For Jawaharlal Nehru, the single-most important goal of economic policy was to increase the level of income, which was unacceptably low for the overwhelming majority of Indians.
Jan 7, 2025 08:12 IST First published on: Jan 7, 2025 at 07:05 IST
It is a measure of India’s rising confidence that there is now a critical gaze upon all aspects of our past and present. One area that has received attention recently is the performance of the economy in early independent India, and Jawaharlal Nehru’s role in it. Into the 21st century, we are in a good place to examine these, for three reasons. We have the quantitative methods that allow us to identify turning points in economic history without resorting to judgement; we have the theoretical models that help us understand how an economy grows; and we have the experience of the rest of Asia to compare our own past policies and achievements with.
For Nehru, the single-most important goal of economic policy was to increase the level of income, which was unacceptably low for the overwhelming majority of Indians. This is evident in the statement he made in parliament in May 1956 when the main vehicle of the Nehru-Mahalanobis strategy for development, the Second Five-Year Plan, was launched. He said “The whole philosophy… is to take advantage of every possible way of growth and not to do something which suits some doctrinaire theory or imagine we have grown because we have satisfied some text-book maxim of a hundred years ago.” It would be difficult to detect ideology in this; actually, it is not only pragmatic but cautioned against taking an ideological approach to the economy. And what was the impact of Nehru’s stated objective? In one sphere at least, it was nothing short of remarkable.
From the work of S Sivasubramonian, an early student of India’s national income accounts, we find that the average annual rate of growth in Nehru’s time was 4 per cent as opposed to less than 1 per cent in the last half-century of the British Raj. This is lower than the approximately 6 per cent growth achieved in the last decade, but the performance should be seen in perspective. It would be naïve to imagine that an economy can leapfrog from 1 to 6 per cent without traversing the intermediate growth phase, especially when emerging from two centuries of exploitation by an external power. For an international comparison — in Nehru’s time, India grew slower than Korea but faster than China.
What about the economy’s performance during 1950 to 1965 has received particular criticism? The allegations are, first, that agriculture was neglected in the craze for industrialisation. Second, that the public sector was a blackhole, sucking the nation’s savings without yielding any returns. Third, that the licensing of private investment repressed the private sector.
Sivasubramonian’s data shows that agriculture was the sector that performed the best during Nehru’s time, leading the transition to a permanently higher growth path. To understand this, it would be useful to recognise that agricultural production benefits from industrial inputs and the spread of publicly-provided infrastructure. Public policy towards agriculture itself was forward-looking, seen in the invitation to the world’s leading agricultural scientist Norman Borlaug to visit India in 1963. The Green Revolution followed soon after.
I turn now to the performance of the public sector. Most interestingly, the savings of the public sector grew faster than that of the private corporate sector, both of which drew upon savings of the household sector. This record of the public sector need not surprise. The planner Prasanta Chandra Mahalanobis had actually imagined public enterprises as a potential source of revenue to step-up public investment. Their subsequent degeneration is entirely due to the dispensation that followed Nehru, which succeeded in turning them into welfarist traps.
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Finally, on the alleged repression of the private sector due to controls. Going by their investment record, the private corporate sector, taken as a whole, flourished under Nehru. The private corporate investment rate surged, growing at least as much as that of the public sector. Again, this need not surprise at all. While a certain narrow understanding of the “market” views it purely as an institution for exchange, the original economists saw it as the aggregate demand for goods. Thus, in the 1950s, as public investment stepped-up, it expanded the market for the private sector which could now meet demand for their products that may not have arisen otherwise. (The data referred to here are presented in my book, India’s Economy from Nehru to Modi: A Brief History).
So, was economic policy under Nehru optimal? Far from it. There were errors of commission and omission. As an economist, I am perplexed most by the absence then of a mission-mode approach to spreading primary education, and getting older children, especially girls, into school given the abysmally low literacy rate in 1947. If there is one feature that distinguishes India from East Asia which has been far more successful in raising income levels and ending poverty, it is schooling. It is not as if alarm bells had not been rung early. Bombay University’s B V Krishnamurti had pointed to the meagre outlays on education the very moment the second five-year plan was launched in 1956. Later, Amartya Sen in the 1960s and the educationist J P Naik in the 1970s flagged this continuing neglect. What is troubling about it is the visible class bias. It left the vast majority of Indians without the human capital to raise their productivity and the freedom to pursue the life they value. This is a monumental democratic deficit to contemplate. For sure, Nehru could have done more here, but he did quicken a moribund economy, a historic achievement without which there could not have been much human development anyway.
The writer is honorary visiting professor, Centre for Development Studies, Thiruvananthapuram
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