Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
India held general elections to the 4th Lok Sabha. The country had its fourth
outing at the hustings since Independence in August 1947. This fourth general
elections, which were conducted for 520 seats from 520 constituencies,
represented 27 Indian states and union territories. For the second time, there were
only one-seat, constituencies and two-seat constituency were abolished in 1962
elections. Congress which till now had never won less than 73 per cent of the seats
in Parliament, it was more bad news ahead
It was more bad news ahead. It's internal crisis stared at its face in the results of
the 1967 elections. For the first time, it lost nearly 60 seats in the Lower House,
managing to win 283 seats. Until 1967, the grand old party had also never won
less than 60 per cent of all seats in Assembly elections. It also suffered a major
setback as non-Congress ministries were established in Bihar, Kerala, Orissa,
Madras, the Punjab and West Bengal. Among all this, Indira Gandhi, elected to
the Lok Sabha from Rai Bareili constituency, was sworn in as the Prime Minister
on March 13, 1967. In order to keep dissident voices at bay, she appointed Morarji
Desai, who had opposed her candidature as PM after Lal Bahudur Shastri's death,
as Deputy Prime Minister of India and Finance Minister of India. Some reasons
for the dismal performance were that both popular prime ministers Jawaharul
Nehru and Lal Bahudur Shastri had died, since then the Congress had been in
crisis with Indira Gandhi and Moraji Desai both wanting the position of Prime
Minister. In the end Indira was chosen, mostly because of the support of Senior
Congress leader Kumararasami Kamaraj who was also the chief minister of
madras (Now Tamil Nadu). The Congress' dismal electoral performance forced
her to become assertive and opt for a series pro people policy measures and one
such measure of, devaluation (June 1966) Nationalisation of Banks and abolition
of privy purses in tune with her slogn Garibi Hatao (Meaning "Abolish Poverty"
in Hindi). and the proposed anti-poverty programs that came with it which were
designed to give Gandhi an independent national support, based on rural and
urban poor.
The Committee argued that the RBI's control over banks had ensured proper
planned development. Social control over banks would not succeed. The
Committee pleaded for a complete takeover of the banking system. This report,
which must have been handed over to the then Prime Minister, Indira Gandhi, was
kept confidential and published in October 1969, only after the banks were
nationalised. In July 1969, the leaders of the young Turks submitted a
memorandum to Kamaraj, asking for nationalisation of privat e commercial banks
and general insurance companies. The same month, Indira Gandhi submitted a note
to the AICC meeting in Bangalore. She stated that the Congress had always
favoured the nationalisation of financial institutions. She criticised the banks postsocial control, for having industrialists as chairmen. Thus, social control could not
reduce the concentration of power.
She pointed out that with nationalisation the proportion of bank investments in
Government securities would go up. She believed the Government could command
more banks' assets only through nationalisation. It seems surprising Indira Gandhi
was not aware that the government could always get a higher share of assets'
portfolio of banks by simply altering the statutory ratio. Nobody seems to have told
her that bank nationalisation was not necessary for the purpose! Further, she could
have amended the socia l control provisions such that industrialists were not made
chairmen. A careful scrutiny of the four economists' report leads to the conclusion
that for most of the objectives specified, bank nationalisation was not necessary. It
was strange that they th ought reallocation of credit would lead to changes in the
ownership of capital.
P. N. Dhar, in his Indira Gandhi, the `Emergency' and Indian democracy (Oxford
University Press, New Delhi, 2000) gives some idea of the thought that went
behind the nationalisation decision. He says P. N. Haksar, then Chief Advisor to
Indira Gandhi, did not like Dhar's reservations, expressed in an interview to the
Statesman on November 15, 1967, about bank nationalisation. ``I had several
meetings with him on the nationalisation of banks. I particularly remember two
such meetings. In one, Mr. Krishna Menon made the startling point that if we
nationalise banks we do not have to bother about mobilising resources! The other
meeting, along with Mr. K. N. Raj, was at Mr. Haksar's house. I learnt later that the
second meeting was at the suggestion of the P rime Minister, who was keen to
know Dr. Raj's views on the subject. Dr. Raj was wholeheartedly for
nationalisation and said it would take at least six months to prepare for it and that it
should be done as an elaborate but clandestine exercise. Three day s later banks
were nationalised.''
Dr. Dhar adds: ``In a separate meeting with him I told Mr. Haksar that I could see
bank nationalisation as a powerful weapon in the factional fight against the
Syndicate, but if it was just a flash in the pan, unaccompanied by constructive steps
to accel erate growth, it would yield no long-term economic and political benefits.
Indeed, I feared it might just trigger off a movement of vulgar populism. I sensed
the danger of populism from the manner leftist Congressmen and Communist Party
intellectuals pre sented the case for bank nationalisation. But quite frankly I did not
realise that my apprehensions would come true almost immediately after the deed
was done.'' I wonder whether Dr. Dhar did prepare a written memorandum placing
his position on written r ecord for posterity. It is not clear whether Dr. Raj
submitted any written memorandum putting up the case for nationalisation of
banks. Dr. Dhar would have known the specific grounds for Dr. Raj's support for
bank nationalisation. Clearly being an econom ist, he (Dr. Raj) would not have
pleaded for the same on ideological considerations.
In 1967, Financial Express brought out a supplement on banks. It carried among
others two articles, one by me and another by Prof. Madhu Limaye, the wellknown socialist. I had argued that bank nationalisation was like using a sledgehammer to strike a n ail in to a wall. Prof. Madhu Limaye also took the view that
bank nationalisation was not desirable as social objectives could be achieved more
efficiently without nationalising banks.
The 1968 supplement of the Financial Express examined favourably the detailed
working of the social control mechanism, which had been introduced as an
alternative to bank nationalisation. The late Dr. R. K. Hazari, showed me a report
in early 1969 where he had pleaded for bank nationalisation to reduce the
concentration of economic power. I remember telling him that he was handing a
powerful bomb to the politicians, who would use it to their own advantage. I told
him that economists should not naively g ive instruments meant for noble purposes
to be handled by politicians who had their own objectives.
Though I had no evidence, I knew that L. K. Jha, the then RBI Governor, was
against bank nationalisation, and a similarly strong view would have been held by
Prof. J. J. Anjaria, the then Deputy Governor. I do not know whether the RBI was
consulted at al l on the matter. The June 1969 measure must have been a surprise to
them. I. G. Patel, the then economic advisor to the Government, had a role in
chalking out the scheme of social control that Morarji Desai had earlier introduced.
(At the time of bank na tionalisation, Indira Gandhi also held the finance portfolio.)
It seems Indira Gandhi brushed aside Patel and Jha, giving more credence to the
opinions of Dr. Raj on devaluation (June 1966) and bank nationalisation (July
1969), than to her official advis ors in the government.
It is possible that Dr. Raj being a true economist, may have peppered the advice
with spicy conditions, but on both occasions Indira Gandhi, being a true politician,
enjoyed the meal after tossing away the spice!
A few months after bank nationalisation, there was an international seminar at the
Gokhale institute, Pune. Dr. P. N. Mathur, the Director, invited Dr. Raj, who had
then become the Vice-Chancellor of Delhi University. One night he arranged a
debate betwe en Dr. Raj and me on bank nationalisation. I remember examining
point by point the alleged economic reasons for bank nationalisation. I argued that
the bank nationalisation would not achieve the grand objectives specified, but the
feasible objectives cou ld have been achieved without nationalisation. On the other
hand, nationalisation would open a gateway, allegedly in social interest, to misuse
depositors' funds. (I felt Dr. Raj was not as enthusiastic about bank nationalisation
as he sounded when he ga ve his famous broadcast talk from Delhi on June 19.) I
took the same position at a seminar organised by the Indian Merchants Chamber in
Bombay immediately after bank nationalisation. That seminar was blessed by Prof.
Anjaria.
A number of questions arise regarding the procedure adopted by the then
government in suddenly switching from social control to bank nationalisation.
There was no official report, which had gathered expert opinions and evidence, on
the need either for so cial control or for bank nationalisation. The chiefs of private
banks had not been consulted as to the need and implications of the proposed
measure. There is no record of any written memoranda by top government
officials, which examined the implications of either social control or bank
nationalisation. As in the case of the devaluation decision, everything was done in
an ad hoc and arbitrary manner
My end note : Thus we could see bank nationalization as a powerful weapon in the
factional fight against the powerful emergence of Syndicates at that time .There
were also reports in 1968 news papers that then, RBI Governor, L. K. Jha
was against bank nationalization, and a similarly strong view was been held
by Prof. J. J. Anjaria, the then Deputy Governor. A number of questions arise
regarding the procedure adopted by the then government in suddenly
switching from social control to bank Nationalisation. There was no official
report, which had gathered expert opinions and evidence, on the need either
for social control or for Bank Nationalisation. The chiefs of private banks had
5
not been consulted as to the need and implications of the proposed measure.
There is no record of any written memoranda by top government officials,
which examined the implications of either social control or Bank
Nationalization.
As in the case of the devaluation decision, some economist argue that that
everything was done in an ad hoc and arbitrary manner to suit political exigencies
as being continued by governments in power even today whether it is reprivatizations moves of banks through serious amendments such as Banking Laws
(Amendment) Bill to raise the voting rights in private sector banks progressively
from the present 10% to 26% and now Consolidation Of Banks by the present
government which has consolidated power with brute majority .
By
S.Srinivasan
30-12-2014