India’s Tryst with Destiny

“Long years ago, we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes, but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance. It is fitting that at this solemn moment we take the pledge of dedication to the service of India and her people and to the still larger cause of humanity.”

- an excerpt from Jawaharlal Nehru’s famous ‘Tryst with Destiny’ speech.

The Time Machine

India on the eve of independence in 1947 was considerably different from as we know it today. The nation had been subjugated under foreign rule for nearly 200 years, her people were repressed, and her wealth was plundered, first by a trading company and then by its Government. From the Battle of Plassey in 1757 to the adoption of the Constitution, India was reduced from a wealthy and prosperous nation to one of the poorest countries in the world. Wars and famines set the foundation of the British Raj. Riots, looting, and arson marked its final days.

India had a literacy rate of 12%, an economy structured as a storehouse for Western metropolises, a rural socio-economic system (where most of the country lived) where wealth was carefully concentrated among the rural landed-elite (the zamindars and its intermediaries, and the extortionist moneylenders), who terrorized the poor peasants. Wide income and wealth disparities assured that socio-economic development took a back seat. While agricultural productivity skyrocketed in the West due to the Industrial revolution, the Raj ensured agriculture in India stagnated by a deliberate de-industrialization of the country and by a complete absence of public investment in agriculture. The meagre investment in infrastructure was also to facilitate the export of raw materials from the Indian farms to the British industries. Modern industrialization was limited to very few pockets, and the jobs associated with it too scarce. In short, the outcome of British absentee sovereignty (Indian subjects being ruled by the British Government, thousands of miles away) was a dismal state of socio-economic development.

Understanding the decline, several leaders organized popular movements for political education and, later political movements against the Raj. Over a century, all movements culminated into a single ‘Indian Independence Movement’, marked with national consciousness with the sole purpose of ‘poorna swaraj’ (or complete independence). Finally, the movement consummated on 15th August 1947.

The Present: In Contrast with the Past

For many in 2020, the unfortunate past of India and the atrocities done upon her may be unthinkable. While land problems continue to exist, zamindari is now limited to books and movies with a historical setting (fortunately). Even though food distribution remains a problem, food shortages and famines have been unknown to India since the 1970s, as we have been self-sufficient since. Modern industries have grown exponentially since independence. Per capita income (average annual income of the national residents) has enhanced, albeit slowly. From a colonial economy, India has grown to be the world’s 5th largest economy (nearly $3 trillion), surpassing its imperial master the United Kingdom (in mid-2018). India has enhanced its score on almost all development indicators like poverty (from nearly 65-70% in the 1960s to 22% in 2011), literacy (up from 12% to 74% in 2011), a sharp decline in infant mortality, and a steady rise in life expectancy.

India has a good deal of socio-economic challenges lying ahead as a hurdle in the way to “redeem our pledge, substantially”, but the development India has witnessed since 1947, after breaking the shackles of slavery is nothing short of spectacular. Independent India has not only ensured economic growth for its people but, at the same time, it has managed to be people-centric, not state-centric like in China. The Indian model of development has flaws and it has been the consistent effort of successive governments to remove them from our development strategy and will be, but the Indian model should be looked upon as an example by the developing world as a country that has safeguarded basic freedoms and maintained political tranquillity.

The focus, however, should not be on the mere growth rates but rather, on the foundation of our socio-economic development.

The Origins of India’s Growth

Most of the foundation of India’s economic development was built by the policy regime over the period 1950-64, during the Prime Ministership of Jawaharlal Nehru.

In the 1950s, after the first general election of 1951-52, the general focus of the government was to raise per capita income. To attain the goal, the government regarded planning instrumental to India’s growth and the Planning Commission was constituted in 1950 and it reported directly to the Prime Minister. Nehru led the Commission as its Chairman and undoubtedly played a crucial role in the formulation of economic strategies. Thus, India’s economic foundation is intricately linked to Nehru’s political and economic philosophy.

Nehru’s Economic Philosophy

Jawaharlal Nehru belonged to a privileged and wealthy background, often challenging the social and religious norms of the Indian society. As his opinions developed, he was impressed by Soviet industrialization but was appalled by the violence. India’s founding fathers agreed that violence had no place in the young republic. He had a strong distaste for imperialism and was known to have a rational outlook on policymaking. He was drawn to the idea of socialism preached in Britain (under the Fabian Society), and he was one of the only leaders in the world to understand that while capitalism can be oppressive, socialism can be violent. So social and judicial remedies must exist to mitigate the oppression and government intervention should be limited constitutionally.

Nehru’s economic policy gradually equated socialism with socio-economic development. After independence, he focussed on social reforms and introduce economic planning to build a self-reliant India. The then administration was a firm believer in the socialistic mixed economy model with a push for innovation and economic growth and rightly so.

In 2020, it is fashionable to denigrate Nehru and view his term as ‘wasted past’. Leaders, particularly the ones in the 1950s, should be judged by the ‘standards of their time’.

The first Government of India did not have many models to choose from, but there were compelling reasons to rule out the free-market, pure capitalistic model: firstly, the Great Depression of the 1930s showed that uninterrupted economic growth is not possible under a purely capitalistic model and lack of planning often leads to devastating consequences; secondly, the ‘private’ sector in India had limited capital to invest in and could not afford critical infrastructure projects, that were the need of the hour; lastly, India was an agricultural country with feudal property relationships, thus a free market was not possible until landlordism was rooted out of rural India.

For the better part of his term, he oversaw social justice and development policies and emphasized on land reforms to raise productivity.

The Industrial Policy Resolutions and the Five-Year Plans

Nehru’s economic vision translated into policy in the form of Industrial Policy Resolutions 1948, 1956, and the First (1951-56) and Second (1956-1961) Five Year Plans. These policies formed the bedrock of Indian economic policymaking and highlighted the crucial role of active intervention by the government to ensure balanced and sustained growth.

The Industrial Policy Resolutions of 1948 and 1956 were guidelines to divide the economy and allow exclusive state monopoly of all strategic and key industries (like railways and coal). The idea of a mixed economy was implemented by allowing the private sector to operate, although at a much smaller scale. The 1956 Resolution (often called the ‘economic constitution of India’) revised the earlier policy to make a further socialist push openly adopted the planning system. The more important policymaking was included in the Five-Year Plans.

The First Five Year plan sought to reform agriculture by land reforms and a large investment in irrigation, rural community development, and improving overall transportation to allow access to markets. Land Reforms also got a significant push through the Zamindari Abolition Act, 1951. With a stroke of the pen, the exploitative colonial by-product was struck off.

The Second Five Year Plan was the most important economic document of India and it was based on the Nehru-Mahalanobis strategy.

The Nehru-Mahalanobis Strategy

The formulation of the Second Five Year Plan was done to raise per capita income by rapid industrialization. The Mahalanobis model (the ‘plan frame’) was developed by P.C. Mahalanobis. The gist of its strategy was to allocate most public investment into the production of capital goods (like machine-building complexes to produce equipment to further produce steel, fertilizers, etc). The logic was simple: the initial growth would be slower but in a longer period, the growth rates would be higher due to an increased stock of capital goods. These capital goods will later be used to produce consumer goods (like clothing, bicycles, jewellery) and more capital goods. There was consensus among nationalist leaders that the state must lead in the push towards modern industrialisation.

Much of the implementation of the plan was left to Nehru. The government established several multipurpose river projects (like Damodar Valley Project) and industrial cities (like Bhilai, Rourkela, Durgapur, etc). Coal production was increased, and the National Coal Development Corporation was set up in 1956. The stock of railway lines was increased. All key industries received significant public investment.

Now the rational question that comes to our mind is, whether the Nehruvian model of development succeeded? In the short run, the gains were high.

The model led to high initial growth and brought an economic boom for the first time in a century. The financing of the ambitious Second Five Year Plan was planned through revenue surpluses and railway profits, but the government had to resort to deficit financing (excess expenditure as compared to revenues). However, these early gains were not sustained. The unfortunate demise of Nehru in 1964 caused a crisis leadership in the Congress. Lack of efficient leadership ensured that the economic growth acceleration came to halt. The economic instability continued for almost 2 decades. Contrary to popular belief, private investment had flourished under the Nehru-Mahalanobis model, but it collapsed under Indira Gandhi’s socialistic model, designed for government overreach and overkill. The instability slowed public investment and impacted public sector governance.

The Nehruvian Model built India

The most important aspect of the whole model, that is the foundation of Indian economic growth, was self-reliance and self-sufficiency in the basic industry sector (iron and steel, coal, etc.). India would not be the growth engine, it is in the 21st century, if public investment were not made in basic industries.

India’s global position, domestic necessities and geopolitical needs required her to be self-reliant. There is no basis for anyone to discount the claim that the Indian economy’s foundation was set in that decade. Perhaps the only shortcoming of the model was the failure to invest in primary education and raise human capital (education and skill-training).

Despite national security threats and wars in 1948 and 1962, the foundation of India’s modern industrialization was established. The features of backwardness, landlordism, and inequality have continued to remain, but its seriousness has been abetted to a great extent. The vision of an economic powerhouse and an ‘atmanirbhar bharat’ would not have been possible without these crucial investments. The trend has been set to defame the image and policies of India’s first Prime Minister, but the economic foundation that he lay was the ‘need of the hour’.

- By Anubhav Mishra

References:

1. Balakrishnan, P. (2007). The Recovery of India: Economic Growth in the Nehru Era. Economic and Political Weekly, 42(45/46), 52-66. Retrieved June 5, 2020, from www.jstor.org/stable/40276833

2. Rajadhyaksha, N. (May 30, 2014). The Economics of Jawaharlal Nehru. LiveMint. https://www.livemint.com/Opinion/TMk7svMznR8sJHayMAXW1M/The-economics-of-Jawaharlal-Nehru.html

3. Balakrishnan, P. (October 16, 2014). The Economic Consequences of Nehru. The Hindu. https://www.thehindu.com/opinion/lead/the-economic-consequences-of-nehru/article6503716.ece

4. Raja, A. (May 27, 2020). Continue India’s tryst with Nehruvian ideology. The Hindu. https://www.thehindu.com/opinion/lead/continue-indias-tryst-with-nehruvian-ideology/article31681480.ece

5. Venkatasubbiah, H. (May 29, 1964. Reprinted May 27, 2014). Nehru’s Economic Philosophy. The Hindu. https://www.thehindu.com/opinion/op-ed/nehrus-economic-philosophy/article18589548.ece

6. V. G. Bhatia. (1990). Nehru Mahalanobis Model. Economic and Political Weekly, 25(33), 1798-1798. Retrieved June 5, 2020, from www.jstor.org/stable/4396620