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Government-Business Relations in India

  • R. L. Varshney (a1)

The present policies and problems of government-business relations in India are examined by Professor Varshney against the background of his nation's historical experience.

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1 Of a variety of sources available on Great Britain's early policies toward India, the most pertinent for this study are: Report of the Indian Industrial Commission (London, 19161918); Dutt, Romesh C., The Economic History of India under Early British Rule (London, 1956); Dutt, Romesh C., The Economic History of India in the Victorian Age (London, 1956).

2 “All that was done, however, was due rather to a few far-sighted individual officers than to any considered and general policy on the part of Government.” Report of the Indian Industrial Commission, p. 75.

3 Ibid., pp. 76–77.

4 “Handloom weaving was greatly developed, the chrome process of manufacturing leather was introduced, irrigation by pumping was started, and boring for water was undertaken; in addition, an organization was created for assisting private individuals to install power driven machinery and plant.” Ibid., pp. 77–78.

5 Ibid., pp. 78–79.

6 Ibid., p. 80.

7 The Swadeshi Movement was aimed at propagating the use of goods made in India. “Swadeshi” means “belonging to our own country.”

8 Report of the Indian Industrial Commission, p. 74.

9 Ibid., pp. 39–45.

10 Ibid., p. 81.

11 Report of the Indian Fiscal Commission (London, 19211922), p. 43.

12 Report of the Indian Industrial Commission, p. 290.

13 Ibid., p. 233.

14 Lokanathan, P. S., Industrialization (Oxford, 1943), pp. 67.

15 Report of the Indian Fiscal Commission (1921–1922), p. 180.

16 Venkatasubbiah, H., Indian Economy since Independence (2nd. ed., New York, 1961), p. 184.

17 Report of the Indian Fiscal Commission (Delhi, 19491950), pp. 4950.

18 For example, Kanpur and New Egerton Woollen Mills did not endorse the application for protection made by the non-worsted section of the woollen industry and the government refused protection on the ground that the Board's conclusion did not apply to the industry as a whole. Ibid., pp. 51–52.

19 Ibid., pp. 79–80.

20 It is quite interesting to note, that during the recent unsuccessful negotiations for British entry into the ECM, the Indian government and the business community very strongly pleaded for the retention of preferential arrangements in favor of the entry of Indian goods into the U. K. market.

21 Cheap Continental steel was dumped on the Indian market seriously affecting Tata sales. It goes to the credit of Tata Steel, its management, and workers, that they successfully tided over the crisis of 1929. Employees volunteered cuts in wages, shareholders went without dividends year after year. Profit or no profit, interest on borrowed capital was duly paid. And there was no retrenchment. (Supplement to The Statesman, May 2, 1958, p. xv.)

22 M. Visvesvaraya's Presidential Address to the All India Manufacturers' Conference, 1941, quoted in Wadia, P. A. and Merchant, K. T., Our Economic Problem (Bombay, 1943), p. 290.

23 Some of the new industries that started production for the first time during World War II were: ferro alloys like ferro-silicon, and ferro-manganese; non-ferrous metals and metal fabricating industries like copper, copper sheets, wires and cables, etc.; mechanical industries like diesel engines, pumps, bicycles, sewing machines, machine tools, and cutting tools; a few items of textile-, tea-, and oil-processing machinery; and chemicals like caustic soda, chlorine, superphosphates, photographic chemicals, and bichromates.

24 Venkatasubbiah, Indian Economy, p. 189.

25 Report of the Indian Tariff Board on the Electric Motor Industry (London, 1947), p. 16.

26 Prominent additions during the period were Tata Locomotive and Engineering Company, Textile Machinery Corporation of Birlas, Jay Engineering Works of Sri Ram, and Premier Construction and Hindustan Construction of Walchand Hirachand Group.

27 Normal depreciation and replacement allowances admissible under income tax rules were inadequate to meet the higher costs of replacement.

28 In fact, this has been the greatest weakness of India's trade policy. Import policy when linked to the foreign exchange position is subject to frequent changes, and importers are likely to be tempted into forestalling controls by acting in anticipation of possible restraints and importing larger quantities than they would under normal circumstances. This is what actually happened in 1948 and 1949 just before the rupee was devalued. Had an austere policy been followed, the devaluation of the rupee might have been avoided. See Varshney, R. L., India's Foreign Trade during and after the Second World War (Allahabad, 1954), chaps. Ill, VI. The same mistake was repeated in 1956–1958 when the draft on foreign exchange reserves during the First Five-Year Plan was much lower than expected. In some cases, liberalization of imports reduced or nullified the effective protection enjoyed by certain industries. See the “Review of Work, 1952–53,” published by the Indian Tariff Commission, p. 2.

29 Gregory, Theodor E. G., India on the Eve of the Third Five Year Plan (Calcutta, 1961), pp. 2627.

30 Ibid., p. 29.

31 Under the Indian Constitution adopted on January 26, 1950, provinces were renamed as States.

32 The memorandum added, “The fact that this reservation (of certain industries for State enterprise) has been made does not in any way mean that the private sector cannot be asked to cooperate or foreign interests allowed to participate in them so long as it is clear that the controlling interest is held by the State.” Venkatasubbiah, Indian Economy, p. 92.

33 Ibid., pp. 190–91.

34 Ibid., p. 93.

35 As a result, no individual concern in consumer-goods industries, including paper, cotton, sugar, and chemical industries, accounts for more than 4 per cent of the output of each industry.

36 Mr. Manubhai Shah, Minister for International Trade in a personal letter to Mr. Nehru as reported in Economic Times, April 17, 1963.

37 “Where an industry is not reserved for the public sector and where the difficult capital-intensive industries are concerned, which call for the acquisition of foreign collaboration facilities, foreign exchange from private or semi-public lending agencies abroad and the provision of experienced managerial talent, naturally, the applications from the larger industrial groups in the country have to be considered, if the plan targets have to be expeditiously achieved. Otherwise, the policy is to prefer new entrepreneurs wherever possible.”

38 Master, M. A., Where is Economic Power Being Concentrated? (Bombay, 1960).

38 Venkatasubbiah, Indian Economy, p. 336. The report of the Commission has not been made public.

40 In the debate on August 21, 1963, when the House was considering the Annual Report on the Working of Public Sector Undertakings for 1961–1962.

41 For detailed extracts from the report of the team, see Eastern Economist, August 30, 1963, pp. 406–408.

42 Based on figures of G. M. Laud, in Supplement to The Capital, December 21, 1961.

43 Economic Times, January 16, 1963.

44 Reply given to a question in the Rajya Sabha, as reported in Eastern Economist, September 6, 1963, p. 444.

45 Speech of Mr. P. V. Gandhi, President, Indian Merchants' Chamber, reported in Economic Times, March 18, 1963.

46 Thus in the case of aluminium, the smallest economic size of a new plant is 30,000 tons p.a. by European standards, and 100,000 tons in the United States. In India, only one of the four licenses originally issued for new units was for 30,000 tons, but the others were less than 25,000 tons. Economic Times, September 29, 1963.

47 Report of the Indian Fiscal Commission (Delhi, 19491950), p. 205.

48 Bauer, Peter T., Indian Economic Policy and Development (London, 1961), p. 86.

49 For a detailed study of the methodology of price fixation adopted by the Tariff Commission, see Tata Quarterly, January, 1962.

50 Federation of Indian Chambers of Commerce and Industry, “Price and Profit Situation,” Economic Times, September 27, 1963.

51 Out of the 490 companies which announced their dividends during March–September, 1963, as many as 202 cut the distribution, while 180 were able to maintain the dividends, and only 108 could step up the dividends. Economic Times, October 17, 1963.

52 Reported in Economic Times, October 6, 1963.

53 Federation's Memorandum to the Rao Committee on Utilization of Foreign Assistance, p. 3.

54 Reported in Economic Times, April 7, 1963.

55 “Seventh Report, Public Accounts Committee,” Economic Times, March 9, 1963.

56 “If foreign companies with their vast resources, technical and financial, are allowed to establish themselves in industry in the fields at present not covered by Indian enterprise, there is little chance, in our opinion, of that enterprise being brought into existence at a future date.” Quoted in Gregory, India on the Eve, pp. 27–28.

57 In reply to a demand for such restrictions by certain communist M.P.'s, it was categorically stated by the Minister for Industries in the Rajya Sabha on December 14, 1961, that the government did not favor banning repatriation of profits because it would hamper foreign capital collaboration.

58 For U.S. investors in particular, there is another safeguard in the U.S. government's Investment Guarantee Program under which investments in India are covered.

59 Economic Times, April 27, 1963.

60 Economic Times, August 7, 1963.

61 In reply to a question in the Rajya Sabha as to whether the Chairman of the Gold Control Board was involved in foreign exchange violations, the Finance Minister said on February 25, 1963, “He has not been punished in any way for an infringement of any law. It was his firm or his brother who was involved.”

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Business History Review
  • ISSN: 0007-6805
  • EISSN: 2044-768X
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