Business
Rajaji — the forefather of liberalisation ethos
By S. Swaminathan
A popular misconception about economic reforms in India is that they originated in the IMF Assistance Programme of the early 1990s with their draconian conditionalities regarding macro-economic stabilisation and structural adjustment. There is no denying that the foreign exchange crisis of 1990-91 triggered the IMF loan assistance, the devaluation of the rupee and the slew of government initiatives towards liberalisation. But what is often forgotten is that the broad movement away from the plethora of controls in the economy had begun as far back as the early 1980s, after Indira Gandhi's return to power. The L. K. Jha's comprehensive report on dismantling controls and Prof. K. N. Raj's recommendations on steel decontrol had already ushered in the new policy mindset of disenchantment with bureaucratic regimentation of the economy and of an active process of rediscovery of the creative forces of entrepreneurship.
The Rajiv Gandhi Government (October 31, 1984 - December 1, 1989) in fact, moved on a ``fast forward'' mode towards the removal of barricades set up during the long era of the controlled economy. The then Finance Minister, Mr. V. P. Singh's venture of a ``long-term fiscal policy,'' could even be described as a definitive reform gambit even if it proved elusive. All that this resume of policy modulations seeks to show is that economic liberalisation in India has had a longer gestation than what is normally understood. But if the question is whether, outside the policy domain, reactions against the controlled economy and the concept of the Government underlying it, were building up, one has obviously to reckon with the emergence, at least on the periphery of Indian politics, of the Swatantra Party, representing the first coherent and articulation of a rightist, liberal, anti-statist, pro-market economic philosophy.
The mastermind, the prime mover and the progenitor of the liberalisation weltanschauung was the inimitable Rajaji (Chakravarti Rajagopalachari), the first Indian Governor-General of India, a former Governor of post-Independence West Bengal, Home Minister of India, Chief Minister of Madras and a seer-statesman of India.
Rajaji and his holistic vision of development
Like Gandhiji, who had a perspective on economic welfare focussed on village republics and local self-reliance, on the one hand, and on creation of wealth by individuals accepting the principle of trusteeship, Rajaji had a distinctive economic philosophy of competitive private enterprise guided by an enlightened social conscience. His developmental perspective was such that he regarded any attempt by the State (the political establishment) to curb, appropriate or control private enterprise, whether in agriculture, trade or industry, as an unproductive encroachment on freedom and as the breeding-ground of corruption and flagrant misuse of public resources.
Rajaji's most active and fertile period of dharmic opposition to the dogged pursuit of a planned, controlled economy, was during the last phase of Jawaharlal Nehru's rule (1959-64), when a whole concatenation of adverse consequences of what he called ``the control-licence-permit raj'' came to the surface.
A vast pyramid of public sector enterprises involving massive investments of funds by the Central Government without the prospect of even nominal returns by way of profits, especially on long-gestation projects in the infrastructure, had come to be recognised as the principal feature of economic policy.
Rajaji called this ``gigantism'', and ``megalomania.'' Government had come to defend chronically on deficit financing, that is, spending much more than what its revenue resources and public borrowing would permit.
The Government could do this only because of its unquestioned access to funds with the Reserve Bank of India, which, in turn, would resort to printing additional currency and thereby expanding money supply far in excess of what the economy could absorb. Mounting inflation (which is an invisible form of taxation) became an inevitable feature of the planned economy.
Rajaji was one of the earliest thinkers in India who were profoundly influenced by the writings of Prof. F. A. Hayek _ ``The Road to Serfdom'' _ who later won the Nobel in Economics in 1974. Rajaji distilled Prof. Hayek's critique of planning in a cryptic statement: ``The Socialist philosophy of controlled economy is based on the two false assumptions of the omniscience of Government and the stupidity of the people.'' In advocating competitive private enterprise based on ``responsible individualism'' or the extended concept of corporate social responsibility, Rajaji was clearly distancing himself away from the law of the jungle or the phenomenon of unethical competition.
He did not consider the controlled economy as the barrier for monopoly. ``It is not good certainly to let men with money become powerful. But as Hayek has written, it would be worse if only men politically powerful can make money. ..... The oxygen of competition has been displaced by the foul air of monopolies.....''
It was not surprising that Rajaji considered the controlled economy as a bane for its wasteful centralisation of the national economy in the hands of the ministers and the bureaucrats.
Nor did he approve of procurement of foodgrains by the Centre and the annihilation of private trade. Is he then an economic maverick or a contemporary fountain of wisdom?
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