And yet the nature of politics in India was influenced by what was happening to Muslims in India and what was happening to non-Muslims in Pakistan. Political discourse in India, in particular, changed quite dramatically. While the Congress continued to remain the flag-bearer of secular politics that envisaged that the state would treat all religions the same way, new political forces began to grow roots that thrived on the disenchantment among a small section of radical Hindus, who felt that if the Hindus in Pakistan were not treated fairly and equally, what was the logic of treating Muslims as equals in India? Political parties like the Jana Sangh, that drew their inspiration from the Hindu cultural outfits like the Rashtriya Swayamsevak Sangh (RSS), began to expand their footprint. The Congress leaders responded to such developments with an even more robust brand of secularism that Hindu fundamentalist parties dubbed as ‘appeasement of the Muslims’.
The Partition of India thus led to the rise of politics over religion. One kind of disruption led to an even more divisive kind of disruption in India’s politics. Over the years after Partition, politics in India has got polarized over religion. The rise of the Bharatiya Janata Party, which is an offshoot of Jana Sangh and owes its allegiance to the RSS, is ample testimony to how the question of Muslims has become central to India’s politics. The demolition of the disputed Babri Mosque in Ayodhya in 1992, the demand for building a Ram Temple in the same complex and the assertion of the Hindu right to the exclusion of minorities, including Muslims, are all indications of how the religious basis of India’s Partition is a factor that has not gone away. Instead, communal polarization has worsened and the social fabric in the country has continued to remain fragile and vulnerable to communal tension.
The irony of this is that even the views of the Congress, which stood for secular politics at the time of Independence and worked hard to avert Partition on the principle of communal harmony, have evolved over the last seven decades. Political fears of losing the Hindu vote bank to new outfits like the BJP have encouraged sections of its leadership to make moves that can bring them closer to the Hindus. Rajiv Gandhi’s decision to allow a foundation ceremony to be held at the site of the disputed Babri Mosque in Ayodhya in 1989 or Rahul Gandhi’s display of his visits of Hindu pilgrimage sites are signs of soft Hindutva. This is aimed at clawing back the Hindu vote base that the Congress may have lost to parties like the BJP or Shiv Sena.
It is clear, and deeply disturbing as well, that what the Partition of 1947 set off for India’s politics over religion is still gaining salience and even strength, nor is it anywhere near losing its appeal among the masses or the political classes.
The Economy Partitioned
The impact of Partition on India’s economy and business was even more telling. Business leaders of India were clear that the Partition of India would be better for the economy and business prospects.17 This was in sharp contrast to the views held by a large section of the Congress, particularly Gandhi and Nehru, who felt that India should gain freedom as an undivided country. The business view was rooted in its hard assessment of the political and economic reality. The Muslim League made it clear that it would agree to independence as a united country only if the Cabinet Mission’s plan to have a Centre with limited jurisdiction over defence, foreign affairs and communication was accepted and implemented. Indian business leaders believed that such an independent country would have a relatively weak Centre, which, therefore, would not be sufficiently empowered and resourceful in making the required quantum of investments in the country to revive an economy immediately after Independence. Hence, one of the reasons why Indian industry leaders, including doyens like Ghanshyam Das Birla, preferred Partition was because a divided India would facilitate the formation of a strong government at the Centre. This government would be then capable of and committed to taking the big investment decisions to provide the necessary infrastructure in the newly independent country and spur economic growth.18
A clear indication of the kind of disruption to the economy that Partition would cause was documented in detail by a report brought out by Homi Mody and John Mathai in 1945. Both were closely associated with the Tata group and differed with Nalini Ranjan Sarkar, another industry leader of the time, on the question of Partition. They opined that should a situation arise where an arrangement envisaging India’s political unity was not acceptable to the Muslim community, the partition of India in order to end the stalemate should not be ruled out. A Memorandum on the Economic and Financial Aspects of Pakistan, the report prepared by Mody and Mathai, noted that Pakistan would be a viable economic unit if the partition were to happen after retaining the extant boundaries of the provinces. But if the partition were to happen based on the Muslim-majority districts, the consequences for Pakistan would be a disaster. They also maintained that if the country’s growth objectives were paramount, it was necessary that the two countries after Partition must have cooperation between themselves, without which economic disaster would be a near certainty. In other words, they recognized that while political separation between the Muslim-dominated areas and the rest was advisable, economic cooperation between the two newly independent states was necessary to keep the economic engines in India in good shape. Thus, even after Partition, they wanted the two countries to have free exchange of raw materials and finished products, almost like a free-trade zone.
Given the political acrimony that preceded Partition, there was little chance of economic ties prospering between India and Pakistan. Since the Partition criteria were based on Muslim-majority districts, business houses remained largely immune to the consequences of Partition. Indeed, the Mody–Mathai report noted that if Calcutta were to remain part of India and not go along with Pakistan, the Muslim-majority districts of what was then known as East Bengal would be nothing more than economic slums. In other words, political separation of the country was favoured by big business as this would give them a strong centre that could invest in building infrastructure to revive the economy; the nature of the partition based on Muslim-majority districts ensured that the business houses remained largely unaffected. The plea for a free-trade zone type of cooperation between India and Pakistan was made because the business houses wanted their market reach to remain unaffected.
A look at the kind of industries that went to Pakistan and what remained in India after Independence is an indication that Indian business leaders preferred a partition based on Muslim-majority districts, which they believed would minimize the disruptive consequences of Partition on their businesses. C.N. Vakil notes in Economic Consequences of Divided India, A Study of the Economy of India and Pakistan that just about 10 per cent of the total industry of undivided India remained in Pakistan. In terms of employment in these industrial establishments, the 90 per cent of industry that remained in India after Partition accounted for over 93 per cent. With regard to joint stock companies and infrastructure facilities, India got the lion’s share after Partition. Over 90 per cent of all units among the top industries like textiles, chemicals, cotton mills, silk, cement, sugar mills, match factories, paint manufacturers, heavy chemical plants and heavy engineering factories remained in India after Partition. Pakistan’s share was 14–18 per cent of units in the engineering sector and rubber factories. And all the units in the following industries remained in India after Partition—jute mills, glass factories, paper mills, iron and steel establishments and automobile plants. Pakistan was a clear loser as far as getting a decent share in the industries that existed in undivided India was concerned. India’s top business leaders proved to be highly discerning as they had sensed in advance that a political partition on the basis of Muslim-majority districts would deprive Pakistan of many industries and give India a head start, compared to its neighbour on its west and east. The advantages that Pakistan enjoyed after Partition—in having a lower population–land ratio and large chunks of fertile land in West Pakistan with a strong network of irrigation canal—were neutralized to a great degree as a consequence. And India�
�s business leaders proved to be more perspicacious in ensuring that its business interests remained by and large intact. Indeed, by way of abundant caution, they advocated economic cooperation between India and Pakistan to facilitate free flow of goods and services across the newly created borders. That such cooperation did not fructify at all shrunk their market reach, but the way India got divided helped minimize the extent of the disruption that Partition could have potentially created for India’s business leaders.
Section 3
Turn towards Statism
CHAPTER 4
A NEW ECONOMIC VISION
In July 1954, less than a decade after India’s Independence from British rule, its first prime minister, Jawaharlal Nehru, went to Punjab to inaugurate the Bhakra-Nangal Dam, constructed on the Indian side of the Sutlej River.1 At that time, the Bhakra-Nangal was the second highest dam in the world and showcased India’s engineering prowess. Capable of generating about a million kilowatts of electricity, the dam’s reservoir would also help irrigate over 7.4 million acres of land in the region. Nehru’s inaugural address,2 delivered in Hindi, would mark a significant turn in the way the government would become a key player in rebuilding India’s economic infrastructure and industry after Independence.
Nehru compared the Bhakra-Nangal Dam to a temple or a mosque or a gurdwara. He said:
As I walked around the site I thought that these days the biggest temple and mosque and gurdwara is the place where man works for the good of mankind. Which place can be greater than this, this Bhakra-Nangal, where thousands and lakhs of men have worked, have shed their blood and sweat and laid down their lives as well? Where can be a greater and holier place than this, which we can regard as higher?
The Bhakra-Nangal project, a government initiative, was described as a temple of modern India. Months later, Nehru would enunciate his government’s new industrial policy, which would reverberate with the thoughts that he expressed at Bhakra—the desire to let state projects reach the commanding heights of the economy. He made a commitment to increase government investments in key infrastructure projects and fulfil what Indian industry leaders had desired even before the country freed itself from British rule.
Nehru’s speech at Bhakra touched upon two other important issues. He compared the Bhakra-Nangal project with the setting up of universities. Places of higher education do not just meet the specific needs of the day but, more importantly, address the long-term goal of building storehouses of knowledge that help meet a country’s growth aspirations. The Bhakra-Nangal project would thus meet the immediate requirements of irrigation and hydropower in the region, but it would also serve as a model of economic development in which the state would play a leading role. Nehru explained:
Then again it struck me that Bhakra-Nangal was like a big university where we can work and while working learn, so that we may do bigger things. The nation is marching forward and every day the pace becomes faster. As we learn the work and gain experience, we advance with greater speed. Bhakra-Nangal is not a work of this moment only, because the work which we are doing at present is not only for our own times but for coming generations and future times.
For Nehru, the Bhakra-Nangal Dam also symbolized hope and the aspirations of a young nation that had just got freedom but was searching for the right model for economic development to address the challenges of poverty and growth. Thus, he said that the Bhakra-Nangal Dam was ‘a landmark because it has become the symbol of a nation’s will to march forward with strength, determination and courage’. The dam on the Sutlej River also inspired Nehru greatly. ‘That is why, seeing this work, my courage and strength have increased, because nothing is more encouraging than to capture our dreams and give them real shape,’ he said.
In just about two years, Nehru would bring about dramatic changes in India’s economic policy space. He would also usher in the first phase of nationalization as his government would take over the majority ownership of the country’s largest commercial bank, the biggest airline and a clutch of life insurance companies. Nehru would also unveil his government’s first industrial policy framework—which would be independent India’s first big economic policy document. It would also act as a major policy disruption for a nation that was beginning to come to terms with an increasing role for the private sector and the pursuit of a free-enterprise policy.
Harbingers of Change
There were early signs of Nehru’s predilection towards a statist approach to ownership of key economic entities. The Bombay Plan, finalized in January 1944, had proposed state intervention in building infrastructure and basic industries after India’s Independence. Titled ‘A Brief Memorandum Outlining a Plan of Economic Development for India’, it had the support of major industrialists of the time including Jamshedji Tata, Ghanshyam Das Birla, Shri Ram, Kasturbhai Lalbhai, Ardeshir Shroff and Purshottamdas Thakurdas. Most importantly, it enjoyed the support of Nehru.
To be sure, the Bombay Plan had not envisaged any dilution in the role of the private sector. But it believed that a national independent government would be required after the Second World War to make investments in critical infrastructure areas such as power, mining, metallurgy, transport and cement. The central role envisaged for the state enterprises had three layers—government control, government ownership and government management. The objective was to encourage all-round economic development, reduce regional economic disparities and build infrastructure in a way that the private sector could gain from increased productivity and cost advantages.
Indeed, the Bombay Plan was dubbed the ‘non-official plan for the economic development of India, whose contribution to the First Five-Year Plan, framed in 1951, was substantial. The private sector had a significant role to play in the execution of the First Five-Year Plan. Of a total investment of Rs 3500 crore envisaged under the Plan, as much as 43 per cent was to have come from the private sector. While a few projects were to be compulsorily undertaken in the state sector, everything else was open to investment by private enterprises. The Industrial Policy Resolution of 1948, too, had provided for an adequate role for the private sector, raising the hopes of big business in the country that its role in independent India would not be curtailed and, indeed, may be enhanced.
The Nehru government had come out with what was its first industrial policy statement on 4 April 1948, less than a year after Independence. The statement’s broad goal was to secure for the country a continuous increase in production and equitable distribution. It, of course, noted that the state must play a ‘progressively active’ role in the development of industries. How active was made clear when the resolution stated that the state would have the monopoly in setting up industries in arms and ammunition, atomic energy and railway transport. In addition, the state would be exclusively responsible for setting up new undertakings in six basic industries. An exception was made by clarifying that wherever the state found it necessary, it would set up industries in these six areas in cooperation with private enterprises. The private sector was free to set up industries in any area other than these nine specific areas, although the state reserved its rights to enter these areas as well, whenever it decided to do so.
The Industrial Policy Resolution of 1948 did cause some concern for Indian industry. Nehru’s approach to the resolution was driven by his firm belief that the state must control strategic areas of the economy. Industry leaders were not happy with this direction, but they had little option as Nehru was not willing to concede ground on this issue to anyone else in the Congress and the government, such as C. Rajagopalachari, at that time the Governor General, or Vallabhbhai Patel, the home minister, who were opposed to such an expanding role for the state in the economy. While the government left a large segment of industrial activities open to the private sector, there was a sense in the policy that suggested that the state was not disinclined to enter any sector, if it so desired, in addition to the three sectors, where it had complete monopoly, and six basic industries, where the state could opera
te either on its own or in cooperation with the private sector. So, it was not entirely like the Bombay Plan, where the government would only set up basic infrastructure industries and leave open the rest for the private sector. The subtle shift in the government’s economic policy focus could not be missed.
The framing of a law for industries was the next big factor that caused some consternation for big businesses in India, which were hoping to take full advantage of a vast market that had just opened up for them after Independence. The government’s idea was to have a law through which it could regulate industrial activities. The name of the law was an indication of the mindset of those who were behind framing it. It was initially called the Industries (Development and Control) Act, 1951. Several business leaders, including the leading lights of the day like Ghanshyam Das Birla, were concerned over the spirit of the law, which was reflected in the use of a word that suggested that the government would control industry. After some consultation and effective persuasion, the Nehru government agreed to change the name of the law and called it Industries (Development and Regulation) Act. This, however, was only a cosmetic change. The bigger and more fundamental change was that through that legislation, industrial activities in the entire country were brought under the licensing regime, to be operated by the Union government. The law of 1951 empowered the government to regulate the way industrial development should take place. And the instrument for regulating was licensing. In many ways, this was the first clear sign of statism making itself evident in the country, and the licence raj had begun its long journey in the country—a journey that would come to an end only through an economic crisis and another disruption about forty years later.
The Rise of Goliath Page 5
