Rights and Duties
The Tata Iron and Steel Co. Ltd., Chairman's Statement, August 24, 1948.
hile some responsibility for our present economic ills undoubtedly attaches o the Government's policies, or lack of policies, it would be foolish and unfair to place the whole of the blame on them. Considering the immensity and unprecedented complexity of the problems with which they were faced during the past year, they have achieved much which the country should recognise and should be grateful for. But the Government could and would have achieved very much more if it had received the full cooperation of the public.
It is lamentable that so many efforts of the Central or Provincial Governments to introduce measures calculated to improve economic and social conditions, have been defeated or frustrated by selfish and anti-social activities on the part of various classes of our people. There is no way out of our present difficulties which does not involve the need for discipline, civic sense, and sacrifice of personal gain and convenience, on the part of all concerned, and particularly of those who can afford it best.
A prosperous, democratic state cannot be created unless democratic rights are accompanied by the full realisation of the duties and obligations which every citizen owes to the country and to its Government.
The Tata Iron and Steel Co. Ltd, Chairman's Statement, September 18, 1958.
Never before has it been more necessary for us to be practical and realistic in our approach to economic problems and, in the process, to be willing to shed some of the prejudices and dogmas which have so heavily coloured our thinking in the past.
The basic ingredients of further economic growth should be clear by now. First, it is imperative that we become self-sufficient in food. Second, that we generate a sufficient annual surplus in our total balance of payments to pay for essential imports and to service our foreign debt.
Any further major expansion of our economy thereafter, particularly in the industrial field, will depend mainly on our ability to ensure a continuous flow of fresh capital. Except for such success as we may achieve in bringing into use some of the considerable hidden wealth in our country, the amount of our annual savings large as they are in percentage terms will clearly not be adequate to finance development of the magnitude, and at the rate, required. It must be supplemented by investments and loans from abroad.
One of our main tasks, therefore, will be to induce foreigners and our own people living abroad to invest in productive enterprise in India. This cannot be achieved unless we realise that capital flows most readily in directions where safety and opportunities of a good return and appreciation are greatest. If Puerto Rico has made such astounding progress in the last ten years and if Canada and other countries in the American Continent can attract all the capital and all the constructive enterprise they need, it is for the simple and obvious reason, constantly ignored or misunderstood in our own country, that it is made welcome and allowed both a safe harbour and an attractive return.
If our Government and our Parliament, were to let it be known that India was a land of opportunity for constructive and honest enterprise, where those who risked their savings or their surplus capital could reap a fair reward, we would see such a flow of capital from within and from abroad and such an upsurge of economic activity as would transform our land and our people's way of life in a few decades.
The surest way, on the other hand, to drive Indian capital out of sight and to discourage foreign investment is to continue with those elements in our economic philosophy and policies which have done so much in the last ten years or so to inhibit or penalise enterprise and initiative. I would mention, in particular, the excessively complex and rigid controls imposed on industry under various enactments, the crushing burden of individual and corporate taxes, import and excise duties and other imposts, often of a discriminatory character, which we choose to call an integrated system of taxation but which in fact merely saps the will to work and the willingness to take risks all added to an ideological attitude of hostility and mistrust towards private enterprise.
Destroying the Black Market
The Tata Iron and Steel Co. Ltd., Chairman's Statement, July 13, 1973.
One thing that is absolutely clear is that any policy, which, for whatever reason, discourages investment in, and the growth of industries, can only result in greater shortages, and therefore greater inflation. No matter how good the system of distribution may be, and we have yet to see one in our country, it must inevitably break down in a regime of shortages.
In the critical economic situation in which we find ourselves, salvation can only come from a rapid and massive increase in production, equitably distributed. What is needed is a rational, innovative, undogmatic package of industrial policies and measures calculated to stimulate production and investment in the priority industries. If, to achieve these objectives, the prices of basic products, which have been up to now kept below economic levels, rise to some extent, it should not be forgotten that as things stand today, the consumer pays black market prices for scarce commodities and most of them are scarce. Only policies and measures directed at increased production and investment can destroy the black market and eliminate the shortages on which it feeds and which have bedevilled the economy for so long.
While this is hardly the place to suggest specific policies and measures, I may be forgiven for uttering at least a note of warning to the private sector of industry and trade on the one hand, and to our policy makers on the other.
I urge the former to realise that in the present temper of the country and in the scarcity conditions prevailing over almost the whole range of consumer products, profiteering, directly or circuitously, and other malpractices, apart from being morally wrong, will be fatal in the long run to those indulging in them by unleashing against them forces and reactions from the consequences of which there will be no return.
To the Government, I would plead that a reasonable rate of economic growth, with social justice, can never be achieved under a set of policies which restrain investment in the name of combating inflation or of curbing a mythical concentration of economic power in private hands. I once again repeat that there can be no detrimental concentration of such power in an economy operating under the all-embracing regime of controls, licences and permits which exists in our country.
The Road to Social Justice
At The International Seminar of Economic Journalists, New Delhi, December 5, 1972.
As far back as the early 1940s, the so-called Bombay Plan prepared in 1944 by a small group of Indian industrialists including myself and in the deliberations of the Planning Committee of the Congress under the Chairmanship of Jawarharlal Nehru, which was the first attempt at economic planning in our country, the need for social justice as a corollary of growth was clearly emphasised. The Bombay Plan was emphatic that economic growth by itself would not solve the problem of poverty unless accompanied by a proper system of distribution to eliminate gross inequalities of income.
If, therefore, nearly thirty years later, it has been found necessary to re-emphasise the need of ensuring that social justice accompanies economic growth, it is not because we were not conscious of it from the start, but because we only now have come to realise that however high its rate, economic growth does not automatically generate a proportionate rise in employment, through which alone the masses can acquire purchasing power.
Also, we were wrong in naively believing that such simple mechanisms as a steeply graded income tax and other forms of selective taxation would, by themselves, ensure a fair distribution of the fruits of growth and thus bring about social justice.
And so we see today, the inhumanity of poverty still haunting the lives of hundreds of millions of people. Is it surprising, therefore, \that there has begun to be some disenchantment with economic growth per se, and a renewed clamour that social justice shall permeate the process of growth?
Let us be clear as to what we mean by social justice in the Indian context. From repeated pronouncements in official quarters, it would seem that social justice is to be equated with socialism, for our objective is constantly described as the achievement of socialism. Unfortunately, our brand of socialism has never been clearly defined. It is too often treated not as the great humane philosophy and system of social and economic organisation that it is meant to be, but as a popular vote-getting slogan aimed at impoverishing the rich rather than enriching the poor and as a means of acquiring political and economic power and the fruits thereof, through total control over the economy.
An eminent Indian economist, known for his humanitarian outlook, has recently stated that 'the essence of socialism is to establish in the public interest social and public control over the whole economy'. I respectfully disagree. To the masses of the people of India today and for many years to come, the essence of socialism, and therefore, of social justice, is the removal of poverty, which to them means primarily providing them with jobs and satisfying their essential needs.
In a country like ours, it would not be enough that the fruits of growth be shared by all. Because of the gross inequalities that exist between the vast majority who are poor and the very few who are not, social justice further requires that the additional wealth created by economic growth should primarily accrue to the poorest in the land.
The clear message of the new economics of growth, of which we hear so much today is that a high rate of economic growth is an essential but not a sufficient condition of social justice, that there must be other mechanisms planted into the economic system, positively directed at ensuring that growth and social justice are achieved together.
Where Did We Go Wrong?
The first and perhaps the most important of the factors which have contributed to our failure to make a real impact on poverty expressed in terms of the total number who live below the poverty line has clearly been the uncontrolled growth of our population, which in the quarter of a century since we achieved Independence has increased by a staggering 200 million souls, the great majority of them in the poorest strata of our society. This is equivalent to almost as much as the total present population of the United States and twice that of Japan or Brazil.
Secondly, we failed to appreciate the fact that poverty in India was mainly due to a lack of employment without which the poor can have no purchasing power.
Not content with accepting the easy and comforting conviction that rapid industrialisation combined with growing agricultural production would be itself open up the required avenues of employment, we compounded this fatal assumption by a capital intensive strategy of industrialisation, which automatically resulted in neglecting the imperative need to maximise employment opportunities.
I would be the last to contest the importance of basic industry. After all, steel and electric power, along with technical education, were the very foundations of Jamsetji Tata's dream of a modern industrialised India and that too, nearly a hundred years ago. The question, however, is one of priority. The right priority at one period of time might quite possibly be the wrong priority at another time.
This brings me to the third cause of our poor overall economic performance, namely, our failure to allot a high enough degree of priority to meeting the requirements of the people in basic items of mass consumption along with the purchasing power that would flow from an employment-oriented plan. For, what is poverty if not the deprivation of the essential needs of life – food for our stomachs, clothes and shelter for our bodies, fuel to cook with, pure water to drink, medicine to fight disease, transport to carry our goods to market. Employment by itself would be meaningless if it did not provide the means to acquire the goods and services that we needed. If we could establish such a pattern of growth as would ensure the simultaneous satisfaction of mass needs with the generation of mass employment, we would have found the answer to the most critical problems of the day – an admittedly arduous task.
The fourth, and unfortunately inescapable, cause has been the enormous expenditure incurred on defence, totalling some Rs. 12,650 crores at 1971-72 prices in the last ten years alone. It takes little imagination to visualise how much further ahead we would be today if only, say, half of this expenditure had been devoted to employment oriented economic development. Even though expenditure on defence has shown a slight decline as a percentage of the national income, it is distressing that however necessary it may be, we are still called upon to devote more than one-third of our total national savings to military purposes. All these factors provide an answer to the question 'Where did we go wrong?' posed earlier, which leads us to the final question 'Where do we go from here?' If the diagnosis is right, the remedies are clear.
Where Do We Go From Here?
First, we must, at all costs, make a much more earnest effort at controlling the growth of our population. As it is, we are running out of time and there is no longer any possibility of preventing it from exceeding 1,000 million souls by the end of the century. The whole nation must be aroused to the catastrophic consequences of our failure to bring down, within a couple of decades, our rate of growth to, at most, half the present figure of 2.4%.
Second, as we are all agreed, our next Five Year Plan should be re-oriented towards creating the maximum of opportunities for employment, both through the promotion of labour intensive industries and through productive schemes of rural mass employment.
If I have qualified this recommendation with a time period, it is because I recognise that such a pattern of economic activity is a stopgap one, aimed primarily at mitigating, as quickly as possible, and wherever the need arises most, the most cruel of all human afflictions, namely, the lack of a chance to work and earn a living. Gainful and productive employment can surely be maximised in some labour intensive activities such as in agriculture, in mining, in building roads and dams, in digging canals and wells, in schemes of re-forestation and other projects, which would act as shock absorbers for the next few years after which, hopefully, the economy will have picked up a faster rate of growth. Thereafter, with employment and purchasing power raised to a higher level, and with normal avenues of tertiary employment created by the multiplier effect of developing industries gradually mopping up unemployment, the time will be ripe to stop such artificial priming of the employment pump and to adopt a different set of priorities more suited to a mature economy.
Third, the time has come for us to give our industrial plans a much greater emphasis than in the past on providing those goods and services which the masses primarily require. This will help to combat inflation and the social injustice it creates; it will provide a market for mass consumption; it will generate proportionately higher employment than in any other area of industrial activity; it will attract a host of new entrepreneurs; it will take industry to the countryside; above all, it will give concrete shape to the 'garibi hatao' programme in a manner that simultaneously promotes economic growth and social justice.
Fourth, we must develop a more meaningful set of distributive mechanisms than we have today A poor country like India cannot avoid relatively high taxation to raise the rate of savings and to curb dangerously high inequalities, but we must ensure that the tax system is such that it encourages economic growth. For only thus can the maximum of resources be made available to the Government to finance schemes of social welfare. Should we not, therefore, as the Wanchoo Committee has suggested, adopt a more rational system of taxation than the present one, high enough to produce the revenues we need but not so high as to divert the taxable funds of high income earners into the black market as happens today?
In a developing economy such as ours, beset with perennial shortages, it is only right and proper that there should be controls, but need there be so many? Need they be so wide ranging, detailed and time consuming? Must they be so predominantly physical? Are we sure that the vast variety of controls we have introduced in the name of socialism are serving their true purpose and are not self-defeating in the long run?
Finally, even at the expense of inviting misinterpretation, I must stress once again the paramount need to accelerate our rate of economic growth, for a low rate of growth is itself a major source of social injustice. What social justice can there be when, as a result of inadequate production, prices of the basic items of mass consumption soar by 10% in one year as they have done in the past twelve months?
The worst victims of the restrictive policies launched in recent years in the name of social justice have been none other than the poorest amongst our people.
Let us, therefore, restore, in clear terms, the basic foundations of economic growth with social justice. Let us commit ourselves to a programme directed at a maximum rate of growth and one which will simultaneously ensure that the major share of the gains of such growth goes to the most needy Such a growth can be so constructed that every increase of 1% in the national income, will be accompanied by a much greater increase in the per capita income of the poorest third of our population without destroying the incentives and rewards essential to economic effort.
A Multi-dimensional Approach
Speech at the Inaugural Session of the National Convention on Industry and Trade organised by The Associated Chambers of Commerce & Industry of India, New Delhi, May 16, 1988.
We began magnificently forty years ago. We dealt, with great competence, with overwhelming problems and difficulties, including the tragedy of Partition and armed conflict with Pakistan. We integrated five hundred and fifty-four Princely States, and framed and adopted a monumental Constitution.
We went on, in subsequent decades, to achieve other praiseworthy objectives:
Unfortunately, we also made some crucial mistakes, which seriously retarded our economy's progress:
Fortunately, these and other failures were largely of our own making, most of them being reversible. Thanks to the courageous realism of our present Prime Minister, the new economic policy of liberalisation he introduced in the past three years has already resulted in the virtual disappearance of scarcities and black market premia, in a phenomenal growth of funds raised from the capital market, a hefty rise in tax yields and, generally, in the emergence of a buyer's market in scores of goods.
Much more, however, needs to be done in a number of fields.
First, the population problem should be officially and publicly recognised as a major threat to the progress and ultimate survival of our nation as a modern and prosperous state. The country's health and family planning programme must, therefore, be treated as a basic national objective involving all policies and plans directly and indirectly affecting the people. Grossly inadequate provisions for funds for family planning programmes continue to be made in our Five Year Plans and annual budgets, and it is only on the rarest occasions that the subject is ever mentioned in policy announcements, in Parliamentary debates, in the media, in academic or professional circles or virtually, in fact, by anyone at all in our country.
Although any steps aimed at intensifying the country's existing family planning programmes or introducing new ones can ultimately be taken only in the states, the Central Government, as the main custodian of all national objectives, must accept a major and continuing responsibility for monitoring, assisting and supervising such programmes.
Unemployment, or under-employment, is, I suggest, our second most important and urgent problem, for it is at the very root, and a major cause of the poverty of our nation, which particularly haunts and oppresses our rural people. Industrialisation is often suggested as the remedy, without giving sufficient recognition to the fact that the vast majority of our villagers are unskilled except in simple agricultural and related tasks, and that modern industry, while requiring relatively few hands, does require modern industrial skills, which it would take years to create, while the need is to provide employment today. That being so, it seems clear to me that any scheme aimed at providing massive employment opportunities, mainly in rural areas, must primarily be for unskilled jobs.
As it happens, there is an enormous potential in our country both in projects and in manpower for building roads, for planting trees, for digging wells and canals, and for other forms of water and soil management. Such projects would have the additional merit of creating productive and quick yielding national assets, while allowing the workers the freedom to revert, seasonally, to agricultural work without impeding the long-term progress of the projects.
If there is not enough money, at first, for both such labour intensive public works and large capital intensive industrial projects, preference should, I suggest, be given, wherever possible, to the former even at the cost of a slow-down or temporary postponement of the less urgent amongst the latter.
The third most important and urgent task is the need to eliminate, once and for all, the power shortages and power cuts which perpetually plague our economy. Most of these shortages arise from the low efficiency of most of the public sector thermal power plants, owned and operated by State Governments, in which the average utilisation of installed capacity is much lower than that achieved throughout the modern world, including one or two units in India.
Without wishing to be controversial in the matter, the fact is that government management through politically nominated Electricity Boards is probably the worst possible instrument of management of sophisticated and sensitive industrial plants, largely because of the irresistible political pressures imposed on such Boards to promote employment, who, as a result, grossly overman their plants.
Even after raising their efficiency to the required level, substantial additional generating capacity will continue to be required year after year. If the Government finds it difficult to finance it in toto, one solution, which recent official pronouncements would suggest that the Government is ready to consider, would be to allow or invite private enterprise, which already operates some large power projects with proved efficiency, to step into the breach. I believe they would be happy to respond. As an alternative, the new projects could be in the form of joint enterprises between the Government and the private sector.
Covered in the section on 'Population'.