An excerpt from Jairam Ramesh’s book on Haksar and Indira
Political compulsions may have prompted Indira Gandhi’s fateful decision to nationalise banks but it was her Principal Secretary P N Haksar who choreographed the policy and ensured it was implemented. An excerpt from Jairam Ramesh’s book, Intertwined Live
As late as 9 July 1969, Haksar was not entirely convinced that banks had to be nationalized right away. Then three days later came the assault on Indira Gandhi’s authority with the announcement of Sanjiva Reddy as the Congress’s presidential candidate. Subsequently, Morarji Desai’s resignation was secured after four days. My guess is that between 12 July 1969 and 15 July 1969, Haksar and Indira Gandhi must have confabulated and decided to shed their caution on bank nationalization. On 16 July 1969, she asked PNH [P N Haksar] to meet with K.N. Raj, one of India’s most distinguished economists, and find out his views on bank nationalization. Another eminent economist, P.N. Dhar, was also present when PNH and Raj met. Dhar was to later write that Raj strongly favoured nationalization but felt it would take at least six months to carry it out.
But just three days later, on 19 July 1969,14 banks were indeed nationalized, making one of Indira Gandhi’ s‘ st ray thoughts’ an immediate reality. This account is from the memoirsofD.N. Ghosh, whowasthenthe official concerned in the banking division of the Ministry of Finance and who was to later become the chairman of the State Bank of India(SBI). It was the night of 17 July 1969 and G ho sh recalls being summoned to Ha ks ar’ s residence: I saw that Ha ks ar was browsing through amassofpapers, amongwhichIcould spot the Reserve Bank publication, Statistical Tables Relating to Banks in India. He was trying to figure out how many banks accounted for 80 percent to 85 percent of the total resources of the system. Offthecuff, Isaidthenumber could be 10 to 12 banks.
Just then, the Union Minister of State for Company Affairs, K.V. Raghunatha Reddy, st rolled in and stood listening to our discussion. He piped up that it was a golden political opportunity to nationalize all banks and that we should go ahead with the bold decision. Haksar waived his suggestion polite ly and requested him to keep his impetuous radicalism to himself. Haksarwantedto be left alone till he himself had been fully briefed on a subject that was entirely foreign to him. I then asked him if the Prime Minister had made up her mind on nationalizing the banks. ‘Notyet’, hereplied.‘We aretodiscussthis tomorrowmorning’. He was not sure if it would be possible to sort out all the legalconundrums involved and have the ordinance[ for nationalization] readyby 19Julywhichwasa
Saturday. Thedatewas crucial for two reasons.
[Acting] PresidentV.V. Giri was due to dem it office on the fore noon of 20 July and theLokSabhawould begin its mon soon session on21July.
The choice of G ho sh by Ha ks ar tobe the‘ keeper of secrets’ as far as bank nationalization was concerned reveals much of how P NH operated. A. Bakshi, who was then deputy governor of the RBI, had worked with Ha ks arin London in theearly-1950s. They were ideologically also similar and were exceeding ly close personal friends. ThankstoHaksar, Bakshiwouldjoin the soon-to-be-created department of banking in the Ministry of Finance and later become the comptroller and auditor general (C&AG) ofIndiain1972. ItwasBakshiwho had given these al of approval to G hos hand had joined the duo late that night of 17 July 1969 for confabulations.
Thenextday, Ghoshwrites, theprime minister herself summoned him in the morning. She wanted to be convinced that the legislative draft for nationalization of banks could actually be prepared in less than 24 hours. When she was told that suchadrafthad, infact, existed from the end of 1963 when nationalization of five banks had first been considered, she appeared to relax and swore G ho sh to absolute secrecy saying that in case of any hitch he should apprise PNH. For the next few hours, Haksar, Bakshi, Ghoshandafew others who had been specially commandeered for this purpose, likeR.K. Se shadri(anR BI official) and N ir en De( attorney general) slogged to prepare the ordinance— which was an executive order that would have to be ratified by Parliamentlater.
At 8.30 pm on the night of 19 July 1969, Ind ira Gandhi addressed the nation on radio and announced the nationalization of banks. This was one speech of he rs which had not been written or even worked upon by Haksar. Right down to the last comma and fullstop, itwasI.G. Patel’sdraft. Itwasindeed ironic because not only wash eoneo fM orarji Des a i’ s favourites, but he himself was at that time a votary of social control ….
Ha ks ar was also responsible for what he himself called‘ a somewhat unorthodox’ appointment in the RBI to get nationalization of banks achieve its socio economic objectives. The RBI Governor L. K. J ha wanted a bureaucrat, failing which a banker. P NH was not terribly enthused by J ha’ s names and got Ind ira Gandhi’ s approval to appoint a 39- year-old industrial economist called R. K. Ha zaria sade pu ty governor in place of Ba ks hi. Hazarihadshot into fame in the late-1960s as the author of a deeply researched study on the functioning of the industrial licensing system in actual practice. Hazariw as young by RBI standards but commanded great respect. He would go onto spend six years at the RBI.
Ha ks ar fought quite a battle with the bureaucracy and succeeded in establishing a Department of Banking in the Ministry of Finance to take forward the objectives of bank nationalization. He would also get the prime minister to over-rule L. K. Jha, I.G. Patel and others and make Ba ks hi in charge of the new department. Ghoshhimselfwasa key part of it and here called tome: Whilehe[PNH] took it upon himself to see that the department of banking, the new entity established after nationalization, is manned by competent individuals, he never interfered with its functioning. I would also assert that in no decision on central banking, commercial banking and allied matter she had brought to bear any personal influence.
G hos hal sore members that some four years after bank nationalization, he and Ha ks ar were travelling by train to Calcutta and he asked him whether he believed the decision taken in July 1969 with such great speed and secrecy was the right one. PNH replied promptly :‘ Of course, I have always believed so. We would have in any case taken thatstep, soonerorlater. Timingwas dictated by political necessity .’
Reproduced with permission