Tuesday, April 25, 2006

Indian History Trivia (2): The Foundations of "Nehruvian Socialism"

Continuing from the previous post, here is one more trivia:

Teaching in a B-School has an advantage of getting exposed to curious gaps in information... and the time/luxury to follow-up to find the missing parts.

Over a period of years, one such gap I found was about the industrial/economic model that India adapted after independence in 1947 - often derided as the "Nehruvian Socialism" that kept India isolated and "dis-enfranchised" from the global economy.

What was the "gap"?

The Industrial Policy Resolution, which architected the Socialist Model of pre-91 Indian Economy (government monopoly over core sectors, reservation/protection over other sectors, etc.) was passed in 1948 (and ratified in 1956)...

...but the first Indian Parliament got elected only in 1952 elections!!!

The missing piece of the jigsaw puzzle was: So who governed - and decided the destiny of the nation - during the intervening 1947-1952? And who designed and approved this, nowadays much maligned, economic model?

When India got independence in August 1947, it did not have a constitution, and had no fully elected parliament. But it did have a representative body - the Constituent Assembly, whose task was to give India its constitution, and to lay down the basic policy framework.

The Constituent Assembly was the first "parliament" of India, consisting of 389 representatives - 296 of which were elected in an election held during 1946, and another 93 who were represntatitives of the Princely States. The Indian National Congress had got a decisive majority in the elections, winning close to 220 elected seats, and Nehru was elected the interim Prime Minister.

The Industrial Policy Resolution, 1948, which adapted the "socialist pattern of society as objective of the social and economic policies" was created and passed during this time. It layed the template of the economic model India was to follow in the coming decades. Among other things. It included the proposal for:

  • Government's monopoly over production of arms and ammunition, atomic energy, and ownership and management of railway transport.

  • Government's control over and participation in the core industries vital to country's development, e.g., Coal, Iron and Steel, Aircraft manufacture, Shipbuilding, production of telephone, electricity, telegraph and wireless apparatus, etc. This laid the blueprint of the public sector units.

  • Government's right to regulate iudustries such as Salt, Automobiles and tractors, Machine tools, Heavy chemicals, Fertilizers and pharmaceuticals and drugs, Cement, Sugar, etc.

  • Government's right to nationalise certain industries, if so required in public interest

  • Reservations/protections for some industries in which large private players could not enter.. etc.

    Surprisingly, however, this policy framework was not the handiwork of Nehru (even though he agreed with it), or even of any Congress party member.

    For all his ideological leanings (and critics), Nehru was, and remained, "inclusive" in his approach to governance. In spite of the overwhelming majority of the Congress party, his 14-member cabinet of ministers in the Constituent Assembly had 5 invited non-Congress members.

    One of them was a brilliant young nationalist leader and scholar, Dr Shyama Prasad Mukherjee. He had been the youngest Vice-Chanceller of Calcutta University at the age 33, and commanded a high credibity as the President of the Hindu Mahasabha.

    In Nehru's cabinet, Dr Shyama Prasad Mukherjee was the Union Minister of Industry and Supply - and the brain behind India's "socialist" industrial policy.

    Nehru and Mukherjee, however, had major ideological differences over India's policies towards the newly-formed Pakistan, and in 1950 Dr Mukherjee resigned from Nehru's cabinet over these disagreements. He went ahead and founded the Bhartiya Jana Sangh party (now evolved into the current Bhartiya Janta Party) in 1951, and became its first president. One of his ardent admirers and disciple, Atal Bihari Vajpayee, later became the Prime Minister of India in the 90s...

    In 1953, Dr Shyama Prsad Mukherjee was arrested in Srinagar while agitating for Hindu rights in Kashmir, and died under "mysterious circumstances" while in detention at an early age of 47...

    That time and era, along with its major players and actors, is over and gone. But one nondescript anamolous footnote in the history of modern India will remain: The foundations of "Nehruvian Socialistic Model of Economic Development" were laid by one his bitterest critics, and the founder of a party which opposed this model, the Bhartiya Jana Sangh/BJP!!!

    [Postcript: What was Nehru's own stand on the public and private sectors? In 1956, when the India's Industrial Policy Resolution was ratified by the parliament, Nehru said: "I think it is advantageous for the public sector to have a competitive private sector to keep it up to the mark... I feel that, if the private sector... is abolished completely, there is a risk of the public sector becoming slow, not having that urge and push behind it."


    Vivek said...

    Proof lies in the Pudding. Despite whatever Nehru might have believed at a personal level, Socialism remained a dampener in India's race for development for decades both under Nehru and his progeny. Why was no attempt done in those 'lost decades' to remedy the situation?

    May be in those days when there was hardly any industry (forget the private sector), and the hisory of a private company (East India) ruling India and prolonged colonial rule; may have caused the acceptance of nationalist protective industrial regime to protect the fledgling nations vital interests being taken over by foreign interests.

    But definitely not decades later when ingenious private enterprise starting taking roots. Like in the nationalisation of banks, the policy was used for purposes which neither Nehru nor Dr. Mukherjee would have agreed.

    Whoever laid the foundation is immaterial. Who perpetrated most damage is more important.

    Dhiman said...

    I am not a historian. So I tender my apology if I make some mistake in stating something which I had read long back. Please correct me if I am wrong.

    Nehruvian socialism or India's initial economic and industrial policies have their origins in an earlier draft known as the Bombay Plan which was mooted by the Indian industry and was aimed to help nascent Indian capitalists and also to safeguard the interests of the existing British capital in India. The last aspect becomes important if we keep in mind that after WW-II, new major economic players (USA/USSR) have emerged.

    Indian industrialists, in general, did not have the capital to take up the task of setting up of heavy, core industries nor could they have taken part in major infrastructure developments (like rail/road). So, for them the best sceanrio was to get these work done by the Government while they themselves can take up other, more profitable (from short term perspectives) busienesses. Thus, I do not agree with Vivek when he blames socialism for India's failing. In the name of socialism, what was actually practiced was a controlled market economy.

    Governments reservation of rights to prevent big industries from entering certain sectors was aimed at preventing new global players from entering Indian market and one of the beneficiaries (there will be others too) was British companies like Hindustan Lever (Unilever).

    Madhukar said...


    you are absolutely correct.. and btw, you just preempted a post in the series about the Bombay Plan ;0)

    The Bombay Plan of 1944-45, signed/suggested by the big industrialists of the time (JRD Tata, GD Birla, Lalbhai, Adirshar, etc.) actually proposed a state-led economic development. They did not have enough capital to invest in building the infrastructure for economic growth... the Indian economic policies were greatly infuenced by that... one also forgets often the nationalism of Indian businessmen at that time...

    It was nothing about "socialism"... in fact, as I posted in the series yesterday, the terms 'socialist" came into Indian constitution only in 1976-77.

    But, many people - as Vivek's views express - fail to appreciate the 'zeitgeist' of the time.... like him, most also fail to appreciate that, just for e.g., the "nationalisation of banks" was a single most important factor to open access to capital to Indian entrepreneurs... but for such loans, we wouldn't be having Reliance, MRF, HCL, Videocon, etc. today...