In an article titled 'the economic consequences of Mr. Nehru' Pulapre Balakrishnan wrote-
As the maxim “the proof of the pudding lies in the eating” must apply most closely to matters economic, the Nehru-Mahalanobis strategy can be considered only as good as its outcome.
It wasn't a lot better than corrupt, repressive, Pakistan. Indeed, because Pakistan got more aid it had a higher growth rate. Some other countries went for even more useless white elephant projects. Still, it should be remembered that Nehru's first love had been the Community Development program- i.e. getting the Indian peasant to be less Indian and peasanty. That, and its diluted version, the National Extension Scheme failed ignominiously, so the Second Plan had to do with ensuring that the capital goods sector would be just as shitty as Indian agriculture.
It had aimed to raise the rate of growth of the economy. With the distance that half a century affords us and the aid of superior statistical methods, we are now in the position to see that its early success was nothing short of spectacular. Depending upon your source, per capita income in India had either declined or stagnated during the period 1900-47.
This was a period when there were two world wars which greatly depleted the wealth of European powers. Some countries like Iran became proxy battlefields and suffered famine during both wars. Others like Indonesia suffered greatly at the hands of the Japanese. Some 4 million died or were displaced. India emerged from both wars relatively unscathed. It became a net creditor rather than debtor of the UK. Those sterling balances were only fully spent by 1956. Thus India had experienced 'forced saving' during the War but wasted that money after Independence on stupid bureaucratic shit like Community Development and the Mahalanobis plan which had to be scaled down almost immediately because the country ran out of hard currency.
One reason why India stayed poor and weak was that its wealthy people had lost neither lives nor property during either global conflict. The Great Depression had relatively little effect on Indian industry though, initially, it meant a large export of gold, and, from the mid-Twenties, rising agricultural distress which in turn meant that even die-hard Tories saw the wisdom of further devolution of power even at the price of British capital having to enter a partnership and eventually take a junior role to the Hindu banyan. Thus, Indian capitalists- unlike those almost everywhere else- were in an enviable position precisely because of Gandhi and his charismatic disciple- the admittedly Socialist, but reassuringly stupid, Nehru. Indeed, these merchant princes turned into a privileged caste superior to the 'box-wallah' or IAS officer. One reason industrialists were happy during the Second Plan was that lots of f.d.i in the shape of partnerships with Western firms were filling up their pockets. But this also meant that they got protected markets for luxury goods thus completely negating any 'Socialist' aspect to the Mahalanobis plan. However talk of collectivizing agriculture scared the industrialists who then began to flirt with the Swatantra party. This was short-sighted. Congress was bound to take its revenge on them.
Wealthy people did well under the Raj and some well connected industrialists got a lot wealthier under Nehru. The ordinary Indian may have seen no great improvement in living standards since the time of Akbar. However, many Europeans were better off in 1900 than in 1947 when they were living in bombed out cities and having to turn to prostitution to survive. Precisely for this reason they worked hard and their economies grew very rapidly in the Fifties and early Sixties. In India, things got a little worse for the middle class decade by decade but this happened gradually and emigration was a safety valve. As for the poor- they had babies like crazy because why not? It wasn't like they could buy cool stuff and have a good time.
Nehruvian complacency arose from the fact that Britain had protected India in both Wars while building up a political and administrative and judicial system he could inherit. Without the Brits, India could have been a battleground between foreign powers or come under Japanese control or else have experienced the War Lordism of China in the Thirties. Its wealthy would have had to make common cause with the middling and the poor just to survive. Adversity would have created the will to grow rich and strong. Nehru's legacy was a country which, not just China, but even Pakistan thought it could attack with impunity.
The suggestio falsi in Balakrishnan's assertion is that India might have done better without the Brits or that Nehru could have achieved anything had the Brits not transferred power to him. This was not the case. Moreover, from the inauguration of dyarchy onwards, Indian politicians showed extraordinary dexterity in preventing the implementations of good policies- e.g. free and compulsory education till age 10. The Lees-Mody pact was an example of the way 'Liberal' politicians could sacrifice the interests of the country to line their own pockets. To his credit, Nehru (and Churchill!) was against that chicanery. But Nehru kept quiet while Churchill spoke out. Similarly, Nehru knew well enough that the Second Plan was a gift to certain sharp-eyed industrialists. Thus Ghanshyam Das Birla ended up turning a huge profit on his generous donations to the Maha-crackpot.
Over 1950-65, its growth was approximately 1.7 per cent.
The Second Five Year Plan did have about 4 to 5 percent growth. The problem was that it could have been 12 to 15 percent before the eventual fiscal and forex crunch. Still, that sort of boom-bust drunken lurching does charaterize countries climbing out of poverty to middle income status. Making expensive mistakes doesn't matter provided you learn from them. Development is about mimetics but there is a risk that the wrong mimetic target is selected.
India’s economy, which was no more than a colonial enclave for more than two centuries,
because Indians were shit at cohesively administering and defending themselves- probably because of the Hindu Muslim divide.
had been quickened.
But its politics had been more than quickened. It went into overdrive crushing the economy in the process.
It is made out that this quickening achieved in the 1950s was no great shakes as the initial level of income was low
this is silly. Many European countries were growing very rapidly at the time. But so was America- the richest country of them all.
and a given increase in it would register a higher rate of growth than at a later stage in the progression.
There was scarcely any growth for the median Indian.
This confounds statistical description with economic assessment.
No it doesn't. The statistical description supports the economic assessment that India neglected or negated its true areas of comparative advantage- viz. growing and exporting food and cash crops and textiles and 'wage goods'- in order to invest in White Elephant projects which were soon strangled by the administrators and politicians. Freight equalization was introduced in 1952 and lasted till 1993. This was simply mad.
It is a widely recognised feature of economic growth that every increase in wealth makes the next step that much easier to take due to increasing returns to scale.
This is nonsense. Economies of scope and scale become available as the size of the market increases and production becomes concentrated. India was deliberately designating some fields where the market was huge as being the monopoly of the cottage sector. It was also giving the public sector a monopoly over industries where competitive pressure needed to be intense. This was a recipe for growth based on subsidy which was not sustainable for a poor country.
The principle works both ways, rendering the revival of an economy trapped at a low level of income that much more difficult. It is worth stating in the context that the acceleration of growth achieved in the 1950s has not been exceeded since. Also, that India grew faster than China in the Nehru era.
Because that was the British legacy to India. What Mao inherited was quite different. Naturally he concentrated on increasing the military and political power of the country.
So if the Nehru-Mahalanobis strategy had led to such a good start, why were the early gains not sustained?
Because they were not sustainable. Anybody can borrow and boost revenue for a brief time. Then the chickens come home to roost.
The loss of an early vitality in the economy had to do partly with political economy
in which case Nehru & Co's thinking was flawed. Also those guys were very old. Vitality tends to ebb as you pass retirement age.
and partly with a flaw in the strategy itself.
So, senile fools were pursuing a flawed strategy. After the Chinese invasion, Nehru admitted he and his chums had been living in a fantasy world. However, economically speaking, this suited a large class of rent-seekers.
The death of Nehru created a crisis of leadership in the Congress Party
not really. Shastri succeeded without too much trouble. He was backed by both the CIA and the KGB. The crisis came later and was only fully resolved when an openly dynastic Indira came back to power after Janata's disastrous reign.
which was communicated to the polity. It took almost a decade-and-a-half for stability to be restored.
Shastri's rule was stable. Indira as the Syndicate's puppet was secure enough. But Congress began to lose important provinces. Kamaraj's own Tamil Nadu went over to the DMK. U.P and Bihar were beginning their journey towards being 'Congress Mukht'.
Instability does not matter. The Nineties were unstable politically but economically they marked a turning point.
The instability impacted the governance of the public sector, and public investment which had been the engine of growth since the early 1950s slowed.
No. The fact that nobody was going to subsidize that nonsense was the problem. Kennedy may have believed that India had to outperform China economically so that other newly independent countries would choose the multi-party Democracy model. Then China took Nehru's pants down and made fun of his puny genitals. India was a basket case. The hole in the begging bowl was its Gandhian soul.
Additionally, the private corporate sector, which contrary to conventional wisdom had flourished under Nehru, was initially repressed by Indira Gandhi.
Because they were flirting with the Swaraj party and other such 'Fascist' forces. Nehru had a cozy relationship with some industrialists though he'd always show them who was boss. Indira went the extra mile. But the eighties, industrialists crawled to her peons or stenographers.
Private investment collapsed. This held back the acceleration of economic growth.
Smart people were fleeing the country. Some guys who knew whom to bribe could get a good return for shareholders while bequeathing billion dollar enterprises to their sons.
Neglect of primary education
occurred because it would have taken political will to implement the thing. It was safer to stick to rent-seeking while gassing on about Sarvodaya and Socialism or Ahimsa and how Amrika is totes evil.
Even though we now have reason to believe
if we are paid to do so
that the mechanism of long-term growth that remains to this day, which is that of cumulative causation,
Nope. It is mimetics under competitive conditions. Cumulative causation can't explain shit. Why is Ludhiana losing industry to Madhya Pradesh? But some succeed in mimetics while others fail or don't even get started. Why? Competition. If your product is shitty, nobody will give you money for it unless they are coerced. But coercion too is costly. Moreover, others will keep trying to kill you so as to take over your territory. Thus competition is all that matters.
had been ignited by the Nehru-Mahalanobis strategy,
which was as English as Fish & fucking Chips. The Brits passed power to the last Englishman to rule India. Mahalanobis- also a Cambridge man with zero understanding of Econ- helped him. Then their house of cards collapsed. India had become more dependent on Whitey, not less so, after Independence. Only Amrika could save it from Communist China and only Amrika could feed its emaciated population. The problem was that Amrika might decide to do regime change. Indira was on the qui vive for a stab in the back by LBJ or Nixon. So she took a Nationalist path. She couldn't take a laissez faire path- though her son could- because she didn't trust the money-bags any more than she trusted the Americans.
the strategy itself was incomplete. This is best understood by reference to the Asian Development Model as it had played out in the economies of east Asia. These economies had pursued more or less the same strategy as India
No. They followed the Japanese model. The State supported conglomerates under strict conditions. In the Sixties and Seventies, South Korea was a dictatorship. The Saemal Undong 'New Village' campaign was like China's Cultural Revolution. Shamanism and ancient religious practices were ruthlessly suppressed. Some 'dissidents' were killed. India didn't want and may not have been able to use such direct coercive means. But it could do corruption and rent-seeking in a sustainable enough manner. Those who didn't like it were welcome to emigrate or set up a virtue signaling NGO.
in that the state fostered industrialisation. But a glaring difference marks the Indian experience. This was the absence of a serious effort to build human capabilities via education and training.
Because that would have taken political will. The one method everybody knew worked was that used by Travancore. Grants to poor families and free mid-day meals and only introducing compulsion after 80 percent attendance had been achieved. Tamil Nadu took that route. The fact is tax payers won't pay for Schools where teachers are absent or Hospitals where there are no doctors.
In the east this had taken the form of a spreading of schooling, vocational training and engineering education.
Which tax-payers were prepared to fund because it led to better outcomes- a virtuous circle of higher income, higher tax revenue and better public goods.
In India, on the other hand, public spending on education had turned towards technical education at the tertiary level too early on.
Because that's what the politically important middle class wanted. It enabled some to emigrate and earn good money. This served as a safety valve. Why be a Naxalite in some jungle getting bitten by mosquitos if you could go off to sunny California and earn big bucks in O.R or I.T?
The slow spread of schooling ensured that the growth of productivity in the farm and the factory remained far too slow.
No. It is enough if a few farmers or factory workers are literate. They can direct the others. I'm literate but I need a smart guy to show me how to use my computer in a manner which raises productivity. I recall the slow pace of my writing when I used my laptop as a pad on which to rest my notebook. I'd read the instructions but didn't get that you have to charge the thing and then open it up and turn it on and then type on the keyboard.
There was high productivity in capital intensive industries. The trouble was that the real rate of return, once subsidies and opportunity cost were taken into account- was often negative or became so because of bureaucratic bloat, feather-bedding, peculation, and lack of competitive pressure.
Now the pace of poverty reduction also remained slow, and, via positive feedback, slowed the expansion of demand needed for faster growth of the economy.
Effective demand depends on having money to pay. If you invest in White Elephants or put up industries which bureaucrats and politicians mismanage, then, sooner or later, effective demand will fail because nobody lends to you or gives you 'Development Aid'.
It is intriguing that the issue of schooling did not figure majorly among India’s planners, especially as it was a part of Gandhi’s Constructive Programme.
Gandhi's 'Nai Talim' failed immediately. It was blamed for alienating Muslims and helping Jinnah. As Zakir Hussain said, 'Basic Education as currently practiced is a fraud'. Gandhi thought kids could pay for their own education by spinning cotton. But the cotton that they spun was worthless. They had destroyed, not created, value. On the other hand, my own 'Basic Space Travel' program- which involves farting till you achieve lift off and escape Earth's gravitational field is not stupid at all.
This had not gone unnoticed even at that time. B.V. Krishnamurthi, then at Bombay University, had pointed out that the priorities of the Second Five-Year Plan undergirded by the Mahalanobis model were skewed.
If the States wanted to do compulsory education they were welcome to do so. But most didn't want the headache. Parents want their kids to be taught English and Maths not Gandhian shite. Rajaji almost made Congress unelectable by deciding that kids should be taught their ancestral skills so as to know their place in society. He truly was a fool.
He castigated it for a bias toward “river-valley projects,”
coz India don't need no irrigation or electricity. What it needs is skools where Gandhian or Socialist shite should be taught.
reflected in the paltry sums allocated to education. But it was the argument advanced by him for why spending on schooling matters that was prescient.
It was nonsense. The guy didn't get that the States did not have the coercive power or political clout to push through compulsory public education. It would have meant confronting problems of caste, creed, language, gender- not to mention ideology. A dictatorship which shoots people wants schools where it can brainwash the kids and encourage them to inform upon their parents. India wasn't a dictatorship. It was a Westminster type democracy.
He argued that education would enable Indians to attend to their livelihood themselves without relying on the government, thus lightening the economic burden of the latter,
This is sheer madness! The 'educated unemployed' had been around since education took off. K.N Saigal's song 'fashion pe marne walon abh faqon mar rahe hain' was about the stylish college student who gets his diploma but then starves to death because all the jobs go to people with connections.
presumably leaving it to build more capital goods in the long run as envisaged in the Mahalanobis model.
Why the fuck should the government produce capital goods? Is it a fucking inventor or engineer?
But this was not to be, with enormous consequences for not only the economy but also the effectiveness of democracy in India.
Democracy is effective in India. Education doesn't matter at all. Different political parties have a symbol which people can recognize. You don't have to be literate to make a cross.
While the failure to initiate a programme of building the capabilities of the overwhelming majority of our people is a moral failure of colossal proportions,
In which case Nehru was a moral imbecile of colossal proportions.
we would be missing the wood for the trees if we do not recognise the economic significance of the short Nehru era in the long haul of India’s history.
Nehru was a fucking disaster in economics and diplomacy and defense policy. On the other hand the guy did look and sound like Alaistair Sims. I suppose presiding over an Indian Cabinet is much the same job as being Head Mistress of St. Trininian's.
It was path-breaking in that a moribund economy had been quickened.
If it was 'quickened' then England gets the credit. It educated Nehru and passed power to him.
This would have been the precondition for most changes in a country with unacceptably low levels of per capita income.
The precondition for having a high per capita income is not having babies like crazy. Young peeps should be spending their money on cool stuff not pooping machines.
It is yet to be demonstrated how this could have been achieved
it wasn't achieved. Anybody can borrow or beg to temporarily raise expenditure. But the thing is not sustainable.
in the absence of the economic strategy navigated through a democratic polity by Jawaharlal Nehru.
But that 'democratic polity' became dynastic and that 'economic strategy' embedded a rent-seeking class which is still with us. Corruption and incompetence have hysteresis effects. Competition and competition alone can restore ergodicity. Sadly, 'governability' in India has always been co-dependent on rent seeking.
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