Without a doubt, a leader who was even more charismatic, controversial and polarizing than the current Prime Minister Narendra Modi was late Indira Gandhi, grandmother of Rahul Gandhi. According to political pundits, Mrs. Gandhi was decisive, ruthless and authoritarian, just as Modi is supposed to be. So when critics of Modi bleat that we are slipping back into the bad old days of Emergency, they are testifying to the toxic political legacy left behind by Mrs. Gandhi. But let's leave aside politics and facile comparisons for a moment. For despite her authoritarian streak, Indian democracy has flowered to such an extent that Modi cannot even dream of taking the dictatorial decisions that Mrs. Gandhi took; even if he dearly wanted to. More than politics, it is her economics that has left a devastating legacy that lingers on despite two a half decades of "economic reforms".
Back in the late 1960s, when Indira Gandhi was the Prime Minister, virtually all countries of East Asia had started adopting "liberal" economic policies. Back then, the per capita income of most of these countries, including South Korea, was not very different from that of India. But even as East Asia embraced globalization and the private sector, India under Indira became even more inward looking and hostile towards capital and the private sector than her father Jawaharlal Nehru could have envisaged. Of course, Indira's lurch towards extreme left when it came to economics was inspired less by ideological conviction and more by realpolitik. In the late 1960s, the Indian economy was in serious trouble, and so was the political future of Indira Gandhi who faced a phalanx of powerful Congress leaders led by Morarji Desai as her opponents.
To counter them, she launched a series of economic policies that left a lasting impact. Her first major decision was to "nationalize" all banks in 1969. The motive was theoretically noble: to help poor Indians access modern banking services. In reality, these public sector banks became tools of patronage for politicians who brazenly encouraged crony capitalism. Public sector banks remain saddled with "bad loans"- money doled out to favored businessmen that was never returned. The crisis continues till date. Her next major policy move was to nationalize the insurance sector. Theoretically noble; but it actually ended up converting insurance companies into another tool of patronage. Even today, it is the LIC which comes to the rescue when the government decides to divest equity in public sector companies. Her third major policy missile was the nationalization of the coal sector. The long term results were equally disastrous. Despite holding the third largest reserves of coal in the world, India imported more than 200 million tons of coal in 2014 because the state owned Coal India simply couldn't increase output. And who can forget Coal Gate?
Not satisfied with banishing private capital and enterprise from banking, insurance and coal, Mrs. Gandhi launched policies that emasculated the private sector in a wholesale manner and converted entrepreneurs into supplicants kneeling down and seeking favors at Delhi Durbar. In 1973, her government enacted the Monopolies & Restrictive Trade Practices Act which basically crippled the private sector. No private company could indulge in any meaningful economic or entrepreneurial activity without prior approval from the government. Mrs. Gandhi gifted draconian law to the private sector in 1973, the Foreign Exchange Violations Act which effectively barred Indian citizens from holding any foreign currency. Together, MRTP and FERA not only crippled the private sector, but also gave birth to a system riddled with corruption. That corrupt system still harasses ordinary citizens and hobbles economic activity. Of course, while doing all this, Mrs. Gandhi also implemented a policy that made corporate donations to political parties illegal. We all know how "money" has played a role in Indian elections since then. So enamored was Mrs. Gandhi by the power of the State that she even attempted to nationalize the food grains trade in 1973. Mercifully, this experiment with socialism was short lived because its disastrous consequences became immediately visible.
Even ardent Congress supporters and admirers today would agree that, no matter what the circumstances and compulsions, the economic decisions taken by Mrs. Gandhi badly damaged and hobbled the Indian economy for decades. By the time she died in 1984, East Asia, which was as poor as India in the 1960s, had moved miles ahead of India in terms of economic prosperity. In India, we have a habit of looking at things in either black or white. So when it comes to economic policies, we paint Indira as pitch black. But real life has shades of grey, and in the later stages of her life and reign, Mrs. Gandhi was the politician who first introduced liberal economic policies in India!
In 1982, her government took a then landmark decision to completely de-regulate the cement industry. Almost overnight, the black market in cement disappeared, production zoomed and actual market prices dropped. The deregulation of the cement industry by Mrs. Gandhi was the canvas on which other liberal economic policies were painted. Besides, it was Mrs. Gandhi's regime in 1982 and 1983 that encouraged foreign investment in automobiles and consumer electronics. Objective analysts speculate that Mrs. Gandhi would have turned even more right had she not been assassinated in 1984.
But still, even as we pay tribute to this remarkable leader on her birth anniversary, let us not forget that long-term damage that her economics has done.
