HVK Archives: Misconceptions of the independence movement; and a comment
Misconceptions of the independence movement; and a comment - The Times of India
Swaminathan S Anklesaria Aiyar
()
29 September 1996
Title : Misconceptions of the independence movement
Author : Swaminathan S Anklesaria Aiyar
Publication : The Times of India
Date : September 29, 1996
At last week's annual meeting of the World Bank and IMF,
many speakers spoke of the need for governments to reduce
controls and trade barriers and let entrepreneurs get on
with the job. They also stressed the vital roles that
governments did indeed need to perform - ensuring law and
order, the enforcement of contracts, honest governance
and the creation of basic infrastructure.
Dissenters will say this sounds suspiciously close to the
formula of the British Raj. The result then was not
prosperity but poverty and stagnation. Now that we are in
our 50th anniversary year of independence, many people
will ask - why did liberal economics prove an economic
failure during the British Raj? And why should it be any
more successful today?
Before the industrial revolution, India was the second
biggest industrial power in the world (next only to
China). When the British Raj ended in 1947, India was a
poverty-stricken nation with minimal modem industry.
Nationalist leaders like Jawaharlal Nehru blamed this
decline on colonial exploitation. The British did not
see it that way, they thought they had brought peace to a
subcontinent that was earlier riven with constant war;
had created political stability and rule of law where
there had been neither; created an efficient and impar-
tial civil service and judiciary; built one of the big-
gest railway networks in the world.
However, GDP growth in the first half of this century was
barely one per cent per year, just keeping pace with
population growth. Food availability per capita declined.
Indian artisans, who once dominated world industry, were
decimated by the industrial revolution. And while in
Europe the industrial revolution replaced handloom weav-
ers with local textile mills, in India it replaced them
largely with Lancashire textiles. Jawaharlal Nehru com-
plained that this de-industrialisation halved India's
urban population and forced once-prosperous industrial
workers back to the land. He felt free trade was a Brit-
ish ploy to force its manufactures on India and prevent
Indian industry from growing.
So after independence he went for rapid industrialisation
through import substitution and by taxing agriculture
through adverse terms of trade. He felt agriculture
lacked the potential to reduce poverty or increase em-
ployment and could only be a holding ground for surplus
labour till industry provided additional jobs.
During the British Raj, India ran a persistent trade
surplus. The ratio of India's exports to imports was
172.5 per cent in 1840-69, 148 per cent in 1870-1912,
133.4 per cent in 1913-38. This persistent trade sur-
plus, averaging 1.5 per cent of GDP, was used to transfer
wealth to Britain. So viewed export-orientation as a
tool of colonial exploitation. He switched the emphasis
from exports to import substitution. He viewed technical
education as vital for industrialisation, but viewed
primary education as less important and so did less for
literacy than East Asian countries.
This strategy was initially hailed as a success. GDP
growth rose to 3.5 per cent per year, almost thrice the
rate achieved in the last 50 years of the British Raj.
Planning was high fashion at the time and Indian planning
was at the very forefront of development economics. Only
much later did East Asian countries demonstrate that 3.5
per cent growth was slow, not fast, and that a different
strategy - emphasising exports, agriculture and primary
education and entrepreneurship - could produce much
better results.
Nehru's biggest mistake related to agriculture. He
failed to see, as Korea and Taiwan did, that with enough
public investment and new technology, agriculture could
be a dynamic sector that raised the living standards of
the masses. The industrial sector was much too small to
create much income or employment and so taxing agricul-
ture to finance industrialisation did not reduce poverty
in India during Nehru's rule or the Gatibi Hatao phase of
Indira Gandhi. It started declining only from the mid-
1970s onwards, when the spread of the green revolution
finally lowered real food prices and raised real rural
wages. Higher rural incomes provided a firmer basis for
rapid industrial growth than Nehru's earlier import
substitution.
Nehru failed to see that the really big blow India suf-
fered under the British was not in industry but agricul-
ture. Ashok Desai estimates that grain yields were
thrice as high in Mughal times as in 1947. In the first
half of this century, food production rose by only 0.5
per cent per year, half the rate of population growth.
This, not de-industrialisation, was the main cause of
poverty in a country which was 85 per cent rural.
The whole de-industrialisation thesis was flawed. Cer-
tainly the artisans of old suffered, but under the Raj a
new breed of modern Indian entrepreneurs came up. The
share of industry in India's GDP rose from 3.8 percent in
1913 to 7.5 per cent by 1947 and the share of manufac-
tures in India's exports rose from 22.4 per cent in 19 1
3 to 30,per cent in the late 1930s. Modern industry
employed fewer persons than the old artisanal industry,
but its output was more competitive.
Nehru's anti-export bias was mistaken. The British may
have used trade exploitatively, but it had enormous
possibilities with the end of empire. The East Asians
saw this, but were regarded with contempt by Nehru as US
puppets. They had the last laugh.
Let us return to where we started. Why did liberal
economics and good governance not lead to prosperity
during the British Raj? The main reasons are:
The British sadly neglected agriculture and rural in-
frastructure, far more so than industry.
The British Raj was racist, favouring British entrepre-
neurs and goods over Indian ones. This racism was prob-
ably important that the alleged lack of tariff encourage-
ment to Indian manufacturers.
The British sadly neglected primary education and litera-
cy. By contrast, East Asian countries had high levels of
literacy by 1950.
The British used India's trade surpluses to remit capital
to the UK instead of investing it in India's growth.
Today, all these conditions have changed. We now have a
government that, however imperfectly, understands the
importance of agriculture and rural development. It aims
at improving the fortunes of Indians, not Englishmen. It
has, imperfectly, improved primary education. In place
of the colonial capital drain, there is now a large
capital inflow that helps develop the economy. In these
circumstances, a liberal economy and good governance can
produce good results. Forget the flawed economic rhetor-
ic of the independence movement.
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Comment:
While Shri Aiyar has rightly stated the position of India prior to the
arrival of
the British, and the manner in which the colonial masters took away
the
past and the current wealth away, he is not completely correct when he
places the blame of the post-independence period only on Nehru and the
Congress party. The academics and the intellectuals are also to be
blamed. It was Prof Mahanolobis who gave the theoretical
justification for
the Nehru plan, and it was the bureaucrats who designed and managed
the control regime. It has to be understood that many of the
politicians
and the bureaucrats who designed and implemented the control regime
and today flouting their alleged liberalised thinking. They are
unwilling to
admit their past mistakes - in fact most of them will deny that it was
their
policies that has been the cause of the problems in this country.
End comment.
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