The Millennium Special

The Past

The Future

Dr K N Raj

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The wellknown economist lists the 10 economic breakthroughs that changed and shaped India since 1947.

Soon after Independence Prime Minister Jawaharlal Nehru set out to reorganise the states and lay the economic foundation of the country. To help him in the gigantic task, he requested the assistance of a group of eminent economists.

One of them was renowned economist Dr K N Raj, who along with others, established the Planning Commission in 1950 and for 20 years steered Nehru's economic vision.

Now retired and living in Thiruvananthapuram, Dr Raj is engaged in writing a book which he says, "will encompass the twists and turns of the Indian economy since 1947. I am writing it for the youngsters in the 18 to 25 age group whom politicians of the present generation are misguiding with ignorance and falsity in the economic field. I want to tell the new generation how a few good economic decisions by Nehru and others helped the country achieve what it is today."

The economist on ten economic breakthroughs that changed and shaped India since 1947:

Resettlement of refugees

Many would say resettling and rehabilitating the refugees who came to India from Pakistan was basically a political task. But I would say it was equally a gigantic economic task too. A lot of economic effort has gone into rehabilitating the more than five million people who came to India. The decision to properly resettle refugees in fact has made so much difference to our history.

Look at what Pakistan did with the almost equal number of refugees who migrated to their country. These refugees -- Muslims -- who mainly ran away from Bihar and Uttar Pradesh are a pain in the neck for Pakistan.

Establishment of the Planning Commission in 1950

We were at that time heavily dependent on supplies of food grain from west Punjab, which was built up by the British. With Partition, in effect, it meant that the food grain bowl was lost to us. Pakistan had different purposes for using its food grain like importing them to other countries. We had to find alternative sources of supplies. Thus, the Planning Commission was set up and its major task was how to increase agricultural production sufficiently.

Jawaharlal Nehru -- the economic making of India

I think no one in India had Nehru's understanding of the large economic and political framework of India. After Independence, it was not a very optimistic situation for the country. India was a large country with very different views, philosophies and plenty of problems. Though the Bharatiya Janata Party was not there at that time, there were many people with similar views even at that time. Having worked closely with Nehru, I know very well his thoughts, especially his ideas to create an economically prosperous country.

Nehru's economic vision was very straightforward: "Let us build up heavy industries and let us give agriculture the prime place." In fact, Nehru's idea of building up heavy industries was interpreted as a reflection of his leanings towards the Soviet Union. Actually, it had damn all to do with what happened in the Soviet Union.

Nehru saw the Soviet Union as a backward country which could stand up against Hitler and drive him back because it had built heavy industry. So from day one, Nehru's economic ideas were very clear. He laid the foundation for heavy industries and innumerable multipurpose projects for power, irrigation and flood control across the country.

Hastening slowly

From 1950 to 1970, if the Chinese talked about the Great Leap Forward, what we did in India was 'hastening slowly.' It refers to how meticulously we planned to fix the overall rate of savings in the country in those 20 years. We did not have at that time a good statistical organisation. Our ideas about statistics were somewhat nebulous. But we did some work in the economic division of the Planning Commission where I worked and made some estimates, which subsequently proved correct and fantastic.

We estimated the rate of the net investment and savings to be about 5 per cent of the national income. After a great deal of thinking on the subject, there was an economic theory still then concentrating on employment questions, but not on growth. When I used that to work out some projections of growth, it was widely welcomed particularly by Nehru.

We did not have any foreign aid, but we had only the Sterling balance. How would we raise our savings was bothering us too much because at that time China was talking about leaping forward. We had long discussions with Nehru at the end of which we emphasised that we would fix a rate of savings then itself. Thus we, at the Planning Commission, then worked out a strategy of raising the rate of saving from 5 per cent in 1950-51 to 7 per cent in 1955-56, from 7 to 11 in 1960-61, from 11 to 16 by 1965-66 and from 16 to 20 by 1970-71.

I called our 20-year economic perspective hastening slowly. I would say that by 1970, we had superbly met our projections.

Reorganisation of states

In the early 1950s we were concerned with reorganising everything in India. New states were demarcated and zones were made. The central government had to go to all the states and help them set up their economic planning. It was a gigantic task, which our planners did certainly well.

Most states had absolutely no idea of what they would be doing. They just demanded airports, roads, railway stations without any planning. Some states were so feudal at that time that it was very difficult to deal with them. For instance, I remember, I was sent to Rajasthan to discuss their economic plan, ideas and growth projections with the state government.

Soon after I arrived at the state government headquarters, the state finance secretary came to see me. The moment he saw me, he fell at my feet, thinking that since I was the representative from Delhi, I should be honoured in that way. I had to lift him up to ask: "Come on, let us talk about your economy." Thus shaping each state government from a feudal mindset to a modern outlook itself was a mammoth task.

Introduction of hybrid variety in agriculture

While we were grappling with the task of setting up heavy industries, we really did not know how to increase agricultural production at a reasonable rate. All the river valley projects which we spoke about did not in fact cover all the states. So agriculture was a big problem. Then suddenly the hybrid varieties came in the 1960s and the government promptly decided to make them available to Indian farmers.

We planned for months together the kind of irrigation to be used to develop hybrids. We were confident at that time that the agricultural economic plan we were pursuing would pay rich dividends. It, in fact, did pay rich dividends.

Agriculture accelerated our economy in the 1970s when food production dramatically increased. After that, I do not think there have been any food shortages in India. By the middle of the 1970s we were getting on top when our gross domestic production touched 5 per cent per annum. By the late 1980s, GDP was beginning to touch 6.5 per cent.

Now the BJP leaders say nothing has been done by Congress governments for economic development. I would say such a statement stems from utter dishonesty and lack of knowledge.

Setting up PSUs

Public sector undertakings may be a burden on the government these days, but establishing them was a necessity in the 1960s and 1970s. But PSUs were initially required for many reasons. For instance, we had a number of steel plants in the private sector. One of the biggest plants belonged to the Tatas. But when we wanted to expand the steel industry immediately, I think the Tatas did not want to do it on the scale which we were planning.

So the only option under those circumstances were to set up public sector enterprises in various fields. Over the years, we achieved the targets of each and every PSU. But the PSUs begun bleeding only after politicians started poking their noses into them and mucking them up.

Removal of controls

It is wrong to presume that economic reforms started only in the 1990s. Actually it started much earlier. The government in the 1970s formed a committee to look into the functioning of the steel industry in the country. I was chairman of the committee. It gave me an opportunity to look in depth into the running of many State-run enterprises.

At the end of my study, my recommendation to the government was straight forward: Remove all the controls and bureaucratic bottlenecks. I also suggested that private participation and economic liberalisation were the need of the hour.


So what we recommended way back in the 1970s were being actually put into practice by the government, but slowly. Economic reform was really understood by all of us. But we could not find the right politicians who understood the meaning of reform and who had the courage and will power to implement it. Therefore, I would say it is ridiculous to associate economic reforms and liberalisation with Rajiv Gandhi and P V Narasimha Rao.

Rajiv Gandhi did not know a thing about the economics of the country. He was an ignorant man. The only good thing that is to be said about him is that he did not want to enter politics. He did not have any economic vision. I was a member of the economic advisory committee when Rajiv Gandhi was the prime minister. I had discussions with him but I felt he knew damn nothing about the economy. However, he was a charming fellow, but he did not have the vision of his grandfather or his mother.

Likewise, Narasimha Rao was not a great economist. But he had the political courage to implement the economic ideas we had been recommending for long.

Foreign investment

Allowing liberal foreign investment into the country was a great economic step in the right direction. India is well set on a rapid rate of economic growth. The last 25 years have been very favourable for good economic growth in the country. I think we should now be aiming at 7 to 9% GDP per annum.

Dr Kakkadan Nandanath Raj has been vice-chancellor Delhi University and a member of the prime minister's economic advisory council. As told to George Iype.

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