to say with all the emphasis at my command that there could be no sillier phrase than plan holiday. There is no such thing.’Footnote 82 Though there was disapproval from some chief ministers, given Gadgil's stature, the announcement was not further contested.Footnote 83
That Desai's and Gadgil's ideas on planning held centre stage was reflected in the annual plans that followed. These were increasingly framed in accordance with visible resources. Thus, the annual plan for 1968–69 proposed that the aggregate outlay on development be maintained at the same level as that of 1967–68.Footnote 84 The states were to cut down their outlay from Rs. 1,010 crore in 1967–68 to Rs. 953 crore in 1968–69. Despite increased emphasis on the rural sector, the overall outlay on agriculture was less than it had been in 1967–68. The plan was even less expansive in its outlay on industry. For village and small industries, less was provided than in earlier plans, and only slightly more was allocated for organized industry. ‘Essentially a maintenance plan rather than an expansionist plan’, a careful reading of it showed the influence of the finance ministry on its concerns.Footnote 85 Desai also refused to give in to any demands for special assistance to states. For example, Mrs Gandhi was keen to give special assistance to Tamil Nadu for the support of the Dravida Munnetra Kazaghagam, which wanted Rs. 17 crore as aid and the promise of a steel plant at Salem, but Desai would not allow it. When she insisted, Desai told her: ‘If God had not very kindly given me strong nerves, I would perhaps have lost my balance of mind and sanity in such circumstances. But God has been very kind to me and I am able to keep my balance and I cannot, therefore, submit to your pressure. I would, therefore, request you to give up your demand.’Footnote 86
The Planning Commission worked towards a revised plan that was far more realistic in terms of public outlay, envisaging new projects, expanding the role of the private sector and promoting the high yielding varieties programme in agriculture.Footnote 87 There, however, continued to be some uncertainty regarding the timing of the Fourth Five-Year Plan. Though it was scheduled for 1969, there remained much scepticism about the time frame and the state's ability to launch the plan.
Towards decentralization
Another very significant change that Gadgil and Morarji were able to implement concerned the financial powers of the Planning Commission. One of Gadgil's most passionate pleas in his critique of economic policies had been for the decentralization of planning. He wrote: ‘It is the power complex of the Planning Commission, of its members, their natural desire to exercise power and patronage like ministers that are chiefly responsible for the neglect by the Commission of its main functions and for a needless extension of its activities over many irrelevant fields. The misdirection has been helped largely by the membership of the Prime Minister and the Finance Minister of the Planning Commission which appears to have vested the Planning Commission and its decisions with an unnatural kind of prestige and importance.’Footnote 88 This was now slowly and stealthily transformed by certain fundamental changes.
One of the most contentious issues which had plagued the Planning Commission since 1950 was its role in disbursing central assistance for plan outlay to the states in the form of grants-in-aid. Plan assistance to states, comprising of grants and loans, was distributed on a schematic basis where both the quantum of transfer and the loan-grant components were discretionary.Footnote 89 Even though it was a non-statutory body, it had overshadowed other financial bodies such as the finance commission. This was especially true since discretionary grants given by the Planning Commission had steadily increased in importance as a percentage of the total central aid to the states. They stood at 59 per cent of the total central aid in 1951–52 but had risen to 71 per cent in 1965–66; by comparison statutory grants had decreased from 41 per cent of the total aid in 1951–52 to 27 per cent in 1965–66.Footnote 90 The system of allocations was not worked out by any formula, and plan outlays were decided by discussions between the Planning Commission and chief ministers.Footnote 91 The system was, in Gadgil's view, a ‘bad system of grants’ whose ‘most glaring defect is the manner in which it is insidiously undermining the autonomy of states’.Footnote 92 He knew well that meetings of chief ministers with the Planning Commission were occasions to lobby for increased grants and that the discussions were plagued with many wrangles over the distribution of central assistance to the states. In such a system, the Planning Commission had immense powers. As Gadgil put it: ‘Today, there is no well-defined arrangement for settling such vital issues as the size of the plans of the states. The Planning Commission, in consultation with individual states, largely determines these and they are finally endorsed by the National Development Council. The National Development Council is, however, hardly a deliberative body, and its sanction is largely a political act. . . This is hardly a satisfactory way of doing things, and it has not broken down chiefly because of the extra-constitutional factor of a single political party controlling all governments.’Footnote 93 One way of resolving this was to put forth a more transparent and less arbitrary system of central assistance to states. Thus, Gadgil started working with state chief ministers to formulate a new method of disbursing plan assistance.
Extensive deliberations began at the National Development Council. This fitted well with the post-1967 political scenario, which had changed the centre–state relations almost ‘overnight’. Up until now, not only had the Congress ruled in all the states but the states posed little challenge to the authority of the Planning Commission on economic and financial issues.Footnote 94 Important decisions could be taken without contention and with minimal debate with chief ministers at the National Development Council. Thus, for instance, at a single meeting of the Council an agreement was reached that sales taxes on textiles, sugar, and tobacco would be surrendered by the states and would be substituted by an additional excise duty.Footnote 95 The National Development Council's position was almost ‘approximate to that of a super-Cabinet of the entire Indian federation, a Cabinet functioning for the Government of India and the Government of all States’.Footnote 96 In such a scenario, although there might have been ‘occasional whimpers about financial assistance from the Centre’ there was almost no challenge to the method of disbursing financial assistance.
However, almost immediately after the elections, all this changed. E. M. S. Namboodaripad began to make ‘minatory noises’ in Kerala, demanding a redefinition of centre–state relations.Footnote 97 He was soon followed by the Dravida Munnetra Kazaghagam in Madras and the United Front in West Bengal. Many of their demands centred on the issue of decentralization of financial powers to the states.Footnote 98 Opposition states were unwilling to play along with the Planning Commission's overwhelming power in deciding economic policy. State governments in Kerala, Madras and West Bengal led the opposition. Namboodiripad was quick to assert that there was ‘bound to be a confrontation in the long run between the Congress led government at the Centre and the non-Congress governments in the states’.Footnote 99 Reporting on the chief ministers’ meeting with the Planning Commission, The Times of India wrote: ‘Why is it, some of them are reported to have asked that it is always the Centre. . . which examines State's plans and sits in judgement on them? Why can't state ministers have a close look at the Centre's plans and tell Central ministers what they ought to think about it?’Footnote 100 There were even suggestions that the responsibility for disbursing central loans to states be taken away from the centre and entrusted to the Reserve Bank of India.Footnote 101 Dravida Munnetra Kazaghagam's C. N. Annadurai wanted the Planning Commission to function as a federal agency in the allocation of resources and wanted central financial assistance to be given to the states on a non-project basis.Footnote 102 Some Congress chief ministers also supported this demand.
After a number of meetings with the National Development Council, Gadgil was able to finalize a transparent and more rational formula in July 1968. It was to be applicable to all states, except Assam, Nagaland, and Jammu and Kashmir, which were deemed ‘backward states’ that needed extra financial assistance.Footnote 103 By this formula, the requirements of the ‘special category states’ were to be met first out of the total pool of central assistance, and the balance was to then be distributed to the rest on the basic criteria of the population, per capita income, and tax collections of each state. The grant was to be given to the extent of 60 per cent on the basis of population, 10 per cent on per capita income, 10 per cent in proportion to commitments on major irrigation and power projects, and 10 per cent for specific problems of individual states.Footnote 104 This formula, popularly called the Gadgil formula (and termed the ‘Formula for Oliver Twists’ by Eastern Economist), was the first attempt, since the advent of planning in 1950, to arrive at a rational basis for the allocation of central funds.Footnote 105 The old system of tying plan grants to specific projects and then giving corresponding assistance was relinquished.Footnote 106 Central assistance would be distributed in the form of block loans and grants each year. Thus, every year each state was to receive 30 per cent of its total annual assistance as a grant and the balance of 70 per cent as a loan.Footnote 107 The introduction of block grants and loans ended the previous practice of assistance to states on the basis of plan schemes. Further, the number of centrally sponsored schemes was reduced, and no fewer than 30 schemes were dropped from the central list. Not unexpectedly, the formula was widely welcomed by the states.
The formula marked a radical change by bringing objectivity and transparency to the distribution of central assistance to the states. It marked a change in the Planning Commission's powers as its control over the use of funds was reduced. Until now, central assistance had been given for heads and sub-heads of development as well as for individual schemes and had been subject to approval by the Planning Commission and the relevant central ministry. Under the Gadgil formula, central assistance was no longer tied to individual schemes and projects, and thus the states no longer needed the centre's permission to divert expenditure from one scheme to another. According to the economist Hemlata Rao, this marked a ‘quantitative shift in the Commission's involvement in determining the structure of the State's plan expenditure’. States were henceforth free to choose the direction and manner of plan expenditure.Footnote 108
Most significantly, it also changed the status quo between the Planning Commission and the National Development Council. The latter ‘suddenly assumed considerable importance’, unlike the Nehruvian dispensation, in which states complied with the centre. It emerged to ‘become the country's supreme economy body’ and the Planning Commission almost appeared to have ‘become an advisory body to it’.Footnote 109 Although in some ways a change in status quo was inevitable in the new political scenario with non-Congress governments in several states, it was given further credence by the changes inaugurated in the planning process.
Several other changes were instituted—for instance, the Planning Commission's involvement in various activities was reduced. All schemes of public cooperation and rural industries were transferred to the relevant ministries. The large number of working committees in the Planning Commission, which had grown over the years, was reduced. Further, Gadgil had a great deal of interest in the regional and district approach to planning, and he pushed for states to establish their own planning boards.Footnote 110 As things stood, many state governments had planning departments—usually under their finance ministries—but did not have independent planning organizations. State planning boards had also been recommended by the Administrative Reforms Commission. Thus, guidelines were issued for the formulation of area plans and the building up of state planning commissions.Footnote 111 Increased emphasis was placed on multi-level planning so that each state, district, and taluka, along with groups of villages would take responsibility to achieve the development of local resources and realization of local potentialities to ensure people's participation. Some states, such as Kerala, established their own planning commissions, and many states set up planning boards.Footnote 112 New schemes and programmes for the development of backward areas, and employment of the rural population and weaker sections of society were to be taken up by the states. Some were successful, such as the Page Scheme in Maharashtra. Gadgil also initiated ‘indicative planning’ with the aim of introducing flexibility, and annual plans became more important than the overall five-year plans.Footnote 113
With the Fourth Five-Year Plan postponed, annual smaller-scale plans introduced, and a new formula on the distribution of central assistance to the states, which removed much of the ambiguity regarding the role of the Planning Commission, the finance minister and Gadgil were in full control of India's economic affairs. Within the Planning Commission, the finance minister and deputy chair worked well together.Footnote 114
In such a situation, the Planning Commission, with support from the finance minister, was, in many instances, able to resist pressures from both central ministries and the prime minister's office. One such case was the proposal for the low-priced ‘small car’ project, which Indira Gandhi was keen to pursue. This project had been under discussion in various governmental committees for over a decade and had the support of many states, including Maharashtra, Kerala, Mysore, and Tamil Nadu, and also of many influential politicians such as Fakhruddin Ali Ahmed, the industrial development minister. The project was proposed as a public sector undertaking with foreign collaboration, but it drew no support from the Planning Commission, where both Gadgil and Member for Industry R. Venkataraman opposed it on the grounds that rather than entering new projects, more attention needed to be given to existing priority schemes. Another such project for which the prime minister had taken an ‘in principle’ decision but which was kept on hold by the Planning Commission was the issuing of licences to the Birlas and the Tatas for fertilizer factories in Goa and Mithapur.Footnote 115 A further project which the Planning Commission did not support was the Union Ministry of Steel's plan to expand the Bhilai plant to 4.2 million tonnes and the Bokaro plant to 4 million tonnes; the Planning Commission said they would only agree to this after completing the first phase of the Fourth Plan.Footnote 116 The Planning Commission also refused to give in to proposals for more oil refineries.Footnote 117 Further, promises for steel plants made to the southern states, especially Tamil Nadu, by the prime minister during her political visits were also held back by the Planning Commission. Such promises often came as a shock to the Planning Commission, but they were nevertheless able to hold their position.Footnote 118 In rejecting such proposals, the Planning Commission's main concern was the increased financial commitment, which they feared could lead to a situation where the Fourth Plan may be adversely affected. Finally, many ‘special projects’ announced by the prime minister unexpectedly during her political tours to different states were rejected, such as the ‘cash programme’ for additional employment.Footnote 119
In the two years since Morarji had taken over the finance portfolio and Gadgil chaired the Planning Commission, efforts had been made to turn around budget deficits, which had been substantially reduced.Footnote 120 Many new initiatives in bringing greater transparency to centre–state fiscal relations were underway, and a genuine start had been made to the decentralization of the planning process.
Bank nationalization as political football
Far-reaching reforms were also drawn up to introduce changes in the banking sector, which was often accused of favouring larger businesses and their industrialist owners and neglecting the needs of agriculture, small industry, and retail trade. One demand that had been intermittently raised since 1948 was the nationalization of banks. On several occasions—in Nehru's Cabinet, then as part of Kamaraj's 10-point programme, and then under Lal Bahdur Shastri—the demand had been rejected on various grounds. An alternative proposal, which was first put forth in May 1967 at a meeting of the Congress Working Committee by Desai, was for ‘social control’ of banking. The details were worked out by Gadgil, with the help of economist V. Pai Panandikar, who had joined the finance ministry as an adviser, and M. Narasimhan, a senior officer at the Reserve Bank of India. In this reform, banks were to be guided by a National Credit Council which was charged with the task of directing banks on credit allocation by specifying norms after assessing the credit needs of different sectors. The purpose of this was to make credit available under easy terms for the agricultural sector and small-scale entrepreneurs. The Council was established in December 1967 and was composed of Gadgil, the governor of the Reserve Bank of India, members of other banks, industrialists, agriculturists, and small entrepreneurs, with the finance minister as chairperson.Footnote 121 These proposals came to be known as ‘social control’ of banking and had the support of Morarji Desai and the prime minister.Footnote 122 They were implemented from May–June 1968, although they legally came into force only in February 1969.
However, in the months that followed Mrs Gandhi used the issue of control over the banking sector as a political football.Footnote 123 A crisis began to unfold following the unexpected demise of the country's president, Dr Zakir Hussian. As is well known, the Syndicate and Mrs Gandhi fell out over his successor, and Mrs Gandhi chose not to support the official Congress party candidate but to back her own favourite, V. V. Giri. Relations with her Cabinet colleagues from the Syndicate, most notably Morarji Desai, now took a turn for the worse, and the banking issue became quite useful. On the advice of P. N. Haksar, her principal secretary, she took up the proposal to nationalize banks and used it to isolate Morari Desai and to portray him and the Syndicate as right-wing obstructionists who were impeding her pro-people policies.Footnote 124 Ignoring the Planning Commission, Morarji, and Gadgil, Indira Gandhi turned to the young finance secretary I. G. Patel: ‘For political reasons, it has been decided to nationalize the banks. You will have to prepare within 24 hours the bill, a note for the Cabinet and a speech for me to make to the nation on the radio tomorrow evening. Can you do it and make sure there is no leak?’ To Patel, it was apparent that ‘there was no pretence that this was a political decision, and the message was clear that no argument from me was required’.Footnote 125 With the help of the then Reserve Bank of India Governor L. K. Jha, and Bank Officer R. K. Seshadri, Patel put together all the required documents. Such was the secrecy of their mission that the three worked through the night at the residence of the Reserve Bank of India governor and at I. G. Patel's residence in New Delhi; papers lying at the office were not collected for fear of arousing suspicion. Patel drafted Mrs Gandhi's speech, and Jha and Seshadri put together the draft bill. On Patel's advice, foreign banks were left out and only 14 major banks were nationalized. The following morning, on 16 July 1969, after the prime minister had checked the material submitted by Patel, bank nationalization was announced by presidential ordinance.Footnote 126 Mrs Gandhi did not risk waiting for parliament, which was due to meet in 24 hours.Footnote 127
A day earlier, Desai had been summarily relieved of the finance portfolio on grounds of his ‘strong reservations’ on basic issues which, the prime minister declared, would make it unfair to burden him with the responsibility of implementing the economic programme.Footnote 128 Mrs Gandhi herself assumed the finance portfolio.Footnote 129 With this act, she aggravated a perilous political crisis which ended in the Congress split, and she emerged as the undisputed leader.Footnote 130
‘New teeth to planning’
With Desai out of the way, Indira Gandhi could more easily push through the long-awaited Fourth Five-Year Plan in July 1970. Yet another revision of the draft was carried out and the public sector outlay was hastily increased from Rs. 14,398 crore as set in the March 1969 draft to Rs. 15,902 crore, and the outlay for organized industry and mining was placed at Rs. 3,048 crore.Footnote 131 A change was also made in the respective shares of the private and public sectors. Emphasis on the public sector was increased and its share was raised by Rs. 1,580 crore to a total of Rs. 15,879 crore. By contrast, the share of the private sector was lowered from the original Rs. 10,000 crore to Rs. 8,976 crore.Footnote 132 Increased expenditure was allotted to almost all heads of development, and, as Francine Frankel points out, ‘the revised estimates of the final version of the Fourth Plan were even more unrealistic than the projections of the 1969 Draft’.Footnote 133 The increase was largely dictated by political compulsions; for instance, the only way to placate the Dravida Munnetra Kazaghagam was by giving an additional Rs. 17 crore as aid and the promise of a steel plant in Tamil Nadu. The steel plant at Salem was not part of the original Fourth Five-Year Plan, but on 17 April 1970, during a debate in the Lok Sabha, the prime minister made the ‘dramatic’ declaration that three public sector steel plants would be located in the South—at Salem in Tamil Nadu, Hospet in Karnataka, and Visakhapatnam in Andhra Pradesh.Footnote 134 According the new plan high praise, the prime minister called it ‘a conscious, internally consistent and carefully thought out programme for the most efficient exploitation of our resources possible in existing conditions’. Such a plan, she said, ‘should result not only in an integrated process of increased production, but rational distribution of the added wealth’. She declared it was ‘a charter of orderly progress. It provides a framework of time and space and that binds sectors and regions together and relates each year's effort to the succeeding years, impelling us all to greater cooperative endeavour.’Footnote 135 With much enthusiasm, she told parliament:
All of us have before us a vision of India, an India which is strong and prosperous, a country which will produce some day 100 million tonnes of steel per year, 1 billion kilowatts of power, when no family will know the pangs of hunger. But this vision has to be translated into reality through hard work and dedication and sacrifice. While drawing up the Plan, we have to combine our idealism with a realistic appraisal of our resources and our capabilities in this short time.Footnote 136
Self-reliance now emerged as a ‘major objective of planning’. The Plan set a target to reduce the net debt and interest from foreign aid by half by the end of the Fourth Plan.Footnote 137
Alongside this, decisive steps were taken to ‘bypass’ the Gadgil formula by allowing the centre to give large amounts of discretionary assistance to the states. Thus, in March 1970, an allotment of Rs. 800 crore was handed out as part of the Fourth Five-Year Plan as ‘special assistance to the states to cover gaps in non-Plan expenditure’. Thus additional assistance was a premium offered to the states ‘for their improvidence’.Footnote 138 Granting ‘discretionary assistance’ allowed the leadership to distort centre–state financial relations which the Gadgil formula had tried to provide with a rational basis. The announcement was made without discussion with the National Development Council, leading to much annoyance. Maharashtra Chief Minister V. P. Naik demanded an outright rejection of the proposal on the grounds that it was a unilateral decision of the Planning Commission that excluded the states.Footnote 139 Many states alleged discrimination by the centre in doling out assistance.Footnote 140 Economist K. Santhanam called it ‘a new distortion of the financial relations between the Centre and the States’ and ‘an objectionable twist’ to the Gadgil formula.Footnote 141
Opposition parties alleged that the special aid would be used as a ‘political lever’ against states that did not support the central leadership.Footnote 142 Mrs Gandhi was accused of non-constitutionality in parliament, but defended the decision thus: ‘It has been suggested that this provision is not constitutional and that it is intended to be used for political purposes to favour certain states and to punish others, such an allegation only reflects the mental make-up of those who make it. It probably represents what these members would do in like circumstances, but it is not the way in which I function. . . I strongly repudiate the suggestion that there is anything sinister or irregular about the provision.’Footnote 143 Given Mrs Gandhi's free hand, and the reduced influence of Gadgil in the absence of Desai, a number of stalled projects were quickly revived. Thus it was decided that the ‘small car’ project would now be a private sector project, and in November 1970 industrial licences were granted to three applicants—Manubhai H. Thakkar of Vadodara, Sunrise Auto Industries of Bangalore, and Sanjay Gandhi.Footnote 144 It was shelved as a public sector undertaking.
The resounding success of the party in the 1971 elections, called a year ahead of schedule, gave Indira Gandhi a majority of more than two-thirds in parliament and emboldened her to reestablish authority over the Planning Commission.Footnote 145 She was now determined to make planning a part of the centre's executive function and to recast the Planning Commission in its role for centralization. Thus, just a few weeks after the elections, Gadgil was asked to resign from the Planning Commission's deputy chairmanship.Footnote 146 Indira Gandhi declared that her commitment to planning remained, but the ‘variety’ before her had failed to satisfy her. The entire Planning Commission membership resigned, leaving the field open to the prime minister.
Gadgil was a ‘shocked and broken man’. Removed 16 months before his five-year term, he was taken completely unawares and considered it a ‘virtual dismissal’.Footnote 147 A day after he relinquished his office, on 3 May 1971, he died on the train he took home to Pune. A close associate confessed that ‘he died really of a broken heart caused by frustration throughout his term of office’.Footnote 148 In his four years at the Planning Commission, Gadgil had been able to effect some changes, but he could see that his hands were tied. Many of his radical proposals could not be implemented, although he made important changes while Desai was in charge of finance.
Gadgil's major critique of planning had all along been that it had avoided constructing a policy frame for planning in deference to vested interests in industry and trade. To remedy this, he had wanted a prices-and-income policy to check inflation and distribute the benefits of growth more evenly in society. He had tried unsuccessfully to push this through during his years at the Planning Commission. Thus, the Fourth Five-Year Plan, as it finally emerged, did not propose any radical change in emphasis from the earlier three plans, and Gadgil's ideas never saw the light of day.Footnote 149 Further, just when his ideas of social control of banking were close to implementation, they were cut short by the decision to nationalize banks. Given his ideological leanings, it is unlikely that Gadgil would have opposed bank nationalization, but he was kept out of all discussions. Moreover, the political expediency that overrode the decision did not appeal to him and he ‘refused to praise the nationalization of banks from the roof tops’—a fact that must certainly have played a role in Mrs Gandhi's decision to relieve him of his responsibilities.Footnote 150
To his contemporaries, Gadgil's inability to have his way in the Planning Commission appeared a failure. Some felt that perhaps Gadgil was ‘too angular to fit into the framework’ of Mrs Gandhi's dispensation; others saw him as ‘too honest a person for Mrs Gandhi’.Footnote 151 Dandekar, the noted economist and Gadgil's colleague from the Gokhale Institute of Politics and Economics, lamented that he:
failed to come up to the high expectations he had himself created and to deliver the goods he had promised. Indeed one feels that he did not even try. . . He has affected and influenced so many of us that in the years to come all those who rightly hold him in high regard will speculate on the reasons of his final failure or indeed reluctance to try and put into practice what he so consistently and persistently preached. Was it old age? Was it a latent conservatism? Was it a political miscalculation? What was what? I believe that in the end he himself sensed the public disappointment.Footnote 152
Gadgil's removal from office paved the way for the prime minister to give ‘new teeth’ to planning.Footnote 153 By a presidential notification under Article 77(3) of the Constitution, issued the day after Gadgil's resignation, a new Ministry of Planning was created.Footnote 154 With this the process of ‘ministerialization of planning’ began, giving it ‘on the one hand, a political content, and, on the other, a political solution’.Footnote 155 Planning and the Planning Commission, which Gadgil had tried to make into an autonomous and independent institution, became instead an ‘integral part of the machinery’ of the central government.Footnote 156
Old favourite C. Subramaniam was brought into the Planning Commission as deputy chairperson and was also appointed the new planning minister. The importance of the portfolio was reiterated with the appointment of the minister of state for planning—Mohan Dharia, a prominent ‘Young Turk’.Footnote 157 For Subramaniam, this personally marked the culmination of his ambition for the post.Footnote 158 In this new role of ‘planner-politician’, he made it clear that the political agenda would define planning. In his view, ‘non-political planning chiefs were not equipped with the experience or political power’ to realize the demands of planning.Footnote 159 In his first meeting with the press immediately after his swearing-in, he announced that the new plans would be formulated ‘keeping in view the Congress (I) Party's election manifesto’ and would, he promised, ‘aim to give effect to promises’ made by the Party.Footnote 160 Indira Gandhi's election promises were taken up in earnest by Subramaniam. Her promised cash programmes for rural employment, which had long been ignored by the Planning Commission, were now launched with much fanfare.
Indira Gandhi could finally use the Planning Commission and planning to implement a populist socialist programme which had been recommended by a section of the Congress party since the jolt of the 1967 elections. C. Subramaniam was one of those who had suggested that the party must ‘project a more radical image of itself and give better proof of its commitment to a socialist programme if it was to recover lost ground’.Footnote 161 In this regard the ‘Garibi Hatao’ slogan was taken up for the approach to the Fifth Five-Year Plan.
Conclusion
With the new political appointments at the helm of planning, and a larger and grander Five-Year Plan in place, the planning process and the Planning Commission as an institution now came to be fully politicized. The attempts made in the years 1967–71 to bring transparency to the planning process, objectivity in fiscal relations between centre and states and reduce the powers of the Planning Commission over the states were quickly overturned. The success of Indira Gandhi in the 1971 elections emboldened the leadership to ‘give new teeth’ to planning and to use the Commission as a tool in centralization—a sharp departure from the original vision of the founders who looked upon planning as an objective, scientific, technocratic exercise in policy making.
