This is the second of the eight part series in which the authors track the contemporary history of the Indian economy. This part deals with the various steps taken by the Indian government that overcame the opposition and put India on the path of socialism.
In the early 1950s, India commanded great prestige around the world and there was anticipation that India would take its place among the leaders of the world. It was against this background that Jawaharlal Nehru set about putting in place an economic policy for India.
By this time, Sardar Vallabhbhai Patel had passed away and Rajendra Prasad had been elevated to President.
Rajagopalachari, once a supporter of socialism, had not yet transformed himself into a supporter of laissez faire. Syama Prasad Mookerjee, Nehru’s fiercest critic in Parliament and who had been instrumental in excluding trade, commerce, and the production and distribution of goods from the purview of the executive, was now more concerned about the problems created by Pakistan.
Thus, Nehru had a free reign and one of his first steps was to set up the Planning Commission on the lines of the Gosplan of the Soviet Union. He would also imitate the Soviet Union by drawing up Five Year Plans. At the time of drafting the first Five Year Plan, Nehru was ambivalent and talked of a mixed economy that would accommodate the private sector.
However, as his power grew, he imposed controls on the press while progressively decreasing the economic freedoms of the people. As a result, the voices of dissent got muffled, and even some opponents of socialism, who were Nehru’s colleagues, defended the nationalisation of industries in order to be in Nehru’s good books.
As part of his plan to usher in an era of socialism, Nehru amended the Indian Constitution to dilute the property rights of citizens and allow for the nationalisation of any industry.
New laws in the name of land reform imposed limits on the amount of land one could own and gave the government sweeping powers to acquire private, industrial, and agricultural land. The resulting fragmentation of land contributed to the destruction of the agriculture industry.
By 1954, Nehru got Parliament to accept the “socialist pattern of society” as the aim of economic development, and in early 1955, at the Avadi session of the Indian National Congress, the resolution now known as the Avadi Resolution was passed.
This resolution used communist language and called for the “establishment of a socialistic pattern of society where the principal means of production are under social ownership or control” and there is “equitable distribution of the national wealth.”
While the Industrial Policy Resolution of 1948 made it seem that India would have a mixed economy, the 1956 version permitted only the government to undertake new ventures in several sectors such as textiles, automobiles, and defence.
The government would also exercise exclusive control over many other sectors. As for the rest of private enterprise, the state would “progressively participate” and would not “hesitate to intervene” if it found progress to be “unsatisfactory.”
Just months before Sardar Patel passed away, he had stated, “A government which engages itself in trading activities will come to grief,” but the industrial resolution of 1956 also called for the state to increasingly participate in trading.
The Second Five Year Plan was based on the Industrial Policy Resolution of 1956 and reasserted the economic goal as the socialist pattern of society. Clearly, Nehru had become bolder and no longer sought shelter behind the claim of favouring a mixed economy. The economy was now modelled after that of the Soviet Union, and citizens were stripped of the right to indulge in many forms of commercial activities.
In response to the Second Plan, a new organisation named the Forum of Free Enterprise announced itself through the publication of a manifesto in major newspapers. This manifesto pointed out that free enterprise was an essential part of a democratic setup and attributed the development of the steel, sugar, textile, cement, shipping, banking and insurance industries to the qualities of free enterprise. It described free enterprise as the “life breath of a free society” and “a way of life which all who cherish freedom must safeguard.”
Over the next few years, the government took over various sectors of the industry and destroyed others by fixing prices. With the progressive erosion of freedoms, India’s journey towards serfdom was now gathering speed. Meanwhile, Nehru was so sure of his belief in socialism that he famously declared that only one of socialism or capitalism would survive. The troubles India would face as a result of Nehru’s policies would appropriately illustrate Mark Twain’s statement: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”