Book Review

The Story of Independent India: Capitalist Accumulation Grapples with Semi Feudal Dis-Accumulation

Nasir Tyabji

Chirashree Das Gupta State and Capital in Independent India: Institutions and Accumulation (Delhi, Cambridge University Press: 2016) hb. pp. xiii+315. Rs. 795

Chirashree Das Gupta’s book can be read at two levels: firstly, as an account of India’s industrial growth experience from the time of independence to the 1980s; and secondly (and to this reader, and hopefully to readers of RD, more profitably) as an examination of the features of the capital accumulation process that led the country to be what it was, at the beginning of the neo liberal phase, starting with Indira Gandhi’s return to power in 1980. Colloquially put, while in the first phase the state led the accumulation process, in the second it acquiesced in the private accumulation decisions of capitalists, particularly those representing large capital.

Of course, as Das Gupta observes, throughout the post-independence period there were zones of engagement, and zones of disengagement where through conscious choice, the state chose to let private decisions prevail. Foremost of these, of course, was the agrarian sector where pre-existing structures of land ownership were left undisturbed, along with the social relations that these structures underpinned. The impact of this feature on industrial capital accumulation, which Das Gupta has not explicitly examined, will be discussed later in this review.

In the industrial sector, skilful use was made by policy makers of the Gandhian inspired sympathy for the village artisan to create within the category of “cottage and village and small-scale industry” an arena within the economy where small capitalist enterprise could develop and grow, outside the purview of licensing regulation and, indeed, free of the responsibility of providing welfare provisions to workers employed in these enterprises. Over time, the investment limit that defined what constituted a small scale industrial unit was raised. While this practice was justified in terms of the effects of inflation, it also ensured that the arena of small enterprises was continually enlarged, leading to the charge of “once a small unit, always a small unit.” More seriously, while the original intention had been to extend support to the person of small means, the porous boundaries of a definition which depended on a scalar value such as investment, allowed large capital to enter the field of the small-scale sector.1

If this was one aspect of the functioning of a zone of non-intervention, a more serious encroachment on the state’s intentions in guiding capital accumulation lay in the distortions in the allocations sought by industrial licensing, by which the more powerful blocs of industrial capital gained disproportionate opportunities for investment and accumulation. As far back as 1939, Asoka Mehta had determined that the form of operation of Indian big capital was not through a diversified enterprise, or a limited number of enterprises, but by a conglomerate of firms straddling industrial and commercial activities, as also firms in traditional banking which extended to money lending.2 Despite the widespread awareness of this feature of big capital’s operations, and the controversies over the functioning of managing agencies, which bound many enterprises to centralised decision making, industrial regulation legislation confined its attention to discrete enterprises. This allowed many fractions of large capital, particularly the Birla Group to concentrate enormous economic power.

Although RK Hazari began his work on business group in the late 1950s, it was not for more than a decade subsequently that parliamentary pressure, after the findings of the Mahalanobis Committee on Incomes and Wealth, and the Dutt Committee on Industrial Licensing, led to regulatory innovations. It was with the passing of the Monopolies and Restrictive Trade Practices Act in the early 1970s, that the state took official cognisance of the business group.

If big capital used these methods to thwart the accumulation priorities of the state, Das Gupta points to another feature which, by boosting the rate of surplus, increased capital accumulation. This lay in the inadequate legislative support for ensuring fair wages to workers, even in the organized sector. She points out that for 9 years, between 1947 and 1956, the concept of the workplace was not defined. Later, this was narrowed to exclude a substantial portion of workers. The implication of this was that welfare measures provided by law were available to a small section of workers. Unlike the common perception that informalisation of the workforce is a recent phenomenon, it has been a feature of the Indian economy virtually since independence.

If the operation of big capital in the form of the business group is by now well known, an original contribution which Das Gupta has made to our understanding of the role of the state in moulding the capital accumulation process is that of identifying the institution of the Hindu Undivided Family (HUF). Although the HUF gained recognition in the process of the late 19th century codification of Hindu personal law, it was subsequently incorporated within the Income Tax Act in 1922. After independence, the state granted special privileges to the HUF, including in the initial years, a taxation level lower than for individuals. It is significant that the term “Hindu” is defined negatively, as incorporating all those who are not Muslims, Christians, Parsis or Jews. It may be noted in passing that this definition makes followers of Sikhism, Buddhism, Jainism and all those who are followers of theistic practices outside organized religions, also Hindus. Conversely, there is no institutional mechanism for non- Hindus to benefit from institutional arrangements corresponding to the HUF.

So, Das Gupta points out, big capital operates not only through the various forms of corporate bodies, share market listed and non-listed public limited companies, private limited companies, and unincorporated partnerships and proprietorships: nested within such interlocking entities are HUFs, whose internal financial operations are more opaque than those of even partnerships or proprietorships. In a subsequent paper, Das Gupta has elaborated on the consequences of the legal recognition of the HUF to the enhancement of the private aggrandizement of those privileged to operate such institutions.3 The word aggrandizement is used advisedly here, as there is no method to establish that the resources that remain tax free are actually utilized for accumulation of productive assets.

Fundamentally, then, the opaqueness permitted by law in the operations of a HUF lends opaqueness to the entire financial operations of the business group and thus to the overwhelming mass of large capital operating in the economy. The most that can be done is for the tax authorities to examine the accounts of individual enterprises. They have no way of determining how funds may be diverted for personal ends or in furtherance of non-productive expenditure. In the paper mentioned earlier, Das Gupta has described the structure of a Mumbai based business group which she surveyed as part of a study of 150 business families which had as many as 7500 firms, corporate and non-corporate, affiliated to these families. Significant here, in a group whose large enterprises were integrated into the global textile industry, was the inclusion of a partnership firm (i.e. a firm subject to no formal financial scrutiny) engaged in financial services. And thereby hangs a rather large and disturbing tale.

The 1967 report of the Congress Parliamentary Committee recommending bank nationalization suggested that one important reason for bank nationalisation was that integrating the organized banking sector with the cooperative banks4

would also help to curb the flow of financial resources into the unorganized money market which plays havoc with the economy in the present situation of acute scarcities and shortages

and further

Moreover, in the presence of such a unified financial system, the unorganized money market would lose much of its attraction and concealed power to engage any financing operations which will be beyond the purview of the organized financial system.

Finally:

Let us not imagine that the unorganized money market in the country operates entirely outside the banking system. There are strategic points of linkage between the unorganized money market and the banking system

Around the same time, Charles Bettelheim had pointed to the fallacy of the argument that the large differences between interest rates in the urban and rural money markets implied that these markets were entirely distinct. On the contrary, he used evidence provided by the Banking Enquiry reports of the 1930s, and the RBI credit survey of the early 1950s to argue that urban resources, including surplus value generated by industrial production was flowing through a number of intermediaries to highly profitable rural money lending activities.5 In other words, a process of capital dis-accumulation was taking place, a truly ironic feature of an economy where the state was otherwise encouraging capital growth.

Lending credence to this apprehension is a relatively recent RBI Survey that points out that the non-institutional share (i.e. the share of private money lenders)in rural credit, which had fallen consistently after bank nationalization, had begun to increase again after the 1991 series of structural reforms.6 In other words, 70 years after Independence the semi feudal structure of the agrarian sector is not only the cause of continuing mass misery, but also allows for a drain on industrial surpluses and so on capital accumulation. It is not fanciful to suppose that the money trail spreading out from Ramalingam Raju’s collapsed Satyam Computer Services would have led to rural money lending operations, if the entire circuit could indeed have been traced.

At the time of writing this review, new information has emerged that indicates that the effects of demonetization and the introduction of GST has had profound implications of feeding further into the flow of urban funds into the informal money-lending market. An informal survey of small scale industry shows that7 In Punjab, Odisha and Tamil Nadu as well, businessmen were putting their money into speculative schemes instead of factories. In Punjab, businessmen diverted working capital loans for their sinking businesses to land purchases. In Odisha, earnings from the state’s iron ore boom were funnelled into gold, real estate, apartments, education and chit funds. In Tamil Nadu, money-lending appeared to outperform more productive enterprises in terms of returns It may be noted that as early as 1931, capitalists were aware that their cohabitation with landlords might allow the latter to use their position to siphon off not just part of the peasants’ necessary product, but also capitalist surplus. In a note to the FICCI executive before the Karachi session of the Congress, Ambalal Sarabhai had suggested nationalization of land (with compensation) for non-cultivating landlords as this class “...gives no service whatever, while on the other hand it consumes a lot which it neither earns nor tries to earn.”8

This review has concentrated on the points that seemed to this reviewer to be the more significant features of the accumulation process that Das Gupta’s book has pointed towards. Taken together with the more factual data on industrial performance that also forms a part, this is a monograph of considerable value, more so because its approach to the subject it covers is now a rarity.

References:

1. Nasir Tyabji “Nature of Small Enterprise Development: Political Aims and Socio-Economic Reality” Economic and Political Weekly 19 (1984): 1425-1433; S.K. Goyal et al Studies in National Development: Small Scale Sector and Big Business (New Delhi, Corporate Studies Group, IIPA: 1984)

2. Originally published under the title of “India Comes of Age,” the article was republished along with a similar study of the situation in 1949 in Asoka Mehta Who owns India? (Hyderabad, Chetna Prakashan: 1950)

3. Chirashree Das Gupta and Mohit Gupta “The Hindu Undivided Family in Independent India’s Corporate Governance and Tax Regime” South Asia Multidisciplinary Academic Journal 15/2017

4. Congress Party in Parliament Banking Institutions and Indian Economy: A Critical Review (Delhi, CPP: 1967): 65-66. The Report was commissioned by Chandra Shekhar, then Secretary of the Congress Party in Parliament and authored by H.K. Manmohan Singh of Patiala University, V.B Singh of Lucknow University, S.C Gupta of the Agricultural Economics Research Centre of Delhi University with S.K. Goyal of IIPA as convenor

5. Charles Bettelheim India Independent (New York, Monthly Review Press: 1968): 74-76

6. Narayan Chandra Pradhan, Persistence of Informal Credit in Rural India: Evidence from ‘All-India Debt and Investment Survey’ and Beyond Working Paper Series, Department of Economic Policy and Research, No 05/2013 (Mumbai, Reserve Bank of India: 2013)

7. https://scroll.in/article/851343/why-small-businessmen-in-gujarat-are-leaving-industry-for-financial-speculation, accessed on September 26, 2017

8. Ambalal Sarabhai Note to FICCI Executive, pp. 12-13 enclosed with FICCI letter F. 1306 dated 16.10.1931, Walchand Hirachand Papers, File 8 (Part II), pp. 92-93 Nehru Memorial Museum and Library, New Delhi

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