India Unbound

India Unbound: The Social and Economic Revolution from Independence to the Global Information Age by Gurcharan Das, Anchor Books, 2002. 

Nehru

Jawarlahal Nehru spent some time in England, where he was trained by the Fabian socialists. Nehru brought socialism back to India. The Indian socialists looked to the Soviet Union as their role model. On the plus side, Nehru favored democracy and secularism. He also helped pass the Hindu Code act, which gave women an equal share of family property. Therefore, he was not contemptuous of businessmen. Jawaharlal Nehru, also called Pandit Nehru, however, was a Brahmin, and he looked down on businessmen, because they were in a lower caste. Nehru believed that government planning was less wasteful than private competition. The economy of India was held back for several decades by the Fabian socialist philosophy of Jawaharlal Nehru,

Shastri

Lal Bahadur Shastri became Prime Minister after Nehru died in 1964. Shastri favored economic freedom. Shastri was an honest man who did not use his government positions to personally enrich himself. But government became more corrupt after Shastri died in 1966. Shastri appointed C. Subramaniam to be Minister of Food and Agriculture. Subramaniam was a major force in India’s Green Revolution. Subramaniam supported Norman Borlaug’s proposal to raise wheat prices to market levels in order to stimulate farmers to increase production, against the opposition of T. T. Krishnamachari.

Prominent Indian Business Leaders

The author describes several prominent Indian businessmen. J.R.D. Tata, son of a Parsee father and a French mother, started India’s first airline. He later expanded into oil and steel. His company is headquartered in Bombay House. Ghanshyam Das “G.D.” Birla was a Marwari from Rajasthan. Because of a plague in Bombay, the Birla family moved to Calcutta, where G. D. started a jute business. He later expanded into sugar, cement and paper. Kasturbhai Lalbhai, a Gujarati Marwari Jain, started in textiles, then moved into synthetic dyes in 1947, by making a deal with American Cyanamid. Laxmi Niwas Mittal, called the “Iron Man of Calcutta”, was a major steel maker.

The Bombay Plan

Bombay Plan was the popular name for “A Plan of the Economic Development of India” developed in 1944. The authors included not just left-wing politicians, but also major businessmen, such as J. R. D. Tata, G. D. Birla, and Kasturbhai Lalbhai. The Bombay Plan nationalized heavy industry, aviation, and banking. It required private firms to obtain government licenses before increasing their production. The Bombay Plan also instituted price controls on goods. 

Second Five Year Plan

India’s Second Five Year Plan was based largely on the economic model of Prasanta Chandra Mahalanobis, a Bengali Brahmin, who was the Honorary Statistical Advisor to the Government of India. The plan promoted investment in the public sector and in heavy industry, particularly steel. Mahalanobis favored import substitution (replacing imported goods with domestically produced goods) over helping Indian export industries expand. He also opposed letting foreign companies invest in India.

Nationalization of Industries

The Industrial Policy Resolution of 1956, authored by T. T. Krishnamachari, nationalized seventeen heavy industries.

Indira Gandhi

In 1969 Indira Gandhi, the daughter of Jawaharlal Nehru, enacted the Monopolies and Restrictive Trade Practices Act. Any business that was too large was declared a monopoly and was forbidden from expanding its business. Indira Gandhi also nationalized India’s fourteen largest banks. Indira Gandhi ruled autocratically during a 22 month long emergency in 1975–77.

The License Raj

C.R. Rajagopalachari of the Swatantra Party gave the name License Raj to the government’s onerous restrictions on entrepreneurs starting businesses. Political connections, rather than credit worthiness, became the main criterion for obtaining a loan. Trade unions, not management, controlled hiring, firing and promotions. The Tata Group was repeatedly stopped from beginning new ventures. Aditya Birla, grandson of G. D. Birla, avoided the restrictions of the License Raj by expanding abroad: Thailand, Malaysia, Indonesia and the Philippines.

Releasing the Indian Economy from the License Raj

In 1991 there was a crisis due to capital fleeing India. Narasimha Rao became Prime Minister. To deal with the crisis, he appointed economist Manmohan Singh, who had studied economics at Cambridge. The foreign exchange reserves were so low that India would soon have little money with which to pay for imported goods. P. Chidambaram was the new commerce minister and Montek Singh Ahluwalia was the commerce secretary. They eliminated much of the governmental red tape that restricted imports and exports. With the help of A. N. Varma,

Manmohan Singh

Manmohan Singh reduced government licensing restrictions on industries (the License Raj). M. Narasimham lead banking reform. Raja Jesudoss Chelliah lead tax reform. R. N. Malhotra led insurance reform.

Narasimha Rao

Narasimha Rao managed dissent against the economic reforms. The free-market reforms were very popular with the people. During the next few years inflation came down and foreign exchange reserves increase greatly. The new leadership made the country more welcoming of foreign investment.

Inspector Raj

On the down side, the “Inspector Raj” remained. Government bureaucracy was not sufficiently reduced, due to the fear that it would eliminate the safety net for the poor. India was also slow to develop an export economy.

Bharatiya Janata Party

Later, when the Bharatiya Janata Party gained power, it was more interested in religious issues (promoting Hinduism over Islam), than in economic reform.