The Hindu Business Line : A relook at the blueprints for independent India

The Second Five-Year Plan inspired many alternative blueprints that represented ideologies of the early 1950s. Of the many different strategies outlined, P. R. Brahmananda's creative analytical alternative embodied the market philosophy, reflecting as it did his concern not only about low growth but also about the widespread poverty and unemployment. A. Vasudevan pays tribute to the economist-visionary, who passed away a year ago.

P. R. Brahmananda, who waged a long and lone battle in support of his analytical alternative blueprint for the economy.

ANALYTICAL writings on India's development issues began to appear since the mid-1950s. The trigger was the Second Five Year Plan (1956-'61), although there were prior to 1955 creative published pieces by many Indian academics such as Professors D. R. Gadgil, C. N. Vakil, V. K. R. V. Rao, L. C. Jain, A. K. Dasgupta, Gyan Chand, Bhabatosh Datta, R. Balakrishna, and K. N. Raj, to name a few.

Many economists of that generation were influenced by the spirit of the national movement for both political and economic independence. The Congress Party, the party that spearheaded the movement, considered the need for the state to be proactive since private capital at that time was not forthcoming.

The National Planning Committee of the Congress, which presented a picture of the total economic resources of the country, provided an impetus to the emergence of unofficial blueprints of `plans' that represented ideologies of the times, namely the Bombay Plan, the People's Plan and the Gandhian Plan.

While the People's Plan of M. N. Roy vintage did not take off due to its Leftist philosophy, the Bombay Plan was suspected of promoting industrialists' interests. The Gandhian Plan of Shriman Narayan was considered too Utopian.

It was obvious by 1950 that any plan, to be credible, should have some elements of the above-mentioned three plans besides a focussed view on long-term development. Harmonisation of such diverse considerations took some time. The party in power presented its vision of development at the time of the formulation of the Second Five Year Plan.

P. C. Mahalanobis, a statistician-cum-economist, piloted the official development strategy in 1955 through a four-sector model at the meeting of the panel of economists chaired by the Finance Minister, C. D. Deshmukh. B. R. Shenoy stoutly opposed the official strategy while C. N. Vakil, who attended the meeting and presented a paper written by him in association with P. R. Brahmananda (PRB), gave a view of what was subsequently elaborated upon as an alternative strategy by Brahmananda. PRB, who passed away a year ago and in whose memory this piece is written, waged a lone battle till almost the 1970s in support of his creative analytical alternative. The alternative can be described in today's language as one that embodies the market philosophy.

What is surprising is that Indian economics books that appeared after the 1950s hardly make a mention of what could be called the first debate on India's development strategy, almost reminiscent of the Soviet industrialisation debate of the 1920s.

The economists who were educated abroad and were largely influenced by the Keynesian prescription of overcoming the economic Depression by large state expenditure favoured the official strategy under which heavy machine-building industries would be set up by the state in order to improve the productive capacity of the economy and generate employment all round — in the heavy industry sector as well as in the ancillary and input-providing industries.

The required rate of investment for the strategy being high, it was argued that it could be financed by the accumulated foreign exchange reserves and by compressing current consumption. Foreign exchange reserves were quickly frittered away while current consumption was deferred for reaping the fruits of development later — for `jam tomorrow' as Sukhamoy Chakravarty picturesquely described it.

Most of the economists who supported the strategy were enamoured by the success stories of Soviet experiments with planning. For them, inflationary financing of development was feasible so long as inflation is kept within tolerance levels. Fiscal deficits could occur and could be financed by resorting to printing of currency notes. The strategy also allowed for the use of rationing and price controls.

However, to appease the Gandhians and those who were sceptical of the employment-generating capabilities of heavy and large industries, the Second Five Year Plan envisaged the development of village and small industries.

The State was also to invest in major irrigation schemes to improve agricultural production and power supply, although the gestation period would be large, as in the case of heavy industries. The planners of the time, however, reposed faith in the efficiency of public administration and in the inter-generational transfer of development dividends.

B. R. Shenoy's main criticism was that the deficit financing proposed in the plan would be inflationary. He also opposed the large public ownership of industries and the strong regimen of controls on private enterprise, pricing, and availability of supplies.

But the political environment was such that this view was debunked as advocating a strong role for the private sector and as questioning the theology of the times that financing of development was not a problem and mobilisation of physical resources was the critical issue.

PRB's alternative appeared when Brahmananda was hardly 30 years of age and did not occupy a senior position in the academic world. Educated in Indian universities and influenced by Gandhian values inculcated by his father who himself was a nationalist-journalist, PRB was concerned as much about the low growth as about the widespread poverty and unemployment.

It was this background as also his critique of the Nurksian thesis of disguised unemployment that propelled him to present the view that the then existing wage-goods gap would act as the main limitation of the heavy industry strategy. He believed that the agricultural base, despite two good harvests during the First Five Year Plan period, was not sound — a fact that was proved when the 1965-66 famine occurred.

He also felt that foreign exchange reserves should be conserved and, in fact, increased by the export of goods in whose production India has the cost advantage. In his view, real income levels would need to increase first and that would require investment in agriculture and the consumer goods sector with the existing level of savings and with an incremental investment that should be rendered possible by the State mobilising additional resources without indulging in inflationary sources of financing.

The rise in farm and consumer goods would not only raise the Indian consumption levels but also help improve exports. However, the increase in consumption would not wipe out the increase in income; in the economist's language, the marginal propensity to consume would be less than unity.

Savings would thus increase and help improve investment in the next round. The rise in real incomes would also help control inflation and reduce the incidence of poverty. Employment generation would be higher since the methods of production of consumer goods at the given level of technology would be labour-absorbing.

PRB rejected the `forced-saving' assumption in inflationary financing of development and supported the regime of high interest rates in view of the low stock of capital so that the allocation of resources by investors would be optimal.

No one knows how India would have shaped out had the spirit of PRB's alternative been adopted. One thing, however, was clear. By 1963, the official strategy had failed but the political economy of the times had ensured that state activism and the dirigiste regime prevailed with some populist ideas till almost the mid-1980s. In the process, at least two generations of Indians paid a very high price.