The life and times of ‘National Income Rao’
PremiumV.K.R.V. Rao laid our foundation for measuring national income and helped set up enduring institutions
In one of the early meetings of the Planning Commission chaired by India’s first Prime Minister Jawaharlal Nehru, P.C. Mahalanobis, the statistical advisor to the Union cabinet, mentioned that he had invited three distinguished economists to advise the newly set up National Income Committee. Mahalanobis had barely mentioned their names—Simon Kuznets, Richard Stone and J.B.D. Derkson—when Nehru asked, “What about Rao?" A commission member asked, “Which Rao?" Nehru responded, “What do you mean ‘which Rao?’ National Income Rao, of course!"
K.S. Krishnaswamy, who worked at the economic division of the commission, and went on to become deputy governor at the Reserve Bank of India, narrated this tale in his 2001 essay on the contributions of Vijayendra Kasturi Ranga Varadaraja Rao. Nehru had obviously forgotten that Rao was one of the three members of the committee, Krishnaswamy remarked in a footnote. So the question of Rao advising his own committee did not arise. But the conversation highlights how it was impossible to talk about India’s national income without mentioning Rao’s name, Krishnaswamy wrote.
The quest to estimate India’s national income and ‘taxable capacity’ was a common preoccupation of nationalist intellectuals, starting from Dadabhai Naoroji, whose early estimates suggested that India was being taxed beyond what it could afford to pay. Later estimates by K.T. Shah and K.J. Khambatta arrived at similar conclusions, while F.J. Atkinson suggested that Naoroji’s estimates of national income were too low. These early estimates were all suspect because of data gaps and methodological flaws.
It was left to Rao to come up with the most rigorous estimates of national income while pursuing his PhD at Cambridge University in the 1930s. Rao’s intervention helped settle the debate and showed that the per capita income of British India in 1931-32 was a paltry ₹62. His analysis suggested that while Naoroji may have underestimated India’s national income, Atkinson overestimated it.
In a series of radio lectures (later published as a book, What’s Wrong with Indian Economic Life), Rao explained how most Indians were earning too little to afford a decent meal or other necessities of life. Rao advocated the pursuit of growth to eradicate poverty, and his Keynesian prescriptions brought him close to nationalist leaders.
The methods Rao employed to derive India’s national income in his doctoral dissertation continued to influence the calculations of India’s official gross domestic product (GDP) more than half a century later, national income expert Uma Dutta Roy Choudhury wrote in The Partial Memoirs of VKRV Rao. As a member of the National Income Committee, Rao helped generate the first tentative estimates for independent India’s national income. Without these, India’s planning process could not have taken shape.
More importantly, the committee identified the gaps in India’s data collection apparatus, and made recommendations on ways to fill them. Its three members—Mahalanobis, Rao and D.R. Gadgil—did not agree on everything. But they all agreed on the need for more research and investments in India’s statistical machinery. Rao took the lead in setting up the official research platform, the Indian Association for Research in National Income and Wealth.
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Rao believed that the purpose of economics was to solve practical policy questions, and hence emphasized quantitative skills. One of the early courses that he introduced in the Delhi School of Economics (DSE)—which he founded soon after India’s independence—was a diploma course on economic statistics. Despite this emphasis, he also wanted economists to build bridges with other social sciences.
Rao was a disciplined thinker, and cautioned against blindly applying Keynesian deficit financing ideas in India. The standard Keynesian prescription to boost an economy with unemployed resources is higher government spending. Rao argued that such demand-management policies may not always work in an under-developed economy with supply-side rigidities. Instead of raising output, excessive fiscal stimulus could push up prices, he warned.
Rao’s work on economic statistics was equally careful, with clear acknowledgment of the limitations. The National Income Committee’s report even provided error margins for sectoral estimates. Modern-day statisticians have much to learn from the transparency and scientific temperament exhibited by India’s statistical pioneers.
Born into penury, Rao went far, becoming a member of the Planning Commission and later a cabinet minister under Indira Gandhi. He was a rare economist who won Lok Sabha elections twice. Rao’s command over myths may have had more to do with his electoral success than his command over facts. Rao was able to regale his constituents in Bellary by drawing analogies between contemporary politics and tales from the Mahabharata, according to his ‘partial memoirs’.
Rao’s enduring legacies are the ideas and institutions he left behind. He will always be remembered as the father of national income accounting in India. He set up three outstanding institutions—the DSE, Institute for Economic Growth and Institute for Social and Economic Change—and was also instrumental in setting up the Indian Council of Social Science Research.
This is the third of a five-part series on the founders of India’s statistical system.
Pramit Bhattacharya is a Chennai-based journalist. His Twitter handle is pramit_b
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