After independence, India had to make an important choice of economic system and opt either for capitalism or socialism. India finally opted for socialism as the Indian leaders were inspired by the extraordinary success of planning in Soviet Union. Indian planners understood the dearth of private capital at the eve of independence and the lack of incentive for private sector to operate in social sector where profit-making could not be the main motive. :
India went for planning so as to adopt the socialist idea with strong emphasis on public sector but also allow for active private sector participation in non-priority industries through democratic framework. With the objective that the government would undertake comprehensive planning for the nation as a whole, the Planning Commission was established in 1950. Planning was undertaken to make public sector work towards the basic economic framework and to encourage private sector firms for their active contribution to the economic growth.