IF WE are to understand the impact on India of foreign economic ideas we must first recognize how immune the Indian economy is to influence from any source, including that of the Indian Government. Indian life, as we have so often been told, resides in the villages. The great cities--Calcutta, Bombay, Delhi, Madras--are, in any quantitative sense, on the fringe of Indian society. Eighty-three percent of the people live in the villages; and these number a nearly unimaginable 612,000.

The isolation of the Indian village is something that can be both seen and felt. The thin, searching people, the mud and thatch, the patrol of silent cows, the meagre surrounding fields, all convey a sense of solitude. Village government is primitive and but slightly tied to central authority. There is no priest who is in communication with his hierarchy and no telephone or telegraph lines to the city. Often the village can be approached only on foot. Those who have approached it over the mud dikes or along the dusty paths in centuries past have been the agents of old oppressions or the harbingers of new misfortunes. At best they have been bearers of promises that were never kept or prophets of reforms that were never made. Out of the depths of this experience the village has a deeply ingrained mistrust of the world outside, and this mistrust is directed first of all at those who presume to govern.

The economic life of the village is concerned, indeed preoccupied, with the production of food. And so, therefore, is Indian economic life as a whole. Approximately half of India's gross national product is made in agriculture, and approximately 70 percent of the people are directly dependent on agriculture for their livelihood.

In an economy where food is so important, so, inevitably, is land. There are very few generalizations which can be made about landholding in the Indian villages. Some people own a great deal more land than others, but a great many people do own some. The state governments are trying with varying degrees of efficiency, determination and success to broaden the base of land ownership. Perhaps it is enough to say that the Indian agrarian community is one of marked but not limitless economic and social inequality. At its bottom, however, are to be found perhaps the world's most unfortunate men--the mass of landless laborers for whom idleness, hunger and privation are endemic. All in all, the Indian village is no Auburn.

The villages do not, of course, comprise the total of Indian economic life. India has long had an excellent transportation network--by far the best in Asia. There is a highly developed urban trading community. And long before Independence, India had a large and efficient cotton textile industry, the world's principal jute manufacturing industry, a small steel industry and some development in other fields. But apart from the textile mills, industry was a thin fringe. Much has been made of Indian (or Parsi) enterprise in building a steel industry. But prior to Independence this had brought India only about a million tons of capacity. Canada, with colonial antecedents and only a minute fraction of India's population, had several times as much.

Most of our recent attitudes toward the Indian economy have been shaped by the government activities since Independence. These have centered on the two Five Year Plans, the first of which was devoted primarily, although not exclusively, to expanding food production and particularly to the development of large and small irrigation enterprises. India is now midway in the Second Plan, in which the emphasis has been more especially on industry--on expanding the steel industry, on launching an engineering and machinery industry, on developing an electrical equipment supply, and so forth. The industrial expansion has gone forward under both public and private auspices although in the last couple of years the private sector has expanded rather more rapidly than the public. However, most of the new industries--in contrast with older ones that are being improved and enlarged--are being developed under government auspices by publicly-owned corporations. This is being done as part of a formally proclaimed intention to develop a "socialist pattern of society." The commitment to the goal of a socialist society is central in modern Indian thought. It is regularly averred by the government and, indeed, by nearly all articulate Indians. Even the most intransigent Indian capitalist may observe on occasion that he is really a socialist at heart.

This reiterated reference to socialism is extremely important for an understanding of the Indian economy--or, to speak more precisely, it contributes greatly to the failure to understand it. The word socialism implies social control of the economy by the government. Five year plans carry the same connotation. It is easy, as a result, to imagine that the Indian economy is managed by the government and that New Delhi has in its hands the necessary instruments for such control. Clearly a great many foreigners, both East and West, share this illusion. Nothing could be farther from the fact.

The Indians are indeed engaged in an imaginative and energetic effort to expand their economic plant and its output. Both by choice and by necessity they are doing much of this under public auspices. Yet, by almost any test, the economy of India is less responsive to public guidance and direction than that of the United States. Indeed, it is one of the world's least controlled or "planned" economies. In the United States the several levels of government dispose of about 20 percent of total production (of $434 billions in 1957). In India the corresponding figure is not over ten percent.[i] By this test--the size of state activity in relation to all activity--more than twice as much of the American economy is managed or planned by government as is the case in India.

No one should make too much of these figures. Military outlays, which are a sizable part of our figures, may not be a useful index of resources under social control. But even outside the field of direct public activity our economy is subject to a far greater degree of public guidance and direction than that of India. Our agriculture is much more subject to control and is more extensively controlled by the state. The agriculture of the Indian villages is only gradually being brought within the purview of the counterpart of an extension service. Wages, hours and conditions of labor are much more extensively regulated in the United States, and in one way or another we can do more about manpower supply. Taxation and fiscal policy are subject to the same manipulation in free enterprise Washington as in socialist India, and in our case the tools in the hands of the government are almost certainly more efficient. Our industrial pricemaking is subject quite generally to the administration of large corporations. As a result, it is decidedly more restrained than the truly free markets of India.

In the aggregate, there can be little doubt that ours is both much the more manageable and the more managed economy. India has, in fact, superimposed a smallish socialized sector atop what, no doubt, is the world's greatest example of functioning anarchy.


To this economy come both the prophets of Communism and Western capitalism. It can easily be argued that both fail to make contact with it. There is at least some slight comfort in the knowledge that the Russian difficulties may be as great as our own. Conceivably they are greater.

Our own difficulties are compounded of a failure to understand both the Indian economy and our own. It has long been remarked that, where economic wisdom is concerned, we have both a domestic and an export product. The domestic product is an intricate blend of pragmatism and compromise. It abhors government intervention in principle but not in practice. Social security and social insurance, a large range of subsidies and controls, a policy for containing depressions and inflation, a farm policy, and a resource development policy are all recognized to be either essential or desirable. We are categorically opposed to government intervention only when it is categorically for someone else's benefit. This social pragmatism--this accommodation to circumstance--far more than rigid adherence to doctrine accounts for what measure of economic success we have enjoyed.

But the common export version of American economic policy is very different. This is a pure distillate of boisterous enterprise and undiluted laissez-faire. Rugged individualism and rigorous competition are the thing. Men who wouldn't think of taking this medicine themselves unhesitatingly prescribe it for foreigners. Particularly, it is what is needed to stir Indians out of their agelong torpor. Thus lurking just below the surface of nearly all our formal relations with the Indians is the suggestion that they should forthwith dispense with socialism and go in for free enterprise or capitalism. All would be well for them and all would be well between our two countries.

As I say, such rejection of the state, in contrast with its pragmatic use, reflects a misreading of our own experience. The misunderstanding of India lies in the failure to see the unique inapplicability of the free enterprise formula--either in its pure or diluted form--to that country. As noted, the Indian commitment to the semantics of socialism is at least as deep as ours to the semantics of free enterprise. (Nothing is more engaging than the way both countries affirm valiantly in principle what they find so inconvenient to put into practice.) And until recent times a good deal of capitalist enterprise in India was an extension of the arm of the imperial power--indeed, in part its confessed raison d'être. As a result, free enterprise in Asia bears the added stigmata of colonialism, and this is a formidable burden.

But much more important, it is very doubtful if free enterprise is either functionally or socially applicable to India. For India and the Indian Government, economic development is a political imperative. Perhaps--just perhaps--if development were left to market incentives, it would proceed as rapidly as under public auspices, or more rapidly. But suppose it did not. Suppose the private vision and entrepreneurship were lacking. Or the capital. Who can be sure? Did India lag behind the West in the last century and the early part of this one because the British repressed growth or because of more deeply seated causes? If more deeply seated and enduring factors prevented rapid development in the great age of enterprise, then to count on free enterprise now would be a dreadful risk. Who can be sure that things have changed? It is a risk that American prophets of free enterprise, were they based in New Delhi rather than New York, would be reluctant to take.

There are also the social consequences of capitalism to reckon with. Left to itself, as the specifications would require, capitalism is a system of manifest inequality. Inequality has ceased to be a thing of great social urgency in a country where opulence is general. It still has grave and even revolutionary implications in a country where nearly everyone is poor and where many are hungry. Anyone who is familiar with India will also be aware of the talent of its people for conspicuous consumption. This is a part of the world where the rich are rarely discreet.

I have been adverting to the pure or export version of capitalism as it applies to India. But the pragmatic version which we in fact employ is not more relevant. It too leaves initiative to the private firm with the consequent risk that in India it will not be forthcoming in response to market incentives. Inequality remains considerable, and it obviously is not open to the Indians to use general opulence as a solvent for the resulting tensions. Unemployment compensation, old age insurance, farm price guarantees, and the numerous other ways by which we blunt the sharp edges of the capitalist machinery for the ordinary citizen, also help to make tolerable the wealth of the well-to-do. These social luxuries are also unavailable to the Indian Government. A good deal of our social regulation, imperfect though it is, requires a precision and subtlety of administration which is beyond the reach of a government like that of India.

In the last two or three years a remarkably aberrant phrase, "people's capitalism," has come into official use to characterize the modern American system. It is evidently presumed to describe a system in which ownership of the means of production is widely distributed through the medium, principally, of widely held securities. The case for a broad distribution of such ownership rests, invariably, on a bogus use of statistics. (Individual owners are counted as equal regardless of the size of holdings, and their holdings are, in fact, highly unequal.) Share ownership has also been of minor importance as compared with increased income or improved social legislation in softening the tensions of capitalism. But though the synthetic talk about people's capitalism has little relevance to the United States, it has no meaning at all for countries like India where the masses of the people will never, if they own anything at all, own more than a minute patch of land.

Thus to talk in India of the virtues of capitalism, classical or modern, is to make little or no contact with the realities of Indian economic life. The person who does so serves only to deny himself influence except with a handful of Indian businessmen. Our situation is partly redeemed, however, by the fact that on the whole Americans adhere badly to a popular creed or an official line. Large numbers of the people whom we have actually on the ground--State Department, technical assistance and information service personnel and businessmen--have seen or sensed that India cannot follow our example. It is not our habit to conceal our convictions on these matters even though it may be wise to exercise a measure of discretion in the presence of visiting legislators and tycoons. I imagine that many Indians know that many Americans take a pragmatic view of their policy.

Yet how much better it would be if inapplicable ideology did not supervene at the top. One cannot be in India without feeling that most of our efforts at understanding consist in laboriously trying to undo the damage of those who run the store in Washington. In our society there is an unquestioned correlation between the majesty of official position and the irrelevance of the generalizations that are solemnly articulated.


The Russians also have problems. In contrast with the exponents of laissez-faire capitalism, they show a capacity to accommodate doctrine to circumstance. The difficulty is, however, that the Soviet Union is a full-blown example of socialist planning and India, as I have noted, could scarcely be farther from this goal. Russia is the most managed and centralized society in the world. Both its industry and its agriculture are subject to a formidable apparatus of control. Objectives are pursued with the rigor and determination of an old authoritarian tradition. Nothing could be more strikingly in contrast with the minimal guidance to which the Indian economy is subject. And, one ventures, nothing could be less in keeping with Indian temperament and the character of the ruling Congress Party than the vigor and on occasion the violence of Soviet governmental techniques. No one has suggested that Indian socialism is revolutionary socialism. On the contrary, it identifies itself wholly with the tradition of non-violence.

Thus while the Russian accommodation to Indian attitudes is certainly greater than in the days of Stalin, one can reasonably conclude that there are still difficulties. Russians must negotiate the chasm between a country that is genuinely socialistic (in the Soviet sense of the term) and a country that chooses to call itself socialist but, in fact, is at the opposite pole in actual organization. The Soviet leaders cannot tell a friendly socialist country that it is no such thing, nor can they make recommendations which accept the fact of a total absence of central control. Russians are more or less under the obligation to believe that the Indian economy is what it is not.

While I was in India the year before last, I had some opportunity to familiarize myself, directly and indirectly, with the general drift of Soviet (and associated) economic comment on India. It seems to be recognized that Russian and East European agricultural experience is inapplicable to India. But other agricultural suggestions strike one as having a rather uncertain or even academic tone. The remnants of feudalism and exploitation should be abolished; this is easier to suggest than to reduce to blueprints. The "surplus product" in agriculture should be appropriated for the needs of development; the questions of procedure are more difficult, especially in a country where the governing party is extensively identified with land ownership.

One of the most serious Indian problems involves the adjustment of investment as between the public and the private industrial sector. So far as there is a Russian formula for dealing with this problem it must, inevitably, be to discriminate sharply against the private sector. Given the importance of this sector for earning foreign exchange and the scarcity of managerial talent, as well as the vested interests of part of the Congress Party, this has the same unrealistic ring as proposals for universal free enterprise.

One senses that even Russian attitudes toward the socialized sector, at least as they emerge in the attitudes of sympathetic Indians, have been but slightly adjusted to Indian conditions. The Indian Five Year Plan is treated as though it were indeed a master industrial plan for the administration of all economic resources. There is much concern for matching and reconciling inputs and outputs in different sectors. And there is a heavy-industry mystique.

In fact, the Indian Five Year Plans have their kinship not so much with the Gosplan as with a Western capital budget that has been spread out to provide for industrial capital formation.[ii] The urgent questions are not those of matching inputs and outputs and rates of growth; these are rather readily solved. The infinitely more difficult questions are those of maximizing foreign exchange resources, and of getting the maximum of domestic saving and capital formation with the minimum of inflation. With these problems it would not seem that the Soviet attitudes make appreciable contact. In post-revolutionary Russia a massive development of heavy industry could seem the sine qua non of survival. And in World War II this proved to be the case. The development of heavy industry is also important in India, but it would be hard to say that it has unique urgency as compared with food, clothing, medicines and like products for her vast population.

Finally, India, as a parliamentary democracy, has a difficult problem of reconciling efficiency and maximum growth with the political pressures and religious preferences of her people. Some of these pressures--the Gandhian emphasis on cottage industry with the resulting limitations on factory production, for example --are decidedly inimical to growth. In the past, Russian comment on Gandhi and the economic policies of his followers was invariably contemptuous, but of late there has been a marked tendency to rationalize these policies as very desirable. They are seen as the alternative to capitalist textile production and a solution to the admittedly tragic problem of village unemployment. Neither position reflects the realities of the Indian situation. This requires a sympathetic view of the religious preferences and the problem of unemployment but fairly strong resistance to restraints on factory enterprise or the diversion of scarce capital to village industry. For this would mean merely more privation over an even longer time.


In fact, neither an advanced capitalist country like the United States nor a highly organized economy such as that of the Soviet Union has an economic formula that is immediately applicable to India. It is perhaps especially unfortunate that among those who fail to recognize this are a great many Indians themselves. Indian Marxists, who are a considerable and influential group, naturally assume that the formula for India's future is given by Marxist-Leninist doctrine and current Soviet experience. It is to these (and in recent times also to China) that they look for essential guidance. I sense that little effort is made to modify this doctrine in applying it to the Indian scene. And plainly, much of it is as remote from the realities of the Indian life as are Marx, Lenin and the modern Soviet leaders in time or temperament.

A very much larger number of Indian economic leaders look for guidance to the sophisticated economic theory of the West. To be in communion with this doctrine is a mark of scholarly achievement. Again, no great store is set by its modification and adaptation to the Indian experience. As a result, an astonishing proportion of the economics that is taught and discussed in India has little relevance to Indian problems. Indeed, some of the more refined theoretical models discussed are not notably relevant to the Western communities where they originated.

At the same time it is becoming increasingly clear that Indian economic policy is at its best when it is most self-reliant. Adaptation of action to circumstances has on numerous occasions produced better results than the adoption of foreign models. The First Five Year Plan was a pronounced success at least partly because it reflected the enormous importance of food in the Indian economy. Perhaps the greatest success of both the First and Second Plans has been the Village Development Program. This effort, designed to establish communication with the villages, to lift the level of their technical achievement, stimulate the use of their latent resources and improve the quality of their life, reflects the importance of the village in Indian economic life and is adapted to the mood and aspirations of the Indian village dweller. It has no close counterpart either with the West or in the Communist countries. (While it serves some of the same functions, it is an error to identify it too closely with the modern agricultural extension service of an American state.) Perhaps the greatest unsolved problem of the Indians is to find some way to insure efficient public entrepreneurship under the general aegis of a parliamentary government. As I suggested earlier, there is no alternative to such entrepreneurship, and hence a solution of the problem must be found. On this question neither the United States nor the Soviet Union has much experience to offer. The one lacks the public corporations and the other the parliamentary democracy.

I do not suggest that the Asian countries have nothing to learn from the experience of the more developed lands. But I am persuaded that these lessons are not revealed in any comprehensive doctrine or theory and that this is equally the case with Western capitalism and Soviet Communism. The best Asians and the best friends of Asia will be those who first learn this lesson.

[i] For detailed comparisons of a slightly earlier date, see Harry T. Oshima, "Share of Government in Gross National Product for Various Countries," American Economic Review, June 1957.

[ii] A point that was indeed made about the first Five Year Plan by M. N. Rubinshtejn, a Soviet writer on Indian economic development. For this and other observations on Russian attitudes I am much indebted to Mr. L. Kirsch who has let me see his unpublished paper on "The Development of the Soviet View of the Indian Economy."

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  • JOHN KENNETH GALBRAITH, Professor of Economics, Harvard University; visiting lecturer in Asia for the Department of State, 1957; author of "The Affluent Society," "Study Guide on Modern Far Eastern History" and other political and economic works
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