The Definitive Record Of How India Has Argued About Getting Rich

Chanakya wrote that the key to happiness is Dharma, the key to Dharma is wealth, the key to wealth is the state, the key to the state is self-control, the key to self-control is humility and the key to humility is taking care of one’s elders.

This book by Dr Niranjan Rajadhyaksha is the definitive record of how India over the last 150 years has thought and argued about these very issues: economic growth, political autonomy, social reform, international trade and the welfare state. The book is also suffused with intellectual humility and even-handedness.

During the First War of Independence in 1857, the so-called rebels had released a manifesto. Amongst other things, as Niranjan documents, they complained of being subject to arrest on the complaint of ‘mere’ commoners.

While British colonial rule was of course deeply exploitative, as Dadabhai Naoroji would talk about within a decade, and racist, the Indian feudal order that preceded it had run out of ideas, confronted as it was with this sudden onslaught of imperialism-tinged ‘modernity’. The Marathas, under Shivaji Maharaj, were proto-modernist but the later Maratha rulers saw calcification and disunity. India did not have its Meiji moment the way Japan did, on its own terms.

As Ambedkar would later argue in Annihilation of Caste, any civilised society must have a division of labour; what hurt India was its hereditary division of labourers.

Modernity, the way I see it, is nothing but a lens which allows for political, social, economic churn while gaining ex ante approval from stakeholders. This may have the whiff of the veil of ignorance or uncertainty, and Niranjan cites both Rawls and Buchanan, but it is a broader concept.

Twentieth-century Western thinkers did not have to worry much about fraternity in their violently homogenized countries and could wax eloquent about equality and liberty. Indians, from Bengal and Bombay to Punjab and Madras, had to first get their own state. They half-succeeded with Partition and Independence in 1947. India was free: immediately the world’s largest democracy, a non-Instagrammable revolution that still unfolds in its civilizational republic.

The early chapters establish that protectionism was the Indian default position from the start. Naoroji's ‘drain’ rose, as per his estimates, from £8 million in 1867 to £34 million in 1905. Dutt wrote about how British mercantilism ruined India. Telang made the infant-industry case in 1877. Malaviya's 1918 note pointed at Germany, Japan and the United States, which had caught up through technical education 'accompanied by a system of state aid or protections'.

This Hamiltonian catch-up model (no duties on internal commerce, transport infrastructure, time-bound industrial and trade policy, a financial system suited to the place and basic human capital) was ready a century ago. What the economic nationalists lacked was a state of their own.

Jadunath Sarkar, better known for writing about the Mughals, partially opposed this Listian 'national economy' school in 1911: import duties would ‘enrich the existing Indian manufacturers ... at the expense of the general body of consumers’, and duties are easy to impose and hard to repeal.

The debate continued: should carrots (bounties and subsidies) or sticks (tariffs and bans) be used, or both, and should not the former be financed by progressive taxation and the latter prevented from becoming a private monopoly via nationalization?

The Fiscal Commission that reported in 1922 offered 'discriminating protection' on three tests: a natural advantage, a tariff the industry could not grow without and a credible path to competing once it was withdrawn. Raw materials and machinery would enter free, half-finished goods would be taxed lightly and consumer goods hardest. G.D. Birla and four fellow dissenters wanted protection for everything. India’s return to industrial policy over the last decade, along with much of the world, replays this debate.

The planners, and unfortunately a socialist subset, had won the argument by the late 1930s, and the numbers hint at why. In 1950, average income was Rs 255 a head. Food took 58 per cent of spending. A bicycle cost Rs 100, about a household's monthly income, and India had 4 bicycles per 1,000 people to Britain's 255.

The Bombay Plan of 1944, signed by Tata, Birla, Lalbhai and others, wanted Rs 10,000 crore of investment, part of it 'created money'. It accepted that free enterprise would suffer 'a temporary eclipse'. M.N. Roy's People's Plan put 40 per cent of its Rs 15,000 crore into food and consumer goods.

In 1938 Meghnad Saha asked his Presidency College friend Subhas Chandra Bose what he intended to do about poverty. Bose set up the National Planning Committee under Nehru. P.C. Mahalanobis built the model and the statistical system at the Indian Statistical Institute and set the Second Plan's logic: machines before consumer goods. The planners knew the inflationary risks and took them. By 1965 steel output had gone from about 1 million to 4.5 million tonnes. Over the 1950s cereal availability per head rose from 122 to 145 kg.

Around independence, more than two-thirds of India worked in agriculture. Modern factories employed just 3 to 4 million, or around 2 per cent of the workforce. Tens of millions of jobs were needed, so 'hands must take precedence over the machine' became the motto. Some rejected even the Singer sewing machine!

This hostility to scale, written into the anti-monopoly law of 1969, combined with a fixed rupee to breed inefficiency and corruption. Import substitution was never the problem in itself; attempting it without current technology and competitive pressure was.

No wonder Nehru-Mahalanobis planning worked only partially, and Indira Gandhi’s plans even less so. B.R. Shenoy, a student of Hayek, wrote in his 1955 dissent that investment cannot run much ahead of savings and that deficit financing would bring inflation, a foreign exchange crisis and tighter controls.

The crisis arrived, and on 6 June 1966 the rupee went from Rs 4.76 to Rs 7.50 a dollar, with American food aid conditional on the move. Poverty seemed permanent: Maharashtra began an employment guarantee in 1972 and Parliament made it national in 2005. A pillar of today's welfare state was designed by economists who did not expect growth to do the job.

One highlight is a table Charan Singh compiled from United Nations data for the 1950s. Taiwan grew 7.9 per cent a year on an investment rate of 13.1 per cent, Korea 5.1 on 12.3, but India just 3.1 on 14.9. Taiwan and Korea ran industrial policy harder than India did, and Joe Studwell's summary explains why it worked there: protection had to be earned by exporting.

The 1922 design had that test built in but the 1956 design replaced it with a licence raj. The rupee stayed expensive (unlike now when it is cheap) and India's share of world textile exports slipped from 11 to 10 per cent in the 1950s while Japan's rose from 11 to 18, as Manmohan Singh's own Oxford thesis showed.

R.K. Hazari argued in 1967 that it was 'better to tolerate monopolies' than to license 'economically small plants'. Parliament went the other way, and hundreds of products were still reserved for small firms in the 1980s, and some till the early 2000s.

The state the nationalists finally got in 1947 failed a key link in Chanakya's chain. It could not control itself. It could not refuse a deficit, a licence application or an overvalued exchange rate. B.P. Adarkar wrote in 1972 that secretariat corridors had become 'dharamshalas for mendicant business men loitering for beggarly bits of licence'.

Humility arrived by way of humiliation. By mid-1991 reserves covered two weeks of imports and 67 tonnes of gold had been pledged in Zurich and London. India today invests around 33 per cent of GDP, grows at 7 to 8 per cent and gets more growth per rupee invested than China does. Charan Singh's complaint has finally been answered.

For a markets reader the monetary chapter is the best in the book, because the argument it records has not ended. Gokhale told the Imperial Legislative Council in 1908 that prices were rising because the government had added Rs 100 crore of coin in a decade to a stock of Rs 130 crore.

Ambedkar told the Hilton Young Commission in 1926 that a cheap rupee is 'a gain from one class at the cost of another class'. Prices doubled between 1940 and 1946 as the Reserve Bank issued war-time rupees against sterling parked in London. Economists blamed the money and Birla blamed the shortage of goods, and that discussion still runs through every monetary policy decision: supply or demand, monetarist or neo-Keynesian?

The chapter ends with the Chakravarty Committee of 1985 making price stability the Reserve Bank's main objective at around 4 per cent, a target that took another three decades to become law. That 4 per cent, renewed in 2026, is self-control written into law. It also anchors the rupee.

The book stops in 2017, before the state ‘came back’ in the West and in India, after the mercantilist rise of China became too obvious to ignore. America's CHIPS Act, China's battery champions and India's production-linked incentives all postdate it. So does the World Bank's conversion. Its 1993 East Asian Miracle report concluded that promoting specific industries 'generally did not work'. Its 2026 report, Industrial Policy for Development, finds the approach replicable and puts the long-run gain from Korea's heavy and chemical industry push of the 1970s at 3 per cent of GDP a year, against a one-off cost of 2.4 per cent.

Niranjan tells the post-1965 story largely through Bhagwati, Desai and Srinivasan, who were right about the controls. Friedrich List, Albert Hirschman and Ha-Joon Chang do not appear; Alexander Gerschenkron gets a paragraph in the conclusion.

India's own record after 1991 is interesting, because it ran the experiment both ways. Under the World Trade Organization's Information Technology Agreement of 1997, India took tariffs on 217 electronics categories to zero by 2005.

Sunil Mittal, who had assembled push-button phones in the 1980s, made his fortune as a telecom operator instead. Cars were opened gradually, behind joint ventures and local content rules, and India is now the world's third-largest car market and Suzuki's largest manufacturing base. Protection with discipline built cars. Zero tariffs with no industrial policy lost electronics for two decades.

The GST chapter supplied the ending I wanted. The empowered group of state finance ministers that shaped the tax was chaired by Asim Dasgupta, the Marxist who managed West Bengal's finances for decades. Vijay Kelkar's Thirteenth Finance Commission proposed folding central and state taxes into a single 12 per cent levy. The GST of July 2017 removed seventeen taxes and thirteen cesses, and the average rate actually paid has fallen from 14.4 per cent at launch towards 10 per cent. The Union and the states pooled tax bases the Constitution had kept apart.

Read this book if you think ‘real’ Indian economic thinking began in 1991. Niranjan's organising claim is the one Keynes and Hayek shared: institutions and interests defend the status quo, but ideas often wear them down eventually.

The book opens with Gopal Hari Deshmukh's Lakshmi Dnyan of 1849, which read the churning of the ocean as a lesson in joint effort, with poison along the way and Lakshmi at the end, and closes with Krushnashastri Chiplunkar's Arthashastra Paribhasha of 1855, a Marathi primer built on John Stuart Mill. Chanakya's chain ended with the care of one's elders. Niranjan has written the history of the churning and taken care of those who did it.

Harsh Gupta Madhusudan is Chief India Strategist, Ionic Wealth, and the author of the forthcoming Long India. Views are personal.