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.