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A Comparative Analysis of India’s Economic Progress Under Nehru and Modi – IMPRI Impact and Policy Research Institute

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A Comparative Analysis of India’s Economic Progress Under Nehru and Modi - IMPRI Impact and Policy Research Institute

Arun Kumar

Mr. Modi entered tenth year of his rule over India as PM on May 26. Nehru passed away 59 years back as PM on May 27. Mr. Modi has been highly critical of Nehru. Worse, he implies that India has only progressed in the last 9 years under his rule. This propaganda has gone deep down and is accepted by his followers. The BJP highlighted Mr. Modi’s achievements on the occasion while the Congress Party issued a booklet questioning them.

BJP claims, `it has grown the economy, expanded road, rail and air infrastructure, and provided amenities and housing for the poor,’ … `transferred more than Rs.25 lakh crore to beneficiaries of various schemes through DBT and provided tap water to 86.7 million new households till March 2023’.

Very impressive. But how to compare over time and especially over long periods of time? Situations change drastically over decades. Four factors need to be kept in mind. First, growth is compounded so what looks big in later times may be less than the much smaller amount of an earlier era. Second, the availability of resources increases with compounding. Third, the starting point differs making comparisons tricky. Finally, changes in technology lead to emergence of new goods and machines, better ways of doing things and doing what was not feasible earlier.

Compound Growth Rate

The government advertises its achievements in various fields and compares them with the earlier periods. This is where compound rate of growth comes into play since later change looks big in absolute amount while it may be the same as earlier or even lesser in growth terms.

For example, if an economy is at Rs.100 and doubles in 10 years, it would become Rs.200. Again it doubles in 10 years and becomes Rs.400 and in another 10 years it becomes Rs.800. So, the increase in the economy is Rs.300/ in the first 20 years and in the last 10 years it is Rs.400. So, it has grown more in the last 10 years than in the earlier 20 years even though the rate of growth remains unchanged.

If bicycle production increases from 10,000 to 1million over 30 years that is a higher growth rate than if the production later increases from 1 million to 2 million over 10 years. It may be claimed that more bicycles were produced in the later period than in the entire earlier 30 years period — sounds impressive but the rate of growth has declined.

So, comparing absolute numbers can be deceptive when there is compound growth rate. This would be the case for toilets built, roads constructed, power generated, cars produced and so on.

The rate of growth of the economy has increased over time as the structure of the economy changed. Agriculture barely grows at 2-3% per annum while the services sector can grow at 8 to 12%. Hence, the share of agriculture declines while that of the services increases and with that the economy’s rate of growth increases.

India’s average growth rate between 1901 and 1951was 0.75% and it increased to an average of 3.5% between 1950 and 1980 — a huge step up of growth rate. This further increased to an average of 5.2% between 1980 and 2002 and to an average of 8% between 2002 and 2009. This increase is largely a reflection of the structural change in the economy and not liberalization.

Be that as it may, the increase in the average growth rate has implications for absolute numbers. At an average growth of 1% per annum, the size the economy doubles in 70 years. At 3.5% it doubles in 21 years. At 5.2% it doubles in 13.5 years. And at 8% it doubles in 9 years. Thus, the structural change has resulted in absolute numbers rising rapidly.

Availability of Economic Resources

Rapid growth also leads to rapid build-up of resources as capital accumulates and enables more to be done. Capital accumulation depends on the annual investment in the economy. Investment in education, health and infrastructure helps enhance productivity of workers and increase in production. So, investment increases the economy’s capacity (potential) to produce more.

Investment is the surplus in the economy over and above the consumption by people and government. An increase in the investment rate means a faster buildup of capacity to produce and that boosts growth.

In the 1950s, the economy was poor and investment was low. Investment is captured by the Net Domestic Capital formation (NDCF). It was 3.4% in 1950-51 while in 2012-13 it became 28%. Thus, while in 1950-51, out of every Rs.100, only Rs.3.4 was available to put into education, health, infrastructure, factories, agriculture, etc., in 2012-13, Rs. 28 was available – an eightfold increase. Further, the real national income had increased 28 fold by 2019-20. So, in real terms almost 224 times more funds were invested in 2019-20 compared to 1950-51. Clearly, the country can achieve far more now than during Nehru’s time in 1950.

Out of this surplus, how much was being plowed into the economy by the government? It depends on the revenue raised by the government and how much it could borrow. In 1950-51 the Centre and the States could raise 6.69% of GDP as tax revenue, now it is 17%.

The deficit in the budget was 0.04% of GDP in 1950-51 while fiscal deficit now is about 10% of GDP. So, the resources available to the government were 6.73% of GDP while now they are about 27% of GDP. That is an increase of 4 times. Since real income has gone up by a factor of 28, the resources spent by the government are now 112 times greater than in 1950. A lot more schools, colleges, roads, railway tracks and toilets can be built than in 1950.

To begin with, massive sums had to be spent on relief and rehabilitation of the people displaced from Pakistan and on the army operations in Kashmir.

In spite of the limited resources available for development in the 1950s, government played a large role by creating a substantial public sector. This built the base of subsequent development of the economy. This was made possible by enhancing savings by restricting the consumption of the well-off and they resented that. There were queues to buy cars, obtain telephones and gas connections. Travel by air and railways was limited. Roads were pot holed, etc. Growing corruption made matters worse.

The well-off wanted to copy the European life style which was not allowed so they complained that there was little development in the country. They characterized the Nehruvian polices as socialist and a failure. Post 1991, they got a lot of the goodies they aspired for and characterized this period as one of growth of the Indian economy, even though the data does not support this.

II.1 Policy Induced Crisis

Rulers make mistakes and so did Nehru. He consulted the opposition regarding policies even if what they said was only partly taken on board. Neither the socialists nor the right wingers of the Swatantra variety were happy yet Nehru charted a path in which he carried a majority with him. He had the advantage that people had faith in the good intentions of the leadership both due to the national movement and because expectations of a better future had not yet been belied.

Unfortunately, the Modi regime has frittered away some of the gains that could have been made by pursuing disastrous policies. Demonetization in 2016, structurally faulty GST in 2017, forced digitization and sudden lockdown in 2020. These policies have led to a decline in the vast non-agriculture unorganized sectors of the economy and to a rapid increase in disparities. Wider consultations would have helped Mr. Modi realize that these policies will set the country back.

The result of such faulty policies has set back the economy which started to slow down even before the pandemic. Its quarterly rate of growth declined from 8% in Q4 of 2017-18 to 3% in Q4 of 2019-20. During the pandemic India suffered the worst decline out of all the major world economies. Officially, it has recovered but not in reality.

Worse, the official data does not reflect the current reality. The non-agriculture unorganized sector (30% of GDP) is in decline but this is not reflected since it is not independently measured. It is assumed that the growing organized sector can proxy for it. The reality is that a large part of the organized sector is growing at the expense of the unorganized sector. So, the former cannot act as a proxy for the latter. If this lacuna is corrected for, the economy is hardly growing and it has not yet recovered from the pandemic. The decline of the unorganized sector since 2016 is leading to massive unemployment and persistence of poverty.

If the income data is incorrect, so is the private consumption and investment data. This also makes the poverty data inaccurate. The government does not admit that the official data is faulty and cites international agencies pronouncements in its favour. But, these agencies do not collect data and use government-provided data. So, they replicate the errors in the official data.

The result of faulty data is that the unorganized sector is invisiblized in official data which enables the government to claim that India is the fastest growing large economy in the world. The corollary is that polices are fine and nothing needs to be especially done for the unorganized sector. Effectively then, the economy is run for the organized sector. The situation can be characterized as the colonization of the unorganized sector by the organized sector. Up to 1991 the unorganized sector was provided reservation to protect employment. KVIC was set up to promote its growth. Now these policies are largely a thing of the past.

Nations make mistakes which create problems in the long run. Such mistakes were made on a grand scale when in 1947 the nation followed a top down (trickle down) development path. This was further strengthened post 1991 and 2014 to the detriment of the marginalized sections leading to growing inequality. This is now being overlaid by promoting social divides and curbing democracy. While the economic mistakes can be rectified the correcting the social and the political divide is far more difficult to resolve.

Different Starting Points

BJP claims that in 2014, it took over a distressed economy characterized by policy paralysis which it has set right. GDP data shows that the economy was well on the road to recovery after the crisis of 2012-13 when quantitative easing was withdrawn globally and which led to a balance of payment (BOP) crisis in India. The rate of growth had already climbed to 7.76% in Q1 of 2014-15 from a low of 4.44% in Q4 of 2012-13. So, Mr. Modi started his tenure when the economy had recovered from its low in 2012-13. No new path had to be charted.

In contrast, Nehru started in 1947 when India faced an unprecedented crisis due to partition which saw massive migration of people and mass killings. The new government lacked political and administrative experience. The Constitution was to be drafted and institutions of democratic functioning had to be put in place. Country had to be united and there were challenges in Kashmir and Hyderabad. Above all, the country was abjectly poor with few resources. The Second World War had just ended and Indian economy was stagnant. Churchill had predicted that India will collapse. In these difficult circumstances, without a template, development had to be initiated. A new path had to be charted

Thus the initial conditions in 1947 and 2014 were incomparable with Mr. Modi having a far easier task with the economy already recovered, infrastructure in place, etc., compared to Nehru’s starting point.

III.1 Political Backdrop

Nehru emerged from the national movement which had tried to unite the people of all castes and communities. Promoting secularism was central to this. Partition had aggravated animosity across communities but the attempt to unite was largely successful. The appeal was to the higher and better instincts of people and fostering of citizenship with a common goal of living in harmony so that all could progress. That there is a reversal in this trend over the last 40 years with the rise of communalism is a result of actions of leaders who came after Nehru.

Mr. Modi emerged from the Sangh which propagated the idea of a Hindu rashtra — a divisive plank that marginalizes the minorities. Another divisive factor has been the domination of the upper castes over the lower castes. Not that other political parties have not used these divisive factors to gain power but their rhetoric has been inclusive. BJP has openly used every divisive issue to gain votes by exploiting the existing fault lines, especially in the last 9 years. Openly, it appeals to the baser instincts of humans and to their prejudices and dogmas. These are easy to incite and enlarge for electoral purposes.

Nehru had to contend with entrenched feudal attitudes, poor capabilities in the population due to lack of education (literacy was 16%), S&T education was almost non-existent and R&D was minimal. These capabilities had to be built from scratch by setting up infrastructure and institutions. Institutions of higher learning, schools, colleges, research establishments had to be established. Scientific temper was sought to be promoted among the populace which was seeped in superstition, dogmas and prejudices.

Mr. Modi inherited a well-developed (even if weak) environment of learning. Literacy rate had climbed to 74% (2011 census). The task of expansion is much easier than that of starting from scratch. Critically, under Mr. Modi some of India’s best institutions of higher learning have been attacked in an attempt to capture them and in the process they have been degraded – setting back higher education in the country. In essence, the gains of setting up new institutions in recent times has been undermined by the decline of some of the best institutions. Unfortunately, in the name of decolonization, superstitions and prejudices have been reinforced, thus denting the weak scientific temper in the country.

The National Education Policy (NEP) launched in 2020 was expected to provide a path to make education dynamic. But, while it suggests decolonizing education it is inviting foreign institutions to set up campuses. It not only undermines Indian institutions but also academics in India.

New Technologies

Technology available in the two periods being compared crucially determines possibilities. A sea change has occurred between 1950, 2014 and 2023. The levels of automation, computerization and use of AI have grown exponentially. They have greatly enhanced productivity in the economy compared to the 1950s.

In 1947, there were no semi-conductors, micro-chips and desktop computers. These emerged in the 1950s to 1970s. Mobile phones appeared in the 1990s and e-commerce, e-banking, etc. in the 2010s. They have transformed, globally and not just in India, telecom, banking, communication and travel and logistics since the 1990s. Medicine, teaching, designing, etc., have greatly benefited from new technologies

Many things that could not be done earlier have become feasible. Like, giving subsidy directly into the accounts of the people via direct benefit transfers (DBT). Inclusive banking and the JAM trinity which were not feasible earlier became possible in India.

Renewable energy production has increased rapidly world over as cost of solar cells have declined. Faster train travel has become feasible with automation, signaling and new technologies. Social media and publishing have democratized but has also led to political mischief with fake news, etc..

As argued earlier 224 times more capital is being added every year now than in 1950. So, many more machines are available now to speed up construction of highways, railways, buildings, etc. There were few bulldozers, cranes, etc., but now they are ubiquitous at construction sites. Agriculture has witnessed the use of tractors, harvester combines, threshers, etc., while bullocks and ploughs have mostly disappeared. Agriculture universities and many institutions of higher learning and research started to come up in the 1950s. The former helped to greatly enhance agriculture productivity and made India relatively self-sufficient in food. The latter have helped in absorption of technology and its wider use.

So, technology has played an important role in India’s development in the recent years.

Conclusion

In brief, comparing the performance in the last 9 years with that in the earlier 67 years is tricky. To say that more has happened in the last 9 years than in the previous 67 years or during Nehru era is comparing the incomparable. With 224 times more capital being available now than in 1950, it is not a surprise.

The issue is could things now have been better given the huge increase in the availability of resources. Yes, they could have been but for the policy-induced crises which have set back the economy. Further, most of the schemes where success is claimed were started earlier — like, housing, toilets, roads, irrigation, etc. Finally, since far more resources are available now, more could have been achieved.

Any comparison must take into account compound growth rate, much greater availability of resources, different starting points and new technologies available globally. When this is done, there is much to commend the Nehru era with its very limited availability of resources as compared to the last 9 years.

This article was first published in Mainstream Weekly as Modi Rule vs Nehru’s Era: Comparing the Incomparable on July 1, 2023.

Read more by the author: Asymmetric technology accord with US: What it implies for India’s R&D.

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