The Indian Economy 1947 - Present Day, 2016 ---------- Part 1

[PARIKRAMA]

The Indian Economy 1947 - Present Day, 2016 ---------- Part 1


Few words...

This is a multi part series.

The idea is to break each and every individual era under different Prime Ministers of India who along with Finance Minister and Cabinet have shaped whole economy of this country.

This series is inspired from the works of @WAJsal who have presented a magnificent write up about the history of Pakistan. Essentially, i was inspired to document the economic history of our country and the kind of challenges to issues in hand.

I hope i can do justice to this topic. This series has rich dose of political stuff also intermixed with the basic economic stuff.

In case of errors, please feel free to correct me.. and guide me to including correct perspective things ... also if i offend any one, pls forgive me...

Lets Start
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The Historic Start - "A Tryst with Destiny"

Jawaharlal Nehru gives his "tryst with destiny" speech at Parliament House in New Delhi in 1947 Photograph: STR/AFP/Getty Images

On 14th August, 1947 India's assembly convened on the afternoon and continued the session until Jawaharlal Nehru started delivering a speech shortly before midnight. At midnight and exactly at 00:00 hours to the chiming of an English clock and the blowing of Indian conch shells, Independent India was born

Dressed in a golden silk jacket with a red rose in the buttonhole, Jawaharlal Nehru rose to speak to all the people in the assembly.

" Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially.

At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance.

It is fitting that at this solemn moment we take the pledge of dedication to the service of India and her people and to the still larger cause of humanity.

At the dawn of history India started on her unending quest, and trackless centuries are filled with her striving and the grandeur of her success and her failures. Through good and ill fortune alike she has never lost sight of that quest or forgotten the ideals which gave her strength. We end today a period of ill fortune and India discovers herself again.

The achievement we celebrate today is but a step, an opening of opportunity, to the greater triumphs and achievements that await us. Are we brave enough and wise enough to grasp this opportunity and accept the challenge of the future?

Freedom and power bring responsibility. The responsibility rests upon this assembly, a sovereign body representing the sovereign people of India. Before the birth of freedom we have endured all the pains of labour and our hearts are heavy with the memory of this sorrow. Some of those pains continue even now. Nevertheless, the past is over and it is the future that beckons to us now.

That future is not one of ease or resting but of incessant striving so that we may fulfil the pledges we have so often taken and the one we shall take today. The service of India means the service of the millions who suffer. It means the ending of poverty and ignorance and disease and inequality of opportunity.

The ambition of the greatest man of our generation has been to wipe every tear from every eye. That may be beyond us, but as long as there are tears and suffering, so long our work will not be over.

And so we have to labour and to work, and work hard, to give reality to our dreams. Those dreams are for India, but they are also for the world, for all the nations and peoples are too closely knit together today for anyone of them to imagine that it can live apart.

Peace has been said to be indivisible; so is freedom, so is prosperity now, and so also is disaster in this one world that can no longer be split into isolated fragments.

To the people of India, whose representatives we are, we make an appeal to join us with faith and confidence in this great adventure. This is no time for petty and destructive criticism, no time for ill will or blaming others. We have to build the noble mansion of free India where all her children may dwell.

The appointed day has come - the day appointed by destiny - and India stands forth again, after long slumber and struggle, awake, vital, free and independent. The past clings on to us still in some measure and we have to do much before we redeem the pledges we have so often taken. Yet the turning point is past, and history begins anew for us, the history which we shall live and act and others will write about.

It is a fateful moment for us in India, for all Asia and for the world. A new star rises, the star of freedom in the east, a new hope comes into being, a vision long cherished materialises. May the star never set and that hope never be betrayed!

We rejoice in that freedom, even though clouds surround us, and many of our people are sorrow-stricken and difficult problems encompass us. But freedom brings responsibilities and burdens and we have to face them in the spirit of a free and disciplined people.

On this day our first thoughts go to the architect of this freedom, the father of our nation, who, embodying the old spirit of India, held aloft the torch of freedom and lighted up the darkness that surrounded us.

We have often been unworthy followers of his and have strayed from his message, but not only we but succeeding generations will remember this message and bear the imprint in their hearts of this great son of India, magnificent in his faith and strength and courage and humility. We shall never allow that torch of freedom to be blown out, however high the wind or stormy the tempest.

Our next thoughts must be of the unknown volunteers and soldiers of freedom who, without praise or reward, have served India even unto death.

We think also of our brothers and sisters who have been cut off from us by political boundaries and who unhappily cannot share at present in the freedom that has come. They are of us and will remain of us whatever may happen, and we shall be sharers in their good and ill fortune alike.

The future beckons to us. Whither do we go and what shall be our endeavour? To bring freedom and opportunity to the common man, to the peasants and workers of India; to fight and end poverty and ignorance and disease; to build up a prosperous, democratic and progressive nation, and to create social, economic and political institutions which will ensure justice and fullness of life to every man and woman.

We have hard work ahead. There is no resting for any one of us till we redeem our pledge in full, till we make all the people of India what destiny intended them to be.

We are citizens of a great country, on the verge of bold advance, and we have to live up to that high standard. All of us, to whatever religion we may belong, are equally the children of India with equal rights, privileges and obligations. We cannot encourage communalism or narrow-mindedness, for no nation can be great whose people are narrow in thought or in action.

To the nations and peoples of the world we send greetings and pledge ourselves to cooperate with them in furthering peace, freedom and democracy.

And to India, our much-loved motherland, the ancient, the eternal and the ever-new, we pay our reverent homage and we bind ourselves afresh to her service. Jai Hind [Victory to India]."

What Jawaharlal Nehru meant and referred in his speech has been interpreted in many ways. Ian jack from Guardian interpreted few words like this below

• When Jawaharlal Nehru says the pledge for freedom will be redeemed "not wholly or in full measure" he is referring to partition.
• When he refers to "the greatest man of our generation", "the architect of this freedom, the father of our nation" he was referring to Mahatma Gandhi.
• When he mentions the "pains continue even now" he has in mind the slaughter between Hindus and Muslims that began the previous year and which was becoming crueller and bloodier.

As Nehru spoke he was aware that Sir Cyril Radcliffe had delivered the report that would define the new boundaries of India and Pakistan and split the Sikh Punjab into two. Mountbatten insisted it was kept quiet until after August 15.

Mahatma Gandhi was not in the assembly chamber to hear Nehru's speech but instead was in Calcutta. He was focusing his energy to quell Muslim-Hindu riots. He and Nehru had, at least politically shared, a father-son relationship but their mutual feelings had cooled down over time.

Gandhi had opposed partition and instead suggested that a Muslim be made President of an undivided India. He had held numerous discussions and gave views on this topic.

At a prayer meeting at New Delhi he said on 7-4-1947 :
"Are the Muslims fighting for Pakistan? They say that they would have Pakistan at any cost. Would they have it by compelling us to give it? Would they take it by force? By force they cannot have an inch of land. By persuasion they may have the whole of India. I would welcome if Jinnah Saheb became the first President of
India and formed his own cabinet. But, there would be one condition, namely that with God as witness he should regard Hindus, Muslims, Parsees and all others as equal." (87:244)

At the prayer meeting in New Delhi on 7-6-1947 he said:
"I am being told that while I kept on opposing (the idea of Pakistan) till the Viceroy's declaration and saying that we would not agree to anything under coercion, now that I have become silent, I am being rightly told so. I must confess that I am not happy about this decision. But many things happen in the world that are not to our liking, and yet we have to put up with them. We have to put up with this thing in the same manner ... I also think that the A.I.C.C. is fully entitled not to accept the proposal. But we should not suddenly oppose the Congress to which we have been loyal all this time and which has earned reputation in the world and has done so much work." (88:97)

"Now it becomes the duty of the Congress to give up what has been granted as Pakistan and make its best efforts in the portion that remains with it. Let the people in Pakistan go ahead in their efforts to bring progress to their land. If this happens the two can live in amity and happiness." (88:99)

He expressed his views in discussion with visitors on 17-7-1947 at New Delhi.
"The British have not partitioned the country. It has been done with the consent of the Muslim League and the Congress. . . The leaders had no other alternative. They thought it was better to partition the country so that both the parts could live happily and peacefully rather than let the country go to pieces. About this I
did hold a different view. My view was that no one could take an inch of land by resorting to violence and murder. Let the whole country be reduced to ashes. . . But though nonviolence is a creed with me, it is not with the Congress. . . It is true that I had believed that our Satyagraha struggles were based on non-violence, only lately I realized that it was not true. I admit my mistake." (88:356)


Nehru, on the other hand frustrated by Gandhi's incessant moralizing, thought that he was out of touch with pressing reality. Even so, he made his most heartfelt speech when Gandhi was assassinated five months later on January 30, 1948.

Given the horrendous surrounding events, it would be easy to see Nehru's rhetoric as that of a desperate man whistling in the dark. But it wasn't seen that way at all during that time.

The speech he gave in assembly reminded the country about the probable tasks ahead like

• ending of poverty and ignorance
• ending of disease
• ending inequality of opportunity.

These were the basic foundations on which India embarked upon its path of development since gaining
independence in 1947.

The purpose of this introduction mixed with historical perspective is to set the setting for what India has achieved in all these years in fulfilling the aspirations on which it was founded. Multiple prime ministers followed their own ideologies and their own thinking. Going forward i will summarise the first important part of this series, the time under Jawaharlal Nehru, the first prime minister of India.

Source for this post:

• Jawaharlal Nehru: A Tryst with Destiny | From the Guardian | The Guardian
• Tryst with Destiny - Wikipedia, the free encyclopedia
• Introduction to Jawaharlal Nehru's 'A tryst with dignity' speech | World news | The Guardian
• Gandhiji on PARTITION, Selected and Compiled with an Introduction by Bharati Mazmudar, MANI BHAVAN GANDHI SANGRAHALAYA MUMBAI

 

[PARIKRAMA]

Economic development under first Prime Minister of India - Jawaharlal Nehru -1947-1964

This era is also referred as the "Nehru era". The major pointers in this timeline includes

• The establishment of Planning Commission of India on 15th March 1950
• The start of Five Year Plans from 1951 onwards
• First Five Year Plan 1951-56
• Second Five Year Plan - 1956-61
• Third Five Year Plan- 1961-66 (Nehru died on May 27,1964)

The major objectives of India's development strategy was aimed at

• Establishing a socialistic pattern of society through economic growth
• Focus on self-reliance
• Establishment of social justice and
• Alleviation of poverty.

These objectives were to be achieved within a democratic political framework using the mechanism of a mixed economy where both public and private sectors co-exist.


The timeline from 1947-1956
This era was the time when Sardar Vallabhbhai Patel had passed away and Rajendra Prasad became President. Jawaharlal Nehru used this time to flex his muscles due to lack of any firm opposition or challenger in Congress. One of his first steps was to set up the Planning Commission on the lines of the Gosplan of the Soviet Union. He would also imitate the Soviet Union by drawing up Five Year Plans. At the time of drafting the first Five Year Plan, Nehru was ambivalent and talked of a mixed economy that would accommodate the private sector.

Some of the key steps taken were

• Nehru amended the Indian Constitution to dilute the property rights of citizens and allow for the nationalisation of any industry.
• New laws in land reforms imposed limits on the amount of land one could own and gave the government sweeping powers to acquire private, industrial, and agricultural land.
• Industrial Policy Resolution of 1948 made it seem that India would have a mixed economy but this era slowly showed a more of socialist society
• The government would exercise exclusive control over various sectors.

During all this underlying timeline, India initiated planning for national economic development with the establishment of the Planning Commission. The First Five-Year Plan was one of the most important because it had a great role in the launching of Indian development after the Independence. The aim of the First Five Year Plan (1951-56) was to raise domestic savings for growth and to help the economy resurrect itself from colonial rule.Thus, it strongly supported agriculture production and it also launched the industrialization of the country. It built a particular system of mixed economy, with a great role for the public sector, as well as a growing private sector.

The first Indian Prime Minister, Jawaharlal Nehru presented the First Five-Year Plan to the Parliament of India and needed urgent attention. The First Five-year Plan was launched in 1951 which mainly focused in development of the primary sector.

The total planned budget of Rs.2069 crore(2378 crore later) was allocated to seven broad areas:

1. Irrigation and energy (27.2%),
2. Agriculture and community development (17.4%),
3. Transport and communications (24%),
4. Industry (8.4%),
5. Social services (16.64%),
6. Land rehabilitation (4.1%), and
7. for other sectors and services (2.5%).

The most important feature of this phase was active role of state in all economic sectors. Such a role was justified at that time because immediately after independence, India was facing basic problems—deficiency of capital and low capacity to save.

Achievements and success are as under:

• The target growth rate was 2.1% annual gross domestic product (GDP) growth; the achieved growth rate was 3.6% the net domestic product went up by 15%.
• The monsoon was good and there were relatively high crop yields, boosting exchange reserves and the per capita income, which increased by 8%.
• National income increased more than the per capita income due to rapid population growth.
• Many irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud Dam.
• The World Health Organization (WHO), with the Indian government, addressed children's health and reduced infant mortality, indirectly contributing to population growth.
• At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as major technical institutions.
• The University Grants Commission (UGC) was set up to take care of funding and take measures to strengthen the higher education in the country.
• Contracts were signed to start five steel plants, which came into existence in the middle of the Second

Source:

• Planning Commission, Government of India : Five Year Plans
• Five-Year Plans of India - Wikipedia, the free encyclopedia
• Planning Commission, Government of India : Five Year Plans

The timeline from 1956-61

The real break with the past in planning came with the Second Five Year Plan (Nehru-Mahalanobis Plan). The Second Five Year Plan was based on the Industrial Policy Resolution of 1956 and reasserted the economic goal as the socialist pattern of society.

The Industrialization strategy articulated by Professor Mahalanobis placed emphasis on the development of heavy industries and envisaged a dominant role for the public sector in the economy. The entrepreneurial role of the state was evoked to develop the industrial sector. Commanding heights of the economy were entrusted to the public sector.

The objectives of industrial policy were:

• High growth rate,
• National self-reliance,
• Reduction of foreign dominance,
• Building up of indigenous capacity,
• Encouraging small scale industry,
• Bringing about balanced regional development,
• Prevention of concentration of economic power,
• Reduction of income inequalities and
• Control of economy by the State.

The planners and policy makers suggested the need for using a wide variety of instruments like

• State allocation of investment,
• Licensing and
• Other regulatory controls

to steer Indian industrial development on a closed economy basis.
The economy was now modeled after that of the Soviet Union, and citizens were stripped of the right to indulge in many forms of commercial activities.

The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximise long-run economic growth. The plan assumed a closed economy in which the main trading activity would be centred on importing capital goods.

The total amount allocated under the Second Five-Year Plan in India was Rs.48 billion. This amount was allocated among various sectors:

• Power
• Irrigation,
• Social services,
• Communications
• Transport,
• and miscellaneous.

Major achievements includes

• Hydroelectric power projects
• 5 steel plants at Bhilai, Durgapur, and Rourkela were established with the help of Russia, Britain (the U.K) and Germany respectively.
• Coal production was increased.
• More railway lines were added in the north east.
• The Tata Institute of Fundamental Research was established as a research institute.
• In 1957 a talent search and scholarship program was begun to find talented young students to train for work in nuclear power.
• The target growth rate was 4.5% and the actual growth rate was 4.27%.

In response to the Second Plan, a new organisation named the Forum of Free Enterprise announced itself through the publication of a manifesto in major newspapers. This manifesto pointed out that free enterprise was an essential part of a democratic setup and attributed the development of the steel, sugar, textile, cement, shipping, banking and insurance industries to the qualities of free enterprise. It described free enterprise as the “life breath of a free society” and “a way of life which all who cherish freedom must safeguard.”

Over the next few years, the government took over various sectors of the industry and destroyed others by fixing prices.

The advertisements ran in Newspaper and was used as a propaganda tool to further solidify Nehru's position. Few of the advertisements are as below which showed the industrialization phase

Founded in 1945

Founded in 1954

Founded in 1954, later became present day Steel Authority of India Limited (SAIL)

Sources:

• Planning Commission, Government of India : Five Year Plans
• Five-Year Plans of India - Wikipedia, the free encyclopedia
• Planning Commission, Government of India : Five Year Plans
• Why Jawaharlal Nehru is the root cause of India's economic troubles | Latest News & Updates at Daily News & Analysis
• Economic Ideology of Jawaharlal Nehru by The Economic Weekly, July 1964

 

[PARIKRAMA]

The timeline from 1961-66

The story so far from 1947-1961. Quick point recap

• The government policies of the 1950s and 1960s transformed India into a socialist country
• The focus of the Second Five Year Plan on heavy industries effectively transferred wealth from the agriculture sector to the industrial sector

This period is marred with triple issues effecting our economy

1. Sino-Indian War of 1962
   
2. Passing of Jawharlal Nehru on May 27,1964
3. India-Pakistan war of 1965

The Third Five-year Plan stressed on agriculture and improvement in the production of wheat, but the brief Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the defence industry and the Indian Army. In 1965–1966, India fought a War with Pakistan. There was also a severe drought in 1965

Major challenges and economic progress included

• The war led to inflation and the priority was shifted to price stabilisation.
• The construction of dams continued.
• Many cement and fertilizer plants were also built.
• Punjab began producing an abundance of wheat.
• Many primary schools were started in rural areas.
• In an effort to bring democracy to the grass-root level, Panchayat elections were started and the states were given more development responsibilities.
• State electricity boards and state secondary education boards were formed.
• States were made responsible for secondary and higher education.
• State road transportation corporations were formed and local road building became a state responsibility.

In terms of GDP growth rate, this period was a terrible phase. The target growth rate was 5.6%, but the actual growth rate was 2.4%.

The consequences did not stop there only. Some of the after effects included

• Government was forced to declare "plan holidays" (from 1966–67, 1967–68, and 1968–69).
• Three annual plans were drawn during this intervening period.
• During 1966–67 there was again the problem of drought.
• Equal priority was given to agriculture, its allied activities, and industrial sector.
• The main reasons for plan holidays were the war, lack of resources, and increase in inflation.

Some of the major controversies included policies against Indian Agriculture sector

• The policy of selling imported American food grains at low prices which meant that the governments of India and the United States together subsidized American farmers who competed against Indian farmers.
• As a result, India’s agricultural output suffered.
• Other laws made it difficult for farmers to make a living.
• Transporting food grains between states became a crime and ceilings on the amount of agricultural land one could own led to the fragmentation of land.
• The situation was so bad that India’s production of food grains in 1966 fell to an eight-year low.
• Finally, after the government raised the procurement prices of food grains, India’s production increased.
• The increase was also aided by new hybrid varieties of grains.
• However, the procurement prices were higher than the market prices and this created a new problem.
• Apart from subsidizing the producers, the government pushed up the market prices by removing a significant portion of the food grains from the open market.
• This in turn provided incentives for the government authorized distributors to create artificial shortages and sell the grains in the black market.
• The problem had now shifted from the production of food grains to their distribution.

Other sectors too suffered from the government’s interference in the dynamics of the market.

• The limits on land holdings prevented the home rental industry from taking off.
• The nationalisation of several sectors cut off the income stream of many people as the size of the private sector was reduced.

The Gold Control Measures
Another action of the government was to seize control of gold. When Sino-India war started, Jawaharlal Nehru used it as an excuse to sell gold bonds hoping that people would turn in their gold. When that effort failed, the government passed the Gold Control Act, which made it a crime to possess gold bars and coins.

This abolition of real money combined with the limits on the ownership of real estate forced the people to save in units of government issued currency. This continuously depleted the real value of their savings.


Growing opposition in Nehru's last years
Nehru’s opponent, the Jana Sangh, defended the property rights of farmers and also argued that ceilings on land holdings would cause inefficiencies in farming. Jana Sangh’s arguments on taxation and its objections to the barriers on small businesses won it the reputation of representing the interests of the Banias.

Jana Sangh called for an end to indirect taxation and demanded the replacement of sales tax with excise duty. It urged lower taxes in general. The party’s leader, Deen Dayal Upadhyay, stated in 1961,

"The taxes today have become unbearable because while on the one hand they imbed and discourage investment, on the other, they impinge upon the consumption of the common man. Like a bad businessman, the government is trying to eke out greater amounts per unit rather than increasing profits by greater turn over."

Nehru's health and finally his passing
Nehru's health began declining steadily after 1962, and he spent months recuperating in Kashmir through 1963. Some historians attribute this dramatic decline to his surprise and chagrin over the Sino-Indian War, which he perceived as a betrayal of trust.

Upon his return from Dehradun on 26 May 1964 he was feeling quite comfortable and went to bed at about 23:30 as usual, he had a restful night till about 06:30 soon after he returned from bathroom, Nehru complained of pain in the back. He spoke to the doctors who attended on him for a brief while and almost immediately Nehru collapsed.

He remained unconscious until he died. His death was announced to Lok Sabha at 14:00 local time on 27 May 1964 (same day); cause of death is believed to be heart attack (dissecting aneurysm of the aorta).

Draped in the Indian national Tri-colour flag the body of Jawaharlal Nehru was placed for public viewing. "Raghupati Raghava Rajaram" was chanted as the body was placed on the platform.

On 28 May, Nehru was cremated in accordance with Hindu rites at the Shantivan on the banks of the Yamuna River, witnessed by many hundreds of thousands of mourners who had flocked into the streets of Delhi and the cremation grounds

The newspaper headlines read

The final words on this whole 3 timelines from 1947-66 --An economy quickened

The Nehru-Mahalanobis strategy had aimed to raise the rate of growth of the economy. Some of the stats suggests the following

• Per capita income in India had either declined or stagnated during the period 1900-47. Over 1950-65, its growth was approximately 1.7 per cent. (1.68% precise)
• India’s economy, which was no more than a colonial enclave for more than two centuries, had been quickened.
• It is made out that this quickening achieved in the 1950s was no great shakes as the initial level of income was low and a given increase in it would register a higher rate of growth than at a later stage in the progression.
• It is a widely recognised feature of economic growth that every increase in wealth makes the next step that much easier to take due to increasing returns to scale. The principle works both ways, rendering the revival of an economy trapped at a low level of income that much more difficult.

After the good words, comes some harsh words too

• The loss of an early vitality in the economy had to do partly with political economy and partly with a flaw in the strategy itself.
• The death of Nehru created a crisis of leadership in the Congress Party which was communicated to the political fraternity.
• It took almost a decade-and-a-half for stability to be restored.
• The instability impacted the governance of the public sector, and public investment which had been the engine of growth since the early 1950s slowed.
• There was the absence of a serious effort to build human capabilities via education and training.
• In India, public spending on education had turned towards technical education at the tertiary level too early on.
• The slow spread of schooling ensured that the growth of productivity in the farm and the factory remained far too slow.
• Now the pace of poverty reduction also remained slow, and, via positive feedback, slowed the expansion of demand needed for faster growth of the economy.

How did India under Nehru compare in terms of growth with other countries?
The accompanying chart compares India’s gross domestic product (GDP) growth per capita in 1990 international dollars over 1947-64, when Nehru was prime minister, with that of several other nations over the same period. The data are taken from economic historian Angus Maddison’s time series on world GDP.

The numbers show the compounded annual growth rate (CAGR) for real GDP growth per capita for India was lower than for capitalist economies like Japan, South Korea and the US. That is unsurprising. What may not be so well known is that it was also lower than communist countries like China or the former USSR. Between 1947 and 1964, the CAGR for Japan’s GDP per capita was a sizzling 7.9%, for the USSR 4.4% and for India 1.68%.

There are, however, a silver lining.India under the British had a pathetic per capita GDP CAGR of 0.07% between 1900 and 1947.

Sources

• Planning Commission, Government of India : Five Year Plans
• Five-Year Plans of India - Wikipedia, the free encyclopedia
• Planning Commission, Government of India : Five Year Plans
• The socialist takeover of India’s economic policy | Latest News & Updates at Daily News & Analysis
• Articles - Pandit Deendayal Sansar - A portal created by the Syama Prasad Mookerjee Foundation dedicated to the life, times and works of Pt. Deendayal Upadhyaya
• Jawaharlal Nehru - Wikipedia, the free encyclopedia
• The economic consequences of Nehru - The Hindu
• The Nehruvian rate of growth - Livemint

This brings us to close of part 1 timeline of Jawaharlal Nehru era.

@WAJsal @Slav Defence @Icarus @MilSpec @AUSTERLITZ

@SpArK @nair @scorpionx @Levina @Abingdonboy

@Joe Shearer @Neutron @Daneshmand @Oscar @waz

@Nihonjin1051 @jhungary @Vauban @Taygibay @Chinese-Dragon

@HRK @Manticore @Indos @Jungibaaz @anant_s @New @S.U.R.B. @araz @Atanz @Dazzler @Horus @WebMaster @Spectre @Khafee @niaz

 

[Joe Shearer]

Good, good.

Go for it. We need this stock-taking, and we need to engage in rational discourse.

 

[niaz]

Hon Parikrama.

Very kind of you to put my name in your post. Your article is admirable and I have very little to add especially on the historical perspective.

My comments are limited to the fact that both India & Pakistan suffered from centralized / controlled economy and despite the successive 5 year plans until well into the 1990’s Pakistan had higher GDP per capita.

Comparing India vs Pakistan by GDP - StatisticsTimes.com

Later success of the Indian economy is primarily due to the 1991 economic liberalization of India under Narismha Rao coupled with the IT boom starting in the year 2000.

This would lead one to conclude that factory-ization (setting up factories) will only result in "Import substitution", but not real industrialization. Until such time that economy is opened up to international competition, the economy will not reach take-off stage. My salute to Indian policy makers.

Pakistan on the other hand suffered from lack of entrepreneurship & flight of venture capital after all the industries were nationalised by Mr ZA Bhutto in 1975.To top it all, many nationalised industries were subsequently taken over by the Labour Unions with PPP Gov’t a silent spectator.

I know of a one Foundry near Karachi which was shut down after a couple of years after being taken over and run by its labour union. After about 15 years (during Benazir Bhutto’s time) the same foundry was auctioned off. It originally cost about $10-million to set up; but was purchased by my brother in-law for Pk Rs 100million ($2-million). I went to see it and found that most of the machines & furnaces had either been sold off by the Union management or were absolutely useless. It never ran. Luckily the foundry had about 9,000 Sq. yards of industrial land and after a few years my brother in- law was able to sell the whole thing at a tidy profit.

Had there been no ZA Bhutto episode in Pakistan’s history, who knows where Pakistan would have been today..

 

[Spectre]

Hon Parikrama.

Very kind of you to put my name in your post. Your article is admirable and I have very little to add especially on the historical perspective.

My comments are limited to the fact that both India & Pakistan suffered from centralized / controlled economy and despite the successive 5 year plans until well into the 1990’s Pakistan had higher GDP per capita.

Comparing India vs Pakistan by GDP - StatisticsTimes.com

Later success of the Indian economy is primarily due to the 1991 economic liberalization of India under Narismha Rao coupled with the IT boom starting in the year 2000.

This would lead one to conclude that factory-ization (setting up factories) will only result in "Import substitution", but not real industrialization. Until such time that economy is opened up to international competition, the economy will not reach take-off stage. My salute to Indian policy makers.

Pakistan on the other hand suffered from lack of entrepreneurship & flight of venture capital after all the industries were nationalised by Mr ZA Bhutto in 1975.To top it all, many nationalised industries were subsequently taken over by the Labour Unions with PPP Gov’t a silent spectator.

I know of a one Foundry near Karachi which was shut down after a couple of years after being taken over and run by its labour union. After about 15 years (during Benazir Bhutto’s time) the same foundry was auctioned off. It originally cost about $10-million to set up; but was purchased by my brother in-law for Pk Rs 100million ($2-million). I went to see it and found that most of the machines & furnaces had either been sold off by the Union management or were absolutely useless. It never ran. Luckily the foundry had about 9,000 Sq. yards of industrial land and after a few of years by brother in- law was able to sell the whole thing at a tidy profit.

Had there been no ZA Bhutto episode in Pakistan’s history, who knows where Pakistan would have been today..

Common in India too. Laxmi Mittal of Arcelor Mittal (currently the richest Indian passport holder) made his fortune buying off defunct industries and salvaging them. The fact of the matter is that one can blame the politicians, army or uncontrollable factors like WoT or location of Pakistan at the epi-centre of extremism but the fact remains that the past is set and future malleable. India seized the opportunity in 90s and may it's time for Pakistan to do so.

In my opinion there are lot of areas of concern within Pakistan and great care must be taken when setting course for future. I won't like to comment much on CPEC but would just caution it is not a panacea. While it might provide a kickstart to the economy - it is extremely important to diversify one's choice of patrons or investors in this case. Chinese investments in some of the African country and it's after effects will provide a sobering influence.

 

[AUSTERLITZ]

Concise and very well organized.I tried to check if u left out any major theme,but u haven't .Only thing you could highlight a bit more is the abolition of the age old zamindari system and land reforms.

 

[PARIKRAMA]

@niaz sir
Thank you for your kind words. You have seen history closer with your own experiences. Thus it helps us find more views and understanding of things unmentioned.

You are absolutely correct. In my field the whole economy of India is divided into 2 phases. Its known as Hindu growth rate phase of India which is basically 1947-1991 and liberalised phase of Indian Economy from 1991-onwards. What you have given is exactly what i am going to focus in future where i will try and focus on the next parts of this article..

From the time of Independence we have a total of 14 Prime Ministers yet only a handful of them had taken very important decisions from the perspective of economy. Most of the shorter tenures were more of populist measures in order to address fractured coalitions formed to just see them through and form a government. Yet they did not survive at all.

For example less than 1 year PMs are

1. Gulzarilal Nanda - 13 days from 27.05.1964 - 09.06.1964 - Acting PM
2. Gulzarilal Nanda - 13 days from 24.01.1966- 11.01.1966 - Acting PM Again
   
3. Charan Singh - 170 days - 28.07.1979 - 14.01.1980 - PM
4. V.P. Singh - 343 days - 02.12.1989 - 10.11.1990 - PM
5. Chandra Sekhar - 223 days - 10.11.1990 - 21.06.1991 - PM
6. A.B. Vajpayee - 13 days - 16.05.1996 - 01.06.1996 - PM
7. H D Deve Gowda - 324 days -01.06.1997 - 21.04.1997 - PM
8. I K Gujral -332 Days 21.04.1997 - 19.03.1998 - PM

Leaving aside acting PM, 6 PMs are in office for less than 1 year out of 14 PMs. Thats the phases which showed in stability and confusion. The decisions some were good but most were populist for sustaining coalition politics.

My next part which will focus on Indira Gandhi Timeline with division of times between her first 2 stints as under

• First stint from 24.01.1966 - 24.03.1977 - 11 years 59 days
• Second stint from 14.01.1980 - 31.10.1984 - 4 years 291 days

This era also showed a brief 2 years 126 days stint of Moraji Desai between 24.03.1977-28.07.1979 who is credited for 3 sweeping steps

1. Improved relations with Pakistan and especially with Zia ul Haq and established a friendly diplomatic relation
2. Reversed many of Emergency decrees and amended constitution to make it difficult to declare Emergency.
3. He also was instrumental in improving relationship with China

Yet economic perspective times were not very good nor were decisions. I will surely dwell about them deeper in the next part.

A little about Indira Gandhi is also in order -
Indira Gandhi was daughter Jawaharlal Nehru, was India’s third prime minister. She married a man surnamed Gandhi and strategically took his last name in order to make the most out of it.
Her first decision and perhaps the most important one - nationalize all banks in 1969. But more than good it did bad for our country.. Instead of serving poor it became a tool in the hands of political class to favour their own and led to crony capitalism

She was also instrumental in nationalizing Insurance sector. Again it helped us create a behemoth called Life Insurance Corporation or LIC but role of LIC is more like a rescuer for government even today. See the stock markets crashing or going down, in comes LIC and buys huge amount to give governmental support.

The biggest and hardest decision for economy was nationalization of coal sector.. From that time, we have become net coal importers inspite of having large coal reserves. The likes of Coal India an Singareni Collieries cannot sustain enough production to meet demands.. From that time, we are just spending and spending to meet our energy needs.

The list goes on and all this is a true representation of what actually happened in India. Had we taken some more rational steps, had we preponed the liberalized way of doing things of 1991 by say a decade or 2, Indian economy might have changed a lot.

I will try and cover all such things in next part

@Spectre Hope you found something good in these posts up and here..I know you can contribute a lot more.. so do give pointers

@AUSTERLITZ
Sir, very well spotted - zamidari system abolishment and land reforms as covered in first amendment is really a very important point. i did point a bit as you rightly said and wanted to post more but then decided against it from the perspective that amendments may then need a much wider coverage subsequently. Bcz First amendment also talked about fundamental rights and equality. Especially as there are few more amendments later which are very very deep topics of discussion themselves

The 38th amendment on 01.08.1975 empowering President and Governors to pass ordinances and the 39th amendment on 10.08.1975 which was an Amendment designed to negate the judgement of Allahabad High Court invalidating Prime Minister Indira Gandhi's election to parliament. This amendment placed restrictions on judicial scrutiny of post of Prime Minister. As a consequence of this amendment to the Constitution of India, Supreme Court of India's scheduled hearing on August 11, 1975 of Petition challenging Prime Minister Indira Gandhi's election became legally untenable.

If this was not enough , the 42nd amendment passed on 01.04.1977 during internal emergency by PM Indira Gandhi. This amendment provided curtailment of fundamental rights, imposed fundamental duties and changed to the basic structure of the constitution by making India a "Socialist Secular" Republic.

Thus i was willingly afraid to take on this topic as it has deep rotted repercussions.. But i will now of course add them to my next part and focus on them as they are very important from the perspective of our economy and multiple decisions affecting it.

 

[anant_s]

wonderful thread!
would like to contribute here.

 

[Levina]

Great thread @PARIKRAMA

Is it just me or did others also notice that the issue of schooling did not figure majorly among India’s planners?
I meant primary education in particular. Had primary education got sufficient attention from the beginning then we could have been at the verge of eradicating poverty from India. Yeah i know it sounds utopian.
This might not have directly impacted the economy but it would have had long term effects if we had started to concentrate on primary education since India's inception. JMHO!

There are a few things in Nehru's policies that confuse me like

1) Why did we have to imitate soviet union? Merely because soviet and India both were agiculture based economies.
In Nehru's words "Both are vast agricultural countries with only the beginning of industrialization , an both have to face poverty and illiteracy . if Russia finds a satisfactory solution for these , our work in India would be made easier".

2) There was a lot of difference between Industrial policy resolution of 1948 and 1956. In 1948, Nehru gave an impression that India would be a mixed economy in future, while by 1956 only the government permitted to undertake new ventures in several sectors such as textiles, automobiles, and defence. Why the change in policies??
I am assuming it was Vallabhbhai Patel's death in 1950 which empowered Nehru.
Quoting Vallabh Bhai Patel "A government which engages itself in trading activities will come to grief"
....and this is exactly what happened in 1956.


3) I seriously did not understand this...

Transporting food grains between states became a crime .

Seriously???
What were they thinking???

I am not against Nehru and his policies because at a time when India got freedom we had 6 crore minorities residing in the country. Ideally India should have collapsed under its own weight...but we survived.
I am assuming Nehru did have to play a part as the longest serving PM of India, in keeping India alive.



Posting the front page of Times, 1962 edition.

 

[PARIKRAMA]

wonderful thread!
would like to contribute here.

Thank you my friend, I am looking forward to contributions and more insights.. This topic is very wide and i am sure there are many nuances which needs to be covered.. Pls feel free to add as t will help us all. I remember you were reading some good books about History after Gandhi. It would be wonderful if you could help with some pointers in this thread.

Is it just me or did others also notice that the issue of schooling did not figure majorly among India’s planners?
I meant primary education in particular. Had primary education got sufficient attention from the beginning then we could have been at the verge of eradicating poverty from India. Yeah i know it sounds utopian.
This might not have directly impacted the economy but it would have had long term effects if we had started to concentrate on primary education since India's inception. JMHO!

Very well said.. Let me quote here what Dr Marie Lall, an Associate Fellow of the Asia Programme at Chatham House on her paper on "The Challenges for India's Education System" quoted and some pointers based on that

• Traditional Hindu education served the needs of Brahmin families: Brahmin teachers would teach boys to read and write.
• Under the Moguls, education was similarly elitist, favouring the rich rather than those from high-caste backgrounds.
• These pre-existing elitist tendencies were reinforced under British rule.
• British colonial rule brought with it the concept of a modern state, a modern economy and a modern education system.
• The education system was first developed in the three presidencies (Bombay, Calcutta and Madras).
• By linking entrance and advancement in government service to academic education, colonial rule contributed to the legacy of an education system geared to preserving the position and prerogatives of the more privileged.
• In the early 1900s, the Indian National Congress called for national education, placing an emphasis on technical and vocational training.
• In 1920 Congress initiated a boycott of government-aided and government-controlled schools and founded several ‘national’ schools and colleges.
• These failed, as the rewards of British-style education were so great that the boycott was largely ignored.
• Local elites benefited from the British education system and eventually used it expel the colonizers.
• Nehru envisaged India as a secular democracy with a state-led command economy.
• Education for all and industrial development were seen as crucial tools to unite a country divided on the basis of wealth, caste and religion, and formed the cornerstones of the antiimperial struggle.
• Following Independence, school curricula were thus imbued with the twin themes of inclusiveness and national pride, placing emphasis on the fact that India’s different communities could live peacefully side by side as one nation.
• The legacies of this Nehruvian approach to education are considerable; perhaps most notable is the entrenchment of the pluralist/secularist perspective in the minds of the Indian people.
• Subsidized quality higher education through institutions such as the IITs and IIMs formed a major contribution to the Nehruvian vision of a self-reliant and modern Indian state, and they now rank amongst the best higher education institutions in the world.
• In addition, policies of positive discrimination in education and employment furthered the case for access by hitherto unprivileged social groups to quality education.
• It has been argued that while access for some marginalized communities continues to be limited, the upward mobility of a few Dalit and tribal households resulting from positive discrimination in educational institutions and state patronage has created role models that help democracy survive in India.

But there is another side too

Based on " COMPULSORY PRIMARY EDUCATION CHALLENGES AND OPPORTUNITIES" by JAYAKUMAR ANAGOL , I am quoting the following data

The persons here showcases literacy levels. Whole India in census of 1951 had literacy level of 16.6% for age group 5 and above. The worst part was 7.9% was the literacy rate of females in the age group 5 and above.

Something more interesting is said about why this issue actually happened. See these points

• Indian leaders like Dadabhai Navroji and Joti Rao Phule had pleaded for compulsory education in the 1880s.
• During the first part of the 20th Century, Gopalakrishna Gokhale and Mahatma Gandhi had championed it most forcefully.
• Naturally, the founding fathers of our Constitution had to take a stand on this important issue.
• The proceedings of the Constituent Assembly throw light on this subject. The Sub-Committee of the Constituent Assembly on Fundamental Rights had, after due consideration, placed the right to education among justifiable fundamental rights.
• The proposed Article stated “Every citizen is entitled as of right to free primary education and it shall be the duty of the State to provide within a period of 10 years from the commencement of this Constitution for free and compulsory primary education for all children until they complete the age of 14 years”.
• However, it was later decided not to include the right to education as a fundamental right on the ground that the Government may not be able to provide the required funds and hence the right to education was included in the Directive Principles of State Policy as Article 45 of the Constitution.
• It reads: “The State shall endeavour to provide, within a period of 10 years from the commencement of this Constitution, for free and compulsory education for all children until they complete the age of 14 years”
• The Directive Principles of State Policy nevertheless cast the moral responsibility on the States of making primary education compulsory.
• Compulsory education Acts have been enacted in several States and Union Territories of India both before and after independence. However, it has been a lackadaisical attempt, as most of these legislations are merely enabling legislations which authorise local bodies like Municipal Councils and Zilla Panchayats to introduce compulsion in their jurisdiction.
• Some local authorities in these States did make efforts to introduce compulsion in their jurisdiction. But with the passage of years, the implementation of compulsory primary education acts has fallen into disuse even in States which initiated the legislation.
• As the constitutional right to free and compulsory primary education was only a Directive Principle of State Policy, the states could get away without implementing the programme.

In the words of Prof.J.K.Galbraith from the same reference -
“Once it was understood an educated populace is the first requirement for economic progress. That essential fact was forgotten : impressive steel mills, great hydro-electric dams were too often cited amid ignorant people. I have previously made the point that in this world there is no literate population that is poor, no illiterate population that is other than poor.”


Strangely Lenin said immediately after the October Revolution that “Revolution is Literacy plus Electricity”.

Neglect of primary education by Nehru is also evidenced by the fact that under his Prime Ministership the first Commission in independent India to be set up related to University Education and the second Commission related to Secondary Education. No Commission on Primary Education per se was set up, though it had been championed by such eminent Indians like Swamy Dayanand Saraswati, Joti Rao Phule, Dadabhai Navroji, Gopalakrishna Ghokhale and Mahatma Gandhi.

Thus Primary education was a forgotten word and results were noticeable in coming decades

1) Why did we have to imitate soviet union? Merely because soviet and India both were agiculture based economies.
In Nehru's words "Both are vast agricultural countries with only the beginning of industrialization , an both have to face poverty and illiteracy . if Russia finds a satisfactory solution for these , our work in India would be made easier".

2) There was a lot of difference between Industrial policy resolution of 1948 and 1956. In 1948, Nehru gave an impression that India would be a mixed economy in future, while by 1956 only the government permitted to undertake new ventures in several sectors such as textiles, automobiles, and defence. Why the change in policies??
I am assuming it was Vallabhbhai Patel's death in 1950 which empowered Nehru.
Quoting Vallabh Bhai Patel "A government which engages itself in trading activities will come to grief"
....and this is exactly what happened in 1956.

The bonhomie between Nehru and USSR as seen in pictures post Lenin demise era is below.

Jawaharlal Nehru waves to the crowd of onlookers as he walks from the Lenin-Stalin Mausoleum in Moscow's Red Square after laying a wreath at the tomb

Marshal Bulganin and Jawaharlal Nehru stand while the national anthems of India and USSR are played by the Red Army Band

Jawaharlal Nehru meeting of the leaders of Russia at the Central Airport in Moscow (from left to right): N.S. Khruschev, A.I. Mikoyan, G.M. Malenkov, Pandit Jawaharlal Nehru and N.A. Bulganin.

Credit to Hindu Newspaper for these pictures

What i understand is Jawaharlal Nehru is influenced by the achievements of Soviet Planning. His idea was a combination of Democracy good points combined with good points of socialism.In his ideals, there was a special focus on the private sector where efforts were made to provide freedom to the private sector. But main objectives remained social gain rather than economic gain.

The reason to why India chose the path of socialism are more political than economic and go back to the British Era. On the basis of the views on economy, the congress leaders of those times can be divided into three groups.

• First group, who eventually were in majority, were called capitalists. The leaders of this group included leaders such as Rajendra Prasad, Sardar Patel and C Rajagopalachari.
• The second group can be called This group included Ram Manohar Lohiya, Jai Prakash Narayan and Acharya Kripalani.
• The Third group consisted of Jawahar Lal Nehru and some other leaders. Although Nehru later called himself a socialist, he was labelled as a ‘radical’ and a ‘Marxist’ by the press of the day.

The economic thought of the above mentioned second group of socialists was not something related to the ‘communist’ or ‘state-control’ but an economy containing cottage industries run by cooperative societies. That is why; this group opposed the communists and also raised its voice against Nehru when they got a clue about the economic policy of the Congress.

The chronology of events after this group-ism is as under

• After the demise of Sardar Patel and elevation of Dr. Rajendra Prasad to the office of the President, Nehru got a free reign and the first thing he did was to create a Planning Commission on the lines of the Gosplan of the Soviet Union. He imitated the Soviet Union by drawing up Five Year Plans. At the time of drafting the first Five Year Plan, Nehru was ambivalent and talked of a mixed economy that would accommodate the private sector.
• However, later he progressively implemented his plan to usher the country in an era of socialism. In Mid 1950s, Nehru got Parliament to accept the “socialist pattern of society” as the aim of economic development, and at the Avadi session of the Indian National Congress (1955), the resolution now known as the Avadi Resolution was passed. This resolution called for establishment of a socialistic pattern of society where the principal means of production are under social ownership or control and there is “equitable distribution of the national wealth.”
• This was followed by the Industrial Policy of 1956 in which only the government was permitted to undertake new ventures in several sectors such as textiles, automobiles, and defence.
• For the private sector the policy said that the state would “progressively participate” and would not “hesitate to intervene” if it found progress to be “unsatisfactory.”
• The second five year plan was based on the Industrial Policy Resolution of 1956. This plan asserted the economic goal as the socialist pattern of society. The economy was now modelled after that of the Soviet Union. The private individuals were deprived of the right to indulge in many forms of commercial activities.

Some of these points are given in wikipedia : https://en.wikipedia.org/wiki/Jawaharlal_Nehru

3) I seriously did not understand this...
Seriously???
What were they thinking???

I am not against Nehru and his policies because at a time when India got freedom we had 6 crore minorities residing in the country. Ideally India should have collapsed under its own weight...but we survived.
I am assuming Nehru did have to play a part as the longest serving PM of India, in keeping India alive.

There are primary reasons for banning it

1. There was a need of creating storage for such food grains in a proper standard way to ensure adequate food grains are available and history of Bengal Famine of 1943 dont get repeated
2. Secondly, there were people who were using the transport mechanism to bungle off the produce and create supply demand gap to profit from it

The country has adopted this strategy of restricted transporting to combat the problem of creating food security and to improve the nutritional status of the population. Successive Five-Year Plans laid down the policies and strategies for achieving these goals. Over the years, there has been improvement in access to food through the introduction of a Public Distribution System.

See here what Food and Agricultural Organisation of United Nations (FAO) say about this and i quote

Public distribution of foodgrains was retained as a deliberate social policy by India, when it embarked on the path of a planned economic development in 1951. It was, in fact, an important component of the policy of growth with justice. In the first five year plan, the system, which was essentially urban based till then was extended to all such rural areas which suffered from chronic food shortages. It was also decided to have two variations of the system, Statutory Rationing Areas, where foodgrains availability was. supposed to be only through the Ration Shops and Non-Statutory Rationing Areas, where such shops would only supplement the open market availability.

All through the ups and downs of Indian agriculture, PDS was continued as a deliberate social policy of the government with the objectives of:

• Providing foodgrains and other essential items to vulnerable sections of the society at resonable (subsidised) prices;
• to have a moderating influence on the open market prices of cereals, the distribution of which constitutes a fairly big share of the total marketable surplus; and
• to attempt socialisation in the matter of distribution of essential commodities.
  

Unquote

Source
http://www.fao.org/docrep/x0172e/x0172e06.htm

 

[Levina]

^^
Thanks @PARIKRAMA

The second five year plan was based on the Industrial Policy Resolution of 1956. This plan asserted the economic goal as the socialist pattern of society. The economy was now modelled after that of the Soviet Union. The private individuals were deprived of the right to indulge in many forms of commercial activities.

I think this was a blunder of gargantuan proportions when the government took over various sectors of the industry and destroyed others by fixing prices. There was a progressive erosion of freedoms, India’s journey towards serfdom had just begun.

Subsidized quality higher education through institutions such as the IITs and IIMs formed a major contribution to the Nehruvian vision of a self-reliant and modern Indian state, and they now rank amongst the best higher education institutions in the world.

I guess everything comes with its pros and cons, while higher/ technical education got priority, primary education lagged.

 

[PARIKRAMA]

Time for some Nehru economics, foreign policies and other related cartoons ..
This will wake up many people

Nehru Non Alighnment

Swarajya mocks Nehru's mixed economy. Published 1968.

Magnificent cartoon depicting what 5 year plan

cartoon on the state of affairs

Cartoon on 3rd Five year plan

 

[PARIKRAMA]

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[PARIKRAMA]

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