"Nehru’s Economic Legacy”, by invitation, ‘The Hindu Business Line’, January 26, 2008

Nehru’s economic legacy

PULAPRE BALAKRISHNAN


The glittering lights of current prosperity should not blind us to the unique achievements of the Nehruvian model that more than laid the foundations for present growth, says PULAPRE BALAKRISHNAN.



As children we were perplexed by the idea of Republic Day, preferring August 15 with its flag-waving solemnity and stirring speeches and songs of patriotism. In middle age, however, the former appears far more compelling. On Republic Day we renew our collective commitment to individual freedom. While liberty must rank as the pre-eminent freedom, late twentieth-century philosophy has made us aware that the mere absence of restraint cannot be the foundation of a good life. W e need what have been termed ‘positive’ freedoms. These enable us to be doers, or, in Amartya Sen’s depiction, render us capable.

Politicians, of every hue, tend to underestimate the importance of an economic foundation that endows a people with ‘capabilities’ and gives meaning to ‘freedom’. In our recent history, the one mass leader who understood the vital relationship between republican aspirations and economic independence was Jawaharlal Nehru. In the ‘Tryst with Destiny’ oration delivered at midnight on 14 August 1947 “prosperity” preceded “democracy” as one of the compelling goals of independence.

Freedom’s twist

With Partition an indelible tragedy scarring the tryst with destiny, Nehru had no doubt that the task at hand was to bring opportunity to the “common man and the peasants and workers” of this country that had gained freedom. That objective set the task of doubling per capita income in ten years with rapid economic growth the means by which this was to be brought about.

Judging from the experience of the world’s leading economies industrialisation was the best route to faster growth considering also the de-industrialisation of India under colonial rule, an unravelling that must also have preyed on the minds of the leadership. In any case, Prasantha Chandra Mahalanobis provided a model to analyse various possibilities and after a nation-wide debate, this model was adopted as the framework for economic policy.

The Mahalanobis Plan, based on investment in ‘heavy’ industry, as a strategy for growth has been severely attacked, especially more recently since the Indian economy has witnessed globally high growth rates. Perhaps the model and, by implication, Nehru’s economics, have been criticised more for their alleged provenance than their logic, relevance or even performance. It was suggested darkly that a similar model had been used by Soviet planners, an odd basis for criticism considering the Soviet Union had also built an outstanding mass health and education base.

 

Critics of Nehru-era economics

Three lines of criticism have been hurled at the policies of the Nehru era; it neglected agriculture, it provided the rationalisation for a chronically loss-making public sector, and, above all, it was based on a strategy that could never have worked in any case.

The idea that the Mahalanobis Plan had neglected agricultural progress either by design or by default is based on ignorance. If the plan’s author had been aware of the role of agriculture as a source of demand for industry, he had also recognised early on that any expansion of agricultural supply required industrial inputs: think of cement for irrigation canals, steel for pumps, and mere brick-and-mortar for pump houses. Even these basic goods of industrial origin were in short supply as the capacity for their production was lacking. The Mahalanobis Plan did not view industrialisation as rival to agricultural growth; on the contrary it had envisaged it as complementary.

As evidence consider the fact that for the first time in the twentieth century the per capita production of grain begun to rise in India. This is all the more striking as it occurred in the context of a substantial rise in the rate of growth of the population following the launch of the republic.

That the policies of the Nehru era were able to reverse the decline of agriculture that had plagued the first half of the twentieth century should be considered achievement enough.

The seed bed for the Green Revolution that was to follow from about the mid-sixties was at least partly laid by this policy regime. Specifically, the Nehru era witnessed the expansion of publicly-provided irrigation, the provision of an agricultural extension service in the form of the Community Development Programme, and the initiation of field trials within the rejuvenated Indian Council for Agricultural Research.

The central feature of the planned industrialisation drive was that it was state-directed. This has by itself been the subject of much criticism. The point however is to judge this strategy, any strategy for that matter, by its results. For a state-directed scheme to be effective the state must have sufficient resources at its command. The public sector was an instrument conceived as an agent of resource mobilisation.

This premise is underlined in the following excerpt from a speech by Nehru on the occasion of the inauguration of the second HMT Factory at Bangalore in 1961: “There is certain uniqueness about this function and the factory. The uniqueness lies in the fact that this factory has been made out of the profits or the surplus of the older Hindustan Machine Tools factory and, rightly, therefore it is called a gift to the nation by those who have been working in the old factory. This should be a matter of great satisfaction to all those who are concerned with the HMT factory.”

Faster growth

The popular image of the public sector enterprise as a flaccid, employment granting and parochial arm of the political establishment was to emerge later but has been identified as an outcome of ‘Nehruvian socialism’. Mistakenly so. One telling evidence of this is the little known fact that in the Nehru era the savings of the public enterprises grew faster than that of the private corporate sector.

Finally the strategy itself. Critics have vigorously propagated the view that the very economic model adopted was flawed and therefore bound to fail as allegedly it did. A short answer to this criticism would be two-fold. The first is to recognise that when we scrutinise the trajectory of growth over the entire twentieth century we find that the dominant break occurs around 1950, the year planning was launched for industrialisation of the economy.

This implies that the acceleration of the rate of growth in the Nehru era has not been matched thus far, not even after the liberalisation of the economy in 1991. Secondly, most of the successful late-comers to industrialisation globally had initially pursued import-substituting industrialisation as the policy framework similar to the one adopted in India. If India’s record is disappointing to some in retrospect, blame political economy more than the economic model itself.

The Nehru era made an irreversible break with a decaying economy and achieved a growth rate faster even than contemporary China’s. Of all the representations of India’s early years, the ‘Hindu growth’ is the most pathetic catchword for it misses by a long shot the extraordinary dynamics of this age. Not only did the era give birth to a genuine republic but nourished it with an unprecedented economic expansion that has few parallels in history.

(The author is Senior Fellow of the Nehru Memorial Museum and Library, New Delhi.)