From Nehru’s mistakes to plans to increase jobs… read the interview of the week.

Question: You have said that Nehru’s emphasis on heavy industries proved detrimental to India’s GDP growth and employment. What were the main reasons behind this policy and what were its long-term consequences?
answer: At that time India had very limited capital, but there were large numbers of unskilled workers. In such a situation, it was not possible for India to compete in heavy industries. All the capital was invested in a few steel mills and machinery factories, while these provided employment to very few workers. On the other hand, most workers remained engaged in traditional farming or small-scale household industries. It was a development model that deprived people of economic participation and did not make proper use of the country’s most abundant resource, i.e. cheap labour. Had resources been distributed properly, limited capital would have been distributed among more workers, productivity would have increased and they would have been able to gradually acquire skills. South Korea and Taiwan followed this approach in the 1960s, 1970s and 1980s and became much more prosperous than India.

Question: In your opinion, what challenges did Nehru’s socialist economic model pose to India’s economic progress? How can this be seen from today’s perspective?
answer: The goal of socialism was to reduce inequality. Due to this, two big and harmful steps were taken. First, a large portion of government capital was invested in the public sector. Then, due to bureaucratic interference, these enterprises did not meet the productivity standards. Secondly, there was over regulation of the private sector. This thing became especially harmful during the tenure of Indira Gandhi. The Monopoly and Restrictive Trade Practices (MRTP) of 1969, the Foreign Exchange Regulation Act (FERA) of 1973, etc. effectively suppressed commercialism. Even today, a large part of the capital remains in the public sector, which has not performed well.

Question: Why has the attraction of socialist ideology been so deep in India and why does it have so much influence in politics even today?
answer: Socialist thinking has attracted all those who want a moral and just society. Who can be against equality? Who can be against ending poverty? In a democratic society people trust the government more than private entrepreneurs. The idealistic thinking immediately after independence made India a fertile ground for these ideas. Politicians, bureaucrats, intellectuals, businessmen all adopted them. Over time, subsequent generations of politicians, bureaucrats, intellectuals and businessmen inherited these ideas from their ancestors.

Question: Do you think that the changes that should have taken place in India’s economic policies since 1991 have taken place? Or is there still something left?
answer: While an authoritarian country like China starts working immediately as soon as it decides to change its strategy, in India, being a democracy, change happens slowly. Socialist ideas are still present in the minds of many important people, making it difficult to bring about change. Labor laws are very strict, land prices are not fair, many banks are in the public sector and education methods are also archaic. Furthermore, by enacting the Land Acquisition Act in 2013, the Right to Education Act in 2010 and the Retrospective Taxation Act in 2012, we have created more socialist-minded policies that need to be reformed.

Question: You had said that during Nehru’s time, India did not have much hope in exports. What impact do you think it had on the economy?
answer: Ignoring exports was the biggest mistake during Nehru’s time. If we had understood the importance of exports, we would not have industrialized through heavy industries and would have been able to make better use of our biggest resource i.e. labour. The result was that in 1970-71, exports and imports were only 3.4% and 4.3% of GDP respectively. Since the economic reforms in 1991, we have been trying to correct this mistake. In 2023-24, exports have become 22% of GDP and imports 24%. But still, there is a need to increase exports and relax some more rules. Our share in the global export market of more than $30 trillion is still less than 2.5%.

Question: Looking at the policies of Nehru and his/her successors, tell what were the repeated mistakes and why were they repeated?
answer: By the end of the 1960s, the flaws in this controlled system became clearly visible. These shortcomings were also mentioned in the book published in 1970 by Professors Jagdish Bhagwati and Padma Desai. But our leadership continued to move in this direction because the attraction of Nehru and socialism had not diminished.

Question: You wrote this book during the days of COVID-19. What lasting impact did this pandemic leave on the global and Indian economy?
answer: During the pandemic, the world economy spent more than necessary, leading to increased inflation. Then interest rates increased in America and Europe. This has affected foreign investment in India. India exercised more caution in additional expenditure. Nevertheless, the fiscal deficit widened in 2020-21 and 2021-22 due to a sharp decline in revenues. As a result, our debt-to-GDP ratio remains high and fiscal reforms have suffered.

Question: Which sectors will be most important for India’s future economic growth and what kinds of policies can the government implement to support them?
answer: We need to create good-paying jobs faster. For this, we have to implement policy reforms. These reforms include implementing four labor codes passed by Parliament in 2019 and 2020, opening the economy to more international trade, reducing urban land prices, and expanding access to credit for medium and large enterprises in labour-intensive sectors. Including making it better.