I was recently asked to write 5 pages regarding India.The Maoist terrorist thugs and others in Nepal have been advocating communism in Nepal. Though the question I answered was regarding India, we as Nepalis are at the same spot where India was 50 years ago. Read what works and what doesn’t in the flowing passage that I wrote and decide what should be done. As far as I am concerned I will never support communism. I will never give up my religion, culture and traditions that my forefathers so dearly cherished.

I might have made some adjustments if the Maoists or anyone else could come up with a better theory. But both Communism and Mixed economy is a bad idea. The Following is the question that I was asked with my answer.

Question:
India’s economic policy is very different from economic policy when Nehru was in power. In your essay, compare and contrast Nehru’s economic policy and current economic policy. Identify major features and analyze what political conditions led each government to take specific economic policy. (This is what the 8 party is advocating for and I am against. This is why I am with the King.)

Answer:
(This work is not yet edited. Therefore, there will be a lot of grammatical mistakes. Sorry for the inconvenience. )

At the time of Indian Independence the world markets were hardly functioning and the Great Depression had left the feeling that market forces could not be relied on any more. On top of that, Soviet phony data had exaggerated industrialization. (Sachs, 2005) Moreover, Indian Elites namely Gandhi, Nehru, and Tagore --who were also the policy makers -- were greatly impacted by socialist ideologies especially the Fabian society with a gradualist approach . All this accounted for the introduction of the path towards self-sufficiency rather than reliance on international trade and foreign direct investments. The result was an India with strong state control running on five-year plans where the “private sector was to be allowed to make contribution to industrialization in the medium-run while the economy was to be transformed into one dominated by public sector.” (Bhagwati, 1997)
Today, India is much different. Why? Though socialist tendencies still haunt India, it still has been able to achieve an annual growth rate of 4% between 1990 and 2003. This transformation happened because, in 1991, Indian Finance Minister Dr. Manmohan Singh (among others) realized that it was time to end the pursuit of naive socialist policies. Government lowered tariffs and lifted import quotas. The Indian manufacturers were now able to buy state of the art capital goods and other inputs. In addition, a comparatively lower labor cost enabled them to supply the world with their products at a competitive rate. By the mid 1990’s India became a hub for the service sector which included call centers, IT services, and long distance data transcription. By introducing market reforms India has indeed changed its future from a simple agrarian Fabian society to a technology hub of the world, and that too in just a few years.
This transformation leads us to wonder, why was the policy was changed after 50 years of implication? If the system was not working then, did some mechanisms failed more then others? If so, can we recognize them?
To start with, the Nehru –Gandhi – Tagore, trio took the Fabian approach with a soviet styled, communist central planning. They took this approach because they dis-trusted the market and believed that competition was bad. Instead they were in favor of a central planning system with a strong state control, where the government knowledge would be used to allocate resources for production. The logic behind was that one government was more capable when it came to investments and determining output, rather then millions of individuals. Bureaucratic domination was considered better rather then a constantly changing market mechanism. To further the logic, they argued that India lacked in both economic and natural resources and if the limited resources were not used properly, then they would be wasted producing nonessentials, “like lipsticks!” Moreover, country was facing immediate problems and human suffering was at the highest. At such a juncture, the trio thought that they should not take any risks and whatever resources was available, should be utilized for the development of heavy industries under the Soviet planning scheme.
Thus, the government policies were channeled on the wrong direction from the start. The government focused on investment rather then the productivity gained by that investment. Moreover, the quality of material produced by that same investment was never examined. This first mistake that the trio made, still hunts India today as William Lewis (2004) explains in his book the ‘power of productivity’. He examined the Indian automotive plants and found that the productivity at the Indian state controlled auto plant was below 6 percent to that of the United States. Their market share dropped from 40 percent to 4 percent between 1990 and 1999. Whereas after letting the foreign manufacturers enter the Indian market in 1993 the productivity of private car manufacturers is at 85 percent when compared to that of the United States.
Yergin and Stanislaw (1998) describe three consequences that were the result of wrong policy, undertaken by the founding fathers, in India. First, was the creation of complex “Permit Raj.” The system was introduced during the Second World War, in order to check the flow of goods coming into and going out. Somehow the Indian politicians found the system interesting and stuck with it. It was “a complex irrational, almost incomprehensible system of controls and licenses that held sway over every step of production, investment and foreign trade.” Everything in India needed a government stamp. Everything needed a stamp; there was a stamp to produce, to distribute, and to change making good X to good Y. Moreover, companies that were worth more then $ 20 million had to submit all their major decisions to government auditors. All this meant bureaucratic control over everything that was productive. On the other hand, if you had the necessary permit, you were protected against those who did not have any permit. The result was a halt in economic growth.
The second consequence of a Fabian society was state ownership of industries. As Fabians liked the gradual path towards Marxism the ‘public sector’ rose from 8 percent of the GDP to 26 percent between 1960 and 1991. The central government was controlling 240 industries, excluding the conventional ones like railroads and utilities. Almost half of the 240 government controlled industries were fatally bankrupted. The employees thought that their salaries were “guaranteed rewards”, whereas overtime was their “pay.” There was no discipline and at the same time they were free from competition. As a consequence they never responded to customers and the losses kept on mouthing.
The third characteristic was the rejection of international commerce. India has decided to peruse an inward looking economic agenda through planning and thus making India self sufficient from every aspect. By doing so India had excluded itself from the world market and as a result there was no technological advancement. Highly educated engineers and scientists were readily available; however there was no market to deploy them. All this when added with hostility to international trade and foreign investments produced a vicious circle, and with no competition, India’s overall developmental figures were looking grimmer every year.
Indira Gandhi, Nehru’s daughter did not change the policies established by her father in any regard. She was a Charismatic leader, who succeeded to turn India into a nuclear power in 1974. However, when it came to politics she was interested in centralizing power around herself. As a result, she not only marginalized democracy, but also took powers away from the hands of the state and took them under federal jurisdiction. Many of her own party members were forced to quit her party and formed rival parties. On the international arena, many international firms decided to leave India, fearing nationalization.
Thinks were different, when her son Rajiv Gandhi took power. First, he was the only person in the Gandhi family, who had worked outside politics. Second, his advisors consisted of relatively young bureaucrats, rather then the old Fabian theorists. Third, there were already some proposals for reforms in India; however no suggestions had been made yet. Lastly, the Indian deficits were soaring and India was already in a crisis mode. By the end of 1980’s India was forced to cut government spending, which meant cutting down on government sponsored corporations, resulting in a loss of pay, viciously taking growth further down.
When Narsimha Rao made the second non-Gandhi-Nehru family based government in 50 years. The cabinet itself consisted of people whose names were little heard in India politics. Rao himself was a speech write for the Gandhi family. Though highly respected by Rajeev Gandhi, he was not a famous personality outside the congress party.
Second member of the Cabinet was Manmohan Singh out of poor “drought-prone” village with plenty of talent and an Undergraduate from Cambridge and a PhD from Oxford. Though he had socialist credentials he got his share of shock while making a trip to East Asia. He could not compare the difference. For instance, South Korea and India had the same GDP in 1960. In just one generation, South Korean par capita income was ten folds to that of India and was already applying for the OECD membership. One economist describes the achievements made by Japan and the Asian Tigers as “We tended to dismiss those countries as lackeys of the United States, running dogs of American Imperialism” and “closed our ideas to their performance, to how amazing it was what they had done in one generation” Yergin and Stanislaw (1998).
Third cabinet member was P. Chidambaram who took Commerce belonged to a leading industrial family from Madras. He was ready to fight the unworkable trade policies and end the rule of licenses.
Thus with a change of leadership, India was able to get fresher perspectives of trade, commerce and internal development. Though the five year plans still run in India, they have a much smaller role to play in the present competitive economy.


References:
Sachs, J.D. (2005). The End of Poverty. Penguin Press.

Bhagwati, J., & Balasubramanyam, V.N. (Eds.). (1997). Writings on International Economics. Oxford University Press

Lewis, W. W. (2004). The Power of Productivity: Wealth, Poverty and the Threat to Global Stability. The University of Chicago Press.

Yergin, D. and Stanislaw, J. (1998). The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World. Simon and Schuster.

Do you want to repeat the same mistake in Nepal? If not give up your ideas.