Books Explained: An Economic History of Independent India


Were the Nehru years a wasted era for the Indian economy? The planned development model ostensibly inspired by the Soviet Union – which channeled resources into multi-purpose river valley projects, mines, fertilizer plants and capital goods (machine tools, heavy electricity, transport equipment , iron and steel), as opposed to consumer goods – has it led to economic stagnation?

Not really, according to Pulapre Balakrishnan’s new book. Annual GDP growth averaged 4% during the Nehruvian period (1950-1 to 1964-5), compared to 0.9% during the last half century of the British Raj (1900-1 to 1946-7) . Per capita GDP growth also accelerated to 1.9% from 0.1%. This gap would have been even greater if the population had increased by 0.8% per year (average for 1900-47) and not by 2% (for 1950-65).

The author, professor of economics at Ashoka University, tackles two major criticisms of Nehruvian economic strategy. The first is that he ignored agriculture – when the sector grew faster than population, in contrast to the decline in output per capita recorded during the Raj. Agriculture is also said to have benefited from the Bhakra-Nangal, Hirakud and Nagarjuna Sagar dams (Balakrishnan forgets to mention the world-class state agricultural universities in Pantnagar, Ludhiana, Bhubaneswar and Hyderabad established in this period).

Pulapre Balakrishnan

The second criticism is the creation of “white elephants” in the public sector. Balakrishnan argues that public sector enterprises in Nehru’s time, far from being a grab, actually generated savings. When a second Hindustan Machine Tools factory was inaugurated in 1962, Nehru prided itself on having been financed by the “surplus” of the first. As far as the private sector is concerned, it was not so much about suppression as it was about recognizing the weakness of “animal spirits” among entrepreneurs in the uncertain post-Partition environment under a new political entity. Under no circumstances would they have invested in long-term projects.

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The downturn in the economy happened after Nehru. Average GDP growth fell to 3.4% from 1965-66 to 1971-72 and to 3.1% over the following seven years. Part of this had to do with droughts (in 1965, 1966 and 1972), wars (1965 and 1971) and the 36.5% devaluation induced by the forex crisis in June 1966. But much of this period also coincided with Indira Gandhi’s measures such as nationalization. banks and coal mines, the MRTP law and skyrocketing income tax rates.

(Books Explained appears every Saturday. It summarizes the central argument of an important work of non-fiction.)


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