Choosing a system: planning in India

Every society must answer three basic questions: what goods to produce, how to produce them, and for whom (how to distribute them).

Different economic systems answer them differently:

• Capitalism: the market decides. Goods go to those who can pay for them (by purchasing power), not to those who need them most. If only private buses run in a region, they will run only on routes that make a profit.
• Socialism: the government decides what to produce and distributes goods according to people's needs. There is no private property.

India's first Prime Minister, Jawaharlal Nehru, chose a middle path: a mixed economy. It combined a socialist outlook and a strong public sector with private property and democracy. The government would control the 'commanding heights' (key industries such as steel, power and, for a long time, even telecommunications), while the market and private firms would run the rest.

To guide this, the Planning Commission was set up in 1950, with the Prime Minister as its chairperson. It drew up five year plans, within longer perspective plans of about twenty years. (In 2015, the Planning Commission was replaced by the NITI Aayog.)

P.C. Mahalanobis is called the architect of Indian planning. He shaped the Second Five Year Plan, and founded the Indian Statistical Institute (ISI) and its journal, Sankhya.