Introduction
When Nehru became the first Prime Minister of India not only was there euphoria at gaining independence but there was all round crisis. The devastating colonial subjugation was ending. The World was emerging from the ravages of the Second World War. India was racked by poverty, illiteracy, ill-health, etc.
A comparison with what has happened in Pakistan helps understand the difficulties faced by a newly independent nation. The comparison is valid since the circumstances were similar. We belong to the same stock and our history and structures of governance were similar. Yet, our development paths have diverged principally because of the vision and the nature of the political leadership.
Leadership in India asserted its independence. Stayed out of the emerging great power blocs and provided the vision of non-aligned movement to the emerging free nations. In contrast, Pakistan joined the Western bloc, militarized and could not break the shackles of feudalism. It allowed the military to dominate the nation and went for theocracy and not secularism. Democracy did not have a chance to flourish because the political leadership was weak.
Historical Comparisons are Tricky
Historical narratives are difficult since it requires interpreting the past with the present day lenses. For instance, during the height of Mughal rule, with Akbar at the helm, neither cars nor electricity existed. From today’s perspective, the country was obviously under developed. But this is not a fair judgment since the availability of technology and resources, the prevailing social situation, etc. need to be factored in.
In 1947, India lacked resources and technological capability compared both to the advanced nations and present day India. Indian leadership had little experience of governance and administration. Communities were divided and partition put an enormous strain on the nation.
The initial conditions matter. And, they were vastly different between 1947 and 2014. In 2014, the new government started with a robust economy growing at 7.76% in Q1 of 2014-15. It had recovered from a low of 4.44% in Q4 of 2012-13. In contrast, Nehru started with little resources, an average growth rate of 0.75% and huge problems. In 1947, the leadership lacked a readymade template of development and had to initiate a new path.
Creating Institutions in an Underdeveloped Nation
Institutions give direction to a society. In 1947, they were at best weak. For instance, financial system or social protection for workers and farmers were rudimentary. Independent judiciary, bureaucracy and police are needed but they were in the colonial mould, designed to subjugate people and not to develop the nation. The nation was largely feudal, agrarian and rural. It needed a vision to take people out of poverty and enable them to live a civilized existence.
Fortunately, the Indian leadership believed that individuals are not to blame for their problems since these were the result of collective deprivation due to the colonial rule. Thus, the leadership decided that the social problems would be collectively resolved through state intervention via creation of infrastructure, both social (education, health, etc.) and physical (roads, railways, power, etc.).
The leadership set into motion modernization through spread of education and scientific temper and creating an economy which could produce from pins to nuclear reactors. This was achieved in spite of an acute shortage of resources and established the base for India’s future development.
Historical Mistakes and Correctives
Since the path was uncharted, many mistakes occurred. R&D remained weak. Development was top down so that poverty persisted and inequality increased which impacted peoples’ commitment to the nation resulting in growing alienation, corruption and policy failure. The policy makers could not anticipate these drawbacks since these consequences appeared slowly over the long term.
In contrast, the policy mistakes made since 2014 were obvious and immediate and should have been anticipated. Demonetization and the structurally faulty GST are two examples that have damaged the vast unorganized sector of the economy and therefore the economy as a whole. In contrast, in the 1950s, it was recognized that employment would be provided by the small and micro sectors and they needed protection.
History is full of examples of nations making mistakes and facing their consequences over long periods. India’s ruling elite, by the 8th century AD, mistakenly believed that it had all the knowledge that there was. It not only set back knowledge generation it led to narrowness in thought and a defensiveness. This lesson also applies to the current times.
Today the rulers are talking of `decolonizing’ the Indian mind. But then why invite foreign universities to India to set up world class universities. They will bring their own framework and not develop an indigenous one. Further, R&D expenditure is 0.7% of GDP – one of the lowest compared to other big economies. In the last one decade, false narratives are being created and people told to be proud of that which reinforces dogmas and obscurantism.
Compound Growth Rate and Perceptions
As an economy grows over time, more resources become available for development leading to higher growth. So, any evaluation of the past has to keep this and the starting point in mind.
Further, structural changes in the economy accelerate the rate of growth of the economy. Agriculture usually grows at 2-3% per annum while the services sector can grow at 8 to 12%. Hence, as the economy modernizes and the share of agriculture declines while that of the services increases, the economy’s rate of growth rises.
India’s average growth rate between 1901 and 1951was 0.75% and it increased to an average of 3.5% between 1950 and 1980 – a huge shift in growth rate. This further increased to an average of 5.2% between 1980 and 2002 and to an average of 8% between 2002 and 2009. This step up in growth rate is largely a reflection of the rising share of the services sector in the economy. It became the dominant sector of the economy after 1979.
The increase in the average growth rate has implications for absolute numbers. At an average growth of 1% per annum, the size the economy doubles in 70 years. At 3.5% it doubles in 21 years. At 5.2% it doubles in 13.5 years. And at 8% it doubles in 9 years. The increase in the rate of growth creates the illusion that now the economy is doing well compared to earlier. But, clearly, the earlier growth leads to later dynamism.
Availability of Economic Resources
Growth leads to a build-up of resources that enables more to be done in areas like, education, health and physical infrastructure. These help enhance productivity of workers and enhance the economy’s capacity (potential) to produce more and grow faster.
In the 1950s, the economy was small, the people were poor and investment was low. Investment (NDCF) was 3.4% in 1950-51 while in 2012-13 it became 28%. Thus, while in 1950-51, out of every Rs.100, only Rs.3.4 was available to put into education, health, agriculture, etc., in 2012-13, Rs. 28 was available – an eightfold increase. Further, the real national income increased 28 fold by 2019-20. So, in real terms almost 224 times more funds were invested in 2019-20 compared to 1950-51 and the country could achieve far more.
In 1950-51 tax revenue of government was 6.69% of GDP and, now it is 17%. The deficit in the budget was 0.04% of GDP in 1950-51 while now it is about 10%. So, the resource availability of the government has increased from 6.73% of GDP to 27% – a four times increase. Factoring in the GDP increase, the government now spends 112 times more than in 1950. This enables more schools, roads, and toilets to be built. Earlier, the consumption of the well-off was restricted to enable larger savings and growth so as to build the base of capitalism.
Other Difficulties
Nehru emerged from the national movement which had worked to unite all Indians. The leadership appealed to the higher instincts of people to work towards a common goal of living in harmony and progress. There has been a reversal in this trend. Nehru also had to contend with entrenched feudal attitudes and superstition, dogmas and prejudices.
The sea change in technology between 1950 and 2023 underlies the possibilities. Automation, AI, semi-conductors and desktop computers and mobile phones have led to e-commerce, e-banking, communication, etc. that are changing the fields of medicine, teaching, designing, etc.. Compared to 1947, bulldozers, cranes, etc., have become ubiquitous at construction sites. Use of tractors, harvester combines, threshers, etc., in agriculture has displaced bullocks and ploughs. But, employment generation has suffered.
Conclusion
In brief, Nehru’s era was transformative in spite of the enormous difficulties that existed. It paved the path to the nation having 224 times more capital today compared to 1950.
(Arun Kumar is retired Professor of Economics, JNU. His recent books include ’Indian Economy since Independence: Persisting Colonial Disruption’. 2013 and ‘Indian Economy’s Greatest Crisis: Impact of Coronavirus and the Road Ahead’. 2020. Courtesy: Mainstream Weekly.)
