Ambedkar's diagnosis, Nehru's treatment

Nehru's fascination with western economic ideas has cost us a lot

Last month I had written of an Indian economist who, exactly 99 years ago, wrote of the problem of unemployment, under-employment and low productivity in the Indian economy. He was called Bhimrao Ambedkar. He became Dr Ambedkar only after he got his doctorate nine years later, upon which he gave up economics. 

Now, almost a century later, India still has exactly the same problems. And when you peel the onion to its core, the reason is — dare I say it — Nehru’s fascination with western economic ideas. That fascination has cost us a lot.

What’s worse, we are not going to solve Ambedkar’s unemployment, under-employment and low-productivity problem because it has now become impossible to provide “employment” of the sort that guarantees a smoothened monthly income flow, over 35 years, for 700 million people. It just cannot be done.

So we should stop saying yes, we can, and instead, focus on what can be done. And what can be done is not more cousins of MGNREGA, which may be politically necessary, as Prime Minister Narendra Modi told Parliament in 2014, or because they bring salve to the conscience of Sonia Gandhi and Jean Drèze. We need to focus, as Ambedkar said, on investments in agriculture.

As Ambedkar pointed out in 1918, employment isn’t only a problem of income; it is also largely one of productivity. If you don’t solve the productivity problem, all you get is government service and MGNREGA — which, some would say, are one and the same thing.

The harm that Nehru did

It is astonishing that Ambedkar’s 1918 paper was completely ignored by Nehru’s brigade of economists even though it focused on productive employment for the millions of under-employed people in agriculture.

Nehruvian policies, albeit with the best of intentions, took their cue from a host of western economists like Paul Rosenstein-Rodan on the one hand, and Soviet-style planning on the other. Rosenstein-Rodan formulated the Big Push theory and Stalin decided to finance industrialisation by expropriating agriculture. 

That said, Nehru and Co did try, somewhat half-heartedly, to do what Ambedkar had suggested, namely, to shift the surplus labour of agriculture to manufacturing by channelling the lion’s share of national investment into industry. 

But they got the sectoral allocation completely wrong. Ambedkar had wanted industrial investment to come from the private sector and the bulk of state investment to be in agriculture. Nehru ignored this sage advice after the first five-year plan which was hardly a plan, that is, in 1957. 

The consequences of those skewed investment priorities are still haunting Indian agriculture, which now hosts, in one way or another, almost 800 million people who have neither employment nor productivity. They truly are what Frantz Fanon described as “the wretched of the earth”. 

Ambedkar had pointed to another aspect that Nehru neglected: Small farms were not responsible for the low productivity of labour, the de-industrialisation of India was.

The 1950s saw India’s intellectual framework being captured by economists subscribing to Simon Kuznets’ view of economic transition and changes in the occupation structure and the Feldman-Mahalanobis view of savings and investment. This latter held that higher consumption is only possible if a country first invests in capacity to build capital goods. 

Gary Feldman was a Soviet economist, who had written his paper in 1928 — exactly 10 years after Ambedkar. He had never heard of comparative advantage. The Mahalanobis model, likewise, also assumed zero trade.  

There were a lot of objections to the Feldman-Mahalanobis vision. The Economic Weekly of the 1950s is full of them. All were ignored. 

As things have turned out, India has proved Kuznets wrong, though not by design: Its occupation structure now resembles that of developed economy because there is no manufacturing sector worth the name. But there is a major difference: Low productivity and underemployment have now been transferred from agriculture to services.

Nehru’s attitude to warnings on the economic side by a galaxy of eminently sensible people is very similar to Narendra Modi’s attitude to warnings on the saffronisation of politics and society — bash on regardless. 

The birds will come home to roost long after he has demitted office.

(This is the fourth of a six-part series)