Roots of planning and policy errors

In portrayals of policy, if someone says alternatives to state intervention and state control were mooted in the 1940s and early 1950s, that’s simply not true
This withering away of the state, not in the sense that Marx and Engels understood it, has a grain of truth. (Express Illustrations | Amit Bandre)
This withering away of the state, not in the sense that Marx and Engels understood it, has a grain of truth. (Express Illustrations | Amit Bandre)

India has just celebrated the 75th Independence Day. If one counts from 1991, this also happens to be the 30th year of reforms. Several books, papers and articles have appeared on India’s reform and growth trajectory. Those that believe in markets, interpreted as reforms, have castigated India for past policies relying on excessive state (that is, government) intervention. They would like the state to withdraw and retreat. This withering away of the state, not in the sense that Marx and Engels understood it, has a grain of truth. But one should be careful. The form of state intervention matters. The state does lay a heavy and malign hand in some areas and there, it needs to become less visible. However, there are also areas where the state’s visible and benign hand needs to remain. The state cannot abdicate its responsibility, as it often has, for more than six decades. Therefore, that debate is not about a smaller state, but about a right state, with the level (Union, state, local body) also important. This column isn’t about that debate. It is about a different point, that of past errors. With a bird’s-eye view cast over more than seven decades, there is a danger of simplifying and relying too much on the immediate past as a prism. The policy error occurred (1) In 1947 and the early 1950s; (2) During the Second Five Year Plan (1956-61); (3) During the late 1960s and 1970s.

These are different time-lines and a critique (or critic) should differentiate: (3) does not automatically imply (1) and (2), nor does (2) necessarily imply (1). Consider two external critics, as poles apart as they can be—Milton Friedman and John Kenneth Galbraith. The vintage of that critique is (2). Ditto for an internal critic, in the form of Bellikoth Ragunath Shenoy. If one has in mind Jagdish Bhagwati, Padma Desai or T N Srinivasan, the vintage will be (3). In the (1) vintage, it wasn’t as if people didn’t think about India’s developmental policies, even before the country became independent. My inclination is to date this to the 1931 Karachi resolution of the Indian National Congress. This was important because it articulated notions of fundamental rights and also had a view on what the state should do, including an economic and social programme. To quote, “The state shall protect indigenous cloth; and for this purpose, pursue the policy of exclusion of foreign cloth and foreign yarn from the country and adopt such other measures as may be found necessary. The state shall also protect other indigenous industries, when necessary, against foreign competition …The state shall own or control key industries and services, mineral resources, railways, waterways, shipping and other means of public transport.” A view was forming about the role of the state and this inevitably led to the need for planning, formalised in Wardhwa in 1937.

All this led to the formation of the National Planning Committee in 1938. This never published any reports. But several details about its meetings are available in an abstract of proceedings, published by K T Shah, the general secretary. There were several ministers from states and provinces, usually industry ministers, who were ex officio members of the committee. Non-ex officio members were M Visvesvaraya, Purshottamdas Thakurdas, Meghnad Saha, A D Shroff, K T Shah, A K Shaha, Nazir Ahmed, V S Dubey, Ambalal Sarabhai, J C Ghosh, J C Kumarappa, Walchand Hirachand, Radha Kamal Mukherjee and N M Joshi. Since there was going to be a separate agrarian programme, “plan” was tantamount to an industrial plan. In 1938, there was a conference of industry ministers in Delhi under the chairmanship of Subhas Chandra Bose, then president of the Indian National Congress and this passed a resolution. It is unreasonable to expect expressions like market failure to be used then. But if one applies today’s jargon to that period, some industries were characterised by market failure. Whatever be the reason, private capital wouldn’t step in. The state would have to step in. Where would one find the resources? That was the key question for national planning. What’s the point I am making? In that time-line of (1), there was near consensus on what needed to be done. There were no dissenting voices.

Independent of the National Planning Committee, several “Plans” emerged—M Visvesvaraya’s 1938 book; the Bombay Plan of 1944/1945; the People’s Plan of 1944; the Gandhian Plan of 1944; and the Sarvodaya Plan of 1950. Visvesvaraya wrote, “The Indian plan should avoid communistic tendencies; its basic policy should be to encourage collective effort without interfering with individual initiative. The developments should be more on the lines followed in the United States of America and in Turkey…. Having regard to the conditions prevailing in India, it is safe for this country to proceed along the lines practiced in such capitalist countries as France and the United States of America.” But this was an exception. Contrary to expectations, the Bombay Plan was quite forthright in accepting state intervention and state controls. Across these plans, with the exception of Visvesvaraya, there was consensus on (a) public investments in key industries; b) state intervention in distribution, to prevent a widening of income disparities; and (c) peripheral roles of external trade and foreign investments. These tenets represented the wisdom of the day. Therefore, in portrayals of policy, if someone suggests alternatives were mooted in the 1940s and early 1950s, that’s simply not true.

(Views are personal)

Bibek Debroy

Chairman, Economic Advisory Council to the PM

(Tweets @bibekdebroy)

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