Nikhil Menon on Mahalanobis

Few readers of this blog will be aware that my first academic publication was on the topic of the Indian Planning Commission. It was 560,000 words long- i.e. about the length of Das Kapital- but failed to find a publisher because all those 560, 000 words were 'shit'. Still, that is what Indian Planning was- utter shit.

Nikhil Menon takes a different view.

The following is an excerpt from his interview with Chintan Modi of News 9

You describe "the Indian planning project" as "an arranged marriage between Soviet-inspired economic planning and Western-style liberal democracy." Why this metaphor?

Because it sounds better than just saying 'shit' 560,000 times. The truth is that the war economy had created Government controls over almost all economic activity. Furthermore, under Bretton Woods, cross-border financial flows, including f.d.i, were tightly regulated. Thus everybody had some sort of planning. Soviet planning was based on State control of almost all enterprises. But it was backed up by the sanction of getting shot in the head or shipped off to the Gulag. This wasn't remotely feasible in India where the 'kulaks' were the dads of the soldiers. If you tried to 'collectivize' their land they would kill you and take their time with your daughter. So, no marriage- shotgun or otherwise- was possible with Soviet style planning. 

Western liberal democracy was not wanted in India. The Hindus did want elected representatives to change their customary laws so as to reduce wasteful and stupid status competition between 'jatis', but they didn't believe in liberal democracy which means representation so as to have more taxation. Indians didn't believe tax money could ever be spent in a productive manner. They wanted no taxation but some representation which doesn't have any power save that of sending public signals that it was okay to abandon casteist or superstitious practices without fearing a law suit from relatives claiming your ancestral property on the grounds that you had become 'acharabrashta' or other nonsense of that sort. Also, get rid of polygamy. You pay for an IAS officer son-in-law but if the guy marries a hundred other girls for their dowries you are back with 'kulinism'. 

What did Hindus want if not 'liberal democracy'? The answer is a benign sort of Dictator. Gandhi had been too much of a crackpot. Nehru was more sensible. In any case, linguistic reorganization of the States was inevitable, so people looked to Delhi because they could not be sure they'd be on the right side of any new regional border. The other point is the creation of Pakistan had revived Hindu fear of an Islamic onslaught. Only a strong Center could provide the Hindu people with a powerful Army which could take the battle to the enemy rather than wait around for the next invasion. 

Nehru's power increased because of the Planning Commission of which he was the head. Control of the economy- license permit Raj- curbed the power of the Presidency cities and the entrepreneurial class which had financed Gandhi. The Textile industry was strangled because the next wave of entrepreneurs would have risen within it. 'Export pessimism' was pessimism about Delhi being able to control foreign exchange flows which would have been disproportionately concentrated in the port cities of the littoral. The Bengalis, who had already lost much and who would lose more through things like 'freight equalization', were mollified when one of their own- Mahalanobis was put in charge. The guy knew no economics whatsoever, so the real fun of clerks and peons in the PMO running everything could begin. Savvy industrialists settled for 'the best of monopoly profits- a quiet life' while various British Managing Agencies were taken over by Marwaris and very quickly run into the ground. I suppose there was some 'value release' from what were in effect stranded assets. 

Why did the US decide to give 'free money' (Ambassador Kaul's phrase) to finance this farcical 'Socialism'? Well, it turned out that the money wasn't free, it was inflationary and the US got an unexpected benefit- viz. intellectual coolies. Still, the fact remains that US foreign policy consists, in the words of Obama, of doing stupid shit. Indian Planning was definitely shit, so obviously they paid for it for a few years. 

To conclude, Indian planning was an arranged marriage between a senile prostitute- viz. the war economy regulatory machine- and an impotent Dick-tato (i.e. a cross between a Dictator and a Potato with the qualities of the potato predominating) for which Uncle Sam provided money so as to keep up an appearance of Liberal Democracy thriving in the second most populous shithole on the planet. 

Menon disagrees.

I used this metaphor because during the time of the Cold War and the competition between the two superpowers — Soviet Union and the United States — planning and democracy were seen to be incompatible.

This is nonsense. France and Japan had 'indicative planning' but most war ravaged countries had what was in effect the same thing. In any case, there was a little thing called the 'Marshall Plan'. The US actually knew more about planning than anyone else precisely because they had more resources to allocate.  

They didn't appear to have any natural inclination towards each other. So, India's choice to put these two together was an experiment, a leap of faith by the Indian state (which, in this metaphor, represents the parents doing the arranging!)

India's choice was based on the Hindu need for a strong Center able to respond proactively to Islamic aggression. Nobody wanted to go back to the days of Prithviraj Chauhan. With the Brits gone, Hindus had to hang together.  

But a strong Center meant one where industrialists have to go through New Delhi rather than find some new crackpot of a Mahatma to act as their cat's paw. 

What is it about India's Five-Year Plans that excites you as a researcher? What were some of the research questions that you started out with? How did they change over time? 

India's Five-Year Plans intrigued me because we are used to the debates about whether they succeeded or failed, but I felt that we didn't know enough about why India adopted them in the first place.

Because nobody then or now was going to come out and blab out the truth. Hindus wanted a strong Center. They didn't greatly like Banias and Marwaris and so forth. Also, maybe the Government could run industries better than some greasy Seth. What was certain was that public sector employment would rise. In India everybody was a philosophical anarchist who wanted a sarkari job for their son.  

How they came to define India's economy. The Planning Commission's decisions rippled across every aspect the economy, and the rhetoric of planning became part of the texture of public life in India.

Kishore Kumar, in Apna haath Jagannath, had a hit with 'Permit ke liye mar mit' in 1960. Whatever enthusiasm there may have been for Planning, it died quickly.  

When I first entered the archives for this project, I didn't have a very clear idea about what the book would look like. In some senses, I allowed myself to be directed by where the archives and libraries took me. That's what led me to the history of India's first computers, or the role played by Bollywood and sadhus in promoting Five Year Plans.

In the Fifties, some believed that there could be a sort of National Service scheme for school leavers. India might become a One Party state. The best and brightest would join the Party and this would grease the wheels and permit superior coordination. Nehru did start a technical cadre- engineers and other specialists- but the jealous IAS generalist strangled it quickly enough. Still, it seemed possible that Congress- perhaps after becoming dynastic (thus reducing intrigue and infighting)- would create an all Indian political cadre and then set goals for different industries. After all, there were one or two examples- e.g. Kurien and Amul- where a technocrat with good political protectors achieved something worthwhile. 

How would you describe to non-academics the role that PC Mahalanobis and the Indian Statistical Institute in Kolkata played in crafting independent India's economic trajectory?

The Mahalanobis model was based on the experience of the 1930's when there were high tariff barriers. It viewed India as a closed economy which needed to be technologically self-reliant. The main constraint was 'capital goods'- i.e. machines that make machines- and thus the Government needed to push resources into this sector regardless of profitability. It should be stressed that the Mahalanobis plan was modified greatly within two years of its introduction because of inflation and balance of payments problems. But it did come close to its target because of the favorable global climate. The Third Plan was more Sukhamoy Chakraborty's work but for obvious reasons it failed dismally. Plan Holidays followed till finally, with the Gadgill formula, the nature of the game changed to admitting that the real issue was the division of spoils between the Center and the States. In other words, Nehru's Centralization had failed. Indira Gandhi was more concerned with fucking over the Hindi belt than with distant States which were able to rise up a little.

Politically, one could argue that National cohesion required the sort of stupid shit Mahalanobis presided over but from the Economist's point of view the whole thing was utterly mad and pointless. It had negative hysteresis effects which stretch down to our own day. 

India never became technologically self-reliant. There wasn't enough money for creating a nation of inventors and engineers. Some people were sent abroad to study but when they came back they had to be given a clerical job under a stupid IAS officer pending availability of work for which they were trained. Even if this materialized, they had little scope to innovate or improve techniques. They were expected to conform to bureaucratic, not technocratic norms. The sensible ones stuck it out for a couple of years and then emigrated. Others quietly rotted away and became useless. Meanwhile there were some turn-key projects which did boost steel production and so on. But Indian steel destroyed value- i.e. exporting iron ore paid more. The result is a continuing culture of protectionism. The the Indian steel producer lobbies government to put high export duties on high grade iron ore to reduce its costs but Indian manufacturers suffer from high steel prices. That's why steel intensive goods- e.g. construction equipment- are bought from China. Meanwhile, people like Laxmi Mittal hired technocrats from the Indian steel industry and made a fortune for himself in places like Indonesia before settling in London. 

Making a budget involves having a plan. A good budget ensures that 'investment' generates financial returns- i.e. raises revenue. A bad budget pisses money against a wall because 'investments' turn out to need more and more monetary support. You have to cut down on food so as to feed your white elephant which was supposed to make you rich. But it can't do so. It isn't 'strategic' at all. It eats money and produces shit. 

The 'Gandhian' element to this was protection of cottage industries. But the motive was political. Textiles could be exported. Smarter, shrewder, entrepreneurs might rise up in the industry. They might back new political configurations in the country. Better be on the safe side and strangle the thing at birth.

The alternative to Mahalanobis was the Vakil & Brahmanand plan which would have let textiles and other wage good industries expand rapidly so that industrial employment could grow quickly thus ending agricultural involution and raising productivity- and therefore creating a food surplus- in that sector. However, neither of those two worthies- both being academic economists- appeared to be wholly sane. What was needed was a guy who understood budgets not one who pretended to understand gobbledygook. 

Mahalanobis, or 'the Professor' as he was known, was one of the most influential Indians of his generation.

If by 'influential' you mean 'shit'- sure.  

This was mostly because of the role that he and the Indian Statistical Institute played in authoring India's Second Five Year Plan (1956-61).

The craziest shite ever conceived. It ensured India would be a beggar. This meant reform would come from outside and take the shape of a 'Plan holiday'. However, as with our current malaise, the charitable view is that Mahalanobis too was being manipulated by a rent-seeking coalition. But, back then, there was more input from the PMO. There was a clear political purpose- keep the farmers starving so they don't wag their tail; strangle the new generations of Sarabhais and Birlas lest they find some Mahatma of their own and start up that satyagraha nonsense; concentrate all power in Delhi by reducing Calcutta and Madras and Bombay to an equal penury. Mahalanobis, being a Bengali succeeded with respect to Calcutta. Bombay fought back by fair means or foul and retained some dynamism. In Madras, the film industry drove out Congress and created a Dravidian model of development. The 'Andhrapreneur' then made Telugu Cinema more dynamic than that of Tamil Nadu and did well for themselves and their State. Some other States found their own modus vivendi to a modest type of affluence and dynamism. But the country as a whole suffered and continues to suffer. 

That document provided the policy blueprint that India's economy followed for the next few decades, until the market reforms of the 1990s.

But rent seeking had become entrenched. Some export led growth occurred but more and more rents were captured. Billionaires increased in number but so did beggars. 

As someone who engages deeply with the history of capitalism,

which India didn't have. It had feudalism and then a corrupt type of socialism and then a corrupt type of billionaire culture based on borrowing from Government banks or the LIC etc. 

how do you look back at the liberalisation of India's economy in 1991? Does it seem like a failure of the promise of the welfare state?

There was no welfare state. Why speak of promises? 

Can the inequalities that exist in India today be attributed to that moment?

No. They can be attributed to Indian economists being shit and Indian politicians being shit and Indian industrialists being shit.

I should begin by saying that I'm not an economist, so I don't study this in the manner that they do. As a historian, I look at changing patterns in economic thought and practice and offer explanations for them. With that qualification, I would say that market liberalisation was a seminal moment for the Indian economy. While India was forced into it due to a crisis, it clearly led to a substantial increase in GDP and growth rates. As a result, not only did the Indian economy change, but so did consumer patterns and hence popular culture as well. The uptick in growth has contributed to a reduction in absolute poverty and an increase in income and wealth inequality. India could have harnessed this growth towards more equitable outcomes by acting, as you suggest, like a welfare state. However, our investment in social security programmes, health and education still remains low.

Because subsidies go to the rich. The game has been rigged in advance. That's the problem with Centralization. You get 'Agency Capture'. The regulator becomes the puppet of the entity she is supposed to keep on the straight and narrow. The Banker becomes the henchman of the Bank robber.  

What continuities do you notice between the Planning Commission and the NITI Aayog? The NITI Aayog resembles what the Planning Commission had become towards the end of its run — the government's think tank. In the 1950s however, as Planning Democracy reveals, the Planning Commission was an enormously powerful body.

Or so it appeared. What it actually was an enormously pliable body.  

To the extent that a Finance Minister John Matthai resigned in protest of the Planning Commission's sprawling powers. He said that it was more like a "parallel cabinet"!

Nehru's initial instinct was to put business minded, non political, people in charge of Finance. But the temptation to concentrate power in his own hands was too strong.  

What makes you conclude that India's civil society needs/wants a technocratic saviour? 

I think there is often a want, though I am unsure that there is a need. While these trends ebb and flow, I am struck by how often there is a popular appetite for a technocrat to solve our problems. We saw this with the lionisation of Mahalanobis, as we did later with Manmohan Singh in the 1990s, and as we have seen more recently with the celebrity of someone like Raghuram Rajan. A few years ago, a newspaper ran a column with the title 'Who Will Be the BJP's Mahalanobis?' I think we need to find a balance between yearning for a technocratic saviour and rank anti-intellectualism. In India currently, the latter appears the much bigger issue.

A healthy sign. Economics is something successful businessmen in open markets understand better than pedants. There is nothing wrong with having a sort of political entrepreneur who recombines factors of production and improves allocative efficiency by relaxing stupid red tape regulations without blowing a hole in the budget. This can be done by a CM but not a PM because India is too varied. Subsidiarity is the need of the hour. Let decisions be taken as close as possible to the people affected. Indian Trade policy is crazy shit. There needs to be experimentation at the margin. The top-down approach is still with us because of embedded rent seeking. Breaking that nexus appears an elusive dream. To be fair, Modi and Shah do seem to be learning from their mistakes. The question is whether they can last long enough in office for the country to benefit by the knowledge they have gleaned.