Mahalanobis model

Topic: Politics of Planned Development · NCERT: Class 12, Ch 3 "Politics of Planned Development"

Meaning

The Mahalanobis model was P.C. Mahalanobis's mathematical plan for the economy, built from his two-sector and four-sector models, and it shaped the Second Five Year Plan (1956-61) [4]. It put most investment into capital goods (machines and materials used to make other goods) and heavy industry, mostly in the public sector (businesses owned by the government). The aim was a quick structural transformation of the economy, meaning a fast change from a farm-based economy to an industrial one, and growth over the long run.

It matters because it moved India's planning from farming first to industry first. It built the base of public sector heavy industry. It also left lasting problems: shortages of foreign exchange, rising prices and the neglect of agriculture.

Explanation

Who made it and how

• P.C. Mahalanobis was a statistician. He founded the Indian Statistical Institute (ISI) in Calcutta on 17 December 1931, and it was registered as a society in April 1932 [3].
• In 1954, PM Jawaharlal Nehru asked Mahalanobis and the ISI to prepare the draft Second Five Year Plan [3].
• He was central to building India's strategy for industrialisation [4]. The Second Plan is often called the "Mahalanobis Plan" [2].
• Two tools were used together:
• The Harrod-Domar growth model (a simple model that links growth to savings and investment) gave the overall estimates [2].
• Mahalanobis's two-sector and four-sector models decided how much money went to broad sectors such as agriculture and industry [2].

The main idea

• Invest in capital goods first:
• Build machines, steel and power before consumer goods.

• As savings and investment rise, the economy changes its structure quickly.

• Heavy industry under the public sector:

• The state leads in key industries.

• The sectors stressed were electricity, railways, steel, machinery and communication.

• Import substitution (making at home the goods India used to import):

• High import tariffs (taxes on goods coming from abroad) made foreign goods costly.
• This protected both public and private industry.

How it changed from the First Plan

	First Plan (1951-56)	Second Plan (1956-61)
Priority	Agriculture, irrigation, price stability	Rapid industrialisation, with heavy and basic industries [2]
Attitude	Patience and slow growth	Quick structural transformation
Lead role	Mixed	Public sector in key industries

• Why planners felt free to shift: harvests were good and prices were steady. So agriculture could get lower priority [2].

Limits and costs

• Foreign exchange problem:
• India's technology was backward, so it had to import machines and know-how.
• The plan relied on large imports paid for with foreign loans [2].

• An acute shortage of foreign exchange forced cuts in the plan's targets [2].

• Prices: prices rose by about 30% during the plan. In the First Plan, prices had fallen [2].

• Growth: the target was 4.5% a year, and actual growth was 4.3% [2]. The plan was only "moderately successful" [2].
• Agriculture was neglected:
• Industry drew investment away from farming.
• That raised the risk of food shortages.

• The Third Plan (1961-66) moved agriculture back to top priority [2].

• Trade cost: import substitution held back export-led growth (growth driven by selling goods abroad). It also reduced India's links with the world economy.

In the Constitution and practice

• Constitutional base (settled text):
• "Economic and social planning" is in the Concurrent List (Entry 20, List III). This means both the Union and the states can make laws on it.

• The Directive Principles ask the state to spread ownership of material resources for the common good and to prevent wealth gathering in a few hands (Article 39(b) and (c)). A state-led, public sector model fits these goals.

• Planning Commission: set up in March 1950 by a resolution of the Union government [2]. It was not created by the Constitution or by an Act of Parliament. The Second Plan was made under this body.

• The political goal behind the model, the "socialist pattern of society":

Step	Date	What happened
1	December 1954	The Lok Sabha accepts the socialist pattern as the aim of economic policy
2	January 1955	The Congress adopts it at its Avadi session
3	1956	The Second Plan and the Industrial Policy Resolution 1956 put it into action

• The Second Plan's stated aim was to "advance to a socialist pattern of society" [5]. It said this needs wide participation by the people and constructive leadership at various levels [5].
• Industrial Policy Resolution 1956: it was based on the socialistic pattern goal [2]. Its Schedule A listed basic and strategic industries where only the state could set up new units.
• Key instances, the public sector steel plants [2]:
• Bhilai: built with help from the USSR.
• Rourkela: built with help from West Germany.

• Durgapur: built with help from the UK.

• Political outcome:

• The Congress took over a socialist goal, so the Socialists found it harder to offer a real alternative. This helped keep one-party dominance (the Congress system).

• The Swatantra Party (1959) attacked the statism (too much state control, licences and planning) of this era from the right.

• Lasting effect: NCERT calls the Second Plan a turning point in India's development. It gave India a base of heavy industry, but the cost became clear in the food crisis of the 1960s.

Don't confuse with

• First Plan (1951-56): it put agriculture first and asked for patience. The Mahalanobis model (Second Plan) put heavy industry first.
• Harrod-Domar model: a general growth model that links savings and investment to growth, used for the overall estimates [2]. The two-sector and four-sector models were Mahalanobis's own, and they split investment between sectors [2].
• Bombay Plan (1944): a plan made before Independence [2]. The Mahalanobis model was the strategy of an official Five Year Plan after 1950.
• Export-led growth: growth driven by selling abroad. The Mahalanobis model used the opposite approach, import substitution behind high tariffs.

Prelims Hooks

• The Second Plan (1956-61) = the "Mahalanobis Plan". It used two-sector and four-sector models together with the Harrod-Domar model [2].
• P.C. Mahalanobis founded the ISI on 17 December 1931. Nehru asked him to draft the Second Plan in 1954 [3].
• Second Plan growth: target 4.5%, achieved 4.3%. Prices rose about 30% [2].
• Steel plant and partner: Bhilai – USSR; Rourkela – West Germany; Durgapur – UK [2]. A common trap is swapping Rourkela and Durgapur.
• Order trap: the Lok Sabha resolution (December 1954) came before the Avadi session (January 1955). The Second Plan and the Industrial Policy Resolution 1956 (Schedule A: state-only industries) came after.
• The Planning Commission (March 1950) was set up by executive resolution. It was neither constitutional nor statutory [2].

Mains Points

• Industry-first versus agriculture-first (GS-I):
• The model built heavy industry and public sector units such as Bhilai, Durgapur and Rourkela.
• But it gave farming lower priority [2] and caused a foreign exchange crunch and about 30% inflation [2].

• The 1960s food crisis and the Third Plan's shift back to agriculture show the cost of that imbalance [2].

• Planning as politics (GS-I):

• Through the socialist pattern (Lok Sabha 1954, Avadi 1955), the Congress took over the Socialists' agenda and strengthened one-party dominance.

• Francine Frankel (1978) showed a gap: the party spoke of socialist state ownership, while its governments gave incentives to private investors. This kept a broad coalition together but drew attacks from Swatantra on the right and the Communists on the left.

• Self-reliance versus openness (GS-I/GS-II):

• Import substitution built home industry but limited exports and access to technology.
• Central plans also depended on the states to carry them out, and landed elites watered down land reform there. Both lessons still apply when judging Atmanirbhar Bharat and NITI Aayog-era cooperative federalism.

Related concepts

• Socialist pattern of society
• Second Five Year Plan
• Import substitution

Read more

• The Second Plan (1956-61): Mahalanobis, heavy industry and the socialist pattern