Book Excerpt: Free Markets Versus Socialism In Early Independent India
The Swatantra Party to this day remains a shining pole star in the Indian conservative sky, writes Jerry Rao.
Excerpted from ‘The Indian Conservative : A History of Indian Right-Wing Thought’, By Jaithirth Rao with permission from Juggernaut.
In the early years after 1947, the conservative elements in the cabinet were able to recruit that archanti-conservative Jawaharlal Nehru to their side in the determined effort to crush a communist insurrection in south-central India. After 1950, the Indian political conservative cause was in trouble. Patel died. Ambedkar left the cabinet. Rajagopalachari withdrew to deal with the communists in Madras. Rajendra Prasad took up a ceremonial post. Within the Congress party, Purushottam Das Tandon, who represented the Hindu revivalist caucus, was elbowed out. Nehru, an acolyte of the Fabians and an admirer of the Soviet Union, gradually became more and more powerful. Given the overwhelming political strength of the Congress party, conservatives had no choice but to operate through friendly caucuses within the Congress. The political scientist Rajni Kothari has brilliantly analysed how caucuses operate in a one-party dominant democracy.
Given Nehru’s strength, conservatives found the task of influencing the Congress from the outside an uphill one.
On foreign and defence policy matters, Nehru placed excessive reliance on the pro-communist Krishna Menon. This resulted in considerable damage to relations with Western democracies and a considerable cosying up with the Soviet Union and Communist China.
On economic issues, the statistician Mahalanobis emerged as an important adviser to Nehru. Mahalanobis seems to have believed that a somewhat mechanistic input–output model governed the economy, and he was convinced that central planning could ensure that the input–output model was controlled. In this world view, very little attention was paid to price signals, markets or incentives faced by economic actors. Mahalanobis had a penchant for inviting so-called foreign economic experts to visit India for a few weeks or months at a time, and then proceeding to give ex cathedra advice. It was orientalism all over again, but now without even the rooted knowledge and experience of Indian Civil Service officers. Names like Nicholas Kaldor, Roy Harrod and Evsey Domar, all committed to varying degrees of Keynesian state intervention, come to mind. The irony is that the free market guru Milton Friedman was invited and his advice was ignored. The transition from Mahalanobis’s disastrous Gosplan documents to catastrophic fiscal, monetary and so-called industrial policies on the ground was accomplished by another Nehru acolyte, T.T. Krishnamachari, who joined the Congress after Independence and made an excellent career for himself. Krishnamachari appears to have been keen to prove himself more socialist than his leader, the well-meaning Pandit Nehru.
The caucus included Rajagopalachari, now in semi-retirement; Morarji Desai, the eccentric and rugged individualist from Bombay; G.B. Pant from Uttar Pradesh; and the irrepressible B.C. Roy from West Bengal. Between them, they tried their best to save the Indian economy from the excesses of Mahalanobis and Krishnamachari.
Despite the warning signals given by persons like the economist B.R. Shenoy, Friedman, Rajagopalachari and the socialist turned free marketer Minoo Masani, the state followed policies that ensured decades of low growth and continued poverty in an already poor country, as the government of India pursued needless plans involving state gigantism, hostility towards the private sector, discouragement of foreign private capital and a strangulation of entrepreneurship.
Gentle voices from the sidelines, of persons like Mirza Ismail, that large dams make very little economic sense, were brushed aside. Today it is fashionable for shrill activists to criticize large dams. We should not forget that conservatives were way ahead of their times in their opposition to Stalinist follies. Ram Guha has drawn my attention to a speech of Nehru’s in 1958, which supported Sir Mirza’s position. Unfortunately, that speech can only be seen as representing a lost opportunity to avoid the blunders of gigantism.
We must remember that once momentum is lost, recovery can take decades. Between 1945 and now, India’s share in world trade has dropped by more than 50 percent. Any businessperson will tell you that loss of market share on such a scale is very difficult to reverse. We had a thriving textile industry, which we hounded and persecuted. If we had planned consciously and deliberately for failure, we could not have done a better job.
Fortunately, Nehru did not adopt wholesale socialism. For this, Indian conservatives should take some credit. For preventing Nehru from pursuing collective farming, we have to thank the Swatantra Party and Charan Singh who opposed collectivization tooth and nail. Fortunately, the end result was that the commissars of the Indian state did not pursue or kill the kulak equivalents of our country and we were spared the horrors of Stalinist and Maoist famines. Although Nehru opposed the Supreme Court’s defence of the fundamental right to property, especially the provisions for fair and justiciable compensation when property was being acquired, he had the good sense to realize that trying to remove the right to property from the list of fundamental rights could backfire. Th at obscenity was visited upon us much later.
By the late 1950s, it was obvious that the conservative caucus within the Congress was becoming ineffective as far as economic policies were concerned.
This is when a bunch of brilliant patriotic intellectuals formed the Swatantra Party, which to this day remains a shining pole star in the Indian conservative sky. Rajagopalachari, Minoo Masani, N.G. Ranga, the Raja of Ramgarh, N. Dandekar, M. Ruthnaswamy, Piloo Mody, Viren Shah and H.M. Patel were joined by the Orissa leader R.N. Singh Deo and the charismatic Maharani Gayatri Devi of Jaipur in this endeavour. The Swatantra Party opposed the invidious permit licence raj, which suited the growing public sector bureaucracies and many timeserving crony capitalists. The Swatantra Party gained traction in the 1962 elections even when Nehru was alive.
With Nehru’s passing, there was a very real chance that, prodded from the outside by the Swatantra Party, the conservatives and pragmatists within the Congress would assert themselves. The early death of Lal Bahadur Shastri hurt this sanguine prospect. Indira Gandhi started off with a mixed ideological bag. She had demonstrated resolute anti-communism in 1959. She started her prime ministerial role with an imaginative devaluation of the rupee. But not being very conversant with economics, she failed to appreciate the importance of other necessary measures, including the elimination of industrial licensing. Seeing that her partial flirtation with market friendly measures had not paid her political dividends, she abruptly turned left. She listened to a cabal of communist fellow travellers she surrounded herself with, and every few months she came up with yet another legislation which strangled the economy.
Swaminathan Aiyar has made the case that some of Indira Gandhi’s policies were driven by realpolitik. Princes supported the Swatantra Party. Therefore, their privy purses and privileges were abolished, setting the now familiar Indian precedent of reneging on solemn commitments, covenants and promises. Businesspersons were sympathetic to the Swatantra Party. So tie them up with MRTP, FERA and a dozen other acronyms and they shall dare not whimper, let alone bark. Foreign companies were more difficult to bully. So emasculate and even eliminate them, sector by sector. Start a new public sector company every week so their bureaucracies and their contractors become beholden to the state and to the ruling party. Whether they were sincere believers in socialism or used socialism as a fig leaf, the purveyors of these policies have the unique distinction of ensuring planned poverty in our fair land.
The Swatantra Party fought a noble rearguard battle. A combination of misplaced alliances and tactical mistakes set the party back. But what really caused its demise was the nature of electoral democracy itself. For a political party to survive in a large democracy, a market-oriented economic ideology is insufficient. It needs to develop a rainbow coalition, which usually favours redistribution of wealth through government intervention. Otherwise, it needs a hard-core social and cultural identity foundation, usually provided by race, religion, language or ethnicity, and in India by caste.
Because the Swatantra Party opposed an interventionist state while simultaneously lacking an identity marker, the brilliance of its intellectual founders proved to be of little use.
Years after its demise, the Swatantra Party received a backhanded compliment as some of its economic policies were at least adopted in part by Narasimha Rao. With the disappearance of the Swatantra Party, Indian politics has seen the lack of a convincing Burkean conservative group in the Rammohun Roy tradition.
Jaithirth (Jerry) Rao is the founder of Mphasis and the chairman of VBHC Value Homes. He has taught at IIM Ahmedabad and IIT Bombay, and was Entrepreneur in Residence at Harvard Business School.
The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.