Nehru's Real Big Mistake

Heavy industry wrongly got priority in 1950s. So even at 75, India isn’t rich

- Arvind Panagariya

As India enters its 75th year of independence, we must set the goal of bringing genuine prosperity to all by the 100th year. But the occasion is also an opportunity to introspect why India has not achieved this goal already. After all, 75 years is a long time and some countries have become prosperous in less than this time.

It is commonplace to trace our economic failure during the first several decades to Nehruvian socialism. But this begs the question: Precisely which features of it? Superficially, one may point the finger at Nehru’s push for a progressively larger share of the public sector in the ownership of the means of production so that profits will translate into public revenues rather than private wealth.

While this intrusion of the public sector was surely a factor, it was not the real key to the failure. Instead, it was Nehru’s decision to frontload his development model with highly capital-intensive, heavy industry at a time when investable capital was highly scarce.

Nehru’s socialism is often likened to Fabian socialism, which rejects the revolutionary doctrines of Marxism and takes a more moderate approach to it. What is less well-known is that till at least 1936, Nehru had subscribed to a far more radical form of socialism, bordering communism. In this phase, he had come to the view that imperialism inevitably resulted from capitalism since capitalist nations needed colonies as the sources of raw materials and markets for finished products.