The introduction of modern production techniques, which require proportionately greater capital, was the main feature of the development of the Indian economy during the decade, 1950-60. However, this modern sector had not yet become large enough to affect the overall structure of the economy.
Largescale manufacturing industry was the only sector of the economy to adopt advanced modern techniques to a marked extent to affect the capital structure of the sector as a whole. In other sectors, despite there being a rise in the incremental capital-output ratios, the overall capital-output structure remained largely unchanged The quest to quickly industrialize had caused a large reallocation of funds away from the farm sector.
Agriculture outlay was nearly halved to 14% in the Second Plan. Food shortages worsened, and inflation spiked. Imports of food grains depleted precious foreign exchange reserves.
Beginning in 1950, India had faced trade deficits that increased in the 1960s. The Government of India had a major budget deficit and therefore could not borrow money internationally or privately.
As a result, the government issued bonds to the Reserve Bank of India, which increased the money supply, leading to inflation.
The war with China had exposed India’s economic weakness. Chronic food shortages and price rise convinced him that India needed to move away from centralized planning and price controls.
This was a huge pressure to handle for a nascent economy emerging out of colonial deprivations.
(With input from news agency language)
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