India's roller-coaster ride to growth

India’s Economy from Nehru to Modi: A brief history 

Author: Pulapre Balakrishnan 

Publisher: Permanent Black 

Pages: xii+260 

Price: Rs 895

The first and the current prime ministers of India are presumed to be placed as antagonists in the current debate about India’s economy in the 75 years of its independent existence, no prizes offered for guessing which side is winning. This is an indication of the intellectual polarisation, reflecting that of the overall society. But it does not facilitate an objective analysis of our recent economic history.  Pulapre Balakrishnan’s extremely well-written and equally well-argued book is a welcome contribution to the debate for its comprehensive and balanced perspective.

The author divides the seven-and-half decades into four periods: 1950-64, 1964-91, 1991-2014 and 2014 onwards.  He believes, rightly so in this reviewer’s opinion, that each period marked a policy continuum and a break occurred at its end. The dominant influences in the periods were Nehru, his socialist beliefs and introduction of planning; Indira Gandhi and her authoritarian policies leading to severe restrictions on the economy; the reformist regimes of Narasimha Rao, Atal Bihari Vajpayee, Manmohan Singh/Sonia Gandhi; and the current Narendra Modi dispensation with its own version of reforms, respectively.

Professor Balakrishnan dwells on key events and indicators rather than drawing up an extensive listing of milestones and data. This keeps clutter away from arguments, making them sharper and clearer. He says Nehru’s socialism was not doctrinaire, and his fascination with the Soviet model of economic planning was then shared by a multitude of thinkers worldwide. He also finds that the then industrial elite, as represented in the 1945 Bombay Plan, was not averse to state intervention in the economy; it had, in fact, welcomed large-scale state investment in industrial and infrastructure projects, the key thrust areas of our early five-year plans.

He juxtaposes the Nehru regime’s record of growth against that of the last phase of colonial India (the first half of the 20th century and other countries at similar stages of development: China and South Korea between 1950 and 1964 and the United States, the United Kingdom and Japan between 1820 and 1992.  India at 4.1 per cent a year was second only to South Korea at 6.1 per cent. This point either escapes or is ignored by many critics of Nehru. But the book also sharply criticises Nehru for the momentous neglect of education (and by implication, health) that still haunts the Indian economy.

India’s economic cycle showed a slowing down after 1964, which lasted well into the 1980s, the era of Indira Gandhi’s authoritarian rule. Not much explanation is needed here.  The shackles began to be broken soon after her return to power. This accelerated in the Rajiv Gandhi government but not substantially so.

The balance of payments crisis may have been the trigger that led to the liberalisation after the International Monetary Fund/World Bank bailout, but pressures for it were already building up. The book does not recount all the changes in this period, but categorises them into three main areas: Reduction of tariffs, floating exchange rates and loosening of restrictions. Professor Balakrishnan highlights that even with these, Indian manufacturing did not take off. It continued to account for just about 15 per cent of gross domestic product. He cites poor quality and productivity of labour, inadequate infrastructure and continuing bureaucratic controls, though much reduced.

He also says agriculture retained its great significance in this period, though food shortages were now part of history thanks to the Green Revolution. This reviewer has long argued that as long as the numbers depending on agriculture do not decline in absolute terms, India’s development will be inegalitarian and the gap between agricultural and non-agricultural India will widen.  Farming is the occupation of last resort for those who do not find any other openings. This hidden unemployment continued to be a major handicap for the India of the liberalisation period, the book says. The great post-lockdown march of migrant labourers to their rural roots reminiscent of The Grapes of Wrath, shows how significant it is even today.

The author argues that economic momentum was lost in the Modi government period. This was due to a simultaneous decline in public spending and tightening of interest rates, choking off investment. The government also mistook architecture (say, digitalisation of the economy and demonetisation) for forces (say, invigorating demand) which further acted as brakes on the economy. Its obsession with global rankings and approbation have restrained government spending, affecting education and more importantly, health, as the pandemic crisis vividly showed. To its credit, the country has not faced shortages of foreign currency nor of energy, as many others in the neighbourhood (as also elsewhere in the world) are experiencing at present.  The country also stares at an imminent prospect of the lower middle income trap.

The good professor is no blind acolyte of any doctrine, but he does not hide his sympathies. He quotes on the dedication page Nehru’s Independence Day message in 1947, with obvious admiration, that the goal is “To build up a prosperous, democratic and progressive nation, and to create social, economic and political institutions that will ensure justice and fullness of life to every man and woman.”

That remains valid after three quarters of a century of what the book rightly calls an unfinished journey.