C. Rajagopalachari, the first Governor General of India and the founder of Swatantra Party, died in December, 1972. With him died the last mighty and credible voice against the socialist, repressive and inward looking economic policies that were launched by Jawaharlal Nehru and accelerated by his daughter Indira Gandhi. In 1959, Rajagopalachari, a veteran Congressman launched a political revolt against his friend Nehru by founding the Swatantra Party. He thought the kind of socialism that Nehru was imposing on India was not only bad economics, but also infringed upon the fundamental rights of Indians. The Swatantra Party performed quite well in the 1962 elections and even better in 1967. There seemed hope that Indian voters might resist and reject a radical shift to the Left. But then, Indira Gandhi lurched Left with a vengeance in 1969 and won a handsome electoral victory in 1971.
By the time Rajagopalachari died in 1972, Socialism had imposed an iron grip over the Indian economy. Ironically, when faced with an agricultural crisis and inflation in 1973, Indira Gandhi attempted to repeat what Stalin and Mao did by "nationalising" the food grains trade. Fortunately for Indians, this suicidal policy was rescinded within a few weeks. Millions of Soviet and Chinese citizens had died of starvation when Stalin and Mao had imposed "nationalization" on their farm sectors. We must be eternally grateful to those few sane advisors who persuaded Indira to withdraw this "nationalization". But the toxic legacy of that era still persists as the Indian farmer still doesn't have the freedom to sell his produce wherever he wants. In fact, it is often a criminal offense for a farmer to transport his produce from one state to another!
Food was perhaps the only thing that was spared the heavy dose of nationalization. In 1969, Indira Gandhi had electrified the Left by nationalizing almost all private banks and all insurance companies. Of course, this was done in the name of the poor. In 1973, she nationalized more banks and the entire coal sector, including mining and trade. The same year, she launched a law called the Monopolies and Restrictive Trade Practices Act which virtually made Indian businessmen and entrepreneurs vassals and serfs at the mercy of the dictates of the State. No business could be started and no manufacturing could be done without government permission. The same year, she passed another draconian law called Foreign Exchange Regulations Act which essentially prohibited Indian citizens from holding any foreign currency. The law also stipulated exactly how many dollars you were allowed to spend during your overseas tours. Not satisfied with all this, Indira Gandhi also amended the Constitution and overnight transformed India from a Republic to a Socialist Republic. Even today, political parties have to at least on paper swear by Socialism if they want to contest elections. When all this was happening in India, countries in East Asia had embraced some form or model of capitalism and globalization and had started delivering economic growth rates that stunned Leftist intellectuals.
But it would be facile to blame Indira Gandhi alone for this toxic legacy. In 1977, she lost the elections and her old rival in the Congress, Morarji Desai became Prime Minister leading the so-called Janata Party. His Industry Minister was the then firebrand socialist George Fernandes who eventually became a BJP ally in the 1990s. In 1978, Fernandez triumphantly announced to the world that he had "kicked out" multinational giants Coke and IBM from India. The same year, in communist China, Deng Xiaoping had started the process of fiddling with capitalism - of course with Chinese characteristics. The rest is history. Poorer than India then, the Chinese economy is five times the size of India's. Not just that, China is miles ahead of India in human development indicators like education, health and sanitation.
By the time Indira Gandhi stormed back to power in 1980, perhaps even she had realized that her brand of socialism was simply not working. She did attempt "reforms" like the deregulation of the cement industry in 1982 and the permission to foreign companies to set up joint ventures in the automobile and consumer electronics sectors. Her son and successor Rajiv Gandhi too tinkered with "liberal" economic policies. But the superstructure of State control whose foundations were laid by Nehru remained intact.
And by 1990, all but the hardened Marxists had accepted the fact that the Indian economy had run out of options and was in a tailspin. In early 1991, Indians felt the icy whiff of psychological humiliation when they learnt that gold had actually been pledged and flown out of India in exchange for some dollars to pay for imports. Most Indians realized that something drastic had to be done. Enter P. V. Narasimha Rao.
Also Read | (How India Changed Forever In 1991)
In the next piece, read What Actually Happened in July 1991. To follow: The Unleashing Of India and finally, The Persistence of Crony Capitalism.
