8 Towards independence

The period from the end of the first decade of this century to World War II saw considerable progress in India. The average annual rate of increase of manufacturing output is estimated at about 4 per cent during 1913 to 1926– 9 and above 5 per cent during 1926–9 to 1936–8 (CEHI 2:609, Table 7.11). Between 1913–14 and 1938–9 the share of manufactured output in national income doubled, increasing from 3.75 to 7.5 per cent (ibid.: 611).

Ranade’s optimism about prospects of Indian industrial growth thus turned out to have been at least partly justified. Political reforms to the Raj began allowing Indians for the first time a limited degree of self-government while the national movement for complete independence from British rule continued to grow in sweep and intensity. For a historian of economic thought, however, the period has relatively little to offer. We shall consider the following topics in successive sections: the principles of discriminating protection; the economics of education; the controversy on the rupee-ratio and the measurement of national income.


FROM FREE TRADE TO DISCRIMINATING PROTECTION

During the nineteenth century, as we have seen, the influence of classical political economy extended not only to British officials but also to Indian nationalists. However, their interpretations of classical doctrine often differed. The official view adhered to a particularly rigid and doctrinaire version, oblivious to even such exceptions to laissez-faire as the classical economists themselves had allowed. This was especially so in regard to the doctrine of free trade. Indian economists on the other hand were inclined to take a broader view and quoted J.S. Mill in support of their approach.

They pointed out, for example, that the infant industry argument was perfectly in accord with the Ricardian theory of international trade based on comparative advantage. The general principle that state activity to encourage industrial growth should always be, as Mill had put it, ‘in aid of private efforts rather than in supersession of them’ (Principles of Political Economy, Book 5, Ch. 11, in Collected Works, Vol. 3, Toronto, 1965:971) was accepted by almost all Indian economists of the time. Quoting Mill, G.V.Joshi, a prominent follower of Ranade, pointed out that state aid

when once invoked is often apt to degenerate into aggressive State action, supplanting private effort; and therefore, in seeking it, we propose to surround it with such strict limitations of scope, direction and time as are laid down by Mr Mill.

(Joshi 1912:828–9)

In particular, Joshi warned against the danger of Indian enterprise ‘being kept in the swaddling cloths of State protection and be disabled for independent economic advance for all time to come’ (p. 823). This did not, however, justify a laissez-faire approach to industrial development in India. Following the experience of World War I (1914–18) the British official view stopped regarding India’s departure from free trade as unthinkable. In 1921 the Indian Fiscal Commission was appointed with a majority of Indian members to recommend an appropriate tarrif policy. The Fiscal Commission report stated the following principles for granting protection.