Stop blaming Nehru: Real question is why India didn't change course after him

While his policies were flawed, successors deepened socialist model and failed to reform; India's delayed catch-up a collective failure

More than 60 years after his death, Nehru is still being blamed for many of India’s problems and ills. In his latest book, The Nehru-Era Economic History and Thought & Their Lasting Impact, Arvind Panagariya rehearses all of Jawaharlal Nehru’s economic mistakes, but then goes on to show that they had a lasting impact that was hard for those who came after him to reverse. While it is true that Nehru, as the country’s first Prime Minister, made many mistakes in his economic policies, the Nehru-bashing has gone too far. 

First, by the time Nehru left power in 1964, India’s economic performance was not so far behind that of its Asian neighbours. The country’s per capita income was just a bit lower than Thailand’s and better than China’s or even Korea’s (see chart). Its income per capita fell far behind these countries much later, when they changed course in the 1970s and 1980s, while India plodded along.   

Second, Nehru’s policies were not that unique. The state-led import substitution model, which he favoured, was followed in many parts of the developing world after decolonisation and the end of World War II. From Latin America through much of Africa, and in China and East Asia, that model was quite popular. What was perhaps unique in India was the licence raj, where the private sector was given production quotas, and the Industrial Disputes Act of 1947, which made it very difficult to lay off workers in firms larger than 100 workers. Dr Panagariya appears to give the impression that Nehru developed socialist ideas on his own, whereas the reality is that those ideas were the flavour of the day. 

In fact, even the Bombay Plan, prepared by a bunch of capitalists led by Birla and Tata in 1944 looked very similar to the socialist Second Five-Year Plan brought in by Nehru and Mahalanobis in 1956. Dr Panagariya explains this awkward evidence by arguing that these industrialists already knew Nehru’s mind and, therefore, prepared a plan that mirrored Nehru’s thinking. He fails to explain why such powerful industrialists who had Gandhiji’s ear would be so scared of Nehru in 1944. As I have argued in a chapter in a book on the Bombay Plan edited by Meghnad Desai and Sanjaya Baru, India’s industrialists did not follow the path of Japanese and Korean industry, which sought government support to industrialise. Instead, they prepared a plan that handed over all key sectors and heavy industry to the state, leaving only consumer goods to the private sector. 

Third, countries in East Asia — such as Taiwan, Korea, Singapore, and Hong Kong — followed Japan in shifting to export-led growth in the 1970s, and China under Deng Xiaoping did the same in the 1980s with spectacular success. India did not change course until the economic crisis of 1991, and even then did so only partially, continuing to maintain a large and expanding public sector. In fact, Nehru’s successors pushed his failed model even further. Indira Gandhi nationalised the entire banking system, something Nehru never even imagined. India had five public sector units (PSUs) in 1951, and around 80 by 1965 — the year after Nehru passed away. By 1991, when the first wave of economic reforms began, the number had risen to 246, and by 2014–15 it had reached nearly 298. Surprisingly, the Modi government has increased the number even further to a whopping 365, doubled the Maharatnas (giant PSUs) from 7 to 14, and reintroduced import protection since 2018.   

Dr Panagariya’s explanation for the persistence of the  Nehru model is that it created an entire cadre of politicians, civil servants, policy analysts and even businessmen that were wedded to the socialist model and resisted any attempts to change. The problem with Dr Panagariya’s book is that it is devoid of any comparative analysis. Why was Deng Xiaoping able to change Mao’s policies so dramatically after 1979, even while working with the same Communist Party that had previously owed complete allegiance to Mao, whereas Nehru’s successors found it so difficult to change course? He provides no convincing explanation for this.  He praises Narasimha Rao for the partial change in course in 1991, crediting him with having read about Deng Xiaoping’s reforms, and forgets that even in 1990, India’s income per capita was higher than China’s. China’s explosive double-digit growth came later. In fact, Rao said so explicitly in an interview with Shekhar Gupta — that he was not inspired by Deng’s reforms.   

 

I am, of course, heartened by the labour reforms notified by the Narendra Modi government last month, which were passed by Parliament five years ago. Based on that five-year-old legislation, 19 states had already implemented labour-market flexibility  — raising the threshold from 100 to 300 workers for government permission to lay off — along with many other elements of the codes. So the additional benefit of last month’s notification may not be huge, but it is welcome nonetheless. What India now needs is more aggressive and transparent privatisation to unlock the huge capital locked in PSUs, which could be used to build more public infrastructure and reduce public debt. With the economy doing well despite Donald Trump’s tariffs and inflation staying low, that is where I hope the next Budget will focus. 

My point in writing this column is not to defend the Nehruvian economic model. I studied economics under the redoubtable Raj Krishna, who was a staunch critic of that model. He famously coined the phrase the “Hindu rate of growth” for India’s niggardly economic performance from 1950 to 1980, and was a severe critic of the licence raj. My point is that we have had 60 years to fix whatever Nehru left us, and if his successors have not done so, let’s not keep blaming Nehru for it. And while his economic policies were in hindsight flawed, we must not forget that he sacrificed a lot for India’s independence, including nine years in jail, and left us a vibrant democracy that has endured despite many challenges. 

The author is a distinguished visiting scholar at the Institute for International Economic Policy, George Washington University. His book Unshackling India (HarperCollins India) was declared the best new book in economics by the Financial Times in 2022