125th Year of Nehru

Nehruvian economy A rootless wonder!

Jawaharlal Nehru’s flawed economic policies have left a nation finding it difficult to realise its potential even more than 65 years after Independence

nehru-at-the-bhilai-steel-plant-nov2014AS the first Prime Minister of independent India, who enjoyed uninterrupted power for 17 long years (1947-64), Jawaharlal Nehru was expected to leave a formidable political, administrative, and economic legacy on which future India was to be built upon. Politically, it should have been strong grassroots democracy based on Panchayati Raj institutions. Administratively, there should have been a paradigm change from a colonial command system to a democratic participatory framework of governance. Economic development should have been people-centred, opting for ‘production by the masses’ instead of ‘mass production’. In all these, Pandit Nehru failed and left a flawed legacy which the country is even now finding difficult to cope with.

Economy was the worst of Nehru’s legacies. I am not a World Bank/IMF economist propounding big-ticket reforms, but just a student of economics. I cut my teeth in this “science which studies human behaviour as a relationship between ends and scarce means which have alternative uses” (Lionel Robbins) in the late 1950s, around the time when India’s ‘planned economy’ under the stewardship of Pandit Nehru was taking off. Even as a student I was baffled as to how fundamental principles of economics were being ignored while chalking out India’s development strategy.

My understanding of economic growth was that there were three pre-requisites for deciding on the development model of a country—one, availability of domestic capital to start and sustain the model; two, technology to optimise and augment production; and three, a market with purchasing capacity.

India’s economic situation in the initial years of Independence was grim with few manufacturing industries, low-level technology, very little income, hardly any national savings and, consequently, very little capital investment. The big question was: What should be the economic model for India? What should Nehru do with regard to economic policy in the circumstances prevailing in the early 1950s?

The answer was staring at him, if only he had cared to look. India at that time did not meet the requirements of a capital-intensive, technology-driven and big-ticket economy. But, it had all the requisites for a ‘small-is-beautiful’ agro-based economic model. Limited capital for upgrading agriculture, along with value-added activities through micro/small industries, could have been found from domestic savings. Appropriate labour-intensive technologies could have been developed with this capital. And, with a large population, there was always a market for agricultural and food-related products.

It is on these lines that Mahatma Gandhi had envisaged independent India as one sui generis, a society unlike any other, one that would not follow the western pattern of mega industrialisation, urbanisation and individuation. India would be a people’s economy charting out a distinct course of need-based, human-scale, balanced economic development while conserving nature and livelihoods. This was the ‘Third Way of Development’ on the principle of ‘Small is Beautiful’, advocated by eminent thinkers like EF Schumacher.

This alternative model of development avoided the pitfalls of colonialism, capitalism and communism. This model would be rooted in the traditional rural culture of India and not in any imported ‘civilisation’. Accordingly, India would have to develop an independent economic system, an appropriate technology of self-help, a pattern of trade and political institutions that answered best to its specific requirements. It would be committed to pluralism and decentralised decision-making.

Nehru’s brand of mixed economy brought together disparate elements-‘command and control’ colonial structure, highly centralised governmentowned Soviet communism and the relatively decentralised privateowned industrial capitalism-under one roof

After the untimely death of Mahatma Gandhi within months of India’s independence, Nehru’s alter ego, Jayaprakash Narayan (JP), took up Gandhi’s unfinished task and pursued the sui generis route to build a strong and self-reliant foundation on which future ‘growth’ models could be based to make India an economic superpower. With value-added agriculture as the root, appropriate technology and infrastructure as the trunk, manufacturing small/medium industries as branches and the widespread service sector as the canopy, Nehru could have raised the Indian economy as a strong tree. But that was not to be!

THIS was because Nehru had other ideas and was looking elsewhere. His economic philosophy had been outlined as early as 1936 at the Lucknow session of the Indian National Congress: “I am convinced that the only key to the solution of the world’s problems and India’s problems lies in socialism … In short, it means a new civilisation … If the future is full of hope, it is largely because of Soviet Russia and what it has done and I am convinced that if some world catastrophe does not intervene, this new civilisation will spread to other lands and put an end to the wars and conflicts which capitalism feeds. He was advocating the inefficient and autocratic economic model of Soviet Russia as a ‘civilisation’ to be adopted by democratic India!

True to his aristocratic upbringing, Nehru was also influenced by the Bombay Plan of 1944, chalked out by the industrial bigwigs of the time, including JRD Tata, GD Birla, Purushottamdas Thakurdas, Lala Shri Ram, Ardeshir Dalal, AD Shroff and Kasturbhai Lalbhai, assisted by economist John Mathai who was close to the Tata group. The Bombay Plan laid great emphasis on public investment in social and economic infrastructure, emphasised the importance of agrarian reform and agricultural research, setting up educational institutions and a modern financial system. It strongly advocated transition from agrarian feudalism to industrial capitalism without laying proper foundation for a swadeshi economy. Nehru also could not cast away his colonial loyalties and the influence of the industrial revolution of the West.

Nehru’s economic philosophy had been outlined as early as 1936 at the Lucknow session of the Indian National Congress: ‘I am convinced that the only key to the solution of the world’s problems and India’s problems lies in socialism … In short, it means a new civilisation’

Torn between these opposing thought processes, Nehru wanted to create a balance between the rural and the urban as well as agricultural and industrial sectors in his economic policies. He saw no contradiction between these and stated that they could go hand-in-hand. Nehru hailed western-style large and heavy industries as ‘temples of modern India’ and big dams to be the very symbol of India’s collective growth and source of energy. For Nehru, “industrial engineering and agriculture met on a common platform”. He did not find any conflict in developing Chandigarh, an elitist-rich city, as a ‘symbol of modern India’ while allowing thousands of villages to rot without even the basic necessities of life and livelihood. He was also promoting nuclear energy meant to serve only a highly centralised industrial economy.

This was Nehru’s brand of mixed economy that brought together disparate elements-“command and control” colonial structure, highly centralised government-owned Soviet communism and the relatively decentralised private-owned industrial capitalism-under one roof. Communists and capitalists were tied together and asked to march towards prosperity and progress under the tutelage of colonial institutions!

jawaharlal-nehru-at-the-inauguration-of-the-atomic-reactor-nov2014THOUGH Nehru dreamt of achieving the best of these systems, India ended up suffering the worst of all these. This was reflected in the high level of state and central control that was exercised on the industrial and business sectors of the country and the culture of corruption and mediocrity prevailing in government and the public sector. The rigorous state laws and licence rules put a great degree of restraint on the free execution of industrial policies for growth and employment generation. Even the farmers, along with the business personnel, found themselves at the receiving end of rigorous state control policies and high taxation.

The natural corollary was widespread poverty, unemployment and deep-set inequity. Institutions of governance became tools of the government and the power-brokers to command and harass the people the way they wanted. As a result, the ordinary Indian who strove to contribute his mite to the economic and social well-being of the country faced obstacles at every turn. Socialism as practised by Nehru was ‘State capitalism’ and economic autocracy, giving overwhelming power over citizens’ lives and activities to government functionaries. Under this system of management, corrupt and unscrupulous parasites living on others’ labour flourished and honest entrepreneurs, who stood on their own feet and stuck to certain principles, suffered ignominies. Incompetent and unprofessional governments indulged in wanton wastages and squandering of resources and were unable to deliver basic services to the citizens. The country and its people were reduced to poverty and penury, making them incapable of ‘realising their potential’.

Volumes can be written on the damage caused to the Indian economy by Nehru’s ‘directionless’ and muddle-headed policies, which his daughter, Indira Gandhi, pursued for the next near-two decades of dynastic rule. She made a virtue of the poverty (garibi) that her father created, coined the slogan of ‘garibi hatao’ (banish poverty) and won a massive electoral victory in 1971. When this orchestrated agenda flopped and public anger surfaced in the form of the JP movement, she resorted to political dictatorship by imposing Emergency to implement her autocratic economic agenda!

nehru-at-first-electric-locomotive-nov2014All these have left a deep impact on India’s economy. Barring certain regions, agriculture continues to be primitive with productivity at very low levels. Farming continues to be ‘a gamble in the monsoon’. What is worse, value addition in agriculture with commercial processing at a mere 2-3 per cent is among the lowest in the world. Bihar of the fertile Gangetic belt, where massive steel industries came up during Nehru’s time at the cost of agriculture, has fallen between two stools and is today the poorest in all parameters of development.

THE choking of entrepreneurship through excessive bureaucratic controls and the resultant languishing of small/medium industries have resulted in huge unemployment/underemployment. To remedy this in 2014, Prime Minister Narendra Modi virtually begged the large industrialists-in India and abroad—to come and ‘Make in India’ even as people are queuing up to buy goods ‘Made in China’!

Even five decades after the exit of Nehru from the scene, India is not ready to become a capital-intensive, technology-driven and big-ticket economy. We depend upon foreign direct and institutional investments to bring in capital and technology for setting up large infrastructure and industrial projects. This is because the Indian economy continues to be a rootless wonder and most of the ‘credit’ for this goes to Nehru whom his acolytes continue to proclaim as the ‘Maker of Modern India’. What an irony!

VOL. 8, ISSUE 8 | November 2014

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