H A S P R I V A T E ENTERPRISE

F A l LED ?
 HAS P R I V A T E E N T E R P R I S E
F A I LED ?

A. D. SHROFF

"We are neither omniscient nor infallible, nor are we

so rigidly wedded to any course of action as not to OR some time past, Private Enterprise in India
alter i t if it becomes apparent to us that we are
mistaken.
F has been continuously under fire. It has been
suggested that Private Enterprise is incapable
of undertaking large-scale and rapid economic deve-
"'It is for this reason that we conntinuously welcome lopment of the country. I t is also suggested that
the people of In& and our friends abroad telling us Private Enterprise only results in the concentration
when and where they think we are going wrong." of economic power in hands of a few people. It is
further said that-and it was said only a few days
ago by no less a person than the Prime Minister of
India in Calcutta-that Private Enterprise and Demo-
cracy are incompatible. But the main provocation
for the choice of the subject is a speech made by
Mr. T. T. Krishnamachari, who was then the Union
Minister for Commerce and Industry, a t Madurai on
4th of August. In the course of his speech, he ob-
served that "Private Enterprise has failed me", and
t h a t Private Enterprise was not showing either
initiative or enterprise.
Before I proceed to examine the.validity of the
various contentions which have led some people to
the conclusion that Private Enterprise has failed in
this country, I should mention that of all Ministers prise was subject to in those days, i t was surely
of Industries since India attained independence, Mr. I through the enterprise and endeavour of Private En-
T. T. ~ r i ~ h n a m a c h a must
ri be acknowledged a s an I terprise that India was put on the industrial map of
butstanding success. Some of us may differ from him the world and attained the eighth place among the
on some of the views he holds and propagates. But industrial nations in the world.
I think there is not the slightest doubt that in the I
discharge of his very high responsibilities as the Min- To quote one or two instances; the Cotton Tex-
ister for Industries, he has shown remarkable drive, tile Industry (remember only about 40 years ,ago we
energy and understanding of business problems, and used to import every year Rs. 60 crores worth of
I
above all a capacity for taking quick decisions. It piece-goods from abroad) has now developed substan-
is, therefore, all the more incomprehensible for me tially in the last few years when we have become a
that a man of such fine understanding of business very important exporter of cotton piece-goods t o
and industrial problems and a man who has first-hand I about 40 to 45 different markets in the world. The
opportunities of witnessing from day to day what I very fact that Indian piece-goods should effectively
was being done in the industrial sphere in the last compete with shrewd and established exporters from
few years, should have preferred to make this charge Lancashire and Japan bears ample testimony to the
against Private Enterprise in this country. To quote efficiency with which Textile Industry has been built
a Shakespearean phrase, to me it has come as "the up in this country.
most unkindest cut of all". I would also like to remind you of the days when
Before I examine the charge, it is very necessary the late Mr. J. N. Tata first thought of starting the
that I should give you a brief historical review of Steel Industry. I do not know if you are aware that
Private Industry in this country, particularly before a leading British business man of Calcutta ridiculed
India attained Independence. If you look back to the idea a s a dream, and he even offered to consume
the history of Private Enterprise for 60 or 70 years every pound of steel made in India! Fortunately for
before India attained independence, you must take him, he is not alive today; otherwise he would have
into consideration the circumstances and the environ- suffered not a little from indigestion. But the fact
ment under which Private Industry had t o struggle. of the matter is that a great pioneering effort suc-
For one thing, we were under a regime, which was ceeded in giving India the largest single individual
quite indifferent and apathetic, if not in some cases steel-making unit in the British Commonwealth of
definitely antagonistic, t o any industrial development Nations, and I believe India will be proud also of the
in the country. If you for instance study the Tariff fact that she is today one of the most economic and
Policy of those days, the Transport Policy, or the cheapest producers of steel in the world.
lbation of Railway freight, all these will show you Take for instance also the development of hydro-
the conditions under which Private Enterprise had t o electric power-entirely undertaken by Private En-
struggle. 'Even in later years, when the Government terprise-a tremendous venture in those days, a ven-
came to adopt-and that too very grudgingly-a ture not only in the sense of generating power but
policy of discriminating protection, that policy w~as
too halting and unsuited to bring about any rapid
development of industries in the country. In spite
of all these limitations and disabilities Private Enter-
i even of making Bombay millowners believe that po-
wer could be generated and supplied to Bombay mills.
You know today what it stands for in the economic
life of Bombay.
2 3
 The above two or three instances might show Locomotives, and the Indian Telephone Factory a t
what Private Enterprise, functioning under the limit- Bangalore, etc. If you take the aggregate value of
ations and disabilities to which it was subject in those the proludion, contribution by the Public Sector re-
days, could achieve. I may also mention Shipping. presents a comparatively negligible percentage of the
Shipping in India against the powerfully entrenched total. But the more interesting thing was this: if you
foreign shipping companies almost looked like a break up the general index of industries and some of
dream. It was due to the pioneering effort of the the new industries, taking 1946 as the base year repre-
late Shri Narottam Morarji and Shri Walchand Hira- senting 100, the increase has been for Old Industries:
chand that Indian Shipping has come to stay and
offers today very fine promise of supplying a much
needed complementary transport service to sustain
our economy. I Cotton Textiles
Jute Textiles
Even before we attained Independence, in 1944
seven business men of India got together and put Steel
before the people a plan for the economic develop- Cement
ment of the country. The plan was sufficiently am- Paper & Paper Boards
bitious; it involved an estimated expenditure of
Rs. 10,0001- crores over a period of 15 years and out Matches
of that it envisaged spending something like Sugar
Rs. 4,4001- crores on development of Industries. I am
mentioning this to show that Private Enterprise in For New Industries
India, even before Independence, was fully conscious
of the needs of the country and also had faith in it- Machine tools
self that i t could undertake development on a very Diesel engines
large and extensive scale. After 1947 the Govern- Bicycles
ment started taking more active interest in the eco-
Sewing Machines
nomic development of the country. Private Enter-
pdse also did not fail t o asgist in the process of deve- Electric Motors
lopment. The curve of industrial production during Soda Ash
the last five years has been continuously rising. If Caustic Soda
you take 1946 as the base year, i.e., 100, industrial
production went up to 117.2 in 1951, 128.9 in 1952, Super-phosphates
135.3 in 1953, 146.6 in 1954, and in 1955 i t stood
at 161.5. This remarkable increase in industrial production
during the past five years in which both old and new
Let me make i t clear that the overwhelming pro- industries have equally participated and to which the
portion of the increased production was contributed State Enterprise has contributed comparatively very
by Private Enterprise because the few State Enter- little ought to give a lie direct t o the very charge
p k which came into operation were mainly confined that Private Enterprise has Eailed to do its duty in
t o the Sindri Fertilizer Factory, the Chittardan this country. The index figcres I have just read do
not convey the whole story; besides this, important ed from 43 to 86 during the course of the last 2 years.
new industries were started, for instance'Rayon. I t Further, from the office of the Registrar of Jt. Stock
,was started and is prospering well and perhaps in Companies, you will find that the number of joint
the course of the next 3 to 5 years India will stock companies registered and in actual operation
be self-sufficient in regard to requirements of Rayon have risen from 22,675 in 1947-48 to 29,779 in
yarn. Take again the Steel Tubes industry. Though 1954-55.
this project was mooted even before the last war,
owing to the exigencies of the War it could not be You must be aware that one of the important
brought into operation. It has since been started new pieces of legislation after independence is the
and is one of the important industries in the country. Industries (Development and Regulation) Act of 1951.
Similarly, reference may be made to automobiles and Under this Act, you cannot put up a factory without
trucks. obtaining a licence. According to the latest figures
available, for 3 years up t o 1955, out of 1,440
These are facts which of course cannot parti- applications made t o the Government for licences,
cularly be unknown to the Ministry of Commerce and 1,142 were granted. Of these, there were 363 licences
Industry. They ,are there to tell their own story. for new schemes, 657 for expansion schemes and 122
But I would not like t o quote anything which comes for organisational changes without additional capa-
from private enterprise itself. Here is a statement city. I have referred t o these few facts to confirm
made by the Planning Commission in a publication that priv'ate enterprise is not only alive, but is kick-
which is entitled "Progress of Industrial Develop- ing all right.
ment 1956-1961":
Private Enterprise would have shown perhaps a
"New investment on industries in the public much better and a more impressive record of achieve-
sector during the First Plan was expected to ment, if i t had not to work under a certain set of
amount t o about Rs. 94 crores. The actual circumstances of which you are all so painfully
outlay according to the latest estimates has aware for the last few years. I was on a Committee,
only been about Rs. 57 crores. Investment which was asked by the Reserve Bank to consider
by the Private Sector on new projects and the circumstances under which Private Enterprise
expansion prognammes was expected t o was functioning and to explore ways and means of
about Rs. 233 crores and the latest estimates helping Private Enterprise particularly in the finan-
indicate that the actual investment has been cial sphere. We had a very good opportunity of
of this order." studying the situation in different parts of the coun-
try, and the unanimity of opinion which was repre-
There is a body called the Industrial Finance sented to the Committee was that Government's eco-
Corporation of Indi,a-one of the few financial institu- nomic policy in the l'ast few years had created an
tions which have come into existence after India at- atmosphere of uncertainty in which naturally incen-
tained independence. It has just published its 8th tives are likely to be a t a low ebb and that capital
Annual Report in which i t is stated that the total had been rendered very shy.
amount of loans sanctioned has risen from Rs. 9.5
crores in 1951 t o Rs. 43.20 crores in 1956, and the Even if you refer to the First Industrial Policy
number of applications for loans received have doubl- Statement of April 1948, the threat of nationalisation
7
which was uttered in respect of basic industries has I will now come to the second criticism, viz., that
served as a serious disincentive to further industrial "Private Enterprise results in concentration of eco-
effort in the country. Nationalisation of Airlines nomic power". In this connection, I have particul'arly
dealt a very serious blow t o confidence and, as a to ask members of the Commerce Graduates' Asso-
matter of fact, it has created an atmosphere of crisis ciation to read an article which recently appeared in
of confidence which still continues. I am very sur- the Tata Quarterly of April1July which deals in detail
prised that the charge of lack of incentive or enter- with some structural aspects of industry in India. The
prise should be laid a t the door of Private Enter- article in a very objective manner examines the pro-
prise when it is too well known that it was only blem whether in view of the fact that particularly
through Private Enterprise that a first class inter- in the last few years when demand has been outstrip-
national air service was built up within a compara-
tively short period. Nation'alisation of Airlines gave
a rude shock to confidence amongst the investing pub-
,\! /\ ping the supply position generally in the country
there has not been a trend towards the establishment
of a sort of monopoly by Indian Industrialists. If you
lic and since then we'have found i t increasingly d m - study that article, you will agree with the writer of
cult in attracting the average investor to subscribe the article that applying any test, which is usually
to any fresh industrial enterprise. applied to the scrutiny of the establishment of a
monopoly in any branch of economic activity, you
will come t o the conclusion that no such thing h a s
Nationalisation of the Imperial Bank and re- happened in India.
cently Nationalisation of life Insurance have dealt
further blows to Private Enterprise and have made
capital more and more shy. I have been trying to The establishment of a monopoly for one thing
look up the new Industrial issues during the last 8-9 suggests that those who are interested in the manu-
months, and I have not come across, perhaps with facture of particular products or commodities get
the exception of one or two, any public issues for together and manipulate the prices of these products
new industrial enterprise which has been supported or arrange production in such a manner that prices
by the investing public. The Industrial Policy state- oan be whipped up to the detriment of the community
ment of this year has certainly created further in general. An examination of the working of a
apprehensions not only in the minds of business men number of leading industrial units in India, relating
but of the investing public in general. The tragedy the price trends to the growing demand for the pro-
of the situation is this-that with a few exceptions, ducts, will lead t o the objective conclusion that there
Indian business men and Indian public in general have is no basis of even an attempt to establish monopoly
not shown any due apprec6ation of the implications of
this policy. Even a man like Sir John Strachey, who 4
1
in #anyof these industries in India. But when critics
talk of concentration of economic power, they do not s o
visited India some months ago, in his report has
pointed out, although he is a man who has a definite
Leftist bias, he was really surprised that when the
''. I much mean the establishment of monopoly, but what
they really mean is that there are only a few indus-
trial firms which are interested in a large number of
Industrial Policy Statement was issued some Indian industries, and, therefore, exercise control over them.
business men definitely welcomed it, while, most of In the first pl,ace, I need hardly point out that this
them in general showed apathy or indifference about betrays a lack of understanding of the basis of Joint
it. Stock Enterprise. The basis of Joint Stock Enter-
 prise is this: however big, influential and wealthy a eedures and my Committee was particularly shown
firm may be, the magnitude of modern industrial definite instances of administrative procedures where
.operations is of such a character that no single firm so much of red tape was involved that a number of
can get together all the monetary resources t o make industrial proposals which were put up in Madras
any such enterprise possible. For instance, in one and Bangalore had to be abandoned since the promo-
of our leading companies, the Tata Iron and Steel ters got simply tired of travelling from Bangalore
Company, there are about )as many a s 42,000 share- and Madras t o New Delhi and back. I t is not out of
holders. It is true that the creditworthiness of some place to point out to the Government tbat in the
of the firms in India, their past record of achievement, interest of the industrial development of the country,
enabled them to mobilise the savings of hundreds and some of these administrative procedures will have
thousands of small investo,rs which alone make indus- to be considerably simplified.
trial enterprise in the modern sense possible.
Another subject of topical interest is the publi-
Legislation was recently undertaken in the shape cation of a letter addressed by Mr. Eugene Black,
of amendment to the Indian Companies' Act which Chairman of the World Bank, to our Finance Minister,
goes f a r enough to break any such concentration if Mr. T. T. Krishnamachari. The genesis of the letter
it exists in the country. But conceding for a moment, is this: a few months ago the World Bank sent out a
the concentration of economic power in the hands of mission-the World Bank has the practice of sending
a few people, it is forgotten that in an underdevelop- out missions to different countries getting loans from
ed country like India you cannot expect hundreds and the Bank to make periodical surveys of economic
thousands of people who could be promoters of indus- conditions in those countries. The mission, after
tries. If one studies the economic history of a coun- surveying the situation and after baving very inti-
t r y like Japan, for instance, or even of Germany, i t mate talks with Government officials, Planning Com-
i s the pooling of resources and the working together mission and Ministers, submitted their report t o the
of two or three big firms which made possible the World Bank. I n that Report, within the short space
industrial progress achieved in these countries. of about 18 paragraphs, the mission has highlighted
the main elements of our economic situation. I n one
There is one other important reason which might paragraph the mission writes thus:
explain why industrial development in the last few
years could not be quicker than what i t has been. "The importance of private enterprise in the
We who work in the private sector are believers in continuing economic development of the
planned development. Planned development does country is another factor which we would
assume some sort of regulation. But such regulation like to stress. We appreciate that the
should not become restrictive a s i t has been in India. Second Five Bear Plan offers a n opportunity
T'ake for instance, the Industries Development and for the 'co-existence' and simultaneous ex-
Control Act and the licensing scheme which i t has pansion of both the public and private sector
put up. Even if you think of starting an industry and we have noted with gratification that
on your own, unless you satisfy certain norms which the Prime Minister ,and other responsible
have been established by the Planning Commission, Ministers have emphasised the need for Pri-
you are not likely to get permission to go into that vate Enterprise. Nevertheless, we believe
industry. There are also certain administnative pro- that the importance of private business has
II
 not yet been sufficiently recognised and pub- play an important role in India's economic
licized. The record bears out the fact that development, I have the distinct impression
private enterprise has performed creditably that potentialities of private enterprise are
during the last five years with respect t o commonly under-estimated in India and that
both investment and production. In the its operations (are subjected to unnecessary
organised sector of manufacturing and min- restrictions there."
ing private business has contributed 90% of
the increase in net output during this period. This letter has crested a little flutter in certain
Owing to the capital-intensive nature of dovecots. I do not know, on how many occasions we
much of the contemplated public invest- have been told by _the highest in the country that dis-
ment in Industry and mining during the tinguished foreigners who are visiting India have
Second Plan, Government plants and mines been terribly impressed with the progress that this
are expected to contribute only 29% of the country is making. This is perhaps the first occa-
anticipated increase in net output of mining sion when a friendly critic has dealt with a few things
and manufacturing a s compared with a 54% in a very outspoken fashion. I can personally vouch
share in the total planned investment. On f o r one thing-that Mr. Eugene Black is a real and
the other hand, private business in this sec- sincere friend of India. I have reasons t o tell you
tor is expected to account for '71% of the t h a t he earnestly desires that India should develop
rise in net output. Considering the probabi- economically a t a rapid pace. But Mr. Eugene Black
lity that the villages and small-scale indus- also is a man who by his extensive knowledge of con-
tries may fall considerably short of the ditions in different parts of the world is convinced
targets set for them by the Plan, the import- t h a t there are certain well-proved and well-tried
ance of the organised private sector becomes methods of economic development which have result-
even more evident. I t is, therefore, vital ed in substantial progress in many countries of the
that the private sector be given adequate world and there is no reason that one could see of a
incentives and resources to enable it to make hasty departure from these proved and well-tried
its requisite contribution." methods.

On the basis of this report, Mr. Eugene Black add- It is after a very close study of conditions in
ressed a letter to our Finance Minister, Mr. T. T. India 'as reported to him by the mission, and also
Krishn'amachari. In the course of that letter Mr. because of the great personal interest he takes in
Black has said:- watching the progress that India is making, that he
has expressed views and tendered some advice which
"In making my own comments, I should like one could expect will be taken'in the same spirit in
first to emphasise once again my conviction which i t was offered. I must say that the reply
that India's interests lie in giving private given by the Finance Minister is a very courteous,
enterprise, both Indian and foreign, every dignified and understanding reply. On the other
encouragement to make its maximum con- hand, the criticism that we hear from other quarters
tribution to the development of economy, appears to be rather unwarranted. It appears t o be
particularly in the industrial field. While I based again on the same thing to which Mr. Black
recognise that the Government itself must
refers--doctrinaire and ideological approach to the machari of course thinks differently on the relative
problems. There are certain people highly placed in importance of the two sectors. He makes a bold
khis country who simply refuse to come down t o earth statement that although the experience of State
and face problems in a realistic manner. I would Enterprise has not been very long, at least in some
like to pay my personal tribute to Mr. Black for the cases State Enterprise has been found to be more
service he has rendered to India particularly a t this efficient than Private Enterprise.
critical juncture when we want a little more realism I n the course of my activities in the Forum of
in the formulation and implementation of our econo- Free Enterprise, I have had t o answer questions in
mic policy. I am not referring t o other parts of different places. In Calcutta I was pointedly asked
Mr. Black's letter or t o other suggestions which have whether I had any opinion to express on the working
been made by the World Bank Mission. of State Enterprises. I n any case, it would be fair
I am glad that the views held by some of us are to State Enterprise to say that the experience has
being fully confirmed by the conclusions given by the been so short that i t is premature to express (any defi-
World Bank Mission in its report in a matter like the nite opinion. However, since Mr. T. T. Krishnama-
Textile Policy. The textile problem is a very simple chari has found it fit to make up his mind that State
problem provided it is approached in a realistic w'ay. Enterprise had been in some cases more efficient than
Money worth crores is being pumped into circulation. Private Enterprise, I can only suggest to him that he
How many people, who had no employment before, should ask for some impartial assessment of the
or who had no adequate employment, have started problem. We, in Private Enterprise, are very willing
earning! I n a poor and underdeveloped country like to learn. The more we learn and the more we im-
India, the two essential things to be provided a r e - prove, i t is better for us and the country. Therefore,
food and clothing. The demand for food and cloth if Mr. T. T. Krishnamachari would call for an im-
is on the increase and if our economy is t o be sus- partial assessment of the working of State Enterprise,
tained on a largely independent basis, i t will be the Private Enterprise will have a lot to learn.
first and primary responsibility of Government to see Finally, I will examine if Private Enterprise and
that demand does not outstrip supply. It is a very Democracy are incompatible. Coming a s i t does
simple problem, and instead of tackling the problem from the highest in the land, it does need very close
in a realistic way, ideological and doctrinaire ap- consideration and examination. I would, however,
proach is brought to bear on the solution of the pro- like to state that there ,are a number of thinking
blem, with the result that there is nothing else but people in India who not only do not agree with the
tinkering with the problem. Merely putting addi- view but on the contrary honestly believe that if Free
tional excise duties or advertising what are consider- Enterprise is not allowed to continue in this country,
ed as fair prices will not result in producing addition- subject of course to our accepting planned develop-
al cloth which is being needed everyday by the ment of the country and the necessary regulations
country. involved, and if Free Enterprise is going to be thwart-
There is, however, one very interesting statement ed and restricted in its operations, i t can only result
made by Mr. T. T. Krishnam'achari in his reply to in a serious diminution of the democratic way of life
Mr. Black's letter. Mr. Black refers to State Enter- if not its ultimate destruction. I for one have been
prises and Private Enterprises, and Mr. T. T. Krishna- thinking for some time past and trying to under-
I5
stand if this statement could be correct-that Private
Enterprise and Democracy are incompatible. Either
I do not understand the content of democracy or I
'cannot understand the meaning of the statement
"Private Enterprise and Democracy are incompatible."
As a matter of fact, we, particularly in the Forum of
Free Enterprise, find our view confirmed by thousands
of people in the country that Democracy, which is a
blessing we enjoy and the Democratic way of life
which has been assured to us in our constitution, is
likely to suffer very severely if Free Enterprise is
not allowed to be practised in this country.

Text of a .rpeech a t the Commerce Gradrrates' Associafion,

Bombay, on October 23, rglG.
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