Second Five Year Plan in India (1956-1961)

The Second Five-Year Plan set India on the path of Industrialization. While the First Five-Year Plan emphasized agriculture, the Second Five-Year Plan focused mainly on rapid Industrialization and transportation development. Therefore, the Second Plan was also known as the Industrial and transport plan. The Second Plan covered the period from 1 April 1956 to 31 March 1961.

The Second Plan was based on the Mahalanobis model, propounded by a famous statistician Prof. Prasanta Chandra Mahalanobis (the founder of the Indian Statistical Institute). Prof. P. C. Mahalanobis was also known as the founding father of heavy industry in India. The Mahalanobis model, strongly influenced by the Russian model of state-run industries, focused on setting up basic and capital goods industries by the government directly. The model suggested that there should be an emphasis on the heavy industry that leads the Indian economy to a long-term higher growth path.

The Second Plan endeavored to determine the optimal allocation of investment between productive sectors so as to maximize the long-run economic growth. The plan is known for top-down industrialization of big industries, creating a base for the growth of medium & small industries, and going down to village & cottage industries.

In 1956, the new Industrial Policy Resolution was adopted, which paved the way for the expansion of the public sector and the establishment of a socialistic pattern of society. The Second Plan also emphasizes the development of the public sector.

The total outlay for the Second Plan was worth Rs. 4672 crore, allocated among various sectors, such as power and irrigation, communication and transport, industry and minerals, social services, and miscellaneous


  • A sizeable increase in the national income so as to meet the needs of the domestic economy and raise the level of living.
  • The rapid industrialization of the country, especially the growth of heavy industries.
  • Government to boost the manufacturing of industrial goods in the country, primarily to develop the public sector.
  • More emphasis on the transportation system.
  • Reduction in inequalities of income & distribution.
  • Achieve the target growth rate of 4.5%.
  • Expansion of employment opportunities by developing labor-intensive projects & small-scale industries.

Key Notable Points

  • In 1956, the Government of India passed the Life Insurance Corporation Act 1956, also known as the Insurance Act 1956, which established the Life Insurance Corporation (LIC) of India.
  • LIC was incorporated on 1 September 1956 by merging 245 insurance companies and provident societies.
  • Therefore, the LIC Act 1956 nationalized the insurance industry in India.
  • On 22 March 1957, India adopted the National Currency on Decimal basis system. India changed from anna, pie system to the decimal currency. In a decimal basis system, each unit of currency can be divided into 100 sub-units.
  • In 1956, Durgapur Iron and Steel Plant was set up in West Bengal with the help of British companies.
  • In 1959, Bhilai and Rourkela Steel Plants were established with the help of Russian and West Germany, respectively.
  • During the Second Plan, the government also set up Hydroelectric power projects and added more railway lines. It also expanded the Coal production in the country.
  • In January 1957, the Indian Government appointed the first Panchayati Raj Committee under Balwant Rai Mehta to examine the working of the Community Development Programme (launched on 2 October 1952) and the National Extension Service Programme (launched on 2 October 1953).
  • The Balwant Rai Mehta Committee submitted its report in November 1957, in which it suggested establishing the scheme of democratic decentralization, which came to be known as Panchayati Raj.
  • The Committee recommended establishing a 3-tier Panchayati Raj System:
    • Gram Panchayat at the village level.
    • Panchayat Samiti at the block level.
    • Zilla Parishad at the district level.
  • Panchayati Raj System aimed to settle the local disputes locally. It also makes the people politically conscious.
  • On 2 October 1959, Prime Minister Jawaharlal Nehru inaugurated the Panchayati Raj system at Nagaur in Rajasthan. The first elections under the Rajasthan Panchayat Samitis and Zilla Parishad Act 1959 took place in September-October 1959. Andhra Pradesh was the second to adopt the Panchayati Raj system, followed by Punjab in 1961.
  • In 1957, Khadi and Village Industries Commission (KVIC) was formed as a statutory body under the Act of Parliament, the Khadi and Village Industries Commission Act 1956. It promotes, organizes, and facilitates the establishment and development of khadi & village industries in rural areas.
  • In 1957, the Tata Institute of Fundamental Research was set up as a research institute.
  • In 1958, the Atomic Energy Commission of India under the Department of Atomic energy was formed with Homi J. Bhabha as its first chairman.
  • A talent search and scholarship program begun to find talented young students to train them for work in the nuclear sector.
  • In 1959, the Government enacted the Employment Exchange Act 1959 to provide the compulsory notification of vacancies to the Employment Exchanges and for the rendition of returns by the employers.
  • By 1960, the Community Development Programme (CDP) became overburdened. There was a need to focus sharply on the agriculture sector. Therefore, in 1960, the Indian Government launched the Intensive Agriculture Development Program (IADP), the first program which sharply focused on agriculture.
  • The objective of IADP was to provide loans, seeds, tools, fertilizer to the farmers.
  • In 1960, Govind Ballabh Pant University of Agriculture and Technology, the first Agriculture University of India, was established in Pantnagar, Uttarakhand.


  • While the target growth rate was 4.5%, the Second Plan achieved an actual growth rate of 4.27%.
  • Foodgrain production increase from 67 million tonnes in 1956 to 80 million tonnes in 1961.
  • During the Second Plan, the National Income increase was 19.5%
  • Because of the higher rate of population, the growth rate of per capita income was low. Per capita income increased only by 8%.
  • Industrial Index Production rose from 139 in 1955-56 to 184 in 1960-61 with annual growth of 11.4%.

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