Dr B. R. Ambedkar's Contribution to Indian Economic Thought
The contribution of the brilliant Indian economist deserves greater attention in the mainstream discourse.
Babasaheb Ambedkar is one of the most beloved and dearest sons of India, especially for the people belonging to the marginalised communities. Babasaheb’s contribution as the chief architect of the Indian constitution is widely acknowledged. It is quite disappointing and infuriating that the mainstream discourse which is highly influenced by Brahminism has reduced the identity of Dr B. R. Ambedkar to just a “Dalit leader”. The societal perception of Dr Ambedkar as a “Dalit leader” is a deliberate attempt to invisibilize his great contributions in the field of economics, law, sociology, anthropology, philosophy, history, political science and the list is never-ending. He was an Indian polymath having the professional expertise as a jurist, economist, sociologist, journalist, politician, social reformer and dedicated his entire life to the social, economic and political rights of the marginalized sections of the society - discriminated mainly on the grounds of caste.
After years of sidelining his work, the ideas of Dr B. R. Ambedkar in the fields of political science, human rights, sociology and philosophy are gaining mainstream credibility, at least to some extent. Anti-caste platforms like Round Table India, The Satyashodhak, Velivada, Forward Press etc. do take genuine efforts to amplify the works of Dr B. R. Ambedkar in various fields. Having said that, Ambedkar’s contribution in the field of economics remains underappreciated. This article is a small attempt from my side to preserve the great legacy of Dr B. R. Ambedkar in the field of economics.
Ambedkar started his illustrious career as an economist. He was a trained economist, having the golden opportunity to study economics in some of the finest institutions of the world: Columbia University in the US for the doctorate in economics and the London School of Economics for the degree of Doctor of Science (DSc) which the London School of Economics conferred on him in 1921 for his research in economics. During his time at Columbia University, Ambedkar was influenced and mentored by some of the excellent thinkers of that time such as John Dewey, James Shotwell, Edwin Seligman and James Harvey Robinson. Edwin Seligman was Ambedkar’s mentor of economics and under the guidance of Edwin Seligman, he wrote a dissertation for his PhD on The Evolution of Provincial Finance in British India (published in 1925 by P.S. King and Company, London). Ambedkar’s thesis was critical of the imperial British system and its harmful effect on Indian development. Ambedkar continued to correspond with him even after leaving Columbia University in 1916 and occasionally recommended Indian students to Seligman.
He even explored the economic and social aspects of American development as widely as possible. He took an enormous number of courses ranging from the economics of American railways to American history and audited courses which would not even contribute to his academic credentials. Consequently, when Ambedkar went to the London School of Economics, his mentor and research supervisor Edwin Cannan was an equally eminent economist whose contribution to the history of economic thought is widely recognized. Edwin Cannan even wrote the forward for Ambedkar’s DSc thesis ‘The Problem of Rupee" in which he was full of praises of Ambedkar’s critical analytical abilities. As Edwin observes:
I do not share Mr. Ambedkar’s hostility to the system, nor accept most of his arguments against it and its advocates. But he hits some nails very squarely on the head, and even when I have thought him quite wrong, I have found a stimulating freshness in his views and reasons. An old teacher like myself learns to tolerate the vagaries of originality, even when they resist “severe examination” such as that of which Mr. Ambedkar speaks.
Dr B. R. Ambedkar’s major publications in economics are:
Administration and Finance of the East India Company, (Columbia University, 1915).
The Problem of the Rupee: Its Origin and Its Solution. (P S King and Son Ltd, London 1923).
The Evolution of Provincial Finance in British India, – A Study in the Provincial Decentralisation of Imperial Finance (P S King and Son Ltd, London 1925).
Ambedkar even authored various academic papers like ‘Small Holdings in India and their Remedies’ that reflected his view on economics and political economy. Apart from that, there are his Memoranda and evidence given to various government commissions, speeches in the different legislative bodies, and book reviews which all have some economic content. Let us now explore his contribution to economics in different aspects in a very detailed manner. Some of the topics that I will be discussing in this article are:
Dr Ambedkar, John Maynard Keynes and the Gold Standard
Rupee Devaluation and Currency Management by Government
Agricultural Economics and Land Reforms
Industrialisation and disguised unemployment
Contribution in the field of Public Finance
The Economics of Caste System
Contribution to Indian Labour Laws
Ambedkar on the Knowledge Problem
Contribution in the field of Monetary Economics
Links for Further Reading
Dr Ambedkar, John Maynard Keynes and the Gold Standard
The Gold Standard was a monetary system under which nearly all countries fixed the value of their currencies in terms of a specified amount of gold. As each currency was pegged to some proportion of gold, it helped to determine the value of the currency. For example, if the United States sets the price of gold at $300 an ounce then the value of the dollar would be 1/300th of an ounce of gold. As each currency was fixed in terms of gold, exchange rates between participating currencies of different countries were also fixed.
On the other hand, The Gold Exchange Standard was a global monetary system in which the currency of a country was not independently pegged to the gold bullion. Rather, the currency was pegged to another international, gold-linked currency, such as the British pound or U.S. dollar. The rationale being, if the US dollar is pegged to gold and if your nation’s currency is pegged to the US dollar, then your currency would also be pegged to gold.
The debates on the credibility of the gold standard versus the gold exchange standard were raging during the first half of the 20th century and Ambedkar challenged one of the most influential economists of all times, John Maynard Keynes. Keynes in his book “Indian Currency and Finance” (1913) had favoured the Gold Exchange Standard. He maintained that the Gold Exchange Standard contains an essential element as the ideal standard of the future, whereas Ambedkar vehemently criticized the supporters of the Gold Exchange Standard and argued that Gold Exchange Standard did not have the price stability as that of Gold Standard. Ambedkar supported The Gold Standard and his arguments could be traced back to his “Statement of Evidence to the Royal Commission on Indian Currency.” As Dr Ambedkar writes in his statement:
A pure Gold Standard is stable because the value of gold in circulation is so large and the new additions to the supply are so small that the stability of the standard is not thereby appreciably affected. But in the case of the Exchange Standard the new additions are dependent upon the will of the issuer and can be augmented to such an extent that the stability of the standard can be appreciably affected thereby.
Babasaheb strongly believed Gold Standard would provide some sort of currency stability to developing countries like India and in his thesis ‘The Problem of Rupee’ he provided enough statistical evidence to defend that in the Indian context, prices varied much under the Gold Exchange Standard than under the Classical Gold Standard. Ambedkar even criticized Keynes idea of “economizing of the Gold” and reasoned that economizing of gold raises its supply thereby lowering its value and as a depreciating commodity, it then becomes unfit to that extent to function as a standard of value. He puts forward the idea that the plan of currency to be sound must be both economical and secure and questions if the Gold Exchange Standard would be secure or not.
Even though Dr Ambedkar supported Gold Standard over Gold Exchange Standard, he considered that the choice should not be limited to Gold Standard and Gold Exchange Standard. As he describes:
The choice therefore can never be between a Gold Standard and an Exchange Standard. If we do not want a Gold Standard we must either go over to a Compensating Standard of Prof. Fisher or to a Tabular Standard of Prof. Jevons. The choice is really between either of them and the Gold Standard. There is no doubt that the Compensating Standard or the Tabular Standard would be better than a Gold Standard. But mankind must become more philosophical than it is before they can be made workable, and until that happens I think the Gold Standard must be accepted as the only system of currency that is " knave proof " and "fool proof."
Dr Ambedkar also provides recommendations for the Indian currency reforms. Following are his recommendations:
Stop the coinage of rupees by absolutely closing the mints to the Government as they are to the public.
Open a gold mint for the coinage of a suitable gold coin.
Fix a ratio between the gold coin and the rupee.
Rupee not to be convertible in gold and gold not to be convertible in rupees, but both to circulate as unlimited legal tender at the ratio fixed by law.
Rupee Devaluation and Currency Management by Government
We have been living in a very unfortunate era where central banks have been recklessly printing money over the last few decades which has resulted in deflating the purchasing power of people, ever-increasing debts, the rising cost of living and increasing wealth inequality. The monetary inflation triggered by the central banks’ balance sheet expansion and increase of broad money supply has ultimately resulted in the depreciation of the most currencies on the planet. Dr Ambedkar strongly believed that a “depreciating commodity” can never be a good standard of value because it loses value over time.
Furthermore, in the present era, there are so many economists and policy experts who are the proponents of the devaluation of the currency in order to realise short term economic growth. Dr Ambedkar had highlighted the dangers of large scale currency devaluation. As he writes in his statement:
As regards the effects of a rising and falling rupee on trade and industry the point often sought to be made is that low exchange confers a bounty on trade and industry. But this is not the important point. The more important point is, supposing that there is a gain arising from low exchange, whence does this gain arise? It is held out by most business men that it is a gain to the export trade and so many people have blindly believed in it that it must be said to have become an article of faith common to all that a low exchange is a source of gain to the nation as a whole. Now if it is realised that low exchange means high internal prices, it will at once become clear that this gain is not a gain to the nation coming from outside, but is a gain from one class at the cost of another class in the country. Now the class that suffers is the poor labouring class, which pays the bounty to the richer or the business class. Such a transference of wealth from the poor to the rich can never be in the general interest of the country. I am therefore strongly opposed to high prices and low exchange, and no righteous Government should be party to such clandestine picking of the pockets of the poorer classes in the country.
It is quite evident from Ambedkar’s statement that he favoured price stability over exchange rate stability. Surprisingly, Ambedkar was also of the opinion that currency management by the government is irresponsible and riskier than the management by the private banks. As he writes:
Besides a managed currency is to be altogether avoided when the management is to be in the hands of the Government. When the management is by a bank there is less chance of mismanagement. For the penalty for imprudent issue, or mismanagement is visited by disaster directly upon the property of the issuer. But the chance of mismanagement is greater when it is issued by Government because the issue of government money is authorised and conducted by men who are never under any present responsibility for private loss in case of bad judgement or mismanagement.
The current global monetary system is completely different from the monetary system to which Ambedkar had recommended currency reforms. Yet the significance of his arguments and suggestions have endured through time.
Agricultural Economics and Land Reforms
Babasaheb had studied Indian Agriculture thoroughly, understood the existing problems of land distribution, wrote research articles, organised seminars and conferences in order to address the problems of Indian agriculture, farmers and scattered land holdings. Ambedkar’s contribution to agricultural economics and his thoughts on land reforms can be found in his seminal research paper “Small Holdings in India and Their Remedies.”
In colonial India, the British administrators and academic experts who were used to their own country where large agricultural landholdings were the usual norm were dismayed at the low productivity of Indian agricultural land. In 1917, a committee was formed to make proposals on the consolidation of small and scattered holdings in the Baroda state. The committee gave a suggestion to consolidate or enlarge the holdings which can be cultivated by an individual farmer under administrative measures. Dr Ambedkar critically examined the committee report and arrived at some important conclusions. Let’s see.
Dr Ambedkar acknowledged the “evils” of the small and scattered holdings to Indian agriculture. As he describes in his paper:
Though (land) fragmentation does subserve the ends of distributive justice it renders farming in India considerably inefficient as it once did in Europe. It involves waste of labour and cattle power, waste in hedges and boundary marks, and waste of manure. It renders impracticable the watching of crops, sinking of wells and the use of labour-saving implements. It makes difficult changes in cultivation, the making of roads, water channels, etc., and it increases the cost of production.
He seems to also agree with the proposal of the Baroda committee of land consolidation as he mentions:
The evils of fragmentation are very great and must be met by a comprehensive scheme of consolidation. It is, therefore, advocated that if two-thirds of the Khatedars, dealing more than half of the village lands, apply, Government, should undertake compulsorily to restrip the scattered fields of the village. This compulsory restripping is to be executed on two principles, (1) of "Economic Unit" and (2) of "Original Ownership."
But he argued that there are plenty of problems with the consolidation of these scattered lands. He argued, how is the administrative system going to unite such small and scattered holdings as the existing ones and secondly, he questioned what could be the ideal size of the land holding to increase the land productivity. He emphasized the combination of all factors of production in ensuring efficient farm productivity. Babasaheb argued that land is only one of the many factors of production (the other factors are labour, capital and in some cases entrepreneurship too) and the productivity of specific agricultural land is dependent not only on the land size but also on the other factors of production such as labour and capital.
He proceeds to say that small landholding or large landholding has got little to do with agricultural productivity or economic efficiency. In his own words:
If agriculture is to be treated as an economic enterprise, then, by itself, there could be no such thing as a large or a small holding. To a farmer, a holding is too small or too large for the other factors of production at his disposal necessary for carrying on the cultivation of his holding as an economic enterprise. Mere size of land is empty of all economic connotation. Consequently, it cannot possibly be the language of economic science to say that a large holding is economic while a smallholding is uneconomic. It is the right or wrong proportion of other factors of production to a unit of land that renders the latter economic or uneconomic. Thus a small farm may be economic as well as a large farm; for, economic or uneconomic does not depend upon the size of land but upon the due proportion among all the factors including land.
Ambedkar also highlighted the inadequacy of other factors of production, mainly capital which is needed for acquiring “agricultural stock and implements”. Capital and capital goods arise from savings but he argues that saving is only possible where there is surplus is commonplace of political economy. Babasaheb continues to argue that India suffers from a bad social economy and the evil of the mal-adjustment in her social economy is responsible for the ills of Indian agriculture. The bad social economy has led to a deficit economy and he argues, if there are no surpluses then there is no capital available and the lack of capital (and capital goods) leads to low overall agricultural productivity.
To summarize his arguments, the enlargement of landholding does not necessarily make it economically efficient and the artificial attempts of increasing the holding can result in serious social problems. Even a small holding can be made productive and economically efficient with the proper utilisation and combination of labour and capital. In a country like India which suffers from a bad social economy the enlargement of holdings, as well as land consolidation, is impossible and any attempts for it can lead to legal and social problems. Dr Ambedkar concludes that insufficient mobile capital, surplus labour and deficient irrigation are the crucial factors for less agricultural productivity in India.
However, in his book “States and Minorities”, Ambedkar proposes the nationalization of agriculture and insurance industries and asserts that “agriculture shall be a state industry.” As he describes:
That State shall acquire the subsisting rights in such industries, insurance and agricultural land held by private individuals, whether us owners, tenants or mortgagees and pay them compensation in the form of debenture equal to the value of his or her right in the land.
Ambedkar argues that the state should make ensure the availability of capital and without the supply of capital by the State neither land nor industry can be made to yield better results. He recommended that the Indian agriculture sector should be based upon collective farming where the State should divide the acquired land into farms of standard size and let out the farms for cultivation to residents of the village as tenants (made up of a group of families) to cultivate. He argued that cooperative or collective farming can solve many of the ills of Indian agriculture.
Industrialisation and disguised unemployment
Babasaheb Ambedkar also highlighted that India has an abundant supply of labour that is mostly idle. This idle labour supply leads to widespread disguised unemployment and hurts agricultural productivity. He recommended that state-controlled cooperative farming and industrialization has a huge potential for the rapid economic development of India and helps to solve the problem of surplus labour as it reduces the burden over the agricultural sector by shifting the surplus idle labour from agriculture to the manufacturing sector. Consequently, the increased mobility of the manufacturing sector could possibly lead to more capital intensive agricultural tools thereby leading to increased productivity of the Indian agricultural sector. Ambedkar describes his ideas in his paper as:
If we succeed in sponging off this labour in non-agricultural channels of production we will at one stroke lessen the pressure and destroy the premium that at present weighs heavily on land in India. Besides, this labour when productively employed will cease to live by predation as it does today, and will not only earn its keep but will give us surplus: and more surplus is more capital. In short, strange though it may seem, industrialization of India is the soundest remedy for the agricultural problems of India. The cumulative effects of industrialization, namely, a lessening pressure and an increasing amount of capital and capital goods will forcibly create the economic necessity of enlarging the holding. Not only this, but industrialization by destroying the premium on land will give rise to few occasions for its sub-division and fragmentation. Industrialization is a natural and powerful remedy and is to be preferred to such ill-conceived projects as we have considered above. By legislation we will get a sham economic holding at the cost of many social ills. But by industrialization a large economic holding will force itself upon us as a pure gain.
Ambedkar quotes a statistical study that shows how industrialisation improved the efficiency of American agriculture. He summarizes his observation as follows:
While other countries like the U.S.A. starting as agricultural are progressively becoming industrial, India has been gradually undergoing the woeful process of de-urbanization and swelling the volume of her rural population beyond all needs. The earlier we stem this ominous tide, the better. For notwithstanding what interested persons might say no truer and more wholesome words of caution were ever uttered regarding our national economy than those by Sir Henry Cotton when he said " There is danger of too much agriculture in India."
It is quite interesting to note that the Nobel Prize-winning economist Arthur Lewis in his 1954 paper “Economic Development with Unlimited Supplies of Labour” formulated a dual economy model or the Lewis Model in which he postulated that shifting the idle labour from one sector (subsistence sector) to other productive sectors could potentially contribute to the progress of a nation - this is something similar that Dr Ambedkar had already proposed as a solution for the idle labour for the Indian agriculture sector in 1918!
Contribution in the field of Public Finance
Another academic discipline where Dr Ambedkar’s had contributed is Public Finance. His PhD dissertation The Evolution of Provincial Finance in British India (P S King and Son Ltd, London 1925) and Master of Arts dissertation Administration and Finance of the East India Company (Columbia University, 1915) documents his major contribution to the history of Indian public finance. In ‘The Evolution of Provincial Finance in British India’ he examines the Centre-province financial relationship in British India during the period 1833 to 1921 and his Master’s thesis ‘Administration and Finance of the East India Company’ highlights the various administrative rules of the East India Company and analyses its economic structure, particularly various systems of taxation designed by the Company.
The conclusions that Babasaheb arrived at are probably even more relevant today than it was at the time he wrote his dissertation. Ambedkar believes that the expanded role of government requires larger revenue collection from taxation but he argues that in a poor country like India, there are certain obvious limits to extent of taxation. As a result, the problem of equitable distribution of burden among various forms of governments such as central government or provinces etc assumes significance. Ambedkar extensively highlights the problem of centralization of government finances which prevailed in India from 1833 to 1871. This period was a failure on account of a flawed fiscal system coupled with injurious taxes and unproductive, unsustainable or extravagant expenditure.
He questioned what arrangements can be made in a public fiscal system that will enable it to be "administratively workable"? He emphasized that the administrative departments should find their own resources to fund their expenditures. As he describes:
To make administrative polities independent by requiring them to finance themselves entirely out of their own respective resources without having to depend upon one another must always be regarded as a very important end to be kept in view in devising a new financial arrangement.
Though he heavily stresses that administrative departments should be financially independent but he also acknowledges that the idea of every administration finding its own sources of revenues might not always be realized and thus, sometimes politics can be made mutually dependent on the matters of public finance that could possibly furnish a basis for cooperation and strength. Any system of distribution of the different sources of revenue is bound to have some disadvantages due to the existence of several concurrent or overlapping tax jurisdictions and therefore he argues that the distribution of the sources of revenue must “not only be governed by considerations of adequacy but must also be governed by considerations of suitability.”
Babasaheb was also concerned with the efficiency of various tax jurisdictions as a means to earn revenues for the government. He observes by quoting Prof. Seligman:
(taxation) is naturally of vital importance. No matter how well intentioned a scheme may be, or how completely it may harmonize with the abstract principles of justice, if the tax does not work administratively it is doomed to failure.
Dr Ambedkar then briefly described the evolution of provincial finance in the 19th century. The Indian fiscal system of this period was defective as the imperial government was the lawmaker but did not administer the country whereas the provincial government who administered the country did not have the power to make the laws. The provincial government used to design the budgets and the imperial government had the right to finance these budgets - this resulted in the provincial government not having any power to raise its own funds and to create appointments in services. This dichotomic structure of government had serious consequences on government finances as it led to extravagant demands by the Imperial government and since the government of India did not possess any proper machinery to satisfy these demands and to control the expenditure, it often needed to yield.
Inevitably, government finances came under severe strain and it was realised that the provincial governments must draw up their own revenue and expenditure budgets. Accordingly, the regime of 'provincial budgets' came into force in 1871. The evolution of provincial finance and decentralization of public finance started around1871-1877 era. As Dr Ambedkar observes:
During that period of financial decentralization Provincial figures did not appear in the Imperial Budget. The Provincial Budget as framed by the Accountant General was passed by the Provincial Government and no more reference was required to the Government of India except to inform it that the estimate was a probable one and that it was within the limits of the revenues assigned to the Province. It is therefore obvious that there could not have been any constitutional objection to the granting of the demand for a separation of accounts.
Babasaheb summarizes the evolution of provincial finance as:
From 1871-1877: The system of “Budget by Assignment.”
From 1878-1882: The system of “Budget by Assigned Revenues.”
From 1883-1921: The system of “Budget by Shared Revenues.”
It is obvious to wonder if this contribution to public finance is relevant in today‟s context or not. Firstly, it was a piece of pioneering work and as his mentor, Prof. Seligman wrote in Dr Ambedkar’s book forward that Ambedkar’s analysis provides "the objective recitation of the facts and impartial analysis" of the Centre-State financial relations in British India, which has a great historical significance. His analysis also provides a groundwork assessment on which the rest of the Centre-State financial relationships exist in modern India. Seligman expresses that “nowhere to my knowledge, has such a detailed study of underlying principles been made". The set of principles laid by Ambedkar have been the instrumental guiding element behind the reports of successive Finance Commissions in independent India.
The Economics of Caste System
The Jat-Pat-Todak Mandal was founded in Lahore in 1922, as an offshoot of the “anti-caste wing” of the Arya Samaj. Except for their so-called “opposition to caste”, they did not differ greatly from Arya Samaj's position on most issues. In 1936, they invited Dr Ambedkar to deliver its annual lecture. They wanted a copy of his speech in advance, and when Ambedkar shared it with them, the organisers found the content objectionable and problematic to brahminical interests and they insisted on the deletion of large sections of the speech. Ambedkar refused and independently published the speech under the title “Annihilation of Caste. ”
In his book, Dr Ambedkar explains how the caste system in India is a major obstacle to economic growth and development. He describes how the caste system in India results in the bifurcation of ‘Division of labour’ and ‘Division of labourers.” He supported the division of labour as a tool of modern civilization. As he writes in Annihilation of Caste:
Civilized society undoubtedly needs division of labour…….This division of labour is not spontaneous, it is not based on natural aptitudes. Social and individual efficiency requires us to develop the capacity of an individual to the point of competency to choose and to make his own career.
But Dr Ambedkar argues that the Indian Caste System contradicts the originality of the ‘Division of labour.’ He argues that the division of labour brought by the Caste System is not a division based on individual abilities, capacities, sentiments and preferences, rather it is dependent upon the social status of the parents. He describes:
The first thing that is to be urged against this view is that the Caste System is not merely a division of labour. It is also a division of labourers. Civilized society undoubtedly needs division of labour. But in no civilized society is division of labour accompanied by this unnatural division of labourers into watertight compartments. The Caste System is not merely a division of labourers which is quite different from the division of labour—it is a hierarchy in which the divisions of labourers are graded one above the other. In no other country is the division of labour accompanied by this gradation of labourers.
Ambedkar then proceeds to describe how the Indian Caste System acts as a barrier to the broader economic development of the country as the caste hierarchical society essentially leads to capital and labour immobility. In a casteist society, even if an upper-caste individual is incompetent enough for a profession, he would still be reluctant to take up a profession of a caste lower than his own. On the other hand, if a casteless or a person from a lower caste is proficient, competent, talented and deserving enough for a particular job, even then the existing casteist institutional framework will lead to his/her/their exclusion. Ambedkar argues the stratification of occupations based on caste is the inherent feature of caste hierarchal society. In Annihilation of Caste, Ambedkar describes how the labour immobility produced by the Indian caste system leads to unemployment:
Industry is never static. It undergoes rapid and abrupt changes. With such changes, an individual must be free to change his occupation. Without such freedom to adjust himself to changing circumstances, it would be impossible for him to gain his livelihood. Now the Caste System will not allow Hindus to take to occupations where they are wanted, if they do not belong to them by heredity. If a Hindu is seen to starve rather than take to new occupations not assigned to his Caste, the reason is to be found in the Caste System. By not permitting readjustment of occupations, Caste becomes a direct cause of much of the unemployment we see in the country.
Along with labour immobility, the caste system is also responsible for the immobility of capital because occupation is inherited from the caste. An individual entrepreneur has to invest his capital into his own occupation which is predetermined by heredity. The immobility of capital, in turn, hinders optimal utilisation of scarce resources. Thus, the capital and labour immobility paves the way to inefficiencies in production and thus hampering economic growth. Henceforth, he calls for the essence of continuous changes in socio-economic patterns for broader economic development.
It can also be observed that an efficient free-market economic system is impossible in India as long as the element of caste hierarchy exists. In a society where the capital is mostly held by the upper-castes or where there are institutional barriers to capital accessibility and mobility, there will continue to exist less representation of Bahujans in the entrepreneurial class.
Contribution to Indian Labour Laws
As Babasaheb progressed through his illustrious career, he shifted his focus from monetary economics to labour economics. He has brought several labour reforms during his time. In 1936, he formed Independent Labour Party (ILP) with a comprehensive programme to meet the needs and grievances of the landless, poor tenants, agriculturists, and workers. Dr Ambedkar was Labour Minister in "Viceroy's Executive Council" from 1942 and 1946 and he laid out the basic foundation of workers' rights and social security to the vulnerable sections of the society. His contribution can be summarized in the following points:
India legalised 8 hours working day with the 1946 Amendment to the Factories Act of 1934 – a result of the Bill introduced by Dr Babasaheb Ambedkar.
He was instrumental in bringing the establishment of employment exchanges and proposed to collect the labour statistical data under Industrial Statistics Act in order to have uniformity in the method of compilation and to improve their utility for purposes of comparison as between provinces in India and with other countries.
Dr Ambedkar framed the amendment of the Trade Union Act of 1926 where he put forward the recognition of trade unions by the employers.
Subsequently, on November 8, 1943, Ambedkar introduced The Indian Trade Union (Amendment) Bill that compelled an employer to recognize trade unions.
India was one of the first nations to think about employer insurance and its credit goes to the visionary of Dr Ambedkar. In 1944, he enacted a bill known as, "Coal Mines Safety (Stowing) Amendment Bill " which ensured the safety of the employees working in the coal mines.
In 1946, he introduced Mica Mines Labour Welfare Fund Bill that led to Mica Mines Labour Fund which aimed at helping the employees in coal mines to get Education, water, housing, transportation, entertainment, medical services and better sanitation.
On September 17, 1937, during the Poona session of the Bombay Assembly, he introduced a bill to abolish the Khoti system of land tenure in Konkan.
He opposed the introduction of the Industrial Disputes Bill, 1937 because it removed the workers’ right to strike and had many anti-labour clauses.
Through the Mines Maternity Benefit (Amendment) Bill 1943, he ensured that a woman working in the mine is entitled to maternity benefits.
As a labour minister, Ambedkar’s contribution was not just limited to these above measures as he addressed many labour conferences, organised labour movements and introduced many other important bills such as The War Injuries (Compensation Insurance) Bill (1943), Employees State Insurance Act, 1948 and so on.
Ambedkar on the Knowledge Problem
The immense level of information and knowledge scattered in different parts of society is very crucial to outline sound economic and social policies. The world is full of academic debates arguing whether the allocation of scarce resources should be done by a centralized entity of experts or in a decentralized way by people or local governments. Babasaheb had an interesting perspective and he argues in The Evolution of Provincial Finances in British India that the centralized system of administration did not possess enough information and knowledge to plan for the whole economy. He asserted that the governments at the lowest administrative level should have full autonomy and power to take independent decisions on matters prevailing in the different Provinces under it.
Centralization of power leads to gross inefficiency and unproductive allocation of scarce resources, as Babasaheb writes:
By centralization all progress tends to be retarded, all initiative liable to be checked and the sense of responsibility of Local Authorities greatly impaired. Besides, centralization involves and must involve a serious sacrifice of elasticity, for it is naturally disagreeable to a central department to have to deal with half a dozen different ways of managing the same branch of administration, and which therefore aims at reducing all types to one.
India is a diverse country consisting of people belonging to different religions, castes, tribes, races, linguistic identities, having different cultural beliefs and so on thus, it is extremely difficult for a centralized authority to possess the fair level of knowledge and information to allocate resources to the entire nation. As he describes:
In such circumstances there must come a point at which the higher authority must be less competent than the lower, because it cannot by any possibility possess the requisite knowledge of all local conditions. It was therefore obvious that a Central Government for the whole of India could not be said to possess knowledge and experience of all various conditions prevailing in the different Provinces under it.
Babasaheb highlighted the knowledge problem of centralized administration nearly 20 years before Nobel prize-winning economist Friedrich Hayek did in his 1945 famous paper titled, “The Use of Knowledge in Society".
Contribution in the field of Monetary Economics
Dr Ambedkar’s contribution to monetary economics is evident from his DSc thesis “The Problem of Rupee: Its Origin and Solution” and his subsequent statement and evidence before the Royal Commission on Indian Currency and Finance. It is important to note that Ambedkar’s thesis was a guiding tool for the RBI Act of 1934 which led to the establishment of the Reserve Bank of India.
In this thesis, Babasaheb describes the evolution of Indian currency in terms of its form as a medium of exchange and progression of various monetary standards in the 19th century. Unlike the economic literature existing then, Ambedkar goes into the most neglected period of Indian currency extending from 1800 to 1893. He demonstrates the currency crisis prevalent till the 1920s and offers solutions to deal with the instability of the rupee and concerned inflation in India. In the first three chapters of the book, he analyzed how Indian Rupee evolved from a double standard to a silver standard and in subsequent chapters, he discusses how the evils of instability concerned with these monetary systems led the Indian rupee towards a gold standard eventually towards gold exchange standard.
For the readers who are not aware of these monetary systems, let me define them for you.
Double Standard, also known as Bimetallic Standard is a monetary system in which monetary unit (say Rupee) and various types of nation’s currency are kept at a constant value in terms of gold and also in terms of silver. Under bimetallism or Double Standard two metallic standards operate simultaneously.
Silver Standard is a monetary system in which the monetary unit of account is defined in terms of silver. The standard coins are made of silver and are of a fixed weight and fineness in terms of silver. When India was on the Silver Standard, the coinage of the Rupee was free and people could get their silver converted into coins at the mint.
The Classical Gold Standard is a monetary system in which the value of the monetary unit of account is expressed in terms of gold. The standard coins possess a fixed weight and fineness of gold. The Gold Standard is one of the most popular and widely used metallic monetary standards of all time.
In a Gold Convertible Standard, paper money is also issued in addition to gold coins and it can easily be redeemable back to gold. Paper money and gold coins are both accepted as suitable medium of exchange.
However, in Gold Exchange Standard, paper money is only accepted as a medium of exchange and your currency is not directly tied to gold.
He demonstrates how the Indian monetary and banking system was at its peak during the Mughal empire and the Indian medium of exchange and monetary standard were considered supreme. In his own words:
At the close of the Moghul Empire, India, judged by the standards of the time, was economically an advanced country. Her trade was large, her banking institutions were well developed, and credit played an appreciable part in her transactions. But a medium of exchange and a common standard of value were among others the most supreme desiderata in the economy of the Indian people.
Ambedkar describes that Indian Monetary System consisted mostly of gold and silver before it came under the sway of the British. Under the Hindu emperors, the emphasis was laid on gold, while under the Mughals, silver formed a large part of the circulating medium and since the time of Akbar, the founder of the economic system of the Moghul Empire in India, “the units of currency had been the gold mohur and the silver rupee. Both coins, the mohur and the rupee were identical in weight.”
For a large period of time, India’s monetary system was bimetallic - comprising both gold and silver coins. The territories which were not under the influence of Mughals still had gold coins in circulation. As Ambedkar describes in ‘The Problem of Rupee’:
In Southern India, to which part the influence of the Moghuls had not extended, silver as a part of the currency system was quite unknown. The pagoda, the gold coin of the ancient Hindu kings, was the standard of value and also the medium of exchange, and continued to be so till the time of the East India Company.
The coins were issued from various mints even in the most distant part of the Mughal empire but the most impressive thing, not even a single mint deviated from the standard weight of 175 grs. troy. Ambedkar formulated the following table that shows how the coinage during the Mughal empire adhered to the standard weight of 175 grs. pure.
But with the disruption of the Mughal Empire into separate kingdoms, branches of mint became independent factories for purpose of coinage. As a result, the country was flooded with hundreds of varieties of coins made of either gold or silver and India did not have a uniform standard of currency for a very long time until the British government enacted the Currency Act of 1835. According to Ambedkar, the Currency Act of 1835 is one of the most historical monetary reforms in Indian history. It abrogated the bimetallic or Double Standard system and placed India on a silver monometallic basis, with a rupee weighing 180 grs. troy. The Indian currency was on the silver standard which essentially means the value of the Indian Rupee was based on the value of the silver content in it. This silver standard lasted until 1893.
However, in 1841, a proclamation was issued which made gold coins a legal tender at the rate of 1 gold mohur equal to 15 silver rupees. Subsequently, when the gold reserves were discovered in California and Australia, it boomed the supply of gold. Basic economics tells us that when supply increases with the same level of demand, it leads to a decrease in price and that’s what happened as the price of gold fell sharply. The decreasing value of gold made it cheaper for the public to pay in gold rather than silver and costlier for the government as the gold flowed into government treasuries. Therefore in 1852, the government banned gold as a medium of exchange.
Interestingly, silver production increased threefold from 1870 to 1893. The increasing supply of silver devalued the Indian currency and thus the price of the rupee fell sharply in terms of gold. In 1893, the government stopped coining silver rupees though agreed to coin rupees in exchange for gold at a ratio of one pound four pence per rupee. The government passed The Act (VIII) of 1893 which closed the coinage of silver. The overall idea was to take the first steps towards the eventual introduction of the gold standard and to link India with the gold standard countries immediately.
In the subsequent years, India was “arguably” on the gold standard for a very short period of time as the Indian mints were thrown open to issue gold coins. Many events took place in the late 1890s and early 1900s and subsequently, the gold exchange standard was established. Now, the silver rupee was guaranteed convertibility into sterling pounds (based on gold value) at a fixed price and made available without any limit. Ambedkar argued that the accumulated gold reserves in India, instead of supporting a gold standard with gold currency in India, were kept in London to maintain the stability of the rate of exchange. Throughout his book, Ambedkar insisted on the importance of the Gold Standard in India as it ensured internal price stability whereas most economists backed the Gold Exchange Standard which ensured exchange rate stability. As Ambedkar describes the ills of the Exchange Standard as:
(Promotion of the Gold Exchange Standard) displays not only a lamentable ignorance of a fundamental principle of currency, but also to show a complete failure to understand the precise source from which the whole trouble arises.
The Problem of Rupee is one of the finest books on Indian currency, monetary history and monetary economics and I don’t think so anyone had even made such in-depth analysis prior to Dr Ambedkar. Babasaheb defended his arguments with the help of extensive charts and statistics. It is equally important to realize that the context in which these monetary and currency-related reforms were suggested by Ambedkar has completely changed. Today, The Indian economy has an altogether different institutional monetary framework. However, the basic message of Ambedkar has remained immortal.
In the present economic context where governments around the world are engaged in fiscal irregularity, unchecked government expenditure, unbridled growth of government deficits and their automatic monetization, the requirement for a successful limitation on liquidity creation is as important and relevant today as it was then. Babasaheb was a genius and I truly hope his contribution in the field of monetary economics is widely recognized.
Conclusion
Dr B. R. Ambedkar was highly qualified and trained in economics from some of the top universities of the world. I understand the reason why Babasaheb’s contribution to Indian economic thought is not discussed much as he has made an even greater contribution in other disciplines of humanity. His contribution was not just limited to academic literature but in fact, he fought for the upliftment of oppressed classes marginalized by the Indian society for centuries. It is interesting to know that Babasaheb’s work also gives the earliest reference to some economic theories which later got developed by other Nobel Prize-winning economists such as Arthur Lewis’ ‘Dual Sector Model’ which makes Dr Ambedkar one of the economists ways ahead of his times.
References and Further Reading:
The Problem of Rupee: Its Origin and Its Solution by Dr B. R. Ambedkar
States and Minorites by Dr B. R. Ambedkar
The Evolution of Provincial Finance in British India by Dr B. R. Ambedkar
Small Holdings in India and Their Remedies by Dr B. R. Ambedkar
Administration and Finance of the East India company by Dr B. R. Ambedkar
Statement of Evidence to the Royal Commission on Indian Currency
Ambedkar's Contributions to Indian Economics by S. Ambirajan
Ambedkar’s Economic Ideas and Contribution by Sunil Kumar
Dr B. R. Ambedkar and His Economic Thought by Bhuse Basavaraj Fattesinh
Neglected Economic Thought of Babasaheb Ambedkar by Narendra Jadhav
Dr Ambedkar and America by Prof. Eleanor Zelliot
May Day: 12-hour working day notifications by Jane Cox
On Ambedkar's Master's Thesis: Revisiting "Administration and Finance of the East India Company" by Nadimul Islam
Ambedkar and Division of Labour by Columbia University
Dr Babasaheb Ambedkar death anniversary: Here's a look at some of his major contributions to labour welfare by Ratnesh Kumar Gautam
The cover image of this article is illustrated by Siddhesh Gautam, famously known as “BakeryPrasad.” You can check out his amazing work here.