Produced below is an excerpt from ‘Economic Prophecies’ – a collection of BR Shenoy’s theoretical writings dating from 1932 to 1953. The featured article ‘Free Enterprise in Danger’ was written by Shenoy in support of statements made by industrialist JRD Tata at a seminar in 1975, sounding a warning about the impending extinction of the private sector.
The institution of free enterprise and the liberty of the individual are in a critical phase in India. JRD Tata has stated that “the time has come for a cry of alarm that the private enterprise part of the mixed economy is threatened with early extinction”. The communist strategy in India aims at overthrowing the government and the established order of society not by violent revolution but through peaceful infiltration. As part of the strategy, ‘a number of persons’ who ‘had been members of the Communist Party’ had, Mr Tata averred, gained ‘access to critical important positions in government’; and though ‘momentous changes’ of a Marxist nature have been ‘introduced in our economic life’, this process has taken place with such ‘gradualness’ that neither the ‘intelligentsia nor the public at large seem to be fully alerted as yet’ to the ‘incipient dangers’ of the mixed economy being replaced by the ‘totally planned and regimented economy’.
P N Haksar, deputy Chairman, Planning Commission, reacted to these home truths in extraordinarily strong terms. Addressing the annual meeting of the Federation of the Indian J R D Tata Chambers of Commerce and Industry, India’s premier trade association, Mr Haksar asserted that the mixed economy was not in the morgue, but very much up and doing. He argued that, as 90 per cent of the national product came from the private sector, there was no factual basis for Mr Tata’s alarm. The high percentage of private sector output is no evidence against Mr Tata’s assessment. His forebodings rest on, first, the vast control which government has acquired over the establishment, expansion and functioning of businesses and industrial undertakings; secondly, on the option to convert loans to public sector financial agencies and private companies into equity capital of the latter; and, thirdly, on the annual appropriation by the public sector of as much as 65 per cent of the total investment resources (the sum of current domestic savings, foreign aid and drafts on currency reserves). It has been estimated that by 1980, the third factor alone may bring under government ownership 50 per cent of the industrial and mining capital in the country. Government ownership may rise to 80 per cent if loans are converted into equity capital.
THUS, UNDER THE prevailing ‘mix’ of the mixed economy, the Marxist doctrine of the public ownership of the means of production may become an established fact with the simple lapse of time – a case of communism, or a leap forward into it, without tears. Witness, moreover, the political ease with which the wholesale trade of wheat was nationalised in 1973. The prevailing political climate in India is such that if electoral exigencies called for it, the takeover of the so-called ‘monopoly houses’ – the top-grade business undertakings in the private sector – should raise no political problems.
This possibility is not idle speculation. It is in the mainstream of the ideology to which the top policymakers and the dominant wing in the Congress party subscribe; and it may receive the same public approbation and ballot box windfall as the bank nationalisation of july 1969 had done. Moreover, most observers believe that there is nothing the party in power will shrink from in order to remain in power. It is these features of the Indian scene that constitute the credentials of Mr Tata’s evaluation.
The continued high proportion of the private sector component of the national product, cited by Mr Haksar, is but the joint reflex of, first, agriculture constituting about 50 per cent of productive enterprise and, secondly, the expansion of public sector output at less than snail’s pace, despite the galloping investment in this sector – the result, as we sharply presently see, of corruption and resource wastages.
Strangely, the predicament facing private enterprise has not alarmed the Indian business community. Businessmen argue that India has survived, to quote Mr Tata, ‘disasters which had destroyed other civilisations’ in the past, and that somehow we would escape the communist menace too. During two decades of socialism, some businessmen amassed wealth and affluence on a scale beyond their own dreams; and they have been among the strongest supporters of socialist measures, though they like to describe them as mixed economy measures.
The third factor reviewed above as being responsible for undermining private enterprise – the appropriation by the public sector of 65 per cent of the total available investment resources – merits closer attention. This appropriation is not only out of all proportion to the contribution of public sector to the Indian national product a mere 4 to 9 per cent, it is also responsible, in large measure, for the rather odd phenomenon of stagnation of per capita output and income since 1964-65, in the context of a continued acceleration of total investment. These investments multiplied by as much as 5.3 times (at 1961-62 prices) the expansion of population, as between the First Plan (1951-56) and 1973-74.
The link between the two – heavy public sector appropriation and economic stagnation – is easily stated. First, when Rs 1 billion ($ 124 million) are ‘invested’ in public sector projects, what redly goes into them may vary, depending on projects and the parties concerned, from Rs 600 to 800 million ($74.4 to 99.2 million). The balance Rs 200 to 400 million ($24.8 to 49.6 million) is distributed as corrupt payments by contractors and others – ‘kickbacks’ in American usage – and, consequently, gets transformed into consumer income.
Though such transformation is part of the old PWD (Public Works Department) tradition, the amounts involved are no longer peanuts. With public sector outlays in 1973-74 at Rs 41,250 million (US $5,124 million), the corrupt payments, i.e. investments converted into private incomes, may be of an order of Rs 8,250 to 16,500 million ($ 1,025 to 2,050 million). This is about 17 to 34 per cent of total domestic savings during the year. To the extent of these conversions, Plan investments are only paper investments and can make no contribution to the national product.
Second, unused production capacities, which in recent years have ranked as high as 35 to 55 per cent, add nothing to current output. On the other hand, the national product would be less by the capital maintenance costs of unused capacities. To this must be added the debit effect on the national product of various inefficiencies and laxatives of public sector undertakings – which include overstaffing, worker idleness, wastage of raw materials and accessories, neglect of capital equipment maintenance and poor attention to quality control.
Third, the private sector, which accounts for 84 to 92 per cent of the national product, receives but 35 per cent of the total investment resources, the balance left after the draft of these resources into the public sector. As the manufacturing industry in the private sector receives priori~ resource allocations, the abnormally heavy public sector appropriations have involved the capital starvation of agriculture. Evidence of this capital starvation lies in the decline in rural per capita private investments in agriculture, still the main source of agricultural-finance, and in the consequent decline, at an annual rate of 0.14 per cent (compound) in agricultural production per head of the rural population during the period 1961-74.
THOUGH INDUSTRIAL PRODUCTION rose simultaneously at an annual rate of 4.9 per cent (compound), as agriculture accounts for 47 per cent of national product and industry only 14.3 per cent, the decline in per capita agricultural output negated, almost wholly, the expansion of per capita industrial production; and the net per capita income in 1974-75 was still at Rs 339 ($42.11) as against Rs 338 ($41.99) in 1964-65, both at 1960-61 prices. Corruption has eroded not only the moral standards of the people but also the pace of Indian economic growth. We have been standing still while most parts of the rest of the world are marching forward, some – like Japan and the several mini-Japans in Asia – at a galloping speed.
The expansion of employment being a function of the expansion of the overall national product, with the latter remaining semi-stagnant, natural additions to the labour force have not been fully absorbed into employment. Consequently, unemployment in 1971 was 5.7 times the unemployment in 1951 (3.3 million).
One must realise that even a hypothetical government of Gandhian ascetics – with J.P. Narayan or Vinoba Bhave as prime minister – could make no significant difference to these developments under the prevailing ‘schizophrenic policies’, as Mr Tata aptly describes them. It is not possible to clear the chaos created and place the country along the right road to progress without a thorough restructuring of these policies, of which heavy cuts in public sector outlays are among the first essential steps.
Read the complete book here.
