Medha Malik Kudaisya - Tryst with Prosperity: Indian Business and the Bombay Plan of 1944

Planning and competition can be combined only by planning for competition, not by planning against competition. The planning against which all our criticism is directed is solely the planning against competition.

F.A. Hayek

Is Medha Kudaisyas account of the Bombay Plan a tryst with prosperity or is it a tryst with tragedy? As a professional historian, she has narrated the story with calm objectivity and equanimity, driven only by data and research, leaving the answer open to the reader. Her narrative begins with optimism in the middle of World War II when a group of highly competent, well-intentioned men with a proven record of success, came together to plan the economic future of India. It ends a decade later when the same men of high ideals are bitter and pessimisticthey realize that their plan has unwittingly produced the opposite of what they had intended. In the process of creating conditions for wiping out poverty in India, they had planted the seeds for a command economy and paved the way for what C. Rajagopalachari (Rajaji) called license, permit, inspector raj, thereby robbing the freedom of entrepreneurs and businessmen, the very persons who create jobs and wealth in a free society.

The ancient Greeks taught us that it is hard to blame anyone except fate when high tragedy strikes. So, I expect, is the case with the Bombay Plan and the subsequent ones that followed it in independent India. Neither the planners, nor Jawaharlal Nehru should be judged too harshly, for they were creatures of a socialist ageall victims of the zeitgeist, of the spirit of the times, as Ramachandra Guha puts it. Socialism was attractive to any sensitive person in those idealistic days. There was hope and the country was soon to become free. The class with money and influence was tiny and came entirely from the upper castes. It was natural for most Indians to expect that the government of free India should intervene on behalf of the masses; moreover, socialism had captured the imagination of the intelligentsia too. The leaders who had fought for decades for freedom were also in a hurry. They could not wait for the benefits to trickle down through a market-oriented strategy.

If it is hard to blame Nehru or the authors of the Bombay Plan, it is certainly possible to fault Indira Gandhi, Nehrus daughter, who ruled India after 1970. By then, there was plenty of evidence from the rise of East Asia that there existed a better, more successful model of development. Unlike Indias focus on heavy industry and import substitution, this model relied on the export of low-tech, labour-intensive manufactures. Despite being aware of it, Mrs Gandhi not only persisted with her fathers wrong model but went furthershe enacted more controls and tightened the Licence Raj. When individuals blunder, it is unfortunate and their families suffer. When rulers fail, it is a national tragedy.

Bombay Plan is the name commonly given to a set of proposals made by seven leading Indian industrialists and technocrats for the development of the post-independence economy of India. The industrialists were J.R.D. Tata, G.D. Birla, Sri Ram and Kasturbhai Lalbhai; the technocrats were A.D. Shroff, Ardeshir Dalal and John Matthai. Their plan laid out a comprehensive development agenda, arguing for rapid and self-reliant industrialization. They had a sensible goal of equitable growth and hoped to achieve it by doubling the per capita income in fifteen yearswith half the investment going to industry, which was expected to grow fivefold while the agricultural output would double during this period. They assumed that the economy could not grow rapidly without government actively setting up heavy industry via deficit financing, creating thus a sizeable public sector. They also believed that the fledgling private industry of the country would not be able to compete in a free-market economy and argued for protection from foreign competition in the early stages.

Although the industrialists recognized the need for foreign capital and technology, they felt it had to be under state control. They preferred foreign debt to foreign direct investment, and wanted foreign ownership to be prohibited in essential areas such as banking, insurance, power and aviation. Where it existed, they wanted it nationalized. They acceded to a vast area of state controlin fixing prices, limiting dividends, controlling foreign trade and foreign exchange, in licensing production, in allocating capital goods and distributing consumer goods. More ominously, they were willing to accept important limitations on the freedom of private enterprise, and felt that rights attached to private property would naturally be circumscribed.