Rana Dasgupta - Capital - The Eruption of Delhi

In Mahalanobis’ conception, the essential strategic industries — such as oil and gas, atomic energy, defence, aircraft, iron and steel, electricity generation and transmission, heavy electricals, telecommunications, coal and strategic minerals — were the exclusive preserve of the state, while both state and private enterprises could operate within a second category — which included chemicals, pharmaceuticals, fertilisers, pulp and paper, and road transport. The remaining industries — such as consumer goods — were open to private companies. Private enterprise was subject to intense controls, however: businesses could not introduce new products, set up a new plant, fire workers or make major investments without acquiring specific government licenses. It was a highly restrictive regime but it turned out to be a rewarding one for established interests, and Indian big business was not generally opposed to it. Those big business houses that escaped nationalisation were kept under the watchful eye of the Congress Party; in return for their docility they were given cosy access to commercial licenses, which kept competition away and ensured high profits even when, as was often the case, their actual products were of terrible quality. (The defectiveness of Indian material life in those years, perversely, became over time a further justification for the system, since if markets were open then foreign companies would flood India with products of diabolical perfection and Indian companies would be annihilated in their own land.)

But Nehru was not greatly preoccupied by the quality of consumer products. He was drawn to the monumental. He loved to be photographed with large dams, which produced two other essential developmental forces — electricity and irrigation — and for which he entertained exalted feelings: at the dedication to the nation of the vast Bhakra dam, he called it — for he was not only a modern but a secularist — “the new temple of resurgent India”. The three great steel plants built during those years were also close to his heart, for they demonstrated India’s ability to harness its own mineral resources and produce a vital industrial asset without outside assistance. He was eager for India to boast great institutions of research and higher learning: he showered money on the Cambridge-educated theoretical physicist Homi Bhabha, who set up two high-level research institutes — the Tata Institute of Fundamental Research and the Atomic Energy Establishment, Trombay — and he established the lavish Indian Institute of Technology and Indian Institute of Management networks to cultivate home-grown leaders for a technocratic future.

These institutions, in fact, would continue to play a critical role into our own century, for they turned out many of the men and women responsible not only for India’s technology boom but indeed, since a large number of them ended up in Silicon Valley, for America’s. But in general Nehru’s vision of how the economy might flourish was less enduring than his vision of political life. As it turned out, the complexity of actual economic processes proved too great for even such gifted planners as his: the second Five-year Plan was abandoned because its theories broke down in the face of unexpected real-world developments such as foreign currency shortages and inflation. By the time of Nehru’s death in 1964, and the end of the third Five-year Plan, the promise of the early years was looking remote: many sectors of the economy had been choked by regulatory restrictions and lack of capital, and the country was suffering severe agricultural shortages. Nehru left behind a thwarted economy, whose resuscitation was the subject of furious debates for nearly three decades thereafter.

Part of the reason these debates were so drawn out, however, was that Nehru’s conception of India continued to enjoy an almost theological prestige, even as the economic system withered on which it was, to a great extent, based. It was a lofty, brahminical conception, which disdained money-making and worldly vanity; private enterprise, and the buying and selling of consumer products — especially luxury goods — were seen as vulgar and granted little freedom or respect within the nation’s life. The nation itself was the proper object of aspiration, and the closed economy was a sort of injunction, too, against too much dwelling on the outside world. As Nehru’s own cosmopolitanism ebbed away in the years following his death, there entered into Indian life a particular, self-involved texture as the wider world gradually became, even for the educated and affluent, more remote and prohibited. During the 1970s and much of the 1980s, for instance, foreign travel by private citizens, while technically allowed, was difficult even for the few who could afford an air ticket, because of the severe restrictions placed on currency exchange. An international phone call had to be booked a day in advance. Very few foreign companies could invest in Indian firms or set up Indian operations of their own, and imports of foreign products were largely banned.

Over time, such repression gave rise to strange fantasies about the outside, which, like prisoners’ dreams, were enervating and ambiguous. On the one hand, there was a great frisson about everything international: those who did travel abroad during that period, for instance, were a tribe apart, and whole towns turned up at airports to welcome them home with garlands, and to glimpse the radios and perfumes they brought back from other lands. But, at the same time, there were genuine fears of the evil that foreign countries could do, and the barriers that protected India’s innocence could seem powerfully reassuring. Thinking back on long periods of insidious foreign rule, India maintained a paranoia about the possibilities of foreign infiltration and corruption — Pakistan and the CIA, for instance, were supernaturally present as agents of ill-luck in Indian life.

Perhaps it may be understood from all of this why India could not contemplate the dismantling of its state controls and the embrace of global capital until there was simply no other choice — even though the Indian economy was conspicuously dysfunctional for decades, and even given the spectacular growth, during the 1970s and ’80s, of such neighbours as South Korea and Taiwan. The idea was simply too blasphemous. And yet, by July 1991 the prevailing system was in tatters and there was, indeed, no other choice. The Congress Party was discredited by scandal and rocked by the recent assassination of its leader, Rajiv Gandhi, who was Nehru’s grandson and a former prime minister — and the economy had reached a fatal crisis. Perennially unable to export enough to pay for what it imported, despite the old rhetoric of self-sufficiency, India’s foreign exchange reserves dropped in the middle of that year to just over half a billion dollars — enough to pay for about three weeks of essential imports. In order to get through the situation, the government negotiated an emergency loan of $2 billion from the International Monetary Fund. This loan came at a price. Pure gold, first of all: the government was forced to secure the loan by pledging sixty-seven tonnes of its gold reserves as collateral; forty-seven tonnes were airlifted immediately to the Bank of England and twenty to the Union Bank of Switzerland. The other condition of the loan was immediate free-market reforms.

Manmohan Singh had been appointed finance minister precisely because he had been calling for such reforms for many years, even when they were an anti-Indian taboo, and he seemed to be the person best equipped to implement them. What he announced in 1991, indeed, went far beyond the demands of the current crisis: it comprised a fully conceived system which had been developing in his mind since the 1960s, when he wrote his PhD thesis about foreign trade. This system heralded a new economic era to come and, as he made clear in his epochal budget speech, it could not be introduced too quickly: “Neither the Government nor the economy can live beyond its means year after year. The room for manoeuvre, to live on borrowed money or time, does not exist anymore. Any further postponement of macroeconomic adjustment, long overdue, would mean that the balance of payments situation, now exceedingly difficult, would become unmanageable and inflation, already high, would exceed limits of tolerance.”