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Mainstream, VOL LII, No 47, November 15, 2014

Revisiting and Contextualising Nehruvian Economic Philosophy

Sunday 16 November 2014

by Ranjit Singh Ghuman

Prior to its independence on August 15, 1947 India had a bigger industrial sector than any other country which became a European colony. It was unique in being an industrial exporter in pre-colonial times. In 1700 AD India’s share in the world’s gross domestic product (GDP) was 24 per cent. That, however, declined to 16 per cent in 1820 and to 12.2 per cent in 1870. It declined further to 7.6 per cent in 1913 and dwindled to 4.2 per cent in 1950.

During the first half of the 20th century, the average annual GDP growth rate of India oscillated between 0.8 per cent and 1.0 per cent. The primary sector’s annual growth rate varied between 0.4 per cent and 0.8 per cent during this period. The growth rate of secondary and tertiary sectors remained much below two per cent per annum during the same period. The rate of national investment (investment-GDP-ratio, the most significant determinant of GDP growth) was merely five per cent.

India’s per capita income experienced an annual growth rate between 0.04 per cent and 0.2 per cent during this period. The share of modern industries in the national income was only around 7.5 per cent at the time of independence. The rate of gross capital formation and net capital formation as a percentage of the national income (the other name for economic growth) was as low as 7.30 per cent and 2.12 per cent, respectively, during 1940-46. The rate of public investment was merely 1.32 per cent of the national income during the same period.

Underdevelopment, poverty, inequality, illiteracy, unemployment and underemployment were some of the defining features of the Indian economy on the eve of independence. The country was facing an acute shortage of capital besides having an extremely underdeveloped physical and social infrastructure. As a matter of fact, the economy was beleaguered in an enormously low-growth-low-development syndrome.

Clearly, the economy was in a deplorable condition on the eve of independence. The 200 years of British Empire developed India to serve the British economy back home and perpetuate their Empire in India and elsewhere in the world. The Empire developed education in India only to produce lower level helping hands in their day-to-day administration. The huge network of the railways, developed by the British, was being used to transport raw material and food- grains first to the ports and then to UK. The railways also became handy to transport the British manufactured goods from the ports to the Indian market and also created beneficial investment opportunities in India for surplus capital in England. All this led to the process of de-industrialisation and de-urbanisation of the Indian economy.

Thus, the foremost challenge before the then political leadership was:

what type of economic policies to be implemented so as to get rid of the vicious circle of underdevelopment, poverty, illiteracy and unemployment. Capitalistic and socialistic patterns of development were the two prevailing options in the world. The political leadership of independent India decided to follow the middle path.

Nehruvian Era

Independent India, under Nehru’s leadership, decided to follow the middle path, that is, the mixed economic model. The pre-partition debate and discourse on economic development (Karachi session of the Congress in 1931 and the National Planning Committee of 1938) were also in favour of such an economic path.

The captains of industry and business and authors of the Bombay Plan (1945), too, were conscious about the state’s importance in ownership, control and management of the economic enterprises. They were quite aware that the then private sector in India did not have the adequate investment and technological capability to build up basic and heavy industries and physical and social infrastructure, so vital for economic growth and development.

 The Industrial Policy Resolutions of 1948 and 1956 (passed by Parliament) also emphasised that the state must play a progressively active role in the development of the country. Nonetheless, the role of the private sector, too, was not ruled out. The planned development strategy in the framework of the mixed economic model laid the strong foundations and created the much needed substrata for the future growth and development of the country.

 The economy transitioned from a less than one per cent per annum growth rate during 1900-1947 to an annual average growth rate of 3.6 per cent during 1950-79, not a small achievement by any parameter. The GDP growth rate during 1980-89 was 5.7 per cent. During 1990-2002, the GDP increased at an annual growth rate of 5.2 per cent.

 During 1951-64 (Nehru’s regime) the average annual growth rate of the GDP was 4.1 per cent, not only a significant departure from the past, but also much higher than most of the Asian economies. China’s growth rate was only 2.9 per cent during this period. During 1951-73, inequality was on the decline and then it showed a stable trend until 1992, but it surged afterwards, thanks to the neoliberal reforms.

It is, however, significant to note that had the development of post-independence India been left only in the hands of the private sector and the free play of market forces, it would not have been able to lay down the necessary foundations of growth on whose strength the Indian private sector subsequently developed itself and is now boasting of its towering success. It is on the strength of an inward-looking development strategy, infrastructure developed by the public sector, subsidised inputs, R&D, scientific man-power, etc. etc. that the Indian private sector has been able to grow to its present height.

 As a result of the planned development strategy, the Indian economy not only achieved a breakthrough in the growth rate but also developed largely on the desired path during the Nehruvian era as the organised industrial development progressed with a shift from consumer goods to capital goods, intermediate goods, and basic goods industries. The share of the organised sector in employment and manufacturing value added registered an impressive increase during this period.

Post-Nehruvian or Post-Reform Era

The economy achieved a significantly higher growth rate of the GDP during the post-Nehruvian era (post-1991), especially during the first decade of the 21st century when the growth rate remained above eight per cent. Most of the economists, however, are of the view that the significant turning-points in the history of post-independence Indian economic growth took place in the early 1950s and the 1980s.

The turning-point in the early 1950s was much more significant than that of the structural break in the early 1980s. The growth rate of employment despite the high growth rate of the GDP is lower today than the growth of employment during the decades of 1950s and 1960s. Even in terms of the GDP growth rate, the structural break with the past, inter alia, was more pronounced during the 1950s.

During the post-reform period, the public sector employment started declining while organised private sector could not make up this deficiency. The organised sector (both public and private), which employed about eight per cent of the total workforce in 1991, employed less than seven per cent of the total workforce in 2011.

 Unemployment in general and youth unemployment in particular are still some of the serious challenges in India. About 93 per cent of the Indian work force, working in the informal/unorganised sector, is largely without social security. A significant proportion of them are working poor. Nearly 67 per cent of the Indian population is still without food security. The Planning Commission’s poverty line, however, is hovering around Rs 32 per day per capita.

The very title of the 11th Five Year Plan, ‘Faster and Inclusive Growth’, and that of the 12th Five Year Plan, ‘Faster, More Inclusive and Sustainable Growth’, testify to the fact that inclusive growth is still a distant dream in spite of the good intentions of the government. The Mid-term Appraisal Document of the 11th Plan also admits that the Plan has not been able to attain the inclusive growth objective.

As regards the claim of inclusive growth by the neoliberal reformists, we shall have to go a long way for achieving the inclusion of the poorest of the poor in the process of growth and thereby in the mainstream.

All those who are attributing India’s recent achievements in growth rate only to the market-driven development strategy and are advocating that the post-reform economic growth and development has almost nothing to do with the fundamentals and substrata created during the Nehruvian era, need to review their perception.

It is in this context that the market-driven development strategy needs a review as it has its serious limitations and failures. Even the pro-market liberal economists do not advocate unrestricted free play of the market forces. The much boasted demographic dividends, too, cannot be reaped with only the market-driven development strategy.

Nonetheless, market has played a significant role in increasing productivity and standards of living. At the same time, the fundamental role of the state in these advances cannot be wished away. According to Joseph Stiglitz, the Nobel Laureate in Economics, markets work only for those at the top. Unemployment is not only the worst failure of the market but also the greatest source of inefficiency, and a major cause of inequality.

The most important difference between the Nehruvian and the post-Nehruvian era is that the former, through the institution of political democracy, tried to ensure that the state is not hijacked for private purposes and distributive justice is maintained. However, the post-1991 Indian state has almost been hijacked by the corporate world. The protagonists of reforms hijacked the term ‘reform’ as if reform merely means reform in favour of the market and the corporate sector. In fact four great forces (four Cs)—capital, corporations, consumers and communications—have combined to usurp the economic power once held by the state.

Such a scenario provides us the rationality to look back to the Nehruvian economic philosophy. It is worthwhile to mention that Nehru’s respect for the democratic procedure and planning, his vision for an inclusive society and his independent foreign policy have great relevance in the contemporary period.

The author, formerly a Professor and the Head of the Economics Development, Punjabi University, Patiala, is the Nehru SAIL Chair Professor, Centre for Research in Rural and Industrial Development (CRRID), Chandigarh.