Planning in India Second Five Year Plan(1956-61)

The Second Five Year Plan heralded in a true sense the Socialist Project of the then Prime Minister, Jawaharlal Nehru. The economic policies of Nehru were heavily influenced by the erstwhile Union of Soviet Socialist Republics (USSR) which had followed the path of speedy industrialisation to expand the manufacturing base of its economy. Nehru in a mimetic fashion flagged off the process of heavy industrialisation. He built what, for a long time, used to be called the ‘Temples of Modern India’. The flip side of this model of development based on industrialisation was that agriculture, the mainstay of Indian economy, got neglected so much so that far-reaching land reforms could not be affected in the country. Of late, the mega structures built during the Nehruvian era came to be identified as anti-people and anti-poor – the philosophy of ‘big is better’ commenced from the times of Nehru and influenced the construction of big dams, to give just one of example. These dams became one of the biggest reasons for the displacement of thousands of people in the name of modernisation and development. India still remains largely dependent on the monsoon for its agriculture.


The Second Five year Plan focused mainly on heavy industry as against the First Plan which was essentially an agricultural plan. This was done to boost domestic production and manufacturing of goods. The plan aimed primarily at developing the public sector. The relative shift in priorities in the Second Plan as compared to the First Plan is evident from the allocation of outlay to different sectors. Industries and mining got almost 19 per cent of the total public sector outlay in the Second Plan as against 8 per cent in the First Plan. This increase if translated in absolute terms becomes very large – about 400 per cent. Of the total outlay of Rs. 890 crores for industries and mining, Rs. 690 crores was allocated to large-scale industries (including mining), while just Rs. 200 crores was allotted for the promotion of village and small-scale industries.
The point of departure in the Second Plan was the precedence given to the public sector in industrial and mineral development. Hitherto the government had taken up plans for the development of agriculture, power, transport and the social sector but industrial development had not been given priority in government expenditure. As a result, compared to the First Plan which had allocated a meager Rs. 94 crores for establishing large-scale industries against an estimated investment of Rs. 233 crores in the private sector, the Second Plan made a provision of Rs. 690 crores for large-scale industries and mining in the public sector against an estimated new investment of Rs. 575 crores in the private sector. Though the planners acknowledged the role that private capital would play in the country’s industrialisation, there was a marked shift in emphasis on public investment in the field.

The point of departure in the Second Plan was the precedence given to the public sector in industrial and mineral development. Hitherto the government had taken up plans for the development of agriculture, power, transport and the social sector but industrial development had not been given priority in government expenditure.

The provision for new railway lines was confined to operational purposes and for the new industrial projects. Special attention was paid to improvements in operational efficiency of the railways which was needed for faster movement of raw materials which were to serve as the base of the proposed heavy industries.
An amount of Rs. 73 crores was allocated specifically for the development of coal mining, coal washeries and oil exploration by expanding the role of the Geological Survey of India (GSI) and the Bureau of Mines. Transport and communications accounted for 29 per cent of the total outlay during this plan. The development of the railways was given 19 per cent of the total outlay as against 11 per cent in the First Plan period, but the allocations for other means of transport and communications formed a smaller proportion as compared to the First Plan.


About 19 per cent of the plan total outlay was devoted to irrigation and power and another 12 per cent to agriculture and community development and the aggregate expenditure stood at Rs. 1,481 crores. Although there was a relative shift in priorities between agriculture and industry, this much allocation was deemed necessary for increased food and raw materials production. It was felt that the demand for food and raw materials was bound to increase rapidly as industrialisation proceeded. Therefore, there was no space for any complacency in agricultural productivity.
Despite this realisation only Rs. 277 crores of the total provision of Rs. 486 crores for irrigation and flood control was allocated for new schemes while Rs. 209 crores was allocated for schemes which continued from the last plan.
Social sector took up about 20 per cent of the total outlay in the Second Plan as compared to 23 per cent in the First Plan. In terms of percentages to total outlay for social sector and related items, the allocations to education, health and housing practically remained the same as in the First Plan but in absolute terms the allocations to these heads was significantly higher.
An additional area of 21 million acres was expected to come under irrigation by the end of the plan. Of this 21 million acres, some 12 million acres was to brought about under large and medium projects while 9 million acres under minor irrigation works.


  •  Growth target was 4.5 per cent but a growth rate of 4.0 per cent was achieved.
  •  Steel plants at Bhilai, Durgapur and Rourkela were established.
  •  Coal production increased.
  •  More railway lines were added.
  •  Atomic Energy Commission was established in 1958. Homi J. Bhabha became its first Chairman.
  • The Tata Institute of Fundamental Research (TIFR) was established.
  • In 1957 a talent search and scholarship programme was started to find young talent for working in nuclear power technology.
  •  National income increased by 18 per cent.
  •  Per capita income increased by 11 per cent.
  •  Per capita consumption increased by 9 per cent.
  •  Agri¬cultural production registered a growth of 4.1 per cent per annum.
  • Food grains production increased to 82 million tons by 1960-61 (an increase of 24.6 per cent over 1955-56) as against the proposed increase of 15 per cent.
  •  Food grains production along with oil seeds, cotton and jute was far below the plan target.
  •  Only the production of sugarcane was above the plan target.
  •  The poor per¬formance of the agriculture sector was due to lower priority and drought conditions in the period of 1957-60.
  •  Food inflation went up and a huge import of food grains led to instability in the economy.

Mahalanobis Model

The Second Five Year Plan followed the Mahalanobis Model, a development model propounded by the Indian statistician Prof. P.C. Mahalanobis in 1953. In March 1955, the model was finally brought together in Prof. P.C. Mahalanobis’s ‘Draft Recommendations for the Formulation of the Second Five Year Plan’, also called the ‘plan-frame’.

Underlying Assumptions of the Model
The model assumed that:

  •  The economy is a ‘closed’ economy and has two segments:
  •  Consumption goods
  •  Capital goods.
  •  Capital goods cannot be moved and are therefore ‘non-shiftable’.
  • Production is at its peak.
  •  Depending on the availability of capital goods, investments are decided.
  •  Capital is the scarce factor.
  • Capital goods production is not affected by consumer goods production.

By following the Mahalanobis Model, the government wanted to determine the optimal allocation of investment between productive sectors. This was aimed at maximising returns in the long-term. It used the then prevalent techniques of operations research and optimisation by the application of statistical models developed at the Indian Statistical Institute.

USP of the Second Five Year Plan

For the first time, this plan incorporated the concept of Local Planning.  In April 1954, the Planning Commission requested the state governments to prepare district and village plans, with special reference to agricultural production, rural industries and cooperation. The need for such plans was deemed necessary in order to secure maximum public participation in the development of sectors which bear closely on the welfare of large numbers of people. The district is still the pivot of the whole structure of planning in India.


Objective of the Second Five Year Plan

The Second Five Year Plan sought to rebuild rural India, to lay the foundations of industrial development, to ensure to the marginalised and under-privileged sections greater opportunities and the balanced development of all regions of the country. All these were necessary to the building of a self-secure India as Indian development had long been stunted due to colonisation.


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