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Is Narendra Modi making the same huge economic mistake as Jawaharlal Nehru?

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By Andy Mukherjee

A critical part of creating myths around Prime Minister Narendra Modi is to downplay the contribution of the country’s core figures. No one has suffered more than Jawaharlal Nehru, the man who laid the rails on which the republic ran for 74 years, which astonishes that Modi imitates an emblematic policy of Nehru and, paradoxically, a policy that has failed: l self-sufficiency. Does a 21st century leader borrow an idea discredited from the 1940s and abandoned in the 1990s?

Nehru, who was educated at Harrowand Cambridge, the son of a wealthy lawyer, was an internationalist. But when it comes to choosing a development strategy, he never had much choice: by taking over in 1947 a newly independent nation plagued by two centuries of British colonial plunder, he was forced to follow suit. a closed economy approach. On the one hand, World War II caused a huge global shortage of capital goods. The steel that could get into the tractors ended up in tanks. How to import or pay for machines? Especially when India lost the advantage of post-partition cotton and jute exports to western and eastern Pakistan, now Bangladesh.

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Nehrus’ other problem was the Soviets. By the mid-1950s they had infiltrated the Indian planning process with their model of rapid and heavy industrialization. The idea of ​​producing your own steel to make machines and then making bicycles was appealing, even if it meant not having enough pants and toys, or shirts and shoes, to sell cheaply at home and abroad. the world and absorb the surplus agricultural labor. This puts India on a slower urbanization and growth path than in the tiger economies of East Asia.

Modi approaches the problem from a different angle. A popular leader who came into politics on a platform of muscular nationalism, hedismantled Nehrus ‘planning apparatus shortly after becoming prime minister in 2014, modihadnone of Nehrus’ class privileges. As a young boy he helped his father sell at a small train station in Gujarat, according to a 2013 biography.During his second five-year term as prime minister, Modi relies on the same formula that has earned him success as Chief Minister of the State of Gujarat: capital-intensive industrialization, supported by investor-friendly infrastructure and policies.

To turn India into a factory for the world, Modi has set up a five-year pipeline of infrastructure projects worth Rs 111 trillion ($ 1.5 trillion), more than what the country has invested over the past two decades.merged 29 labor codes into four, and announced $ 28 billion in production-related tax incentives. The money is intended for companies setting up factories manufacturing everything from cellphones and auto parts to solar panels and sportswear. If things go as planned, it could result in an investment of $ 37 billion over two to three years and increase wages by $ 55 billion per year, according to Crisil, a subsidiary of S&P Global Inc.

This is the good part, the one that has succeeded in the current climate. Rising US-China tensions are forcing global companies to expand their supply chains. When Modi gets it wrong and repeats Nehrus’ mistake, it is by choosing self-sufficiency rather than openness.

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East Asian countries like Taiwan and South Korea recognized early enough that labor-intensive manufacturing was their natural advantage. They played there. India did not. The heavy industry approach has failed to create jobs for the shriveled masses. Perhaps the Soviets wanted the consequences of their model to spill over into India and lead to the collectivization of agriculture under the pressure of a growing and reluctant population that was badly needed on earth but had little money. industrial jobs to go. Fortunately for India, Nehru has never gone so far.

Also read: The thorns that still plague the Indian economy

The economy started to open up in the 1990s. Industrial licenses disappeared, prices started to fall. Led by computer software, skills-based exports have grown rapidly. Yet the mistake of not tapping into cheap, unskilled labor has never really ceased to matter. India was home to 500 million people at the time of Nehrus’ death in 1964. Modi must create jobs for a population of over 1.3 billion that is teeming with youth and youth underemployment.

The era of Covid-19 has reversed the long-standing problem, masked in recent years by the booming urban economy, with 75 million people.pushed back into poverty, the middle class has hollowed out andless than 6% employmentfor urban women, there is no point in pretending that India has taken a giant leap between agriculture and software and that it will not need to make shirts and shoes.

But to make something for the world, you have to import something. Take the windbreakers. Indian suppliers have appealed to the government for more than four years to remove the anti-dumping duty on purified terephthalic acid, a key raw material. This increased costs along the value chain and made India uncompetitive in synthetic textiles. Finally, the post disappeared last year.

Other industries are less fortunate. Even leading trade economists like Arvind Panagariya, who served in the early years of the Modi regime and who is sympathetic to his zeal to reform certain things, are appalled by the rampant protectionism. As a professor at Columbia Universitynoted in a recent lecture, the proportion of import tariff lines in India with rates above 15% exceeded a quarter of last year, more than double compared to ten years earlier. Since tariffs on inputs are in many cases higher than tariffs on finished products,researchersaskif India will be able to replicate China’s success with global assembly lines.

Read | India’s steady economic recovery in doubt after peak in Covid-19 cases

India has the opportunity to compete. Chinese manufacturers areprice increase, stoking inflation fears around the world. Washington wants a security partner in Asia to contain China’s influence. No sovietGosplanexperts breathe Modisneck as they did in Nehrus’ time. So why is the current Prime Minister choosing autarky and turning away from trade liberalization?

Perhaps the domestic political economy is forcing Modishand. From steel to cement and automobiles, and telecommunications to airports and seaports, India’s economic strength has become highly concentrated in recent years. A monopolist likes the protection of high import barriers. Modi is more and more obliging. Yet, if there is anything, now is the time for India to duplicate the successes of the 1990s by expanding skill-intensive exports to include labor-intensive products. On this measure,Vietnam and Bangladesh are doing better.

Read | Coal Indias shipments drop to lowest level in four years amid Covid-19 crisis

Modi can also talk about self-sufficiency to avoid India’s over-reliance on China. The industries India is betting on, from telecommunications equipment to photovoltaic cells and active pharmaceutical ingredients, all import heavily from the People’s Republic. It is a vulnerability. Territorial tensions dating back to Nehrus ‘timer remain a thorn on Modis’ side even now.

The more Modi tries to relegate Nehru to the last pages of history, the more the Prime Minister jumps. This import substitution is the common ground between two such different rulers and regimes is worrying. In the late 1950s, Nehru had criticized thegigantism diseaseunleashed by planning. Modi also needs to learn that self-sufficiency will not put food on the table. Onlyjobs will.

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