While I am not an uncritical
admirer of our first prime minister, I believe that he has been a target of
much unjustified criticism. However, the allegation I intend to rebut in this
article is a critique of Nehru’s policies and not his intentions, and is partly
valid, unlike many of the baseless allegations leveled against and conspiracy
theories floated about him by communalists of all hues as also the
ultra-leftists in South Asia. Yes, he is also criticized in the domain of
foreign policy, and that is another discussion altogether.
However, before judging Nehru
on the economic front, to the socialists out there convinced of how opposing
their ideology is a sin and how Nehru should have been even more socialist than
he was, I must point out that capitalism, in its true sense, is about ‘free
markets’ with the state having minimal intervention in the economy, primarily
restricted to providing public goods (like roads), enforcing contracts and
checking tort and crime, with all citizens (including farmers and tribals)
enjoying inalienable rights over their private property, and not about the
state acting as an agent of some select business houses (rather than allowing
all of them to compete in a free and fair fashion), which instead is called
‘crony capitalism’. Interestingly, noted British free market economist
Adam Smith had been critical of the economic control being exercised by the
then prevalent British East India Company government in India, which had been
officially conferred a monopoly over the Indian market by the British government
in London, which goes against the very grain of the idea of free markets! In
fact, private enterprise with free and fair competition is necessary for good
quality of goods and services at affordable rates. I am not saying that
full-fledged capitalism is the solution in practice, but nor is full-fledged
socialism the solution in practice (we saw the adverse consequences of
attempting that in 1991, and even countries like China and Cuba are trying
their own mixed economy models), and both are different in practice from what
they are in theory, but capitalism should at least be understood for what it is
by those advancing critiques of the same!
Coming to Nehru, as noted
free market economist Bibek Debroy has mentioned in an article in an
otherwise BJP-leaning online magazine, Nehru’s economic policy “is
often unkindly blamed for much that occurred later”, referring to the tenure of
Indira Gandhi, in which, as Debroy points out, “the word ‘socialist’ (was)
inserted in the Preamble to the Indian Constitution”, “the right to
property removed as a fundamental right”, “general insurance and banks
nationalized” and “Chapter V-B added to the Industrial Disputes Act” (which has
very many regulations that can and do stifle business), and one may add,
obligated multinational companies to allocate majority stakes to the
government.
As Gurcharan Das mentions-
“It is hard to blame Nehru
because socialism was the received wisdom of his day, but by Indira Gandhi’s
time the wisdom had changed. She is rightly condemned for decreeing a state of
political emergency, from 1975 to 1977, which curtailed human rights, but she
deserves equal censure for the lost decades of India’s economy.”
The Russian Revolution in
1917 and the rise of the Soviet Union as a major power had a great impact
globally, and left a deep impression on sections of the Indian nationalist
leadership. The Great Depression of 1929 that hit the United States gave a blow
to classical economics, giving rise to the Keynesian school of thought. Indeed,
while capitalism, in and of itself, could not survive without undergoing a
metamorphosis, Lenin’s flawed, oversimplified analysis of imperialism as being
borne out of capitalism strengthened the tilt towards socialism in the Indian
National Congress (though there were those like Rajagopalachari with a
different ideological orientation, and he formed a different party after
independence), and this trend was exemplified in the ideas of India’s first
prime minister Jawaharlal Nehru, who, however, was never a full-fledged
socialist, but heavily leaned in that direction. [Imperialism was borne out of
‘mercantilism’ (meant in a typical sense, not meant to imply trade or
entrepreneurship in a general sense, but to imply a system of international
trade whereby governments give exclusive control to one private company with
respect to a certain country, as the British East India Company was in the
Indian context), out of a desire to control markets, not out of a commitment to
free markets!] Thus, India followed a leftist path to economic development
under Nehru.
As prime minister, Jawaharlal
Nehru had introduced certain educational strategies that aimed towards
excellence. At that point in time, his focus was towards the supply of quality
education from colleges and institutions which could in turn help Indians with
the required skills for the dams, power plants and steel mills, which he called
“temples of modern India”. Given his love for science, India initiated nuclear
and space research (artificial satellites were used to help in mapping natural
resources, especially to boost agriculture), and set up a network of
laboratories across the country. The first of the Indian Institute of
Technology, inspired by the ‘Massachusetts Institute of Technology’, was based
out a former British prison in Kharagpur, near the then Calcutta, the first
Regional Engineering College (REC) was set up in the southern part of India and
the All India Institute of Medical Sciences was started in New Delhi. These are
no small contributions made by Nehru. True, Nehru’s socialism did have its
downside. Raghav Bahl points out that Nehru “created the classic insular
economy: high tariff walls, pegged exchange rates and crippling entry barriers
via industrial licensing.”
That said, the private sector
in India continued to constitute a sizable section of the Indian economy. As
Prem Shankar Jha points out-
“Although India adopted a
centrally planned model of economic development in 1951, even during the most
extreme years of economic autarchy, state-owned enterprises contributed less
than 20% of the GDP. All agriculture, the bulk of industrial production, and
all services industries except external trade and banking remained entirely in
private hands.”
Indeed, it is important to
delineate the differences between father and daughter when it came to economic
policies, and to understand that Nehru’s economic policies did have some room
for free markets, unlike what more leftist members of his party desired. Also,
some of his economic policies were dictated by international scenarios, over
which he had little control, like the foreign exchange crisis of 1957. It is
accepted even by many right-wing economists that some degree of protectionism
was the need of the hour, and that the private sector immediately after
independence was not in a position to undertake massive economic development in
the country. While one is not even remotely suggesting that Nehru’s economic
policies were anywhere near perfect, to evaluate them impartially would mean
acknowledging to what extent he did leave room for private enterprise and free
trade.
Although there was some
displeasure from the ultra-leftist section within the Congress, the first
Indian government under Nehru did not approve of a closed economy model for the
financial growth in the nation. In 1948, when the first Industrial Policy Revolution
took place, it included only the three sectors within the state governance
namely- defence, atomic energy and the railways. Along with these, the
government decided to reserve the exclusive rights for the growth of six major
industries which are as follows – iron and steel, mineral oils, aircraft
manufacturing, shipbuilding, coal and telecommunications machinery. This was
fair, for as Debroy points out-
“In the 1950s, would the
private sector have possessed the resources or the technology to develop steel,
iron, coal or power? Notice that the technology imported was a bit more neutral
across countries. The complete pro-Soviet tilt came later. As with the
non-aligned movement (NAM), this technology was also non-aligned.
Today, many would also look
askance at the idea of using public resources to build institutions of higher
education (AIIMS, IITs, IIMs, ISI). However, in the absence of public
resources, India might not have developed the strengths in science, technology,
R&D and a human resources pool, just as it might not have developed the
broad-based and diversified industrial base.
Does anyone seriously suggest
that the irrigation projects and dams were mistakes?”
Ramachandra Guha points out-
“Indeed, the Bombay Plan of
1944, signed by all the major capitalists of the time, called for active state
intervention in sectors such as power, water, transport, mines, and the like —
pleading that since the capitalists did not have the resources to develop these
sectors, the state was duty-bound to do so.
This is not an argument about
the respective merits of free trade versus closed trade and capital regimes. It
is an argument about why we chose the path of industrialisation that we did.
And the answer is this — because industrialists, scientists, economists and
politicians, of all stripes and ideologies, by-and-large concurred with Nehru.
Or rather, Nehru concurred with them.”
Nehru had formulated a
certain level of limitation on the private sector through a standard set of
tariffs, and straightaway declared any further amendments to these policies
would be declared only after ten years, ruling out nationalization of private companies
till then. He did give the private sector considerable space within a primarily
socialist framework, and realized, unlike perhaps his daughter, the importance
of the private sector being given such space and the demerits of
nationalization, as one can make out from these excerpts from a letter written
by him to the chief ministers of different Indian states dated 3rd March 1953-
“The problems of today in
India or elsewhere cannot be solved by some purely academic approach or by a
dogmatic creed of yesterday. Most of us, I suppose, believe in a socialistic
approach and in socialistic ideals. But when these are thought of in terms of
some rigid formulae, developed in Europe in the nineteenth century, they need
not necessarily apply to India in the middle of the twentieth century.”
“The private sector has a
different outlook and approach and cannot easily function if there is too much
control. It thus ceases to have the advantages attaching to the public sector
as well as to the private sector.”
“It is better to allow the
industries left to the private sector some freedom of movement, subject of
course to some basic considerations.”
“As for nationalization, the
real test is how far this adds to our productivity capacity as well as to the
smoother working of our plan. Mere nationalization does not add to that
productive capacity much, if at all. It might indeed mean a lessening of it.”
However, by 1957, based upon
the lump sum of reserves which was accumulated as sterling balances in London
during the war, and in spite of the fact that the government had known about
the need to keep foreign reserves, Nehru had placed some bans on the same.
These reserves by the end of Second World War in 1945, had mounted up to 2.5
billion sterling, which was later reduced to 1.16 billion pounds, after the
post-war renovation for two years and then the partition between India and
Pakistan, which is valued around US $5 billion, and that point in time,
amounted for two years of imports. However, these reserves had ended up within
the next ten years, due to the fact that the value of the pound had fallen by
31% in 1949 and similarly the devaluation of rupee had to be considered, which
made the reserves dry up in such less time. Further, the renovation of the
Indian Railways condition, heavy public sector investments in hydro-electric
projects and other various infrastructure schemes, which discouragingly, did not
generate much export as anticipated by the then government but rather
stimulated heavy imports. The exhaust of all the sterling balance reserves
proved to be an eye-opener for the Indian government and finally, the imports
were disallowed, but to a small extent, except the imperative commodities.
Hence, India’s approach towards economic autocracy was proven to be more
towards survival than directed by ideology.
Let us not be too harsh on Nehru.
