On June 25, 1975, the then Prime Minister of India, Mrs. Indira Gandhi, imposed an Emergency in India. The reason attributed to the imposition of emergency as per the order issued by President Fakhrudin Ali stated prevailing internal disturbance. This order led to the start of a 21 months era wherein PM Indira Gandhi got the autocratic authority to rule the country by violating all principles of democracy and human rights. Political opposition to Mrs Gandhi was imprisoned, and the media lost its press freedom and were subjected to censorship. By far till date, the emergency remains the most controversial period in the history of Independent India.
Social and economic issues exacerbate to create a political crisis. The political crisis accelerates to create situations like civil war or emergency within the country and wars between countries. Human history has seen many such situations over the last few millennia. American novelist, short-story writer, and journalist Ernest Hemingway famously stated, “The first panacea for a mismanaged nation is inflation, the second is war. Both bring temporary prosperity; both bring permanent ruin. But both are the refuge of political and economic opportunists”. Mrs Gandhi has both achievements to her credit. She successfully used the first (war) to assert herself within and outside the country. Then she used the second (inflation) to reassert herself, albeit temporarily, within the country when she found that she was losing control over the country.
This takes us to the economic aspects of the emergency imposed by Mrs Gandhi. This starts with the economic reasons that forced Mrs Gandhi to impose an emergency and ends with the aftermath of the emergency on the economy.
Former Prime Minister of the UK, Sir Edward Heath, once said, “Protectionism is the institutionalisation of economic failure.” David Lockwood, in his essay “The Indian Emergency in Economic Context”, published in Proceedings of the Indian History Congress, 2015, Vol. 76, reaffirmed the same. He explained that by the 1960s, India successfully created a centrally planned, state-controlled and regulated economy. Indian industry was dominated by over a couple of hundred public sector enterprises. The private sector was stifled and strangled by many complex regulations, including license, permit, quota, and inspector raj. Then one leading industrialist complained that “the private sector had been encircled not only by a wide range of legislation but by a variety of countervailing power.”
This Nehruvian model of centralised planning and the state-run economy started faltering within two decades of its creation. The state-run economy started showing signs of stagnation by the late 1960s. The Indian Government opposed opening up the economy to the global market and dismantling bureaucratic obstacles stalling the growth of private industry. The World Bank Group and the IMF continued influencing closed economies like India and other countries to push for liberalisation. However, the closed economies continued to resist this suggestion of the WB Group, even at the cost of hurting the economy and the country. Finally, many state-controlled economies agreed to a halfhearted liberalisation, ensuring they retained control while trying to avert major economic catastrophe and pacifying the WB.
This failed to help India in the long term, and by 1974, India again started facing an economic crisis. The 1971 Bangladesh War created a refugee crisis in India. This resulted in a significant budgetary deficit. Add to that the cost of war, which is said to have exceeded Rs. 100 crores per week. This was a huge number in 1971, given the size of the Indian economy. Two back-to-back droughts in 1972 and 1973 followed this, resulting in food shortages and inflation. This created situation of food riots and rampant hoarding and black marketing of essential commodities. The Nehruvian system failed to take care of the poorest of the poor. The resultant economic slowdown created unemployment. This is how a controlled and protected economy created an economic catastrophe.
In their paper “Economic changes during the Indian emergency”, published by Bulletin of Concerned Asian Scholars in 1977, Ashok Bhargava and Gopalan Balachandaran highlighted that by the early 1970s Indian economy was in very bad shape. GDP grew at an abysmally slow pace of 2.14 per cent per annum between 1970-71 and 1974-75. Due to monsoon failure in 1972-73, GDP at constant prices declined by 1.5 per cent, while agricultural production declined by 8.0 per cent in the same year. Food grains production declined by 7.7 per cent in 1972-73. In 1973-74, industrial production also declined by 0.2 per cent. 1973-74 also saw unprecedented inflation, with wholesale prices shooting up by 22.7 per cent. In 1974-75, while GDP growth remained relatively unchanged, agricultural and food grain production declined. This resulted in the wholesale price index rising to 23.1 per cent. India faced such a hyperinflationary crisis in the year before the emergency was imposed.
These economic issues further flared the country’s social and resultant political environment. The Allahabad High Court judgment was the last straw and triggered Mrs Gandhi to impose an emergency to control the opposition and its agitation against her. Mrs Gandhi is hailed for an extremely well-managed situation during an emergency by strictly imposing disciplinary actions and forcing people to work correctly. Some many intellectuals and economists also hail Mrs Gandhi for introducing more liberalisation during an emergency to spruce up the economy.
However, the economic impact of the emergency is not very rosy. In 1976-77, India witnessed an inflation of 16 per cent. The private sector saw extreme stagnation despite the government’s pro-industry policy.
Indian industry was hesitant to invest heavily despite an acquiescent approach. The parallel economy remained strong despite all initiatives of Mrs Gandhi’s Government. Conditions that led to inflation in the early 1970s continued to exist. By August 1977, prices of industrial raw materials had jumped by 50 per cent compared to what it was in March 1976.
According to Ashok Bhargava’s and Gopalan Balachandaran’s research paper published in 1977, the impact of this price rise needed to be fully reflected in the published wholesale price index or the consumer price index when publishing their research paper. They expressed concerns that this price was bound to get passed on and would reflect in both these indices. This inflation would result in a fall in workers’ real standard of living, or the industry and the government would be forced to increase wages. The second alternative would further accelerate inflationary conditions in the country.
Ashok Bhargava and Gopalan Balachandaran summarised the economic impact of emergency in their research paper “In essence the emergency was an instrument to maintain the privilege of the rich industrial and bureaucratic elite. This further accentuated income and wealth inequalities within India and between India and the developed countries.”
