Indira Gandhi as architect of reforms

This post may seem outrageously titled. Indira Gandhi as reformer? People will be shocked at the suggestion, they may even fall off their chairs. That is because in the era of liberalisation, we have been brought up on a fairy-tale story of Indian economic policy.

In brief, the tale runs as follows. There are two phases. The first, evil phase, inaugurated by Nehru and accentuated by Indira Gandhi, ran from independence up to 1991. The economy was ruined by ogres who believed in socialistic policies. Then, in 1991, under Narasimha Rao and Manmohan Singh, the nation woke up. We had reforms. As a result, we are on to a wave of prosperity. We shall live happily ever after.

Now, this sort of thing may be popular in the media but it is not something that is borne out by academic research. Academics locate the breakthrough in economic growth in the mid-eighties and even the mid-seventies.

That is a long story. But one thing can be said with confidence. Indira Gandhi's bold move to nationalise 14 banks in 1969 helped push up the savings and investment rates and caused economic growth to accelerate from the Hindu rate of 3.5% to 5.5-6% in the eighties. This was no mean achievement considering the enormous literature on stagnation in growth in the seventies.

So, the idea that Indira Gandhi, in her own way, was an architect of reforms is not as outrageous as it sounds. I elaborate on this in my ET column, Indira Gandhi the reformer.