IG Patel as Deputy Economic Adviser

Dr IG Patel’s tenure as Deputy Economic Adviser lasted from 1954 to 1959. By then, the first five year plan was already in progress. The work on the second plan had started. In the third part on IG’s life, we discuss a few major developments and other anecdotes. A detailed discussion on the second plan follows in another post.

Contents

Introduction
Sir Theodore Gregory
The Bombay School of Economics
Anjaria and IG
Dinner with the PM
The Deshmukh years
The forex crisis of 1956
IG’s mentors
The currency regime
Gulf rupees
An overdraft bid
Colombo Plan
Expenditure Tax
Nationalising the Imperial Bank
The second plan
An inspection

Introduction

The earlier part on IG Patel ended with his return to India in May 1954 after secondment to the IMF. Before his return, Bernstein, his boss and the Fund’s first economic counsellor, suggested that IG proceed on leave from the Fund so that he could return if he were not happy with working for the government. However, IG preferred to stay with the Government of India, where he became the Deputy Economic Adviser. He would report o JJ Anjaria, India’s first Chief Economic Adviser.

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Sir Theodore Gregory

If you include the pre-independence years, Anjaria was not India’s first chief economic adviser (CEA). That honour goes to Sir Theodore Gregory (1890-1970, born Theodore Emmanuel Gugenheim). He taught at the London School of Economics for many years before becoming the CEA from 1938 to 1946. The Committee he headed on official Indian statistics laid the groundwork for the Central Statistical Organisation (CSO). Its members included civil servants like KK Chettur, PV Sukhatme and HM Patel, and BP Adarkar, the economist.

I brought in Sir Theodore to challenge the popular narrative that PC Mahalanobis established the Central Statistical Organization (CSO). We will see more of Mahalanobis in the next part. However, the CSO’s history and antecedents go back several decades. Different ministries had officers specialising in statistics who conducted surveys. Most universities had statistics and surveys as part of their Economics syllabus.

Hunter, Wilson and Bagehot

Perhaps the most important statistical functions were carried out in the commerce ministry. These came under the Director General of Commercial Intelligence and Statistics. The first Director General was Sir W.W. Hunter, the brilliant civil servant, best known for his Imperial Gazetteers on different Indian provinces. Hunter’s maternal uncle, James Wilson, was the first Finance Member of the Viceregal Council, equivalent of the finance minister.

Wilson was in India only for about six months before malaria consumed him at 55. In this brief period, his most important reform was in government currency. The others include the functions of the Comptroller and Auditor General, the Controller General of Accounts, and the Indian Police. Wilson also founded The Economist, the financial weekly, and the Chartered Bank, now the Standard Chartered. Of interest to central bankers (and bank supervisors) is that Walter Bagehot, who wrote the classic Lombard Street: A Description of the Money Market, was married to the eldest of Wilson’s six daughters. (See here for my post on Wilson).

The digression anticipates a later reference to Sir Theodore in the context of Indian Planning. Someday, I will share an interesting anecdote involving him and Montagu Norman, the longest-serving Governor of Bank of England.

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The Bombay School of Economics

The Mumbai University website (see here) and an article in the Economic and Political Weekly (see here) put the date of the establishment of the Bombay School of Economics to August 1921 (the 21^st of the month according to the former and the 1^st according to the latter). It is now an autonomous department of the University,known as the Mumbai School of Economics and Public Policy.

The school’s history goes back another two years, to 1919, when Bombay University established the School of Economics and Sociology. This resulted from a grant the Government of India promised five years earlier. The same year, Sir Patrick Geddes was appointed the Chair of Sociology. A student of Sir Thomas Huxley (grandfather of Aldous and Julian), Sir Patrick was a polymath. He excelled in diverse fields, from biology, geography, and sociology to being a pioneering town planner. He coined the term ‘conurbation’ (meaning urban agglomeration), and advised on several Indian cities. These numbered nearly twenty as per my last count. His lasting contribution was the master plan for Tel Aviv.

Dr GS Ghurye

On Sir Patrick’s recommendation, the University sent Govind Sadashiv Ghurye, M.A., as a research scholar to the University of Cambridge. He returned in 1923 with a PhD and joined the department as an Assistant Professor of Sociology. By then, S.N. Pherwani had joined as an assistant lecturer in Sociology in 1921. The School’s approach was interdisciplinary, reflecting Sir Patrick’s eclectic interests. Thus, Pherwani, though a sociologist, also contributed to the Journal of Indian Economic Society. One of his papers was titled “Economics of Education.” When Sir Patrick’s term expired in 1924, Dr Ghurye succeeded him. In 1934, Dr Ghurye became a Professor of Sociology. He became a pioneering Indian sociologist, mentoring, among many others, MN Srinivas, Iravati Karve, I.P. Desai, Y.B. Damle, Vilas Sangave, MSA Rao, and AR Desai.

The School of Economics

Forming the economics faculty took time. Radhakamal Mookerjee, another polymath who taught at Calcutta University and wrote on Institutional Economics and the Ashtavakra Gita, was appointed Professor. But, he chose to join Lucknow University, where he taught sociology and economics and later became the Vice Chancellor.

KT Shah

KT Shah was the first Professor of Economics at the Bombay School of Economics. He studied at the London School of Economics and was called to the Bar in London. After returning to India, he practised law in Bombay till 1914 when he became Professor of Economics at Mysore University. He became Professor at the Bombay School of Economics in 1921, the same year his Sixty Years of Indian Finance was published, a book he dedicated to his friend, S. Radhakrishnan. He continued at the Bombay School of Economics till 1930, the year his Splendour that was India was published. Later, actively involved in politics and independence struggle, he was Secretary of the Planning Committee constituted by Netaji Subhas Chandra Bose when he presided over the Indian National Congress in 1938. Shah later became a member of the Constituent Assembly and passed away in 1953.

CN Vakil

Along with Ghurye, Chandulal Nagindas Vakil was another student sent to England as a university scholar. He returned with an M.Sc. from the London School of Economics and joined the department in 1921 as a Reader. I don’t know whether he went to Cambridge, as the EPW paper suggests. By then, Khushal T Shah had been appointed Professor. That was probably when the Bombay School of Economics was separated from the Sociology wing.

After the Bombay University Act of 1928, the posts were re-advertised. After Prof Shah left in 1930, Mr CN Vakil became a Professor of Economics, and Mr Dwarkanath Ghosh, a newcomer, became a Reader in the Department. This is the same Ghosh we encountered earlier, where he took the young IG to meet Sir V.T. Krishnamachari, the Dewan of Baroda, for a scholarship to study abroad, only to be rebuffed.

JJ Anjaria

When Ghosh left in November 1939 to take up government appointment, probably the Indian Education Service, which took him to Baroda and other places, JJ Anjaria took his place. Anjaria received his M.A. from Bombay University in 1931 and his M.Sc. in Economics from London University in 1936. The University lent Anjaria’s services in 1946 to the newly established International Monetary Fund. He was Assistant Chief at the Fund’s Department of Research in Washington from 1946 to 1948. On his return, CD Deshmukh took him to the Reserve Bank of India as Director of Monetary Research from 1948 to 1950.

It was only in 1936 that the University was able to provide accommodation to students in a hostel in a building opposite the Marine Lines suburban railway station. Prof CN Vakil was the hostel’s warden from the beginning.

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Anjaria and IG

Anjaria was IG’s examiner in his B.A. Honours examination. The Baroda College was then affiliated to the University of Bombay. When IG joined the Bombay School of Economics for his MA, Anjaria became one of his teachers. At the University Hostel in Marine Lines, IG was Inder Bhai to friends – one of those whose reputation preceded an actual meeting. That was before IG attended some of Anjaria’s lectures on economics at the Bombay School of Economics.

Weekly lectures

In the weekly lecture by CN Vakil, whom Anand Chandavarkar called the Grand Ayatollah of Indian economics, Anjaria asked the audience: “Is IG Patel from Baroda here?” IG had not arrived by then; he may have been busy tying up funds for his academic life in Bombay. Anjaria told the audience in IG’s absence: “In my long experience, I have not come across answer papers of his quality at the BA exam. I look forward to his MA results with equal anticipation.” When later informed of the incident, IG laughed it off in his simple and self-devaluing style, saying, “All I did was to cram up my Benham a little too well.” Frederic Benham’s “Economics: A General Textbook for Students” (1938) was a popular and enduring textbook. Benham taught at the London School of Economics when Prof AK Dasgupta was a student.

IG turned up for the next seminar. After everyone had spoken, Anjaria would ask: “Patel, I am sure you have something to say.” Their association wouldn’t last long as IG soon left for Cambridge for higher studies. So did Anjaria, for the IMF. By then, along with Manilal Nanavati, the Reserve Bank of India’s third Deputy Governor, Anjaria, had published a book on the Indian Rural Problem. Anjaria later resigned as Reader when CD Deshmukh made him Director of Monetary Research at the Reserve Bank of India. Others recruited by Deshmukh, along with Anjaria, were Dr KN Raj, Dr Saokar, SLN Simha, Shri Chari, and Dr Sastri.

Anjaria and Deshmukh

CD Deshmukh, who had created a strong research department at the Reserve Bank of India, was also responsible for creating the Economic Division in the Ministry of Finance. It would eventually overshadow the two older ones in the Commerce and Industry and the Food and Agriculture ministries. When Deshmukh became the Finance Minister in 1950, he appointed Anjaria as Chief of the Economic Division of the Planning Commission of India. He would also be in charge of the Economics Division at the Ministry of Finance, eventually designated as the Chief Economic Adviser in 1956.

Anjaria must have eagerly awaited IG’s return from the Fund. Among the early recruits to the Economic Division of the Ministry of Finance, IG listed, apart from himself and Anjaria, KN Raj, Rangnekar (DK?), Harbans Lal, SS Marathe, RM Honavar, AK Ghosh, Ashok Mitra, KG Vaidya, HK Barpujari, P Dasappa, and Manu Shroff.

IG on Anjaria

Anjaria later became a Deputy Governor of the Reserve Bank of India from 1977 to 1982. IG said of his former boss:

He had had a brilliant career at the LSE and was one of the most lucid expositors of economics I have ever known. To his knowledge of economics and invincible style, he added a most transparent and generous disposition with an ability to command respect from young and old. No one could doubt his commitment to whatever he did; and he inspired by his own untiring example. My generation of economists owes a great debt of gratitude to him for paving the way for acceptance and even appreciation of economists in Government service.

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Dinner with the PM

For Independence Day, 1954, IG received an invitation to dine at Prime Minister Nehru’s residence. IG initially thought it was an error. He thought it was meant for the other Patel, HM, the civil servant. But they confirmed it was for him, a Deputy Economic Adviser of just a few months standing. There were just seven or eight guests. One of them was the young Maharaja of Udaipur. Pointing to him, Nehru told IG that he was invited so the young Maharaja would have someone his age to talk to. Quoting Nehru, IG wrote:

These princely people have to change and come to terms with the changing world. The Udaipur rulers had vowed never to enter Delhi alive as long as India was under foreign rule. I have been inviting this young man to come now that we are free, and he came for the Independence Day ceremonies this morning. Please talk to him and tell him something about the world outside.

IG added:

That the Prime Minister of India should have heard of me, that he should be so solicitous about the young prince and that he should be so completely free from any sense of rank or protocol or status simply swept me off my feet. After that, it was simply a matter of great pride to work for him and for all that he stood for. Such was the climate in the dawn of Independence.

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The Deshmukh years

IG was Deputy Economic Advisor from 1954 to 1958. A history of economic policy-making in India would be incomplete without a detailed discussion of the Economic Division that, according to IG, acted as a “nursery,” which provided many trained economists to other ministries. IG elaborates:

…it was this presence of like-minded friends in several ministries which provided the communication and coordination of views and advice that existed despite departmental jealousies and rivalries, not to speak of jurisdictional separatism. Let it also be said that very confident and economically literate civil servants who belonged to the economic and finance pool were also an important and integral part of that process. In the fifties and early sixties, there was some coherence in economic policy and much inter-ministerial cooperation in its formulation as well as implementation.

Recalling those years in 2002, IG wrote, “It is difficult for many now to appreciate the wonderful trust, regard and affection that existed in the early years among economic ministers, civil servants and experts.”

Statistics on the Indian economy

IG’s first assignment was to prepare a complete set of statistics on the Indian economy. Deshmukh was required to attend the annual Bank-Fund meeting in September 1954. Deshmukh drafted all his speeches and wanted all relevant data on India. The result was four fat albums on everything from population to foreign trade. In the process, they examined everything, including the reliability of the sources. There could not have been better training for an economic adviser. Giving good advice requires a thorough grasp of statistics and its evolution.

This compilation exercise was a precursor to further refinements and publishing handbooks that led to regular publication of the Economic Survey before the budget announcement. The early learning process was through these devices and various surveys, notes and studies on specific subjects, speeches and monographs prepared for conferences. Even answers to parliament questions helped communicate. These helped IG to be ready when the need arose.

A disconcerting meeting

At the same time, IG described his first meeting with Deshmukh as “disconcerting.” One of the raging debates of the period was the extent to which India should scale up its steel production. W Arthur Lewis, the Princeton economist of Caribbean origin, suggested ten million tonnes. TT Krishnamachari (TTK), then Minister for Industries, wanted three steel plants with a 4 to 6 million tonnes capacity. IG found this reasonable as Indian steel plants were more efficient than the Japanese plants in the 1930s. 

Deshmukh had different ideas. He ridiculed the idea and told IG in their first meeting:

Those people do not know what steel is and where it can be used. I have asked them to tell me how much of each variety of steel they want (to be) produced and where and in what quantity each variety would be consumed. It would take them months to answer these queries. And in the meanwhile, the whole thing will be forgotten.

IG was shocked “as much by the shades of bureaucratism as by the lack of foresight.”

Deshmukh’s discomfort

I believe Deshmukh was sharing his disenchantment (and that of others) with where Indian planning was headed. He was doing so discretely and checking where IG stood. Though Deshmukh set up the Planning Commission as directed by Nehru, he seemed to be out of tune with the direction policies were taking. Ostensibly, the reason for his resignation was related to the Bombay City’s status after the bifurcation of the Bombay State into Maharashtra and Gujarat. But IG also thinks that “this was an excuse for leaving a post in which he was feeling increasingly uncomfortable.”

The real reason lies elsewhere, but neither Deshmukh nor IG elaborates. As RBI Governor, Deshmukh had opposed the nationalisation of the Imperial Bank of India as he felt that the time was not right. But, as the finance minister, he supported the proposal. He even celebrated the nationalisation of life insurance, calling it the one significant achievement he wished to be known for if there were only one. However, his eventual movement towards the Swaraj Party, even becoming its presidential candidate in 1967, showed that he had fundamental differences with the policy trajectory. One main point that kept him in contact with policy was the Indian Statistical Institute, where he became president in 1944 as governor of the Reserve Bank of India. He would continue in that position for two decades, till 1964, nearly a decade after his stint as the finance minister.

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The forex crisis of 1956

According to IG, it is only partially correct to say that the 1956 foreign exchange crisis resulted from the ambitious second five-year plan. He puts more blame on the considerably liberalised export-import policy of 1956. BK Nehru, who had just returned from Washington to take charge of external finance, put in place a system of forex budgeting to decide which import the country could afford and the commerce ministry could accordingly licence. IG noted that this system developed in the administrative division of the ministry, manned by civil servants, and not in the economic division, manned by economists.

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IG’s mentors

BK Nehru told IG he liked the briefs he had prepared for the UN delegations, which he had seen while in Washington.

“Thus began a lifelong relationship during which I have received unfailing support, encouragement, guidance and affection from this most gifted and noble civil servant.” (Patel, Glimpses of Indian Economic Policy – An Insider’s View, 2002)

Acknowledging his mentors, IG reveals that while Anjaria led him into economic advice, HM Patel trained him in economic administration. TTK (who succeeded Deshmukh as the finance minister) prepared him for higher responsibilities, making no secret of it. BK Nehru propelled him into economic diplomacy.

According to IG, life changed, especially for the economists, when TTK became the finance minister. He was fond of Anjaria, who was shifted from the Rashtrapati Bhavan Annexe to a room next to the minister. IG was still in the “war-time abomination built on Raisina Road, known as P Block.” According to IG, the physical separation from the North Block underlined their ‘subaltern’ status. He would move to the North Block, occupying the ground floor room opposite the lift, which I think is the one now occupied by the Chief Economic Adviser.

HM Patel formed a Coordination Committee of secretaries of relevant ministries under his chairmanship and appointed IG as its secretary. IG kept the minutes and followed up on implementing decisions. He later wrote: “It was superb training. It brought me face to face with problems of day-to-day economic life and the bureaucratic, legal and political hurdles in actual implementation.”

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The currency regime

End to proportional reserves

The Reserve Bank of India Act initially provided for a proportional currency system. In this arrangement, the total assets of the Issue Department, whose liabilities were the banknotes issued by it, at least two-fifths, had to be in gold coin, gold bullion or sterling securities. One of the responses to the forex crisis was to reduce the forex backing (which included gold) for the Indian currency. Brought up on the fundamental Keynesian view of gold as a “barbaric relic,” IG sent a note to BK Nehru recommending a change from a proportional system to absolute terms. This was accepted. Accordingly, the RBI Act was amended fixing a minimum of Rs 200 crore for these assets. Within this, a minimum of Rs 115 crore was specific for gold coin and gold bullion.

Resisting reduction in Reserve Bank reserves

As the extra leverage so gained was also coming down, BK Nehru suggested reducing the absolute amount. This time, IG argued against reduction. The matter escalated to TTK, who called all concerned, including LK Jha, HM Patel, JJ Anjaria and PC Bhattacharyya. IG was asked to explain his stand which was seemingly contrary to the earlier one. To quote IG:

I was asked the reason for my stand – which was based not on reason but on gut reaction. On the spur of the moment, I said: ‘Reserves are for covering mistakes. Your generation got Rs 1500 crores to cover up your mistakes. I want at least Rs 500 crores to cover the mistakes of my generation.’ TTK was angry and said they were leaving enough for my generation – three steel plants, three fertilizer plants and so on. Was that not enough? But he ended the meeting by saying: ‘Very well, IG will have his 500 crores.’ There the matter rested. No one talked of changing the reserve requirements after that.

IG probably meant 150 and 50, which was what the reserves added up to at Rs 200 crore. But, he was writing after four plus decades. If nobody raised the issue after that, even after the currency in circulation increased multifold, it is because the currency has acquired a fiat status and the gold backing for the currency has become a nonissue. The public and policy interest turned to the reserves of the banking department and its adequacy.

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Gulf rupees

A post-independence legacy of British rule over India and their control over Gulf countries through a system known as the Persian Gulf Residency was that the Indian rupee was the medium of exchange and store of value in various Gulf countries/sheikhdoms, Kuwait and parts of Iraq. The rupees tendered to India by those countries had to be converted into pound sterling. This facilitated the financing of gold smuggling and depleted Indian foreign reserves. This could be prevented only by converting all Indian rupees that circulate there once and for all, making the rupee nonconvertible.

Indian rupee notes circulating in the Gulf were replaced with currency notes specifically for the Gulf, also known as Gulf notes. The value of their currencies were thus pegged to the Indian rupee, leaving them with a currency board arrangement. When India devalued the rupee on 6/6/66, these countries objected and sought compensation. Eventually, these countries, starting with Kuwait and Bahrain, moved to their currencies, and others like the sheikhdoms of Ajman, Dubai, Fujairah, Kalba, Qatar, Ras-al-Khaimah, Sharjah, and Urnm-ul-Awain, moved to the Saudi rial, and Abu Dhabi to the Bahraini Dinar. The Sultanate of Oman was the last to leave the Indian rupee. We will discuss this interesting chapter in Indian central banking history in detail later.

A lost dream

According to IG, the change put paid to dreams of making the rupee a reserve currency. The objective of curtailing smuggling failed as it continued unabated. It only increased the cost of such operations. Considering the economic progress of these countries in later decades, the change would have happened in any case. In hindsight, IG concludes that the shift could have waited for initiatives from these countries, summing it up as one of those “imponderable counterfactuals.”

These developments must be read with India’s then Gold Control Act, which stringently regulated gold manufacturing, acquisition, possession, sale, transfer and delivery. In my chapter on gold and money laundering in a long pending publication of a book on gold in India, I show (as did others earlier) how India’s restrictions on gold resulted in the rise of Dubai as the ‘City of Gold.’ I also show how and why smuggling has continued and will do so in the foreseeable future.

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An overdraft bid

To tide over the forex crisis, HM Patel and IG travelled to London to obtain an overdraft from the Bank of England of 200 million pounds. They thought the amount was modest, and India had a right to keep deposits for long at the Bank of England for low interest rates. Moreover, HM was confident since he knew Leslie Rowan, who headed the Overseas Finance Section at the Treasury. After meeting him, they went to the Bank of England. They were told promptly that the Bank of England never gave an overdraft, and they did not want to make a precedent.

During the visit, HM wanted to meet bright young economists from India. IG introduced him to Manmohan Singh, then at Cambridge, and Ratan Bhatia at Oxford. Both were offered jobs on the spot. Bhatia joined the Economic Division for some time, but Manmohan Singh returned to the University of Punjab.

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Colombo Plan

The 1956 annual Colombo Plan meeting was held in New Zealand for the first time. The leisurely meetings were held over three weeks in different stages. At the last moment, senior civil servants and ministers could not attend the meeting and had to back out for some reason. In their absence, IG, who had gone as an expert to attend the first week’s meetings, acted as senior civil servant and minister for the entire duration.

The meetings were held soon after the Suez War. The British were unhappy with Indian support for Egypt. They were also not pleased with the bold thrust toward industrialisation, socialist methods, and Soviet aid. We were setting a bad example for others, like Nepal and Cambodia, which also accepted Soviet Aid. The Americans seemed supportive of the British plan to teach India a lesson. At a reception, IG met the leader of the US delegation and asked: “if he knew that India had become independent in 1947 and that since then anyone who had anything to discuss India had to do so with India and not with Britain.”

The substantial sterling balances India had after the War were being repaid to the extent of £30 million every year as British ‘aid’ to India. That made Britain the largest aid donor to India. IG argued that repaying what was India’s money could not be called aid and was only partial debt repayment. It was apparent enough to be discussed, and IG’s stand was accepted, so all references to British aid were dropped.

The AIIMS story

The Health Survey and Development Committee headed by Sir Joseph Bhore (ICS, Madras, 1902), former Dewan of Cochin State, reported in 1946. As regards professional medical education, their recommendations were “intended to promote the production of health personnel under the different categories, in as large numbers and as rapidly as possible.” They added that “we consider it of the first importance that at least a few institutions, which will concentrate on quality, should also be established in suitable centres in different parts of the country. In the first place we recommend the establishment of one such training centre for which we would suggest the designation, All-India Medical Institute.”

The Committee laid down six broad objectives for these institutes apart from recommendations on their range of activities, selection of students, organisation and control, recruitment, and financing. Did these recommendations hit a roadblock on the last point, financing? The foundation stone for the first AIIMS was laid only in 1952 and was eventually established only in 1956.

IG wrote that his New Zealand visit resulted in the first aid he negotiated exclusively – and probably the best obtained by India. Moriarty, the New Zealand Finance Secretary, was keen to be a donor under the Colombo Plan and wanted to start with India. What he had in mind was £1 million to be lent with the least fuss. Ultimately, a gift for the amount was agreed upon for a mutually agreed project. The only condition was that it had a plaque acknowledging the gift from New Zealand. The result was the All India Institute of Medical Sciences in New Delhi.

Taking forward the Bhore Committee’s vision, in more recent times, seventeen more AIIMS were established and eight are under different stages of planning and construction.

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Expenditure Tax

Nicholas Kaldor, the British economist from LSE and Cambridge, was IG’s teacher and examiner. IG has acknowledged great learning from ‘Nicky’ over several meetings across several expert groups. Kaldor visited India in 1956 when TTK was the Finance Minister. In his work, assisted by Iqbal Gulati and Amaresh Bagchi, he recommended an Expenditure Tax for India. While TTK was willing to try it, there was all-round opposition at the Secretary level. Eventually, it proved to be short-lived. But TTK wanted to bring it back during his second tenure in 1963-64.

The visit brought IG and KN Raj close to the Kaldor family. ‘Nicky’ and Clarisse, with their daughters Catherine and Frances, would become close to the Patels, and they visited many places together, including Agra and Khajuraho.

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Nationalising the Imperial Bank

This was also the time that the Imperial Bank of India was nationalised. This resulted from a report commissioned by Benegal Rama Rau, Governor of the Reserve Bank of India. It was chaired by AD Gorwala (ICS, 1924). The members included DR Gadgil, B Venkatappiah (ICS, 1932), Deputy Governor, and Dr NSR Sastry, the Member Secretary. Deshmukh had reservations earlier as the Governor of the Reserve Bank, but as the finance minister, he gave the go-ahead. IG wrote that Deshmukh changed his views as Gadgil, “one of Deshmukh’s closest friends,” wrote the report. However, the anecdotal evidence handed down to this author was that the report was written by Venkatappiah, whose drafting skills were legendary. It was almost always the practice in the Bank that the reports it commissioned were drafted internally.

According to IG, HM Patel (ICS, 1927) worked tirelessly towards a smooth transition. Dr John Matthai, India’s first railway minister and former finance minister, was appointed the first chairman of the State Bank of India. IG cites this as an example of “how patriotism inspired ministers, civil servants and economists alike at the time.”

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The second plan

If this post was delayed by over three months, it was because of the extensive reading I had to do on the issues raised by the second five-year plan. This reading also brought back unpleasant personal memories, about which I will write elsewhere.

The second plan is a significant chapter in IG’s tenure as the DEA. Not many people today know that Rajiv Gandhi, as the Prime Minister, called the Planning Commission a bunch of jokers. Ironically, he was the Chairman, and Manmohan Singh was the Deputy Chairman. In hindsight, Rajiv Gandhi reflected the uneasiness and frustration that many felt under the weight of years of planning and the licence-permit raj, the effects of which, combined with fiscal profligacy, would finally unravel by the decade’s end.

Beginning of reforms

VP Singh started the reform process as the finance minister with his 1985 budget. If I remember correctly, this included broad banding as a step towards delicensing. To illustrate, you got a licence for two-wheelers and not specifically for motorbikes, scooters or mopeds, which was the case earlier. In the latter, a licence for one did not permit you to diversify into the other even if you had unutilised capacity, and market trends dictated a shift in product mix. There were also tax reforms, monetary reforms, curtailing the powers of the MRTPC, and liberalisation in the capital market. Soon, politics got the better of what economic expediencies necessitated. To make a long story short, pushed into an unprecedented economic crisis, the country was forced to adopt reforms on a much larger and sustained scale from 1991.

The Planning Commission

One institution that had outlived its utility or original intended purpose, and survived the reform process was the Planning Commission, even though the Soviet Union had collapsed just one year before the reforms. The Gosplan, the Soviet Planning Commission, which inspired and was a model for India’s planning commission, was scrapped in 1991. More than any other factor, I think it was the collapse of the Soviet Union which nudged the experts, politicos, media and other illuminati and “opinionati” into a comfort zone vis-à-vis reforms. Previous proponents of control and planning turned overnight into flagbearers of reforms. Notwithstanding this, the long afterlife of the Planning Commission could only be explained by the soft corner that those who initiated and implemented the reform process had for the institution where they spent many of their early working years.

We will discuss the second plan, including its why, how, and who, complete with its Russian antecedents, in another post, following the next one on PC Mahalanobis, widely considered the author of the Second Plan.

Before that, let me conclude with a short anecdote.

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An inspection

In the late 1980s, living in Anna Nagar, Madras, one of my acquaintances in the neighbourhood was an elderly man who retired as a junior official, maybe a Section Officer or an Under Secretary, in the Ministry of Industry (combined with Commerce in those days). One of the high points in his career was being assigned sometime in the 1950s or 60s to inspect and report on whether the capacity of TISCO (now Tata Steel) should be increased. I suppose a junior officer had to go because there were not enough senior officers to complete all such inspections. A junior officer’s report also gave leeway to the seniors in further “interpreting” and “contextualising” the findings, so I think.

Waiting to receive him at the company’s guest house in Jamshedpur was JRD Tata himself, the Chairman of the Tata Group. After initial formalities, an elderly person was presented to the inspector. This man was short and well-dressed in traditional Tamil Brahmin attire, complete with headgear, a luxuriant angavastram around his neck, a V-shaped namam on forehead, and vibhuti appropriately applied in the right places. Even by the fast-changing norms of the day, the man’s appearance would have been an anachronism, even in Madras, forget about faraway Jamshedpur. The Tatas’ hospitality is legendary. So, they had done their homework. The inspector, they learnt, was a Tamil Brahmin and a pure vegetarian. JRD explained to the inspector that this man would cook for him during his stay.

The retired officer narrated the story with great pride. He slipped into a reverie, revisiting distant memories while staring blankly. The inspection might have ended auspiciously. I felt sorry for JRD, who probably travelled from Bombay for this. If anything, it was a telling comment on the inspection raj of the times.

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© G Sreekumar