Arvind Panagariya
The writer is Professor, Columbia University, US
The story of India's march to socialism between 1969 and 1976 under Prime Minister Indira Gandhi offers an interesting parallel (and contrast) to the last seven years. Prime Minister Lal Bahadur Shastri, who succeeded Prime Minister Jawaharlal Nehru in 1964, unexpectedly died in January 1966.
The Congress party bosses, known as the Syndicate, chose lightweight Mrs Gandhi over rival Morarji Desai in the hope of continuing to rule the country by proxy.
In the February 1967 elections, the Congress fared poorly, winning just 283 out of 516 seats in the Lok Sabha. Morarji Desai won his seat with substantial following in the new Parliament. This forced the Syndicate and Mrs Gandhi to accept a compromise whereby Desai became deputy prime minister and finance minister.
A group of radical socialists, loosely organised under the Congress Forum for Socialist Action, had been active within the Congress since the late 1950s but without influence on policy. So long as he was Nehru was alive, his pragmatism prevailed and after him the Syndicate, which was more sympathetic to business, kept them at bay. But by 1967, some firebrand radicals known as the Young Turks had begun to make their influence felt.
Coincidentally, Mrs Gandhi was keen to challenge the authority of the Syndicate following the election. But she lacked the necessary political base. While she is said to have had no strong views on socialism yet (according to historian Ramachandra Guha, she had "rarely invoked the word 'socialist' before 1967"), her principal secretary P N Haksar was a doctrinaire leftist. Perhaps on his advice, she decided to make a common cause with these young socialists, helping them push their Ten-point Programme through the All India Congress Committee (AICC) in June 1967. Fearing that opposition by them may split the party and leave them without power, Syndicate bosses played along.
The implementable agenda in the Ten-point Programme was long on curbing the wealthy, short on aiding the poor. It sought social control of banking institutions; nationalisation of general insurance; nationalisation of export and import trade; public distribution of foodgrain; curbs on monopolies and concentration of economic power; limits on urban incomes and property; better implementation of land reform; and an end to princely privileges and privy purses.
Rather than social control, the Young Turks had sought nationalisation of banks. But Mrs Gandhi, who had different political goals, demurred. For now, she preferred to let Desai take the lead and establish social control. A parliamentary Act toward this end was passed in 1968, which the Young Turks saw as wholly reflecting the views of Desai. Until as late as April 1969, when the AICC met in Faridabad, Mrs Gandhi publicly opposed nationalisation.
But the death of President Zakir Hussain in May 1969, which threw open the question of the nomination of the Congress candidate for presidential election, brought to a head the conflict between the Syndicate and Mrs Gandhi. The decision on the candidate was to be made by the Congress Parliamentary Board (CPB) at the July 10-12, 1969 AICC session.
Recognising that she lacked the votes in the CPB to see her candidate through, Mrs Gandhi acted strategically. She took a 180-degree turn and sought a resolution for the nationalisation of the major banks. To avoid direct public confrontation, the Syndicate once again acquiesced and the AICC passed the necessary resolution.
With the resolution in hand, Mrs Gandhi moved swiftly. She stripped Desai of the finance portfolio on July 16 and promulgated an ordinance nationalising 14 largest banks on July 19, 1969. The move eventually split the Congress, but 220 Lok Sabha members stayed with Mrs Gandhi. Two communist parties provided the balance of the votes necessary for majority.
The nationalisation made Mrs Gandhi an instant national hero, leading her to fully own the socialist agenda. The radical socialists had, thus, scored complete victory. In the following years, Mrs Gandhi nationalised insurance, coal mines and oil industry; severely restricted investments by large firms under the Monopolies and Restrictive Trade Practices Act, 1969; reserved many labour-intensive products for exclusive manufacture by small-scale enterprises; tightened controls on exports and imports; nearly banned foreign investment under the Foreign Exchange Regulation Act, 1973; effectively denied the firms with 100 or more workers the right to layoff workers; and severely limited the ownership of urban land under the Urban Land Ceilings Act, 1976.
The results were devastating: per-capita income rose from 775 per month in 1969-70 to just 815 per month in 1976-77 at 1999-2000 prices. The average per-capita income growth during the period was just 0.8% with no reduction in poverty achieved. India had lost almost an entire decade.
It was not until 1991 that socialists were forced into retreat. The reforms during the 1990s and early 2000s undid some of what had been done between 1969 and 1976. But history repeated itself in 2004. The reformist government of Prime Minister Atal Bihari Vajpayee lost the election and the Congress came to power, once again with the aid of communist parties. This returned the socialists within the Congress to the forefront of policymaking but with a difference.
The debacle under Mrs Gandhi and accelerated growth in the 1980s and 1990s had taught them the value of growth. They now understood that growth brings larger revenues so essential for large-scale social programmes. Therefore, even though they would not push growth-centered reform agenda, they resisted the instinct to curb the incentives for wealth creation that the past reforms had put in place. Nevertheless, a lacuna remained: they still did not appreciate that social sector required reforms, too. Social engineering is more than just spending money on social programmes.
(The author is Professor, Columbia University).
The Congress party bosses, known as the Syndicate, chose lightweight Mrs Gandhi over rival Morarji Desai in the hope of continuing to rule the country by proxy.
In the February 1967 elections, the Congress fared poorly, winning just 283 out of 516 seats in the Lok Sabha. Morarji Desai won his seat with substantial following in the new Parliament. This forced the Syndicate and Mrs Gandhi to accept a compromise whereby Desai became deputy prime minister and finance minister.
A group of radical socialists, loosely organised under the Congress Forum for Socialist Action, had been active within the Congress since the late 1950s but without influence on policy. So long as he was Nehru was alive, his pragmatism prevailed and after him the Syndicate, which was more sympathetic to business, kept them at bay. But by 1967, some firebrand radicals known as the Young Turks had begun to make their influence felt.
Coincidentally, Mrs Gandhi was keen to challenge the authority of the Syndicate following the election. But she lacked the necessary political base. While she is said to have had no strong views on socialism yet (according to historian Ramachandra Guha, she had "rarely invoked the word 'socialist' before 1967"), her principal secretary P N Haksar was a doctrinaire leftist. Perhaps on his advice, she decided to make a common cause with these young socialists, helping them push their Ten-point Programme through the All India Congress Committee (AICC) in June 1967. Fearing that opposition by them may split the party and leave them without power, Syndicate bosses played along.
The implementable agenda in the Ten-point Programme was long on curbing the wealthy, short on aiding the poor. It sought social control of banking institutions; nationalisation of general insurance; nationalisation of export and import trade; public distribution of foodgrain; curbs on monopolies and concentration of economic power; limits on urban incomes and property; better implementation of land reform; and an end to princely privileges and privy purses.
Rather than social control, the Young Turks had sought nationalisation of banks. But Mrs Gandhi, who had different political goals, demurred. For now, she preferred to let Desai take the lead and establish social control. A parliamentary Act toward this end was passed in 1968, which the Young Turks saw as wholly reflecting the views of Desai. Until as late as April 1969, when the AICC met in Faridabad, Mrs Gandhi publicly opposed nationalisation.
But the death of President Zakir Hussain in May 1969, which threw open the question of the nomination of the Congress candidate for presidential election, brought to a head the conflict between the Syndicate and Mrs Gandhi. The decision on the candidate was to be made by the Congress Parliamentary Board (CPB) at the July 10-12, 1969 AICC session.
Recognising that she lacked the votes in the CPB to see her candidate through, Mrs Gandhi acted strategically. She took a 180-degree turn and sought a resolution for the nationalisation of the major banks. To avoid direct public confrontation, the Syndicate once again acquiesced and the AICC passed the necessary resolution.
With the resolution in hand, Mrs Gandhi moved swiftly. She stripped Desai of the finance portfolio on July 16 and promulgated an ordinance nationalising 14 largest banks on July 19, 1969. The move eventually split the Congress, but 220 Lok Sabha members stayed with Mrs Gandhi. Two communist parties provided the balance of the votes necessary for majority.
The nationalisation made Mrs Gandhi an instant national hero, leading her to fully own the socialist agenda. The radical socialists had, thus, scored complete victory. In the following years, Mrs Gandhi nationalised insurance, coal mines and oil industry; severely restricted investments by large firms under the Monopolies and Restrictive Trade Practices Act, 1969; reserved many labour-intensive products for exclusive manufacture by small-scale enterprises; tightened controls on exports and imports; nearly banned foreign investment under the Foreign Exchange Regulation Act, 1973; effectively denied the firms with 100 or more workers the right to layoff workers; and severely limited the ownership of urban land under the Urban Land Ceilings Act, 1976.
The results were devastating: per-capita income rose from 775 per month in 1969-70 to just 815 per month in 1976-77 at 1999-2000 prices. The average per-capita income growth during the period was just 0.8% with no reduction in poverty achieved. India had lost almost an entire decade.
It was not until 1991 that socialists were forced into retreat. The reforms during the 1990s and early 2000s undid some of what had been done between 1969 and 1976. But history repeated itself in 2004. The reformist government of Prime Minister Atal Bihari Vajpayee lost the election and the Congress came to power, once again with the aid of communist parties. This returned the socialists within the Congress to the forefront of policymaking but with a difference.
The debacle under Mrs Gandhi and accelerated growth in the 1980s and 1990s had taught them the value of growth. They now understood that growth brings larger revenues so essential for large-scale social programmes. Therefore, even though they would not push growth-centered reform agenda, they resisted the instinct to curb the incentives for wealth creation that the past reforms had put in place. Nevertheless, a lacuna remained: they still did not appreciate that social sector required reforms, too. Social engineering is more than just spending money on social programmes.
(The author is Professor, Columbia University).
