Man with a Plan
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Why it is wrong to blame Nehru for turning away from markets and perpetuating poverty in India
My recent column on Jawaharlal Nehru ('Raising democracy', IE, November 30), analysing his place in modern Indian history, generated enormous response. Clearly, many thought that a reassessment of Nehru was needed. In recent years, the cultural as well as the economic right has pilloried Nehru. The cultural right finds Nehru's unfailing commitment to minority rights deeply problematic, and the economic right thinks that his preference for central planning and disregard for markets caused incalculable harm to India's economic welfare. Both groups have ignored Nehru's signal contribution to the birth and sustenance of India's democracy.
I would now like to engage the contemporary economic debate on Nehru. Was the edifice of central planning, put in place by Nehru, responsible for India's failure to attack mass poverty in the first few decades of Indian independence? Was Nehru not only the father of Indian democracy, as I argued, but also the father of a wrong-headed economic policy? Was his political contribution monumental, but his economic contribution dismal?
The economic facts are quite revealing. During 1950-1980, when central planning ruled India's economy, the nation's economic growth rate was 3.5 per cent per annum, which the late Raj Krishna famously — though, in retrospect, incorrectly — called the Hindu rate of growth. Since the annual population growth rate in this period averaged roughly 2.5 per cent, India's per capita income grew at a mere 1 per cent per annum.
Contrast this with the next 30 years, 1980-2010. India started moving away from the rigidity of central planning and towards markets in the 1980s; and in 1991, the government abandoned central planning altogether. With that, businessmen were free to invest where they wanted, to the extent they liked, in goods that attracted their attention, with a technology they chose on their own, borrowing capital where they could, buying inputs wherever preferable, selling products at prices generated by markets, not fixed by the government. Today, the Planning Commission does not tell industrialists where to invest and how much. During 1950-1980, it did.