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We live in an era where Jawaharlal Nehru can be blamed for anything – from the current turmoil in Bangladesh to the local sewage pipe burst near one’s house.
So it is refreshing to come across a book that seriously engages with Nehru’s ideas.
Albeit largely critical, Arvind Panagariya, Columbia University Professor and currently the Chairman of the 16th Finance Commission – in his book The Nehru Development Model – History and its Lasting Impact, does precisely that.
As the title suggests Panagariya is more interested in understanding the “lasting impact” of Nehru’s economic ideas as he’s convinced that even after more than three decades of economic reforms, we’re still suffering from a Nehruvian hangover.
Though Panagariya has great regard for Nehru’s contribution on the political side, he’s convinced that his economic model was nothing short of a disaster.
The book starts out with Nehru’s early thinking on economic issues and how he became a Fabian socialist and how his economic ideas shaped up during the 1920s and ’30s.
The control system
The meatiest part of the book is in the second section where Panagariya gets into the nuts and bolts of Nehru’s economic policies post independence.
Contrary to popular perceptions Nehru had a liberal view on imports and foreign investment at least till the Sterling balance ran out in the late 1950s.
Panagariya goes into great detail of the Industrial Policy Resolution of 1948, and how its reasonably liberal slant morphed into the Industrial Policy Resolution of 1956, which set in stone the heavy-industry, public sector-led, “Commanding heights” model that continued, in one form or the other till 1991.
Panagariya describes how in the mid-1950s there was near unanimity of the heavy-industry led model.
When the government invited policy papers from the country’s 20 leading economists on the Second Five-Year Plan, 19 of them were in favour of its heavy industry slant with only one dissenting note.
That note was written by BR Shenoy, a well-known liberal economist, but even his dissent focussed more on the funding of the huge Second five Year Plan and its inflationary dangers.
Though PR Brahmananda and CH Vakil favoured a more farm-oriented “wage goods” model – that is instead of making machines, focus on goods consumed by the common folk – but they did not write a formal dissent note.
The only criticism came from Milton Friedman, who spent a few months in India in 1955 but it was largely ignored.
Panagariya describes in detail how the Nehru government in the 1950s set about creating the vast and labyrinthine network of controls to put in place the heavy-industry, import-substitution regime.
This section will be of great interest to researchers on post-independence economic history.
But Panagariya is more interested in analysing the longevity of the Nehruvian command-control model.
After Nehru’s death Lal Bahadur Shastri tweaked the policies – giving more accent to agriculture given the severe droughts of that time – and clipped the wings of the Planning Commission and gave more control to line Ministries in economic policy making. But it was still more of the same.
Under Indira Gandhi’s regime – given how badly singed she was by the political fallout of the 1966 devaluation – the economic system became more “dirigiste” with nationalisation becoming a kind of a mantra, starting with banks and then insurance, coal, steel and other sectors.
Panagariya says the brief Janata government too did not try to change course given the fact that most of the leaders were wedded to the Nehruvian ideology, many including then PM Morarji Desai having served in his Cabinet.
After Indira Gandhi came back to power, Panagariya says that there was some easing of export policies, but the basic PSU-led model went unchallenged.
Winds of change
It was under the Rajiv Gandhi regime that India made its first concerted move away from Nehruvian socialism.
This, Panagariya argues, is because Rajiv Gandhi was unburdened by his grandfather’s socialist baggage. But Rajiv, bogged down by political headwinds, didn’t quite have the savvy to carry forward a reforms agenda, says Panagariya.
Under VP Singh’s short-lived government his Industrial Policy Statement took a huge step towards the dismantling of the licence regime and according to Panagariya proved a crucial link to the 1991 industry reforms.
PV Narasimha Rao quite naturally occupies a big part in Panagariya’s narrative as he digs deep into how Rao became such an ardent reformer.
Panagariya’s argument is that it was not the 1991 BoP crisis that suddenly made Rao a radical reformer, and traces his change in outlook from 1980 onwards.
He uses a variety of material to prove his point including a TV interview with a well known journalist.
The Vajpayee regime carried forward the reform agenda despite being an initial critic.
But Panagariya is too dismissive of reforms record of the UPA regime and a little too glowing of the Modi government’s record.
The UPA regime did push ahead with many entitlements-based programmes and two among them – the Right to Food and Right to Education – come in for criticism by Panagariya.
Surprisingly, he makes no mention of the UPA flagship rural jobs scheme MGNREGA.
PM Narendra Modi has been every bit as cautious on reforms and even rolled back a couple of important initiatives in the face of severe political backlash – farm laws and land acquisition Bill.
Even the Gujarat model, that created such a buzz during the 2014 elections vanished from the political discourse by 2019 and by 2024 it was all about Modi Ki Guarantee, where Modi was keen on showcasing his welfarist agenda than his reformist credentials.
Panagariya curiously ignores all these important facts.
There are also a couple of chapters on the business community and economists views on the economic agenda,.
Panagariya argues that academic economists have largely been glued to the Nehruvian socialist mould and ironically it was economists working within the government who advocated the reforms agenda and the dismantling of controls.
But despite the quibbles, this rigorously researched book is a useful addition to the literature on Indian economy.
The book is written in a lucid style that is accessible to the lay readers.
The appendix section contains the original documents of the industrial policy statements of the 1945, 1948, 1949 and 1956 and is a treasure trove for researchers.
As one academic mentions on the book cover, even fans of Nehru will learn much from reading it.
You can find the book here
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