Industries – The Large and the Small
As I Wake Up Every Morning
At a Meeting of Industrialists called by the Planning Commission, New Delhi, August 2, 1968.
he alleged 'danger of concentration of economic power' is a phrase that occurs with deadly frequency in the Approach Paper (to the Fourth Five Year Plan) and in almost any economic discussion with any Left Wing planner or Government official. We, Indians, prone as ever to swallowing and repeating ready-made catch phrases and slogans without understanding or analysing their meaning, have happily taken to this non-existent bogey deliberately planted in gullible minds by our leftist propagandists.
It would seem that the greatest danger to this country today does not come from our multiplying population, from the threats across our borders, from communal bigotry and strife, from the continued poverty of our people, but, believe it or not, from the concentration of economic power in the hands of a few individuals or firms, conducting large operations – that is, large by Indian standard but small by world standard.
As the head of the largest industrial group in the private sector, I must be possessed of a tremendous concentration of economic power. As I wake up every morning, I carefully consider to what purpose I shall apply my great powers that day. Shall I crush competitors, exploit consumers, fire recalcitrant workers, topple a government or two? I wish Dr. Gadgil or some other eminent protagonist of this theory would enlighten me as to the nature of this great power concentrated in my hands. I have myself totally failed to identify let alone exercise it.
Surely economic power in private hands, if it means anything at all, must be the power to make economic decisions, such as to start a new industry where and when one pleases, to raise capital and borrow money, to employ labour, to appoint managers and fix their remuneration, to fix prices for the goods and services one sells, to travel abroad for business or pleasure, to enter into contracts for managerial or other services, and so forth. Isn't it odd that these are the very economic powers, the exercise of which are almost totally denied to businessmen in our country?
Let us face it, gentlemen. The bogey of concentration of economic power in private hands is a myth deliberately propagated by those who are bitterly opposed to any form of large-scale private enterprise.
In fact, the only fearsome concentration of economic power that exists today, lies in the hands of our Ministers, Planners and Government officials. It is that concentration of economic power which is the real threat to our democracy. It is the economic power wielded by those gentlemen, and not by industrialists, which cause the agonising delays, the misconceived policies and the mismanagement from which our economy has suffered for so long.
Strangely enough, if a large business house like Tatas does not embark for a while upon any new major industrial venture, it is accused of inactivity and lack of dynamism. If it seeks to diversify into a promising medium-sized venture, it is accused of attempting to crush, or block the growth of, small entrepreneurs. If it wishes to embark on a major capital intensive project, it is accused of monopolising capital resources and adding to its concentration of economic power!
The Approach Paper seeks to deny large firms institution finance in order to avoid the concentration of economic power, ignoring the fact that it is the large companies with their large human and physical resources which are best able to execute large projects. What is 'large'? This obsessional and almost psychopathic fear, pretended or otherwise, of the concentration of economic power has become a major factor in the economic policies of the Government. It is because of this obsession that the Managing Agency System is sought to be totally abolished irrespective of the managerial upheaval it will cause.
It is time, I submit, that this question and the allied one of monopolies be taken away from the political arena and entrusted to a commission or other permanent quasi-judicial body, which would investigate and decide on each case on a pragmatic basis. Let the proposed Monopolies Restrictive Trade Practices Commission be entrusted with the task, amongst others, of dealing with all charges of concentration or misuse of economic power. Otherwise this vague charge will continue to poison and paralyse every important economic issue affecting the private sector that comes before the Government.
To a Meeting of the Abmedabad Management Association and the Abmedabad Economic Association, January 27, 1967.
Over the years, Indian entrepreneurs have shown no less initiative and willingness to take risks than their counterparts abroad under reasonably similar conditions, but our Planners seem to forget that the flow of private capital into industrial investment requires an economic atmosphere and basic conditions which, through their economic policies, have largely disappeared in our country.
I need hardly mention the incredibly difficult, time-consuming and frustrating conditions under which Indian private enterprise, willing to undertake new projects or expand existing ones, has had to operate during the last few years. Had it been the Government's deliberate wish to discourage private investment in the industrial field, it could hardly have adopted a more appropriate set of economic and fiscal policies, measures and controls than it actually did.
Armed with a formidable panoply of economic weapons in the shape of punitive taxation and monetary, price, distribution, and other controls, they have successfully created, by the second year of the Third Five Year Plan, a situation where not only has the capital market virtually ceased to exist, but any attempt to create or expand industries in the private sector involves a nightmarish process of long-drawn negotiations, discussions, applications, representations and reminders with, and to, a host of Ministries and Departments, more than sufficient to discourage the most enterprising and patriotic of Indian entrepreneurs not to speak of his foreign collaborators.
When we talk, therefore, of Plan implementation in the private sector, I think it is right that we should treat the Government's industrial policies and the various controls it exercises over industry as forming part of the Plan implementation machinery, for it is obvious that they play a vital part, positive or negative, in the implementation of any project. While, as in Japan and Germany, the right economic policies will encourage and expedite the launching, completion and successful operation of a project, wrong policies coupled with rigid controls and long procedural delays will inevitably retard and hamper the project and increase its cost.
Apart from administrative or procedural delays in the Government licensing machinery, an applicant has also to contend with ideological obstacles for, the Government's decision is often influenced by its hostility to big business and there have been numerous cases where desirable expansion was sacrificed on the altar of this particular bogey.
Thus, we find leading industrial houses, endowed with financial and managerial resources enabling them to tackle large projects with efficiency and despatch, accused of concentrating economic power and of seeking industrial monopolies if they apply for licences for new projects and, of lack of initiative and drive, if they do not!
The Psychology of Delay
To The Central Advisory Council of Industries, New Delhi, January 3, 1969.
Some causes of delay in coming to economic decisions in our country seem to lie in the psychological realm. There is such a thing as the psychology of power which motivates people: power of control and patronage, power to delay an application, power to hold up a file, power to keep people waiting in an ante-room, all of which are consciously or subconsciously treated as symbols of prestige and hallmarks of importance. Lest you may think this is a figment of my imagination, it was admitted to me privately by a leading member of the bureaucracy who had for years exercised delectable powers.
A further psychological cause of delay is a combination of mistrust, of unwillingness to take responsibility, of a fear of being criticised and, of possibly being subjected to enforcement investigation. A large number of decisions which ought to be taken by civil servants, and were so taken in the old days, now go up to the top to await the approval of the Minister. The Minister, in turn, is reluctant to take the responsibility for fear of criticism from Parliament or from within his own party and seeks safety in a Cabinet decision. The Cabinet, split on ideological grounds and under political and other pressures, is reluctant to reach a decision which is not unanimous. Thus, the various layers of economic decision-making in the government – civil servants, Ministers and the Cabinet as a whole – all exercise the happy prerogative of postponing a decision.
A Criteria for Licensing
Indian Junior Chamber, Abmedabad, December 24, 1970.
The Government should adopt a number of fairer and more significant criteria than mere size when dealing with a particular firm or company. For instance:
What has been its record on the quality of its products and the prices it has charged for them?
What has been its labour policies, its relations with its employees, and its wage and welfare standards?
What use has it made of its profits?
How professional and competent has been its management?
What help has it given to small-scale and ancillary industries?
What has been its export and import substitution performance?
How much and how well has it spent on research?
How free has it been from political intrigue?
How has it used its economic power? To the common good or the common detriment?
Last but not least, how clean is its record and reputation?
The adoption of such criteria would ensure that those who, by virtue of their technical, human and financial resources and their past conduct and performance, are best qualified to promote economic growth will not in future be denied the right to expand or diversify merely on the grounds of their size.
I believe that such a change of approach to the problem of promoting while regulating the growth of the private sector would itself go a long way towards eliminating or minimising the uncertainties and endless delays, which today cause so much frustration and bitterness.
Those elements in the private sector, which satisfy the critical requirements of competence, integrity and social consciousness, would not only enjoy enhanced public confidence, but what is more important, would be able to make their maximum contribution to the country's industrial development. Those, on the other hand, who failed to meet such criteria would be encouraged to reform in their own interests, pending which, they would rightly suffer some degree of ostracism, restrictions and constraint.
Launching on an Obstacle Course
Tata Chemicals Ltd., Chairman's Statement, November 1, 1971.
Delays caused by the excessively complex procedures adopted by the Government to process applications from private industry are a serious hindrance to the country's industrial growth. Although this has been known and repeatedly ventilated for many years, no change whatever has taken place in the attitude and policies of the Government in the matter.
On the contrary, whereas some years ago the issue of a letter of intent, let alone the industrial licence which usually followed it almost automatically, provided a virtual assurance that the project applied for would go through fairly smoothly thereafter, today, in 1971, even an industrial licence, often a conditioned one, merely permits the recipient to launch himself on an obstacle course in which the clearance of half a dozen Ministries may be involved. When one of the 'larger houses' is concerned, the matter is subject to Cabinet approval which, naturally, may, and usually does, take months to obtain.
Amongst the prime hurdles in such an obstacle race is the newly created Monopolies Commission. Anti-monopoly laws and commissions are, in many countries, well known and accepted legislative and administrative devices to ensure that a monopoly or dominant control of a market does not operate in a manner detrimental to the public interest, and no objection could therefore be raised on principle to the creation of this new measure in India. In fact, by setting forth sound and reasonable criteria or guidelines, a Monopolies Commission could, if anything, help to simplify and expedite existing procedures. 1 regret to say that our Monopolies Commission is hardly likely to fulfil this expectation. On the contrary, judging from its performance up to now, there is every reason to fear that it will provide a further and grievous source of delay and confusion.
Shareholders of Tata Chemicals will be surprised to know that in the last few weeks little else has been done in the Head Office of your company and of other companies in Bombay House than to answer a host of questions and submit a mass of documentation to the Monopolies Commission not in regard to a project even remotely concerning us but to a project of the Tata Engineering and Locomotive Company (Telco)! Even more surprising is the fact that most of the information sought from us is totally irrelevant to the Telco expansion project itself. Most of the information sought was, in any case, already well known and available in published materials.
The Monopolies Commission's extraordinary action in involving a large number of companies totally unconcerned with the Telco expansion project, in their examination of the latter's application is not only an inexcusable waste of the time of government and corporate officials but a form of undeserved harassment of companies and officials who try to do a good and honest job and serve their company and their country to the best of their ability.
One would have thought that, in the eyes of the Government and its Monopolies Commission, what was significant about Tata Chemicals was not that it had participated in an industrial exhibition, and shared a common building, minor services and a common telephone exchange with other Tata Companies – all, evidently considered as glaring proofs of an alarming concentration of economic power but that the Company's pricing policies were such that in the past year alone it had voluntarily foregone nearly Rs.50 lakhs of profit by selling its products at prices below those of its competitors. The total amount so foregone since price control was withdrawn has amounted by now to well over Rs.2 crores.
That a company with such a record of efficient, honest and socially conscious service to the country, the community and the consumer, should be subjected to this kind of pointless harassment and waste of time and energy, cannot but fill one with despair at the evidence it provides of disregard or ignorance of national priorities, of the lack of any sense of urgency, and of the heavy cost of delays to the nation.
The Tata Iron and Steel Co. Ltd., Chairman's Statement, July 4, 1972.
The Government is still obsessed with the largely mythical bogey of concentration of economic power in private hands, which protagonists of the extreme Left have so assiduously and successfully propagated for years. No distinction has been made between companies or groups with an impeccable record of efficiency and integrity and those known for serious malpractices.
I believe that there has been a real confusion of thought in regard to the true nature and extent of the economic power about which so much fear and suspicion, genuine or politically convenient, has been expressed. With every aspect of large-scale industrial activity almost totally controlled by the Government through an all-embracing panoply of controls and regulations, to which is now added a measure of managerial control by the Government's monopolistic lending institutions, it is clear that no real economic power is any longer wielded by industrial management, if by 'economic power' is meant the power to make one's own economic decisions.
Deprived of the right to decide what and how much to produce, what prices to charge, how much to borrow, what shares to issue and at what price, what wages and bonus to pay, what executives to employ and what salaries to pay them and in some case, what dividends to distribute, directors and top management from the Chairman down, hardly have any economic power in our country. Taking my own case, I doubt that there is anywhere in the world, outside India, any industrial executive in charge of a major enterprise with less real power than I have. In fact, no Government in the world has taken greater precautions to ensure that real economic power is removed from the management's hands and is concentrated in its own.
I submit that the right policy for a socialist Government such as ours, armed with the immense powers that it has, should be taking every possible step to curb the generation and anti-social use of illegitimate funds to release for nation-building purposes all the resources, energies and dedication of those in the private sector whose past record has shown them to be worthy of the nation's trust.
I still hope, admittedly somewhat against hope, that this is the policy which the Government will one day adopt as being the only one capable of harnessing all available resources to the common effort of achieving maximum growth with maximum social justice.
Dr. D.R. Gadgil was Deputy Chairman of the Planning Commission.