There was a thing that only Boomers and Gen X can relate to. It went something like this: if you booked a scooter for your son or daughter at the time of their marriage, you would get the delivery by the time they had two or three children! In the 1980s, the waiting period for a Bajaj Chetak was more than 10 years. At one point, the government had capped Bajaj's annual production capacity at just 80,000 scooters.
That was the era of scarcity. And it was true for so many goods and services like foodgrains, LPG cylinders, telephone connections, cars, music systems, gold and electrical appliances. One had to stand in queues for many of these things, and smuggling was rampant. The worst part was that much of this scarcity was man-made or, to be precise, government-made.
From Production Caps To Production Incentives
Recently, Prime Minister Narendra Modi reminded an audience about what he called the era of Production Linked Punishment (PLP). He explained how the government once fixed production quotas for industries. Companies that produced beyond the permitted limit or the permit could face penalties. He contrasted this with the much-celebrated Production Linked Incentive (PLI) scheme of recent times and the new philosophy of encouraging manufacturing and investment by rewarding production.
In this article, I will not dwell on the numbers or comparative studies between the Nehru era and the post-1991 liberalisation period or the Modi era. The numbers are in the public domain, and much has already been written about them.
Instead, I want to deconstruct the Nehruvian model of Licence-Permit Raj, to understand the economic philosophy and ideology behind it and how it shaped India's economy at that time.
The Nehruvian bet On The State
Under Prime Minister Nehru, Parliament adopted the socialist pattern of society as the guiding objective of India's social and economic policy. The rest, as they say, followed from this philosophy and ideology.
Read these words from the Draft Resolution on Industrial Policy, as revised by Nehru on 15 April 1956: "The adoption of the socialist pattern of society as the national objective, as well as the need for planned and rapid development, require that all industries of basic and strategic importance, or in the nature of public utility services, should be in the public sector. Other industries which are essential and require investment on a scale which only the state, in present circumstances, could provide, have also to be in the public sector. The State has therefore to assume direct responsibility for the future development of industries over a wider area." (Selected Works of Jawaharlal Nehru, Second Series, Vol. 32, pp. 72-79)
The 1956 Industrial Policy Resolution was a fundamental mistake. It gave the State a dominant role in the industrial sphere. Several industries were reserved for the public sector, while private industry was required to operate within the framework of government plans and regulations. The resolution explicitly stated that private enterprises had to "fit into the framework" of the State's social and economic policy and remain subject to controls. State was not merely regulating markets, it was deciding who could enter them, what they could produce and how far they could expand.
The consequences became most visible in the consumer economy and manufacturing. Protecting producers from competition also protected inefficiency. When companies cannot freely expand capacity in response to demand, shortages become inevitable. Instead of forcing firms to innovate, reduce costs and improve quality, government permissions became the gateway to growth. This resulted in a system of favouritism and patronage.
Perils Of Distributive Justice In Poor Economy
The deeper mistake was to confuse redistribution with social justice. Poverty cannot be abolished by dividing a small economic pie more equally. The first responsibility of economic policy must be to expand the pie, to increase productivity, create jobs, encourage investment and raise incomes. A poor country needs rapid capital formation and rising productivity before redistribution can have a transformative and sustainable impact. By placing limits on enterprise and treating profits and private capital with suspicion, the Nehruvian model constrained precisely those forces that could have created greater wealth to distribute.
The other long-term consequence was the denial of scale and competition. This prevented firms from achieving economies of scale, adopting better technology and competing globally. At a time when productivity increasingly depended on scale, capital and technology, India entered the global race with firms that were often too small to compete and a regulatory system too cumbersome to let them grow.
The result was a lost opportunity to build globally competitive manufacturing capabilities much earlier. India missed an earlier opportunity to develop large-scale export manufacturing.
When ideology overrode economics
This was fundamentally a problem of ideology, not merely administration. The Nehruvian model was built on a deep distrust of markets, and an equally deep faith in the State's ability to direct economic activity. It assumed that economic justice required the State to control economy and that planning could substitute for the dispersed knowledge and incentives generated by markets.
The problem with this approach was not simply that bureaucrats made bad decisions. It was that no bureaucracy could possess the information required to determine millions of economic decisions better than individuals, entrepreneurs and consumers themselves. Prices, profits and competition are not merely instruments of capitalism, they are mechanisms for discovering what people want, where resources are most productive and which enterprises deserve to grow.
Government could have invested in infrastructure, education, technology and public health while allowing entrepreneurs greater freedom to enter, compete and expand. The great lesson is that social justice cannot be built on economic stagnation. A government must create the conditions for wealth creation before it can sustainably distribute that wealth.
The 1991 reforms began dismantling the Licence Raj. The process of liberalisation started. The great achievement of liberalisation was not merely higher growth. It was the restoration of economic choice: the freedom to invest, produce, compete and consume.
Modi is on a mission
So, what does this teach us? The wiser approach to statecraft is to distrust grand ideological blueprints and be guided instead by experience, institutions and consequences. No government can fully comprehend or control the complexity of society through abstract theories and ideologies. Policy should therefore be judged by what works in practice, not by its ideological purity. The best statecraft is pragmatic: preserve what works, reform what fails, and change cautiously when circumstances demand it.
Sounds Burkean? Yes, it is.
This is precisely what Narendra Modi is doing with a vengeance. He has set a clear goal of Viksit Bharat by 2047, but he is not wedded to any economic ideology in pursuing it. He is running the world's largest welfare programme, bringing almost 100 crore people within the ambit of social security programmes without worrying that scholars might brand him a leftist. At the same time, he has opened up various parts of the economy without fearing that someone might brand him a rightist. The test is simple: what works. Whether the cat is black or white matters little, so long as it catches the mouse. That is the essence of pragmatic statecraft: clear goals, flexible means and a relentless focus on outcomes.
(The author is a Senior Adviser at the Ministry of Information and Broadcasting, Government of India. Views are personal)
