INdIA’s eCONOMIC RIse Is A lONG stORy Of Its eNtRepReNeuRIAl ClAss
Since Independence, the role of the state, the socialist ‘red star’, has been a drag on business leaders, but that is changing fast now.
Contrary to the general perception that governments played a key role in economic development after Independence, it is actually the other way around. It is businesspersons—from tycoons like the Tatas and Birlas to the intrepid entrepreneurial class—who have made India a leading economic power. The role of the state, on the other hand, has been a drag on the enterprise of business leaders.
It is another matter that all manner of politicians—from the Bharatiya Janata Party, the Congress, the Left, and other parties—and most authors continue to spread the myth that the government was instrumental in industrialising the country. A government website says, “Post Independence, India was grappling with grave socio-economic problems… Hence, the roadmap for public sector was developed as an instrument for self-reliant economic growth” ( http://www.archive.india.gov.in).
In other words, the government of Narendra Modi finds nothing wrong in Jawaharlal Nehru’s public sector-oriented, statist economic policies. It also accepts the falsehood that statism was the need of the hour, as gospel truth.
Falsehood, because India had a sound industrial base in 1947. In a 2000 report, “So Many Lost Years: The Public Sector Before and After Reforms,” under the auspices of the National Council of Applied Economic Research (NCAER) for the government, Laveesh Bhandari and Omkar Goswami said, “In making a case for state ownership, India’s policy-makers ignored some basic facts…By 1947, India’s modern industrial or factory sector accounted for over 10% of national income—a ratio that was well above any other decolonised country with comparable per capital income. More than two-thirds of this factory sector output was due to the entrepreneurial drive of Indian capitalists, who… were involved in shipping and ship-building, cement plants, engineering units, sugar mills, glass factories, and many other industrial activities… [like] the jute industry…”
Further, the Indian industry was competitive. Its share in total exports was 30% in 1947, up from 22.4% in 1913. Other prerequisites of corporate growth were also there: a large railway system, relatively good ports, vibrant banking, insurance, and financial sectors, three very active stock exchanges, a Westernised and Englishspeaking section, industrious people in general underpinned by a great civilisation and, most importantly, a robust business class. “Thus, by the early 1950s, India was the only decolonised country that had the funds, the institutions, and the entrepreneurial base for largescale private sector industrial development… In other words, despite mass poverty, by 1950, India had succeeded in creating an industrial base that was disproportionately larger than the trend,” the NCAER report said. Instead of capitalising on this advantage, Jawaharlal Nehru’s socialist government brought in the Industrial Policy Resolution in 1948 which emphasised engagement of the state. The Industrial Policy Resolution, 1956, classified industries and gave further primacy to the public sector in its categorisation; in several major categories, private enterprise was disallowed.
Even as the inadequacies of socialism became evident in the 1960s, those who mattered in those days sought to cure socialism with more socialism. So, in 1969, as many as 14 banks were nationalised; insurance firms were also nationalised. In the 1970s, several private companies were nationalised.
Coming back to power in 1980, Indira Gandhi somewhat realised the folly of statist controls and allowed calibrated deregulation, but it was the reforms in 1991 that boosted the private sector. As a paper by scholars of the National Institute of Public Finance and Policy said, “Private investment increased from under 15% of GDP in 1980-81 to almost 30% of GDP in 2011-12, but has since fallen to around 25% of GDP.” Decades of stepmotherly treatment meted out to the private sector have not been without consequences. As the Economic Survey 2015- 16 pointed out, the government “tried to control private businesses through licencing and permits… [T]his only further discredited the private sector, because the more the state imposed controls, the more the private sector incumbents were seen as thriving because of the controls, earning society’s opprobrium in the process”. The opprobrium is usually excessive, and often leads to punitive action, if a company is foreign-owned; spectres of the East India Company are invoked. In general, all care is taken to leash the private sector; not long ago, the powers that be even ensured that businessmen spend a specified amount of money towards corporate social responsibility (CSR): even their conscience is regulated! Accordingly, private companies spent Rs 8,300 crore in FY16 on CSR, while Central PSUs spent Rs 4,028.04 crore in the same period.
On the whole, however, controls have gone down for India Inc. In a nutshell, the history of corporate India since Independence has been the story of intensification and lessening (but not end) of socialism. (Ravi Shanker Kapoor is Editor of www.thehinduchronicle.com)