Mahalanobis Committee

The Mahalanobis Committee, formally known as the Planning Commission Committee on Plan Formulation, was headed by the eminent statistician and economist Professor Prasanta Chandra Mahalanobis. It played a defining role in shaping India’s Second Five-Year Plan (1956–1961) and laid the foundation for India’s long-term industrialisation strategy based on the Mahalanobis Model of economic growth.
This committee marked a turning point in India’s planning history, shifting the focus from agriculture-oriented growth (as emphasised in the First Plan) to rapid industrialisation through state-led investment in heavy industries and capital goods.

Background and Context

After gaining independence in 1947, India adopted a planned economic development strategy to promote self-reliance, reduce poverty, and accelerate growth. The First Five-Year Plan (1951–56), largely influenced by economist K. N. Raj, focused on agriculture, irrigation, and community development, addressing the immediate post-partition food and refugee crises.
However, by the mid-1950s, it became clear that agricultural improvement alone could not sustain long-term economic progress or technological self-sufficiency. To achieve structural transformation and build an industrial base, the government sought a more scientific and analytical approach to planning.
In this context, the Planning Commission established a committee under P. C. Mahalanobis — the founder of the Indian Statistical Institute (ISI) and a key architect of India’s economic planning — to design the framework for the Second Five-Year Plan.

Objectives of the Mahalanobis Committee

The committee was tasked with:

1. Developing a quantitative and statistical model for economic planning and resource allocation.
2. Designing an optimal investment strategy to maximise long-term economic growth.
3. Identifying the key sectors that would drive India’s industrialisation.
4. Reducing dependence on imports through domestic production of capital goods.
5. Ensuring equitable distribution of national income through employment generation.

The Mahalanobis Model of Planning

The Mahalanobis Model, introduced in 1953 and used in formulating the Second Five-Year Plan (1956–61), was based on a two-sector framework, which divided the economy into:

1. Investment Goods Sector (Capital Goods Sector): Industries that produce machinery, tools, and equipment.
2. Consumer Goods Sector: Industries that produce goods for direct consumption, such as food, clothing, and consumer products.

The central idea was that the rate of economic growth in the long run depends primarily on the rate of investment and the capacity of the economy to produce capital goods.

Key Assumptions of the Model:

• The economy is closed (no significant foreign trade).
• There is excess labour (labour supply is not a constraint).
• Investment in the capital goods sector has a multiplier effect on future growth.
• Consumption and investment are determined by output levels.

Core Principle:

Investment should be prioritised in the capital goods sector, as it enhances the economy’s capacity to produce future investments, thereby sustaining long-term growth.
This model emphasised “heavy industry-led growth”, making it the cornerstone of India’s industrial policy during the Nehruvian era.

Recommendations of the Mahalanobis Committee

The committee recommended several measures to operationalise the model and guide national planning:

1. Emphasis on Heavy and Basic Industries:
   • Focus on steel, machinery, engineering, and chemical industries to create a strong industrial foundation.
2. Expansion of the Public Sector:
   • State-led investment in key sectors (iron, steel, power, coal, transport) due to their large capital requirements and strategic importance.
3. Import Substitution:
   • Reduce dependence on foreign machinery and technology by building domestic industrial capacity.
4. Long-Term Perspective:
   • Adopt a 15-year perspective plan, with shorter five-year plans serving as stages in its implementation.
5. Use of Statistical and Mathematical Tools:
   • Employ national income accounting, input-output analysis, and growth models to guide rational allocation of resources.
6. Balanced Sectoral Development:
   • While prioritising heavy industries, ensure parallel growth in agriculture to supply raw materials and sustain employment.
7. Infrastructure Development:
   • Invest heavily in power, transport, and communication to support industrial growth.
8. Institutional Framework:
   • Strengthen data collection and research institutions like the Central Statistical Organisation (CSO) and Indian Statistical Institute (ISI) for informed planning.

Implementation: The Second Five-Year Plan (1956–61)

The Second Plan, based on the Mahalanobis model, marked a decisive shift toward industrialisation and socialist pattern of development.
Key features of the Plan included:

• Rapid growth of public sector enterprises in heavy industry.
• Establishment of major industrial undertakings such as Bhilai, Durgapur, and Rourkela Steel Plants.
• Creation of development finance institutions like Industrial Finance Corporation of India (IFCI) and Industrial Credit and Investment Corporation of India (ICICI).
• Expansion of scientific and technical education (e.g., establishment of the Indian Institutes of Technology – IITs).

Financial Targets:

• Total investment outlay increased substantially compared to the First Plan.
• Allocation of about 24% of total plan expenditure to industry and mining.

Achievements of the Mahalanobis Strategy

1. Foundation for Industrialisation:
   • Laid the groundwork for India’s heavy industrial base.
   • Strengthened public sector dominance in strategic industries.
2. Scientific Planning Approach:
   • Introduced the use of quantitative models and statistical tools in economic planning.
3. Long-Term Vision:
   • Focused on capacity-building rather than short-term consumption growth.
4. Institutional Development:
   • Strengthened national institutions for statistics, research, and planning.
5. Reduction in Import Dependence:
   • Initiated self-reliance in machinery and engineering sectors.

Criticisms of the Mahalanobis Model

While the model was intellectually innovative, it also faced several criticisms over time:

1. Neglect of Agriculture:
   • Excessive emphasis on heavy industry led to stagnation in agricultural output, causing food shortages and inflation during the late 1950s.
2. Capital-Intensive Growth:
   • The strategy was ill-suited to India’s conditions of labour surplus and capital scarcity.
3. Slow Employment Generation:
   • Heavy industries generated limited jobs compared to small and medium industries.
4. Regional Imbalances:
   • Industrial development was concentrated in a few regions, widening spatial inequalities.
5. Inefficiency of the Public Sector:
   • Over time, state-led enterprises suffered from inefficiency, overstaffing, and low productivity.
6. Limited Foreign Trade Consideration:
   • The assumption of a closed economy ignored potential benefits of export-led growth and global integration.

These shortcomings later motivated shifts in policy towards agriculture (Green Revolution) in the 1960s and liberalisation from the 1980s onwards.

Legacy and Significance

The Mahalanobis Committee and its model hold enduring significance in India’s economic history:

• It institutionalised scientific planning and introduced mathematical models in policy design.
• It established the public sector as the driver of industrial growth.
• It reflected the Nehruvian vision of achieving self-reliance through state-led industrialisation.
• It served as a precursor to later economic debates on planning, market efficiency, and liberalisation.