Nehru's legacy: Development plan

Development model

Print edition : December 12, 2014

1950: Nehru signing the First Five Year Plan (1951-56) document. Photo: The Hindu Archives

1959: Nehru with P.C. Mahalanobis. The Nehru-Mahalanobis strategy constitutes, to this day, the core of any genuine anti-imperialist and pro-people development strategy in an economy such as India's. Photo: The Hindu Archives

January 7, 1958: Nehru at the industrial estate at Guindy in Chennai. Chief Minister K. Kamaraj and the Madras State Industries Minister R. Venkataraman (right) are also in the picture. Photo: THE HINDU Archives

December 1952: Nehru visiting the Mullaperiyar dam in Kerala's Idukki district. The Nehru-Mahalanobis strategy, while attempting to boost land augmenting investment (such as irrigation), eschewed any attempt at boosting agro-based exports. Photo: THE HINDU ARCHIVES

The Nehru-Mahalanobis strategy, which does not promote the export of products that take land away from foodgrain production, must constitute the crux of any anti-imperialist development plan.

ONE’S interpretation of the Nehruvian economic strategy (or the Nehru-Mahalanobis strategy as the economist Sukhamoy Chakravarty had called it) depends naturally upon one’s conceptual framework, and it need not even coincide with that of the framers of the strategy. It is perfectly possible, in other words, to see the content of the Nehru-Mahalanobis strategy very differently from the way even Nehru or Mahalanobis saw it. In what follows, I wish to use a conceptual framework for interpreting the Nehru-Mahalanobis strategy that is altogether different from what has been commonly used by its authors, critics and defenders alike, and argue that the strategy as interpreted on the basis of this alternative framework constitutes, to this day, the core of any genuine anti-imperialist and pro-people development strategy in an economy such as India’s.

Before doing so, however, let me first examine the usual interpretation of this strategy, which, I do not dispute, is also perfectly justified. This sees the strategy as emphasising the development of basic and heavy industries as a necessary step for accelerating economic growth, in a situation where the economy’s export prospects are bleak. The rationale of the strategy is simple: the growth rate of an economy with a set of interdependent sectors is constrained ultimately by the sector that constitutes a bottleneck. Raising the growth rate for the economy as a whole, therefore, requires directing initially the bulk of the resources towards the removal of this bottleneck.

This would, of course, be unnecessary if trade opportunities were ample, for then the product of any other sector could be exported, and in exchange the bottleneck good could be imported; but when export prospects are limited, then raising the output of the bottleneck sector, which in India’s case was identified as the basic and heavy industry sector (or the “machine-making sector”), becomes a matter of priority for lifting the constraint on overall growth.

There is a theorem in economics called the “Turnpike Theorem”, which establishes that the highest rate of growth of a bundle of goods in a closed economy is achieved in the long run by concentrating resources, to start with, on the bottleneck sector. The Nehru-Mahalanobis strategy, as several renowned economists from Maurice Dobb (of Britain) to Leif Johansen (of Norway) have pointed out, is a special case of a “Turnpike strategy”. And the very pursuit of such a strategy on the assumption of a closed economy is ipso facto a pursuit of economic self-reliance where the economy does not have to depend on world trade prospects.

P.C. Mahalanobis, in a mathematical model remarkably similar to one developed in 1928 by the Soviet economist G.A. Feldman, had defended the Second Five Year Plan strategy exactly on these lines; and, of course, Nehru had been in agreement with him on the basic strategy.

The criticism of the World Bank and of neoliberal economists against this strategy has always been that it underestimated the trade prospects available to the economy. Because of its “inward-looking” nature it missed out on the growth opportunity that being linked to the world economy offered at that time. By contrast, the East Asian economies, which seized this opportunity, performed better than India (prior to India’s abandoning this “inward-looking strategy”).

Likewise, the criticism of others has been that it is not the “machine-making sector” but agriculture that was the real bottleneck sector for the Indian economy, so by emphasising the former and ignoring the latter, this strategy caused an increase in foodgrain prices and perpetuated poverty.

Both these criticisms have been countered by the defenders of the strategy. Against the first criticism, it has been argued that the idea behind the strategy, as Mahalanobis himself had stated explicitly, was not to promote autarky but to engage in world trade on the basis of an altered (less agro-based) production structure compared to the one that prevailed at the time of Independence, which would actually lead to a higher rate of export growth. This was because world trade in the sort of goods whose production the strategy would be promoting, grew faster than in the goods that the country predominantly produced at Independence.

Against the second criticism, it has been argued, that while emphasising investment allocation in favour of heavy and basic industry, the strategy did not actually ignore agriculture, but sought to increase its output through other means, notably through increasing the effectiveness of investment (that is, through an increase in the output-capital ratio). Of course, the most potent way of doing so was through land reforms, which the strategy did not properly address, as the Left had pointed out at the time, but that relates not to any conceptual flaw in the strategy per se but rather to the class character of the state (that is, the need to placate the landed interests).

There is, however, a different way of perceiving the Nehru-Mahalanobis strategy, for which I shall use a conceptual framework provided by the statistician-economist Ashok Rudra. He had divided the Indian economy of the time into three broad sectors: Agriculture and agro-based industries; mining and mineral-based industries; and universal intermediaries (such as electricity), and had discovered something remarkable, namely that the second group hardly used any current input from the first.

Of course, the first group provided food, clothing and other necessities for all, including those employed in the second group, but this was for consumption, not for use as current material input in production. An expansion of the mining and mineral-based industries, therefore, made hardly any demands upon agriculture for non-food or non-clothing purposes. It could expand without in anyway jeopardising food security, for instance, by drawing land away from food production to the production of some industrial raw material required for its expansion.

India’s production structure at Independence was dominated by the first group, and so was its export structure, where “manufacturing” exports took the form primarily of jute and cotton textiles. Emphasising export growth as a means of raising the growth rate of the economy in such a situation would necessarily have meant at best, if at all notable export growth could have been achieved, pushing out more agro-based products, which would have jeopardised the country’s food security by diverting land away from the production of foodgrains.

It may, of course, be argued that being “outward-looking” would have drawn foreign capital to set up manufacturing units for exports, as had happened in East Asia, but there are two obvious problems with this argument, even leaving aside all questions of whether this was a desirable way for India to have followed (because of the constraints on labour and other democratic rights that such a path entails). First, direct foreign investment for locating plants in low-wage Third World countries, with the objective of selling to the world market (not the local market), was still not a pervasive phenomenon at the time. Second, the “open regime”, that would have been required for attracting such investment, would still have had the effect of jeopardising the country’s food security for precisely the reasons discussed above.

The seriousness of the food security issue has to be seen in the historical context. At the beginning of the 20th century, according to the estimates of George Blyn, the annual per capita foodgrain availability in “British India” was around 200 kilograms. By 1945-46, it had declined to 136.8 kg. Even if we take the quinquennial average for 1939-44, it was 148.5 kg. The Great Bengal Famine of 1943, which claimed over three million persons, though directly caused by the War-time deficit financing resorted to by the colonial government, has to be seen against this backdrop of declining per capita foodgrain availability and secular growth in the magnitude of hunger (which increases people’s vulnerability to any further decline in food intake). The basic reason for the decline in foodgrain availability was that land under foodgrains was being diverted for commercial crop production, even though gross cropped area was not increasing, and little was being done to effect any yield increase.

Measures for land augmentation

It was essential in this situation to increase per capita foodgrain output and availability, both by undertaking measures of “land augmentation” such as expanding net sown area, providing irrigation and bringing about yield increases, and also by preventing the diversion of land for commercial crop production, at least for exports (since such diversion for clothing the people better could scarcely be cavilled at).

The Nehru-Mahalanobis strategy did precisely that: while attempting to boost land augmenting investment (such as irrigation), it eschewed any attempt at boosting agro-based exports, which is essentially what an “outward-looking” strategy such as the one advocated by the World Bank and the neoliberal economists would have entailed. The essence of the Nehru-Mahalanobis strategy in my view lies in its attempt to expand the mining and mineral-based industries and to shift the industrial structure away from agriculture and agro-based Industries to mining and mineral-based industries. The “industrialisation” it visualised related primarily to the expansion of this latter group of industries, which made less demand on agricultural land.

There is, in fact, a basic problem with the “free trade” or the “more liberal trade” argument, which is being propounded to this day at fora such as the World Trade Organisation (WTO), which has not received adequate attention. The argument assumes not only perpetual full employment (thus precluding any possibility of “de-industrialisation” which, for countries such as India, has been a fact of life), but also that all countries have the same basic “factor” endowments (though in different proportions) and can, therefore, produce all goods. Trade simply ensures that among countries, all of which can produce all goods, which country produces what gets determined by their respective “comparative advantages”. But this assumption is obviously absurd, since tropical goods, which are producible only on the tropical land mass, cannot be produced in the temperate regions (where metropolitan capitalism is located).

This tropical land mass is of limited size. In the absence of what I mentioned earlier as constituting “land augmentation” (which invariably requires state initiatives, in providing irrigation and undertaking yield-raising measures, of the sort that the colonial government had not undertaken, and which the neoliberal state, too, constrained to pursue “fiscal responsibility”, cannot undertake), greater demands for tropical products for exports, either directly or indirectly (through manufactures into which they are embodied), necessarily reduces, therefore, the availability of foodgrains for the local population from domestic sources.

It may be thought that this should not matter much since foodgrains can always be imported with the foreign exchange earned through the export of commercial crops or of manufactures based on commercial crops. But this is problematic for at least three reasons.

First, in the case of some of the foodgrains such as rice (which happens to be the most important grain demanded in the country), adequate surpluses are simply not available in the world market for import, so that India has little option but to produce the bulk of its own rice requirement.

Second, dependence on the metropolitan economies for food imports is used by them for arm-twisting, as the Indira government realised before launching the “Green Revolution”. And third, food is too crucial a commodity for which a country of India’s size can afford to be import-dependent. India’s going to the world market itself pushes up world prices; and the slightest delay in obtaining food can spell disaster.

It follows, therefore, that shifting the production pattern towards mining and mineral-based industries not only made eminent sense for India but was essential. This required not a thrust on exports as they existed at the time but rather a withdrawal from exporting commodities that directly or indirectly used land at the expense of foodgrains. And this is what the Nehru-Mahalanobis strategy entailed. Many economists, including I.G. Patel, were to defend the Nehru-Mahalanobis strategy on the grounds that India’s “comparative advantage” lay precisely in the sectors emphasised by this strategy. That may well be true, in view of India’s rich iron ore reserves, but the point I am making is different, namely, the need for abandoning the criterion of “comparative advantage” itself. Even if India did not have any “comparative advantage” in mining and mineral-based industries, and even if the export prospects were bright in India’s existing export items, as is claimed in opposition to Nehru-Mahalanobis strategy (whose justification is assumed to derive exclusively from bleak export prospects), nonetheless, India could not afford to jeopardise its already abysmal food availability scenario at Independence by pushing out more exports that claimed land away from producing foodgrains.

Declining food availability

The Nehru-Mahalanobis strategy is usually faulted for ignoring India’s foodgrain needs by emphasising not agriculture but heavy industry. In fact, in my view the rationale of the strategy derived precisely from the fact that it was essential for India’s food security. Its so-called “inward-looking” nature, far from being a mistake caused by an erroneous assumption of export pessimism was essential for improving food security and overcoming hunger. Indeed the average annual per capita net foodgrain availability, which had come down to 148.5 kg for “British India” during 1939-44, had increased by the end of the Nehru government to 168.44 kg (between 1961 and 65).

It should, of course, have increased much further. The Left’s criticism about the Congress government succumbing to the pressure of landed interests to desist from radical land redistribution, which, apart from keeping the old social structure intact in crucial ways, also arrested the development of the productive forces in agriculture, remains valid. But to fault the Nehru-Mahalanobis strategy on the grounds that it did not go in for an “outward-looking” strategy has little merit. As regards the argument that “liberalisation”, when it occurred, unleashed far more impressive growth rates than in the Nehru era, or indeed in the entire pre-“liberalisation” era that had been swayed by the Nehruvian strategy, it is no accident that the per capita net foodgrain availability, which had climbed up close to 180 kg by the end of the 1980s, is now languishing at around 161 kg, which is considerably lower than at the time of Nehru’s death. The magnitude of hunger today is much higher than at the time of Nehru’s death.

Likewise, it is instructive that several of the Asian economies that had appeared to have forged ahead of India in terms of growth, through an “outward-looking” economic strategy, are today facing acute economic difficulties (which includes Japan, the most successful of “export-led growth” stories of Asia); and many of them are being thrown back on primary commodity exports for sustaining their balance of payments as in the colonial times. (Thailand and Indonesia are obvious examples.)

The Nehru-Mahalanobis strategy, as I have interpreted it here, namely a strategy that does not promote the export of products, which directly or indirectly takes land away from producing foodgrains, has a general applicability, not confined to that period alone. It must constitute the crux of any anti-imperialist development strategy: capital accumulation in the metropolis increases the demand for a variety of products of tropical land, which have the effect of diverting such land away from foodgrain production and of giving rise to growing hunger among the people. If this is to be reversed, then there is no alternative to a strategy that prevents such exports and develops sectors which do not lead to reduced foodgrain availability through land diversion. To be sure, such a strategy requires, as its complement, land reforms and pervasive efforts to raise foodgrain output. But eschewing exports that undermine food security is a must.

But then, is one reading something into a strategy that it never actually visualised? Here one should distinguish between an intuitive understanding that underlies a strategy and the reasoning through which it is articulated. Nothing illustrates this distinction better than a story recounted by John Maynard Keynes about his meeting with Albert Einstein. Einstein apparently told Keynes to the effect that “I do not know any economics. I only know that Marx was right, but I will not be able to tell you why.” Einstein’s intuition about Marx being right had marched ahead of his reasoning. Likewise. at the time of Independence, I believe, it was common intuition for many that the country should not just export agricultural or agro-based industrial goods. Nehru and Mahalanobis shared that intuition. Even if one quarrels with the precise theory adduced to support that intuition (which I do not), one can scarcely quarrel with the correctness of the intuition itself.

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