Post-Independence Indian Economy: Follies Of Nehruvian Socialism Enmeshed In A Mixed Economy

Posted on August 5, 2012 in Business and Economy, Politics

By Pradyut Hande:

In the bustling 21st century global economy that remains in the throes of perennial flux, India has traversed a tortuous path of socio-economic progression through the ages. Despite the economic slowdown and consequent market volatility, India is today one of the fastest growing economies in the world; well on its way to realizing its potential as a rapidly emerging socio-economic leviathan. It suffices to say, this can be facilitated predominantly through proactive and progressive governance and wide sweeping reformatory changes that relegate “policy paralysis” to the backburner. Granted the fact that despite the tumults of the day, India’s future appears bright; it is important to take cognizance of our past that eventually led us to embark on our current socio-economic developmental trajectory. Why is it that India presently languishes behind its fellow Asian powerhouse, China? Why have we always been looked upon as a state that is “on its way to realizing its potential”? What has hindered our economic progression over the years? Let me elucidate a critical collective factor that I believe is responsible for our predicament today…that has cost us almost two decades in our cycle of economic progression.

1947; after centuries of external subjugation, India was finally free of foreign rule. The air was abuzz with ecstasy, excitement and anticipation as our time had eventually arrived: India’s tryst with destiny. A charismatic, Jawaharlal Nehru was sworn in as independent India’s first Prime Minister. The task before our leaders to galvanize a fragmented and pulverized economy into some sort of action was daunting and required a demonstration of great courage, initiative and character. Given the prevalent global scenario and his ideological leanings, Nehru and his trusted coterie chose to embrace a “Mixed Economy” under the ambit of Planned Development to alleviate the masses from the depressing quagmire of poverty, unemployment and general backwardness. Nehru had committed the nation to “the establishment of a socialist pattern of society where the principal means of production are under social ownership or control”. Enamoured by the economic growth of the erstwhile USSR, Nehru’s socialistic blueprint turned out to be a juxtaposed amalgamation of Keynesian macroeconomics, Stalinist public investment policies and Gandhian rural development measures. On prima facie evidence, it appeared to be an idyllic ideology lined with potential, provided the government was able to establish a sound and flexible framework to facilitate its implementation.

However, with the advent of time, it became increasingly clear that Nehruvian socialism was not the palliative to the country’s woes. However, well intentioned he may have been, his flawed ideology coupled with even poorer management had set India on a disastrous course. In a bid to integrate his ideology into a democratic mainframe, set in a pluralistic society, the hope was that the “mixed economy” would conflate the benefits of socialism and capitalism; propelled by the state’s leading role in industrialization. However, all it did was spawn the birth of an increasingly interventionist state with heavily leaning towards the establishment of a largely ineffective and grossly underperforming public sector, steeped in Kafkaesque bureaucratic controls that further stymied growth. The powerful albeit monopolistic public sector failed to function anywhere near optimal levels in the absence of autonomy and soon became a huge drain on monetary and non-monetary resources. The state run bureaucracy continued to grow stronger and more rigid as potentially “game changing” reforms met with depressingly premature deaths. The excessive controls that were instituted to facilitate the proliferation of capitalistic tenets across a stagnant economy soon undermined its very purpose and suppressed innovation of any kind, further diminishing economic returns.

The private sector was shunned and riddled with regulations and abominably excessive taxation which killed the faintest spark of entrepreneurship and innovation. Furthermore, our ills were compounded by the fact that we chose to adopt a deeply internalized, import substituting strategy instead of following an export promoting approach with the objective to align the Indian economy with that of the world. Foreign investment was frowned upon and further alienated us at a time when we desperately required our integration into the global economic fabric. The fact that we had just tasted independence after years of foreign rule may explain our distrust of foreign involvement and association. Our faith in the state, although admirable, was grossly misplaced as we continued to pay heavily for our leaders’ impaired vision and floundering mismanagement. As it transpired, Nehruvian socialism that promised so much on paper failed on more counts than one, in both ideology and practice. The dreams of millions that hinged upon its success were shattered in the wake of our poor socio-economic progress for over four decades after independence.

The idealistic “mixed economy” approach was novel in its character. One can understand why it held immense appeal at that time for our leaders and policy formulators. However, its efficacy was questionable at best. Unfortunately enough for us, despite taking cognizance of its failings, we continued to regard the “system” as sacrosanct and sunk deeper into the abyss of low productivity and non-performance while our Asian neighbours embarked on a bold new reformatory trajectory. It took us until 1991 to act on our follies and embrace a majorly liberalized outlook that paved the path towards unprecedented economic growth in the years to follow.

We can lament the limitations and misadventures of our past policy makers and their myopic policies, but these are events that set us on the path that we tread on today. Having learnt from our failings, we ought to now channelize our efforts and resources to further our reformatory agenda down various avenues in our quest to push for greater socio-economic growth in the years to come.

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