October 26, 2014

The Nehruvian Economic Strategy

Prabhat Patnaik

THIS being Jawaharlal Nehru’s 125th birth anniversary, much is being written about him and the economic strategy he pursued. The corporate-controlled media are full of articles criticising the “inward looking” dirigiste economic strategy that Nehru, along with PC Mahalanobis who was in charge of the planning process for much of the Nehru era, was supposed to have introduced. It is being claimed that this strategy kept the dynamism of the economy “under a leash” because of its refusal to take advantage of trade possibilities open to the country, because of its hostility to foreign capital, and because of its suspiciousness towards domestic capital. The fact that the economy has grown at much higher rates after these constraints upon its dynamism were removed, when the neo-liberal strategy got introduced, is held as retrospective proof of the damage done to the country by the Nehruvian strategy. BASELESS CRITICISM ECHOING IMPERIALIST AGENCIES This criticism however is totally without any basis. It echoes the criticism levelled by imperialist agencies against the Nehruvian strategy during his life-time and even afterwards. The fact that Nehru’s own Party, the Congress Party, has abandoned the Nehruvian economic strategy and has adopted what was being advocated by imperialist agencies in Nehru’s time and was stoutly resisted by him, does not validate this imperialist criticism of his strategy. Of course, the Left strongly criticised the Nehruvian strategy in Nehru’s time, and has continued to criticise it afterwards. But the Left criticism is from an altogether different perspective. Its argument all along has been not that the anti-imperialist thrust of the Nehruvian strategy was wrong, but that it was not enough. The Nehruvian strategy was flawed because it did not take sufficient steps to break up asset concentration in the country, especially land concentration through radical land redistribution, because of which the domestic market that occupied a central position in this strategy remained constricted, the growth of productive forces that could have been sustained by the home market arrested, and the basic problem of poverty of the people insufficiently addressed. This flaw of the Nehruvian strategy, the Left holds, is what actually created the condition for its overthrow and for the introduction of neo-liberalism at the behest of imperialist agencies. I shall in this piece however not elaborate on the Left criticism of the Nehruvian strategy, which is well-known. I shall only discuss the neo-liberal criticism of this strategy. In doing so, I shall also not go into all the issues but highlight only one of them. A necessary condition for overcoming acute hunger and poverty in a country like India is that the ex ante net foodgrain availability, which can be defined as net output plus net imports minus the “normal” net addition to foodgrain stocks, must increase in per capita terms. Of course even when this happens, hunger and poverty may continue and even accentuate because the ex post or actual net per capita availability of foodgrains may fall despite the rise in the ex ante net per capita foodgrain availability. And this may happen for two possible reasons: one reason is that there may be “abnormal” additions to foodgrain stocks on account of private hoarding which pushes up prices and worsens the food deprivation of the people; and the second reason is that, even when there is no private hoarding, there may still be a shortage of purchasing power in the hands of the people which prevents them from buying what they need, and which shows itself in terms of a perpetuation or accentuation of hunger on the one side, and of unwanted abnormal additions to foodgrain stocks on the other. The entire half century before independence for which we have data, witnessed a drastic decline in per capita net availability of foodgrains in “British India”, from 199 kilograms per annum for the quinquennium 1897-1902 to 148.5 for the quinquennium 1939-44. In 1945-46 it had actually gone down to an abysmal 136.8 kilograms. This decline was owing mainly to a decline in ex ante availability as defined above, i.e., owing to a decline on the supply side even in the absence of any private hoarding (which was there only during the war years, but not for the period as a whole). The reasons for this decline are not far to seek. With the land area given and most of it used up, with very little “land augmentation” through irrigation (which makes multiple cropping possible) because of the colonial government’s insistence on the policy of “sound finance” (i.e., of balancing the budgets and borrowing at best for projects that yield a stipulated minimum rate of return which more or less ruled out irrigation projects), and with very little innovation in seeds and agricultural practices for obtaining higher yields, the prospects of raising agricultural output were virtually non-existent. In addition however the growing demand for commercial crops arising because of capital accumulation in the metropolis, meant that foodgrain production actually suffered. Per capita output of foodgrains in “British India” actually dropped from an annual average of 201 kilograms in 1897-1902 to 146.7 in 1939-44. This was entirely in keeping with the pattern observed elsewhere in the world. The combination of an absence of “land augmentation” on the one hand, with an exposure to the world market where the pull of metropolitan demand makes the tropical land mass produce more commercial crops in lieu of food crops, had caused an acute increase in hunger and poverty in all tropical colonies and semi-colonies. India was no exception to this pattern. Those who argue against the “inward-looking” strategy (a phrase used by the World Bank) and underline the benefits of trade, invariably fail to distinguish between primary commodity exports (especially of agricultural goods) and manufacturing exports. Agricultural exports from the tropical land mass invariably entail a reduction in domestic foodgrain output, since the more or less fixed supply of land is diverted towards producing export crops. The theory of international trade that constitutes part of bourgeois economics and advocated free trade would ask: “So what? Why can the country not import foodgrains from outside to make up for what it does not produce?” There are two obvious reasons why this would not happen. First, a reduction in the output of foodgrains through a shift of acreage to export crops invariably implies a reduction in demand for foodgrains as well, through a reduction in employment and purchasing power, because foodgrains are more employment-intensive per hectare than export crops. Hence reduced foodgrain output simply means greater hunger and poverty. Secondly, the signal for such imports would arise only if domestic prices of foodgrains increased owing to their reduced output; but whenever this happens, governments impose deflationary policies on the economy to counter the price rise, which also means a curtailment of demand. An export-oriented economic strategy in conditions where agricultural goods are exported but the State does not engage in “land-augmenting investment”, which is typically the case in open “liberalised” economies, is thus a recipe for growing hunger and poverty, no matter how high the GDP growth rate because of such export-orientation and how successful the country in also pushing out manufactured goods exports. Any government serious about making some dent on poverty and hunger therefore must adopt a combination of the following measures: restrictions on agricultural exports; pursuit of “land augmentation” through investment in irrigation and in research and development on seeds and agricultural practices; and the pursuit of a whole package of other complementary measures for increasing food production. DEVELOPING SELF-RELIANCE Now, in an ex-colonial economy, which had traditionally relied upon agricultural exports (or exports of processed agricultural goods) to earn its foreign exchange, any such restrictions on agricultural or agro-based exports would necessarily cause a shortage of foreign exchange, because of which, even leaving aside all other considerations, it must attempt to be self-reliant. It must not just substitute for imports in general; it must in addition develop the wherewithal, including by mastering and, wherever possible, developing the requisite technology, to be self-reliant. This is precisely what the Nehruvian strategy visualised. It was a strategy for developing self-reliance, for ceasing to be an exporter of agricultural crops or agro-based products, and for ensuring that per capita foodgrain availability in the country increased over time to reverse the disastrous trend of the last half-century of colonial rule. This way of providing a rationale for the Nehruvian strategy, by invoking the need for overcoming hunger and poverty, was, no doubt, not the way adopted by those who actually formulated this strategy. But the rhetoric borrowed from Soviet planning by the champions of the Nehruvian strategy which appeared so much more attractive to them, should not obscure the fact that overcoming hunger by producing more food was an elementary requirement for the country’s economic advance which had been recognised from the days of the anti-colonial struggle. And the Nehru era itself had begun with the “Grow More Food” campaign. There is a commonly-held view that the Nehru-Mahalanobis strategy ignored agriculture in its quest for building heavy industry, because of which what is said above may appear strange to some. There is no doubt that within the framework of the major five-year plans of that era (which excludes the first plan that was not much of a plan), agriculture did not receive the emphasis that it should have. Various reasons have been advanced for it, which range from the underestimation of the agricultural constraint on account of the good harvests of the mid-fifties, to the belief that agriculture was a “bargain sector” where much additional output could be obtained through institutional changes even without much investment, and so on. But compared to the colonial period that had preceded it, the Nehru era saw an emphasis on agriculture that was quite unprecedented. It is not surprising that from an annual average of 146.7 kilograms for 1939-44, per capita net availability of foodgrains climbed up to 168.44 for the quinquennium 1961-65 which saw the end of the direct Nehru era; it was to climb further to almost 180 kilograms by the end of the 1980s before the adoption of neo-liberalism that brought it down once again. Those who argue in favour of export-orientation and against the so-called “inward-looking” strategy ignore the fact that both during the colonial period and during the neo-liberal period when this strategy was pursued, there was a decline in per capita foodgrain availability and the extent of hunger increased greatly; indeed it increased in the latter period despite the bouts of high growth which are advertised as constituting the success of the “neo-liberal” strategy. The real problem of the Nehruvian strategy, apart from its lack of emphasis on universal literacy, education and healthcare, lay elsewhere. It lay in the fact that it did not push for the institutional changes that were required precisely for eliminating hunger, food insecurity and poverty, viz., land redistribution and the formation of co-operatives to transcend the limitations of petty production, and, at the other end, an attack on asset concentration in the hands of the monopolists.