Requiem for an Unfinished Dream

September 3, 2014

By Debarshi Das

Corporate media greeted the dismantling of Planning Commission with an expected a round of applause. The Telegraph of 17th August carried a large picture on its front page. It shows the gate of the Jurassic Park aka New Delhi. Pasted on the gate is a notice that two shows, Planning Commission and Ambassador Car, have been cancelled. There is a list of shows which are still running. This list includes Railway Ministry, Civil Aviation Ministry, etc. In short, these ministries and Planning Commissions are anachronistic. They have no place in a market-driven Indian society. It is confusing how Ambassador Cars, which are product of a private company, could be clubbed with Planning Commission. But the message, however blunt, has been driven home.

planning_telegraph

Courtesy: The Telegraph, August 17, 2014.

Like the above confusion between a State entity and a private company, other misinformation have plagued the media euphoria. In an article journalist Manu Joseph suggests Planning Commission, although a deleterious institution, was born out of Bombay Plan – a blue print for industrial development scripted by leading Indian industrialists in 1944[1]. This is incorrect.

Planning Commission owes its origin to the National Planning Committee (NPC) set up by the Congress Party in 1938. Formed under Congress presidency of Subhas Chanda Bose, NPC was headed by Jawaharlal Nehru with scientists (Meghnad Saha, for example), industrialists (P Thakurdas, Ambalal Sarabhai etc.), economists as members. The formation of NPC was prompted by the fact that Congress was to assume power in eight provinces of the country. The party needed guidance on wielding State power; practical policy formulation had to advance apace in line with its core ideology. The 1937 Wardha Congress Working Committee had recommended, “appointment of a Committee of Experts to consider urgent and vital problems the solution of which is necessary to any scheme of national reconstruction and social planning. Such solution will require extensive survey and the collection of data, as well as a clearly defined social objective” [2]. NPC was a result of this resolution. The Planning Commission, founded by the postcolonial State, was a continuation of the NPC exercise which had to be given up within few years as the Second World War broke out.

Incidentally, the above-mentioned article was published in The New York Times, no less.

Although it took at least 1937 to 1950 for the Planning Commission to materialise, five minutes were enough for Mr. Modi to tell the nation that it was history now. No public deliberation was deemed necessary. This is the signature style of our prime minister. He stands up and delivers. Which is why the Hindu fascist organisation he hails from loves him so much. It makes him darling of the big business, too. At last we have a strong decisive leader, caring a fig for long-drawn parliamentary niceties.

But why is Congress Party silent on the dismantling of Planning Commission? Was not the Commisssion part of its legacy of freedom struggle (NPC was constituted before 1947) and nation building? Jawaharlal Nehru was the life force behind five year plans. Sukhamoy Chakravarty (1987) mentions that parts of the first chapter titled “Objectives of Planned Development” of the Third Five-Year plan were written by Nehru himself [3].

To understand Congress’s silence and abandoning of its tallest Prime Minister, it is important to recognise that the exercise of economic planning was rendered hollow long ago by the party. Heyday of Planning Commission got over after the Third Five-Year Plan (1961-1966). The audacity of imagination which a country-wide planning entails did not survive more than fifteen years (1951-1966). Indeed, if the First Five-Year Plan, which was not as well-thought out as the subsequent two, is discounted the span of panned development shrinks to just ten years. The shift in Congress’s vision on how to run the economy was a decisive break. It was going to have a bearing on subsequent developments, culminating in the announcement from a Prime Minister who did not want to continue with the façade. But first, let us have an understanding what brought the Planning Commission into being.

 

Why Planning?

An inquiry into why have planning at all could be useful. At a rudimentary level, planning is a negation of the idea that market can solve the problems afflicting an economy, specially those of the long term nature. Instead of solving problems such as poverty and inequality unregulated market magnifies them. This is because of the tendency of the big capital to become bigger by swallowing up smaller ones, exploiting workers etc., and the big capital’s capacity to influence market. Effort to reign in big capital is countered with the liberal argument that it encroaches on the freedom to own property or to do business. That they violate the tenet of democracy that all should have equal economic opportunity is lost sight of. In short, economic planning, which tethers market and capital to the control by the people, is an instrument of furthering democracy.

At the time of independence one of the biggest obstacles on the path of economic development was dearth of productive capital. To put it simply, material abundance of goods and services is essential in order to attain economic development. In order to produce these goods and services the country needed workers working with machines. Out of these two, i.e., people and machines, India had an abundance of the former: there was a huge, often unemployed, labour force. But machines were in short supply. How does one get machines?

One way out would be to buy them from abroad. It however hinges on if the country has savings to spare. If the country does not save sufficiently (after meeting consumption requirements from its income) it would not have the capacity to buy from other countries. India’s calamitous colonial experience with foreign trade was not encouraging enough for it to depend on international trade possibilities [4].

So, the option that was left was to build machines. Building machines also requires large savings, aside from technical knowhow. If a large part of income is spent to meet consumption needs, which is normal for a poor country, less is left to be set aside as savings. If there are less savings less is available to be spent on building productive assets. In short, the origin of poverty and underdevelopment was traced to lack of productive assets, which was caused by low capacity to save. In 1951-52 the gross saving rate in India was a lowly 9.5%. The possibility that an economy left to market mechanism alone would be able to take savings to a high level was not bright. It was felt that an accumulating public sector following a well-planned strategy would be able to deliver rising saving and expanding productive capacity.

Secondly, there was little assurance that left to market forces, if savings rate rises, high savings would be readily converted to productive investment.

Thirdly, identity of the sectors which would receive investment was a matter of importance. For example, if market signals high profit in consumption goods sector (textile, for example), more investment would cluster there. This may provide high consumption for the population (more cloth). But if the investment does not flow sufficiently into sectors which produce machines for the consumption goods sector (such sector is called the capital goods sector) then eventually the growth of consumption itself would suffer. Market forces often act myopically, they do not give optimal judgment about the future, leading to misallocation of resources in the present.

Fourthly, not only time, spatial dimension of development process was important. Regional distribution of development was a matter of concern. In the monograph Development Planning (1987) Sukhamoy Chakravarty noted,

“In the case of India, it is certainly true that deficiencies of the market mechanism in promoting what plan documents called ‘balanced regional growth’ were implicitly or explicitly recognized from the mid-fifties onwards. Perhaps the pattern of economic development experienced during the colonial period, with infrastructure concentrated in certain developed coastal towns while backward hinterlands supplied raw material and labour and the gains of international exchange were unevenly distributed, had left an adverse impression on the perception of the Indian political élite.”

When the objective was to push up the material well-being, the above-mentioned short comings of private exchange economy were considered serious [5]. Two more historical episodes that set the backdrop should be kept in mind. The first was the Great Depression. It shaved off a clean one-third of the American GDP. Nearly a quarter of the US labour force was thrown out of job. Great Depression shook the very roots of the capitalist economic foundation of rich countries. Old trade ties were thrown asunder. Reverberations spread across the globe. Even in remote farming hamlets of Bengal and Assam the impact of plummeting jute price was felt. Traders, mahajans, peasants of rural economy were left with accumulating stock and consequently went bankrupt. This was going to have a bearing on the Great Famine which would visit Bengal a decade later.

If anarchy of market was underlined by Great Depression, an alternative was presenting itself at the same time. Soviet Union’s five year plans, started in 1928, were pulling the fledgling socialist republic out of the devastations wrecked by the First World War and the civil war. For the sake brevity, we present the following table, showing the remarkable jump in output in different sectors between 1928 and 1940. A strong economy was the steel frame which enabled the USSR counter the Nazi Operation Barbarossa.

Table 1: Production of goods in the USSR from 1913 to 1940 (Dobb, 1966 [6])

dream_table1

The years following the Second World War put the USSR and the capitalist bloc at loggerheads. What is under-appreciated is that the USSR was an industrially-backward country well into the third decade of the twentieth century. From that situation to be able to compete with the capitalist West, which had been the receiver of world-wide loot for several centuries, in a span of two decades required a significant accretion of economic productive capacity. Not the depredation of monopoly capital, but planning – an instrument of conscious and rational way to run the economy, enabled the USSR attain this position of strength.

If the goal of human endeavour is to understand and tame nature and human impulses in order to utilise them in the most adequate manner, it follows that economic planning which harnesses market institution (does not substitute it) is the rational way forward. India was not alone to get influenced by Soviet Union’s planning. Many colonies which were gaining independence during the mid-decades of the twentieth century had their respective planning bodies. For example, Pakistan, which was more pro-USA than India, had one.

Thus, Nehru’s predilections for Fabian socialism notwithstanding, it’s questionable if economic planning would not have been adopted if Nehru were not in the helm. Chakravarty (1987) observed, “it may be maintained that even a more pragmatically inclined politician than Nehru could well have opted for the same set of arrangements for promoting economic development if his perception of the factors perpetuating structural backwardness conformed to what is described below” [he goes on to list features such as low saving, low capital stock etc. cited earlier].

The Run and the Demise

Renowned statistician Prasanta Chandra Mahalanobis was persuaded to guide Indian planning from its early days. His imprint over the Second and Third Plans is well known. Mahalanobis’s model remains the most important document on Indian planning. The blueprint was uncannily similar to a model Soviet economist Feldman developed in 1928, although as pointed out by Mahalanobis this was a coincidence. Their works were independent. Investment was geared toward capital goods sector. Iron and steel factories, dams, heavy machinery industries were being set up. As a complementary measure engineering and science institutes were being built to train workers who would man the temples of modern India.

Efforts by the State to inject momentum in a moribund economy started to have telling effects. In table 2 growth rates of different sectors during 1950-51 to 1964-65 is shown. As is evident, growth rate rose significantly compared to the preceding half century.  Planning provided the economy with the first structural break: from a low growth trajectory the elephant traversed to a high growth trajectory.  Note the high growth that secondary sector experienced during the first fifteen years (secondary sector includes manufacturing). Manufacturing would seldom have such high expansion in the fifty years that follow.

Table 2: Growth rate of output of different sectors in India in twentieth century (Balakrishnan, 2010[7])

dream_table2

A sharp rise in prices of agricultural commodities hit plans in mid-sixties. There were two successive monsoon failures in 1965 and 1967. Production of food grain declined from 89 million tons (1964-65) to 65 million tons (1965-66). As a result public investment had to be curtailed. This set the ‘acceleration principle’ in reverse, that is, lower output growth led to shrinking of investment resulting in further set back of output level, etc. – a vicious cycle unfolded. The decade from mid-1960s to mid-1970s would be marked by a phase of stagnation in India industries. In the meanwhile, the five year plans were abandoned in favour of ad hoc annual plans. In 1969 when the Fourth Five-Plan started, the grand vision of building the nation by using knowledge was no longer on the agenda. Less ambitious goals such as garibi hatao (eradication of poverty) had taken its place, and such programmes would be implemented only half-heartedly. Nehru and Mahalanobis were long gone. Shorn of the original objective, Planning Commission saw a gradual erosion of its role [8].

With the neoliberal turn of the economy from 1980s decline of Planning Commission quickened. Bereft of its function, its role would often get conflated with those of Finance Commissions and individual ministries. Of late, people who have the least conviction about the purpose of planning have headed the Commission. This was perhaps the best way to kill it.

But, did not the planners foresee the troubles that planning was going to run into? When emphasis is placed on accumulation of industrial capital, sooner or later a shortage of complementary goods will be felt. After all, what will the workers engaged in the expanding industries eat or wear? Did not planning give sufficient attention to production of mass consumption goods? Moreover, India was passing through a phase of accelerating population during those decades: death rate was declining fast but birth rate did not fall commensurably. The additional population needed more food. Did not the experts of high planning anticipate that demand for food from different quarters could drive food and other consumption goods’ price high and wreck the plan itself?

The answer perhaps lies in the realm of political economy. One way to ease the shortage of food production was to implement thoroughgoing land reform. Many of East Asian countries which would rise as industrial power-houses in later decades were going through land reform during the middle decades of the twentieth century. Post-revolution China was one of them. But curiously, countries such as Japan, Taiwan, South Korea were also going through land reform under the dictate of the USA [9].

Implicit in Mahanalobis model was the presumption that the postcolonial welfare State would complete the task of land reform [10]. By raising food production land reform was to act as a complementary force to the investment drive underway in heavy capital goods industries. However, this was a much more difficult job than setting up steel plants and IITs. It directly harmed the economic and political power of the landed elite.

For the Congress, the party to which many big landowners owed allegiance, land reform was therefore something simply not on the table. When the logic of planning eventually collided with the interest of landed class, the political establishment chose the latter. Planning fell between the two stools of modernist impulse of Congress leadership and the feudal base of its political support.

“…we must live as if we will never die”

It is not a matter coincidence that a statesman of Mr. Modi’s stature should announce the end of Planning Commission. Bound within the limits of a State ruled by landlords and big capital the Commission spoke of a collective dream – the dream to reorganise the nation on the basis of scientific knowledge, conscious endeavour and social justice. In the end, those very limits strangled the Commission. Mr. Modi was only stating the obvious. The substance of the dream has been robbed by his worthy predecessors long ago.

This does not mean that the reasons of planning have vanished – if anything, they are thriving. Unruly market economy, at times an euphemism for the rule of big capital, has continued to create havoc. Financial crisis and recession of 2008 has reminded us the devastation that unregulated market is capable of wrecking. Since 1980s the US economy had seen gradual stripping off of regulations of financial market on the rationale that an unregulated market is an efficient market. The result has been a proliferation of swindling and misallocation of loans. When the bubble of housing loans burst the wave of devastations swallowed up some of the biggest banks of the country, until the government had to step in.

This was at the centre of world capitalism, where one expected to get best results. In the not-so-perfect conditions things are more dismal. More than 90% of the work force in India is engaged in informal, uncertain employment. They earn extreme low income, which is reflected in data such as, nearly 50% of Indian children are malnourished, more than 50% married Indian women of 15 – 49 years are anaemic, average body mass index of the Indians is 19.9, less than many sub-Saharan African countries. This burden of mass poverty and squalor has persisted even as the number of super-rich Indians has multiplied. In many parts of the country the free run of capital has degraded environment to an alarming level. Perhaps all this is a testimony that leaving the economy to the logic of market and not to engage in purposeful refashioning of the channels of money, goods and labour is to give up, to surrender to the myth that an unregulated, unplanned economy does best for all. As long as people continue to struggle and hope for a more equal world relevance of planning will not be gone.

[Acknowledgement: I thank Sanhati editorial team for helpful comments on an earlier draft.]

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Endnotes:

[1] Joseph writes,

“Mr. Modi displayed a degree of respect for the commission, but economic analysts rejoiced, saying that an ancient beast created during India’s experiment with socialism had finally been slain. Amusing then that the seeds of the commission were sown by some of India’s leading industrialists. In 1944, eight men, including the heroes of Indian industry of the time…wrote a 15-year vision…soon came to be known as “The Bombay Plan”.”

“An Experiment with Socialism Finally Ends”, The New York Times, 20 August, 2014 (http://www.nytimes.com/2014/08/21/world/asia/narendra-modi-to-replace-indias-planning-commission-.html?_r=0).

[2] The Nation and its Fragments: Colonial and Postcolonial Histories, Partha Chatterjee, Oxford University Press, 1995.

[3] Development Planning, Sukhamoy Chakravarty, Oxford University Press, 1987.

[4] Planners would draw flak from pro-market critics for not utilising trade as an engine of growth. But much of this line of criticism is misplaced. There was a very limited prospect of selling domestic products abroad to earn sufficient money which could be spent to buy the required goods.

[5] In economics these are termed as instances of ‘market failure’. It is doubtful if this is a correct use of words, for it implicitly assumes that in general market succeeds. The fact is, most of the time market fails. The point of departure of development economics, which studies the economy of non-rich countries (they collectively contain more than 80% of world population), is the so called failure. This suggests that more than 80% of the humanity is afflicted by ‘market failure’. Incidentally, during its glorious days, Indian planning majorly influenced the evolution of development economics.

[6] Soviet Economic Development since 1917, Maurice Dobb, International Publishers, 1966.

[7] Economic Growth in India, Pulapre Balakrishnan, Oxford University Press, 2010.

[8] Besides increasing food price there were other pressing issues which beset planning. Lack of information from different sectors, an aggregative, model-based analysis which paid little attention to the detailed working of individual sectors were some of them. Deleterious environmental and displacement impacts that large scale industrialization often entail were not given the importance they deserved.

[9] See Terence Byres’s article “The Agrarian Question, Forms of Capitalist Agrarian Transition and the State: An Essay with Reference to Asia” (1986), Social Scientist, for a detailed discussion of the land reform executed in these countries. That land reform can lead to increment of agricultural production is acknowledged by mainstream economics. See Abhijit V Banerjee, Paul J Gertler, Maitreesh Ghatak’s article “Empowerment and Efficiency: Tenancy Reform in West Bengal” (2002), Journal of Political Economy.

[10] From Chakravarty (1987),

“The Second Five-Year Plan document included a very well written chapter on ‘Land Reform and Agrarian Reorganization’, which went beyond the mere enunciation of a redistributive strategy for land to the articulation of what could form the basis for a progressive agrarian structure. It is on this latter dimension that hopes were placed for bringing about the envisaged increase in agricultural output, particularly by those who, like Nehru, saw co-operative farming as the ultimate solution.”

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