Review Article

Imperialism, Big Business and Industrialisation in India

Nasir Tyabji

Kamal Mitra Aron Chenoy The Rise of Big Business in India (Delhi, Aakar Books: 2015) Rs 395 (pb) pp. x+342

The question of Indian industrialisation came to the attention of the international communist movement during the discussion at the Sixth Comintern session in 1928. In the thesis advanced by M.N. Roy, the growth of the cotton and jute textile industry, the colonial government’s support to the Tata Iron and Steel Company, and legislative provisions for providing tariff protection after sector-wise enquiries, were cited as evidence that colonial constraints to Indian industrial development had slackened. As a corollary, it was argued, the Indian industrial bourgeoisie could not anymore be treated as an ally of the national anti-colonial movement.¹

The Comintern rejected this thesis outright.²

While trade capital is fast developing in a colony, the counter-forces against the subjugating imperialism are still very weak. The tendency towards economic independence obtains a greater force only where native industry is developing. The effort towards independence grows parallel with the industrial development of the country.

Significantly, during this period there was the consolidation of Indian capital, first in the form of the Federation of Indian Chambers of Commerce in 1927, with the addition of “Industry” in the name in 1929, changing the name to Federation of Indian Chambers of Commerce and Industry (FICCI).

In the first two substantive chapters of his book, Kamal Mitra Chenoy describes the relationship between FICCI and different blocs of Indian capital, between FICCI as a whole and the Congress, and most importantly, between the various blocs and imperialism. He concludes that it would be incorrect to characterise the position of the big industrialists as one of collaboration (in this specific historical phase) but there were certainly indications of compromise, particularly during the periods of mass political mobilisation by the Congress. Interestingly, he suggests that it was the smaller traders who were more strongly opposed to imperialism and supported the Congress to a greater measure than even the most “nationalist” of big business. The other interesting point that he highlights is the occasional tension (even divergence) between the actions of the British Indian Government, charged with dealing with the situation on the ground, and the imperatives of imperial economic policy.

The situation began to change after the Congress, taking part in the 1937 elections, took on the form of an electoral party. On the one hand, formalisation of the structure of the organisation which was required for it to become a party of governance, created the possibility of what is today called the “High Command.” It also provided the means for big industrialists to influence Congress policy more directly, both through financial support and through lobbying within the now more formal party structure.

On the other hand, the Government recognising this emerging nexus, attempted to draw big industrialists towards itself and away from the Congress. This move gathered pace after the Congress ministries resigned in 1939 following the unilateral declaration by the Viceroy of India’s status as a belligerent country in the war. Although the Government was unable to influence imperial policy into accommodating industrialists’ demands, it allowed them a free hand to use the war time shortages to “accumulate” enormous profits through engaging in the black market for cloth and other daily necessities.³

After the 1942 Quit India movement, three developments took place in the relationship between big industrialists, the Congress, British imperialism and the new entrant, US imperialism. The well known Tata Birla or Bombay Plan emerged from the deliberations of a group of the most prominent industrialists and their spokespersons: Purshottamdas Thakurdas, J. R. D. Tata, G. D. Birla, Shri Ram, Kasturbhai Lalbhai, A. D. Shroff, and John Matthai.⁴ This is covered in the third chapter of Mitra Chenoy’s book, but has also been discussed in several publications recently, none of which finds mention here.⁵ The 15 year Plan, incorporating three five year plans, envisaged an investment of Rs 10000 crores with almost 35 percent allocated to “basic industries,” that is capital goods industries and essential industrial infrastructure. Equally a novelty, was the means postulated for financing the plan: because the authors wished to be free from foreign financial domination, it dismissed prevailing norms of “responsible” monetary policy. In other words, as the prominent Fabian, Fenner Brockway suggested, “created money” in the form of deficit financing of the plan was a notable departure from the strict canons that guided Indian budgetary policies.⁶

At quite another level, the planning exercise achieved the purpose desired by the Bombay Group. With the Congress leadership in jail, and the threat posed by the activities of the Communist Party which was now allowed to function legally, the discussion generated by the publication of the plan kept middle class national sentiments within the bounds of thinking “nationally.” As Rajani Palme Dutt was to write “...Howsoever reactionary, [deficit financing, involving inflation, affects low income groups disproportionately] the plan... attracted country-wide attention because it reflected the strong irresistible urge for industrialisation.”⁷

While the ideologues of big business attempted to keep left wing sentiments from gaining ground, the British Government tried to prise industrialists further from their connection with the Congress i.e. they attempted to transform compromise into collaboration. This was to lead to one of the most spectacular confrontations between Indian industry and the Congress leadership. In 1943, when Gandhi and the Congress leadership were in jail, the Viceroy suggested that a delegation of Indian industrialists should visit Britain.⁸ This initiative was confirmed by the Commerce Member of the Viceroy’s council in the central legislative assembly in November 1944. As the actual visit did not take place until 1945, by which time the entire Congress leadership had been released, the rationale of industrialists donning the mantle of upholders of national interests was destroyed. However, they persisted with their trip, G.D. Birla and J.N. Tata leading sub delegations to Britain and the US. The delegation had been forced to backtrack to a certain extent, claiming that their members were going in their individual capacities (and thus with no political intentions). However, the Indian Merchants Chamber in Bombay criticised the very purpose of the mission, and with Kasturbhai Lalbhai (a prominent millowner close to the Congress) dropping out at the last moment, it is clear that the initiative was seen as an unseemly attempt to bypass the national leadership and reach an agreement with influential leaders in the industrial field in both Britain and the US. However, as the Federation of British Industry had issued a directive that no manufacturing collaboration with Indian firms should be negotiated unless there was at least 50 per cent equity ownership by the British collaborator, a condition unacceptable to Indian industrialists, the actual outcome of the visit, even in terms of individual agreements was negligible.⁹

The third element in the situation was the dispatch of the US Technical Mission to India in early 1942. The mission, under Dr. Henry Grady, was to investigate how India could become fully a supply base for the Eastern front. The full report of the Mission was never published, but in the press it was reported that the Mission’s general impression appeared to be that India’s industrial centres were still working on a peacetime basis and there was a great scope for expansion. With proper planning, rationalization, and the use of equipment from America, India’s production could be increased by 200 to 250 per cent.¹⁰ More ominously for British industry, the report added that

The expansion of industrial production in India is to be based at least in part on Lend Lease material from the United States and upon the advice of technicians from this country.¹¹

Although the report was shelved by November 1942 its message was not lost on British industrial interests:

There is a chance of co-operating with Indian industry if we show courage, generosity and vision, but the alternative to our not showing these qualities is not that Indian industry will not develop, but that Indians will turn to America and not to us for help.¹²

However, there was an extended period during which the mutually acceptable terms of collaboration would be negotiated. As Mitra Chenoy points out, from the Government of India a statement appeared in 1949, about a year after the first authoritative announcement on policy, the Industrial Policy Statement of 1948. In just one year, there was a move, on the part of the Government from a position “...that, as a rule, the major interests in ownership and effective control, should always be in Indian hands...” to one where “...government will not object to foreign capital having control of a concern for a limited period, if it is found to be in the national interest...”¹³ Mitra Chenoy also describes how, after a period of denunciation of the government’s position, FICCI also came round to acknowledging the utility of a case-by-case approach to proposals for foreign collaboration, even where the foreign firm effectively controlled the joint venture.¹⁴

In his celebrated book (on which Mitra Chenoy depends greatly as a source of data) Kidron had systematically shown the path by which the attitude of both the government and big Indian industry changed towards an acceptance, even of welcome, to foreign capital in the industrial field.¹⁵ It is important to analyse this tendency in greater detail. Foreign capital is both a fungible resource, meeting the requirements of a country’s gap in its foreign currency reserves, but it can also be an embodiment of manufacturing and technological knowledge. During two periods of India’s post independence history, a shortage of foreign currency has been the major propeller towards liberalising controls over foreign capital in the first sense: during 1948-1949 and after the major crisis arising from the exhaustion of the sterling reserves accumulated during the war, which drastically curtailed steps towards the effective implementation of the Second Five Year Plan (1956-61). While during the earlier period, foreign capital was not drawn to India to any noticeable degree, the situation after 1957/58 was quite distinct. By this time, the internal market for manufactured goods had been made secure for items made within the country. The ambitious targets set by the Second Five Year Plan provided a degree of certainty of demand. Both these factors ensured that transnational corporations (TNCs) were more than willing to enter into collaborations or, where their technology enabled them to gain special concessions, to establish majority held concerns or even completely owned subsidiaries.

The more critical role of foreign capital is when it embodies manufacturing technology. As the Comintern had noted in 1928:

Real industrialisation of the colonial country, in particular the building up of a flourishing engineering industry, which might make possible the independent development of the productive forces of the country, is not accelerated, but, on the contrary, is hindered by the metropolis.¹⁶

Both big Indian industry and the Congress had understood this from their experience during the national movement. In fact, knowledge of this obstruction lay behind the Congress proclamation at its 1931 session that the “Key” industries would lie in the public sector. Congress felt that when in government, they would be able to prise technological knowledge from the TNCs. Similarly, the Bombay Plan, mentioned earlier, gave expression to the big industrialists’ determination to overcome this handicap (though they were yet unwilling to grant that progress could only be made by government acting on their behalf). In fact, the tussle between which industries would lie in the public sector and which in the private, and the role of government regulation of imports, terms of foreign collaborations, issues of equity shares and so on, forms a major part of the last few chapters of Mitra Chenoy’s book. What is important here is the fact that units in the state sector were undeniably better able to bargain with TNC technology suppliers, than was the private sector, and to the extent that areas formally reserved for the public sector were farmed out to the private sector, the terms of collaboration finally agreed were more onerous.

Did genuine industrialisation take place in India? The data provided below may provide some clues:

Annual Compound Growth Rates in Index Numbers of Industrial Production: Overall and Groupwise¹⁷

Despite this, the question remains of whether these developments, obviously necessary, are also sufficient conditions for a true process of industrialisation. The hypothetical situation described below gives cause for thought:

If I.G Farben built an ethylene glycol plant ... which uses the latest chemical technology and is wholly owned by...[indigenous]... capitalists, that is only the beginning of technology transfer. It is only the beginning as long as there are German technicians there supervising the running of the plant, as long as crucial spare parts can only be imported from Germany, and as long as German experts have to be called in when plant refurbishing and maintenance are required. Only when there are...[nationals of the host country]... who understand enough of the workings to deal with all production and maintenance difficulties; only when some of them have the underlying theoretical knowledge used in the plant’s processes, and when that knowledge is incorporated into university engineering courses so that it can be locally reproduced- only, in short, when the knowledge which went into the making and the maintaining of the plant is transferred fully from German heads to... [indigenous technicians’]... heads – can one say that technology transfer has taken place.¹⁸

In India, before this stage was reached, the strategy began to unravel. During 1965-66 the consequences of an inadequately growing internal market caused by an unreconstructed semi feudal agrarian structure began to make its effect felt. A glut in the consumer goods sector led inevitably to underutilisation of industrial capacity in the entire economy. After a ten year period of stagnation, even of retrogression, the beginning of the national emergency in 1975 initiated a distinct set of economic policies in which the demands of international agencies, largely representing the interests of TNCs and international finance capital, became predominant. During the 40 years since this retreat, various governments in India have been unable even to safeguard these advances let alone determine a way forward. Apart from a few of the public enterprises, which play a role which is not severely at odds with the global division of labour, most of them, left unaided in their effort to modernise obsolete technologies are terminally sick. It is difficult to dispute the Comintern prognosis that true industrialisation in the era of imperialism in the ex colonial countries under bourgeois auspices is unsustainable.

Kamal Mitra Chenoy’s book suffers from major shortcomings in that it the text appears to have been written in the early 1980s and does not incorporate the results of more recent scholarship. It is also unduly reliant on previous scholarship as a major source of data, while it does not engage, beyond perfunctory remarks in disagreement, with the theses presented in those scholarly resources. Where original material, principally from FICCI archives has been used, there is a somewhat tedious recital of material without any attempt to direct the reader’s attention to an overall thesis (beyond showing that big business grew ever bigger). Production-wise, the book is disconcerting in having sudden gaps in the numbering of references and extremely reader-unfriendly methods of inserting sources within the text. However, in this day and age, it is rare to have the topic of big businesses’ role in the Indian economy addressed at all, and for that reason, the book is to be welcomed.

Note:

The author is Former Director and Professor, Centre for Jawaharlal Nehru Studies, Jamia Millia Islamia.

Endnotes:

1. M.N. Roy “Draft Resolution on the National Question” in G. Adhikari (Ed.) Documents of the History of the Communist Party of India Volume IIIC 1928 (Delhi, Peoples Publishing House: 1982): 572-606

2. Otto Kuusinen “The Industrial Development of India deepens its contradictions with British Imperialism” in Adhikari (Ed.): 534-536

3. Grajdanzev, Andrew J. “India’s Wartime Economic Difficulties” Pacific Affairs 16 (2) (1943): 189-205; D. R. Gadgil “The Economic Prospect for India” Pacific Affairs 22(2) (1949): 115-129

4. Purshottamdas Thakurdas et al. A Plan of Economic Development for India Part I and II (Distribution—Role of the State) (Bombay, Tata Sons: 1944)

5. Vivek Chibber Locked in Place: State-Building and Late Industrialization in India (New Delhi, Tulika Books: 2004); Benjamin Zachariah Developing India: An Intellectual and Social History c. 1930-50 (New Delhi, Oxford University Press: 2005); Amal Sanyal “The Curious Case of the Bombay Plan” Contemporary Issues and Ideas in Social Sciences 6(1) (2010): 1-31 http://journal.ciiss.net accessed on July 26, 2013; David Lockwood “Was the Bombay Plan a Capitalist Plot?” Studies in History 28(1) (2012): 99-116;

6. Fenner Brockway in “New Leader” quoted in “Free Press Bulletin” 24.8.44 p. 74

7. R. Palme Dutt India Today 2nd Indian edition (Calcutta, Manisha Granthalaya: 1970): 186

8. Bombay Chronicle 28.5.1945

9. News of the directive was divulged by S.L. Kirloskar and reported in the Bombay Chronicle 3.4.1945

10. Capital, May 21, 1942 quoted in Grajdanzev (1943):190

11. Report of the American Technical Mission: 6 quoted in Palme Dutt (1970):175

12. Speech by A.V. Hill, Secretary of the Royal Society in the British Parliament reported in the Indian Annual Register, 1944, Vol. II: 302 quoted in Palme Dutt (1970):186-87

13. Mitra Chenoy (2015): 135

14. Mitra Chenoy (2015): 136-139; 196-197

15. Michael Kidron Foreign Investment in India (London, Oxford University Press: 1965)

16. Comintern, Sixth Congress, 17 July – l September 1928 “Theses on the Revolutionary Movement in the Colonies and Semi-Colonies,” Part II, available at http://www.revolutionarydemocracy.org/archive/ColNatQ6.htm, last accessed on March 30, 2015

17. Source: S. L. Shetty “Structural Retrogression in the Indian Economy since the Mid-Sixties” Economic and Political Weekly 13(6/7) (1978): 186

18. Ronald Dore “Technology in a World of National Frontiers” World Development 17(11) (1989): 1673