The increasing population and thrust on economic growth after independence created a large demand on forests in respect of needs of rural people ( fuelwood, fodder), industrial raw material and diversion of forest land for non-forestry purposes (agriculture, river valley projects, mining). The signs of ecological degradation and pressure on tribals became clearly evident by 1970.

The National Commission on Agriculture (1972) identified low investment leading to low productivity of the Indian forests as the major cause of failure of forestry sector to cope with the rising demands and suggested substantial investments into forestry. It tried to achieve a balance between demands of industries and local people through concepts on production and Social Forestry. Efficiency of investments required managerial inputs from the field of management science to achieve the desired productivity.

In 1974, Government of India, accepting the recommendations of FAO/SIDA Forestry preparatory Mission to India for provision of training unit to provide instructions in such fields as business cost control, economics of timber harvesting etc. requested SIDA to support a Business Administration Training Project (BATP) with the objectives:

•  To contribute to the improvement of Management abilities in Forest Development Corporations; and
•  To develop resource for continuous forest business management techniques.

The ensuing seminars under the project stressed the need of such training to all the personnel in Forest Departments and forest related systems. The case for bringing renewable natural resource system under business management and for training managers on economic and business aspects as suggested by the Ford Foundation Consultant necessitated the creation of a institute to :

•  Provide training in economic and managerial aspects of forest related area of associated primary wood based industries.
•  Build the staff for conducting research on economic and management problems facing forest corporations as well as on economic and management problems growing out of the urgent need for managing all forest and non-cultivated lands.
•  To create a pool of expert managerial consultants, which would be available to both public and private corporations or agencies.

In 1978 , SIDA contributed a sum of Rs. 50 lacs to the Government of India which partly financed the collaboration fees for entering into an agreement with Indian Institute of Management, Ahmadabad (IIMA) for building the proposed IIFM. The ensuing philosophy behind creation of IIFM were arrived at a seminar held at IIM Ahemdabad in 1979 which recommended that :

•  IIFM should be a national Institute of education in forestry sector, aiming at balanced development, conservation and utilisation of a forest based ecological system in India, consistent with the economic and social development of the nation.
•  Research, education, training and consultancy activities of the proposed IIFM should be directed towards meeting management education needs of the entire forestry system, particularly the forest departments and forest development corporations.
•  It should have a wide enough degree of freedom to develop its particular identity and the culture needed within an educational setting to foster this identity.
•  As the leader in its field, be concerned with pushing the frontiers of knowledge, providing specialised knowledge to various parts of system which related to this field and helping the world of practice to use this knowledge.

A Ten years perspective plan designed by the core group and Programme office of IIFM at IIMA, laying down the modalities, requirements and functions of IIFM, was approved by the Government of India in 1981 and IIFM was registered as a society in January 1982.