Economy Dec 14, 2012
By R Jagannathan
An interesting debate has broken out over how far the Nehru-Gandhi family is responsible for India's lost years of growth - both in the early decades of independence, and of late.
Given that India was more or less a poor, socialist nation in the first three decades after independence, it is impossible not to blame Nehru for starting the rot. Since the last three decades - 1980 to now - have seen faster growth, it is difficult to blame subsequent inheritors of the Gandhi family - from Indira Gandhi to Rajiv Gandhi and Sonia Gandhi - since the economic performance has been better.
The pejoratively labelled "Hindu" rate of growth is thus seen as Nehru's legacy.
Ashutosh Varshney, writing in The Indian Express, and Shankar Acharya, writing in Business Standard, have come to the opposite conclusion. The slow growth years of India - including the recent two or three years - are a Gandhian legacy, not a Nehruvian one. By Gandhian they mean not something relating to the father of the nation, but Indira Gandhi and Sonia Gandhi.
But how can one say Nehru, who introduced India to the perils of centralised planning and a Soviet-style, state-led growth model, be absolved of the blame? Especially when growth in the first 30 years was 3.5 percent, against 6.5 percent in the next 30? In the first period, poverty never came down. In the latter period, poverty rates started plummeting dramatically.
Varshney does not dispute the facts, but only their interpretation, in explaining the choices made by Nehru. Acharya, looking back from the current growth deceleration, traces today's problems to the path chosen by Indira Gandhi - and no further.
Varshney, professor at Brown University, and Acharya, a former Chief Economic Adviser to the government of India, come to their conclusions through slightly different routes.
Varshney essentially says that Nehru's choice of central planning and state-led growth was dictated by the economic models that looked best at that time. While the Great Depression had dented the developed nations' confidence in the markets, the Soviet Union managed to industrialise itself in less than two decades with centralised planning.
He writes: "The UK had taken over a century to industrialise, the US nearly a half-century, but the Soviet Union, primarily agrarian at the time of the 1917 revolution, had become an industrialised nation by the late 1930s. Problems of planning might have become all too obvious by the 1970s and the Soviet Union also collapsed in 1990, but by the 1940s, central planning had created an industrial miracle."
He concludes thus that the problem was not Nehru's choice, but the failure of an entire generation of economists all over the world who felt that the Soviet model was a better option for countries that wanted rapid industrialisation and development.
But why didn't Nehru change his priorities when the first decade of independence failed to deliver on the economic front? Varshney says this is the wrong question to ask. The right one is to ask is why Indira Gandhi did not reverse this folly and instead compounded it. "She made the government bigger, not smaller, even as the failings of planning were becoming obvious to scholars and economic bureaucrats. Markets were not deemed relevant to mass welfare...Indira Gandhi, not Nehru, is the architect of India's delayed attack on poverty. Under her leadership, India lost 10-15 years of economic progress."
We should now add Sonia Gandhi's tenure to Indira Gandhi's failures and fret about what further damage lies ahead.
Shankar Acharya takes us on that path. He traces three politically-influenced initiatives of the Indira Gandhi era for the country's problems: bank nationalisation in the late sixties, reservation for the small sector in the seventies and eighties, and the tightening of labour laws which made it impossible to lay off labour and forced industry to use more capital in manufacturing.
Indira Gandhi made jobless industrialistion a reality - and Sonia Gandhi may be compounding it.
Acharya believes that the blunders of the Indira Gandhi era are still blighting the Indian economy now. "Our economic ideas, policy choices and consequences from 40 years ago continue to constrain and influence our policies and performance today...Indira Gandhi's economic policies (1966-1984, with a three-year Janata interregnum) still exert powerful, usually negative, effects on current economic performance and policies."
The big-bang reforms of 1991 should have changed all that, but Acharya argues that the ongoing nine years of the Manmohan Singh-Sonia Gandhi UPA regime will leave its own "enduring" imprint for the future.
He says, first, that the "massive increase in subsidies, government wage-bill and entitlement programmes that occurred in 2008-09 converted a decent fiscal situation into a structural fiscal problem....The costs in terms of higher inflation, higher interest rates, lower investment and growth and larger external deficits are likely to continue a good deal longer."
Apart from the failures of governance due to the Singh-Sonia "diarchic rule" which led to many scams, Acharya says the duo managed to damage many sectors and "greatly heightened dependence on imported energy and raw materials". The net result is that they have increased "India's vulnerability and reduced her economic security in ways that will challenge policy makers in the years ahead."
His glum conclusion: "The latter years of Gandhi-Singh rule may have inflicted lasting damage to India's investment-growth potential for the foreseeable future."
In short: Nehru may have taken the wrong path because he didn't see any other, but Indira Gandhi and her daughter-in-law deliberately walked the wrong path and set us on the path to economic crises.