India’s Growth in Nehru Era

The formation of  the planning commission in 1950 and the death in office of J.L Nehru in 1964 marks the Nehru era, which served as the base for growth that transformed a stagnant colonial enclave. Upon analysing data, we find formidable evidence not only of resurgent growth but also of a lasting transformation of a stagnant colonial enclave into an economy capable of sustained growth. However, in the public sphere, there is an unusual degree of interest in the Nehru era. Much of this is negative which is buoyed by the extraordinary current rates of growth of the Indian economy, so much so that Das and Srinivasan termed it as “wasted past”. Moreover, a positive charge for support comes from a more academic direction. The year of 1950  marks a watershed as far as economic growth is concerned. The post-colonial economic policy aimed to make a break from the immediate past. Looking at the relationship between public policy and economic growth in the Nehru era serves two purposes. First, the period appears to mark a growth transition. Secondly, as it was also a period of high directness, it enables us to assess how, if, at all, such intervention can facilitate growth and how it can hold it back. The First plan which aimed at stabilising the economy, however, growth really began during the second FYP, which was popularly known as Nehru-Mahalanobis(N-M) strategy. 

The model was intended to provide the analytical foundation for raising the level of income via industrialisation.This model aimed to serve the end of rapidly raising the level of income through accelerating growth, as raising the level of income was considered the means to eliminating poverty. Mahalanobis considered an economy with two sectors, each producing capital and consumer goods, respectively. Moreover, the model was assumed to the closed economy without government. Thus, capital good entered into the production of the consumer good and of itself, whereas, the capital was not subjected to diminishing returns. This implies that a greater initial allocation of investment to the production of capital goods would leave the economy with a higher stock of the same in the future. Thus, capital goods being the physical counterpart of investment, a higher initial allocation to capital goods production enables a higher investment in the future. Assuming that all the feasible investment is undertaken, a higher level of investment will ensure the future-dated output is higher than the case where the initial allocation skewed more towards the production of consumer goods, leading to a higher growth rate economy in relation to the starting point. However, the planner’s problem was to arrive at the share of investment to be allocated to the capital goods sector given the target level of income. We must note that this  model was meant only as a guide to a strategy for industrialisation. In order to meet the desired goal of growth, Industrialisation should be met by investing disproportionately in the heavy goods sector. 

At the heart of the Nehru-Mahalanobis strategy was a fast growing “heavy goods” sector. Heavy goods have been aptly described as “machine-building complexes with a large capacity for the manufacture of machinery to produce steel, chemicals, fertiliser, electricity, transport equipment, etc” [Joshi 1979]. The means of bringing about a fast-growing heavy-goods sector was to invest disproportionately in these machine-building complexes. It was implicitly recognised that as the sector was characterised by long gestation lags in the production of output the rate of growth inherent in the Mahalanobis model would be lower in the short-run than that which would result from a strategy of investing disproportionately in consumer goods production. However, the long-run rate of growth resulting from the Mahalanobis strategy of shifting the investment allocation towards heavy goods would be higher, even for the consumer goods sector, as it enhances productive capacity across the economy.

Even then Mahalanobis strategy has some criticism, such as:

1) Decisions on growth prospects were not value free, a lower social rate of discount was taken to give a resultant higher growth.

2) Ideological criticism, such as model was inspired from the work of Feldman in the Soviet Russia. Defending it Mahalanobis says “he was not aware of the subsequent work of Feldman”. As for the Soviet model, Nehru was clear that India would avoid compromised politics of the Stalin regime at the cost of aiming at a lower rate of growth. It was clear that neither forced collectivisation as a route to raising the agricultural rate of growth or the suspension of democracy would be used.

3)The comment by Desai (2007) that Mahalanobis’ model has in it no unemployment, inflation or balance of payments is far more to the point. However, it is important to separate out the model from the strategy, and most of these except perhaps inflation were addressed by Mahalanobis in his writings on the Second Plan. 

4) A major flaw that  it was exclusively a supply-side model with no recognition of a possible demand constraint to capital accumulation and little scope for slackening demand growth to subvert the growth process. But again, the plan did explicitly recognise the role of demand.

 5)Another criticism which is often encountered is that they failed to recognise the importance of agriculture. An alternative plan was presented by C N Vakil and P R Brahmananda of the Bombay school where centrality was accorded to agriculture. The Vakil-Brahmananda plan was  based on  “wage- goods sector”. However, they appear to have underestimated the importance of capital goods for raising agricultural production on which their whole model was based. So, we see that despite having an alternative plan( Vakil-Brahamanda model) Mahalanobis plan was the best with India. At least it saw industrialisation as an input into agricultural growth where it was to be promoted by public investment. Following the development of strategy, we turn to the analysis of economic growth resulting from it.

Upon decomposition of data we arrive at following two conclusions. First, not only does growth in the Nehru era amply exceed the final 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. Secondly, 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. 

Now, for cross country analysis we take two categories. The first is a set of Asian economies which  were more or less on par with India in terms of per capita income in 1950. The second is a set of the world’s best-performing economies of all time. However, the growth rates attained by China and South Korea is of greater interest for two reasons. First, the data are for the same period and Secondly, in terms of per capita income Korea and China had economies that were more or less on par with India in 1950. If Korea is taken as synonymous with east Asia this feature holds also for the period 1950-64. Korea’s growth rate is 50 per cent higher than India’s for this period. Nevertheless, we find that India’s growth rate is 25 per cent higher than that of China. 

The comparison of the growth in India during 1950-64 with long-term growth in the leading Organisation for Economic Cooperation and Development (OECD) economies, such as Japan, USA and UK is insightful. If rate of growth of population were to remain at the colonial rate the rate of growth of per capita income during 1950-64 would have exceeded 3 per cent.  According to Maddison’s work of 1995 it exceeds the rate of growth of per capita income of the US and UK during 1820-1992, and exceeds that attained by Japan during the same period. So, with the inputs based on the policy regime it is incontrovertible that the Nehru era witnessed resurgent growth. Nevertheless, areas like agriculture and public sectors witnessed quite different scenario. 

Agriculture received direct attention and considerable resources during the Nehru era. V.K.R.V Rao states “Nehru did give sufficient priority to agriculture. In fact, of the total investment undertaken on agriculture, accounted for Rs 3,446 crore, or 22.7 per cent, while Industry accounted for only Rs 2,651 crore or 17.2 per cent of investment in the public sector during the 15 years covered by the three Plans”. The nature of Colonial project(1857-47) which was the exploitation of natural resource and using the market of colony to the benefit of metropolitan industry saw a lower rate of growth in food grains as a whole.The performance of the economy in the Nehru era must be evaluated in light of the agricultural legacy of colonialism. The acceleration in the rate of growth of agriculture within two decades of the end of colonial rule is spectacular, and refutes the grievance that agriculture was ignored in comparison with industrialisation in the Nehru-Mahalanobis strategy. The agricultural sector grew very impressively under Nehru, recording the highest growth among all sectors and making a dramatic recovery from the colonial era. 

Nevertheless, the hallmark of any successful developmental effort is the mobilisation of resources. It is not necessary that the resources mobilised must be contained within the public sector. However, in context of Indian industrialisation, launched in the 1950s, 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 an effective concentration of adequate fund base is required for the state. In particular, the idea of having a public sector at all was to raise resources for public purposes. As for performance of public sectors Rao and Sen observed a surge in public investment had been achieved in the Nehru era, a 15-year record of expansion that has not been surpassed, followed by, the increase in share of public savings in total savings during the period. 

Even then the is one area that appears to have been neglected very severely, and that is primary education. The rate of growth of output via human capital accretion may have been vastly different had much more attention been paid to primary education at the very outset. The verdict is very close for it is indeed correct that primary education was severely neglected in the Nehru era. It is of course technically true that, given the constitutional distribution of powers in India, “Education” – being a “state subject” – was then at least partially a responsibility of the states, but this does not absolve the policymaker of the Nehru era of a grave error of judgment regarding the factors that drive growth.

The Nehru era witnessed the recovery of India and the igniting of a growth process that has remained undimmed for over five decades, during which time the economy has been hastening slowly. The repeated acceleration of the growth rate implies that drawing a likeness between the policies of the Nehru era and the Soviet Union is false as growth in India has been sustained in a way that it was not in the former Soviet Union. Actually, India’s growth rate has accelerated and it may be suggested that this is not incompatible with the Nehru-Mahalanobis strategy. The two specific achievements of the Nehru era: the quite spectacular transformation of agriculture as reflected in the acceleration of production, and the unprecedented mobilisation of resources by the Indian state as reflected in the hike in public investment. However, there have been errors of commission, such as the proliferation of an unregulated economic bureaucracy, and of omission, such as the gross neglect of primary education.

Summing up we can say that under Jawaharlal Nehru the Indian economy had been transformed from a colonial enclave to one with at least some of the prerequisites for sustained long-term growth while at the same time maintaining an autonomy from the superpowers vying for influence on a newly independent subcontinent.