A Critical Look At Nehru-era Economic Policies

Renowned economist and policy maker Arvind Panagariya, Chairman, 16th Finance Commission, in his latest book ‘The Nehru Development Model’ has documented the economic history of independent India’s first Prime Minister Jawaharlal Nehru’s era and its impact on subsequent policy making. The book offers a detailed view of the policies of that era and provokes thought on what lessons are left to be learnt? The author offers several critical perspectives on Nehru’s economic model including directing scarce capital exclusively to capital-intensive heavy industries, a massive mistake as the approach ignored India’s most abundant resource - labour - leaving many unemployed or underemployed. He also comments on the policy of self-reliance and import substitution industrialization that did not deliver desired results, with India remaining dependent on imports for key commodities. The other key criticisms include neglecting agriculture and labour-intensive industries, which exacerbated poverty, the creation of an inefficient “licence-permit raj” system, a bloated bureaucracy with excessive state control, significantly reducing India’s global trade share from 25% in 1947 to 19% in 1966 and Soviet-inspired central planning that led to a centralized economic approach through the Planning Commission. The author states that these policies stunted India’s economic potential, creating a socialist mindset that persisted long after Nehru’s era and hampered growth until the 1990s liberalization. Watch the exclusive interview with Siddharth Zarabi, Editor, Business Today.