I Sympathize With Nehru’s Views On The Importance Of Industrialization: Dr Manmohan Singh – Essay
“We put a lot of money into industry in the hope that this input would accelerate our growth. Jawaharlal Nehru’s idea of the public sector was very different from the way it has evolved through the years. Whether you have a socialist or a capitalist economy, profits have always been the principal source of accumulation” said Dr Manmohan Singh, two-term India’s prime minister from 2004 to 2014
Ever since the passing away of Dr Manmohan Singh on 26 December 2024 in New Delhi, much has been written about his contributions as the two-term Prime Minister of India from 2004 to 2014, his historic role as the Union Finance Minister from 1991 to 1996. In the politically-charged atmosphere of the Indian capital, there have been debates on a memorial site and Bharat Ratna (highest civilian honour) for the late former Prime Minister; these continue to make media headlines, resulting in political tug-of-wars where decorum is often thrown to the winds.
It is only appropriate to bring to centre-stage the mild-mannered soft-spoken Oxford-Cambridge educated Dr Manmohan Singh whose seminal works on exports, world trade, the role of public sector, and Pt Jawaharlal Nehru’s vision continue to shed light on the roadmaps for the Indian economy till date. Back in 1999-2000 when he was Leader of Opposition in Rajya Sabha (Upper House of Parliament) Dr Singh, in a conversation with development economist Prof VN Balasubramanyam of Lancaster University, shared his views on a spectrum of issues relating to India’s economy.
“Yes, I sympathise with Nehru’s views on the importance of industrialisation, indeed until the 1960s, there was no questioning of that policy. Yes, I subscribed to it, infact most of us did. It seemed the right strategy at that time,” said Dr Singh, adding “Everybody who came to India also advocated that policy. Those were the days of the take-off into self-sustained growth. Whosoever came to India advised us that increasing investment to the right level was the thing to do. It was considered right that India should run a large deficit and the world would finance it. I do not think that till the mid-1960s we did terribly wrong. I think we should have had the vision to shift gear once we knew that we had created the basic infrastructure. We should have taken full advantage of the opportunities offered by the international trading system to build a dynamic and efficient economy. We should have paid more attention to restructuring of public and private enterprises on the basis of efficiency and international competitiveness.”
Earlier in an interview with World Affairs (January-March 1997), Dr Singh explained, “We have not paid adequate attention to social sectors in our development strategy. We adopted a strategy where steel was the kingpin, whereas we live in a society where knowledge is power. In a country such as ours where you have a literacy rate of 53 per cent with a dubious quality, it is not surprising that our growth rate is so low. We put a lot of money into industry in the hope that this input would accelerate our growth. Jawaharlal Nehru’s idea of the public sector was very different from the way it has evolved through the years. Whether you have a socialist or a capitalist economy, profits have always been the principal source of accumulation. Therefore, if you socialise profits through the public sector, you will kill two birds with one stone: first, you accelerate the rate of saving through the prevention of superfluous consumption by the rich and thereby accelerate the process of accumulation; second, by socialising profits you can reduce the inequalities of income and wealth. Nehru hoped that we would have a public sector that would generate large surpluses. But the public sector in our economy doesn’t even yield a return to pay the interest on the capital the government has borrow.”
Dr Manmohan often gave the Japanese example, looking at the trajectory of Japanese development since the 19th century. “They created a large number of enterprises in the public sector and handed them over to the private sector. If we wish to industrialise quickly within a period of 15-25 years in a country where the private entrepreneurs are scarce, active state involvement in setting up industries is the only way to get things going. But if the process is to become self-sustaining, we need a progressive increase in productivity, improved capital productivity. Public sector and state instrumentalities are very inefficient ways of getting this productivity growth. You have to rely on the private sector to do this,” he explained to Prof Balasubramanyam.
Undoubtedly Dr Singh’s handling of the balance of payments crisis of 1991 was truly historic, and remains a milestone in India’s contemporary history. He narrated the sequence of events, typically as an economics professor would: “India was in the middle of a deep economic crisis. We were on the verge of bankruptcy as our foreign exchange reserves had been nearly exhausted. We converted that crisis into an opportunity to launch a wide-ranging programme of structural reforms. The traditional response to a balance of payments crisis is to compress domestic demand through a programme of fiscal retrenchment. However, in an economy characterised by wage rigidities and supply bottlenecks which prevent resources moving from one sector to another, the traditional stabilisation programmes end up by creating unemployment and idle capacity.”
He then highlighted the strategy adopted, “we devised a stabilisation programme which was expected to produce positive results in a fairly short period and additional we launched a programme of structural reforms to improve the supply side responses. The end result was that the duration of the recession resulting from the stabilisation programme was short enough to prevent a serious political backlash. By 1993-94, the Indian economy started growing at a fairly respectable rate. In this way, the political resistance to reforms was contained. Even then there were problems once the sense of crisis was over. This is partly because we did not have enough time to educate public opinion.” For economists wishing to learn from this lesson of history, the key points are – improving supply side responses, preventing political backlash, and educating public opinion.
Dr Singh acknowledged the highly inward-looking economic policies, the strong distrust of foreign investment and private entrepreneurship which was prevalent till 1991. “The distrust was a reflection of India’s history whereby the East India Company, which came to India as a trader, ended up as a ruler. Our struggle against colonial rule also strengthened these sentiments. In this background, it was natural that the opening up of the economy to foreign investment and liberalisation of imports should invite opposition from businessmen, trade unions and even political parties both on the right and the left. However, the fact that ours was a policy of measured opening up, that our economic reforms did not lead to unemployment and idle capacity, and that the growth performance of the economy improved year after year after the initial setback in 1991-92 diluted the vigour of opposition to economic reforms. Now there is widespread appreciation that reforms of 1991 to 1996 on the whole were beneficial in their impact and there can be no reversal of these policies,” he said, obviously with an obvious sense of satisfaction.
He referred to the opposition faced by the Congress-led government from the Bharatiya Janata Party (BJP) and the Leftist parties who were against the opening up of the economy. But after coming into power, “both the United Front government and the BJP recognised that xenophobia is no answer to India’s problems. However, the BJP government’s soft line towards foreign investment and import liberalisation is being opposed by the Rashtriya Swayamsevak Sangh (RSS) and Swadeshi Jagran Manch. In fact all the political parties contain elements which are not favourably disposed towards reforms. Even the Congress Party is no exception to this statement,” he noted.
When questioned him about the role of the Reserve Bank of India (RBI) by Prof Balasubramanyam, Dr Singh’s reply is relevant and significant till date: “As Finance Minister I put a halt to the automatic route through which the Reserve Bank was to fund the Government. I do believe that because of the close linkages between fiscal and monetary policies, we need a high degree of coordination between monetary and fiscal policies. I gave a lot of weight to the advice of the RBI Governor. But I do not believe that the Reserve Bank can be totally independent. To a large extent the autonomy of the Bank is a state of mind. It very much depends on the vision, knowledge and experience of the Governor of the Bank. If the advice is of high quality, it cannot be ignored by any government. But I do not believe that we can legislate the autonomy of RBI.”
He explained, “We are not in that position and when people talk of independence, they are all talking of economies where factor mobility is very high, where a large number of policy instruments are available, where frictions and rigidities in economic structures and operation of the economy are low. Here we are operating relatively rudimentary structures with a lot of rigidity built into the system. We do not know the lags between policy implementation and its impact. So, I believe that RBI must have as much autonomy as possible in the sense that it must be free to give advice and if the government does not accept the advice, it should be known to the public why that advice was not accepted. But to say that the Central Bank can operate in isolation of the overall economic environment, unmindful of other objectives of economic policy, is not possible.”
Not just a Bharat Ratna, the towering gateway of the Reserve Bank of India building on New Delhi’s Parliament Street needs renaming as ‘Dr Manmohan Singh Dwaar’ (or Gateway) where his words may be inscribed on stone.
