PLANNING IN INDIA

By A. D. Shroff

Summary

Delivered as a talk at Vivekananda College, Madras, on 17 January 1957 and reprinted by the Forum of Free Enterprise, this pamphlet is A. D. Shroff’s pointed but reasoned critique of India’s Second Five-Year Plan. Shroff opens by establishing his own planning credentials — he had a hand in the 1944 Bombay Plan, drafted by eight businessmen — and accepts that a poor country with a fast-growing population must develop in a planned way. His argument is not against planning as such, but against planning that lets ideology displace economic reality.

The central charge is that the government has set political priorities (heavy industry over consumer goods, public sector over private) ahead of practical ones (food and cloth for a population growing by five million a year). He walks through cotton, jute, handloom, and steel to show how partition, ideology, and over-ambition have produced gluts in some sectors and shortages in others. He warns that the East European experience — Hungary and Poland forced into heavy industry by Soviet pressure — should counsel against the same imbalance in India, and that disregard for consumer demand has historically produced political crises rather than prosperity.

The back half of the lecture is a working economist’s anatomy of the Plan’s finances. The proposed Rs. 5,300 crore public-sector outlay will flow largely into wages, creating purchasing power that the supply side cannot match; the result, Shroff argues, is inflation that erodes the real incomes of salaried and fixed-income people while the rich absorb the shock. He breaks down the gap — Rs. 1,200 crore of deficit financing, a Rs. 900 crore additional-taxation demand, dependence on World Bank and Colombo Plan aid — and insists that the laws of economics cannot be suspended by legislation or political will. Throughout, he frames his dissent as patriotism: it is no humiliation, he says, to admit that the country’s resources cannot finance everything that has been promised.

Key points

• Shroff accepts planned development in principle and cites his own role in the 1944 Bombay Plan, but rejects the Second Five-Year Plan as over-ambitious relative to India’s resources.

• His core indictment is that ideology — heavy industry over consumer goods, public sector over private — has crowded out practical priority-setting around food and cloth for a rapidly growing population.

• Agricultural productivity must rise by 10–20% through fertilizers, irrigation, and changed methods; without this, food imports from the U.S. will remain structural rather than transitional.

• Sectoral case studies of cotton, jute, handloom, and steel show that ideological organisation (favouring organised mills over handlooms, expanding raw jute without mill capacity) has produced surpluses and shortages simultaneously.

• The East European experience — Hungary and Poland forced by Soviet pressure into heavy industry at the cost of consumer goods — is offered as a cautionary parallel for India.

• The Rs. 5,300 crore public-sector outlay will be spent largely as wages, creating effective demand without matching supply and forcing prices up; salaried and fixed-income households absorb the loss while the rich can adjust.

• Deficit financing of Rs. 1,200 crore and additional taxation of Rs. 900 crore reflect a planning gap; even sound taxes have a psychological ceiling beyond which collections actually fall.

• Shroff insists that the laws of economics — particularly supply and demand — operate regardless of finance ministers’ wishes, and that compulsory deposits and other expedients risk destabilising the economy.

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