Price Policy in Nationalised Industry and Trade

By P. H. SHESHAGIRI RAO

Summary

P. H. Sheshagiri Rao’s pamphlet, published by the Forum of Free Enterprise on 8 March 1960 and drawn from a 1959 lecture at the Institute of World Culture in Bangalore, takes as its provocation two contemporary moves: the All-India Congress Committee’s Chandigarh resolution to widen nationalised industry and trade, and the National Development Council’s decision to push ahead with state trading in foodgrains. Rao argues that the ruling party is treating nationalisation as a matter of ideology and sentiment, and that it falls to the intelligentsia to bring the question down to earth by asking a single hard question: at what price will nationalised industry and trade deliver goods to the consumer?

He walks the reader through the economics of price formation in buyers’ and sellers’ markets, in shortage and emergency, and through the four contract types familiar from procurement — formed, farmed, negotiated and cost-plus. He then turns this taxonomy on the State itself. The slogan of “no-profit no-loss”, he writes, was a carrot dangled before a credulous public; once the State entered industry and trade, the profit motive was quietly reinstalled under names like “pooled price” and “retention price.” His central case study is the State Trading Corporation’s cement operation, where, by his reading of the S.T.C.’s own annual reports and balance sheets for 1956-57 and 1957-58, an “equalised price” concealed an effective levy on imported cement, a 105 per cent margin on subsidised stocks, and a net trading profit of roughly Rs. 1.12 crores routed through “service charges” and dalali commissions. He extends the indictment to steel (the “retention price” device), locomotives (the dispute between Chittaranjan and TELCO), and the proposed state purchase of foodgrains, where varying soils and tenancies make any single “fair price” arbitrary.

The deeper argument is structural. When the State is producer, regulator and monopolist all at once, the consumer loses the open-market exit that disciplines a private monopolist; the citizen has “no chances of beating down the price” the State demands. Pooled prices, he insists, do not remove the cause of complaint, they only remove the accusing finger from the inefficient producer (the State itself) and re-aim it at the efficient one. The whole apparatus, he concludes, functions as backdoor taxation — “every sale becomes a collection of tax” — and points toward the kind of “undiluted totalitarianism” already in place in Communist Russia.

Rao closes by setting two alternatives before India: the Russian path of nationalisation and coercion, and the West German path under Ludwig Erhard, whose Prosperity Through Competition he cites as evidence that voluntary, free-enterprise progress is both possible and durable. He invokes the British electorate’s denationalisation of steel under the Conservatives to argue that “a mature democracy has decided that socialism leads to state capitalism” and that private enterprise is fully compatible with social justice.

Key points

• Frames the pamphlet around the All-India Congress Committee’s Chandigarh resolution to extend nationalised industry and the National Development Council’s move to state trading in foodgrains, arguing that nationalisation is being defended on ideology rather than on price to the consumer.

• Walks through price formation in buyers’ versus sellers’ markets and the four contract types — formed, farmed, negotiated and cost-plus — to set up a taxonomy he then applies to the State as trader.

• Treats “no-profit no-loss” as a public-relations carrot that the State quietly abandoned once in business, replacing it with “pooled” and “retention” prices that revive the profit motive under euphemisms.

• Uses the State Trading Corporation’s cement operation as his central case, citing S.T.C.’s own 1956-57 and 1957-58 annual reports to allege concealed levies on imported cement, a 105 per cent margin on subsidised stocks, and a roughly Rs. 1.12 crore net profit routed through “service charges” and dalali commissions.

• Extends the critique to steel retention prices, the Chittaranjan-versus-TELCO locomotive dispute, and the proposed state purchase of foodgrains, where varying soils and tenancies make any single “fair price” arbitrary.

• Argues structurally that when the State is producer, regulator and monopolist, the citizen loses the open-market exit that disciplines a private monopolist, and that pooled prices merely shield the inefficient producer.

• Reads State Trading as backdoor taxation — “every sale becomes a collection of tax” — and warns it leads toward the totalitarian arrangement of Communist Russia.

• Closes by contrasting the Russian path with West Germany under Ludwig Erhard and Britain’s denationalisation of steel under the Conservatives to argue that mature democracies have decided socialism leads to state capitalism.

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