The Recovery of Nehru Era
The Recovery of Nehru Era
The Recovery of Nehru Era
The period 1950 to 1964 is called Nehru era. The study on relationship between the
policy Regime and economic growth in India over this period suggest that the economic
policy of Nehru Era was relatively free of narrow political consideration.
After the Nehru era, within the same overall Framework much of the intervention was
mainly aimed at maintaining the political power of a ruling dispensation.
WAGE GOODS
Centerpiece of the Vakil Brahmananda plan was a wage good sector
As recaptured by Brahmananda, Keynesian unemployment assumes excess capacity
including stocks of wage goods and other circulating capital while in India unemployment
of labour exist because supply of labour wage goods to sustain labour as a corporate
factor with land and labour is inadequate.
Brahmananda named the wage goods are corn and clothing
For Vakil and Brahmananda the multiplier mechanism cannot work in the absence of
wage goods, and this let them to the proposition that employment cannot expand without
wage goods .for these reasons, Agricultural Development becomes fundamental.
an observation quiet relevant for India 50 years later - the service and industry sectors
cannot absorb more than a small proportion of the labour force. the service sector is
important but services can be expanded only with growing wage good surpluses.
Two sets of comparators are used to evaluate the growth performance of an economy
one is the record of preceding growth in the economy itself the other is the
contemporaneous growth of other economist similarly place and the growth of leading
Economics at early stages of their own growth.
In table 1 growth rates overtime of the three main sectors of Indian economy are shown.
In column 1 the data for the years 1900 to 47 are shown. In column to the data on the
same indicators for the rest of the 20th century including the 17 years of Jawaharlal
Nehru's Prime Minister ship is shown. In columns be the same indicators for the period
1950 to 1964 the year of Nehru's death, is shown.
The data conveys two important points:
Not only does growth in the Nehru years amply exceed what was attained in the
first half century of Colonial rule, but the quickening of the economy observed in
the second half of the 20th century may be seen to have been already achieved
in the Nehru era
Not only is there an acceleration of growth across all sectors but also the ranking
of sectors by growth is reversed early with the commodity producing sectors now
growing faster than services which had been the fastest growing segment of the
colonial economy.
Joel Mokyr, a historian of Technology has observed that growth after the industrial
revolution was not just higher but qualitatively different in at least three different respects
from what had gone before.
Growth ceased to be a niche phenomena. Before 1750 it had been limited to
relatively small areas or specific sectors.
While pre 1750 growth had seen institutional change in the widest sense
technological change though not absent was far too slow and localised compare
to the role it was to play afterwards.
Pre modern growth was vulnerable to set backs and shocks both manmade and
natural that made doubtful its sustainability.
Not all three observation are evident from the data, the Nehru years witnessed
widespread growth across the economy, a technological advance was fostered and the
growth in income has not only been sustained for over 50 years but the growth rate itself
has actually been hasteningg slowly. However 2 of mokyrs comments on the
significance of the industrial revolution appear to have been tailor made for the period.
In response to the observation that the growth achieved in the early stage of the
revolution was not that much he has responded that the change must not be
seen as one of mere degree. there is qualitative difference between an economy
in which GDP per capita grows at 1.5% and one in which it grows at 0.2%
While a difference in the nehru era was distinctly Indian in that it was not
dependent on either foreign trade or foreign aid it certainly was not all that
industrial. while the categories for which growth is recorded in table 1 are
somewhat broad the data reveal that growth acceleration in the primary sector,
largely comprising agriculture had exceeded that of the secondary sector more or
less synonymous with industry.
Growth comparison
Though india has grown faster than most of africa during the last 5 decades it has
performed worse than east asia. Korean growth rate is 50 percent higher than india's for
1950-64. However india's growth rate is 25% higher than that of china. china was to pull
ahead of india only a decade and a half beyond the nehru era, in the late 1970s and
following the reforms unleashed by Deng Xiao Ping.
In a comparison with china it now appears that nehru had not left the indian economy at
any great disadvantage. the subsequent tearing away of china, and the falling behind of
india in the growth league tables owe itself to causes other than his leadership.
Table 2 shows a comparison of the growth in India during 1950 to 64 with long term
growth in OECD economies .we can see from table 2 that the former has exceeded the
latter often substantially.
Unexpected consequence of the transformation of the economy had been a very
significant rise (table 1) in the rate of growth of population. now the measured rate of
growth of per capita GDP is lowered .two observations are in order here
a. From table 1 we can see that were the rate of growth of population to remain at
the colonial Rate the rate of growth of per capita income during 1950-64 would
have exceeded 3%. this is more than twice the rate of growth of per capita
income of the US and UK during 1820 to 1992 and exceeds that attained by
Japan during the same period.The rise in the rate of growth of population per se
serves as an indicator for more vivid of the extent and nature of the economic
transformation than any estimated rise in the rate of growth. life expectancy at
birth Rose from no 32 years in the 1940s to 37 years in the1950s.
b. The longer the time period, the greater the likelihood of observing a higher
growth rate for these economist when compared with the shorter series
commencing from a time when their per capita income was the same as that of
India's in say 1950. From an economic standpoint, initiating growth in the
presence of increasing returns to scale, a low base is actually a serious
impediment to growth, for the lower the scale of production the lower,
proportionately, is the surplus available for investment.
VKRV Rao an Indian economist had had ringside view of the Indian economy for over 5
decades starting about 1950. he said that higher priority should be given to agriculture and
consumer Industries instead of to Capital good industries. the emphasis placed on capital goods
industries was the result of an understandable desire to furnish the country with domestic supply
of the crucial inputs of economic growth so that the rate of growth could be much faster.
he also said that it is not correct to suggest that planning under Nehru did not give sufficient
priority to agriculture in fact, of the total investment undertaken during the first three five year
plans agriculture, including irrigation, accounted for rs 3446 crore or 22.7%while economic
infrastructure like transport and communication and power accounted for rs 5737 crore or 37.7%
and social services for rs 2760 crore or 18.1%. industry accounted for only rs 2651 crore or
17.2% of investment in the public sector during the 15 years covered by the three plans.
Raj Krishna was an economist in a very different mould from vkrv Rao. He suggest that there
may have been mistakes only in the proportions in which investment had flowed into different
channels rather than in the choice of the plural strategy which had always characterized Indian
planning. He also said that nearly a fifth of the public sector plan outlay has been consistently
allocated to Agricultural Development.
there was a massive increase in the flow of credit to the agriculture sector from Rs 70 crore in
1950-51 to rupees 2000 crore in 1975-76. almost all agricultural inputs are subsidised,
agricultural income is lightly taxed, and during the last 13 years minimum prices covering the full
cost of production has been guaranteed for all major crops.
In per capita terms the director location to agriculture was certainly lower than that to industry as
the rural population dwarfed every other cohort in the economy. Planned industrialisation was
hardly a rival to Agricultural expansion as mahalanobis had seen it. On the contrary, faster
agricultural growth it was diagnosed needed more industrial inputs, whether fertilizer for nutrient
replacement, iron and steel for implements or cement for irrigation conduits.
Table 1 shows unambiguously that the agricultural sector grew very impressively under Nehru
recording the highest growth among all sectors and making a dramatic recovery from the
colonial era. For a century and a half, ending with the Bengal famine of 1943, there has been
some devastating famine in India with one particular famine in Bengal under the East India
company in the 18th century wiping out an estimated one third of the population. these famines
were directly related to the policies of extortionate taxation and forced commercialisation of
agriculture pursued by the company.
Data in table 3 presents us within unedifying picture of Indian agriculture under the Raj. first, the
rate of growth of food grains as a whole is far lower than the rate of growth of population
implying declining availability. the output of rice, the grain consumed by the largest number in
India then and now actually declines. the record of non food grains is better with a far greater
average growth rate in the aggregate.
this reflects precisely the nature of the colonial project which was the exploitation of the natural
resources and command during the market of the colony for the benefit of Metropolitan industry.
indeed the glacial progress of food grains production is directly related to this strategy,
implemented partly through price incentives and partly by brute force.
The belief among most that this outcome is intrinsic to the nehruvian conception of the public
sector is far from correct.
The Hallmark of any successful developmental effort is the mobilization of resources. It is not
necessary that the resources mobilized must be contained within the public sector. after all,
private investment is an equally legitimate component of aggregate investment in an economy.
however, in the context of Indian industrialization, launched in the 1950, a large part of this
mobilisation would necessarily have had to be in the public sector as it was intended that the
state would have the leading role here. for planning to be effective, there is required, if not
concentration in its hand, at least an adequate fund base for the state. where an economy is at
a low income level the requirement is likely to be large, in turn requiring the productive surplus
to come progressively into the public sector thus enabling it to maintain command over
resources.
RESOURCE MOBILIZATION
According to the recommendation for the second five year plan by the planning commission
1956 large financial resources would be required for the second plan. A small portion would
come from Sterling balances or Foreign lawns and aid, and the bulk of the resources must be
found from within the economy. the tax system would be directed to collect an increasing part of
the growing National income in order to permit greater capital formation in the public sector and
to finance an expansion of social services.
The public sector would be extended to Industrial and commercial activities where necessary for
raising resources for public purposes. This is echoed in the industrial policy resolution of 1956
which states that public sector was expected to augment the revenues of the state and provide
resources for further development in freshfields. we find that the official idea of the public sector
was not welfarist. in particular the idea of public sector at all was to raise resources for public
purposes.
Apart from the replication of the views of the government on the role of public sector quoted
earlier two points may be noted. first the independent economist had recognise the serious
resource mobilization effort entailed in the plan to industrialise. secondary the complete
absence of populism in the recommendation that in the short run even the convention of
excluding essentials from taxation may have to be put in abeyance.
referring to the losses made by public Enterprises, Jagdish Bhagwati stated, capital
intensive white elephants in the public sector were supported on the basis of models that
deduced that this choice of techniques would yield a higher savings rate and hence
higher growth. During the Nehru era the savings of the public Enterprises actually grew
faster than that of the private corporate sector.
Neither the official approach to them nor the actual record of the public Enterprises
during these years suggest that the public sector was one of the wasteful legacies of the
Nehru Era. there drift in this direction owes more to the pure politics of a subsequent era
when the public sector was turned into a vast machine for dispensing patronage and
buying out politically the vested interest of the day. the evidence presented here also
allow us to evaluate the assertion that 'dirigisme is recipe for a fiscal crisis of the state.
the growth of the central government's tax revenues as share of GDP in the 15 years
since 1950 had not been exceeded even by the Year 2000.
CONCLUSIONS
The public policy of the Nehru Era had set in motion a more or less stagnant colonial
economy. A proliferating Bureaucracy, corruption, closedness to foreign capital and the
constituent technological backwardness in production, the lack of competition and the
consequent shoddiness of the consumer goods, and unaccountable public sector and
the consequent low productivity came along.
After the death of Nehru was witnessed what has been described as a lurch to the left
characterized by increasing trade and industrial policy controls and at times reckless
expansion of public sector employment
Many of these policies were at a tangent from those of the Nehru era, notably the
deteriorating performance of the public sector and the use of public monies to buy out
economic is affection with subsidies. this came to be termed nehruvian socialism even
though the elimination of economic waste, unaccountable governance and inefficiency of
resource use for the very arguments for socialism in the first place and not just in India.
but, more to the point, no matter that all of it bore no resemblance to what had been
practiced in the Nehru era. its consequences were serious for India.as Chandra,
Mukherjee and Mukherjee have commented the controls, restrictions, interventions
were paradoxically often resorted to in the name of introducing socialist principles and
equity but actually ended up building a distorted, backward capitalism.