Minoo Shroff on Doing Business in Nehru’s India

Source: https://www.youtube.com/watch?v=mkKmQMD_Kcs Duration: 679.3s

Minoo Shroff (00:10): I was a student of economics and was involved in business and I felt things were getting off the rails. Of course, one was greatly inspired by the national movement and I had great regard for Nehru, but I thought his economic policies were wonky. As I started reading, I could see how he was inspired. In all fairness to him, when he went in the early 30s to Soviet Union, and Soviet Union in those days was a massive empire, was very underdeveloped, agrarian, and the reforms which Stalin brought in — though he shut people up and there was no freedom, what they wanted was some economic development and so he took on agricultural reforms, though they were communes and so on, but they needed large capital and state support. The other thing one impressed about the Soviet Union was the great importance they gave to education. In fact, at that point in time, their literacy standards were as good or better than those of America and Britain. So anyway, and power was another thing, which we find out now, which is so critical to development. So, Nehru was greatly impressed that our country, though huge, but very low growth rate, no development, no long term vision, had been in a few years transformed. When he saw this was counterpoised with how the British had kept Indians backward, our growth rate was hardly half a percent, there was hardly any industry but basic. Of course, we had industry of cotton, jute, sugar, cement to some extent and Tata had started a steel plant and that led to some building of heavy industry as well. But by and far, we were quite backward. So he felt that the capital formation was very low, savings rate was hardly one fourth of what it was at the peak. So it struck him that the quicker and better way of the rapid development was through government’s major participation, not totally keeping out our private sector, but involving them only at the fringes. But he thought all heavy, the basic roadblocks of development, steel, cement was not on their agenda then, heavy industry, machinery building and so on should be in the public sector for two reasons, one the government could mobilize funds and do it rapidly. So that thinking permeated, and this was not new because when he was President of the Indian National Congress in 1936, his philosophy was that he was against private profit motive and against accumulation of capital beyond what was required for immediate needs like housing, farm and so on. And that is how it led to the acquisition of surplus land and abolition of Zamindari and so on and so forth. Now, in the initial years 1947 to 1954-1955, it did not gather much momentum, because the state was not organized and we had the steel frame, which was not very convinced whether bureaucracy could do the job. Many of them were attuned to development of Indian industry, whatever it was, by the private sector. In fact, India became the theatre of war and a lot of rail equipment, even modest armament, ordnance factories were all mobilized in India. Ordnance factory was under because of security reasons, but the other mobilization was done by the private sector or jointly with the private. Tata Steel played a very key role in supplying, because if we did not have steel, we would not have at least the light armaments, railway equipment, which was very necessary for communication. Now, when it came to the Planning Commission was set up, and let us face it that the members were initially ideologues, they also believed that was the temper of the many of were educated at the London School and they believed in the Keynesian theory. And so that was the shape of the first and second plans, till we found that the public sector was neither producing the resources nor did they have the manpower to really manage it well and strong criticism arose in the country out of from academics and business community. First plan was a marginal success, because we had foreign exchange balances that ran out by ‘57, ‘58, there were massive import cuts that again reduced the capital inflow of savings to support the large import bill, because we were largely dependent on imported inputs. So there was a sudden clamp down and then we were in a tizzy going around the world, but our policy was not appealing to the Western countries and particularly United States was inimical. The only country which came forth was Soviet Union to start with, there was no Eastern Zone and Western Zone in those days and the Eastern European countries were very much, I know I was agent for Skoda and so on, the Czechs were as prominent capitalists as any Western country and made some very sophisticated equipment. So that imports continued under the rupee payment agreement and Soviet Union gave us large credits, they were the first to give credits, so steel plant came in and they came in later for heavy equipment. And we had the Bharat Heavy Equipment and Bharat Electricals and all these factories coming up under the public sector umbrella. Some Western technology was later taken, but it was only technology not capital, because we found that Eastern equipment was not up to par and you could not develop and what we got from the Eastern Union was backdated, obsolete, but we had to because there was no foreign exchange available and the rupee payment started. And there were lot of gaps there and corruption grew, because we had the licence permit Raj and as licensing become more difficult, somewhat dubious crowd of businessmen grew on this, who could pedal influence in Delhi, and for which we are still suffering to an extent of course reduced considerably. The British started leaving, their might was largely in Calcutta or Braithwaite and Burn and Company and Indian Iron and Steel and so on. And they had set up some capital equipment plants, but they were not up to par. So foreign inflow was very difficult, we did not have the technical skills and Nehru’s great contribution or some coming part of that was setting up our own technical institutions, the IITs and the IIMs that created the bedrock, which has later helped India. But then not seeing opportunities here, a lot of managerial and technical flights, and this is why the America today, Silicon Valley is more a creation of India. Of course, it has helped us also, there has been a rub off effect. Now in this state of mind, there was a lot of frustration, people went to Delhi for licences, they were not forthcoming, but they did not have the courage to speak out. Then State Trading Corporation was added, that even trading was transferred to the public sector and they did not know what to buy, because they were not trade savvy and we got sort of substandard material, it was all tied up to rupee payment areas and so on, and getting licences was necessary whether it was state trading or not. So you started this leakages in the system because anybody who could pedal favours in Delhi rightly or wrongly could. Now, this frustrated the wing of people who are pretty straightforward who had set some platforms for private development, the Minders in a small way starting with importing jeeps and trucks and so on. Walchand started the heavy industry, the Hindustan Electronics and making some heavy trucks and so on. And Tata’s, so Tata’s first was given a licence for making locomotives because they were imported, that is how TELCO — Tata Locomotive and Electronic — and they found the orders were electronic. So what they thought the right fit was trucks and heavy trucks and they entered into collaboration with Mercedes-Benz, Daimler-Benz, and that really created a platform, a nuclei for the automobile industry and also heavy equipment, because TELCO diversified then into making of lot of heavy equipment like earth movers and stone crushers and road building equipment. Largely training was also done to Soviet Union, I think the first technical agreement for exchange. So, the first bait of people who came. The other thing is the eminent economics and intellectuals were also groomed in Britain. At the time, they were not socialist then, but there was a lot of socialist thinking.