Models of Economic Development: Nehru vs. Gandhi

You need to realise that Nehru–Mahalanobis model of development appeared as the driving force of the strategy of development implemented in the mid-fifties at the time of development of the Second Five Year Plan. This strategy has sustained right up to the eighties with a short interregnum of about 2–3 years when Janata Party was in power during 1977–80. Nehru-Mahalanobis model was established on the basis of long-run development strategy which rendered greater preference to the long-term goals of development, instead of succumbing to the instant and short-term goals. The strategy, thus, emphasised:

(a) a high rate of saving so as to encourage investment to a higher level,

(b) it preferred a heavy industry bias to formulate the industrial base of the economy,

(c) it opted for the protectionist path so as to safeguard infant industry,

(d) it stimulated import-substitution so as to accomplish self-reliance, and

(e) it intended at enlargement of opportunities for the less fortunate sections of the society.

Growth with social justice was therefore the objective of Nehru–Mahalanobis model since it planned to foster a self-generating path of development with an assurance to the common man that poverty, unemployment, disease and ignorance would be eradicated so that individuals could realise their capacity with the extension of social and economic opportunities. Since, it was the philosophy of the fifties that market mechanism could not bring about judicious allocation of resources to fulfil the goal of growth with social justice, a much greater role was attributed to the State. The principal operations of the State in the economic sphere were the development of economic and social infrastructure. The economic infrastructure was disturbed with enlargement of power, irrigation, transport and communications so as to magnify markets as also to eradicate constraints in the form of power on industrial development and irrigation for agricultural development. By increasing social infrastructure in the form of education and health, the State envisioned to develop skilled manpower so that it could offer the essential skills required for the functioning of the new industries. To channelize investment into socially desired lines of production, the State nationalised major banks. Therefore, in the Nehru–Mahalanobis model the State controlled the commanding heights of the economy through the public sector.

It will be interesting for you to understand that the Janata Sixth Plan (1978-83) recognised the achievements of this strategy:

“It is a cause of legitimate national pride that over this period a stagnant economy has been modernised and made more self-reliant.”

The achievements which could be the cause of legitimate pride were:

(a) An increase in the rate of saving from a low level of 7% of GDP in 1950–51 to a high level of about 22 to 24%.

(b) To finance the process of development up to the end of the Seventh Plan largely by domestic savings. Foreign saving inflow formed merely 1.5% to make up the gap in the planned investment.

(c) To formulate an industrial base of the economy in the form of heavy industry and infrastructure.

(d) To train a large pool of scientific and technical manpower.

Nevertheless, it will be important for you to note that success in these areas was also accompanied by certain fundamental failures:

While massive investments were made in the public sector enterprises, no serious attempt was made to run them on commercial lines. Their socio-economic character was utilised to plead for continued losses in some and very poor level of profits in others. Consequently, you must evaluate that the Government continued to meet the losses out of the general exchequer. Three critical mistakes were committed in their administration. First the ranks at the top were offered to general administrators instead of professional experts. Therefore, the administrative bureaucracy of the nation took charge of the PSUs and acted in collusion with the political bosses who utilised PSUs as their fiefs. The second costly mistake was the failure to formulate work-ethics among the employees. Consequently, the PSUs developed huge wage-bill without commensurate increase in productivity. Thirdly, to satisfy specific lobbies – urban consumers, big farmers, fertiliser, irrigation, electricity charges, etc. were kept below costs and huge subsidies were paid and consequently the state level public enterprises incurred heavy losses and these losses mounted further as years rolled by.

You need to recognise that Nehru model of growth exhibited other weaknesses too. It failed to offer a national minimum level of living despite five plans. Almost 40 per cent of the population lived below the poverty line. The number of unemployed and under-employed was quite high and was rising continuously. Inequalities of income and wealth had deteriorated and there was a growing concentration of economic power in the hands of a few. Land reforms were not properly executed, resulting in much dissatisfaction in rural areas. It was in this relation that the Janata Party in 1977 adopted Gandhian Socialism as the main goal of development and the Janata Party’s Sixth Plan (1978–83) was extensively based on the Gandhian Model of economic growth.

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