The Forum of Free Enterprise organised a Convention on State Trading in Bombay on April 28, 1958, attended by: Mr N Dandeker, I.C.S. (Retd.); Mr S C Bose, President of Utkal Mining and Industrial Association, Calcutta; Mr Murarji J Vaidya, former President of the Indian Merchants’ Chamber, and Mr D B Futnani, President of Iron, Steel and Hardware Merchants’ Chamber of India.

Following is the speech delivered by Mr N Dandekar, also a Member of Parliament, Lok Sabha (Jamnagar) 1967, called “The Limits and Limitations of State Trading.”

You can read the complete unabridged version here: State Trading

I wish to confine myself to some general observations concerning the grounds on which I think rigorous limits ought to be set to Trading by the State and also as to the limitations to which State Trading is necessarily subject.

Now, quite frankly, when it comes to the first question, namely, what precisely should be the limit, in general terms, beyond which State Trading is not justifiable at all, and within which alone it can have some justification, the answer to a question of that kind depends entirely upon one’s own political philosophy. The political society that we have adopted for ourselves–quite irrespective of the political policy announced by the ruling party, whether it is a socialistic pattern, communistic pattern or any other pattern–is to be found in the Constitution. There it will be seen that we have adopted in this country a democratic Constitution grounded on two very important foundations–a series of fundamental rights and a series of personal or individual liberties. This is the context within which we have all to work, including the State itself. The State is not entitled to disregard this context because that is the context within which both the state (the Central and State Governments) as well as individuals and corporations-every one of us in this country–in fact, have to work. For it is our “organic law”, that is to say, the basis on which we are required to work and within the limits of which we have to work.

Therefore the first proposition that I make as to the limit of State activity is that it must be such as in no way encroaching upon the fundamental rights or individual liberties because the moment it does so, it destroys the very foundation of our Constitution. Until the country changes that Constitution, nevermind what particular policy the ruling party may follow; for instance, the Communist party has got its own political policy and so have several other parties–that democratic Constitution which has given us certain fundamental rights and certain individual liberties, the preservation of that ‘Constitution sets a definite limit on any State activity. I deliberately refer to “State activity” in general terms because any activity of the State, and in particular State Trading, must be considered from that standpoint. Actually; State Trading is one of those activities which is the most dangerous because it has no clear-cut boundaries, as is the case with state activity in Industry, such as Steel projects or Hydroelectric projects. State Trading can be anything from international trading restricted to teh Iron Curtain countries to a very wide range of international and internal trading; it can embrace the holding of stocks, the financing of international trade, the owning and chartering of ships etc. It can thus go so very deep into the economic fabric of the country that it becomes a matter of the utmost importance to be clear in our minds as to what is the limit within which alone the State shall function in this field and beyond which State Trading may not go.

‘Has the State laid down any general proposition or test to limit its activities in matters of that kind? What is the specific test that one should apply when the proposition is “Shall the State trade in commodities X or engage in a particular field of trading Y?” In other words, by what test should be we satisfied before we admit the validity of State Trading so that if it does not satisfy those criteria, it can be said to have overstepped the poor limit? It is a difficult problem, but not too difficult. In any case, an attempt to define the limit is very necessary and must be made. In my view, the test can be formulated in the form of a statement in two propositions. In the first place, any new State activity in the economic field, irrespective of what it is–any activity of a kind that has not been previously undertaken by the State and which encroaches upon the domain of individual rights and liberties–must be demonstrably necessary for the public interests. Secondly–and this is just as important as the first because there is a lot of hot air talked over what is in the public interest, the specific characteristic with reference to which one can test the validity of any given State activity is whether the desired purpose is not capable of being achieved equally well, if the activity in question were left to ordinary individuals, i.e., to free enterprise, or whether it is essential that the State must step in. In other words, if it is a question of State trading in general, or shall we say the merits or demerits of State trading in specific things like cement, textiles, chemical manure etc., the primary question would be: is it demonstrably necessary in the public interest? Is it, moreover, in the public interest that the State and nobody else should trade in any given commodity? Because that is one of the inevitable corollaries of State Trading. It is not merely a question of State Trading but of exclusive State Trading. The first question, therefore, is: is it demonstrably necessary in the public interest that the State and nobody else should undertake that trade? Or be allowed to undertake that trade? Can the desired objectives, which are to be achieved in the best public interests by State Trading, not be achieved in the best public interests by State Trading not be achieved equally well in the field of free enterprise by the ordinary men and private corporations? To put it more specifically, cannot the desired objectives be achieved by the regulated operation of free enterprise of free men indulging in those trades? If the answers to those questions are unequivocally and fundamentally in favour of the State, then alone would the State be within proper limits in indulging in a particular trade; but not otherwise.

Now if you look at some of the things that the State Trading Corporation has been trading in–from these angles–was it demonstrably in the public interests that it should have done so? Was it demonstrably in the public interest that it alone should be engaged in those trades and no one else? Was it demonstrably in the public interest that others should have been excluded? Was it demonstrably established that the desired objectives could not have been attained through all the other persons previously engaged in these trades, that is to say, by ordinary Free Enterprise, you and I, all of us engaged in the trade and commerce in the country? When we put it that way, we begin to get somewhat startling answers; we begin to get a more clear-cut idea as to the limit beyond which State Trading cannot be allowed to go, except at the cost of our own fundamental rights and liberties and without thereby achieving any major over-riding public objective.

Now let us turn to the question of the limitations inherent in State Trade Trading, as distinct from the limits within which alone it should function. Of course, in general, the limitations from which State Trading cannot escape will be more or less the same as those which we encounter in any other field of State activity, e.g., in industry or public utility. In other words, there are certain inherent limitations in State activity in the economic field from which State Trading also necessarily suffers. Assuming, for example, that within given limits, State Trading, whether in iron and steel or manganese with, for instance, the Iron Curtain countries, might be considered to the benefit of the country and that such trade should be undertaken by the State–even in an admitted case of that kind, State activity has very definite limitations. The first of these is the lack of autonomy from which these Public Corporations suffer. This may be inevitable, and I don’t want to join the issue over it here. But the fact remains that there is factually and inevitably almost complete absence of autonomy. What is the result? Let us not talk here vaguely in terms of public services being inefficient and incompetent; they are actually very much the opposite. What happens in the absence of autonomy is that you begin to get backdoor avenues for the impact of political parties upon things with which they are not concerned. Also, backdoor avenues for doubtful interests to exercise an influence which they ought not to have–not in that particular way and at the public expense. So the first limitation of State enterprise, the absence of autonomy, is rightly or wrongly a fact. Being a  very serious limitation, it leads us quite properly to the proposition: State activity in this field should be limited to the barest necessities of the case and should not go beyond it.

Another serious limitation, specifically in relation to State Trading, is the unfortunate fact that the moment State Trading goes beyond the limit that I indicated earlier, as is the case when it embraces internal trade in cement, trading in iron and steel, trade with America in Manganese, the trade in boots and shoes and so on–the moment the State Trading Corporation extends its activities in that way, you get not only misuse but also abuse of the power vested in the Government servants or in the same persons acting in another capacity. Controls over imports and exports, the grant or refusal of licenses–these can be manipulated in numerous ways to suit the State Trading Corporation. They can manipulate transport priorities in collaboration with another wing of the Government to suit the requirements of the State Trading Corporation at the expense of some other person engaged in the same trade. They can create not merely a monopoly in a commodity but also a monopoly in the procedures upon which the success in trade often depends.

Why should public servants have powers of that kind to abuse in the field of trading? But such abuse and misuse of power are unavoidable and inevitable. When you get concentration in the hands of officers of the State Trading Corporation of the bulk of the trade in various commodities, internally or externally, and those same officers, and their colleagues in charge of other departments of Government, have also at their disposal the power to grant or withhold licenses, transport priorities and numerous other items of discretionary patronage of that kind, there is bound to be a misuse of not abuse of these powers. 

Then there is another thing. I won’t call it misuse. That would be characterising as bad something which is essential. After all, if the State has got to trade, the trading organisation has got to have finance. But I don’t know whether many of you have had a look at the State Trading Corporation’s Report. There is almost unlimited finance placed at its disposal. The effect of this on trading by other people is immense. Such huge and unlimited resources are not available to any other private person or trading corporation. It enables the State Trading Corporation to advance money here, to give credit there and do all kinds of transactions of a colour, magnitude and character which enable it, in fact, to acquire a de facto financial monopoly over the situation and which, in turn, renders it impossible for any ordinary man or private corporation or for the ordinary importer or exporter, to compete.

If one takes into account these inherent limitations, which count for abuse or misuse of power, it becomes a matter of the utmost urgency that any proposal for State Trading must be scrupulously scrutinised and rigorously limited to the very barest essential purpose. Otherwise, what usually happens is that whenever the occasion arises, whatever argument that suits the occasion ex post facto is pressed into service to justify the results of State Trading. If the STC makes profits, State Trading is justified on the ground that it makes good money for the State. If it does not make money but incurs losses, the State Trading is justified on the ground that it was in the “public interest” not to have made money in that particular trade or a particular commodity. If it makes too much money, as the State Trading Corporation did in cement, the charge of immoral profiteering is brushed aside on ‘the ground that it was, after all, the State which earned the profits, even though admittedly it would have been highly immoral if any individual or private corporation made that money. Altogether, we get a whole lot of hotchpotch, contradictory and conflicting explanations which merely suit the occasion and draw upon a whole stock of doctrinaire arguments, or commercial considerations, or non-commercial considerations, whichever may for the time being suit the occasion, to justify the results of State trade ex post facto. This leaves the field wide open for the Government to do (through the STC) in an uncontrolled way whatever they wish.

My submission is, therefore, that this tremendous increase in the State’s activities in the field of Trading is far worse than any specific State activity, for instance, the steel plants. You and I may disagree on whether it shouldn’t have been just one steel plant or two instead of three. But most of us will agree there was an urgent need for one or two more steel plants in the country of the highest public interest. Most of us will also agree that it was not within the capacity of free enterprise to increase the steel output of the country by anything like the figure contemplated. I do not say that the need was for an increase of five million tons or four or 3 1/2 million, but something of that order of magnitude was certainly required. In a specific case of that kind, therefore, it is comparatively easy to come to agreed conclusions. But when you come to State Trading, I must emphasise, over-emphasise and reemphasise, firstly, that the fundamental limits to State Trading must be set by things that are fundamental and guaranteed in our Constitution; and secondly, that State Trading, even when permissible within those limits, must be rigidly circumscribed. Otherwise, the limitations inherent in this field of State activity are so injurious that State Trading is most likely to get completely out of hand.

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