Having being an activist-journalist for most part of the past 50 years and broadly supportive of the Nehru-Mahalanobis model, reading through special supplements to mark 50 years of Indias Independence was a painful experience. The biggest jolt was from the fact which came out, namely, that purely in economic terms, Pakistan's performance had been better than Indias. In a mood of self-introspection, I decided to write an autobiography titled Story of a defeated soldier, with the opening line: In my failures lie my successes.
Our biggest failure has been that we did not change even when the situation changed. The first instance of missed opportunity was when the world textile boom passed us by even though we were in a position to take full advantage of it. The Gandhian legacy is responsible for this. The first economic offensive by the imperial powers was in the form of textile exports. The Japanese leaders of the Meji Restoration faced the challenge by sending their boys to Europe to learn to make equally efficient looms and spindles. But the response of our nationalist leaders was Back to charkha.
The difference in response at that point of history was understandable. Japan was a semi-colony and had enough space for the growth of indigenous industry. But India was a full colony and except during the war periods, space for the growth of indigenous industry was extremely limited. Independence materially changed the situation but the charkha legacy persisted. Ironically, the Gandhian moneybags were mostly textile industrialists, yet the Congress government strangulated the growth of efficient composite textile mills.
Strangely enough, anti-Congress parties pursued an anti-technology Gandhian legacy more vigorously than the Congress. The Congress governments textile policy provided enough space for the growth of the decentralised powerloom sector. But the Janata government adopted a textile policy which stopped short of dismantling the existing powerlooms.
Similarly, the ideological roots of the reservation mentality can also be traced to the Gandhian legacy. The reservation of a large number of industries for the small sector is the second biggest source, after the public sector, of Indias economic inefficiency. Instead of providing incentives for growth and efficiency, the reservation policy encouraged them to stay small and inefficient.
The idea that the public sector should be the principal instrument of industrialisation predates Nehru. It was first mooted by the great nationalist economic thinker, M G Ranade. Even the Tata- Birla plan prepared on the eve of Independence accepted the principal role of the State sector. Nehru implemented it with a vengeance. Initially, it produce encouraging results. But in his misguided enthusiasm, Nehru, instead of leaving it at a pragmatic level, raised it to an ideological level. This found manifestation in Schedule A of the Industrial Policy Resolution of 1956, which listed industries where private sector was disallowed. There was no rationale as to why productive prices should ever be restricted, more so in the initial phase of industrialisation.
The damage increased when, under populist-socialist pressure, the public sector diversified into consumer items. In fact, some of the admirers of the Stalinist model were uneasy with this mindless expansion of the public sector. The economic policy resolution of the Gandhinagar AICC session in 1972, prepared by D P Dhar, for instance, disapproved of the public sectors expansion into consumer goods, but it was drowned in populism. The Nehruvian legacy reinforced the popular mistrust of the private sector. Capital became a dirty word.
Some half-hearted attempts were made to dilute the fixation with the public sector. For instance, communist leader, S A Dange, suggested that the management of the public sector be handed over to the private sector. This suggestion did not take off. Much later, an exit-entry approach, which sought that the public sector should exit from established industries and enter into hi-tech, capital-intensive areas, was suggested. This suggestion also did not take off.
Another Gandhian-Nehruvian legacy which persisted for quite some time was economic nationalism. Up to a point it was relevant. For instance, during the 1965 Indo-Pak war, American- and British-owned refineries refused to process extra crude. In that period, the policy against multinationals was a natural response. In fact, economic nationalism was an important motivation behind the economic success of the first generation of Asian Tigers -- Japan, South Korea and Taiwan. However, when multinational started evolving into transnationals, Indias attitude did not change. Thus, massive flows of FDI continue to bypass India.
The greatest frustration is that whereas State intervention produced an economic miracle in East Asia, in India it retarded growth. This is so because State intervention in India was in response to pressures generated by democracy, led by a weak leadership. The Asian Tiger governments were relatively free from such pressures. In India, State intervention was socially-oriented in the form of subsidies, whereas it was aimed at generation of wealth and ignored the distributive aspect in East Asia. Thus, South Korea and Japan subsidised credit for efficient large industries. India, on the other hand, subsidised credit for the economically inefficient smal and cottage industries. When the leadership was strong, i.e during Nehru's rule, the burden of subsidies was minimal. As the leadership started weakening, the subsidisation bill started ballooning.
However, the present as well as the future generation will have no stomach for excuses. We can redeem some prestige, get some regard from them, if our generation, in humility, admits as Gokhale did when he welcomed Gandhis return from South Africa: We served the nation with failures. Hopefully you will serve the country with success.
