An Economic Review — 1957

Summary

Delivered under the auspices of the Forum of Free Enterprise in Bombay on December 9, 1957, A. D. Shroff’s address is a frontal critique of the Second Five-Year Plan and of the Nehru government’s economic management one year into its execution. Opening with the line that “speech is silvern and silence is golden,” Shroff argues that the moment demands public honesty: the Plan was built on the “socialist pattern of society,” pursued comprehensive planning without the technical and informational base to support it, and is now manifestly unworkable. He charges the Planning Commission and its supporters with substituting slogans — most pointedly the newly minted phrase “core of the Plan” — for an actual operating strategy, and he criticises ministers for honouring Gandhi’s memory by “practising considerable economy of truth.”

Shroff then turns to the foreign-exchange collapse, noting that India’s balances fell from Rs. 536 crores at the end of November 1956 to roughly Rs. 214 crores a year later (net of an IMF loan of Rs. 95 crores), and that ad-hoc, secretive licence allocations have squandered scarce reserves. He calls for a drastic curtailment of future imports, a serious effort to attract foreign capital and tourism, and the abandonment of “humiliating conditions like reporting to the police on arrival.” On taxation, he attacks the Wealth Tax and Expenditure Tax — what he calls Prof. Kaldor’s “test-tube babies” — as a Pandora’s Box that has frightened domestic investors, killed the new-issue market, idled the textile industry, and produced an overall climate in which “first-class investments on a yield basis of anything between 6 and 12 per cent are going a-begging.”

The second half of the talk indicts the bureaucratic and public-sector apparatus of the planned economy. Citing a Hindustan Times report of November 29, 1957, Shroff recounts the Prime Minister’s own admission that under the present law on co-operatives he could not get a project through; he relays an American industrialist’s account of contacting more than twenty authorities to start an industrial project; and he highlights Mr. Gulzarilal Nanda’s restriction of the Plan to Rs. 4,800 crores as a belated concession to realism. He documents how the State Bank’s dominance, the routing of P.L.480 counterpart funds away from the private sector, and the State Trading Corporation’s profiteering on cement imports have all squeezed private enterprise out of working and long-term capital.

Shroff closes with a constitutional warning rather than a fiscal one. The “limitless powers vested in the bureaucracy” are producing, he says, a “growing army of ‘chota Hitlers’” that threatens democracy itself; the remedy is candour. “A true democracy always functions best when it is told the worst,” he insists, and his “earnest appeal and strongest advice to the authorities is, ‘consult your purse, and not your pride.’” The pamphlet ends with the slogan that became his signature: “Free Enterprise was born with man and shall survive as long as man survives.”

Key points

• Shroff frames public criticism of the Second Five-Year Plan as a moral duty, accusing the government of an ‘economy of truth’ inconsistent with Gandhi’s legacy.

• He argues the Plan rests on a socialist-pattern philosophy and on amateurish, unrelated assumptions, and that its commitments have already proved unworkable — the newly coined phrase ‘core of the Plan’ is a face-saving fiction.

• Foreign exchange reserves collapsed from Rs. 536 crores (Nov 1956) to roughly Rs. 214 crores (Nov 1957) net of a Rs. 95 crore IMF loan; licence-issuing machinery was indiscriminate and lacked basic arithmetic.

• Solutions he proposes: drastic curtailment of imports, a serious climate for foreign private capital, and a tourism push (Rs. 15–20 crores investment could yield Rs. 50 crores of exchange annually).

• The Wealth Tax and Expenditure Tax — Kaldor’s ‘test-tube babies’ — have destroyed incentives, killed the new-issue market, idled textile mills, and made first-class equities yielding 6–12 per cent unsaleable.

• Internal resources are starved as much as foreign ones: the State Bank’s predominant position distorts banking data, P.L.480 counterpart funds are denied to the private sector, and the State Trading Corporation has profiteered on cement imports.

• Citing a Hindustan Times report and an American industrialist’s testimony, Shroff dramatises bureaucratic obstruction — even the Prime Minister could not push a co-operative through the Registrar’s office in Punjab.

• His closing warning is constitutional: a ‘growing army of chota Hitlers’ in the bureaucracy menaces democracy, and recovery requires that the government ‘consult its purse, not its pride.’