The declines of the growth rates are especially evident in the heavy industry sector (raw-material metals, metal products, and non-electric machinery) to which the Indian government allocated escalated development funds, while the slowdown of the growth rate in foods and cotton industries is relatively blunt. This fact implies that the downturn of growth rates was not owed to the internal trap of wage constraint. If wages had restricted the growth of the industrial sector, the growth rates would have markedly declined especially in the labor-intensive industries including food and cotton-product industries. This reasoning should refute the argument that the stagnating agriculture restricted the demand for final consumer goods and that the limited supply of agricultural products as raw materials constrained the industrial sector's output.
The major causes of the economic stagnation during this period can be related to the limited development funds due to the constraints on foreign reserves. The results of this bottleneck had two aspects. First, it was observed as a decrease in imports of capital goods as well as in the number of technological collaboration from the mid 1960s (Figure 1-5). The other consequence is that the agricultural crisis required a political change from industrially oriented to agriculture-oriented strategies, as will be mentioned later. The industrial sector's real capital formation increased rapidly as soon as the second 5-year Plan was introduced (Figure 1-6), but it floundered at a low level during "the lost ten years" from the mid 1960s to the mid 1970s, whereas that of the agricultural sector was increasing. In other words, while the size of development funds itself was restricted, more and more funds were allocated to agriculture and the industrial sector's narrowing path to fund source became obvious.
Why, then, did the economic stagnation last as long as ten years? The reason can be sought again in agriculture. India needed ten years after the agricultural crisis to get out of the external trap by means of "Green Revolution" that aimed at increasing foodgrain production.
