At the time of India’s first Five Year Plan, the government focused primarily on the agriculture sector. A large part of capital and technology was devoted to increasing agricultural production. This was effective at the time and is now referred to as the green revolution. The success of this plan convinced the Indian Planning Commission to shift their strategy. The NM strategy drew inspiration from the USSR and suddenly focused on rapid industrialisation in the second Five Year Plan rather than the agricultural sector as they had done in the previous plan.
The NM strategy focused on industrialisation, mostly on the idea that manufacturing industries enjoy economies of scale, while agricultural production would face secularly diminishing returns. The productivity of labour could also be increased in capital intensive manufacturing industries while the surplus gained per labourer from agricultural production would be lower. Therefore, the available quotient for re-investment and the resultant growth would be higher from basic and heavy capital industries.
Major developed capitalist countries like Japan, the U.S.A and the U.K took an alternate path to industrialisation called the “demand-pull” process. This involves starting with establishing consumer good industries, intermediate good industries and light engineering industries to supply simple materials and equipment to the consumer good industries. Agricultural development would lead to the growth of consumption good industries that supply basic consumption needs such as food and clothing and this in turn would lead to growth in agriculture. Under this system, even small increases in capital invested in agriculture would increase output and employment as opposed to the large amount of investment required for setting up heavy capital industries. This increase in agricultural growth would enhance the demand for consumer goods and gradually, basic and...