Why was the Second Five Year Plan such a disaster?

Around Christmas, in 1954, Nehru visited the ISI campus. He made the following note-

I have been to the Indian Statistical Institute today and spent about two and a half hours there. I met all the foreign experts and statisticians who had gathered there in considerable numbers.

These included, D.D. Degtavar and MJ. Rubinstein from USSR- whose views Nehru largely adopted- as well as Charles Bettelheim, a French Marxist, and Richard Godwin, an American Leftist who had taken refuge in Cambridge. 

Professor Frisch was unfortunately unwell and in bed. However, I met him in his bedroom. So far as the others were concerned, we met in a group.

None of these 'foreign experts' knew anything at all about India. But neither did the Indians involved because they weren't business people or farmers. How could their Plan fail to fail? 

2. In the course of our talks various points were made. I am mentioning some here.

3. The principal point on which emphasis was laid was that it would not be possible for these statistical labours concerning the Second Five Year Plan to bear fruit during the next few months.

Because those involved knew nothing about the country except that Diarrhoea was a way of life there.  

They would require from twelve to eighteen months to produce any satisfactory result.

It did start in April 1956. Sadly, it was shit. A bunch of foreigners can't find out things about a country which its own people were almost completely ignorant of.  

Of course, some kind of very preliminary note could be prepared in the course of the next three months and they propose to do so.

Why not get preliminary notes from people who actually knew something about the country.  

But this note would only be a general indication of the lines of approach.

Based on ignorance 

4. Therefore, it was suggested that the preparation of the Second Five Year Plan, as a whole, should be delayed.

These guys were so clueless, they didn't have even a plan for a plan.  

For the present, an interim plan should be aimed at. This would be for the first year of the second five year period. Meanwhile, the fuller plan should be worked up.

Once you know your budget, you can make plans. It is wise to plan for different scenarios because there may be an unexpected revenue shortfall or a cost escalation. Nehru had brought in a bunch of eggheads who didn't know the country and who hadn't ever run an enterprise. They could come up with a plan but it was certain to be utterly crap.

5. It was important that the Second Five Year Plan should not be given any final shape till these social and statistical studies were completed.

If you don't have the resources to do 'social and statistical studies', just focus on budgeting. Fuck planning.  

Also, it was important that this Second Five Year Plan should not start off on the wrong foot.

That's what happened.  

If it takes a wrong direction, then it will be difficult to reverse it.

See above.  

It was also bad to proceed on some ad hoc basis or on guess work. Therefore, the direction should be right.

It was wrong.  

The interim plan for a year would give that direction and work would proceed while the fuller plan was in course of preparation.

What this amounts to is- do stupid shit for a year and, during that time, make plans for doing stupider shit in the following years unless you run out of money.  

6. This preparation of what might be called the real plan would require a great deal of help and cooperation from engineers, technical experts, the Reserve Bank, industries and national laboratories.

What about businessmen- i.e. guys who knew about planning and budgeting and how to turn a profit?  

The statistical group added, what was obvious, that it would be essential for them to have the closest cooperation with the Planning Commission.

Which ought to have been subject to the Finance Ministry because plans are what have to change when budgetary projections change.  

7. Everyone who spoke laid stress on planning being primarily on the physical level 

It was so shit that inflation rose 

and not merely to be an allocation on the financial basis.

When the money ran out, the Plan had to be scaled down.  

Finance, of course, counted. But it should come in at a later stage when the physical objectives were defined.

Let us first decide what to buy before we ask what price it is and how much money we have.  The problem with poor people is that they are obsessed with how much things cost and how little money they have in their pockets. That's the reason they don't have nice mansions or super-yachts. 

In fact, planning at all levels should be on the physical plane to begin with.

But budgets must be in money terms. Depending on how much money you have and how much things cost, you can make a plan to buy specific items or a reasonably close substitute.  

Planning, of course, would include all aspects, including special planning for manpower.

Why not have a special plan for Godpower? 

8. Great importance was attached to a full geological survey of resources and sub-soil riches.

That would take a lot of money. Multinational corporations might be willing to do the prospecting in return for leases. But what about the people living on mineral rich land? Will they be compensated? Or will they be resettled in a Gulag? Nehru hadn't waded through a sea of blood to gain power. He was a barrister who won elections arranged by the British. If he tried to collectivize land, the Army- composed of the sons of landlords & kulaks- would slaughter him & his fellow shitheads.  

It was stated by one person there that so far as his knowledge went, only five per cent of the area of India had thus far been fully investigated from the geological point of view.

The Geological Survey of India was founded in 1851. Nehru did put extra resources into it but completely drove out private capital- both domestic and foreign. The burden of finding, mapping, and mining minerals fell entirely on state-owned Public Sector Undertakings (PSUs) and the GSI. This monopoly choked out the competitive, high-risk venture capital that typically drives mineral discovery globally. GSI did shallow drilling & was technologically backward. It had to prioritise ground water & coal verification for PSUs. 

This investigation should be undertaken by the State as foreign investigators or private persons might not like to reveal everything they found.

Why would anybody reveal anything to a confiscatory state? Even bureaucrats would under-report so as to avoid having more work to do.  

9. While the full plan for the second period would be for five years, there should be annual plans for each of those five years and there should be continuous checking of results and correction of plan from time to time from the experience gained.

The Second Five Year plan did set some Soviet style physical targets- e.g. for  Finished Steel it was 4.3 million tons. The actual outcome was 2.4 million tons. Steel has long gestation. Coal pretty much hit its target. There's nothing wrong with quantititative targets or the use of input output matrices & critical path analysis. But such things have no magical properties.

10. It was stated that techniques were now available for solving almost all the problems that arose in planning.

There is only one problem with planning. The future is unknown.  

But this required time and full help from all concerned.

If you give me a week and plenty of help from all the people of the world, I will be able to tell you what will happen tomorrow. True, you will already have known what I will tell you for six days but what's a few days between friends? 

Professor Frisch

who knew nothing about India 

welcomed the decision of the Government to nationalize the Imperial Bank and to extend its operations in the rural areas.[6] He said that good as this was, it should be supplemented by some organization which would be required to give practical help in the shape of advice in regard to accounting etc., to peasants, i.e., presumably that this rural banking system should have men especially to advise in a friendly way in all the rural credit and accounting problems. He attached great importance to it.

I hope Nehru advised Frisch on the advisability of educating Norwegian economists in a friendly manner on the inadvisability of stuffing herring up your anus as a means to gain nutrition.  

12. Professor Frisch was also of opinion that the entire system of taxation should be reviewed and varied. I cannot go into this matter because I did not fully understand all he said and I could not pursue our talk.

Frisch proposed a negative marginal tax rate (essentially a wage subsidy) to incentivize higher labor input and optimize production

But he seemed to think that income-tax should be reduced considerably and a number of other forms of taxation employed. This would not only bring in more money, but give incentives. He pointed out that the present system of taxation involved wastage. Business houses spent money so as to escape taxation.

Government should employ everybody & tax everybody so as to cover the loss made by doing so.  

13. Stress was laid on the importance of the role of science in planning. Our national laboratories were praised as Fine institutions not only in their equipment but also in the type of young scientists working there. But, it was pointed out that these laboratories had nothing to do with our planning, although they ought to be intimately interested in them.

The planning was shit. The labs weren't. Subjugate what was not shit to what was shit- that's Socialism- right?  

They lived in a kind of ivory tower thinking of odd experiments in research. There should be full interconnection between science and practice at all levels, and therefore, planning should be done with the closest participation of scientists and engineers at all stages.

Indian cooks made tasty curry. Why not closely involve them in planning in the the hope that curry turned to shit?  

14. It was suggested that after the Baroda Science Congress[7] there should be a special conference of directors of national laboratories and institutes to consider this matter and how to make systematic use for planning of research. Scientists, technicians, educationists, engineers, etc., should be given a planning orientation and should be made to think in terms of national development.

Also cows should be consulted. That will please the Hindoooos.  

15. Stress was laid on the great importance of decentralising industrial enterprises in the public sector. This is to say, these State enterprises should be given a good deal of freedom and should not be interfered with. It was pointed out by the Soviet representatives that in the USSR there was a great deal of decentralisation of this type.

Indeed, the reason so many people were trying to escape from the Soviet Union was because there was too much freedom there.  

16. It was mentioned that it would be necessary to have a great expansion of health and education.

paid for by what?  

17. A very brief reference was made to land policy and state trading, but there was no talk about it.

Because they knew nothing about it. 

18. The main concern of these people was that no commitment should be made on the old pattern of planning and that the whole subject should be considered anew.

Because they were novices in all matters Indian. To be fair, many had come to India believing that the quality of official statistics would be similar to that of Britain (because British civil servants had administered India). But such was not the case.  

Velupillai quotes Dick Goodwin- creator of the first input-output matrix for the Indian economy- as saying