Revisiting the Nehru-Mahalanobis Industrial Policy : India's State-Led Heavy Industry Drive

Inspired by Soviet industrialization and post-World War II focus on state-led development, the Indian state aimed to restructure production towards the capital-goods producing sectors. To what extent did the Nehru-Mahalanobis targeting of heavy industries during the Second Five-Year Plan in India (1956-61) promote their development and what were the prospects for a successful unbalanced growth strategy in the Indian context in the 1950s? To answer these questions, I construct a novel panel dataset that tracks 36 large-scale industrial sectors over 1951-65 - a period coinciding with the first three Five-Year plans in India. This dataset harmonizes industrial production, prices, and input-output data from pre-digital data books. I find that targeting of heavy industries did not have a significant impact on their development. There is no evidence of learning-by-doing in targeted industries when this industrial policy was being implemented. Weak Hirschman-style linkages existed between sectors of the economy before the heavy industry drive began and hence even if the targeting had been successful, there would be limited spillover effects which weakens the case for adopting an unbalanced growth strategy