Dr Ambedkar, The Economist

Dr Ambedkar, The EconomistDr B R Ambedkar
  • We know him as the chairman of the Drafting Committee of the Constitution, as a leader of the Dalits, as a philosopher, but what do we know about the Ambedkar the economist?

    Recalling his extensive contribution to economics on his 127th birth anniversary.

While discussing the multidimensional personality of Dr B R Ambedkar, it is but natural to forget that first and foremost he was an economist. In fact, he was the first Indian to be awarded a PhD in economics and has extensively worked on the problems of the Indian economy. He earned a masters degree and a PhD in economics from the Columbia University, USA, in 1915 and 1917 respectively. In the three years, he spent at the university, he completed 29 courses in economics, 11 in history, six in sociology, five in philosophy, four in anthropology, three in political science. Besides this, he also took an elementary course in French and German, each. Then he pursued a doctorate in science from the London School of Economics (LSE), and which was awarded to him in 1923. Therefore, it is of interest to look into his four major published works in the field of economics.

Dr Ambedkar had published three books in the field of economics dealing with the public finance and monetary economics: Administration and Finance of the East India Company, The Evolution of the Public Finance in British India and The Problem of Rupee: Its Origin and Solution.

Most of the people are aware of the Poverty and Un-British Rule in India by Dadabhai Naoroji where he put forward his theory of the drain of wealth from India. His work is among the first and the finest economic critiques of the imperialism. But little is known about the economic critique of the British rule by Dr Ambedkar in Administration and Finance of the East India Company. In it, he marshals the data from 1792-93 to 1857-58 to show that the economic policies of Britain had been ruinous to the masses. When the Company Raj ended, the entire debt accumulated by it during the conquest of India was simply transferred to the people conquered, and who were already reeling under destruction and poverty. He also points to the massive transfer of wealth from India to Britain via the route of tribute and transfers.

According to Ambedkar, the finances of a country are to be judged from the viewpoint of the development expenditure and within it the public works, but the record of the British rule on this front was abysmal. Most of the revenue from India went into the military expenditures mainly due to the costly foreign wars waged by British India in the service of the Empire. Furthermore, unlike other British dependencies, no provision was made for India’s military expenditure from the British exchequer. It was all entirely borne by the Indian revenues. He further points to the unequal trade and tariff polices, which kept India open to imports from Britain while imposing heavy duties on exports to Britain. This led to the destruction of Indian manufacturing base.

In The Evolution of Provincial Finance in British India, he had analysed the relationship between the Centre and the provinces from 1823 to 1921. With the data, he was able to show the chaos and mess that characterised public finance in British India. He identified the main reason as the diarchy where the law making and the revenue collecting powers were concentrated at the centre, but it was the provinces, which were primarily responsible for most of the public expenditure.

According to Ambedkar, ‘justice’ was missing in the fiscal policies of the British rule. The burden of taxation fell mainly on the poor instead of rich, and the public expenditure was geared towards maintaining the privileges and conspicuous consumption of the elite; i.e. zamindar class and government officials instead of public welfare. He also pointed out that due to the extraction policies of the British and flawed taxation policies, the base of taxation itself was shrinking and it was a major reason for the shortfall in revenue collection.

In the chapter one, The Imperial system: Its growth and its breakdown, he writes:

…On the other hand, the salt tax and the Moturpha, and other oppressive taxes continued to harass the industrious poor. It is indeed true that many petty and vexatious taxes prevalent under the native rule were abolished; there is, however, enough evidence to show that the revenue thus lost was made up by enhancing those that were continued to be levied, particularly the land tax. The latter charge has always been officially denied, but none the less it remains true that the land tax has been consolidated and increased concurrently with, if not consequently upon, the abolition of such other taxes as being raised from the poor cost the Government more than their yield. Under the injurious revenue system described above, the taxing capacity of the people decayed so that notwithstanding its numerous resources from which it derived its revenues, the Imperial Government was unable to make both ends meet.

It is this work, which laid the foundation for his contribution later on in crafting the Centre-state relations under the new Constitution, and also laid down the basic principles of what was to become the finance commission of India.

In 1923, he published his second doctoral thesis at LSE in the form of a book The Problem of Rupee: Its Origin and Its Solution. This delves into the evolution of the currency system in India since the 19th century and weighs into the debate about the desirable currency system and the exchange rate for India. The British commercial interests were lobbying for an overvalued rupee to ensure the British exports to India whereas by this time an Indian business class had also grown, which argued for devaluation to stimulate exports from India. Ambedkar was interested in the stability of the value of the currency and argues that nothing stabilises the currency without stabilising its purchasing power. He also delved into the possible impact of the exchange rate changes on the income distribution in India. He argued against the sharp devaluation, which would result in inflation and make life miserable for the masses. Instead, he favoured a moderate devaluation, which would be beneficial to the cause of the Indian industry.

He also focused on the issue of an appropriate standard for the currency system. British India had adopted the Gold-Exchange Standard instead of the Gold Standard. But according to Ambedkar, the Gold Standard was best suited for the creation of a stable monetary condition by stabilising the value of rupee. Here, he differed with John Maynard Keynes, who was an advocate of the Gold-Exchange Standard. According to Ambedkar, Gold-Exchange Standard system lacked the stability and predictability of the Gold-Standard system and also the control over the power of the government to issue the currency. The potential of issuing currency indiscriminately under the Gold-Exchange Standard, he argued, would destabilise the value of the currency by causing depreciation in its value.

Moreover, this would render it unfit to function as the money, thus destabilising the whole economy. The concerns expressed by Ambedkar came true in the post-Independence era of deficit financing by automatic monetisation of the government debt. The excessive printing of the currency to fund unrestrained government spending did harm the economy.

Ambedkar opposed being beholden to any dogma in the era when the debate in the realm of the economics was sharply divided into pro-capitalist and pro-socialist camps. The election manifesto for 1952 general elections of his Scheduled Castes Federation reads:

“For the purpose of increasing production, the Scheduled Castes Federation will not be bound by dogma or any pattern. The pattern of the industrial enterprise will be a matter regulated by the needs, the time and circumstances. Where national undertaking of the industry is possible and essential, the Scheduled Castes Federation will support national undertaking. When private enterprise is possible and national undertaking not essential, private enterprise will be allowed. Looking at the immense poverty of the people of this country no other consideration except that of greater production and still greater production can be a primary and paramount condition. A pre-conceived pattern of industry cannot be the primary or paramount consideration. The remedy against is more production and not the pattern of production…”

It is clear that for him the economic growth was of paramount importance in a poor country like India rather than the debates over the pattern of industry. He also held that rapid industrialisation is necessary to reduce the unbearable population pressure on the agriculture sector. In his only research paper on agriculture, “Small Holdings in India and their Remedies” published in the Journal of the Indian Economic Society (1918), he argued that the “existing (land) holdings are uneconomic, not however in the sense that they are too small, but they are too large as against the inadequacy of other factors of production”.

Here we can see that he is again not being beholden to any ideological dogma when analysing the problem of the landholding in India. He advocates the consolidation of the scattered landholdings but makes the interesting observation that the “mere size of the land is empty of all economic connotation….it is the right or wrong proportion of other factors of production to a suit of land that renders the later economic or uneconomic. Thus the small farm maybe economic as well as a large farm”. He argued for greater capital investment in the agricultural sector. On the issue of land consolidation, he writes:

“If we succeed in sponging off this labor in non-agricultural channels of production we will at one stroke lessen the pressure and destroy the premium that at present weighs heavily on land in India. Besides, this labor when productively employed will cease to live by predation as it does to-day, and will not only earn its keep but will give us surplus; and more surplus is more capital. In short, strange though it may seem, industrialization of India is the soundest remedy for the agricultural problems of India. The cumulative effects of industrialization, namely, a lessening pressure and an increasing amount of capital and capital goods will forcibly create the economic necessity of enlarging the holding. Not only this, but industrialization by destroying the premium on land will give rise to few occasions for its sub-division and fragmentation. Industrialization is a natural and powerful remedy and is to be preferred to such ill-conceived projects as we have considered above. By legislation, we will get a sham economic holding at the cost of many social ills. But by industrialization, a large economic holding will force itself upon us as a pure gain.”

The entire economic view of the Dr Ambedkar can be understood not only by reading his published works in the field but also by analysing his role as an administrator when he played an important role in laying the foundation of the modern labour laws, river valley projects, and the electricity. But what is important that he understood the linkage between the agriculture, poverty eradication, education, industrialisation, and infrastructure. Even while advocating land reforms, his grasp of the social, political and administrative dynamics led him to advocate the feasible path rather than polices based on the intentions and mere principles.

He advocated that the science and technology must be used to reclaim the cultivable waste land for distribution among the landless. However, since, agriculture in itself is not sufficient for wealth generation he advocated that it must be supplemented by the subsidiary and cottage industry. But for the development of these industries, he argued, the development of the electricity was the first requirement.

Therefore, he placed immense emphasis on the development of multi-purpose river valley projects like Damodar, Mahanadi, Sone. We can see that he was laying down the foundation of an integrated development strategy. But he goes further and argues that the agricultural prosperity depends on the maintenance of the forest cover, which ensures proper rainfall and ecological balance. Thus, he also brought in the basic concepts of the sustainable development into his economic vision even if he only touches the topic, which has today acquired immense importance.


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