India created the Planning Commission to coordinate national economic development after independence. It became the main institution for drafting Five-Year Plans and aligning public spending, industry strategy, and state priorities under a planned-development approach.
The First Five-Year Plan began India’s national planning cycle, emphasizing food production, irrigation, and basic infrastructure. This early priority reflected urgent shortages and post-Partition pressures, and it set the precedent for state-directed investment decisions.
Parliament enacted the Industries (Development and Regulation) Act to give the central government stronger authority over industrial development. This law became a key legal foundation for industrial licensing—government permissions needed to start, expand, or change many industrial activities.
The 1956 Industrial Policy Resolution defined a “mixed economy” with a strong public sector role in strategic industries. It classified industries into schedules, reserving some for the state and placing many others under licensing and regulation—an important pillar of the License Raj framework.
The Second Five-Year Plan marked a major shift toward state-led industrialization, with emphasis on basic and capital goods industries. This approach, linked to the Mahalanobis strategy, aimed to build long-run industrial capacity even if it constrained short-run consumer goods growth.
The Third Five-Year Plan sought to balance agricultural and industrial growth but faced major shocks. The 1962 Sino-Indian War, the 1965 India-Pakistan War, and drought pushed attention toward defense needs and stabilization, weakening the plan’s original growth and investment goals.
After the Third Plan ended amid conflict and economic stress, India paused the normal Five-Year Plan cycle. From 1966 to 1969, the government relied on shorter Annual Plans, reflecting uncertainty about resources and priorities and marking a temporary break in long-term planning.
India launched the High Yielding Varieties Programme (HYVP) in 1966 to raise crop yields using improved seeds and supporting inputs. HYVP became central to the Green Revolution strategy and helped shift policy attention back to food security after earlier shortages.
The Fourth Five-Year Plan restarted long-term planning after the Annual Plans period. It emphasized growth with stability and greater self-reliance, while managing pressures from inflation, unemployment, and regional inequality, reinforcing a strong state role in directing development.
India nationalised 14 major private banks, bringing a large share of deposits under state control. This expanded state influence over credit allocation—who could borrow and on what terms—supporting planning priorities such as agriculture, small industry, and poverty-oriented programs.
Parliament enacted the Monopolies and Restrictive Trade Practices (MRTP) Act to limit concentration of economic power and address unfair market practices. The law fit the broader License Raj environment, where large firms faced added scrutiny and approvals for expansion and restructuring.
The Foreign Exchange Regulation Act (FERA) took effect in 1974, treating foreign exchange as scarce and tightly regulating many forex transactions. These controls reinforced import licensing and restrictions on foreign firms, shaping industrial policy and technology access during the late License Raj era.
The Fifth Five-Year Plan began with “removal of poverty” and self-reliance as major goals, alongside continued state-led industrial and energy investment. The plan period was affected by global economic conditions, including oil shocks, and later political changes reshaped its continuation.
The 1977 industrial policy statement shifted emphasis toward small-scale, cottage, and newly defined “tiny” units, aiming to spread employment and reduce industrial concentration. It also signaled a more restrictive posture toward certain multinational firms under India’s broader control regime.
In April 1980, the government nationalised six additional private-sector banks, extending public control over commercial banking. This further strengthened the state’s ability to steer credit in line with plan priorities, from rural lending to industrial finance.
In 1980, the government issued an industrial policy statement that highlighted modernization, efficiency, and better capacity utilization in industry. While licensing and controls remained, the policy signaled a gradual shift in objectives—from only controlling industrial structure toward improving industrial performance.
The Seventh Five-Year Plan emphasized productivity and technology upgrading in industry while continuing anti-poverty goals. This period is often seen as a bridge: planning remained central, but policy attention increasingly included competitiveness and modernization alongside regulation.
By 1991, India faced a severe balance of payments crisis, with foreign exchange reserves reported as insufficient for more than a few weeks of imports. The crisis created political and economic pressure to move away from extensive licensing and tight import/forex controls toward a reform program.
On 24 July 1991, the government announced a new industrial policy aimed at reducing red tape and encouraging investment. Industrial licensing was largely abolished except for a limited list of industries, and rules for foreign investment were eased—marking a clear policy break from the 1951–1991 License Raj model.
India: Five-Year Plans and License Raj Industrial Policy (1951–1991)