India’s economy has been at a strange crossroads since the pandemic tore apart hidden wounds, and economists are desperate to find a way out. As the state of play, monetary review policies and indicator analyzes show, things are a bit out of whack for now. And to give you just a glimpse of where we were when the pandemic hit us, let me bring back some rather groundbreaking promises made to us, including that of a $ 5,000 billion economy, d ‘a global manufacturing center, etc.
Of course, we are a long way from achieving either of these goals. One thing, however, that it made me realize is that what we expect from the Indian economy is quite another. transition phase, like the one we had in the 20th century.
Well, what better way to do that than to have a deep insight into the past, where it all began, to come to terms with the economic and political limits time. After all, recently a lot of blame has been placed on the policies of the past, let’s take a moment to dig a little deeper and understand how and what really happened.
An economic research report published a few years ago by economists Hatekar and Dongre estimated that the most significant disruption to the Indian economy in the 20th century came during the Nehruvian era, centered around 1950. Let me remind you that it was around this time that the Country Planning Commission was formed, and the Second Five Year Plan which focused on Mahalanobis strategies revolutionized the growth of the country’s production, both in short and long term.
The Nehruvian vision of the Indian economy-
Let’s start from the very beginning. India’s postcolonial economy was as fragile as it gets, and well, the Nehruvian ideocracy was growth which is completely democratic, also called by growth economists as “Progress by consent”.
This was unique because the examples India at the time had to admire and learn were the Soviets, who ran on the backs of authoritarian rule, and some advanced economies whose primitive growth occurred in less people-led situations. If you are wondering how a political system influences growth and economic trajectory, let me map out the model for you.
India’s main goal for the post-colonial country was to eradicate poverty. Well, I guess eliminating would be too strong a word given the current situation, just say mitigate. And the way the rulers of the day believed it would be done was to increase income.
However, this increase in income can be explained by two parameters: sectoral growth and investment. What sectors are we talking about? Well, let’s sleep on it for a moment, because there’s something else we need to discuss first.
The political system and economic growth
As mentioned, the increase in income comes on the back of the investment. Now, as far as the Soviets are concerned, the rapid growth they achieved was due to the indefinite investments they were able to make in the economy. Why could the Soviets do it and not a country like India?
Well, as mentioned, the approach of the Soviet Union was that of a “Command economy”, where the investment could be decreed by planners and implemented by commissioners, as economic winner Pulapre Balakrishnan explained. This means that the economy will never run out of money to reinvest because the authorities could always force it.
In India, there was the ubiquitous private system that ran on profits and income, which meant that investment was a result and a corollary of growth. If there was no surplus margin, the investment would also stop. This is why a political system influences growth strategy so much.
Now comes the second part of the equation: sector growth. At the time of the discussion, Britain had hoisted the flags of the Industrial Revolution and boasted of the economy of world trade. Undoubtedly, the growth of the country’s nascent stages has been torn between two directions: industrial growth or agricultural growth.
The Nehru-Mahalanobis- model
The five-year plans introduced in the country’s transition period were based on this model, and while it has had its critics in terms of the idealistic economics of the voodoo economy, the “Plan framework” covered a very important point: to realize the importance of agricultural and industrial development, together.
The then Prime Minister, Jawaharlal Nehru, spoke very clearly in his speeches on the contribution that the agricultural sector would play in the growth of the country, and on how the realization of the potential of the sector in alignment with the growth industrial would make it possible to intertemporal distribution of benefits he so heartily claimed.
Therefore, in an economy with a very large market, abundant natural resources of all kinds and great availability of skilled and unskilled labor, building a strong and diverse industrial revolution in alignment with a solid foundation of consumer goods was a historical necessity, as explained by the renowned economist Raj Krishna.
Let me trace for you the relationship between agricultural and industrial growth. Even nominal growth of 3-4% in the agricultural sector would not have been possible without a high growth rate in industries that meet the input needs of a growing agricultural sector such as cement, bricks, pipes, pumps, electricity production and transmission mechanism, agricultural tools, diesel fuel, fertilizers, pesticides, roads, vehicles, etc.
Well, considerable growth of the industrial sector is not possible without a high rate of agricultural growth, as almost 50 percent of the modern industrial sector processed agricultural production or provided agricultural inputs.
You see, the link between industry and agriculture had been more indispensable than ever, and while much of the time and criticism was spent choosing between the two as a priority, the real economic value was to realize the the equal importance of both for each other and for the future of the country, which is explicitly emphasized in the second five-year plan.
But what about the proponents of exporting our agricultural products for imports of capital goods from other countries at the time? Because let me tell you there were a lot of them. Well, there are two arguments against their notion. First, the very goal Mahalanobis set for himself was that of a perfect balance of payments.
It was understood from the start that if India maintained a balance of payments deficit, the fragile economy would soon collapse. This is one of the main reasons why foreign aid was mentioned so little in the country’s total public expenditure target. The second argument concerns the terms of trade at the present time.
The very requirement to facilitate such trade would require the maintenance of an agricultural surplus, to such an extent that after the food needs of the country, we have enough to export if not reinvest, and this achievement in itself required the position of have industrialists supporting the agricultural industry.
Do you see the loop we are referring to? The whole proposition of “export pessimism” precedes the argument in its very progression.
In summary, this excerpt from the old Speech by Prime Minister Jawaharlal Nehru is enough the complete description of nehruvian vision and the lines the country has been working on, as follows-
“Planning has of course been done in other countries, but not through democratic processes. Other democratic countries have not accepted the planning. But the combination of these two is unique. We can learn from America and Russia, as we certainly should, but we cannot copy from them because India’s problems are theirs. India’s economic problems are unique, different.
We have always understood that the fundamental factor is the growth of agricultural production. Agriculture is fundamental to us because no matter how much importance we place on industry, unless we have an agricultural surplus, we cannot move forward in our economy. We cannot live on allowances from other countries. We always have to choose between the benefits that accrue today, tomorrow or the day after. From a country perspective, if we spend the money we have now on small, immediate benefits, there will be no permanent benefits.
There needs to be a healthy balance between the immediate benefits of today and the long-term benefits of tomorrow. All the money that we have invested in heavy industries is for the benefit of tomorrow, even if it also brings some benefits today. It will be a few years before this investment bears fruit… thus, our economic development strategy is essentially agricultural modernization and rain of our rural masses in the use of new tools and methodologies.
At the same time, it seeks to lay the foundations of an industrial structure by building basic or heavy industries, especially by producing electrical energy. Medium and small industries will certainly come on their train.
Well, a testament to India today is the roots established for the longer term benefits back then, and another transition that the Indian economy wants to achieve right now has to come to the as well. background of a strategically modeled plane.
Edited by Sanjana Simlai.