It was said that when the Cabinet of independent India met there would be an empty chair for Prof Harold Laski. He was probably the one summary name representing all that muddled philosophy which enticed Indian economic thinking for 50 years. He was a political scientist, a socialist though not a Marxist and a Fabian. His blend of the love of the State, distrust of the markets, disdain for capitalism was absorbed by many but perhaps most thoroughly by Jawaharlal Nehru.
Thus it is that the first 40 years after independence were wasted in a delusional economic policy. While Indiaís poorer neighbours such as Malaysia and South Korea prospered as they were untutored by Laskian economics, India proudly followed the socialist pattern and stagnated. Even so the Nehruvian decade of the 1950s was not bad. Growth was 43% in 10 years by 1961. In the 1960s, there were famines and Shastri tried to abandon the old ideas. Alas, he did not live long enough and then came the Indira Gandhi period from 1969 to 1977 which was the worst of the politically motivated nationalisation, blackmail of private sector companies to extort money for the Congress party coffers, arbitrary change in regulations and shameless populism with appeals to the poor.
Even Indira Gandhi realised that the policy was failing by the time she returned to power in 1980. She borrowed from the IMF and abandoned the doctrine of self sufficiency, welcomed FDI in the guise of the Maruti Suzuki project. Rajiv Gandhi liberalised imports and borrowed from the NRIs. But the economy was not liberalised, enterprise was still suspect and exports did not take off to pay for the external borrowing. So the economy crashed in 1990.
The history of the 24 years since at first Yashwant Sinha briefly and then Manmohan Singh more prominently reformed the economy, with Chidambaram and later Yashwant Sinha redux is well known. Yet the Laskian distrust of the private sector has not gone away as the Vodafone decision showed. Indian businessmen have to be wary of arbitrary raids by the income tax authorities or CBI if they are out of favour with the powers that be. Money is still extracted for party funds over and above the legally declared funds.
This half-reform half-Laski economy has now crashed. Chidambaramís budget signalled the abyss into which India has fallen by camouflaging the deficit in ways which were cleverly devised to be