The mixed economy of pre-1991 India has been much maligned in the past decade -- and not without reason. Colloquially labeled as the 'License Raj', that regime was tainted by the twin evils of corruption and inefficiency, coupled with an output growth rate so low that it attracted a curious moniker: "the Hindu rate of growth". Today, this appears to many to be an ironic misnomer, given that the Hindu rate of growth was induced by a planned economy which, in turn, was formulated and implemented by the secular Congress; incidentally, the Hindu nationalist BJP has always been a stronger advocate for free markets.
The tirade against the perceived evils of this Nehruvian brand of socialism is not a partisan one. Indeed, since the liberalization of the economy occurred under the Narasimha Rao government, even the Congress has distanced itself from the ideology it had so fervently advocated right up until and during Rajiv Gandhi's leadership.
Avowed neoliberals dismissing the pre-liberalization era as a missed opportunity are merely mouthing a dogma -- a simplistic understanding of a complex reality.
So to come to the defence of such an unequivocally derided form of governance at this time would seem anachronistic at best, and downright blasphemous at worst. My intent is not to advocate a reactionary return to the socialist model; such a move would not only be a draconian violation of economic freedoms that Indians have come to enjoy, but would also cause a virtual collapse of the Indian economy.
What I wish to do is highlight the merits of such a model in the 1950s and 60s, in the context of a newly independent India, and reintroduce a perspective which has been obliterated from public discourse by the mainstream economic narrative.
Proponents of unencumbered free markets often omit the key detail that free markets only function efficiently and equitably if there exist strong political institutions to support them.
Take, for instance, the case of the Bolivian government, which was forced to privatize water supply in several cities in the late 1990s. Coming out of a long era of military dictatorships -- a situation ripe for political instability -- Bolivia borrowed heavily from the World Bank in order to prevent a complete economic collapse. The World Bank agreed to lend to the Bolivian government on condition that the state would implement certain structural reforms, including the privatization of water, railways, telecommunications and other industries.
Agreeing to these stipulations, the Bolivian government rapidly privatized utilities in many cities including Cochabamba. In 1999, massive protests erupted throughout the city as water prices soared and supply dropped sharply. Access to piped water in Cochabamba dropped from 70% to 60%. Amid escalating and increasingly violent protests, the government finally decided to roll back the privatization policy.
The costs of early privatization could have been similar in a newly independent India. Emerging from a colonial economy in which indigenous industries were systematically dismantled to bolster the importation of British goods, the fledgling India simply lacked the industrial and human capital to sustain a well-functioning market economy.
Nehru's vision incorporated a strong state which would help develop a foundation on which a market economy could later flourish.
Nehru's vision incorporated a strong state which would help develop a foundation on which a market economy could later flourish. Taking the advice of preeminent statistician P.C. Mahalanobis, Nehru focused on the development of heavy industries which would produce capital goods, a move intended to create a base of capital stock on which the production of consumer goods could steadily take place.
Nehru also directed investment towards higher education, setting up institutions such as the Indian Institutes of Technology (IIT), Indian Institutes of Management (IIM) and the National Institute of Design (NID), in a bid to ensure that the human capital levels in India would be high enough to prevent the market from being dominated by just a handful of players.
Nehru set up various banks to absorb the savings of the Indian people which could then be used to expedite the process of capital accumulation. Nehru categorically rejected the violent tenets of doctrinaire socialism, choosing instead to strengthen democratic institutions.
As emerging markets specialist Ruchir Sharma recently pointed out in an interview, democracies tend to do better economically than dictatorships in the long run, partly because a regime change does not necessitate a violent insurrection which greatly destabilizes the economy.
Nehru's unflinching commitment to democracy, his unwavering belief in secularism and his emphasis on scientific research and development -- a point on which he differed significantly from Mohandas Gandhi -- were all pivotal in establishing institutions which would later allow the structural reforms of the 1990s to propel the Indian economy forward.
Nehru's vision had a flip side too; his decisions (or lack thereof) during the infancy of our republic that led to the neglect of agriculture have had severe repercussions, with today more than 60% of the working population generating just about 14% of national income.
Nehru's policies had other drawbacks as well: unaccountable public sector units accumulated massive debts, even as the civil service grew increasingly bloated and corrupt. The legacy of this era still forms the cornerstone of the decadent bureaucratic culture today.
Yet, avowed neoliberals dismissing the pre-liberalization era as a missed opportunity are merely mouthing a dogma -- a simplistic understanding of a complex reality. The truth is that without a Nehruvian foundation, the entire edifice of the liberalized Indian economy would come crashing down.
It is time we recognize both the good and the bad the Nehruvian vision has done to the Indian economy.
Corbridge, S., Harriss, J., & Jeffrey, C. (2013). India Today: Economy, Politics and Society. Cambridge: Polity Press.
Dantwala, M. L. (1964). Economic Ideology of Jawaharlal Nehru. The Economic Weekly .