It would be harsh to judge the past from the lens of the present. Hindsight is always perfect vision.
India, immediately after independence, woke up to with a hangover of 200 years of being beaten down by capitalism and imperialism. It was only natural that the political leaders of that time was sceptical of the capitalist economic system that produced “men who were stronger than the kings of yore”. It was this scepticism that prompted the Indian government to reserve for itself the key industries that would need to be developed.
Another factor at play was the severe lack of capital that stared us at the time. The nation simply lacked the capital that was needed in the much required infrastructure, welfare and educational sectors. The only entity that could afford to invest in these areas was the government. Since the need of the hour demanded such an expansionary state policy, the Indian State stepped up.
India also had the example of the Soviet Union. At the time, the communist State projected only its best image to the outside world. The world was yet to see the iron curtain that was drawn before its internal structure. What Nehru and Mahalanobis who visited these countries was a people well fed and industry well thriving. Little did they know that they saw only what the Soviets wanted them to see. At the time, it was a miracle that a state that practiced and preached equality and equal opportunity to everyone could be as great as a capitalist country where greed is the primary driver rather than collectivity. Indian leaders wanted India to be such a land.
Leaving aside the background for such a decision, we must also look at the benefits of having adopted such a policy. Much of the investment that went into the capital goods and infrastructure sector in those days is what propelled the Indian growth in its second phase. The Bank Nationalisation mobilised rural credit which was scarce until then and helped mitigate rural distress like never before. The self sufficiency that India boasts in many of the keys sectors like Atomic Energy, Defense and Space is thanks to the State capacity that was built during those years. Even today the Education sector in India has not yet dared to think beyond IIT’s and IIM’s (of course let us leave IIPM aside).
Hundreds of famines ravished Indian countryside until 1947. Not a single famine happened in India post Indian independence. It was because of a strong state that intervened effectively in the market. Look at the Economic Depression of late 2000’s. India fared well because of its solid regulatory mechanisms that were in place.
It is often said that any great warrior is made not at the battlefield but at the training ground. There he lays low and builds his skill, unknown and booed at. He goes to war one day, and people say that he should have gone to battle from day one and wouldn’t have missed out on all those inglorious years. Who got it right there? The critics? Or the warrior? You tell me.