FINANCE AND INDUSTRY IN INDIA

Summary

Finance and Industry in India is a Forum of Free Enterprise booklet based on the Sir Vithal Chandavarkar Memorial Lectures that A. D. Shroff delivered at the Indian Institute of Sciences, Bangalore, on 29-30 March 1963. Shroff surveys the financial scaffolding of Indian industry across the first two Five-Year Plans, marshalling Reserve Bank data on roughly 25,500 joint-stock enterprises and showing how internal resources of about 1,000 large companies rose from Rs. 274 crores in 1951-55 to Rs. 504 crores in 1956-60 while their bank borrowings shot up from 17 per cent to 28.7 per cent of total resources — a trend he calls structurally unhealthy.

The core of the booklet maps the institutional ecology that has filled the long-term-credit vacuum left by India’s inherited British-style commercial banks: the government-anchored Industrial Finance Corporation (1948), the wholly private ICICI (1955) on whose board Shroff served, the National Industrial Development Corporation, the Refinance Corporation backed by PL 480 counterpart funds, and the Life Insurance Corporation, which by his count has placed about Rs. 125 crores in industrial issues. He pairs this domestic map with an unusually detailed account of foreign-currency channels — the World Bank, IDA, AID (and its predecessor Development Loan Fund), the Export-Import Bank, the Commonwealth Development Finance Corporation, and West Germany’s HERMES insurance facility — arguing that India is the World Bank’s single largest borrower and crediting Eugene Black and George Woods for sympathetic stewardship.

While generous in praise of these agencies, Shroff is unsparing about domestic policy. He attacks the super-profits-tax-era fiscal regime for siphoning 65-80 per cent of industrial profits away from modernisation, dubs the country’s planning effort ‘Planless Planning’, and traces how T. T. Krishnamachari’s 1957 budget shock collapsed new capital issues from Rs. 117 crores to Rs. 98 crores. He further argues that the pursuit of complete self-sufficiency is a fallacy — every expansion in installed capacity, he notes, raises rather than lowers the import bill for sulphur, alloy steel, machine tools and other essential inputs. The chunk ends with a defence of the broadening Indian capital market, citing a March 1963 memorandum from the stock-exchange presidents showing that 90 per cent of industrial equity is held by small investors with individual holdings under Rs. 10,000, which Shroff offers as a direct rebuttal to Delhi’s narrative of monopoly concentration.

Key points

• Of roughly 25,500 joint-stock companies registered in India, about 22,500 (85 per cent) have a paid-up capital of Rs. 5 lakhs or less, which Shroff treats as a structural marker of poverty rather than entrepreneurial dynamism.

• Industrial borrowing from banks rose from 17 per cent of total resources in 1951-55 to 28.7 per cent in 1956-60, which Shroff calls unhealthy because banks fund themselves with short-term deposits and cannot prudently lock them into long-term industrial credit.

• Shroff argues that the super-profits tax and the broader fiscal regime force industries to surrender 65-80 per cent of annual profits as direct taxation, leaving too little for modernisation and capacity expansion.

• He maps the new institutional layer built to plug the long-term-credit gap: the Industrial Finance Corporation (1948), ICICI (1955, on whose board he served), the National Industrial Development Corporation, the Refinance Corporation, and the LIC, which has invested about Rs. 125 crores in industrial issues.

• On the foreign-exchange side, the booklet walks through the World Bank, IDA, AID (absorbing the older Development Loan Fund), the Export-Import Bank, the Commonwealth Development Finance Corporation, and West Germany’s HERMES insurance — crediting Eugene Black and George Woods for unusually sympathetic terms.

• Shroff describes Indian planning as ‘Planless Planning’ and singles out T. T. Krishnamachari’s 1957 budget as the shock that cut new capital issues from Rs. 117 crores to Rs. 98 crores and rattled investor confidence for the next year.

• He rejects the pursuit of complete economic self-sufficiency as a fallacy, arguing that every additional unit of installed capacity raises rather than reduces India’s bill for imported sulphur, alloy steel, machine tools, copper and spare parts.

• Citing a March 1963 memorandum from the presidents of all stock exchanges in India, he notes that 90 per cent of industrial equity is held by small investors with holdings of Rs. 10,000 or less — a fact he uses to dismiss the Delhi narrative of monopoly concentration.