Myth of socialism

Print edition : February 26, 2010

Avadi, January 19, 1955: C. Rajagopalachari addresses a subject committee meeting at the 60th annual session of the Congress party. It was at this session that the Congress made the establishment of a socialist pattern of society, where "the principal means of production are under social ownership or control", its goal.-THE HINDU PHOTO LIBRARY

THE term socialist was added to the definition of the republic in the Indian Constitution during the infamous period of internal emergency through the highly controversial 42nd Amendment which came into effect on January 3, 1977. However, the terms socialist and its awkward variant socialistic were part of the rhetoric of Indian politics from the days of the freedom struggle, and especially in the immediate post-Independence period when the Government of India launched five-Year Plans and made large investments in industry and infrastructure in the public sector. The Indian National Congress declared its commitment to building a socialistic pattern of society in India.

The building of the public sector and the launching of the Five-Year Plans were presented as elements of socialism, and were so perceived by large sections of participants in public discourse and policy debates, including some sections of the political Left, even though the model of the economy being implemented through these measures had little to do with the classical conceptions of socialism.

When independent India began its development journey, the world was changing dramatically. In the years immediately following the end of the Second World War, there were three very significant developments. First, all the traditional imperial powers of Europe winners such as Britain and France as well as losers such as Germany and Italy had become greatly weakened, ceding the dominance of the capitalist world to the United States. Second, the socialist system had received a great boost, with several East European nations, China, North Vietnam and North Korea declaring their allegiance to socialism. Third, with the powerful impetus provided by these developments, the ongoing national liberation movements all over the world against the traditional imperial powers succeeded, one after the other, in ending colonial rule and attaining political independence. These three developments the weakening of the traditional imperial powers, the strengthening of the socialist camp, and the massive wave of decolonisation provided the international context for the strategy of development adopted in India at Independence.

The national context was characterised by a palpable increase in the militancy of the movements of workers and peasants, especially in the period between 1945 and 1950. There was the tribal land struggle of Warli in present-day Maharashtra led by the legendary Parulekars, Godavari and Shamrao; the Tebhaga movement for increased shares of produce for the sharecroppers in Bengal; the revolt of agricultural labourers and poor peasants in the Madras Presidency (primarily but not exclusively in what is now Kerala and incipiently in the eastern parts of the then undivided Thanjavur district in present-day Tamil Nadu), highlighted especially by the martyrdom of several militants in Punnapra Vayalar; and the armed resistance of peasants in the Telangana region of present-day Andhra Pradesh. These were among the important instances of rural militancy, but there were struggles of the peasantry in Assam, Punjab and Bihar as well. The strikes of railway workers and Central government employees stood out as instances of urban working class militancy. Then, there was the historic mutiny of the ranks of the Royal Indian Navy.

Both the favourable international context and the highly restive national context played key roles in making necessary and possible a process of relatively autonomous development in which, given the limited development of the domestic business classes, the state was bound to play a major role not just as regulator but as participant.

The idea of economic planning for national development and of public investment for this purpose was of course very much part of the nationalist consensus, although the emphasis on the relative roles of industry and agriculture or of mass-scale, modern production systems versus small and cottage industry, and so on, varied within this consensus. The Congress had constituted a National Planning Committee in 1938 with Jawaharlal Nehru as the chairperson in the wake of the party winning several Provincial Assembly elections held in 1937 under the Government of India Act of 1935, an indication of the importance assigned to national economic planning during the freedom movement.

One must recall, too, the remarkable successes in industrialisation achieved by the Union of Soviet Socialist Republics (USSR) under a regime of state ownership of means of production and central planning in the face of the hostility of the worlds major capitalist powers, which did everything to thwart Soviet development, including denying the USSR access to technology and trade and supporting fascist Germany, subtly and otherwise, as a bulwark against the perceived Bolshevik menace. This, clearly, impressed the stalwarts of the freedom movement, including captains of industry, notwithstanding the reservations they may have had about the social costs of Soviet development.

Thus, both national economic planning and the key role of the state in economic development were part of the national consensus at Independence. Under the circumstances, it was no great surprise that the policies of public investment and import substitution were relied upon by the state to deliver economic growth in the decades following Independence.

However, the political rhetoric notwithstanding, all this had little to do with socialism, but were really part of a politically feasible strategy of capitalist development with a leading role for the developmentalist state. The strategy did result in impressive economic growth and some degree of economic modernisation in comparison with the stagnation of colonial rule. Over the period 1950 to 1980, the compound annual rate of growth of gross domestic product (GDP) was 3 to 3.5 per cent. Agriculture also grew at roughly the same rate, enabling, in particular, foodgrains output to grow at a rate higher than that of the population, resulting in a rising per capita availability of foodgrains. However, this growth process hardly constituted socialist advance.

In a major compromise that the captains of industry made with the landed gentry, the Indian state proceeded with extreme caution on land reforms and breaking up of the monopoly of landed property. While some degree of abolition of zamindari and absentee landlordism took place and there was, likewise, limited tenancy reform, the basic structural inequality in the distribution of productive assets in rural India, especially land, remained intact.

With the shift, from the mid-1960s, to a new agricultural strategy that laid emphasis on a technocratic approach to enhancing productivity in agriculture, land reform was put on the back burner, and rural asset inequality increased further even as agricultural productivity increased. The countryside witnessed an increasing incidence of wage labour and a large increase in the share of petty producers on the one hand and concentration of productive assets in the hands of a few on the other.

The urban inequality story was no different. The main aim of economic policy was to achieve industrial and economic growth based on the drive for profit on the part of private capital while the state provided the necessary infrastructural and other inputs. Thus, the state provided to domestic industry a considerable degree of protection from external competition, at least up until the economic reforms of the 1990s. It built the necessary financial and industrial as well as human resource infrastructure, financing these efforts by predominant reliance on indirect taxes and on borrowing, even as it offered a variety of tax concessions to the rich in the hope of encouraging investment. The political inability and unwillingness of the state to tax the rural and urban rich to finance public investment on an adequate scale made this path increasingly unsustainable by the late 1960s, especially with the failure to carry out comprehensive land reforms limiting the growth potential of agriculture and rural transformation.

The Indian economy grew, in terms of GDP, even faster after 1980, at about 5 per cent per annum in the first half of the 1980s and at 6 per cent per annum in the second half. Its rate of growth over the last decade of the 20th century and the first decade of the 21st has been on the average over 6 per cent per annum compound. However, this has not meant any reduction in inequality or any resolution of the challenge of meeting even the basic needs of food, clothing, shelter, education and health of the majority of the population.

Since the early 1980s, and more rapidly since 1991, economic policies have moved in a sharply neoliberal direction, limiting the role of the state to that of meeting the demands of private investors and signalling a jettisoning of even the limited welfare measures that used to be considered a part of the duty of the state.

The political rhetoric has also shifted ground, from an emphasis on limiting the concentration of economic power in the hands of a few signalled, for instance, by the Monopoly and Restrictive Trade Practices (MRTP) Act of 1969 as well as the nationalisation of major commercial banks in the same year to an unabashed celebration of the power of private profit and an economic policy regime based primarily on attracting private investment as the engine of growth by offering numerous tax and other concessions and promoting policies of globalisation and liberalisation.

The past two decades have also seen a reversal of land reforms of the type that seek to reduce the degree of concentration of land ownership and operation in an effort to promote corporatisation of agriculture. Foreign capital, primarily foreign finance that seeks to make quick profits through playing the stock markets rather than be here for the long haul by setting up manufacturing and other productive activities, has become highly influential in shaping economic policy. Policy is now focussed primarily on retaining the confidence of the foreign investor rather than on responding to the needs of the electorate.

The policies of deregulation, privatisation and globalisation have run counter to the professed goal of building a socialist India. But the point needs to be stressed that the pre-liberalisation strategy of development of the 1950s to the 1970s was also about building a modern, capitalist economy, not a socialist one. The popular myth promoted assiduously in sections of the media and the academe that India followed socialist policies before 1991 and then moved over to capitalist policies euphemistically referred to as market-friendly policies realising the folly of such policies is exactly that and not at all a reasonable description of the evolution of Indian economic policies since Independence.

While the state remains an important player in the economy today, both in terms of the presence of large public sector enterprises and in terms of the role of governments at all levels taken together as spenders and implementers of various schemes, it is beyond any doubt that the Indian economy is best characterised as a capitalist economy with significant presence of pre-capitalist relations, especially in the agrarian economy, with no whiff of any kind of socialism.

While the dramatic changes in the world economy and polity since the end of the 1970s, in particular the rise of international finance capital and the collapse of the USSR and the former East European socialist systems, have played an important part in the transition to neoliberal policies, the logic of a path of capitalist modernisation without comprehensive land reforms inevitably renders autonomous development exceedingly difficult. The result is what we have in India, namely socialism in the Constitution and neoliberal capitalism with agrarian crisis and massive deprivation, unemployment and under-employment on the ground.

An economy in which government accounts for about one-fourth of national output and most of the productive assets are in private hands hardly qualifies as a socialist economy or society. The enormous inequality in the distribution of assets and incomes and the persistence of mass poverty and deprivation confirm that the term socialist in the Constitution remains at best a wish. Such a wish will not be realised as long as the dominance of private capital, domestic and foreign, continues.

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