Second Five-Year Plan (India)

Second Five-Year Plan (India)
Government of India · Public domain · source
Title	Second Five-Year Plan (India)
Period	1956–1961
Launched	1956
Prime minister	Jawaharlal Nehru
Planner	Planning Commission
Strategy	Industrialisation and heavy industry
Predecessor	First Five-Year Plan (India)
Successor	Third Five-Year Plan (India)

Second Five-Year Plan (India) The Second Five-Year Plan (1956–1961) was India’s central development blueprint emphasizing rapid industrialisation, capital goods production, and state-led investment under Jawaharlal Nehru and the Indian National Congress. Drafted by the Planning Commission and influenced by the socialist orientation of the Nehruvian consensus, the plan sought structural transformation through public sector expansion, linkages with the Soviet Union, and technocratic institutions such as the Industrial Policy Resolution, 1956.

Background and Objectives

The plan emerged from continuity after the First Five-Year Plan and drew on debates at the National Development Council, the All India Congress Committee and consultations with economists like P. C. Mahalanobis, V. K. R. V. Rao, and R. K. Shanmukham Chetty. Core objectives included building heavy industries, expanding steel and machine-tool capacity linked to projects such as the Bhilai Steel Plant, Durgapur Steel Plant, and Rourkela Steel Plant; achieving rapid industrial growth; and reducing reliance on imports through import substitution policies advocated by planners associated with the Mahalanobis model. The plan targeted higher rates of gross domestic product growth, capital formation, and employment while addressing regional disparities exemplified in discussions involving states like Madhya Pradesh and West Bengal.

Economic Strategy and Key Policies

Strategy combined centralized planning by the Planning Commission with public sector leadership through the Ministry of Steel and state-owned enterprises including Steel Authority of India Limited predecessors. The plan operationalised the Industrial Policy Resolution, 1956 which differentiated strategic sectors for public ownership while allowing private investment in other areas; policy tools included import controls managed through the Reserve Bank of India, licensing via the Ministry of Commerce and Industry, and tariffs calibrated alongside recommendations from the Tariff Commission (India). The Mahalanobis model—championed by Prasanta Chandra Mahalanobis—prioritised investment in heavy industry and capital goods, influencing allocations and reinforcing ties with the Soviet Union for technical assistance and equipment procurement.

Sectoral Allocations and Major Projects

The plan allocated significant capital to sectors: steel, heavy engineering, power, transport, and irrigation. Major projects included the expansion of the Bhilai Steel Plant with collaboration from the Soviet Union, construction at Durgapur Steel Plant with inputs from United Kingdom engineers, and the establishment of Rourkela Steel Plant with help from West Germany. Power projects such as the Bhakra Nangal Dam completion and associated hydropower schemes were priorities alongside initiatives in the chemical sector and petroleum exploration involving companies like Oil and Natural Gas Corporation predecessors. Transport investments targeted rail modernisation through the Indian Railways and port enhancement at Kolkata Port and Mumbai Port Trust to support industrial corridors.

Institutional Framework and Implementation

Implementation relied on institutions: the Planning Commission coordinated plans with state governments via the National Development Council and ministries including the Ministry of Finance (India), Ministry of Steel and Mines (India), and Ministry of Railways (India). Public Sector Undertakings (PSUs) were established or expanded under statutory frameworks and Boards of Directors with technical cadres drawn from institutions like the Indian Institutes of Technology and the Indian Institute of Science. Financing used public savings mobilised through the Reserve Bank of India and public sector banks such as the State Bank of India together with foreign credits negotiated with bilateral partners and institutions influenced by contacts with the World Bank and Soviet aid mechanisms.

Outcomes and Economic Impact

The plan delivered significant expansion in installed capacity for steel, power generation, and heavy engineering, raising industrial output benchmarks and altering India’s production possibilities. Growth rates in manufacturing and capital goods rose, underpinned by PSUs and large-scale projects that increased employment in industrial towns such as Bhilai, Durgapur, and Rourkela. However, supply bottlenecks, fiscal pressures on the Ministry of Finance (India), and slower-than-expected agricultural productivity constrained aggregate performance, prompting later policy discussions involving economists at Reserve Bank of India and policy forums convened by the National Development Council.

Criticisms and Political Controversies

Critics from private industry representatives, regional leaders in Punjab and Bihar, and economists such as C. Rangarajan later argued that emphasis on heavy industry crowded out small-scale and consumer goods sectors, exacerbated urban bias, and neglected rural development. Political controversies involved debates within the Indian National Congress over allocation between centralised PSUs and private enterprise, tensions with states over resource transfers, and disputes in Parliament with opposition parties like the Bharatiya Jana Sangh and Communist Party of India over ideological direction. Internationally, orientations toward the Soviet Union generated debate with advocates of closer ties to Western institutions including the International Monetary Fund and the World Bank.

Category:Economic history of India