'Nehru Redux', 15 March, 2004.
Recently, a restoration of Nehru's unique role in shaping the Indian economy has been made by my fellow economists. While I believe that they are right in doing so, they invariably pick the wrong period to make their point. Thus Arvind Subramanian of the IMF and Dani Rodrik of Harvard University have in a paper entitled 'From Hindu Growth to Productivity Surge: The Mystery of the Indian Growth Transition' emphasised that the 1980s show a much higher rate of acceleration of growth in India than the 1990s. The decisiveness with which the 'Hindu Rate' of growth of income in India is surpassed in the 1980s is not matched by the mild temporary acceleration of income in the following decade. All of this could not have even caught our attention if there wasn't something counterintuitive in a period of allegedly radical reforms turning out to be if not a damp squib yet not a tiger either. Basically, after a spurt in industrial production in the few years after 1992, the overall rate of growth in the economy had slowed in the second half of the nineties. It has no doubt picked up this past year or so, but the alacrity with which it has been appropriated by the ruling combine as endorsement of its economic policy is a little too neat. What is unquestionable though is that the 1980s mark a decisive break with the past.
How do Rodrik and Subramanian account for the economic performance of the eighties? First, they argue that this was a period that witnessed a productivity surge like none other and that it is this that led to the rise in the growth rate. This evidence does not always square with the evidence on productivity growth in crucial sectors on the economy for the period produced by some India-based authors. However, I shall overlook this as most readers are unlikely to be captivated by details of the measurement of productivity. Instead let us look at what the authors have to say about the reason for the productivity surge, and here they have been imaginative. Their story is based on the now fashionable theory of endogenous growth. Simply put, this says that when a firm invests in human capital it spills over into the rest of the economy and manifests itself as higher economy-wide productivity. This is of the genre of insights of economists that private acts may have unintended social consequences that are beneficial. As private behaviour is profit-oriented, individuals ignore the beneficial social impact of their actions leading to a sub-optimal economy-wide level of investment. This opens up a fruitful avenue for government intervention. Education and the building up of technical skills may be seen as prime examples of human capital investment that may be undersupplied by the market mechanism. Rodrik and Subramanian exploit this narrative brilliantly to argue that in the years after Independence the Nehruvian vision ensured that the Government of India invested substantially in higher and technical education in a country that had next to none of it in 1947. This would have taken some time to fructify which it does in the 1980s when we witness a surge in the growth rate of total factor productivity. I would say that prima facie this is an interesting argument and deserves our consideration at least for its brave pitch. My point, however, is that the vindication of the Nehruvian vision does not rest on the economic performance of the 1980s.
Few would have given a poor newly-independent country, isolated by the West, betrayed by China, and harried by Pakistan much of a chance when it was setting out to make its way alone in the bleak world of the late nineteen forties. However, in an unmistakable tribute to the practitioners of the dismal science who had guided some of the country's steps, India had begun to shine through the gloom within a matter of a little more than decade. One need not have waited till the eighties to take heart. Consider the fifteen or so years that Nehru had lived hoping to see the fruit of his labours as the prime minister. Though derided as the Hindu rate, the three percent or so at which per capita income had grown annually since 1950 till his passing in 1964 is infinitely greater than the stagnant level of per capita income in the five decades of the twentieth century when India was part of the British Empire. There cannot be an iota of doubt over what this surge was due to. It stemmed from the conscious policies of Jawaharlal Nehru to place India on sound economic foundations. No matter that political opportunism led to a subversion of his strategy, to serve personal power rather than the subject of Nehru's own unwavering gaze, his people.