HOW CONTROLLED INDUSTRIES WORK IN INDIA—A CASE STUDY

Summary

Sir Biren Mookerjee’s March 1963 address — delivered as Chairman of the Indian Iron & Steel Company (IISCO) and circulated as a Forum of Free Enterprise booklet — uses the steel industry as a case study in how India’s regime of administered prices and bureaucratic controls is hampering, rather than aiding, industrial development. A. D. Shroff’s introduction sets the polemical frame: even committed planners are alarmed at how, under the Second and Third Five-Year Plans, the state has sought to take over as many economic activities as possible, with regulation ‘bordering on regimentation’ and controls hindering the very growth they were meant to stimulate. Two prefatory notes prepared with the help of S. V. Rayan, Editor of ‘Commerce’, explain the constitutional position of the Tariff Commission and the mechanics of retention prices, charging that the Government’s habit of overriding the Commission’s recommendations downward has crippled the capital-raising capacity of cement, steel, coal and basic chemicals.

Mookerjee’s statement, originally addressed to IISCO shareholders, mounts an unsparing accounting of the Government’s September 1962 retention-price order: against the Tariff Commission’s recommendation of an Rs. 38-per-tonne increase, the Government allowed only Rs. 10.50; it disallowed interest on the Rs. 10-crore Special Advance the Company had been compelled to accept; it shrank the working-capital allowance from eight months to four; and it backdated the cuts so that earnings already credited had to be written back. He revisits the 1952–53 negotiations with Eugene R. Black’s World Bank mission — recalling visits to Burnpur by Black, George D. Woods, Joseph Rucinski, Leonard B. Rist, Harold N. Graves and others — to show that today’s Government insistence on a punishingly low return on capital contradicts the ‘profit-margin’ undertakings written into the original loan agreement of 15 July 1953.

The second half of the speech turns from grievance to defence and prescription. Mookerjee documents that IISCO has actually operated at an eight-year average of 92.2 per cent capacity against the Tariff Board’s assumed 90 per cent, that the country has been saved roughly Rs. 266 crores in foreign exchange over a decade (Charts A and B), and that expansion has been financed largely out of ploughed-back profits rather than fresh equity. He argues that crediting non-existent ‘expected’ earnings into retention prices, then clawing them back years later, has retarded India’s industrial growth and weakened its defence-production base. He closes with prescriptions for the Fourth Five-Year Plan — continual rather than periodic capacity review, larger and locationally sensible plant units, beneficiation of coking coal and iron ore, more in-house training in place of premature overseas tours, and a longer reliance on experienced foreign staff. The pamphlet is bracketed by inset epigraphs from Eugene Black (‘People must come to accept private enterprise not as a necessary evil, but as an affirmative good’) and A. D. Shroff (‘Free Enterprise was born with man and shall survive as long as man survives’), framing Mookerjee’s technical complaint as a broader brief for the dignity of private enterprise.

Key points

• Forum of Free Enterprise booklet (10 March 1963) built around Sir Biren Mookerjee’s IISCO chairman’s statement, with an introduction by A. D. Shroff and two prefatory notes on the Tariff Commission and retention prices prepared with S. V. Rayan’s help.

• Documents the Union Government’s September 1962 decision to award steel producers only an Rs. 10.50-per-tonne retention-price increase against the Tariff Commission’s recommendation of Rs. 38, and to disallow interest on the Rs. 10-crore Special Advance.

• Argues that retroactive price-fixing forces companies to write back earnings already paid out and credit non-existent receipts as if they were real income, distorting accounts and depreciation.

• Reconstructs the 1952–53 World Bank loan negotiations — Eugene R. Black’s visit, George D. Woods’s Fact-Finding and Feasibility Mission, and the 15 July 1953 agreement — to show the Government is breaching the ‘profit-margin’ undertakings it gave foreign lenders.

• Marshals empirical defence of the private steel sector: IISCO’s eight-year capacity utilisation averaged 92.2 per cent versus the Board’s 90 per cent assumption; private steel saved India roughly Rs. 266 crores in foreign exchange over a decade.

• Demonstrates that expansion (Rs. 34.69 crores capital expenditure between 1952/53 and 1961/62) has been overwhelmingly financed by ploughed-back profits, with shareholders only paid bonus shares converted to equity.

• Recommends, for the Fourth Plan, long-term continual capacity review, larger integrated plants of three to five million tonnes, attention to coking-coal and iron-ore quality, and ten- to twelve-year reliance on overseas expertise plus on-the-job training for Indian managers.