The Third Plan, the critiques and the 'plan holiday'

Detail

1. The Third Plan (1961-66): more of the Second Plan

• Third Five Year Plan (1961-66): it was not very different from the Second Plan (1956-61). It kept the same model, with heavy industry and the public sector in the lead.
• Growth target vs result: the Third Plan aimed at 5.6% growth a year. It achieved only about 2.72%, one of the worst results of any plan [4].
• Agriculture shrank: farm output had negative growth in this plan, and India faced a severe food crisis [4].
• A small-scale Green Revolution programme (new high-yield seeds, fertiliser and irrigation) started during the Third Plan period [4]. Its later growth → land-reforms-green-revolution.

2. What derailed the Third Plan

• Two wars pulled money away from development:
• 1962 war with China and 1965 war with Pakistan → scarce money went to defence and to modernising the armed forces → less money for plan projects.
• Department of Defence Production was set up in November 1962.
• Department of Defence Supplies was set up in November 1965.

• Defence spending "increased enormously" (NCERT). For the wars themselves → india-external-relations.

• Droughts of 1965-66 and 1966-67:

• 1965-66 brought a severe and widespread drought, on top of the short but costly war with Pakistan [3].

• Droughts in two years in a row cancelled out the gains expected from later policy changes [3].

• Food imports under PL-480: India depended on US food aid under PL-480 (Public Law 480, a US law of 1954 for selling surplus grain to poor countries on easy terms). This made India look like it lived "ship to mouth", and it hurt national pride.

• Rupee devaluation of 6 June 1966:
• The rupee was devalued by 36.5%, from about ₹4.76 to ₹7.50 per US dollar [2].
• Devaluation means the government officially makes its currency cheaper against foreign money. Exports become cheaper for foreigners, and imports become dearer.
• It was done under pressure from the World Bank and aid-giving countries [2].
• Soon afterwards, India relaxed controls on imports that industry needed. It expected US$900 million in non-project aid from the Aid India Consortium (a group of donor countries) for the rest of 1966 [3].
• The promised aid did not fully arrive, so this liberalisation experiment failed [3]. Devaluation became very unpopular at home.

3. The critiques: urban bias and the agriculture-versus-industry debate

• Urban bias: the charge that planning favoured industry and cities over farming and villages.
• NCERT says that from the Third Plan onwards, critics saw an "unmistakable urban bias" in planning.
• The term was made popular by Michael Lipton in his book Why Poor People Stay Poor: Urban Bias in World Development (1977).

• His argument: city groups (industrialists, officials, organised workers) have more political power. So cheap food prices, more investment and better services flow to towns, while villages pay the cost.

• Agriculture-versus-industry debate: the argument over what should come first: farming and rural poverty, or fast growth of heavy industry.

• First Plan (1951-56): put agriculture first (dams, irrigation, farm output).
• Second Plan (1956-61): put heavy industry first. This was the Mahalanobis model, named after P.C. Mahalanobis, the statistician who designed the plan.
• Critique 1: industry was wrongly put before agriculture. Food shortages in the 1960s were given as proof.
• Critique 2 (Gandhian / pro-farmer view): India should build agriculture-related and small industries (agro-processing, fertiliser, tools, village industries) instead of large heavy industries. J.C. Kumarappa and Chaudhary Charan Singh argued along these lines.

• The other side: without industry, farming could not grow either. It needs fertiliser, pumps, tractors and power, which only industry can supply. Defenders also said the real failure was weak land reform, not too much industry.

• NCERT Exercise 4 (matching):

Person / event	Match
Charan Singh	Farmers / agrarian interests (rural-first economics)
P.C. Mahalanobis	Industrialisation (Second Plan model)
Bihar famine (1966-67)	Zoning (food could not move freely between zones/states)
Verghese Kurien	Milk cooperatives (Anand / Amul, Operation Flood) → land-reforms-green-revolution

4. The 'plan holiday' (1966-69)

• Plan holiday: the three years (1966-69) when there was no Five Year Plan. India used three Annual Plans instead.
• Why the Fourth Plan was postponed:
• The Fourth Plan was due in 1966.
• The novelty of planning had worn off (NCERT).
• India faced an acute economic crisis: war costs, two droughts, food shortages, high prices and a foreign-exchange crisis after devaluation.

• So a firm five-year plan with fixed targets was not possible.

• Sequence:

• Third Plan (1961-66) → Annual Plans 1966-67, 1967-68, 1968-69 → Fourth Plan (1969-74).

• The Fourth Plan document reports spending under the Third Plan and the three Annual Plans together before setting its own outlay. This shows that the Annual Plans were treated as a bridge between the two plans [5].

5. NCERT's verdict and the political fallout

• NCERT's verdict: planning was criticised for its process and its priorities. Even so, the foundation of India's economic development was firmly in place by the end of this phase. This included heavy industry, the public sector, dams and irrigation, and science and technical institutions.
• Political fallout:
• Economic hardship (price rise, food shortages, devaluation) → public anger → the Congress suffered a setback in the 1967 elections (fourth general election).
• Congress lost power in several states, and non-Congress coalition governments came up → congress-system-challenges.
• The new rural and farmer politics (for example, Charan Singh's break with the Congress in Uttar Pradesh in 1967) gave the "urban bias" critique a voice in elections.

Prelims Hooks

• Third Plan period: 1961-66. Plan holiday: 1966-69 (three Annual Plans). Fourth Plan: started in 1969.
• Third Plan growth: target 5.6% a year. Achieved only about 2.72% [4].
• Department of Defence Production: November 1962. Department of Defence Supplies: November 1965.
• Rupee devaluation: 6 June 1966, by 36.5%, from about ₹4.76 to ₹7.50 per US dollar [2].
• "Urban bias": popularised by Michael Lipton (1977). It is not a term coined by NCERT or the Planning Commission.
• First Plan: agriculture first. Second Plan: heavy industry first (Mahalanobis). A common trap is to swap them.
• Matching: Charan Singh–farmers; Mahalanobis–industrialisation; Bihar famine–zoning; Verghese Kurien–milk cooperatives.
• PL-480: a US food-aid law. India's heavy dependence on it peaked during the droughts of 1965-67.
• Trap: the plan holiday came from crisis and fading novelty, not from scrapping the Planning Commission. The Commission lasted until NITI Aayog replaced it in 2015.

Mains Points

• Wars, weather and planning: the Third Plan shows how outside shocks can wreck a plan with fixed targets. The 1962 and 1965 wars, the 1965-67 droughts and the 1966 devaluation all hit together. This argues for flexible, rolling plans and buffer stocks, and the Annual Plans of 1966-69 were an early example (GS-I post-1947 history; GS-III).
• Urban bias as a political issue: putting heavy industry first and keeping food cheap for city workers made villages feel neglected. This gave rise to farmer politics (Charan Singh, later the BKD and Lok Dal) and helped cause the 1967 setback for the Congress. It shows how economic choices reshape the party system.
• Agriculture vs industry is a false choice: industry supplies inputs to farming, and farming supplies food, raw material and demand to industry. The real failures were weak land reform and low farm investment. The Green Revolution then corrected the balance in the Fourth Plan period.
• Balanced verdict: despite the failures of 1961-69, planning built the base of steel, power, irrigation and institutions on which later growth rested (NCERT). But dependence on aid (PL-480, devaluation under pressure) also pushed India towards self-reliance in food and defence.