Gandhian Economics: Ideas, Misconceptions and Evidence

Proclaimed as the Father of India, Mahatma Gandhi’s contributions are taught widely and highlighted as a key element in the making of the nation. However, what often gets sidelined are the principles, philosophy, and instructions Gandhi tried to disseminate to the independent Indian economy, which collectively are also known as Gandhian economics. In the current world, riddled with income inequality and widespread oligopolistic economies, India grapples exhaustingly with the aims of maximizing capital and increasing GDP. Western Capitalism and increasing privatization, inching towards a more liberal economy is preferred over re-examining the notion that endless profit-making is only helping make the richer rich, and the reality that trickle-down economics is not producing sufficient results as promised. In this light, we must look back with open minds and pay heed to the principles of Gandhian economics which focuses on ideas of decentralized, self-sufficient village-style economies which work on the good-will of all resulting in the well-being of as many as possible. This series focuses on contemporary economic models inhabiting principles of Gandhian economics as arguments that when the dominantly practised systems are inherently destructive and work on inequality and exploitation, this might be the better method, a possible and achievable alternative.

During a conversation on Gandhian economics among friends around 2019, one remarked dismissively, “That may have worked once, but it’s irrelevant today. Who is going to sit and spin yarn today?”

It was a familiar argument.

I did not answer that question. Instead, I posed a counter.

“Can you name India’s largest Food company?”

The answers came quick and fast.  ‘ITC, Britannia, Nestlé..’

“No,” I said. “It is Amul. Amul is the largest consumer product company in India. Much bigger than the ITC, Britannia and Nestle.

Amul, I added, is also one of the most successful example of a business running on Gandhian economic principles.

The group turned silent. None seem to agree.

Amul group’s annual turnover is around ₹90000,crore. By comparison, ITC’s food division earns about ₹17000 crore, Nestlé around ₹20,000 crore, HUL around 60000 cr and Britannia ₹18000 crore. (Discussions happened in 2019. But the data given is that of 2024-25 for relevance.)

Even those who recognise Amul as a large enterprise rarely recognise it as Gandhian in structure. The core principle of Gandhian economics is production by the masses, not mass production. Amul is owned by 3.6 million dairy farmers, all holding one share each. 

AMUL (logo)

Amul’s shares are not transferable and not traded in stock market. To become a shareholder in Amul with one share is an essential requirement to supply milk to Amul.

One can hold only one share in Amul, but can supply any amount of milk to Amul. A rare institution where equity and efficiency are balanced in favour of the producer and not the investor. An institution where the participation in milk production is the benefit and not the shareholding. Since, the share is not transferable and not traded in markets, it has no economic benefit to the shareholder. 

Yet Gandhian economics is often dismissed, even by educated elite and professional economists, as a naïve or romantic idea. A friend once described it as “a romanticised version of a village life.”

Many of us share this bias. Gandhi, we assume, belonged to another era. He helped India achieve independence. His successful ideas, we tell ourselves, are outdated. Gandhism is treated as a relic, frozen in time.

To understand how misleading this view is, we must dive deep and examine how Gandhian economics originated and why it was grounded not in sentiments, but in reality.

The Making of a Scientific Vision

In 1926, J.C. Kumarappa, then a chartered accountant in Bombay, travelled to the United States on vacation to visit his elder brother. With time on his hands, he enrolled at Syracuse University, studying public finance and management. On his professor’s advice, he went on to Columbia University, where he earned a master’s degree in public finance under the renowned economist Edwin Seligman. Seligman taught Ambekar too.

J.C Kumarappa

His thesis, titled “Public Finance and Taxation in India,” examined the fiscal policies of the British colonial government. It was a devastating critique.

British taxation relied heavily on the revenue extracted from impoverished citizens. Essential goods such as salt were heavily taxed, while the colonial administrators were paid exorbitant salaries. The study exposed how colonial taxation deepened poverty rather than alleviating it.

When Kumarappa returned to India, he considered publishing his thesis as a book. A friend suggested that he meet Gandhi.

In May 1929, Kumarappa visited Gandhi at the Sabarmati Ashram. Gandhi, arranged for it to be serialized in Young India. The data from Kumarappa’s research would later underpin the Salt Satyagraha.

At the end of their meeting, Gandhi made a request: Kumarappa should conduct a systematic, scientific study of India’s rural economy.

This was no casual suggestion. Gandhi had already articulated his vision in a letter to K.G. Kalelkar, then Vice-Chancellor of Gujarat Vidyapith:

“In an informal note which Gandhiji handed to me he had expressed a desire that Indian Economics should be built from the bottom by the a posteriori method of securing rock bottom facts and drawing therefrom, by the most rigid process of reasoning, scientific conclusions which no amount of jugglery could controvert”.

Gandhi used the word jugglery with an intent. He understood that capital, intermediaries, and administrative elites often manipulate data and policy to serve their own caste/class interests. Against the rising tide of industrial capitalism, Gandhi sought an alternative economic order grounded in indisputable facts.

Kumarappa arrived at the right moment.

Measuring Rural Poverty

By late 1929, Kumarappa joined Gujarat Vidyapith and undertook a comprehensive economic survey of Matar taluk in Kheda District in Gujarat.

Unlike conventional economists who relied only on aggregate statistics, Kumarappa analyzed household-level income and expenditure across agriculture and cottage industries which was the occupation of more than 95% of the population. Shaping macro economic policies using comprehensive micro economic data. Some sort of a profit and loss statement of an average family.  His training both as an accountant and a management scholar probably shaped this approach.

The findings were stark.

In 51 villages covering 1,213 families, only 14 households earned even the minimum annual income of ₹600 per annum. The average family size was five. More than 800 families were running losses. Most earned less than ₹100 a year—about ₹8 a month, or ₹1.60 per person.

At a time when the minimum required income for basic food and clothing alone was estimated at ₹10 per person per month, 98.8 percent of the population lived below subsistence.

Yet it was from these families that the British government extracted its primary source of revenue: land tax.

An assistant collector earned 90 times the annual income of an average peasant family; a district collector earned much higher. Since many administrators were British, much of this income was remitted overseas, leading to a direct drain on India’s economy.

It was against this backdrop that Gandhi wrote to the Viceroy in January 1930, demanding reforms to land tax, salt tax, prohibition, and reducing the salaries of bureaucrats. He also called for the boycott of foreign clothes by citizens.  When the demands were ignored, the Salt Satyagraha began.

Beyond Myth: The Science Behind Satyagraha

The Salt March is often romanticized as a spontaneous moral act, disconnected from economics. Gandhi’s followers, and critics alike, have contributed to the image of Gandhi as a saintly figure guided purely by intuition.

Salt Satyagrah

This sanctification has obscured something essential: that Gandhi’s strategies were grounded in rigorous empirical analysis.

Salt tax accounted for nearly 10 percent of colonial revenue. Import of Foreign clothes led a massive outflow of Indian wealth. His call to boycott of foreign cloth reduced imports by 50 percent in that single year. The annual budget of the British Indian Government  with a planned budget surplus of ₹86 lakh ended up with a deficit of ₹13.5 crore.

Nonviolent resistance, rooted in data, inflicted an economic damage to the colonial government far exceeding that of a violent war.

From Data to Constructive Program

Kumarappa’s rural surveys deeply influenced Gandhi’s vision of reconstruction. Gandhi proposed a Constructive Programme—a blueprint for rebuilding society by meeting the basic needs of the most marginalized. Last man in the socio economic pyramid was its focus.

The approach was bottom-up. Industrialization from the top, Gandhi believed, would not solve mass poverty. Economic growth does not automatically “trickle down” to everyone.

As an alternative, Gandhi proposed revitalizing village industries. In 1934, at the Varanasi Congress, he founded the All India Village Industries Association (AIVIA), with himself as president and Kumarappa as secretary. He had constituted an advisory council consisting of the best brains in the world – Sir C V Raman, J C Bose, B C Roy, Rabindranath Tagore, Dr.Khan Saheb etc to name a few.

The organization focused on research, production, training, extension, and publication. By 1936, it had developed modern techniques for efficient manufacturing for 12 village industries, 16 khadi processes, and 21 categories of rural handicrafts.

But the political leaders of the Congress were largely uninterested. Their focus was independence first; development could follow European models later. They failed to recognize that Europe’s industrial success was built on colonial extraction, benefiting a small population of their countries. Whereas India had a very high population and per capita land resources.

Unlike the majority of the political leaders and economic policy makers of India who aped the western models of theory and economic plans, Gandhi chose to study the Indian reality carefully and devise appropriate economic plans which will improve the livelihood of ordinary citizen who is poor. Others naively assumed that if the economy grows, the benefits will reach everyone equally.

Gandhian Resistance against capital and power

Gandhi and Kumarappa consistently opposed policies and plans that destroyed rural livelihoods. For example, Kumarappa warned that subsidizing large sugar mills which was one of independent India’s first attempt in industrialising farming, would devastate jaggery producers, reduce employment, and deliver inferior quality sugar with data. His warnings were ignored.

After Gandhi’s death, Kumarappa continued these battles. In 1952, he opposed a government order forcing farmers near Nilakottai in Tamilnadu to obtain licenses to produce jaggery—effectively coercing them into selling sugarcane cheaply to mills. The policy would have transferred ₹12 lakh from thousands of farmers to a single mill owner. A mass protest forced the government to retreat.

This conflict—between centralized capital/Power and decentralized livelihoods—defined gandhian struggles post-independent India. Protests like Silent Valley power, Chipko Movement, Narmadha Bacho Andolan, Fight against Aqua farms  etc are stellar examples. 

Chipko Movement

Modern Gandhian Enterprises

Gandhian economics did not vanish due to unfavorable economic policies of independent India. It evolved.

The Aravind Eye Care System is another stellar example of Gandhian Economics.  It treats nearly 700 thousand  patients annually—more than 1.5 times that of National Health services (NHS) England. Thirty percent of patients receive free treatment; and remaining receive the services at a fraction of the market prices. Not a single poor man in the area of operations of Aravind is denied treatment because he can’t pay.

Aravind Eye Care System (Logo)

Aravind’s quality of Eye Care is as good as the best in the world and it is supported by Data.

Despite this unusual business model, Aravind’s EBITDA is around 40% —nearly three times that of private Corporate Healthcare Enterprises. Who says business model which caters to the needs of the poor can’t be efficient and profitable?

Gandhi’s talisman says this: ‘Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions? Then you will find your doubts and your self melt away’.  

Isn’t Arvind a perfect example of a Gandhian enterprise?

Amul and milk cooperatives like Aavin, Milma, Nandhini, Vijaya, Verka demonstrate how farmers can become a collective, produce enough milk to become the world’s largest milk producer and at the same time, share 80% of the value paid by the consumers for milk and milk products with the producers. India’s milk cooperatives did not make millionaires out of milk producers. But they made millions of milk producers self sufficient enough to take care of their basic needs. This achievement by Indian Milk Cooperatives best describes Gandhian economics at work

What do our Farmers really need now?

Farmers do not need subsidies, loans, or procurement guarantees.

They need two things which money cannot buy easily:

Economic literacy and Collective organization.

A single farmer cannot compete with a multinational. Three and half million farmers together can is what Amul’s success tells us.

Amul has been growing faster than most private Corporate entities for more than 75 years speak volumes about the efficiency, endurance and relevance of Gandhian economics.

The Core Principles of Gandhian Economics

• Production by the masses, not mass production
• Priority to the poorest
• Direct linkage between producer and consumer
• Sustainable use of natural resources
• A holistic, democratic and efficient economic structure 

Gandhian economics is not an utopian fantasy. It is a practical framework for efficiency, equity, and sustainability— operating successfully across time and space and still misunderstood. They are overshadowed by song and dance of the market economy and conveniently ignored by the elite and policy makers. Gandhian economics doesn’t stop with just economic enterprises. It operates in the spaces like politics, education, healthcare etc. The objective is to cater to the basic needs of the last man in the pyramid.

This article is the first in the series which will be talking about successful Gandhian approaches of today. The milk cooperatives of India, Aravind Eye care system, organisations like Search operating in Gadchiroli (Dandakaranya), who pioneered home delivered neo-natal services, Barefooot college in Tilonia, Rajsathan are all thriving examples in front of our eyes. It is just that we are blinded by westernized concepts of economics and are not able to see the usefulness of the Gandhian economics.