THROTTLED INDUSTRIALISATION
Nehru, through his anti-private-sector policies, throttled industrialisation, and consequently employment generation. Although, in comparison with the deliberate neglect in the British period, the progress in industrialisation during the Nehru period was much better owing to significant public sector investments. It was also helped by the very significant second world war sterling debt repayments by the UK, and aid by other countries like the US, the USSR and Germany. However, when the repayment of the sterling debt by the UK tapered off, and not much further foreign aid was forthcoming, and the public sector into which Nehru had sunk the investment was either in loss or not able to generate adequate surplus, the industrialisation momentum began to taper off, as there were no funds; and given Nehru’s socialistic approach, the private sector was anyway shackled!
Further, not learning anything from Japan and others, who had dramatically prospered with their outward-looking, export-led growth, India under Nehru went in for inward-looking, import-substitution model, denying itself a world-class, competitive culture, incentive for production of quality products, share in the world-trade, and the consequent prosperity. Instead, India invested heavily in the inefficient public sector, over- regulated and strangulated private enterprise, shunned foreign capital, and ignored better technology.
Despite Sardar Patel’s objections, Nehru pushed through the Industrial Policy Resolution in April 1948 that reserved many areas under the state sector: railways, defence manufacturing, atomic energy, and so on. Further, new enterprises in steel, coal, ship-building, communications, and many others could only be under the state sector. By 1954, Nehru made Parliament accept as the aim of economic development the “socialist pattern of society”. Socialism was enshrined in 1955 as the official policy of the Congress at its Avadi session. The 1956 version of the Industrial Policy Resolution made the state even more dominant—it allowed new ventures in textiles, automobiles and defence only to the state, and vested exclusive controls to it over many other sectors. Wrote MKK Nair:
“As a Socialistic pattern of economy had been adopted by the Parliament in December 1954, the new industrial policy embraced the same objective… An important aspect of socialism was establishing Government control over sectors that brought financial wellbeing. With that in view, the importance of public sector was enhanced and industries that would be brought into it were listed. They included explosives, arms, defence equipment, atomic energy, iron & steel, heavy metallic castings, mining machinery, heavy electrical equipment, coal & lignite, petroleum, mining for Iron, Manganese, diamond & minerals for atomic energy, aircraft manufacture, air transportation, railways, ship building, telephone and electricity generation.”
A series of Five-Year Plans started from 1952 that sank precious investment in the inefficient public sector, and rather than enhancing the growth rate, made it crawl at 3%. Much needed foreign-investment was shunned, thanks to simpleton economic understanding, ignorance on “what makes a country prosper”, and faulty application of the anti-colonial mindset. Many industries were barred for the private sector. When entrepreneurs in the countries in Southeast Asia, like South Korea, were being encouraged to expand and set up industries and their government was offering them cheap credit, here in India we were doing the opposite: GD Birla was refused a license for setting up a steel plant; scores of business proposals of Tatas were rejected; Aditya Birla, looking to the hostile business environment in India, chose to set up industries outside India; …the list is endless.
Krishna Menon [the right-hand man of Nehru] had reportedly snubbed offers of the Japanese corporate representatives for collaboration saying it was out of question on account of the vast differences in the policies of the two countries!
Given license-permit-quota-raj, reluctance to give licenses to the so- called “monopolies”, anti-business policies and extortionist taxes— maximum slab rate being over 80%—industrialisation had to suffer. Industrialisation and industries were sought to be controlled and managed by Nehru’s IAS babus who knew next to nothing on how to run an industry. Nehru and the socialists had very simplistic notions on wealth creation: Nehru thought that all it took to have economic prosperity was to invest in industrialisation, especially in heavy industries, and to put babus in charge. Wrote a bureaucrat of those times MKK Nair:
“When factories in other areas began to be set up, experienced managers were not available and ICS officers were appointed to head public sector industries. But their training and experience were not suitable for industrial management. Many of them were too old to grasp the new culture of management. Thus, public sector companies began to be operated like Government departments…
“Both SN Mazumdar, General Manager of Rourkela [Steel Plant] and SN Mehta, General Manager of Bhilai [Steel Plant] were highest level ICS officers. They could work efficiently as Commissioners, Board Members or Chief Secretaries and discharge their duties with great aplomb. But they were frightened to spend two hundred crore Rupees in three years to build a million tonne steel plant. They were past the age to learn new ways of work. What happened in Rourkela and Bhilai got repeated elsewhere too when new public sector projects began to take shape… Industrial management is best left to those who are qualified to do it. If IAS or IPS officers who are neither familiar with nor trained for it are selected for it, it is a sin perpetrated on the public sector…”
With the IAS babus in-charge, the expected results followed: Public sector companies began to be run like government departments—lethargic, over-staffed, and corrupt—with no understanding of process or products. Investment in the public sector leviathan was a huge two-thirds of the country’s investable funds, but to little avail—the public sector churned out shoddy goods and remained in loss. Of the entire paid-up capital in India, the share of the public sector rose to a massive 70% by 1978, with little benefits accruing to the nation. Our extremely scarce resources were squandered and precious public money was literally burnt by the Nehru and his dynasty in trying to do business.
Gurcharan Das mentions in ‘India Unbound’ of Kasturbhai Lalbhai establishing Atul chemical plant in collaboration with American Cyanamid in the wilds of Gujarat, building a whole township, and provided jobs to many tribals. When invited to inaugurate it in 1952, Nehru agreed after considerable reluctance. Why? Because, it was in the private sector!
