How India fared under Indira Gandhi
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On 19 November, the Congress party kick-started celebrations to commemorate the birth centenary year of Indira Gandhi (hereafter referred to as Gandhi).
At a time when BJP is championing the image of prime minister Narendra Modi as a strong and decisive leader, the Congress party would be hoping to use Gandhi’s legacy to counter the ruling party and prime minister.
In an interview to India Today Television, Congress president Sonia Gandhi dismissed theories which equate Narendra Modi and Gandhi. While there is nothing new in the political slugfest being played out, a more interesting question is how should one evaluate Gandhi’s economic policies?
To analyse the performance of the Indian economy under Gandhi’s leadership, we have divided the post-independence period into three parts: 1952-1966, 1966-1984 and 1984 onwards. Gandhi was the prime minister from 1966-84 barring the period from 1977-1980. A simple comparison of growth rates shows that agricultural growth under Indira Gandhi’s tenure is the highest India has ever achieved. While overall growth rates have increased overtime in India, industry’s performance was the worst during Gandhi’s tenure.
In terms of per capita incomes, India started lagging behind China and southeast Asia when Gandhi was at the helm of affairs.
Gandhi’s own political rhetoric was more tilted towards providing a welfare state rather than delivering high growth, exemplified in her coining of the slogan Garibi Hatao (Eradicate Poverty). A reading of multiple Indian poverty estimates shows that poverty has declined at a much faster rate in post-reform India despite the dismantling of many of Gandhi’s policies. To be sure, there is a big debate on whether India’s current poverty lines guarantee adequate consumption and well-being levels. However, there is a broad agreement on the fact that poverty has declined faster in post-Gandhi India.
One statistic, which underlines the need for exercising caution vis-à-vis the positive picture painted by declining poverty figures is the rapid rise in inequality in India in the post-reform period. In fact, India was a more equal society than southeast Asia during Gandhi’s period. This trend has reversed itself today.
If there is one policy implemented by Gandhi which has left the most enduring impact on India’s political economy, it is the nationalisation of banks, which created a huge public sector bank network in India. The process was accomplished in two stages, first in 1969 and later in 1980.
Public sector banks have played a major role in the current problem of bad loans which plagues the Indian economy. Given the nexus between politicians controlling banks and businessmen, bank nationalisation policy is seen as a major culprit for the bad loan problem facing the Indian economy today. Public sector rigidities have also been seen as an obstacle to hiring talented executives and improving efficiency in India’s state owned banks.
However, it is also a fact that nationalisation of banks helped in furthering financial inclusion and improved access to institutional credit for people who did not have access to it earlier. Financial intermediation increased sharply in the post-nationalisation period. The state-led expansion of banking also helped in a doubling of savings rate in the economy from 10 percent in 1970s to 20% in 1980s. An increase in savings rate is seen as a crucial requirement for increasing investment and growth rate in any economy.
Caution should be observed in a mechanical reading of the statistics cited above as many policies often affect the economy with a lag. In fact, various economists have pointed towards the need to understand the complexities of political economy factors which drove economic growth in India. A 2004 National Bureau of Economic Research (NBER) working paper by Harvard economist Dani Rodrik and India’s Chief Economic Advisor Arvind Subramanian argues that the pro-business shift in Gandhi’s policies post 1980 was crucial in the growth rate picking up in the Indian economy. Similarly, a 2003 paper by Niti Aayog’s vice chairman Arvind Panagariya argues that acceleration in India’s GDP growth occurred during India’s fifth five year plan period (1974-79), while underlining the fact that growth revival during the late 1970s and early 1980s was more volatile in nature than the post-reform period.
At a time when India is the fastest-growing economy in the world, it is to be expected that the incumbent regimes would claim credit for the economic performance and dismiss the socialist rhetoric of the past of which Gandhi is an important icon.
However, it also remains a fact that despite faster growth, India stills lags behind most peers in human development outcomes.
The economic boom in southeast Asia and China helped these countries to significantly improve their human development indicators. Today, these countries are significantly ahead of India in terms of health and education levels. In fact, this gap started widening during the period when Gandhi was in power (see chart above). It remains to be seen whether a shift from Congress’s Garibi Hatao to Modi’s Cash Hatao will break this jinx.