The moral voice: KN Raj, an economist with sociological approach

Aunindyo Chakravarty

When India became Independent, there was a broad agreement that all the money available had to be invested in building power plants, roads, railways and ports. Along with that, we also needed to become self-sufficient in making industrial inputs — by developing mines for ores and coal, constructing steel plants, and the factories to manufacture the heavy machines that industrialisation needed. There was also a general consensus that only the state could mobilise the capital that such investment would need. So, India’s economic development had to be planned and led by the public sector.

Those innocent of history call this ‘Nehruvian socialism’, conveniently forgetting that this was exactly what India’s biggest capitalists wanted. They even drew up a blueprint for this, which has come to be known as the ‘Bombay Plan’. If anything, the ‘socialist’ Nehru wanted rapid industrial development, and had tasked his first team of planners with drawing up an economic strategy to achieve it. The trouble was that the young man he had entrusted with the job was much more farsighted.

Kakkadan Nandath ‘KN’ Raj had been appointed by Nehru on a recommendation by the British political economist Harold Laski. Laski, known to be Nehru’s mentor, had also taught Raj at the London School of Economics. Raj had made a name there when his Master’s dissertation had turned out to be so impressive that he was asked to stick around for a few more months, work on it and get a PhD instead.

But Nehru was annoyed when KN Raj presented his draft of the First Five Year Plan. The projected growth rate was much lower than what Nehru wanted. Raj, all of 26 years of age, told India’s first Prime Minister that he could rework the plan, but only after Nehru answered a question — “If you had to choose between democracy and a fast rate of development, what would you choose, Sir?”

Raj’s argument has often been interpreted to mean that only an authoritarian state could achieve high growth. He was making a much deeper point. In any developing economy, the sums of money available for investment are limited. The available capital has to be split amongst industries that produce goods that you and I consume, and industries that produce ‘capital’ goods, which are needed to produce the consumer goods in the next cycle. So, India had two options. The first was the real Nehruvian path of rapid expansion of the capital goods sector, and the second the more balanced path advocated by Raj. It meant focusing equally on providing ‘wage’ goods to the poor of the country — food, clothing, housing, health and education. As KN Raj’s subsequent writings suggest, that is what he believed was the true essence of a democracy.

Raj’s arguments, over the years, went counter to the influential ‘dual-sector’ model developed by the British economist Arthur Lewis. Lewis had argued that developing countries with a large population of poor farmers have an unlimited supply of labour, which can be utilised for a programme of labour-intensive industrialisation. All that was required to get agricultural labourers to work in factories was to give them a subsistence wage. Raj believed that supporters of this theory did not understand the cultural peculiarities of farming communities in developing countries. He argued that farming households often have many more people working on the farm without adding anything to productivity. This ‘disguised’ unemployment continued even if there were jobs available in the factory sector. An ‘unproductive’ poor farmer would be induced to move out of the village only when a non-agriculture job paid significantly more than subsistence wages.

Raj’s sociological approach to economics also informed his understanding of the land market in India. Standard economic theory proposed that as land prices went up with capitalist development, the rate of returns on agricultural land would fall. This would lead farmers to sell their land and leave agriculture. Following Keynes, Raj argued that the Indian farmer’s calculations of the returns from land are not determined by economic considerations alone, but also by notions of security and prestige.

So, Raj was essentially saying that India could not industrialise in the classical way; industrial growth would depend on how fast the farm sector grew, since people working on farms would ultimately consume what was being produced in the factories. That is why he argued for an agriculture-led development model. This required both increased investment in agriculture and also structural changes in terms of land ownership.

Raj was also a great institution builder. He made the Delhi School of Economics a global name by getting the brightest minds — Sukhamoy Chakravarty, Amartya Sen, Jagdish Bhagwati, to name a few — to teach there. Later, he built the Centre for Development Studies (CDS) in Thiruvananthapuram, where he set up one of India’s best social sciences libraries. The research that came out of CDS has been credited with helping develop the so-called ‘Kerala model’ of human development.

He was also instrumental in setting up India’s best known academic journal, the Economic and Political Weekly. Raj used to write for its previous avatar, the Economic Weekly, and when it shut down, he is believed to have convinced editor Sachin Chaudhuri to revive it under the new moniker. Raj was a founder-trustee of the Sameeksha Trust, which publishes the journal, and remained on its board till his death.

Raj had good relations with those who governed, whether it be Nehru, Indira Gandhi, or EMS Namboodiripad in Kerala. Yet, he never hesitated to criticise government policies when he felt strongly about them. The best known of these is his article criticising the Congress regime’s economic policies at the peak of Emergency. That is why when his friend and teacher, the celebrated economist Joan Robinson, heard that Raj was unwell, she asked his student, the economist Prabhat Patnaik, “Oh, if Raj isn’t well, then who is the moral voice of the country at present?”

Had KN Raj lived, he would have turned 100 on May 13. It is unfortunate that his contribution to development economics in India has been largely forgotten by the mainstream academic system. Perhaps, his centenary year could revive interest in his economic ideas.