4 min read.Updated: 17 Nov 2017, 04:06 AM ISTLivemint
Indira Gandhi's admiration for the Soviet model of political centralization and planned economy postponed India's tryst with economic freedom by a couple of decades
Indira Gandhi’s 100th birth anniversary is coming up on 19 November. Her long and eventful stint as India’s prime minister—barring a three-year gap between 1977 and 1980, she served continuously from 1966-84—has ensured that a lot of current debates continue to be informed by her policy choices. But any attempt at a dispassionate analysis of Gandhi’s legacy is immensely difficult given the polarizing figure that she was. The highs of the 1971 military victory over Pakistan have to be reconciled with the lows of the Emergency. Her various other moves like bank nationalization and Operation Blue Star continue to evoke strong views.
Many of her decisions can be traced to her early years of flirtation with radical socialism. Her exposure to radical ideas in England, and the inheritance of a socialist state from her father Jawaharlal Nehru, meant that the new reformist current sweeping East Asia could not make much of an impact in India. While the state-led import substitution model was broadly in line with the intellectual climate of Nehru’s years in power, the Gandhi years coincided with a liberalization trend in many East and South-East Asian countries. Even Lal Bahadur Shastri—Gandhi’s immediate predecessor—had realized the need for liberalization to overcome the chronic shortages that the Indian economy was constantly dealing with.
Shastri’s death and Gandhi’s admiration for the Soviet model of political centralization and planned economy postponed India’s tryst with economic freedom by a couple of decades. Gandhi’s responses to economic and political crises—at least in her first stint in office (1966-77)—were also informed by her leftist centralizing instincts.
Take the period of 1966-71, for example. Even as the Indian economy recovered from the blows of two wars, successive years of drought turned the food situation precarious. Due to pressure from the US government, which was supplying foodgrains to India, and some nudging from the World Bank and the International Monetary Fund, Gandhi accepted a 35% devaluation of the Indian rupee. The move was met with a strong domestic backlash. Moreover, the promised US aid did not materialize. Gandhi’s criticism of American adventures in Vietnam did not help matters. Amid all this, the Congress party did not put up a good show in the 1967 election. Gandhi responded by lurching to the left. A number of sectors, including coal and bank, were nationalized. By moving to the left, she also effected a split in the Congress party. The new party (Gandhi’s faction) ran from New Delhi as the regional leadership was completely undermined. The tactics worked and Gandhi was able to revive the fortunes of her party in the 1971 election on the back of populist slogans like “garibi hatao (remove poverty)".
The imposition of Emergency was another example of Gandhi centralizing power in her hands when faced with crises on multiple fronts. While her garibi hatao plan was never going to work, the economic situation worsened due to another monsoon failure in 1972, followed by the rise in oil prices a year later owing to the Arab-Israeli Yom Kippur War. Inflation spiralled out of control and a number of protests culminated in what we know as the JP movement (led by the socialist leader Jayaprakash Narayan). The Allahabad high court verdict which nullified her election to Parliament was the straw that broke the camel’s back.
India’s growth averaged 3.9% during 1966-77. In contrast, the countries which embraced reforms were growing much faster. South Korea, for instance, was galloping at around twice the rate of India. Her second stint in office (1980-84) was somewhat different. Economic growth replaced redistribution as the primary aim of the government. Utpadan badhao (increase production) replaced the earlier agenda of garibi hatao. What followed was the easing of price controls, reduction in corporate taxes, and a focus on efficiency in public sector enterprises. The results were decent: The rate of investment, total factor productivity and economic growth (5.8% in 1980-90) all registered a marked improvement.
Gandhi’s reforms, however, did not go the distance. The system of licences, controls and quotas was decisively thrown out only in 1991. There are some scholars who argue that India’s growth take-off happened during Gandhi’s tenure—a full decade before the 1991 liberalization—but they too make a distinction between the pro-business reforms of the 1980s and the pro-market reforms of the 1990s. The reforms in the 1980s also did little to increase the government’s ability to raise revenue. Her centralized political administration increased the frequency and magnitude of, and therefore the fiscal costs of handling, regional turbulences. To sum up, not much was done to avert the possibility of another balance of payments crisis.
On the external front, Gandhi was an astute practitioner of realpolitik. When the Soviet Union started cosying up to Pakistan after the 1965 war, she responded by maintaining neutrality during the Sino-Soviet border clashes of 1969. The Soviet Union quickly made amends. And in 1971, when Gandhi saw Beijing and Washington both aligning with Pakistan, she signed a treaty of peace, friendship and cooperation with the Soviet Union that would prove crucial in the war that began less than four months later.
Unlike her father, a Fabian socialist, Gandhi believed in the ruthless exercise of power. Gandhi’s radical inclinations shaped her approach during her first stint in office and perhaps put limits to her dalliance with economic reforms during the second.
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