BR Shenoy Memorial Lecture 2025 | Professor Arvind Panagariya

BR Shenoy Memorial Lecture 2025 || Professor Arvind Panagariya #economics #history #nehru #lecture

Source: https://www.youtube.com/watch?v=n0e_uYvBciQ Duration: 5901.0s

Speaker 1 (00:00): Good afternoon and welcome to the Biya Sunay Memorial Lecture 2025. My name is Kumar Anand and I will be your moderator this afternoon. Our distinguished speaker today is Professor Ervind Panagaria and the title for his talk is Nehru Era Economic History and Thought and Their Lasting Impact. The talk by Professor Panagaria will be for about 45 minutes after

Speaker 2 (00:24): which we will be having about 30 to 40 minutes for a question and answer session with the audience who are joining us live you can type your question in the q a box in the zoom here

Speaker 1 (00:35): or in the youtube comment section wherever you are joining us from professor b r shinoy though a

Speaker 3 (00:41): noted economist may not be well known to all of you but his ideas have affected the lives of almost

Speaker 1 (00:46): all of you especially those born after 1991. professor bellicote ragunath shinoy was born in in 1905 in bellicote kerala born to a poor farmer as one of the 11 children he was inspired by

Speaker 2 (01:00): gandhiji’s message and left home when still a boy to join the national movement arrested in bombay

Speaker 1 (01:07): and jailed in nagpur he was released to finish his schooling he took a train north to banaras hindu university where he got scholarships for a b.a and m.a in economics he then studied further

Speaker 2 (01:18): at the london school of economics and was perhaps the second indian to publish a scholarly economics article in the quarterly journal of economics in 1931 the young brs then at the age of 26 was

Speaker 1 (01:30): critical of the internationally renowned john maynard canes returning to india he worked at the rbi and was indian representative at the international monetary fund in washington disagreeing publicly with the government of india’s policies of centralized economic planning he resigned to take up his lifelong cause of arguing for a market economy as a vital engine to India’s economic development, removal of poverty, and achieving mass prosperity. Professor B.R. Chinoy was reviled and attacked in personal terms for his liberal economic views and policy recommendations. Professor Chinoy sees this work bore fruit in the end, laying the intellectual groundwork for the economic reforms of 1991, but he did not live to see the

Speaker 3 (02:14): day he passed away in 1978. You may say of the successful reforms great an example of the power

Speaker 2 (02:23): of ideas but the huge opposition in those days to Shinoa’s lonely efforts inside the country also

Speaker 1 (02:29): shows the power of wrong economic ideas. Although that era is gone its wrong ideas must be remembered and errors understood lest they be repeated. Professor Arvind Panagaria is a scholar and a lifelong student of ideas with a recent book on the ideas and policy of the Nehru era. He is a professor of economics and the Jagdish Bhagwati professor of Indian political economy at Columbia University. He has served as the first vice chairman of the Niti Ayog,

Speaker 2 (02:59): Government of India in the rank of a cabinet minister. Professor Panagaria has authored more

Speaker 3 (03:04): than 15 books. His 2008 book, one of my favorites, India the Emerging Giant, was listed as a top pick in 2008 by The Economist and described as the definitive book of the Indian economy

Speaker 1 (03:16): by Faris Zakaria of the CNN. The Economist has described his 2014 book, Why Growth Matters with Jagdish Bhagwati, as a manifesto for the policymakers and analysts. Scientific papers by Professor Panagaria have appeared in the top economics journals

Speaker 3 (03:32): such as American Economic Review, Quarterly Journal of Economics, Review of Economic Studies, and International Economic Review. He writes a monthly column in the Times of India and his guest columns have appeared in the Financial Times, Wall Street Journal and India Today. In March 2012, the government of India honored Professor Panagaria with Panbhushan.

Speaker 2 (03:51): And most recently, he has been the chairman of the 16th Finance Commission. So on behalf of the Center for Civil Society, New Delhi and the Economic Research Center Trust, Mangalore,

Speaker 3 (04:01): it gives me great pleasure to welcome our speaker, Professor Arvind Panagaria, to deliver the B.R. Chennai Memorial Lecture 2025.

Speaker 1 (04:07): Professor Panagaria, how are you? Thank you, Kumar, for that wonderful introduction. Thank you also for inviting me to deliver this lecture. You know, as an economist who has championed the cause of market,

Speaker 4 (04:31): I have greatly admired Professor Chenoy.

Speaker 1 (04:35): And really, it’s quite remarkable how he could have been what he was in terms of his ideas in the years that he lived. It’s, you know, written somewhere, I think, probably in this book, the Nehru book, that when Milton Friedman commented in 1955 on this second draft, second five-year plan, he was completely left unheard hardly anybody even knew about the note that he wrote and and I go on to say that you know Milton Friedman was hardly accepted

Speaker 5 (05:29): till then even within the United States so he had no chance of being heard in India

Speaker 4 (05:35): So that is the milieu around this time and how an economist from within India would have been someone whom Milton Friedman and P.T. Bauer would admire would have come up in India is itself actually is a remarkable fact in itself.

Speaker 1 (06:05): you know and and then the other aspects of his life one which you just touched

Speaker 4 (06:12): the fact that at a very very early age he joined the freedom movement and then went on to spend

Speaker 1 (06:24): time in jail with none other than pandit madan mohan maluya who then actually spotted his talent And, you know, there’s a good case of how the destiny works in funny ways that B.R. Shanoi ended up in jail with Pandit Madhav Nohun Malwia, who was a founder of the Banaras Hindu University, who then spotted his talent and said, why don’t you join the Banaras Hindu University? So it’s a very interesting story, I would say, of luck and destiny working in strange sort of ways.

Speaker 4 (07:09): It is something that we all, you know, at some point or the other experience in our lives. My references to Shanoi will actually continue to come through as I speak. So, you know, the normal practice in a lecture like this is to really speak extensively first about the person after whom the lecture is named.

Speaker 5 (07:36): But since for the subject that I’ve chosen, he would continue to appear through the talk.

Speaker 1 (07:42): I would not elaborate on his life further.

Speaker 5 (07:47): so let me get to the subject uh uh of of the lecture that i’ve chosen which is the

Speaker 1 (07:53): narrow era economic history and thought uh and its lasting impact um so here uh uh uh you know that the subject is is uh uh every word in in in the title and the topic uh has something uh about

Speaker 5 (08:12): which i’m going to say you know history and thought so it’s about economic history and it’s

Speaker 1 (08:18): also about the economic thought uh of the time and and how it has left the impact on uh india till today and that’s the lasting impact part of it so uh first and foremost uh my starting point is to clarify uh or a clear up a common kind of misconception that exists about narrow you know

Speaker 4 (08:41): It is commonly believed that Nehru went to Cambridge to study at an early age and there picked up Fabian socialism and really turned into this Fabian socialist, which is then what he ended up implementing in India after he became the prime minister. that’s that’s completely actually incorrect narrative of Nehru because initially I will

Speaker 5 (09:08): not go into the details but initially I’ll just point out that initially when Nehru

Speaker 1 (09:17): was a very radical socialist bordering communism and that’s something you know which was for me a

Speaker 5 (09:30): discovery uh when writing this book and and that was the starting point really you know that that’s what ultimately got me interested in pursuing the subject much further uh just to give you a sense of you know uh how how radical uh Nehru was and and certainly was not a moderate or Fabian socialist

Speaker 4 (09:50): initially. I’ll just read out, you know, a couple of things. One actually is in December 1933, some foreign visitors had come in and Nehru had given an interview to them and the media reacted saying that you know the remarks that that Nehru made amounted to defending fascism or something

Speaker 5 (10:20): so Nehru got very angry and upset and so he issued a press statement saying that the only real choice

Speaker 1 (10:29): any nation has is between fascism and communism and I unequivocally choose communism between those those two so there’s but but more substantively you know he was the president of uh international

Speaker 5 (10:47): congress in 1936 uh which and and and the convent and the aicc met uh for its convention for its

Speaker 1 (10:56): annual convention in lucknow so this was an address uh he gave uh in the lucknow session from which I’ll quote briefly just as evidence that how radical Nehru was at the time says I see no way of ending the poverty the vast unemployment the degradation and the subjection of the Indian people except through socialism that involves vast and and revolutionary changes

Speaker 5 (11:32): in our political and social structure, the ending of vested interests in land and industry,

Speaker 1 (11:38): as well as the feudal and autocratic Indian states system. That means the ending of private property market.

Speaker 4 (11:50): He’s saying, this is a quote I’m reading. That means the ending of private property, except in a restricted sense, and the replacement of the present profit system by a higher ideal of cooperative service in short it means a new civilization radically different from the present capitalist order he goes on some glimpse of some glimpse we can see

Speaker 1 (12:17): sorry some glimpse we can have of this new civilization in the territories of the USSR

Speaker 4 (12:25): are much has happened there which has pained me greatly and with which i disagree but i look upon that great and fascinating unfolding of a new order and a new civilization as the most promising

Speaker 1 (12:40): feature of our dismal age if the future is full of hope it is largely because of soviet russia and what it has done and i’m convinced that if some world catastrophe does not intervene this new civilization will spread to other lands and put an end to the wars and conflicts which

Speaker 4 (13:02): capitalism feeds so that is how strongly he felt you know that is how radical uh he uh he was and how far he was willing to actually go uh and then this of course you know spooked all the industrial of the time and created a major debate in the Bombay industrial circles and whatnot. And some of them approached Gandhiji to kind of mollify Nehru and so forth.

Speaker 5 (13:27): But in any case, that’s how it was. Now, by the time we come to the formation of the interim government and Nehru is made

Speaker 4 (13:37): the prime minister and the constituent assembly convenes and all, you see very different Nehru.

Speaker 1 (13:44): He’s very moderate. He’s actually defending industrialists against the hardcore socialists within the Congress Party who are pushing very hard for wholesale nationalization of industries. uh uh so so it’s it’s it’s it by this time never has become moderate it’s not clear you know there

Speaker 5 (14:08): is no definitive evidence of how this transition happened but most likely this happened between 1938 and 1940 when uh Nehru presided over the national uh planning committee of the Congress Party this was a committee appointed by Suvash Bose uh and uh consisted of scientists economists

Speaker 4 (14:28): politicians so it was it was a very diverse committee but the industrialists some of the leading industrialists were a part of this committee and this is where Nehru had to

Speaker 1 (14:40): directly confront the industrialists and industrialists had to directly confront Nehru and it seems that they both actually realized that they needed the other

Speaker 4 (14:48): industrialists realized that that you know Nehru is hell-bent to put in place a very socialist system and Nehru realized that without the support of the industrialists, he can’t really make a success of his own plan because ultimately growth has to happen and that means industrialization

Speaker 1 (15:11): and he could not really dispense with India’s industrialists if industrialization was to succeed. So I think he writes about this in the discovery of India and all and the industrialists come halfway and Nehru comes halfway.

Speaker 4 (15:32): So you can see that industrialists write the Bombay plan, which is not terribly different from the second five-year plan. And Nehru became a bit more moderate. He accommodated the private sector within his own second five-year plan. So that is where I think, you know, there’s a meeting of the minds and needs of the two sides.

Speaker 1 (15:52): uh in hindsight you know if you look at bombay plan really it’s an endorsement more or less of the second five-year plan uh which is a bit surprising uh coming from industrialists

Speaker 5 (16:05): but in any case so that’s a story uh that’s a background uh on narrow himself now narrow uh

Speaker 4 (16:13): was very clear in his mind that uh and this was part of the this was discussed extensively actually in the national planning committee uh between 1938 and 1940 that look you know if india

Speaker 1 (16:24): would well first of all if we were i mean it was clear in his mind that you know they were

Speaker 4 (16:29): they’re going to start planning uh uh uh soon after independence uh and uh the objective of

Speaker 5 (16:37): that planning was going to be to uh put an end to india’s appalling poverty and these are his

Speaker 4 (16:43): words appalling poverty uh he refers to to in those words to to india’s poverty uh and he says they look you know uh this could not be done without uh substantial economic growth taking

Speaker 5 (16:58): place uh because uh uh india was so poor that redistribution could hardly go far and his in his own words he says that you know there was only poverty to redistribute uh and this is also more or less a quote these are his words that you know there was only poverty to redistribute so

Speaker 4 (17:18): we simply couldn’t get anywhere without some substantial growth and there in the discovery of india he says that look you know we needed about in 10 years time we needed 600 growth but that was simply not feasible we realized that so we

Speaker 5 (17:34): set ourselves the target of 300 growth in 10 years that didn’t actually happen but at least you know

Speaker 1 (17:39): know the thinking uh uh i mean the basic idea of neru was quite correct however uh the details of how he then decided to implement this this plan of his um yeah were quite flawed uh uh

Speaker 4 (17:58): and and you’ll see as as i just go forward you’ll see that you know um it’s it it’s not just that he thought in the in these terms but much of indian intelligence all the economists thought in very similar ways also uh so in a way neil can’t be faulted in this sense you know uh it’s simply you can speculate that you know if in neil’s place there had been per sale perhaps we would have had a different system but otherwise uh uh neil was simply not alone however flawed

Speaker 5 (18:31): as we will see the the system and the model that he put in place may have been but at the time he had full support so i will talk about you know when i said economic thought we’ll talk about that

Speaker 1 (18:43): so narrow what is narrow’s approach what is narrow strategy what is narrow’s model uh one uh industrialization is is an objective meaning you know objective is really poverty

Speaker 4 (18:57): elimination or uh but uh the the instrument for that is industrialization and growth that part is correctly uh conceived uh the second plank of his uh model is uh that he wants

Speaker 5 (19:11): self-sufficiency uh uh and and uh it’s not in the sense of import substitution that he he’s

Speaker 4 (19:20): pushing self-sufficiency it’s it’s it’s more in his thing in his thinking he is coming from the fact that that engagement in international trade gives rise to these imperialist tendencies and he said you know we neither wanted to be imperialist ourselves nor did we want to be victims of imperialism yet again and therefore we want to wanted to stay away from the whirlwind of

Speaker 1 (19:46): this international trade so it was a different thinking but but and he didn’t think in terms of

Speaker 4 (19:54): a kind of, you know, import substitution driven model. Instead, his thinking was that over time, we will rejig our production basket to what is our consumption basket.

Speaker 5 (20:04): So we’ll change the production basket.

Speaker 4 (20:06): So you’ll see that, you know, he doesn’t actively kind of try to shut down the imports totally. The shutting down of the imports happens over time because of the foreign exchange control or foreign exchange shortage that will appear by about you know 1956 or so uh but uh uh so in any case so self-sufficiency is one of the planks of his uh model uh then another piece of it is socialism which means that you know the state

Speaker 1 (20:38): ought to have the uh control of the means of production uh and not in this conception you you know, once you want self-sufficiency,

Speaker 4 (20:50): also the context of this period 1950s, even among the academics is that, you know, to increase growth, you want to need to invest. So efficiency, productivity was not a part of the discourse and Nehru never thought actually that productivity mattered. He thought that investment is what you need to do to get high rate of growth.

Speaker 5 (21:13): Well, if you need to do investment for growth,

Speaker 1 (21:16): then you need machinery for growths uh well if you’re going to have machinery are you going to import it and said no the whole objective of this our planning is to achieve self-sufficiency and

Speaker 5 (21:31): therefore what we are going to do is we are going to start producing machines uh and so he talks about you know investing in steel companies steel mills uh but also talks about you know investing in

Speaker 1 (21:44): in the production of machines that produce machines, right? Because ultimately he wants self-sufficiency in machine production.

Speaker 4 (21:55): And so anything that goes into the production of machine,

Speaker 5 (21:58): including steel, most notably, has to be produced domestically. So this is basically the heavy industry, the quote unquote,

Speaker 4 (22:06): the heavy industry becomes central to his thinking and central to his plan. uh this of course gets reinforced by melanobis who had been working with narrow off and on well he knew narrow’s mind starting from around 1940 or so uh and uh by 1949 50 he’s appointed as you know uh the cabinet and a statistical advisor to the cabinet or something or maybe it’s a little later but somewhere there he gets appointed and so he’s closely working with narrow narrow is then tells

Speaker 1 (22:37): him to write this draft second five-year plan but what melanobis is really executing is what nehru

Speaker 4 (22:42): nehru’s model really is uh uh we as a you know as we studied we all thought of you know that the melanobis was the big culprit here he wrote this melanobis model which really kind of created this

Speaker 5 (22:56): very heavy duty capital and intensive industrial structure and so forth but my own reading of the entire literature and the history economic history is that that really malinois more or less wrote the equations around what nehru like nehru wanted and so heavy industry became central

Speaker 4 (23:17): to nehru’s model uh but the same time never to worry about what will we do about employment right the workers people have to be employed somewhere so he said and and there there was also a political angle to the thing that gandhians wanted the more cottage industry driven kind of of development so for Nehru it was both politically convenient and economically it fitted the thing that you know employment will come from the the cottage village household industry this is where all the employment will be and this is where therefore the consumer goods will be produced as well right because as incomes rise demand for consumer goods would rise and therefore

Speaker 5 (23:59): you know we need consumer goods production but we can handle that we can put it all in the consumer goods industries so that became agriculture was kind of there but not very central to Nehru’s thinking but basically agriculture was there to provide food

Speaker 4 (24:14): and as long as there were no food shortages Nehru was okay I mean so it was not he was not effectively you know thinking centrally of agriculture I mean agriculture becomes central only after nehru’s passes away and then lalabadu shastri comes in and you got these get these uh

Speaker 1 (24:33): uh back-to-back droughts uh that that really prompts lalabadu shastri to go into this green

Speaker 4 (24:38): revolution that’s a later story uh but now here uh uh uh so so melano base writes the the uh the uh draft second five-year plan and nehru being very consultative uh invites appoints uh formally

Speaker 1 (24:56): appoints a panel of economists uh these are 21 economists led by uh cd deshmukh who is both the finance minister at the time and a member of the planning commission uh see this the the the power structure was very different at the time because much much of the power had come to reside in planning commission so the finance minister was a member of the planning commission here which today you will not imagine that that this would ever happen because the rank of the you know planning commission member actually is below that of the the vice chairman and and and the finance minister but he was a member he led he was therefore became the chair of this

Speaker 4 (25:41): panel economist panel and the deputy chair was Godgill who would later also

Speaker 1 (25:50): head the planning commission uh so uh this uh a panel of economists of which well the the panel was drawn uh brought in uh uh all the leading economists of india with a very a very diverse geographical regional representation uh so so there were

Speaker 5 (26:14): economists from west bengal economies from south economies from west east everywhere so so it really

Speaker 1 (26:19): was not uh uh uh uh and and and uh uh bia shana was a member of this economist panel uh the charge to the economist panel was that you know uh uh comment you know whatever wisdom you need to you

Speaker 5 (26:38): would like to impart write your papers yourselves on on on what india should do and then also comment

Speaker 4 (26:45): on uh the uh on on the draft five-year plan uh of melano base so uh a lot of papers got written by the way uh they were almost collection of i think something like 35 or 36 papers uh all of which i read in writing this these were very long papers actually uh and lo and behold mostly the economist

Speaker 1 (27:11): panel uh when it submitted its report was very very supportive of the whole uh exercise and uh meaning that that endorsed basically uh very resoundingly uh the the draft uh uh uh five-year plans draft second five-year plan written by mylano bees uh so heavy industry approach here got the blessing of the economist panel

Speaker 5 (27:39): this is where enters br shanoy who actually uh uh attaches to the uh to the

Speaker 1 (27:50): to the comment long comment by the uh economist panel a dissenting note

Speaker 5 (27:55): his descending note is all about the size of the plan now here actually there’s a bit of a misconception around I at least I found here he doesn’t attack the the the central element of the of the model which is the heavy industry or even actually the the socialist part of it which I forgot to mention but i should mention that the socialist part of it was going to come from this

Speaker 4 (28:29): public sector leading the heavy industry they have because you know the argument given there was that the that the uh uh private sector didn’t have enough resources to actually do heavy industry and therefore sent the public sector was going to have to do the uh the the heavy industry so that

Speaker 1 (28:48): is a socialist part of uh of of the uh uh uh uh uh framework now uh uh and and neil took the view by the way that we are not going to do it through nationalization uh instead what we are going to do

Speaker 4 (29:07): is uh uh expand the private public sector over time uh you know more and more investment will come over time from the public sector and that will eventually lead to the rise to the increased share uh of the public sector in the production activity so that that was the that that planned

Speaker 5 (29:27): now returning to the story uh uh uh uh shanoy really in this descent note didn’t quite attack

Speaker 4 (29:36): actually the central uh and the weakest feature of this model which is the uh decision on heavy industry reliance that that the investment will be all done in heavy industry uh by by the state and the private sector actually and and the instrument of course was going to be partly this because state is going to do that investment uh so there is no issue on that but we all they also needed that the private sector doesn’t take the investable resources and put them into light industry that was also to be controlled and so for that you created this license permit raj meaning you know investment licensing was was introduced uh through a 1951 act which had already been put in place uh the idra the industries development regulation act of 1951 which basically gave the government very extensive powers to control the private sector activity through licensing and actually distribution and price controls so it gave powers both for

Speaker 1 (30:40): licensing system and investment licensing as well as the uh the the price and distribution controls so returning to the to the uh uh to the debate that that uh was underway uh so shanoi basically

Speaker 5 (30:58): said that look this size of the plan is too large and you are therefore going to have to and this was explicit in the plan that you’re going to finance it very heavily by deficit

Speaker 4 (31:13): financing and that is going to be inflationary and that will very quickly make indian products uh in

Speaker 5 (31:19): product and competitive vis-a-vis the foreign products uh all of which happened actually so

Speaker 1 (31:24): So he was clearly right. There is no doubt. But as yet, even Shana is not attacking actually the central feature of the plan, which is really the heavy industry part of it.

Speaker 4 (31:39): And indeed, also, it’s what led to heavy industry focus, which was, you know, fundamentally the self-sufficiency, the pursuit of self-sufficiency is what put you on that road.

Speaker 1 (31:52): um not you know one should understand that at this time and even till today actually India is a very labor abundant economy capital was incredibly scarce uh you know the national income was very low and then the savings rate at the time was just seven percent so savings were small which means that you know your scope for investment investable resources were quite meager and so how are you going to really with that little investment create these massive steel mills uh uh uh without putting everything into those three minutes which is exactly what happened uh so you know peter bauer has this incredible statistic that uh you know the the development expenditure on education and primary education in the second five-year plan uh was simply half of what was invested in one single steel mill so you know there were three steel mills that were invested in and only half of one steel mills investment went into the entire you know five-year plan on

Speaker 4 (32:59): as development expenditure on education so that gives you an idea you know of of how scarce the capital was uh now you know in another way if you think about it labor is your abundant factor

Speaker 1 (33:09): abundant production factor that’s what you got in massive volume that is the factor you need to make productive you really need to exploit the productivity of that factor capital is only going to get you that far because because it’s simply too scarce uh uh and and so when you leave

Speaker 4 (33:28): this entire kind of massive labor force in this small cottage industry type of production structure you are not increasing its productivity there’s no you know snowball stance in hell that this

Speaker 1 (33:39): productivity could rise because productivity increase over time requires the workers working with some capital uh and over time more capital becomes available you work with more capital so your skill formation itself is actually tied to production activity in the factories but there are no factories the only factories are steel mills where you are employing a minuscule part of your labor force so those guys are getting their skills and but anyway those are engineers and managers etc uh so the bulk of your labor force gets no productivity increase so this is how this is going to unfold uh now nevertheless uh just to complete the story on the economic thought

Speaker 4 (34:19): basically all economists domestic ones as well as number of foreign economists and statisticians were also invited by melano base to uh comment on the second five-year plan they all endorsed it they all very enthusiastically endorsed it that that is the right way to go uh so neil was obviously very happy that the the endorsement politically near was uh you know uncontested because after sardar patil died in december 1950 uh there was no equal to neil i mean you know the the effectively if you think about it you know

Speaker 1 (34:53): most of the other leaders left uh uh were very you know we can call them pygmies if you wish but

Speaker 4 (35:01): basically they were uh not uh of his own stature uh so he you know his word was more or less accepted by everybody so uh some voices came you know some some political voices did oppose in the parliamentary debates and all i mean that’s the job of the opposition so then the party had not yet arrived actually by the way and and the the kind of criticism that

Speaker 5 (35:25): came from the uh minu masani and the others was later uh there was a forum for free enterprise

Speaker 1 (35:33): by uh presided over by edy shroff which existed in 1956 but they explicitly said that you know we are not a pressure group we are simply a a forum where the ideas are aired and where we try

Speaker 4 (35:48): to disseminate the ideas pro-market pro you know basically pro-private sector ideas uh free

Speaker 1 (35:55): enterprise ideas but we are not a pressure group and they never worked like that uh so so in effect

Speaker 4 (36:00): neru really had no serious opposition uh and and so the second fair plan was implemented and all the other things that followed automatically from it happened meaning that investment

Speaker 5 (36:13): licensing happened as a result of it uh um public sector of course was a deliberate choice

Speaker 4 (36:19): and licensing naturally came to control the private sector from going into activities that would fritter away the resources, investable resources into non-heavy industry or light manufacturing, light industry. In fact, light industry was positively discriminated against. You know, textile machinery, for example. I mean, India was very successful in textile markets.

Speaker 5 (36:43): In the late 40s, India had about 10% share in the global textile market. a very vibrant textile industry, but it was not allowed to expand.

Speaker 4 (36:53): It was not allowed to even get new capital, new machinery, because, you know, innovations were happening. The Japanese, Americans, UK were inventing new machines, textile machines, and they needed to actually replace, but they got no capital, no foreign exchange to do that. And indeed, they were forced, given very high excise duties so that the cottage industry can compete with it. I mean, the view in the administration was that, well, how will the cottage industry compete if excise, because these are large mills, they are super efficient, their costs are low, and therefore we got to give them some kind of handicap. So handicaps were high excise duty, no foreign exchange to change to renew the capital to bring in more modern machinery and at some point they even required them to start producing a part of their

Speaker 5 (37:54): production to be khadi so you know that that they have to also join in in the movement for khadi and So they were in this sense, you know, given handicaps.

Speaker 4 (38:07): So that is where it, how the whole thing unfolded.

Speaker 1 (38:11): Now, one piece that needs to be here brought in is that the trade policy, not on trade policy. Nehru was very hands off.

Speaker 5 (38:23): He never talked about trade policy. And what had happened was that at the beginning of the Second World War,

Speaker 1 (38:31): The United Kingdom had to, because of its own inefficient industries, had to adopt foreign exchange control. So as they adopted foreign exchange control, it automatically got extended to most of the colonies as well.

Speaker 4 (38:46): And so India also became a part of it. And to administer the foreign exchange control, of course, you had to also put in place import controls.

Speaker 1 (38:53): uh so import licensing got introduced and everything that we later on learned about the

Speaker 4 (39:01): you know import control machinery in india uh in the post-independence era the basic machinery all of it was actually invented during the second world war so there was a essentiality condition

Speaker 1 (39:14): that some ministry has tried to to to testify to certify that whatever is being imported is central then there was domestic availability angle that if the product is domestically available then it should not be allowed to be imported so domestic availability condition had also been put in place during this time open general licensing idea certain products would be on open general licensing

Speaker 4 (39:39): which means that for those products you don’t need the license so that was also part of the second uh world war wartime uh import control machinery so all of it had been evolved there was left in place it was never kind of you know any legislation that’s in place any machine that’s in place

Speaker 1 (39:57): usually doesn’t get easily eliminated so it was not eliminated it existed um now india also ran a lot of balance payment surpluses during this period uh and that allowed uh india to accumulate very large uh balances these are called the sterling balances uh so india had good foreign exchange balance uh coming out of the second world war so as india became independent so it could draw upon those sterling balances to to to issue import licenses quite liberally so until 1956 57 if you look even at the structure of imports lot plenty of consumer goods are being allowed they they’re being imported. So there was no, you know, license had to be acquired, but generally you apply for license, you will get the license.

Speaker 4 (40:48): And so it was very liberal trade policy during this period. And even thinking was liberal. I quote from some of the newspaper editorials, actually, the Times of India is the only archives I was able to access. And there actually a lot of editorials written that, what is this licensing doing? They complain about corruption. and they complain about delays, they complain about all sorts of things and just put an end to it. You know, this is not friendly to the industrialists. Even some ministers at the time, commerce ministers actually are making speeches about very pro-free trade kind of, pro-export kind of.

Speaker 1 (41:23): There is also a report that gets written, which I describe in great detail, you know, which talks about how exports are very important and what India should do to promote exports, etc. So there’s a lot of this written.

Speaker 4 (41:36): But by 1956, foreign exchange runs out. a balance of women’s crisis and this is here again shanoi has the right idea br shanoi comes in he

Speaker 1 (41:43): writes that look devalue the rupee and you know he was the lone voice even eddie schroff who was running the enterprise or forum for free enterprise uh wrote against devaluation so he was critical

Speaker 4 (41:56): actually of shanoi’s view but shanoi had exactly the right idea you know because at that time economy was doing quite well second five-year plan was being put in place investments were being done so if you devalue significantly the rupee your goods will become competitive uh and and uh that would be all give you all the help that you need from foreign exchange side uh uh but somebody told Nehru that uh about this talk of devaluation in Nehru reacted saying that

Speaker 1 (42:25): this is fantastic nonsense uh and those are again his words you know in quotes fantastic nonsense

Speaker 5 (42:31): So in the end, obviously devaluation got no salience whatsoever.

Speaker 1 (42:38): This was, I think 1958 article or something. So by 57, they had clamped down on the foreign exchange control very heavily.

Speaker 4 (42:49): So 1956, 57 onwards, well, 57, up to 57, it still remains liberal

Speaker 1 (42:56): because a lot of the import licenses had already been issued for the whole year. So they basically honored those licenses and also up to 57, you still see relatively liberal

Speaker 4 (43:07): flow of imports, but 58 onwards, it gets very tight. And by early 1960s, it is a very, very tight import regime. Consumer goods imports, other than which are essential, like food, et cetera, are all completely gone. uh so so this is where the three all different sets of regulations uh uh come together you’ve got in on investment you’ve got investment licensing on imports you’ve got import licensing

Speaker 1 (43:33): and then you got foreign exchange control very complicated system because if you are trying to invest you are getting investment license you may need machinery to be imported well so you there

Speaker 4 (43:45): is another committee so you go for import for investment license licensing to one whole committee and there is a whole big machinery through which you have to go through the hoops um and then you have to go to another committee to get the clearance on the capital goods imports committee uh which has to give the clearance and if even if the licensing authority is willing to give you a license if that committee says that no foreign exchange so you don’t get a license to import capital uh machinery end of the story you don’t you’re not going to get make the license work

Speaker 5 (44:17): because machinery is not there so there’s that then for your raw materials for your intermediate

Speaker 4 (44:23): inputs if you need imports then you have to go every six months you have to go to a whole system uh uh to to get your foreign exchange and get your import license so import license would be issued for a year but foreign exchange will be issued only for six months so six months later you still have to go for foreign exchange if the foreign exchange authority said sorry there is no

Speaker 5 (44:42): foreign exchange then that import license is no good uh and and somebody has to ensure that

Speaker 4 (44:48): import is essential somebody has to ensure that uh uh it is not domestically available uh all this has a huge bureaucratic machinery in place so you can imagine you know and these are very difficult chapters to write you know chapter six and eight of my book were very tough to write because information was spread out uh different agencies were in different places so everybody you know they were all writing about different pieces in different places so all this had to be pulled together uh for the reader also this is these are tough chapters to read but i wrote them precisely to let the modern day generation you know post 1980s uh uh uh born generation know what you know today we might be complaining about gst and we’re complaining about uh you know taxation etc but uh just read uh what existed at the time what what industrial is what individual to really uh

Speaker 1 (45:44): put up with uh it it it is really you know it’ll put it will embarrass even george orwell the system as it exists is real labyrinth of the system so uh anyway uh uh industrialists work with that yeah but very briefly uh maybe come on i’ll take five more minutes to to at least mention something about the lasting legacy so this is what in the growth obviously didn’t happen or the kind that was required you know we grew until about 1990 at an average growth

Speaker 4 (46:22): rate of maybe a little below four percent 3.8 or so uh population was growing at 2.2 so the per capita income growth was very little so the poverty reduction was almost not there uh uh so in terms of the outcomes in the end you know the the objectives of the of the planning were not

Speaker 1 (46:39): realized and 91 of course there is uh liberalization that is unleashed and uh we begin to grow a little better very briefly now uh uh however uh if i do a comparison if we do a comparison of india and china in China not India you know Nehru’s the book starts out talking about you know the

Speaker 4 (47:00): these two different projects one is the political project which is to establish India as a democracy with universal suffrage which was so uncommon in those days and that is a very successful project of Prime Minister Nehru but his economic project as I’ve described was it more or less complete

Speaker 1 (47:17): failure uh uh now the two interact however uh and and whereas you know in the chinese case one after mao passed away and dung shopping came in and said oh we are on it on the wrong road uh

Speaker 4 (47:31): he begins to change the system uh and since he’s operating in an authoritarian system he moves he’s able to move much faster he also faces internal opposition and all but that is easy for him to control given the fully authoritarian system uh we are in a democracy uh uh and and that that that is the most valuable institution india kind of you know that is what india values the most uh and so uh uh uh in that system however you have to take people along you have to as you make the changes you’ve got double evolved consensus uh there are opposition groups there are groups will come in and strike against you their groups will make themselves heard there is media there’s a whole sorts of uh forces uh at work uh and and uh so the change was slow so the kind of growth that you know south korea taiwan uh china etc could experience because of their authoritative systems uh also in the by the way south korea taiwan singapore they were all authoritarian authoritarian systems when this very rapid growth happened some people forget they think that their democracy is no democracy is much later development uh when the fast rapid growth happened they were all authoritarian systems and so you could they could bring these changes much faster particularly the Chinese case is is is a good one to compare with and uh and and so India’s system moved slowly

Speaker 1 (48:56): but within the Indian system you see there is a baggage that continues uh intellectually what The suspense is, you know, that in the system, there is inheritance of the old ideas to the newer generation. Not the new older generation is much larger at any given point in time in any year or in a two years or five year time.

Speaker 5 (49:18): There’s a small addition to the population is happening, but the big population is what exists already.

Speaker 1 (49:24): In every field, it is the legacy that the older generation is giving to the newer one that dominates. So the socialist ideas from the political class go to the newer politicians.

Speaker 5 (49:39): Similarly, socialist ideas from the intellectuals, mainly economists, go to the newer economists.

Speaker 4 (49:44): uh even uh your uh uh businessmen uh the the the business people they are also very socialist in their approach their ideas they bequeathed to them are also and then above all you got the bureaucracy bureaucracy is also very much steeped deeply into this this socialism and that socialism

Speaker 5 (50:06): also gets bequeathed to the next generation so you know a new crop of is officers comes every year or you know civil service stops civil service comes every year it’s a small addition to the existing stock it’s the existing stock that trains the newer generation into its old ideas which then get

Speaker 4 (50:26): you know embraced by the newer generation and this legacy continues and this is what also makes the change incredibly difficult and this is where uh you know i speculate that if you look at uh

Speaker 1 (50:39): my kind of tribe the economists um look for liberal economists who have been basically brought up and and and educated in the indian institutions it’s hard you know i mean serious pro-market advocates you know the the the endorsement of this or that liberalization is one thing uh that now you in the change that most where many people do it but are they advocating for uh freer markets open uh freer trade open markets uh uh you know serious advocacy i think you’ll be hard-pressed to find any i mean anybody you think of has been basically has been

Speaker 4 (51:31): exposed uh educated in the united states not even uk actually uk very few economists who get trained in uk actually come and uh uh champion the cause of the markets uh but it is largely the the uh economists trained in the united states or who have lived or some people who have had good exposure to asia and there they see them see the force of open markets and free trade at work uh so you know

Speaker 1 (51:58): know who were the champions of liberalization on among the economists in the early years these were like abid hussein montaig aluwalya rakesh mohan shankaracharya these are all people

Speaker 4 (52:09): you know trained outside uh um so uh that i think still remains you know the i speculate in the book that look you know only one economist i can think of homegrown who is who can who is arguably

Speaker 1 (52:21): homegrown and and really it is a champion of markets is going the route but it’s hard hard to go beyond that uh so so this has really therefore you know meant very slow change uh of the system uh and and i document that that the opportunities for change come but socialism continues to rule i mean first there is a contest between mrs gandhi and the syndicate of the congress party uh syndicate supposedly less socialist they’re both socialists but syndicate

Speaker 5 (52:51): less socialist mrs gandhi more socialist the more socialist side wins then after emergency

Speaker 1 (52:57): maraji desai government comes in maraji desai is in those days seen as a friend of the industrialist what does he do for the industrialists in uh during the three years a little less than three

Speaker 4 (53:07): years that he is the prime minister nothing he is running exactly the kind of government that

Speaker 1 (53:11): mrs indra gandhi was running um then comes rajiv gandhi i mean so indra gandhi returns of course for four or five years but rajiv gandhi comes in uh in 85 genuinely he wants to end the socialist socialist system i mean genuinely there’s a whole year of speeches he gives you know i quote extensively from those and all he really wants to change the system he doesn’t want to use word socialism in his speeches actually and the first budget he presents for 85 86 is a very liberal budget very reform oriented budget and people like uh nani palkewala people like uh you know uh prem shankar jha whoever has has some in sympathy for uh liberalization hails this budget as as fantastic but within a year it’s all gone uh the congress senior congress party leaders

Speaker 4 (54:04): basically capture him uh uh within six months there is in may 1985 there is congress party’s aicc convention in bombay and and basically they tell him that you know if you want endorsement by the congress working committee of what you have already proposed in the budget uh then you got to embrace socialism uh uh that is the bequest of pandit jawad al-neiru uh and this is javala nehru’s party we are we cannot uh afford to to to leave socialism behind us so at the end of the convention when rajiv gandhi gives the speech there are a lot of liberal references to socialism you know he redefines it you know he says that socialism to me means bringing poor people up not uh uh

Speaker 5 (54:50): pressing uh the richer people down so he still sticks to his guns by redefining socialism but nevertheless he has to face he has to accept it as a part of the congress party’s uh uh uh agenda

Speaker 4 (55:04): uh and eventually of course you know uh the second budget is not such a reformist anymore and then nani palkewala is again critical of the budget and so forth so uh that is where it ends up so that’s that’s a third opportunity or opening up to happen it doesn’t happen and finally it’s in the face of a crisis and a very different kind of leader coming taking the helm you know

Speaker 1 (55:33): narasimha rao prime minister rao bringing in manmohan singh as his finance minister

Speaker 4 (55:38): that finally a change takes place there is something to be explained why a leader like Narasimha Rao who was himself from the Nehru era and actually was only three or four years

Speaker 5 (55:49): younger than Indira Gandhi why he opened up that is a mystery also so the book has a whole chapter which tries to tries to explain Narasimha Rao that you know how do we really understand what he did and what he decided to do because mind you that you know uh he not only opened up at the

Speaker 4 (56:11): time i mean you can say that the crisis had forced it there was no other way to to go so anybody who

Speaker 1 (56:17): was the prime minister would have had to do it but remember that that’s not where he stopped he then gave entry in telecommunications to the private operators uh he gave entry in civil

Speaker 4 (56:28): aviation to the private operators he continued to liberalize financial markets uh bank entry became much more liberal so number of these steps were taken so so so so clearly uh nasimara made a serious effort at liberalization uh he was he was a serious liberalizer uh um so why that happened and then we also know later on you know vajbi carried on the reforms but then for 10 years upa came back socialism actually had a return you got land acquisition act you got right to education

Speaker 1 (57:00): act you’ve got uh the food security act you’ve got uh retrospective taxation uh all the kinds of things that uh that uh economists of my kind of persuasion were arguing against were reintroduced so so this struggle between the the the socialist thought and and the more kind of pro-market thought

Speaker 4 (57:22): uh has continued in india uh and and socialism has a lot of followers you know even today uh if you look at the education that we impart in the colleges uh the professors are all steeped into the old kind of socialist tradition and therefore uh the students that they are producing are also of the same kind you know you basically try to reproduce yourself i mean all professors will be probably accused of that but that is how it is so i’ll stop there and hopefully we can

Speaker 2 (57:54): still have some time for questions thank you very much uh dr panagaria that for that illuminating

Speaker 1 (58:07): talk i i really enjoyed it uh though i must say that uh the future doesn’t look too bright as yet

Speaker 3 (58:19): So I’ll quickly use the privilege of being the moderator to ask the first question and then we’ll kind of continue with a lot of questions that have come in over Zoom and YouTube and directly as well. So I would like to quote briefly from the preface in the 1982 book by Friedman, Capitalism and Freedom. And he kind of talks about the crisis that he says, quoting him, only a crisis, actual or perceived, produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function to develop alternatives to existing policies to keep them alive and available until the politically impossible becomes politically inevitable. So I think you briefly touched upon it. So I was wondering, given your deep sort of, you know, engagement as well, understanding of both academia and policy and government. So, I don’t know if you foresee a crisis in the near future, but do you see those ideas around? So, the kind of ideas that we maybe should not have talked about, Bhagwati, Padma Desai and others have talked about.

Speaker 1 (59:27): Are those ideas around?

Speaker 4 (59:30): No, no. I think now the times have changed. There is no doubt. We do have a constituency, meaning pro-market commentators and thinkers have a constituency. I mean, it’s no longer the 80s. I mean, 80s, you had no constituency. even i was very pessimistic uh you know uh i i thought that you know given our bureaucracy

Speaker 5 (59:52): uh which thrives on these controls uh we’ll never get a change i mean so i was very uh pessimistic

Speaker 4 (01:00:00): in those days uh but then you know once the the 91 reforms happened uh and even in infrastructure

Speaker 1 (01:00:08): when Atul Berry Watch Bay started building these fantastic roads, then my pessimism went away completely. You know, first set of pessimism went away with the liberalization of 91

Speaker 4 (01:00:21): that things can change. And then for a while I was a bit apprehensive that looking on who is going to build infrastructure. For that you have to rely on the government and our government is completely incapable of building infrastructure.

Speaker 1 (01:00:38): but then those roads that got built you know golden quadrilateral quadrilateral or what is it golden quadrangle that really kind of so I said okay we can even our government can even build

Speaker 4 (01:00:54): good roads so no I mean and also I would disagree a little bit with Milton Friedman’s statement here that

Speaker 1 (01:01:07): you know crisis did open the door for reforms for in india but it did a bit more because

Speaker 5 (01:01:16): you know it could have ended where nasim rave left it or even first blush of reforms you know

Speaker 4 (01:01:23): the the end to investment licensing and that devaluation and some opening of the trade sector

Speaker 1 (01:01:32): right it could have been left there but over time constituent is constituency has grown i mean bim

Speaker 4 (01:01:38): al-jalan is a good example bimbal jalan before liberalization was very much uh believed in

Speaker 5 (01:01:44): controls and all but then i think somewhere in mid 1990s he wrote a book himself and he did a

Speaker 4 (01:01:50): miracle they are saying that you know i was really skeptical of the remote but i know support uh and

Speaker 1 (01:01:55): so many converts then then came along and you know nothing succeeds like success because growth happened it’s a growth happened poverty came down so that strengthens the hand of the uh of the uh

Speaker 4 (01:02:11): advocates of liberalization so i i’m not pessimistic at all uh they will always in a democratic system they will always be periods when things are not happening but the change will also happen i mean the beauty of it is that you know like 10 years you know i

Speaker 1 (01:02:29): wrote very critically of the government you know i mean i first when dr manman zing was finance

Speaker 4 (01:02:35): minister i wrote heavily in his admiration for for doing uh uh what he had done but then i also wrote very critically of him and for almost 10 years uh but whenever he did something which was liberalizing like you know he tried to bring in the uh the the the entry of the uh in retail trade or something right you know the retailers it it didn’t succeed fully but but still door was opened by him uh like it was like you know in 2011 12 somewhere there uh so i wrote uh very much applauding him for for what they had done and all so uh and there are many more now you know who complain about uh and even among industrialists some change it’s it’s there’s still i think you

Speaker 5 (01:03:21): you know, on average, Indian industrialists, businessmen are still, you know, not really market opening types, you know, they import substitution, subsidies.

Speaker 4 (01:03:34): These are the things they ask. They don’t ask for policy change.

Speaker 5 (01:03:37): And that might, that complaint,

Speaker 4 (01:03:39): I still have that complaint, you know, that you would think that after having seen the liberalization work, they would become a force, a lobbying force for liberalization,

Speaker 1 (01:03:50): but they don’t seem to do that i mean even like you know free trade free trade negotiations that

Speaker 4 (01:03:56): are happening where are our exporters they should be there you know uh lobbying uh for for these

Speaker 1 (01:04:03): free trade agreements because they are going to be the beneficiaries see i understand those who are doing producing import competing goods they have to then you know if you open the market then they have to compete against the free uh flow of imports but the exporters are going to benefit it where are they in this whole negotiation you don’t hear from them yeah on just a related note

Speaker 3 (01:04:25): before we move on to different sets of questions uh i remember uh in 1995 ashok desai has written this piece and i think you quote uh if i’m not wrong swami a year and ashok desai as the only two exceptional journalists who have kind of taken up this and in 95 uh desai talks about that how one of the reasons that the push and the momentum of reforms never continued is because no political leader went out and tried to sell the reforms. So in that sense, the constituency of reforms, and therefore in the recent example being the farm laws, farm bills, you wanted to push it, but unfortunately there was not enough buy-in or public support and demand for it. So just quickly, I would love your view on that. And the related question comes from Parth. He asks, how much do you feel that we have really shifted today from that approach to economy, irrespective of the labels government may use?

Speaker 1 (01:05:16): yeah so there are two or three questions in there so i’ll probably not catch them all but uh uh uh

Speaker 4 (01:05:23): uh you know um it is true that nassim ara really didn’t go out to sell the reforms but atul very well prime minister washibe did prime minister washibe used to you know in his independence day speeches from the red fort would say that indian indianese double-digit growth he was the first prime minister actually to come out and say indianese double-digit growth for uh to to overcome its poverty so prime minister was very vocal and he uh certainly uh is is and i would say was an exception to to that kind of statement um uh i think prime minister modi uh has often done that you know now he has a very long run so there have been periods and you mentioned the farm laws and all i personally don’t think that farm laws were turned down because of a lack of sufficient groundwork i think that’s a false narrative which has been paddled by many uh but

Speaker 1 (01:06:23): look this reform was introduced in 2003 first through a model uh apmc act by the washway government and for almost 17 years and through bipartisanship both the Congress and NDA governments both UP and NDA governments tried to convince the states that these are good reforms do them. They were actively all involved. Many states did actually adopt the model

Speaker 4 (01:06:54): law but ultimately they didn’t use the model effectively so and then even as late as 2019 i think there was a parliamentary committee

Speaker 1 (01:07:07): with membership from all parties which unanimously recommended that you need to end the monopoly of the middleman at the pmc so what are we talking there was a lot of discussion that happened and had been going on for more than one and a half decades it is that the the intermediaries in Punjab and Haryana particularly Punjab APMC

Speaker 4 (01:07:35): mandis were going to be adversely impacted and they really mounted a very effective political

Speaker 1 (01:07:44): opposition aided by a lot of funds and money i mean you tell me outside of this uh outside of punjab or maybe punjab plus ariana how many other states were opposing it nobody came to oppose it so i don’t buy that but you know sometimes these setbacks happen uh and and that also by the way

Speaker 5 (01:08:07): in the end had a detrimental effect on the implementation of the labor laws which had also been passed in 19 and 20. so that’s a bit uh but but you know that’s the nature of the game you know but those of us who are uh uh fighting for markets have to be there for the long haul

Speaker 1 (01:08:26): uh it it is a battle you have to fight on a continuous basis yeah agree i mean a small group of people can definitely be more loud than uh others uh in asking for political space it

Speaker 5 (01:08:42): depends you know because punjab is right on the border of delhi and so that gives the

Speaker 1 (01:08:47): panjai farmers uh obviously a lot more clout yeah uh the next set of questions uh is it relates to moving away from a kind of by the way there’s a i mean d.r shanoy himself is a very good

Speaker 4 (01:08:58): example of somebody right i mean we at least have some hearing he had zero hearing but did he change his mind or did he join in all this other crowd and all? No. I think this is partly, of course, the integrity of thought of a scholar which keeps him, you know, those who believe in it, which he did plentifully of course and applauded by Jagdish Bhagwati himself for that.

Speaker 1 (01:09:23): But he also believed that he was right. So you have to have that. You have to have that. Next question comes from Anirudh Dutta.

Speaker 3 (01:09:33): Another related question comes from Anonymous. I’ll read Aniru’s question first. He says, India has done better than most Asian, Latin American, and African countries, except ASEAN and parts of North Asia after independence. And what do you attribute this reality to success to? And what did India get right to avoid a similar fate? Kind of related, but maybe different question Aniru asks. If we compare Nehru’s economic model with that of East Asia and development states like

Speaker 1 (01:09:58): South Korea, what could India have done differently? okay i’ll take the sec let me take the second one first very very good question actually uh the the fundamental difference was that our development was driven by heavy industry

Speaker 4 (01:10:16): that that had two this at least two disadvantages one is the conventional one which is the

Speaker 1 (01:10:21): comparative advantage you know you are a capital scarce country you need to spread your capital very little capital is there you want if you’re going to make labor productive then that’s what you have to do but if you put you know milton freedom put it beautifully he said that look you know at one extreme you have capital working with very little labor and at the other extreme you have labor working with almost no capital both are badly allocated both will work inefficiently which has turned out to be true south korea taiwan uh singapore they all started with labor intensive industry you look at you know and they very quickly became very competitive in

Speaker 4 (01:11:01): the global marketplace they didn’t face the kind of import restriction meaning the foreign exchange

Speaker 1 (01:11:09): shortages that we did because they could export and and they didn’t mind they these were clothing

Speaker 4 (01:11:16): textiles clothing toys these were the kinds of exports south korea quite surprisingly they found that you know by 1971 or 72 within eight or nine years of uh this export oriented approach they started in all 63 1963 uh 10 of their exports were actually human hair for wigs which nobody could

Speaker 1 (01:11:39): have predicted but the market works in in a strange sort of ways you know the the entrepreneurs find out what is in demand so uh that so that’s a big difference with the other aspect of our if this was that you know uh the model big our model became exclusionary meaning that large part of the people were excluded from either participation or benefits of growth so some growth did happen in the industrial sector but there were very few people involved in employed in those sectors use heavily capital capital intensive industry and that is a problem that continues till today by the way i mean you know that bias again this is lasting legacy you know lasting impact that even today nobody look at our clothing exports 14 15 billion in a like 480 billion or 450 billion dollar market of global marketplace such you know so what you are still doing is putting your capital in one place labor in another so you have 45 46 percent of your workforce in agriculture and another uh nearly 40 45 percent 40 to 45 percent in these micro and small enterprises because they can’t

Speaker 4 (01:12:59): get capital because all of the capital is taken you know you got reliance just think about you know how heavily capital intensive the refineries are but then our successful sectors also is machinery all kinds of machinery we manufacture so all these are very capital intensive sectors or you’re successful in in it sector which is again very skilled labor intensive but for the

Speaker 1 (01:13:22): bulk of the work so you see unless you use your abundant factor effectively you’re not going to get the kind of growth that you can get otherwise you see why so this exclusion not only didn’t work

Speaker 4 (01:13:38): in terms of uh elevating poverty but it also impacted growth adversely right so we talk about

Speaker 1 (01:13:45): inclusive growth growth which leads to inclusion but there is also growth that itself actually gets impacted by the lack of inclusion and and because the process that we adopted uh basically excluded your most abundant factor namely labor your growth itself was slower so so so lack of a lack of inclusion also has an impact on the growth rate itself

Speaker 3 (01:14:16): i think that’s one constant constant theme of your toi articles i keep saying that that’s one thing that you keep talking about and i like it very much thank you very much well that’s a way

Speaker 1 (01:14:26): to that’s a way of advocacy you see i also say somewhere that in in public policy uh repetition

Speaker 4 (01:14:34): is an asset not a liability you know in in in the academic writing you can’t repeat you know once it has been said the original has been said by repeating you you cannot get anything nobody will publish you but in public policy uh repetition

Speaker 1 (01:14:52): is actually extremely important uh next question is from ajay dev he talks and the issues on

Speaker 3 (01:14:58): devolution it says jawalla nehru’s economic philosophy deliberately created a highly centralized planning system where the union held almost all taxation levers today when states are responsible for 63 percent of government expenditure but have access to only 38 percent of total revenues does the finance commission see this as a structural continuation of negru and centralization if so how can future devolution formulas or institution institutional reforms correct this

Speaker 1 (01:15:26): to make fiscal federalism more equitable and responsive to state specific needs no no i mean

Speaker 4 (01:15:33): i i in my position i don’t comment on this kind of question but one thing one thing the person

Speaker 1 (01:15:39): asking the question needs to do is go and check the data ah okay yeah i i don’t have the data states have more than half of the tax revenues oh cool okay i’ll just take another question uh from

Speaker 3 (01:15:55): him alone says given that the second five-year plan emphasized heavy industries and import substitution under the mahalanobis model how does the government retrospectively assess the long-term distortions this approach caused such as neglect of agriculture wreck employment generation and inefficiencies in the public sector uh was the overemphasis on capital goods and state-led

Speaker 1 (01:16:18): industrialization at the cost of rural development the answer is obvious but so So it was at the cost of rural population, I would say. I wouldn’t say rural development. I mean, agriculture did actually finally, you know, in mid-60s, we did centrally address the productivity in agriculture. And agriculture did actually flourish eventually. And, you know, today we are more than self-sufficient. We are capable of exporting a lot of wheat, rice, et cetera. So in this sense, you know, agriculture has been attended to. Where I feel it hurt the rural population is that it did not create enough opportunities, jobs, basically, in manufacturing and services, well-paid jobs, you know, to which they could go.

Speaker 4 (01:17:14): See, if you look at any successful industrializers, again, you’ve got a few examples. I mean, you can go back to the UK, the US, Japan, South Korea, Taiwan, Singapore, China, all these countries which successfully industrialized and successfully eradicated poverty. One of the most important features is that these economies created jobs in manufacturing

Speaker 5 (01:17:42): and well-paid jobs in manufacturing and services to which the rural workforce then migrated.

Speaker 1 (01:17:48): You know, you start in 1960, South Korea has about, you know, 65% of its population of its workforce in agriculture. This is 1960, almost 60 to 1963. And by 1990, that drops to well below 20 percent and the urban population which is also in the range of 20 25 percent uh maybe it’s 30

Speaker 4 (01:18:14): percent in korea but it crosses 80 percent by 1990 so you see the point is that rural population

Speaker 1 (01:18:23): population is a static population there is a migration which leads them to into urban spaces and korea really became very very urban uh you know that’s how i mean in in the u.s for example

Speaker 4 (01:18:38): why is it so easy now to take care of the farmers it’s very easy for the u.s because only two percent

Speaker 1 (01:18:43): of the workforce is in is is farmers so 98 percent can easily take care of the two percent but when 46 percent of your workforce is in agriculture how do the remaining ones who are

Speaker 4 (01:18:55): also not doing so well i mean there is only maybe five seven percent of the uh people of the uh workforce which is doing really well you know this is the highly capital uh and skilled labor intensives uh large-scale corporations they are doing well uh otherwise even the micro and small

Speaker 1 (01:19:15): large part of the urban economy or urban or non you know non-agricultural economy let’s say large part of the non-agricultural economy uh is micro and small how so they are not even into this way it’s really like five to ten percent at the most uh of the economy taking care of the at least 46

Speaker 4 (01:19:34): percent which are in agriculture that’s simply you know how far can they go i mean we have we have

Speaker 1 (01:19:42): actually you know to the extent uh revenue resources permit we have created these uh

Speaker 4 (01:19:47): redistributive mechanisms and the political system is responding to that you know the whole competition for these subsidies etc that we see during the electoral election time

Speaker 1 (01:20:00): uh is basically a manifestation of the political system responding to to this this inadequacy we created effectively by you know not still not doing enough to open the doors to the labor intensive industry. Thanks. Next question comes from George Pires. He asks on poor infra,

Speaker 3 (01:20:28): what present scenario of, which present scenario of India’s infrastructure bridges collapsing every one, two years of constructions and sometimes much earlier, poor quality of work in our infrastructure project, projects delays over 10, 12 years.

Speaker 1 (01:20:42): What could be India’s future, especially for our next generation? so just this is a young man probably doesn’t know the travels of those who saw no roads actually in india it’s it’s a good time to complain about the quality of roads because at least we have built the roads i mean i in my current position has gone to 27 out of 28 states i had to miss one

Speaker 4 (01:21:08): because i was not feeling well at the time uh and boy the the the road connectivity that we now have

Speaker 1 (01:21:15): is just phenomenal absolutely phenomenal part of it is if you if you see uh you know

Speaker 4 (01:21:23): the the the occurrence of these um you know quality complaints are is more it’s also because

Speaker 1 (01:21:32): many more roads exist now and and because many more of us are driving on these highways to go as opposed to taking the bus or taking the train so so we are seeing that but it’s a good thing I mean the process itself is good because it is through complaining as loudly as we can that you know attention will get paid to

Speaker 4 (01:21:59): the quality also but the first thing is that you know you’ve got the roads I mean the kinds of bridges that we are today building finally I could not I

Speaker 1 (01:22:09): can’t imagine you know i mean look at the the coastal road uh in mumbai which is that the tunnel you know uh is the first of its kind that uh atal setu first of its kind a lot of the connectivity we have created actually by the way bro uh the border road organization which has the

Speaker 4 (01:22:31): responsibility to build roads uh near the border uh at very high heights you know 12 000 13 000

Speaker 1 (01:22:38): feet and i’ve gone on some of these roads incredibly high quality roads and and absolutely fantastic you know so these are all you know small bumps on the road so to say literally so uh which will be flattened over time uh so we should of course as i said keep complaining but but no reason to derive any pessimism out of that. I mean, I generally, you know, the complaints are a manifestation of the fact that there are so many roads and so many people are traveling on them. Thanks.

Speaker 2 (01:23:17): So this next question comes on a very topical issue

Speaker 1 (01:23:21): on protectionism. Sankar Rao Chirala asked,

Speaker 2 (01:23:26): the advocates of free trade liberalism like USA going back to protectionism even india and china is falling into the same line is it absolute nature

Speaker 3 (01:23:35): of policy or circumstances that matter to that matter to decide the nature of economic policy

Speaker 1 (01:23:41): of a country whether liberalism or protectionism uh you know paul samuelson once somewhere said or wrote or something you know that that protectionism is like the skin disease you cure it in one place it appears in another place so that’s a constant battle if this happens uh but uh you know i think by and large look you know the liberalization we did from 1991 to 2008 or 2007 really got us very far already so some reversal has happened but that’s a matter of you know continuing to advocate uh and and hopefully you know uh and currently there is a good opportunity for india you know if this agreement with the united states gets signed up uh that will be a lot of opening up a lot of liberalization will happen uh and that will probably also open

Speaker 4 (01:24:40): the door to an agreement with the european union that politically it will become a little easier uh yeah so uh and we already signed one with the united kingdom we signed one with australia

Speaker 1 (01:24:51): uh new zealand is also seeking so in a way the cure is also happening as as the disease

Speaker 4 (01:25:02): might be striking in some places but in other places we are also uh making progress towards that i mean let’s see hopefully you know we are hearing that the us-india agreement might be

Speaker 1 (01:25:14): announced pretty soon so let us let us hope but uh those who believe in that that liberalization has done good for india you know have to come out and lobby for it yeah um thank you uh next question

Speaker 3 (01:25:31): uh one is from subod yes you talked about legacy ideas the 1991 reforms needed a crisis for the next 10 reforms do we need to have need to have another one

Speaker 1 (01:25:41): um i’m not a crisis person so i mean in a way you’re right that a crisis will help uh but at the same time uh you know a crisis is not what we we seek um we we have to uh

Speaker 5 (01:26:00): you know continue with the reforms uh i mean certainly you’re you know what what you’re saying is correct that that a crisis does make things easier uh in terms of a change you know

Speaker 4 (01:26:13): then people accept the change more easily um but uh neither i seek that nor i see any prospects of

Speaker 5 (01:26:21): that because we have handled you know one thing that india has done very well is the handling of

Speaker 1 (01:26:26): macro i mean macro we you know we we don’t i mean even when kovid happened right i mean that was a fantastic example of how prudent the indian government was because from within there were massive attacks on the government that you know because they wanted india to do what the united states and european countries were doing uh and and from all around actually you know the

Speaker 4 (01:26:53): government was more or less surrounded by people even you know people who are otherwise very

Speaker 1 (01:27:02): sensible way measured and all we’re all calling for you know print money and expand but the

Speaker 4 (01:27:10): government got the right diagnosis i was probably the only economist i would say actually at least outside the government uh who was actually advocating what the government did so i’m on

Speaker 1 (01:27:21): the record having having written that that this was the right way to go because i felt that look you know this was a supply shock as much as it was a demand shock so unless you fix the supply side Just fixing demand side is only going to give you inflation.

Speaker 4 (01:27:35): It’s not going to give you a response.

Speaker 1 (01:27:38): I mean, unless people can go to work, how can the economy start functioning? So this required a supply side and supply chain restoration as much as it needed the demand. So the government did the right thing. And those countries which actually thought that they could solve the problem from demand side without solving the supply side problem really ended up with massive inflation i mean the u.s got inflation for a while going all the way to 20 or something you know very unprecedented rates of inflation so okay i mean the central point of the question uh unfortunately the work of people like me is not going to become that easy that a crisis happens and we get the uh reforms uh uh uh thrown in into that uh very likely we’ll have to continue to fight in a piecemeal fashion uh and uh convince the policy makers you know thank you uh uh professor uh we are as as per the schedule we have limited time almost none but i was wondering if you have a few more minutes we can take a few more questions and then close go ahead thank you uh next question and i think you talked about it during planning era the allocation on primary education was very small minuscule so amit asked this question that biashanoy had a vision of for a liberal education model that included the role for private schools do we see the scope of realizing that model in india today or tomorrow well privatization is happening basically because of the generally overall poor quality of my poor quality of the education in public schools uh children i mean you know any parent who can even because also what has happened is because of the you know one of the

Speaker 4 (01:29:34): things is that the parents realize it that without education there is no future for the children so

Speaker 1 (01:29:40): they want the children to get whatever best education they can afford so you know they they will do all sorts of go through all sorts of hardship to put their children in private schools if they can and the market has also responded because there are schools uh with tuition fees

Speaker 5 (01:29:56): as low as 100 rupees 150 rupees per month so so it that at that fee those schools become very much

Speaker 1 (01:30:04): within reach of a large chunk of the population so you can see the data are showing except during the covid era the for which the reasons were different that you know there was some movement back into private public schools but other than that you know there has been a steady uh steady shift of children from public to private schools i mean frankly it will be good if the government would would legitimate that by you know simply giving the power back to the parents uh meaning the financial power but politics of it is very different you know the teachers educate teachers unions are very powerful uh and they’re very large so they’re a powerful force uh also you know the governments like to spend money uh create jobs so one of the places where they justify you know it’s a lot easier to justify uh expenditure uh is education uh and and large part of the education expenditure is really teacher salaries thank you that probably you know the last

Speaker 3 (01:31:17): question that we’ll take um i think you must have covered it but i’ll just quickly check anyway chitna asked this question what role did the political climate of the early years of independence

Speaker 1 (01:31:33): play in silencing or marginalizing voices like shanois say that again in silencing or marginalize

Speaker 4 (01:31:40): marginalizing voices like shanois no it was not politics it was not politics the the the the

Speaker 5 (01:31:47): the economic scene on india i mean the academics scene right was not accepting of the shanoi view

Speaker 1 (01:31:58): at the time it was hardly you know there was no as i said earlier that even you look back at milton friedman 1955 he was not yet quite accepted within the u.s you know it’s it’s much after that

Speaker 4 (01:32:11): that he acquired you know he was such a persuasive uh academic i mean he really argues i mean his power to argue was just incredible so so but it took time it took quite a bit of time so shanoi

Speaker 1 (01:32:25): was simply well well ahead of his time uh you you see very interesting in in the book i mentioned this the review that uh of shanoi’s book that bhagwati did so bhagwati was relatively complimentary but in the end he also was a little critical saying that i mean this is bhagwati now bhagwati and this you know who very soon themselves wrote the bhagwati he sort of said criticizing the ground that you know that the shanoi is hostile to the whole idea of planning right so that was that’s an economist who actually is seen as an advocate of liberalization right but uh and and the view bhagavati and desai took was that look you know uh planning scope should be reduced but But they, in Bhagavati, in Desai book, he doesn’t say, they don’t say that, that eliminate planning or do away with it. They say that, look, you know, one thing, give more flexibility to the exchange rate,

Speaker 5 (01:33:28): something that Shanoid had been constantly arguing as well. But he also said that, you know, you don’t try to plan everything.

Speaker 1 (01:33:36): Just the specific, a few sectors that you want to develop. Just focus on that and leave the rest of it to the, you know, so he didn’t, you know, at least till 70 uh uh even bhagwati and desai uh really didn’t uh speak in terms of you know do away with planning uh so so that tells you that look you know to be salient you had to

Speaker 4 (01:34:03): to have a hearing uh to be in sync somewhat you had to be a little more in the middle um and and

Speaker 1 (01:34:12): what Chennai was arguing really practically he was a lone voice. I mean, at that time who else? I mean, within India there was nobody.

Speaker 5 (01:34:22): In fact, even after him, it took a very long time, you know. I mean,

Speaker 4 (01:34:25): people may not come in and say, oh, I was interested in liberalism, etc. But this all afterwards you don’t find any record of

Speaker 1 (01:34:33): these people, many of these people having actually come out to advocates. Just today morning I was watching this video where Jagdish Bhagwati talks about

Speaker 3 (01:34:43): when their book came out, Bhagwati Padma Dasai’s book came out,

Speaker 1 (01:34:47): how they were called marginal economists. And then he’s talking, he himself is, in the video interview, says that I took that as a matter

Speaker 3 (01:34:57): of pride because marginal revolution

Speaker 1 (01:34:59): is a very important thing for economists to be called themselves. Absolutely. So I refer to

Speaker 4 (01:35:07): their book also and I read at least six reviews of that book.

Speaker 1 (01:35:12): They’re all uniformly critical. And I described the three of them

Speaker 4 (01:35:16): of which one is by, guess who? None other than Dr. Manmohan Singh. And Dr. Manmohan Singh also after giving a little bit of compliment at the beginning

Speaker 1 (01:35:26): ends by saying that, you know, markets don’t have answer to everything.

Speaker (01:35:31): Yeah.

Speaker 1 (01:35:32): And just before I conclude, one small anecdote with Bhagavati shared.

Speaker 3 (01:35:36): he he talks about in the interview that uh after 1991 reforms uh manman singh was in dc and we had a good meeting of all the industry lists of the us uh like boeing and others and bhagavati and desai were the only academicians invited and manman singh says that if we had listened to what bhagavati and desai talked about in 66 which is 25 years ago we i didn’t need to have this

Speaker 1 (01:36:00): meeting with every all the businessmen so he can do that yeah so yeah I know of this I know this that that yeah that man one thing said that yeah yeah but following up on that you know there is another thing that man one thing told the group of the who in turn told me okay is it all like this you know you you think that you and I are doing the reforms no it’s the children of the politicians who all study in the US who tell their parents that, you know, why have you been left so far behind? And that is what has persuaded the politicians to the change.

Speaker 2 (01:36:42): Less than $3,000 per capita

Speaker 1 (01:36:44): income. These things can have impact in all sorts of different ways in which we don’t understand. Except, unfortunately, it’s a little slow. You would want it to be a little faster. Yeah, no doubt. This is why, you know, you really have to have passion for it if you’re going to uh if you believe in it and and if you feel that it is really something very important for the country but uh but most people actually you know may have right ideas but they like the passion and that and that of course means that then then they their ideas really don’t serve the kind of social purpose that they could. Yeah, at a low base, we need to. Thank you very much, Dr. Panagaria, for being so generous with time.

Speaker 3 (01:37:33): So this brings to a close the B.R. Shunai Memorial Lecture 2025. On behalf of the Economic Research Center of Anglore and Center for Civil Society, I would like to thank our speaker, Professor Panagaria, for such an illuminating talk and engaging with questions from the audience. Most importantly, also thanks to the audience for engaged asking those uh great questions uh thanks also to my colleagues at ccs sort of jenny chetna ravi kunal ayoshi pratiksh and varshah uh who helped organize the lecture and good evening

Speaker 1 (01:38:02): and have a great evening everyone all right good okay thank you very much thanks all right very good lovely Can you hear me?

Speaker 4 (01:38:17): Yes, I can hear you.

Speaker 6 (01:38:19): Subodh here.