3.1. Shifts from Early Development Strategy

The Nehru-Mahalanobis strategy of development came under severe attack due to the poor performance of the economy and the economic crisis of the mid-1960. Although the basic framework of the Mahalanobis strategy was retained until the end of the Seventh Plan, shifts from this strategy became visible from the Fourth Plan onwards. In the Fourth Plan, the objective of self-reliance was not discarded, but the main emphasis was shifted to rapid economic growth. Consequently, preference was given to quick-yielding projects as well as to light industry at the expense of heavy industry. The state went for an elaborate system of controls in the economy such as nationalization of banks in 1969, the Monopolies and Restrictive Trade Practices (MRTP) Act in 1969, nationalization of the insurance sector in 1972 and the coal industry in 1973, and the Foreign Exchange Regulation Act (FERA) in 1973.

A major criticism of the Mahalanobis development strategy came from the World Bank economists in the early 1970s. Challenging this growth-oriented strategy, they argued that the objective of removal of poverty could not be achieved by growth itself. Several studies concluded that the benefit of growth had failed to reach the poor. Hence, the Fifth Plan allocated highest priority to the elimination of poverty and it adopted various area development programmes. The Sixth Five-Year Plan adopted various redistributive measures such as the Integrated Rural Development Programme (IRDP). The Seventh Plan adopted a new long-term development strategy focusing on growth in foodgrain production, employment opportunities and productivity.