Indian Economy, 1947–1965: The Nehruvian Legacy

Learning Outcomes:

1. Understand the historical and comparative context of India’s post-independence economic development.
2. Examine the challenges faced by India due to colonialism and the steps taken for industrial transformation.
3. Recognize the role of consensus in shaping India’s unique approach to development.
4. Analyze the impact of planning and the public sector in India’s economic progress.
5. Evaluate the achievements of the Nehruvian era and its contribution to India’s modern economy.

The Nehruvian Consensus

India’s post-independence development must be assessed both historically and comparatively. The level and stage at which India began its industrial journey, along with the democratic framework it chose, were unique factors. India’s achievements should be measured in relation to other nations at a similar stage of development.

1. India inherited extreme poverty, illiteracy, and ruined agriculture and industry after nearly 200 years of colonialism.
2. Colonial rule distorted the economy by linking Indian sectors to the metropolitan economy in a dependent manner.
3. The transition to self-sustained growth faced considerable challenges due to this legacy.
4. India’s task of attempting a modern industrial transformation came centuries after the first industrial revolution, under radically changed political and economic conditions.

Despite these challenges, India had certain advantages:

1. Between 1914 and 1947, a small but independent Indian industrial base emerged.
2. Indian entrepreneurs captured 75% of the market for industrial products by 1947, competing with European and foreign enterprises.
3. A mature indigenous entrepreneurial class, like the Birlas, Tatas, Singhanias, and Dalmia-Jains, had emerged, comparable to zaibatsu in Japan or chaebol in South Korea.
4. India avoided a neo-colonial situation, where formal political independence would leave the economy dominated by metropolitan interests.

Another critical aspect of India’s progress was the societal consensus around the nature and path of development:

1. The consensus included Gandhians, Socialists, capitalists, and Communists who largely agreed on self-reliance, rapid industrialization, and land reforms.
2. There was a commitment to planned industrialization within a democratic and civil libertarian framework.
3. The consensus rejected an authoritarian model of development, as seen in Latin America or East Asia.

Important Note: India’s democratic approach to rapid industrialization set it apart from other post-colonial countries, enabling it to build and nurture a functioning democracy.

Planning and the Public Sector

By the late 19th century, Indian nationalists like M.G. Ranade and Dadabhai Naoroji assigned a critical role to the state in economic development. This trend continued into the 20th century, crystallizing during the inter-war period due to the influence of Keynesian economics and the Soviet experiment.

1. The National Planning Committee (NPC) was established in 1938 under Jawaharlal Nehru, leading to a comprehensive development plan.
2. Indian business leaders, like those behind the Bombay Plan (1945), advocated for a public sector role, especially in capital goods industries.
3. The public sector was seen as essential to reduce dependence on foreign imports and boost industrial development.

The role of the state expanded in multiple areas:

1. The Karachi Resolution (1931) envisaged state control over key industries, services, and public transport.
2. In 1947, the Economic Programme Committee proposed a gradual transfer of private enterprises to public ownership, alarming Indian capitalists.
3. The Industrial Policy Resolution (IPR) of 1948 delineated areas for public and private sectors, with the Second Plan focusing on heavy industries in the public sector.

Nehru’s approach to planning was democratic:

1. He insisted that planning and the public sector be introduced in a democratic manner to carry society along in the effort.
2. The Planning Commission (1950) was established with Nehru as its chairperson.
3. The Second Plan (1956–61) implemented the Nehru–Mahalanobis strategy, emphasizing heavy and capital goods industries in the public sector.

The strategy also focused on import substitution and assumed that Indian exports could not grow fast enough to meet import needs. While foreign aid was initially essential, the goal was to increase domestic savings and self-reliance.

Achievements and Challenges

During the first three Five-Year Plans, India made significant progress, especially compared to the colonial period:

1. The national income grew at an average rate of 4% per annum from 1951 to 1965, four times the rate of growth during colonial rule.
2. Investment rates increased, with domestic savings rising from 5.5% of national income in 1950–51 to 10.5% in 1965–66.
3. The land reforms, agricultural extension networks, and infrastructure investments led to agricultural growth of over 3% per annum.

India’s industrial growth was even more impressive:

1. The industrial growth rate averaged 7.1% per annum from 1951 to 1965.
2. The capital goods sector saw rapid growth, with 70% of Second Plan expenditure directed towards metals, machinery, and chemicals.
3. Import dependence on machine tools fell from 89.8% in 1950 to just 9% in 1974.

Important Note: By the mid-1970s, India could meet more than 90% of its equipment needs indigenously, reducing external dependence and increasing its economic autonomy.

Table: Comparison of Growth in Key Sectors (1950–1974)

Infrastructure and Human Development

India prioritized infrastructure development in the early Five-Year Plans. Significant investments were made in transport, communication, power, and education:

1. Installed electricity capacity increased by 4.5 times between 1950 and 1966.
2. School enrollment tripled, and technical education expanded six to eight times in terms of degree and diploma levels.
3. The establishment of scientific research institutions and national laboratories marked a significant achievement.

Nehru emphasized the importance of science and technology in modern India, establishing high-powered national laboratories for fundamental research. The Atomic Energy Commission (1948) laid the foundations for India’s advances in nuclear science.

India’s progress in scientific research was remarkable:

1. National expenditure on research and development increased from Rs 10 million in 1949 to Rs 4.5 billion by 1977.
2. India’s scientific manpower grew from 190,000 to over 2.32 million by the mid-1970s.

Table: Growth in Key Infrastructure and Education Indicators (1950–1966)

Conclusion

The Nehruvian phase laid the foundation for India’s modern development, particularly by emphasizing self-reliance, public sector growth, and infrastructure development. These achievements, especially in the areas of science, technology, and human resource development, provided the necessary groundwork for India to navigate its economic challenges in the later decades.

MCQ:
Which aspect of India’s development during the Nehruvian era contributed significantly to its reduced dependence on foreign imports?

1. Growth in consumer goods production
2. Development of capital goods industries
3. Expansion of agricultural extension services
4. Increase in school enrollment
   Answer: 2. Development of capital goods industries