Wednesday, January 14, 2004

The Nehruvian Penalty: 50 wasted years -- Rajeev Srinivasan

Nehruvian economics caused great harm to India and her people.

Rajeev Srinivasan argues on Rediff:
The Nehruvian Penalty:
50 wasted years

January 14, 2004

The Goldman Sachs report 'Dreaming with BRICs: The Path 2050' by Dominic Wilson and Roopa Purushothaman, dated October 31, 2003, has, with good reason, caused quite a stir, especially in India. It is especially noteworthy for its optimistic statements about India, for example:

India has the potential to show the fastest growth over the next 30 and 50 years. Growth could be higher than 5% over the next 30 years and close to 5% as late as 2050 if development proceeds successfully.

In US dollar terms, China could overtake Germany in the next four years, Japan by 2015 and the US by 2039. India's economy could be larger than all but the US and China in 30 years.

There are plenty of caveats, of course. But the very fact that an American investment bank is now talking up India is significant. There is a whole slew of other positive news, for example an adulatory cover story in Businessweek ('The Rise of India,' December 8, 2003) and a Pacific News Service article ('Return of the Old Empires: India and China) and a new buzz about India's economic prospects in the world media. Even Peter Drucker, the grand old man of American management, weighed in recently, saying very positive things about India's prospects especially as contrasted with China.

The American investment banks have been especially diligent in talking up China in the last few years. This probably had something to do with the fat fees they were expecting from the initial public offerings of some large Chinese firms, for example China Telecom, whose multi-billion-dollar offer must have brought them very large fees.

India has not had juicy carrots like these in the pipeline, and in any case investment banks in India are quite capable of managing any large offers. So if the Goldman Sachs of the world are now positive on India, that must mean they smell some juicy business. The new American ambassador-designate is, perhaps not coincidentally, a banker from Credit Suisse First Boston.

The BRIC (Brazil, Russia, India, China) report bases its conclusions on some growth model assumptions:

  • high rates of return from increased capital per worker
  • the ability to leapfrog technologies
  • significant increases in the exchange rate
  • growth in employment.

Based on India's positive demographic profile which means workers will come into the economy for longer than in other BRICs, Goldman Sachs expects India's high growth rate will continue for longer than the other countries.

The report cautions that its projections are dependent on the following, so there is no room for complacency:

  • Macroeconomic stability: low inflation, supportive government policy, sound public finances and a well-managed exchange rate
  • Institutional capability: legal system, functional markets, health and education systems, financial institutions and government bureaucracy
  • Openness: to trade and foreign direct investment
  • High levels education: there is a strong positive correlation between secondary education and growth

Clearly, it is for Indians collectively to lose this race. For every one of the above is an area of some concern. In particular, education is a key matter: the Goldman Sachs report suggests that 1 additional year of schooling for the workforce on average provides a 0.3% faster annual growth rate over the next 30 years. This is a vulnerability for India. The issue of openness is a double-edged sword: over-eager openness to FDI and trade, especially in an atmosphere of 'managed trade', may be suicidal. Americans, up until now zealous proponents of 'globalization', are beginning to have second thoughts: it seems 'free trade' is good only insofar as it benefits the West.

Much of what Goldman Sachs says is a priori sensible; the projections are merely startling in their boldness about how India will overtake all other nations barring China and the US by 2050. The following table summarizes their projections for both GDP and per capita GDP growth over the next fifty years. Note the tortoise-hare scenario: India is slow to get off the block, but grows consistently faster in the long run. China's early lead, however, enables that country to have a significantly greater GDP per person by 2050.

China GDP % growth

India GDP % growth

China GDP per capita % growth

India GDP per capita % growth



















































Given these assumptions, here are the GDPs and per capita GDPs of major nations in 2050, in constant 2003 US$, sorted by projected GDP in 2050:


GDP in 2050 (billion US$)

GDP per capita in 2050 (US$)




US (G6)






Japan (G6)









UK (G6)



Germany (G6)



France (G6)



Italy (G6)



All this is good news, but in a way it merely buttresses the optimism many of us have had about the Indian economy.

But what I found most interesting in the report was the Goldman Sachs economists' attempt to test their model but running it backwards for the period 1960-2000. That is, they attempted to see how well the model would have predicted actual growth if applied to major developing countries in 1960. Here are the results of that analysis:


Predicted GDP growth rate 1960-2000%

Actual GDP growth rate 1960-2000%













Hong Kong





















I would draw your attention to the row regarding India. Forecast for annual GDP growth 1960 to 2000, based on its endowment: 7.5% per annum, actual: 4.5% per annum. That 3% per annum shortfall sounds small, but it isn't. Look at what (South) Korea has accomplished: by growing at 7.8% in those forty years, they, who started at roughly the same point as India, is now far ahead of India in GDP per capita, and their GDP is roughly the same as India's, although they are a far nation.

Put another way, in forty years GDP would have grown by a factor of 1800% without the Nehruvian Penalty, instead of the actual growth of 580%. Instead of an actual GDP of about $460 billion in 2003, and also a per capita GDP of about $450, India's numbers would have been $1451 billion GDP and a per capita GDP or about $1400. India's economy would have been the fourth largest in the world, after the US, Japan and Germany! Per capita, Indians, while far behind the G6, would have been better off than Chinese.

In other words, the 3% shortfall has condemned a quarter of a billion people to grinding poverty. It is an economic crime against humanity. The blood, sweat and tears of a billion Indians, for one half century. Wasted.

And what was the reason for the 3% shortfall? That, gentle reader, is the Nehruvian Penalty, the effect of the Nehru dynasty, India's Sorrow. Had it not been for the dubious and half-digested economic ideas eagerly accepted by Nehru and fellow Stalinists, India would have been far better off.

One of those Old Left hoi-polloi, one Raj Krishna, coined the untruthful phrase 'Hindu rate of growth' to refer to the pathetic Nehruvian Rate of Growth of 2% to 3% a year. The unlovely Comrade knew he could get away with demeaning Hindus. He is referred to as 'the famous economist Raj Krishna' although I believe he is only famous for having coined this insult. So according to the famous Raj Krishna, I take it that Pakistan's pathetic economic showing would be the 'Muslim rate of growth'? But of course, no Comrade would ever say anything that might 'hurt Muslim sentiments.'

I hope if I can now claim I am 'the famous economist Rajeev Srinivasan' for having coined the phrase 'The Nehruvian Penalty.' Gentle reader, I implore you to propagate this rude but accurate phrase so that I may truly become a 'famous economist.'

The shortfall is clearly cause and effect. Nehru was here, and India had the 3% gap. Now Nehru is dead, and his acolytes are out, and India now has managed to get back to 7+ % growth, which is what Hindu India enjoyed before the Muslim and Christian colonization sprees. The 8.4% growth achieved in Q2FY2003 is an indication of the true Hindu rate of growth. Clearly the Nehruvian Albatross is now gone. And good riddance, too.

I have noticed recent attempts by Nehru hagiographers to polish up the man's image. But, in an example of the axiom that you cannot fool all the people all the time, large numbers are beginning to question all the wonderful things the JNU court jesters claim our Jawaharlal accomplished. I have been thinking about this for some time, and have come to the conclusion that Jawaharlal was an unmitigated disaster for India. See my earlier column 'Let us now praise famous men.'

It is clear that Nehru screwed up big time on Tibet, Kashmir, the NAM, the Security Council, in fact everything he touched. Nehru's little lambs never fail to claim that even if he did nothing else right, Nehru started the IITs, which has led to India's increasing prestige in the world. Wrong. The IITs have done the exact opposite of what Nehru intended, in a spectacular example of the principle of unintended consequences.

Nehru, being himself a deracinated person with no understanding of Indian culture (read his autobiography where he confesses that he was brought up as an Uncle Tom, a little Briton in brownface), hoped to create good coolies for the use of his idols, the British and the Communists. Nehru was not burdened with a massive intellect (as he admits in his autobiography) or with great knowledge (as you can see from the absolute howlers in his Glimpses of World History, which should be titled more properly The Word According to Garp and shelved under 'fiction'). He wanted, in continuation of the Macaulayite project, to create de-Indianized and de-Hinduized robots, much like himself.

What has happened, ironically enough, is that the majority of IIT products have not followed the plan: they have not become rootless. (There are some notable exceptions, though, who, infected with 'South-Asianitis', are eager to bring the benefits of IT services to Karachi, that is when the good citizens there can tear themselves away from their AK-47s.)

What the IITs have done is to locate a bright group of students, teach them a lot of engineering, and substantially enhance their self-esteem. This last was not part of the Nehruvian/Macaulayite project, but this is perhaps the one thing that most IIT graduates share: self-confidence and a belief that they are the best of the best. Since people do what they expect themselves to do, this has become a self-fulfilling prophecy.

This self-confidence has enabled many IIT graduates to make a mark in whatever they chose to do. It is poetic justice that it is JNU students who have fulfilled Nehru's objective of providing slaves for the Communists and the West. It is to intimidate these innumerate and generally intellectually challenged individuals that I have included the numbers above. I forecast that the hate mail from them will carefully skirt the numbers and confine themselves to abusing me as a human being: perfect, because that is a purely subjective opinion for which they have to show neither proof nor thought process, just knee-jerk sloganeering.

In passing, there is a crying need in India for a world class school focusing on the humanities. In the sciences, we have the Indian Institute of Science; in engineering, the Indian Institutes of Technology; in medicine, the All India Institute of Medical Sciences; in the law, the National Law School University of India; in management, the Indian Institutes of Management and the Indian School of Business, all clearly world class.

It is time that a globally competitive Indian Institute of the Humanities be set up, perhaps in Hyderabad or Bangalore, to do original research into the unsung contributions of Indic culture to the world. Some focus areas could be Indology; classical languages Sanskrit, Pali/Prakrit and Tamil; yoga; ayurveda; economics; statecraft (eg. the Arthashastra); astronomy; mathematics (eg Aryabhatiya); all areas in which Indic thought is far too underrated. This will help us to avoid Nehruvian Albatrosses in future, based on half baked and imported ideologies.

Fifty wasted years. A billion people forced to live below their potential. Since I believe in the long cycles of history, I have to believe that having to put up with the Nehruvian Penalty has atoned for whatever sins India has committed for a thousand years. And now this is India's century. As Businessweek commented, for the first time a developing nation is clawing its way out of poverty by using the intelligence of its citizens, not natural resources that come out of a hole in the ground.

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