A model debunked or misunderstood?
In 1947, one of two people had been living in poverty. Nehru rose to the occasion as an economic doyen who would have a significant impact on how the economy of the nation was to be shaped. What were the central tenets of his economic outlook, and what impact had they had on the overall situation prevailing in the country?
The three much cherished goals of socialism, the removal of poverty, and self-sufficiency were at the forefront of his economic thought.
The book Nehru Development Model, a recently published book written by the 16th Finance Commission Chairman, offers a detailed account of what Nehruvian economics entailed and was it able to remove people out of the shackles of poverty, or was it just politicization of economics?
The book is divided into three parts, each part covering various dimensions of Nehruvian socialism.
Nehru’s study at Cambridge is believed to have attracted him towards socialism bordering communism, till 1936, which subsequently turned into moderately closer to Fabian socialism, with its own measures called Nehruvian socialism. There was widespread poverty in India at that time, with per capita income amounting to Rs 65. The strategy that came up was to build a complex of heavy industries vis-à-vis basic industries in the form of steel and iron, considered the bottleneck sector by Mahalanobis (the chief architect of the 2nd five-year plan).
This mushroomed into the state assuming totalitarian control over the economy, with the aim of providing everyone with a minimum standard of living.
However, the reason why this strategy failed to make a dent in poverty and other industries was that it neglected India’s competitive advantage in light-based industries such as cotton, tea, cute, etc. based on cheap labor, labor availability, etc. While the east Asian miracle was manifesting, with countries opening economies to external investment and capital, Nehru adopted a totally different path that worked to the detriment of India's export sector and spilled over to other sectors of the economy. The state had taken the course of the erstwhile Soviet Union in the form of five-year plans that made India a bureaucratized state. Various instruments that were chosen proved ineffective and included reserving the products exclusively for the public sector manufacturing, licensing of private sector production, import licensing, price controls, and distribution controls. This period was characterized by socialist indoctrination of everyone, such as policymakers, politicians, etc., with a near absence of a development discourse, with exceptions such as Shenoy and Milton Friedman, who had recommended a totally different path based on India's comparative advantage.
This governmentalization of society and economy stifled growth by completely hollowing out the country's export sector, domestic inflation because of import controls, etc.
The author succinctly traces out various failures of his setup.
However, one point which the author misses is that then there had been the absence of any systematic financial markets, so generalizations about the role of the state may prove reductionist and misleading.
While the magnitude of the state action was overarching, the moral legitimacy of state action had been self-evident, especially keeping in view the postcolonial chequered history. The statement of industrial policy of 1945, the industrial policy resolution of 1948, and the industrial policy resolution of 1956 worked out detailed plans for the development of heavy industrialization. This was done through production licensing, production targets, and other forms of controls.
An important limitation of such controls was that the mechanism behind them was vague, not based on any economic efficiency principle but on a first come, first served basis, compounded by the corruption of bureaucracy.
The fact that the systems of command and control proved antithetical to growth and development is indisputable. A result of the regressive policies was that India enjoyed 2.5% of total world exports, which came down to 0.9% in 1966.
India failed to fill the vacuum created in the export of cotton textiles, in which Japan’s share rose to 18.1% in 1966.
GDP grew at an annual average rate of 4.1%; that was insufficient to save India out of poverty and other development problems.
To add to the imprint of Nehru's development model on India's successors, the author details down the evolution of leadership from 1947- till now, tracing out various reforms that have been carried out.
To begin with, Lal Bahadur Shastri had shifted the focus to agriculture but did not abandon the path bequeathed by Nehru.
Indira Gandhi was more socialist than her father, who brought hard-core socialist programs such as the ten-point programs that entailed wholesale nationalization of banks, social control of insurance, etc. Rajiv Gandhi was the first to have escaped the socialist indoctrination, with a tilt towards liberalizing the economy, that slowed down subsequently because of various political reasons.
It was Narsimha Roa who completely hollowed out socialism by dismantling all sorts of controls and allowing the currency to devolve for export promotion.
However, the pace of reforms has been slow, with matters getting worse under Manmohan Singh, who introduced various social legislation that proved antithetical to the flourishing of the private sector in the country.
Modi has had a mixed record on reforms, with reducing labor codes to just 4.
The book is a compelling case that argues how giving a big role to the government can be detrimental to growth, poverty, etc. However, there are various areas where the details are ambiguous, such as the Gujarat Model of Development and economic reforms roped in under PM Modi, which he seems to be praising. However they merit critical analysis, the Gujarat Model was unequal to the core, as Christophe Jafferlot would argue. Also, the logic put forward by Mahalanobis for heavy emphasis on heavy industrialization does not find mention in the book. At that time, export options to India were limited, and heavy industry was the bottleneck sector.
Overall, the book is a good contribution to the literature on Nehru's development model, which the author concludes was an unqualified failure.
The authors are currently associated with the University of Delhi.
By: Azher Ahmed
Ahimsa Jain
