In ‘The Nehru Development Model’, Prof Arvind Panagariya Offers Solid Critique Of Nehru's Policies, Not The Man

The Nehru Development Model: History and Its Lasting Impact. Arvind Panagariya. Penguin Viking. 2024. Pags 544. Rs 844.

In his seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith writes, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interests."

In this statement, Smith elucidates the mechanisms through which nations accumulate wealth, emphasising that motivating individuals through self-interest is essential for generating prosperity, which is crucial for alleviating poverty. This principle underpins the framework of free-market capitalism, standing in stark contrast to the tenets of socialism.

The affinity of Jawaharlal Nehru, the first prime minister of independent India, for socialism is well documented and widely recognised. He openly identified as a socialist during the Lahore session of the Congress in 1929, significantly influenced by the Soviet model of planning, which advocated for a greater role of the state in economic affairs.

As he guided the nation towards economic development following independence, Nehru's initiatives focused on the establishment of heavy industries, the expansion of the public sector, and the protection of the domestic economy from global market fluctuations.

This ideological framework persisted beyond the Nehruvian period, becoming deeply embedded in the political, intellectual, bureaucratic, and business discussions in India for an extended duration.

Professor Arvind Panagariya's recent book, The Nehru Development Model: History and Its Lasting Impact, offers a critical examination of the detrimental effects associated with Nehru's economic model by analysing its long-term consequences.

While Nehru's policies have faced both criticism and praise, Panagariya provides a comprehensive exploration of Nehru's economic framework.

The book is structured into three distinct sections. In the initial section, the author elucidates the economic model implemented in India up to the second five-year plan, which bears Nehru's influence.

Panagariya further articulates the evolution of Nehru's economic ideology, transitioning from radical socialism to Fabian socialism. He attributes Nehru's shift towards socialism to his visit to the USSR (the Soviet Union) in 1926, which was undertaken for the treatment of his wife.

He references Nehru's address at the Punjab Provincial Conference in 1928, where Nehru asserted that "capitalism leads to exploitation... The only alternative is State ownership of means of production and distribution..." This sentiment is echoed in his subsequent speeches in Calcutta and Lahore.

Furthermore, Nehru's articles published in the Indian press in 1933 reveal his profound commitment to socialism. His disdain for free-market capitalism is so pronounced that he equates it with fascism, as evidenced by his press release in 1933, which stated that the only genuine choice for nations was between fascism and communism, with his preference clearly leaning towards the latter.

Nehru's writings and speeches from 1946 onwards reflect a notable transition from radical socialism to a more moderate form known as Fabian socialism. Despite this shift towards moderation, the underlying belief that wealth generation was inherently sinful persisted.

The introduction of the licence-quota permit system and the resulting autarky, along with the decision to invest capital in heavy industries despite a lack of labour, were deemed by Panagariya as the most inefficient use of both capital and labour resources.

The author also highlights the role of other prominent figures of the era in formulating and influencing economic policies, noting that none opposed the centralisation of heavy industries. Furthermore, the visiting economists and statisticians from abroad tended to lean left, often praising the Soviet model.

However, Panagariya points out an exception in Milton Friedman, a leading proponent of free-market capitalism and monetarism. Friedman foresaw the significant shortcomings of India's second five-year plan and criticised the public sector's foray into manufacturing.

In 1955, he extensively detailed the flaws of the socialist planning model that India was adopting, yet his insights were overshadowed by the draft plan committee led by the then finance minister and 20 other economists. This group, characterised by its socialist leanings, exhibited a lack of faith in the allocative efficiency of prices and markets, thereby fully supporting government regulation and control over all facets of economic activity.

The second section of the book provides insights into the context of policy and its development over time. It also outlines the mechanisms involved in investment licensing. While readers may perceive this section as daunting due to its complex technical details, it is essential to understand that a thorough critique requires a deeper engagement with the policy material.

In essence, this section necessitates a patient and deliberate approach to reading. The author has cautioned in his preface about certain sections being “dull and tedious.” Nevertheless, it serves as an invaluable reference for the economic history of the Nehruvian era.

The final section explores the enduring influence of Nehruvian socialism following his death. Panagariya asserts that it established a deterministic trajectory for India, as the “inheritance of ideas across generations” made it difficult for any leader to convincingly propose an alternative.

The socialist ideology permeated the thinking of prominent politicians after Nehru's era. It was only as late as 1985 that some cracks in the foundation of socialism became apparent when then prime minister Rajiv Gandhi, described by the author as “the first PM without the baggage of socialism,” attempted to make a significant change.

Rajiv proclaimed, “We seek self-reliance, not autarky,” which Panagariya highlights as the first instance of a prime minister publicly challenging Nehru's socialist principles.

Nevertheless, Rajiv's limited achievements in economic reform were attributed to his lack of political skill, a quality that was notably present in his successor, prime minister P V N Rao. Panagariya commends PM Rao for the “speed and scope of reform that exceeded even the most fervent proponents of reform.”

The author provides a nuanced critique of Prime Minister Narendra Modi's economic policies, noting that the record of his administration is not without its shortcomings.

While the book critiques Nehruvian socialism, it does not engage in disparaging Nehru himself. Instead, the author acknowledges Nehru's significant role in steering India towards a successful democratic framework, while also highlighting the economic shortcomings that accompanied this journey.

This work offers a comprehensive account of India's economic history, supported by thorough research and citations, which one would anticipate from a scholar of Prof Panagariya's caliber.

Academic researchers will find this book particularly beneficial due to its extensive references. For those outside the academic sphere, it serves as an insightful exploration of how the prevailing wisdom of different eras shapes the destinies of nations, its enduring effects, and the efforts to transcend those influences.