26 Aug 2016 20:31 IST

Did the Nehruvian model lay the foundation for later reforms?

For all its flaws, Nehruvian economics was perhaps key to the success of reforms decades later

It has become fashionable to blame Jawarharlal Nehru for all the ills — social, political and economic — besetting this country. The latest tirade comes from none other than Finance Minister Arun Jaitley. Last week he blamed the stagnant growth in the post-Independence period to “failed Nehruvian economics”. For good measure he even criticised Narasimha Rao, who ushered in the reform era 40 years after Nehru’s time, saying he liberalised the economy only to avoid default. Jaitley added that Rao was not a “big liberaliser” and initiated the reforms only out of “compulsion” and due to the “failure of Nehruvian economics, which held India back”.

Driven by political compulsions, politicians often make remarks of this kind. Also, one is always much wiser in hindsight. But if one looks back at the past, there was a remarkable degree of consensus among politicians and economists on the efficacy of ‘Nehruvian economics’ in the early decades of Independent India. In the 1960s the Swatantra Party was perhaps the only national party that opposed this consensus and favoured more market-friendly, pro-business policies. But despite having some colourful politicians as party members, including Minoo Masani and C Rajagopalachari, the Swatantra party hardly made a dent electorally.

Welfarist challengers

Apart from the Communist parties, the real threat to the Congress party in the late 1960s came from a motley bunch of regional parties in the North and South and their opposition was grounded mainly on the social front rather than the economic. In the north, Charan Singh of the Bharatiya Kranti Dal (which later became the Bharatiya Lok Dal) emerged as a major leader challenging the Congress hegemony. He was a leader of farmers who wanted more farm-oriented policies in place. The other major leader was Ram Manohar Lohia, a Socialist, for whom the goal of social equality was more crucial than the economic agenda.

In the South the DMK emerged as a major regional force and, even here, the opposition was more in the social and cultural realm — opposing Hindi and asserting a regional Tamil identity within a federal set-up. The DMK’s economic programme in the 1970s could be seen as largely ‘welfarist’ and hardly questioned Nehruvian economics.

So the opposition to the Nehruvian economics came more from professional economists, from academia rather than political parties.

Early critics

One of the early critics of the prevailing economic ideology of the 1960s was Jagdish Bhagwati, then a professor in the prestigious Delhi School of Economics. Subramanian Swamy, who returned from Harvard University in 1970, was also an early proponent of reforms.

In 1970, Bhagwati, along with fellow economist Padma Desai, wrote an important book titled India: Planning for industrialisation. This book was perhaps the first to systematically criticise Nehruvian policies that gave primacy to industrialisation. It was particularly devastating in its critique of the licence-permit raj and the inefficiencies and ‘rent-seeking’ behavior that it had spawned. In perhaps what was the earliest plea for reforms, Bhagwati and Desai called for dismantling the industrial licensing and trade and capital controls. A good two decades before they actually occurred!

In fact, as early as 1966, the government had formed a committee headed by RK Hazari, who was then with the Planning Commission and later became RBI Governor, to review the industrial licensing policy, more specifically the Industries Development and Regulation Act, 1951. Hazari was quite critical of the inefficiencies due to industrial licensing and, though he did not call for their dismantling, he did recommend several ‘relaxations’ of restrictions on imports and industrial capacity. So, in that light, he could be seen as an early precursor for reforms.

In fact, Bhagwati and Desai, in their book, quoted extensively from the Hazari report to make their case for industrial reform.

By the 1970s the East Asian miracle economies, or East Asian Tigers — South Korea, Taiwan, Hong Kong and Singapore — were beginning to catch the attention of politicians, economists and policy-makers with their spectacular growth rates. Comparison with India was inevitable and there was a growing clamour in India by the late 1970s and early 1980s to move towards more market-friendly policies. In 1979, even communist China had begun its economic reforms programme.

So did India miss a trick by delaying its reform programme to 1991? Had the country gone in for reforms in the late 1970s, would we have achieved the spectacular, East Asian style growth rates and made a serious dent on poverty earlier?

Right time for reforms

I happened to put this question to Kaushik Basu when he came to Chennai a few years ago for a book launch (before he became India’s Chief Economic Advisor in 2009). His answer was very interesting. Had India gone in for reforms in the 1970s, he said, instead of going the East Asian way, it could have well gone down the Latin American route — which means debt default, hyperinflation and going for an IMF loan, with all its crippling conditionalities, which always hit the poor and the marginalised the hardest. It was an off-the-cuff remark but still a very interesting perspective.

So, for all its flaws and shortcomings, ‘Nehruvian economics’ did provide India with an industrial platform that was perhaps key to the success of the reforms that followed.

Had the BJP — or its earlier avatar, the Bharatiya Jan Sangh — won an absolute majority and formed a government at the Centre in the 1970s, would it have reversed the economic policies of the time and implemented reforms? Now it would be interesting to see how Arun Jaitley answers that one.

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