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Mainstream, VOL LIV No 23 New Delhi May 28, 2016

Nehru and his Economic Policy

Sunday 29 May 2016


by V.M. Mohanraj

The early 20th century saw India, China and Russia as mediaeval or semi-feudal societies under oppressive rulers. The imperialists in India and China could only have been more oppressive but not much more than the monarchy in Russia. However, the people of these three countries had not been taking it lying down; they fought for their freedom but India and China liberated themselves from colonial rule only three decades after Russia overthrew the monarchy. When the British imperialists quit India in 1947, vivisecting, as it were, the country, it plunged into a state of anarchy as a result of massive transfer of population and violent Hindu-Muslim clashes that almost reached the dimensions of a civil war. The government that took over the independent but truncated India was headed by Jawaharlal Nehru. Added to the problems of a caste-ridden Hindu society inherited from the past and those thrown up by partition, Nehru was confronted with an economy that was in a shambles as a result of nearly two centuries of colonial exploitation.1 This was three decades before Deng Xiaoping became the ‘paramount leader’ of China and three decades after Lenin had embarked on the New Economic Policy (NEP)2 in the Soviet Union.

Nehru (1889-1964) was, so to say, a contem-porary of Deng (1904-1997) but was not leading the country contemporaneously with him. These leaders had the onerous task of designing a policy framework for the economic development of their respective countries, the economies of which were on the verge of bankruptcy when they came to the helm. The similarity of the economic path that Nehru had envisaged for India with Deng’s ‘new economic outlook’, as both were inspired by the NEP, was as much conspicuous as the dissimilarity of the political means they adopted to implement their economic programmes and what they aimed to achieve.3

Long before India attained independence, Nehru had visited the Soviet Union4 as an invitee for the tenth anniversary of the October Revolution when he saw the stupendous socio-economic transformations brought about by the NEP. He was immensely impressed, and must have, at that time itself, thought of devising an economic programme for the development of India along the lines of what he found in the Soviet Union under the NEP. Obviously the idea of a planned development strategy5 was also borrowed from there and he did not hesitate to acknowledge it. Years later, he was known to have said: “The Soviet experiment didn’t come in the way. On the contrary, it helped our thinking”6, which shows what he saw there did play a part in his decision to opt for what is known today as the ‘mixed economy’ when he became the Prime Minister. It cannot therefore be gainsaid that Nehru’s economic policy was, in the final analysis, virtually the NEP adapted to suit the Indian conditions.

But indubitably there were other factors too that shaped his policy. Although he was profoundly influenced by the Soviet Union, he was not a Marxist. But he was inclined to Fabian Socialism7 and by extension to the socialist ideology of the then British Labour Party, the influence of which on Nehru cannot also be overemphasised. It was two years before India became independent that Clement Attlee, the then Prime Minister of Britain, who headed the Labour Government of 1945, introduced the Welfare State.8 It had caught the imagination of Nehru and he did incorporate that concept in his economic programme. He was palpably, though hesitantly, veering towards socialism.

Nehru had been dithering about socialism until he visited the People’s Republic of China and the Socialist Republic of Vietnam in 1954. The change in him was unmistakably reflected in the resolution passed, at his instance, at the AICC session in Avadi the next year, which declared that the objective of the Indian National Congress (INC) was to build, as he put it, a ‘socialistic pattern of society’.9 But he left it vague without attempting to define the term ‘socialistic’ which, however, implied that the pattern of society that he was planning to build would be Left-oriented, giving the INC a Leftist image and, incidentally, taking the wind out of the sail of the Left parties — the Communist and the Socialist. Whether this was the motive of his socialist agenda, is a moot point. Be that as it may, the next year, the industrial policy resolution passed soon after independence, putting off nationalisation of existing industries for a decade, was modified and the natio-nalisation of heavy and capital goods industries was taken up seriously, incorporating it in the Second Five-Year Plan effective from 1956.10 This gave an unmistakable socialistic slant to his economic policy.

In order to implement his economic programme, he had set up a Planning Commission in 1950 with the Prime Minister, which he was at that time, as its ex-officio Chairman. Before launching the Five-Year Plans, that was the purpose of the Planning Commission, Nehru set about rectifying the disequilibrium in the economy that World War II and the partition had caused and declaring the intention of taking necessary measures to reduce inequalities in income and wealth. In the first Five-Year Plan, drawn up by the Commission which came into force in 1951, only a trace of his socialist thinking was manifest. However, the first baby step towards socialism was taken under this Plan with its hint at nationalisation of heavy industries, mining and infrastructure like railways, roads, power and irrigation. This Plan basically paid attention to laying the foundation for future development. The Second Five-Year Plan marked a turning-point when Nehru took decisive steps towards his concept of socialism with the nationalisation of heavy industries and constru-ction of hydro-electric power plants under the public sector.

However, he had no intention of upsetting the prevailing socio-economic system because his vision of socialism did not go beyond the concept of a Welfare State and that could be achieved, he thought, by confining state-ownership to the commanding heights of the economy like heavy and key industries and taking care of food, health, education, transport and such other welfare programmes. In keeping with that outlook, private players in the manufacturing sector of the economy were restricted with licences, subsidies, and other instruments of state, which inevitably precluded the possibility of a nexus being developed between the state and Big Business leading to crony capitalism. At the same time, consequent upon inflationary pressures on the economy in the aftermath of partition and the events that followed, the public distribution system (PDS), which was urban-centric and had been in operation under the erstwhile British Govern-ment due to the compulsions of the Second World War, was retained. However, by 1958 foodgrain production had improved marginally, because of the rise in summer monsoon rainfall by over 20 per cent since the 1950s11 and the PDS was universalised. Incidentally, whether he had intended it or not, the procurement of foodgrains and the control of prices by subsidies prevented manipulation of prices by businessmen in the open market which helped the people at large, particularly the economically backward section of the population.

During the Nehruvian era, which covered the periods of the first two Five-Year Plans and ended midway during the third Five-Year Plan with his death in 1964, India’s average annual growth rate of the GDP was 4.1 per cent. It was much above that of other Asian countries, including China’s which was only 2.9 per cent during the same period. More importantly, inequality had declined in India and thanks to the inclusive nature of the economy this trend continued beyond the Nehruvian era.12

The economic policy, ‘a new economic outlook’, designed by Deng for achieving ‘socialism with Chinese characteristics’, was, incidentally, not different from the Nehruvian ‘mixed economy.’ Deng considered this a necessary prerequisite for the transformation of society to full-fledged socialism as Lenin had envisioned by his NEP. So did his successors and they continued his economic policy as a result of which China today is the second largest economy in the world, poised to overtake the United States by 2030 or earlier and become the numero uno economic power.13

That it was in 1991, the year the Soviet Union imploded, India had given the go-by to the Nehruvian economic policy and plumped for what is popularly known as “Reforms” 14 is purely coincidental. What is touted as Reforms is a euphemism for neo-liberalism which enables private entrepreneurs to practically control the economy of the country resulting in the rise of crony capitalism that Nehru had consciously or unconsciously prevented. Above all, even inclusive growth and an egalitarian society that Nehru had envisaged by his economic policy were nullified by the ‘Reforms’ which led to corporatisation resulting in lopsided growth, producing a few millionaires and millions of indigent masses.

It is wishful thinking to expect the conser-vative, pro-corporate Bharatiya Janata Party (BJP), which is trying to belittle Nehru and even erase him from national memory, to revert to the Nehruvian economic policy. Why, the INC itself seems to have disavowed the socialist legacy of Nehru and has embraced the neo-liberal economic policy that it had initiated! This is understandable because socialism—Marxian or even Fabian—is alien to the ideology of the INC, which it professed at Avadi under pressure from Nehru. In fact, the class character of both these parties—the INC and BJP—ipso facto makes them parties of the status quo and naturally would not countenance any radical change in the prevailing socio-economic structure. There is no possibility of either of the two major political parties in the country giving up neo-liberalism and going back to the economic policy of Nehru to build an egalitarian society, let alone a socialist society that Marx had visualised.

Unless the Left comes to power at the Centre, which is a remote possibility at present, there is little chance of reverting to even a Nehruvian economic policy, let alone embarking on a Marxist-oriented economic policy. If, however, the Left has at least sufficient parliamentary strength, it may be able to force the hands of the ruling party to bring in certain people-friendly measures or prevent the ruling party from pushing through blatantly anti-people programmes as it had succeeded in doing to some extent during the UPA-I Government. On the other hand, a weakened Left in Parliament would not be “in a position to play a pivotal oppositional role” to the ruling party as was the case during the NDA Government led by Vajpayee.15 The situation today is still worse because the emaciated Left in Parliament by itself has no choice but to look on helplessly at the aggressive neo-liberal thrust of the Modi-led NDA and is constrained to play second fiddle to other Opposition parties including those that claim the legacy of the erstwhile Congress Socialist Party which are practically on the same page, so to say, as the INC and BJP as far as their economic policies are concerned.

What has been happening in India since 1991 is exactly what had happened to the Welfare State of the Labour Party in Britain after the Tory Government of Margaret Thatcher came to power,16 which explodes the myth of the possibility of transition to socialism within the framework of the Western parliamentary system. The happenings in the Latin American countries today exemplify this beyond doubt. The Left governments of the Latin American countries that have retained the Western parliamentary system are vulnerable to political manipulation by powerful neo-colonial powers using the Right-wing Quislings in those countries as was seen in Honduras and Venezuela. This was made possible because firstly the Bolivarian socialism that Hugo Chavez and other Left leaders of Latin America swore by is based on “fairness, idealism and a goal of national policy”17 and not on any scientific socio-economic principle. Secondly, the governments of Manuel Zelaya of Honduras and Nicolas Maduro of Venezuela—like all other Bolivarian socialist governments of Latin America—have “maintained intact the essential institutions of the capitalist state, above all, the armed forces, which constitute a key pillar of their rule”.18 Significantly, Cuba, which too is a socialist country in Latin America based on the Marxist ideology, stands in stark contrast to the Bolivarian socialist countries.

The neo-colonialists may also use money-power as they did to pull down the Left Government in Greece that made Yanis Varoufakis famously remark: “In 1967 there were the tanks and in 2015 there were the banks.” And he thinks: “The social inefficiency of capitalism is going to clash at some point with the technological innovations capitalism engenders and it is out of that contradiction that a more efficient way of organising production and distribution and culture will emerge.”19 Varoufakis takes into account the on-going technological revolution that began since World War II, thus updating the Marxist concept of productive forces. In other words, he considers the products of technological revolution—as, for example, the computer and robot—means of production, updating Marxism. Significantly he is silent on the role of force which, as Marx metaphorically states, is the midwife of every old society pregnant with a new one.


1. From the defeat of Siraj-ud-daulah at the Battle of Plassey in 1757 to 1947 when the British imperialists left India. However, the regions that were under the political control of the East India Company were absorbed into the British Empire in 1858 only.

2. This involved reintroduction of certain aspects of the capitalist economy. Private enterprise was permitted in light industry, agriculture and retail trade while heavy industry, foreign trade, banking and transport remained nationalised. Money, which was abolished earlier, was reintroduced.

3. Nehru chose multi-party parliamentary system. Deng, on the other hand, conceived a unique system that may be called collective presidency, the five major mechanisms of which were collective collaboration, collective power transition, collective self-government, collective research and collective decision-making. http://www.huffingtonpost. com/hu-angang/china-us-democracy_b_5310800.html? utm_hp_ref=email_share &ir=India&adsSiteOverride=in [Accessed25.12.2015]. Similarly, the ends that both of them had been seeking to achieve were also different; Nehru‘s intention was to merely make some cosmetic changes to the prevailing socio-economic system while Deng’s objective was to change it, root and branch. [Accessed 25.12.2015].

4. It was in 1927. On his return to India, Nehru wrote a series of articles about his impressions. These were compiled and published in 1928 in a book titled, Soviet Russia.

5. The Planning Commission and Five-Year Plans were complementary to this strategy.

6. Moraes, Frank (2007): Jawaharlal Nehru, A Biography.[Accessed 25.12.2015]

7. It is the ideology of a British organisation, the Fabian Society, which accepts the principles of Marxian socialism but proposes to advance them sans revolutionary means.

8. It is a concept of government in which the state plays a role in education, health care, social security and other activities that ensure the welfare of the citizens. This was recommended by the Commission headed by William Beveridge, a Fabian Socialist and an economist, in its report of 1942.

9. A resolution to that effect was passed on January 10, 1955. The Economic Weekly of May 14, 1955, in its editorial commented: “It was difficult to be persuaded even then,...that the Congress resolution for a socialistic pattern of society was just an election dodge to forestall opposition against it in Andhra.” endeavour.pdf [Accessed25.12.2015].

10.—The -Nation-Era [Accessed 25.12.2015].

11. Aerosol and rainfall variability over the Indian monsoon region: distribution, trends and coupling, by R.Gautam, et al. [Accessed 25.12.2015].

12. Ghuman, Ramjit Singh (2014): ‘Revisiting and Contextualising Nehruvian Economic Philosophy’, Mainstream, LII, 47, November 15, 2014/Sunday 16 November 2014. [Accessed 25.12.2015].

13. The present fall in the Chinese stock market is not a sign of economic meltdown. It is the result of the dependence of China’s economy more on export than on domestic market. The recent Congress of the CPC had noted this danger and taken steps to boost domestic consumption and improve people’s living standard. This has only begun to take effect.

14. For this policy change, Manmohan Singh has been faulted by the Left but lauded by the Right. Was it his brainchild? In the Economic Times of 21.07.2015, Sanjaya Baru, Director for Geo-Economics and Strategy, International Institute for Strategic Studies, writes: “In June 1991, a new government was formed under the leadership of a retiring Congressman, P.V. Narasimha Rao. As PM, Narasimha Rao retained the Industries portfolio and asked his Principal Secretary A.N. Vama, Industries Secretary Suresh Mathur, Economic Adviser Rakesh Mohan and an aide in the PMO, Jairam Ramesh, to draft a new industrial policy statement. Announced on July 24, 1991, Narasimha Rao’s ‘New Industrial Policy’ was the core of what has come to be known as the 1991 reforms. On the same day, Finance Minister Manmohan Singh set out in his Budget speech Rao’s reforms agenda.”

15 [Accessed 25.12.2015].

16. The Tory Government of Margaret Thatcher privatised all industries that were nationalised by the Labour Government and taking on the trade union movement reduced the power and influence of trade unions.

17. [Accessed 25.12.2015].

18. [Accessed 25.12.2015].

19. [Accessed 25.12.2015].

The author, a freelance writer, has 13 books and several articles to his credit. One of his latest works, The Garden and the Cross (Aakar Books, Delhi), a materialist interpretation of the Bible, is being translated into Russian by the Atheist Society of Russia. Another one, on the materialist interpretation of the Gita, The Warrior and the Charioteer (LeftWord Books, Delhi), published earlier, has been translated into a few Indian languages. After passing out of the university in 1947, Mohanraj taught in a college for three years before changing his profession to librarianship; he retired after working for 39 years as an academic librarian.

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