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Epic Nehruvian vision(1950 of the Indian economy: how far have we come?

Indian economy is at one strange cross point since the pandemic ripped open the hidden wounds, and economists are trying to find a way out rather desperately. As evident from the state of affairs, monetary review policies, and indicator analyses, things are a little haywire at the moment. And to just give you a glimpse of where we were when the pandemic hit us, allow me to bring back some rather revolutionary promises made to us including that of a 5 trillion-dollar economy, a global manufacturing hub, and the like.

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Of course, we are a considerably long way from realising any of these goals. One thing, however, that this made me realise is what we are expecting from the Indian economy is another transitioning phase, like the one we had in the 20th century.

And well, what better way to do it than to get a thorough sneak peek into the past, where it all started, to come to terms with the economic and political bounds of the time. After all, recently, a lot of blame has been put up on the policies of the past, let’s take a moment to dig a little deeper and make sense of how and what really happened.

An economic research report published a few years ago by economists Hatekar and Dongre estimated that the most significant break for the Indian economy in the 20th century came during the Nehruvian era, centred around 1950. Allow me to remind you that this is the time the planning commission of the country was formed, and the second five-year plan that went on the strategies of Mahalanobis revolutionised the growth of the country’s output, both in the short and long run.

The Nehruvian vision of Indian Economy-

Let’s start at the very beginning. The post-colonial Indian economy was as fragile as it can get, and well, the Nehruvian ideocracy was the growth that’s completely democratic, also referred to by growth economists as “progress by consent”.

This was unique because the examples that India had at the time to look up to and learn from were the Soviets, who ran on the back of the dictating regime, and some advanced economies whose primitive growth came in not so people-led situations. If you’re wondering how a political system influences growth and economic trajectory, allow me to trace the pattern for you.

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The primary goal that India had for the post-colonial rule country was to eliminate poverty. Well, I guess eliminate would be too strong a word given the current situation, let’s just suffice to say mitigate. And the way that the leaders of the time believed it would be achieved was through increasing the income.

Now, this increase in income comes on the back of two parameters- sectoral growth and investment. What sectors are we referring to? Well, let’s sleep on it for a moment, because there’s something else that we need to discuss first.

The political system and economic growth-

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As mentioned, the increase in income comes on the back of investment. Now, as for the Soviets, the rapid growth that they got was through the indefinite investments they could holler into the economy. Why could the Soviets do it and not a country like India?

Well, as mentioned, the Soviet Union’s approach was that of a “command economy”, where the investment could be decreed by planners and enforced by commissars, as explained by the economic laureate, Pulapre Balakrishnan. What this means is that the economy would never run out of money to re-invest because the authorities could always force it.

In India, there was the ubiquitous private system that worked on profits and revenues, which means that investment was a result and a corollary of growth. If there wasn’t scope for surplus, the investment would get to a halt too. This is why a political system influences the growth strategy so much.

Now comes the second part of the equation- the sectoral growth. In the time being discussed, Great Britain had hoisted the flags of the industrial revolution, and boasted on the broad global trade economy. Undoubtedly, the growth of the country’s nascent stages was torn between two directions- industrial growth or agricultural growth.

The Nehru-Mahalanobis model-

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The five-year plans introduced in the country’s transition period were based on this model, and while it has had its critics in terms of the voodoo economics’ idealistic economy, the “plan frame” covered one very significant point- realising the importance of agricultural and industrial development, together.

The then Prime Minister Jawaharlal Nehru has been very vocal in his speeches about the contribution that the agricultural sector would play in the growth of the country, and how realising the sector’s potential in alignment with industrial growth would realise the inter-temporal benefit distribution he so heartily claimed.

Therefore, in an economy with a very large market, abundant natural resources of every kind and vast availability of skilled and unskilled humanpower, the building of a strong and diversified industrial revolution in alignment with a strong consumer goods base was a historic necessity, as explained by the very renowned economist Raj Krishna.

Let me trace the relationship between agricultural and industrial growth for you. Even a nominal 3-4 per cent growth in the agriculture sector wouldn’t have been possible without a high rate of growth in industries that supply the input requirements of a growing agriculture sector like cement, bricks, pipes, pumps, electric power generation, and transmission mechanism, agricultural implements, diesel oil, fertilisers, pesticides, roads, vehicles etc.

And well, considerable growth in the industrial sector is not possible without a high rate of agricultural growth, because nearly 50 per cent of the modern industrial sector was either processing agricultural output or supplied agricultural input.

You see, the link between industry and agriculture had been as indispensable as ever, and while a major proportion of time and criticism was spent on choosing between the two on a priority basis, the true economic value was in realising the equalised importance of the two for each other and for the future of the country, which the second five-year plan explicitly underscores.

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But what about the proponents of exporting our agricultural produce for the capital goods imports from other countries at the time? Because let me tell you, there were a lot. Well, there are two arguments against their notion. First, the very objective that Mahalanobis had set was one of the perfect balance of payments.

It was understood from the very beginning that if India maintained a balance of payments deficit, it would be before no time that the fragile economy comes crashing. This is one of the prominent reasons why foreign aid had such little mention in the total public expenditure objective of the country. The second argument is about the terms of trade at the moment.

The very requirement of facilitating such a trade would require maintaining a surplus in agriculture, so much so that after the food needs of the country, we have enough for exports if not re-investing, and that achievement in itself required the posit of having industrial support to the agricultural industry.

Do you see the loop we are referring to? The entire proposition of “export pessimism” precedes the argument in its very advance.  

To summarise, this extract of the former Prime Minister Jawaharlal Nehru’s speech suffices the entire description of Nehruvian vision and the lines the country worked on, as follows-

“Planning of course has been done in other countries, but not through democratic processes. Other countries which are democratic have not accepted planning. But the combination of these two is unique. We can learn from America and Russia, as we certainly should, but we cannot copy from them because the problems of India are her own. India’s economic problems are unique, different.

We always realised that the fundamental factor was growth in agricultural production. Agriculture is basic to us because however much importance we attach to industry, unless we have a surplus from agriculture, we cannot progress in our economy. We cannot live on doles from other countries. We have always to choose between benefits accruing today, or tomorrow, or the day after. From the country’s point of view, if we spend the money we now have on some petty immediate benefits, there will not be any permanent benefits.

One has to find a healthy balance between the immediate benefits of today and the long-range benefits of tomorrow. All the money we have put in heavy industries is for the benefit of tomorrow, though it brings in some benefit today too. It will take some years before this investment yields fruits… so, our strategy of economic development is essentially the agricultural modernisation and raining of our rural masses in the use of new tools and methodologies.

At the same time, it seeks to lay the foundations of an industrial structure by building the basic or heavy industries, above all by producing electric power. Middle and small industries will certainly come in their train.”

Well, a testament of today’s India is the roots established for the longer-range benefits back then, and another transition that the Indian economy wants to get at the moment needs to come at the back of a strategically modelled plan as well.


Edited by Sanjana Simlai.

Simerleen Kaur
Simerleen Kaur
Talk to me about economics, trade, and all things India.


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