In this article we will discuss about the second five-year plan:- 1. Introduction to the Second Five-Year Plan 2. Objectives of the Second Five-Year Plan 3. Growth Model 4. Plan Outlay and Priorities 5. Progress 6. Achievements 7. Critical Assessment.


  1. Introduction to the Second Five-Year Plan
  2. Objectives of the Second Five-Year Plan
  3. Growth Model of the Second Five-Year Plan
  4. Plan Outlay and Priorities of the Second Five-Year Plan
  5. Progress of the Second Five-Year Plan
  6. Achievements of the Second Five-Year Plan
  7. Critical Assessment of the Second Five-Year Plan

1. Introduction to the Second Five-Year Plan:

Despite an 18% increase in the aggregate national income during the First Plan, there was very little rise in the standard of living of the population as a whole. Disappointment, bitterness, and lack of enthusiasm were on the increase.


There was even a spirit of radicalism among the working class and some sections of the middle class. The Government, therefore, found it necessary to propose a more ambitious and apparently a more radical plan.

China’s economic success since 1947 and India’s desire not to loose ground in comparison, was another factor which made a more ambitious plan readily acceptable. The success in Russia and China gave new credit to socialist ideas in India. The result was that the Second Plan, launched on 1 April, 1956, was not exactly a continuation of the First. It was much bigger in size and aimed at ‘development’ rather than rehabilitation.

In marked contrast to the First, the Second plan laid emphasis on industrialisation, especially the development of basic and key industries in the public sector. Above all, it had the broad aim of establishing a ‘socialistic pattern of society’ in the country.

Within this framework, it had the following objectives:


2. Objectives of the Second Five-Year Plan:

1. “A sizeable increase in national income so as to raise the level of living in the country.”

2. “Rapid industrialisation, with particular emphasis on the development of basic and heavy industries.”

3. “A large expansion of employment opportunities”; and


4. “Reduction of inequalities in income and wealth and a more even distribution of economic power.”

As can be seen, these objectives were inter-related. A significant increase in national income and a marked improvement in living standards could not be secured without a substantial increase in production and investment.

To this end, the building up of economic and social over heads, exploration and develop­ment of minerals and the promotion of basic industries like steel, machine building, chemicals and coal were vital.

For securing a simultaneous advance in all the these directions, the available man power and natural resources had to be used to best advantage. Further, the process and pattern of development had to reflect certain basic social values and purposes, so as to result in reduction of economic and social inequalities.

3. Growth Model of the Second Five-Year Plan:

The Second Five Year Plan envisaged an increase in the total national income from Rs. 10,800 crores in 1955-56 to Rs. 13,480 crores in 1960-61 (calculated at 1952-53 prices). This represented an increase of about 25% over the five-year period. The per capita income was expected to increase from Rs. 281 in 1956 to Rs. 331 in 1960-61.

In order to make these achievements possible, the rate of investment was expected to rise from 7% of the national income in 1955-56 to 11% in 1960-61, assuming that the rate of population growth would remain stationary at 1.3% per annum and the capital output ratio at 2.3: 1.

4. Plan Outlay and Priorities of the Second Five-Year Plan:

In order to secure the objective of a 25% increase in the national income, the plan provided for an outlay of Rs. 4,800 crores in the public sector. The actual outlay, however, amounted to Rs. 4,600 crores of which investment amounted to Rs. 3,650 crores and the balance Rs. 950 crores was current developmental expenditure.


Besides, the private sector investment amounted to another Rs. 3,100 crores. Thus, total investment, public as well as private, came to Rs. 6,750 crores as against Rs. 3,360 crores in the First Plan —the annual average rising from Rs. 850 crores in the First year to Rs. 1,600 crores in the final years of the plan.

The most notable feature of the Second Plan was its marked emphasis on public investment and rapid industrialisation. In the First plan, relatively greater stress was placed on programmes designed to build up the agricultural potential of the country.

Consequently, programmes of agriculture and irrigation comprised more than 1/3 of the plan outlay. In the Second Plan, not only was the basic pattern of investment shifted from agriculture to industry, but, within the industrial sector, the emphasis was mainly on spectacular heavy industries.

Accordingly, relative shares of industry, including village and small industries, and minerals, went up from 4% in the First Plan to 24% in the Second Plan.


The significant move forward in respect of basic industries included the setting up of three steel plants in the public sector and the expansion of the two existing private sector mills, a 75% increase in coal production, a three-fold increase in the cement production, and the all-round railway development so as to expand traffic capacity in accordance with the planned industrialisation.

Together, these industrial and transport elements eventually came to constitute the ‘core’ of the plan. Transport and communications were given high priority in both the plans; it absorbed 27% of the public sector outlay in the First Plan and 28% of the Second. However, the percentage share of social services came down from 28% to 18%.

As regards the financing of the plan, the Second Plan was characterised by a substantial step-up in the tax effort. A number of direct and indirect taxes were introduced with the result that the plan target of Rs. 850 crores of additional taxation was substantially exceeded. However, the balance available from current revenues showed a net fall of Rs. 400 crores.


Similarly, small savings also fell short of the target by Rs. 100 crores. The gap in resources was made up partly through deficit financing and partly through external assistance. During the early years of the plan, budgetary deficits were rather high. However, an attempt was made in later years to reduce them so that actual deficit financing came to roughly Rs. 948 crores as against the plan provision of Rs. 1200 crores.

As regards foreign assistance, the amount actually utilised came to Rs. 1435 crores as against Rs. 800 crores foreseen in the plan. This was a about seven times the amount utilised during the First Plan. If the American aid under PL 480 and PL 655 is also included, external financial assistance was 80% higher than envisaged in the plan.

5. Progress of the Second Five-Year Plan:

The smooth progress of the Second Plan was disturbed shortly after it was launched by three major difficulties.

Firstly, food production declined from the high level of 1953-54 leading to a rise in the food prices.

Secondly, deficit financing, incurred towards the closing years of the First Plan, combined with international pressures, brought about a general rise in the price level thereby raising the cost estimates of the various projects included in the plan.


Thirdly, the large import of producer’ goods and essential raw materials required to sustain a programme of industrialisation, created a severe foreign exchange crisis. These difficulties were compounded by the ‘Suez-crisis’.

It was now realised that the financial resources required for completing the Second plan were significantly higher than the aggregate investment provided in the plan. This led to a talk of ‘re-phasing’ ‘pruning’ or ‘reappraising’ the plan so as to bring it in conformity with the available resources.

Ultimately, the plan was split up into two parts: Part A, involving an outlay of 4,500 crores, included the ‘core projects’ and parts B, with a total outlay of Rs. 300 crores, included projects to be undertaken only if financial resources were available.

6. Achievements of the Second Five-Year Plan:

Notwithstanding the difficulties which cropped up, the Second Plan recorded substantial progress in several directions.

a. Investment and National Income:


There was a substantial step-up in the rate of investment, especially in directions calculated to accelerate the economic development of country. The total invest­ment in the economy increased from Rs. 850 crores per year at the end of the First Plan to an annual level of about Rs. 1600 crores at the end of the Second Plan.

Net investment, as a proportion of national income, increased from 7.3% to about 11% while domestic savings rose from 7.5% to 8.5% of the National Income at the end of the Plan. As a result of increased investment and economic development, national income rose by 20% as against the target of 25%.

How­ever, due to a larger increase in population, per capita income recorded only a 7% increase from Rs. 306 in 1955-56 to Rs. 330 in 1960-61.

b. Agriculture:

Although agricultural production fluctuated from year to year, yet the overall trend was one of unmistakable expansion. Production of wheat increased by 30.1%, that of rice by 34.4%, of oil seeds by 32.3%, of sugar-cane by 27.4% and cotton by 32.6% Overall increase in agricultural production amounted to about 16% —the index of agricultural production (1948-1949 = 100) having risen from 117 in 1955-56 to 135 in 1960-61.

Overall production apart, the yield per acre also rose significantly —especially of rice which rose from 727 lbs./acre during the First Plan to 807 lbs./acre in the Second. This was made possible by a substantial increase in the area irrigated which rose from 56.20 million acres to 70 million acres.


Also, 1.2 million acres of land were reclaimed while soil- conservation measures were undertaken on another 2 million acres of land.

Consumption of Nitrogenous fertilizers more than doubled from 105,000 tons to 230,000 tons. At the end of Second plan, the community development move­ment covered about 3,70,000 villages and well over half of the country’s rural population. The number of primary agricultural credit societies almost doubled up during the course of the plan while Land Reforms measures were carried further.

c. Industry:

There was a rapid growth and diversification of industry during the five years of the plan as can be seen from the general index of industrial production which rose from 139 in 1955-56 to 194 in 1960-61-a 29% increase.

Apparently, this performance was a shade-less than the performance of the First Plan. Nevertheless, it should be noted that while the sizeable part of increase during the First Plan was due to better utilisation of capacity, the increase during the Second came largely from new capacity installed during the period.

In a short span of five years, three new steel works, each of one million tons capacity, were completed in the public sector while the two existing works in the private sector were expanded.


The foundations were also laid of heavy electrical and heavy machine tools industries, heavy machine building and other branches of heavy engineering. The production of machinery for the cement and paper industries was also started for the first time.

In the field of chemical industries, there was an advance on a wide front, leading not only to larger units and greatly increased output of basic chemicals, e.g., nitrogenous fertilizers, Caustic soda, Soda ash and Sulfuric acid, but also to the manufacture of a number of new products such as Urea, Ammonium phosphate, penicillin, synthetic fibres, Industrial explosives, news-print and dyestuffs.

Production of steel ingots doubled, of Aluminium increased 2.5 times, of machine tools by 7 times, of petroleum products by 58% and chemicals by 90%.

The output of many other industries such as bicycles, Sewing machines, telephones, electrical goods, textiles, and sugar machinery also recorded substantial expansion. All in all, it can be said that some of the basic conditions required for an accelerated growth towards the goal of a self-reliant economy were successfully established during the plan.

d. Power:

This impressive industrial expansion would not have been possible but for the attention paid to the power generating capacity which increased from 3.42 million kW to 5.70. million kW i.e. by 67%.

e. Employment:

In the course of the Second plan, the additional employment opportunities created amounted to about 8 million, of which about 6.5 million were outside agriculture. Even then, the backlog of unemployment at the end of the plan was reckoned at 9 million —more than what it was at the beginning of the plan.

f. Transport and Communications:

The main task under the First Plan was the rehabilitation and replacement of rolling stock and fixed assets of the railways which had been subjects to severe strain on account of the war and the partition.

The Second Plan, however, tried to meet the growing needs of the agricultural and industrial sectors by providing additional facilities. 420 miles of new railway lines were laid; 1400 locomotives. 5000 coaches and 72,500 wagons were added to the rolling stock during the Plan.

There was also a substantial expansion in road transport, shipping, and air services. The length of surfaced roads increased by 22,000 miles while that of the un-surfaced ones by 55,000 miles. A substantial addition of 4.2 lakhs tons G.R.T. was made to the Indian shipping and Indian ships carried about 8 — 9% of India’s overseas trade.

g. Social Services:

The development of the human resources of the country through the provision of facilities for education, health and social welfare was one of the major objectives of planned development. That is why, both in the First as well as the Second Plan, a sizeable part of the total outlay was allocated to social services.

Various measures were taken to expand the quantity and quality of educational and health facilities. The number of school-going children increased by 39% while that of technical and engineering graduates went up by 160%.

The number of Arts and Science colleges increased by 278 while that of universities went up by 14. There was also a considerable expansion of medical and health facilities as may be seen from the number of hospital beds which rose by 49%.

7. Critical Assessment of the Second Five-Year Plan:

While there is no doubt that the Second Plan did secure certain far reaching gains in the industrial field, but the “momentum was so slow and the impact of economic growth on the standard of living of the majority of our people so imperceptible” as to generate a wide spread feeling of cynicism regarding the achievements of planning in the country.

There were serious shortfalls in several important spheres. While the setting up of the three new steel plants was by itself a most impressive achievement, their combined output of steel was only 0.6 million tons in 1960-61. In the field of fertilizers, the expansion of the Government Sindri Fertilizers Factory and the Ammonium Chloride Project at Varanasi were not completed till 12-18 months after the scheduled date.

Similarly, the three new fertiliser plants in the public sector at Nangal, Neiveli and Rourkela were delayed by one to two years. The same was true of the Heavy Electrical projects, the heavy machinery, the Mining machinery and the Foundry/Forge projects.

As a result, targets set for Iron and steel, fertilizers, certain items of machinery, heavy castings and forgings, aluminium, newsprint, raw films, chemical pulp, Soda ash, Caustic soda , dyestuff and cement were not achieved.

These shortfalls were in some of the very industries which were of crucial importance and thus deprived the economy of benefits envisaged at the start of the Third Plan. Performance in other spheres was not much better.

There were serious shortfalls in the production of cotton, jute, sugar cane, oil seeds, coal, and electric energy. In brief, the over all growth rate of 3.5% per year turned out to be much below what was anticipated.

A greater failure was in the sphere of prices. Unlike the First, the Second plan was characterised by a persistent rise in prices. Over the Five Years period, the rise in the general index of wholesale prices was about 30%. Food articles as a group went up by 27%; industrial raw-materials by 45% and manufacture by over 25%.

This very substantial price rise had its repercussions on the cost of living as well as the country’s exports. The common man found his rupee losing a quarter of its value while the country’s export promotion drive suffered a serious set back. All cost estimates were upset and the plan progress was adversely affected.

While the plan failed to achieve its major physical targets, its working led to constantly widening inequalities in the distribution of national wealth. As Professor D.R. Gadgil points out, during the decade a ‘socialistic’ programme was implemented by the Government, the condition of the most disadvantaged classes, including almost the entire labouring population, remained stagnant and perhaps deteriorated.

All proposals relating to equal distribution of the means of production pertained to ownership of land only while the large organised business and its foreign collaborators were reassured with promises of “fair treatment” and concessions. In-fact, Government policies were so distorted as to benefit big business and trading community at the cost of the most disadvantaged class.

Not only had the economic inequalities increased, the regional disparities too went up. Some states like U.P. actually came down —its domestic product increasing by less than 2% per year as compared with the national average of 3.5% during the decade 1951-61. In contrast, the domestic product of the Punjab increased at an annual rate at 10%.

One of the principal objectives of the plan was to provide greater employment opportunities. Although, the plan did succeed in creating about 8 million new jobs, yet the backlog of unemployment at the end of the plan was estimated at 9 million. It means that the rate of investment was far short of the population growth.

The working of the plan also revealed serious organisational weaknesses and deficiencies, both at the policy making as well as the executive levels, in the administrative set up of the Central and state governments.

The Planning Com­mission failed to exercise effective supervision; close liaison between the Centre and the states was absent and the administration was characterised by red-tape and inordinate delays. That is why there were serious delays in commissioning various industrial projects and achieving plan targets.

To sum up, during the Second plan, much was achieved, but the Indian economy was still a very long way from “take off”. In fact, there were many ominous signs. The prices continued to rise alarmingly; the pressure on foreign reserves had been no more than temporarily eased, and given the size of the Third Five-Year Plan, another foreign exchange crisis appeared imminent.

Domestic capital formation had risen over the Plan period by no more than 1.2% of the National Income —from 7.3% in the first year to 8.5% in the last. Bailed out from crisis to crisis, the planners became dependent, for the realisation of the Third plan targets, on even greater injections of external funds. Population increase proved far more rapid than even the most pessimistic prophets had forecast.

Dis­tribution of national income had become more rather than less unequal. The administrative apparatus was proving unequal to the new and unfamiliar tasks. And among the population at large, communalism, casteism, linguism and other fissiparous tendencies were making headway. These were some of the problems that confronted the country on the eve of the Third Five Year Plan.