A Tryst with Destiny II

Nehru’s Economic Legacy

Rohan Rajesh

Continuing the series from last week, in this article, I will be discussing Pandit Jawaharlal Nehru’s economic legacy. If you want more background about Nehru’s life and domestic political legacy, read last week’s article. In that article, I concluded that Nehru’s record is close to perfect. His economic record, however, is spotty, but his policies can only be understood in the context of India’s pre-independence economic history.

16th-century Mughal India was the largest economy in the world, having surpassed Qing China. It was a proto-industrial society where living conditions surpassed Western Europe. The Mughal province of Bengal, in particular, was renowned for its cotton textile exports to the extent that British weavers demanded tariffs on Indian goods, which they were granted via the Calico Acts. India was also more urbanized and less dependent on agriculture than Western Europe. Beyond textiles, India was a leader in shipbuilding, steel manufacturing, spices, pepper, silk, indigo, etc. That changed when the Mughal Empire collapsed, and the British East India Company (BEIC) annexed Bengal.

Despite the shock of the Mughal collapse, regions such as Bengal and Mysore were still economic and political great powers. But, after the Battle of Buxar, the BEIC forced the embattled Mughal emperor Shah Alam II to grant the company the sole rights to tax collection in Bengal. While the Mughal taxation policy could hardly be described as reasonable, the BEIC policy caused an outflow of capital to London, leading to a severe economic downturn. This was compounded by a terrible famine in the late 18th century. Previously, local rulers provided aid during famines, mitigating the death toll. The BEIC provided no such aid, leading to a third of Bengal dying of starvation, a brutal foreshadowing of future famines that devastated British India until 1943. 

Protectionist political forces in Britain led Parliament to force the BEIC to open the still-insulated Indian market to British exports. This dovetailed a policy of forced deindustrialization in Bengal. Whereas in the past Indian goods were the envy of Europe, British India merely provided raw materials for British manufacturing, and these British goods were then sold back to Indian consumers. Indeed, the industrialization of the West (particularly that of Britain) was made possible by the deindustrialization of India. Ultimately, India’s share of the global economy collapsed from 22.6% in 1700 (almost the same share as all of Europe) to a mere 3.8% in 1952. The percentage of the population working in agriculture increased and India went from being the premier economy in the world to a poster child for poverty, disease, and famine.

This was the situation that confronted Nehru and the INC in 1947. There was vigorous debate on the route India should take. Gandhians believed in a village-centered Indian economy. Indeed, there was a serious need for agricultural reform. Landless tenant farmers farmed as their ancestors did for abysmal wages and in brutal conditions. This inefficient system of farming also contributed to India’s serious food shortage issues. Thus, the central government redistributed land to give tenants more control over their production. However, to meaningfully improve India’s economy and standard of living, (re-)industrialization was desperately needed.

The Nehru-chaired National Planning Committee (set up by the Indian National Congress in 1938 to direct economic policy in independent India) concluded that state-led industrialization was the solution to India’s economic woes. While this may sound like a recipe for the kind of socialism in failed states like the USSR and Maoist China, in reality, this policy had the backing of the private sector (who wanted incomes and thus profits to rise), history, and many economists. Japan and Russia had both successfully industrialized through government support, so it made sense for India to do the same. This was also a common economic message at the time, including in the West, where Indian economic planners sought advice from the leading economists at Harvard, Cambridge, and Paris. Nehru was inspired by the five-year plans of the Soviet Union, and he would implement three such plans in India.

It should also be noted that Nehruvian socialism was limited to heavy industries, such as steel mills and power production. Indian self-sufficiency, already an important concept in Gandhian philosophy, in these critical industries gained even more importance with the rising Cold War tensions and India’s non-aligned policy (more on this in the next article). It should also be noted that Nehru did not simply take cues from the Soviets. He also found inspiration in the West, particularly in energy production and education. Nehru was especially taken by the Tennessee Valley Authority, which brought electricity and economic growth to the poverty-stricken Tennessee Valley region during the Great Depression. Indeed, Nehru was fascinated by dams, referring to them as “the temples of modern India.” Dam building would bring electricity and irrigation to poor regions and control flooding.

Finally, Nehru’s most enduring economic policy may be his commitment to the development of a “scientific temper” in India. Under the guidance of Nehru and the newly established Council for Scientific and Industrial Research, two major scientific institutions – the Tata Institute of Fundamental Research and the Atomic Energy Commission – were established. Such was the zeitgeist of the Nehruvian era that important investments were also made in an indigenous space program. The idea of a developing country supporting an expensive space program was audacious at the time. But today, India is a major space power due to those investments by Nehru. 

Perhaps Nehru’s most important economic contribution to India was the setting up of five engineering universities known as the Indian Institutes of Technology (IITs). In these IITs, English-speaking Indians (including my father) became world-class engineers and programmers. Many migrated to the United States, where they would play critical roles in NASA (as President Biden recently remarked) and the IT boom of the 1990s. The IITs laid the foundation for India’s 21st-century middle-class prosperity.

However, the facts still show that despite Nehru’s best intentions, the Indian economy’s growth rate lagged behind that of similarly poor Asian countries, including South Korea, Sri Lanka, and Pakistan. The pejoratively termed “Hindu rate of growth” was 3.5% per year between 1950 and 1980. In the same period, South Korea’s economy grew at a rate of 10% per year. 

While India’s economic growth was commendable compared to that of British India, the Indian economy was still too dependent on agriculture. Crop failures would often lead to a decline in economic growth, and Nehru’s last years as Prime Minister saw severe food shortages and dependence on American economic aid. When Indira Gandhi (Nehru’s daughter, no relation to Mahatma Gandhi) became Prime Minister, she took state control of the economy much further than her father, leading to even more lackluster growth. It took the shock of the 1991 balance-of-payments crisis to force India to liberalize its economy, leading to an economic boom that caused a significant drop in poverty and cemented India’s status as a rising great power. 

Essentially, what all this means is that while Nehru’s economic policies made sense at the time, with the benefit of hindsight, we know that India should have gone a different route. That said, Nehru established infrastructure and provided funding that proved critical for industrialization and electrification even if it was and is not perfect. Nehru’s greatest economic legacy is his prescient investments in science and technology that set the stage for India’s IT boom, the success of its space research program, and its post-1991 economic prosperity.