India Explained
ImplementedINCJawaharlal Nehru

Second Five Year Plan (public-sector heavy industry emphasis)

The Second Plan (1956-61) put public-sector investment in capital goods and steel at the centre of planning, with a targeted 4.5% annual growth rate; the Plan reported about 4.3%.

Privatisation & PSUs

Facts

  • The Second Five Year Plan covered 1956 to 1961 and is associated with the two-sector model of P. C. Mahalanobis, which gave priority to investment goods over consumer goods [3].
  • Finance Minister C. D. Deshmukh's 1956-57 budget speech put the public-sector outlay at Rs 4,800 crore and said the investment rate was to rise from about 7% to about 12% of national income [1].
  • The Planning Commission's summary stated the main task as raising national income by about 25% over the five years, with a larger push toward industrialisation and a leading role for the public sector [2].
  • Growth target was 4.5% a year; the actual rate is reported as 4.27%, against 3.6% achieved in the First Plan and 2.4% in the Third Plan [3].
  • Steel plants at Bhilai, Durgapur and Rourkela were built with Soviet, British and West German assistance respectively [3].
  • A 1958 parliamentary address recorded good progress in building the three steel plants [4].
  • Sources report foreign-exchange shortages and rising prices during the Plan period [3].

Why

Reasons given by those who did it

  • The Planning Commission stated that industrialisation and an expanded public sector were needed to raise national income and employment [2].
  • The budget speech of 1956-57 stated that the rate of investment had to rise sharply to support the Plan [1].

Criticism of that reasoning

  • Economist B. R. Shenoy argued that financing heavy industrialisation through deficit financing was 'a recipe for trouble' and that state control could undermine a young democracy; some analysts see the 1957 external payments pressure as consistent with his view [3].

Benefits and concerns

Benefits (2)

  • Created a public-sector capital-goods and steel base that did not exist before.Steel plants at Bhilai, Durgapur and Rourkela were set up during the Plan and were reported as progressing in a 1958 parliamentary address [3][4].
  • Reported growth was higher than in the preceding plan.Growth of about 4.27% against 3.6% in the First Plan, though below the 4.5% target [3].

Concerns (2)

  • Growth fell slightly short of target while foreign-exchange and price pressures emerged.Target 4.5% vs about 4.27% actual; rising prices and a foreign exchange shortfall are reported for the period [3].
  • The strategy relied on imported capital goods and on deficit financing, which critics said strained the external position.Critique by B. R. Shenoy as summarised in [3]; the Plan model assumed a largely closed economy importing capital goods [3].

Evidence points

+7.5
points, mean of two scorers (scale −25 to +25)
+7 to +8
range between the two scorers' totals
Medium confidence
1 criterion where scorers differ
ReachHow many people did the action materially affect?
Mean +3.0A +3B +3
Outcome evidenceDo official or independent data show the intended result (or its opposite), compared with the era baseline and peers?
Mean +2.0A +2B +2
Cost and sustainabilityIs the fiscal cost proportionate, and is the effect durable?
Mean 0.0A +1B −1Scorers differ
Process and rightsWas it made with debate, consultation and legal soundness, and did it respect rights and court rulings?
Mean +0.5A 0B +1
DeliveryWas it implemented as announced, on time and at scale?
Mean +2.0A +2B +2

Positive meanNegative meanScorer AScorer B

Scorer A. Three steel plants were built and growth of 4.27% exceeded the First Plan, though it missed the 4.5% target amid foreign-exchange and price pressures.

Scorer B. Growth of about 4.27% beat the First Plan and built steel plants, but fell short of target amid foreign-exchange pressure.

Context used when scoring

Era baseline
The First Plan (1951-56) reported 3.6% growth, and the economy was largely agrarian with little domestic capital-goods capacity.
Lag before outcomes show
5 years
Shocks considered
1957-external-payments-pressure, 1962-china-war-and-1965-drought (affect the Third Plan comparison)
Uncertainty
Medium confidence. Scorer totals are +8 and +7. How uncertainty is shown.

In depth

The Second Plan moved Indian planning from an agriculture and irrigation focus toward public-sector industrial capacity. Its design drew on a two-sector model that allocated more investment to capital goods, on the reasoning that this would raise later productive capacity. The government stated that the investment rate needed to rise from about 7% to about 12% of national income.

Reported outcomes include the new steel plants and a growth rate near the target, but also price and foreign-exchange pressures. Critics at the time, including B. R. Shenoy, questioned the financing and the degree of state control, while supporters point to the industrial base created. The outlay figure was revised in some accounts (one source mentions a later figure of Rs 5,300 crore); the Rs 4,800 crore figure is the one given in the 1956-57 budget speech.

Evidence quality is mixed: growth figures come from a secondary compilation of World Bank-linked data, and the Plan’s official evaluation documents were not opened for this entry.

Sources

  1. Budget speech of the Finance Minister, 1956-57
    Ministry of Finance, Government of IndiaPrimary
  2. Second Five Year Plan summary (digital library entry)
    NITI Aayog Library (Planning Commission)Primary
  4. Parliamentary address, 10 February 1958
    Parliament of India digital libraryPrimary

Last reviewed .Report an error orchallenge a score.

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