Rot stems from ill-conceived coal nationalization plan

By Swapan Dasgupta

Subhash Chakravarti, a legendary Chief of Bureau of Times of India, recently recounted an encounter between Prime Minister Jawaharlal Nehru and the West Bengal Congress supremo Atulya Ghosh in the early-1960s.  

“I have heard”, Nehru told Ghosh accusingly, “that you are a bit too friendly with Calcutta’s Marwari businessmen”. Never inclined to kowtow to someone he regarded as a poseur, Ghosh’s reply was characteristically blunt: “What you have heard is right. Our party needs money, not merely for Bengal but for UP and Bihar too. Who do you think funds us? Without that money you wouldn’t be wearing that rose on your lapel.”

Nehru was taken aback by this insolence and complained to his old friend Dr B.C. Roy who was Chief Minister of West Bengal. Dr Roy laughed it off but delighted in repeating the story to others. These probably included S.K. Patil, the Bombay Congress boss with a reputation for being pro-business and pro-US.  Patil used to rue that he was the target of unending radical derision except before elections and when it was time to lobby Washington for food aid.  

The tendency to look upon India’s corporate sector as the proverbial ‘kept’ woman who could only be visited stealthily and in the dead of night (I thank the late Pramod Mahajan for this imagery) has been an undesirable Nehruvian legacy. If Nehru shared the upper-class English socialist disdain for ‘trade’ and new money, Indira Gandhi was positively vengeful towards Indian business following her battle with the Syndicate, and Rajiv Gandhi was plain confused over how much elbow room should be given to the private sector. However, there was one common dynastic consensus: business must pick up the tab for political expenses. A highly regulated capitalism, it was decreed, must underwrite India’s experiments with socialism.

It was an expedient arrangement that allowed patrician socialists to serve the poor without being preoccupied with where the money was coming from. One Nehru sibling who enjoyed global fame was, for example, particularly forgetful about settling shopping and hotel bills.

When the private sector proved unable to deliver the full booty—and this began to happen as the license-permit raj began to be excessively suffocating for business—the necessary surplus was creamed off from state funds. A breed of politically loyal but parasitic contractor class was created by Indira Gandhi to offset the influence of old money. Additionally, exceptional discretionary favours were doled out to business houses which were considered ‘reliable’. Business, as Dhirbuhai Ambani famously said, became a matter of “managing the environment.”

What we are today witnessing are big cracks in a system whose principal objective was income generation for the ruling dispensation rather than the economic growth of the country. The CBI clearly erred if its reason for wishing to prosecute a former Coal Secretary and industrialist Kumaramangalam Birla was the fact that Hindalco ate into a coal allotment initially been made to a public sector unit. To treat the private sector as a poor cousin or, indeed, a predator, makes no sense. However, the real reason for widespread suspicion of influence-peddling and corruption is that the coal block allotments were governed by discretion, the Prime Minister’s Office having earlier rejected the more transparent process of auctions. It was this flawed selection system which resulted in a large chunk of India’s coal reserves being parcelled out to those who were either linked to the ruling party or were willing to pay a political cess for every ton of coal extracted.

However, it is reassuring that the CBI’s peremptoriness has generated a sense of outrage. In part the issue is all about a senior bureaucrat being punished for following a political order and an industrialist pulling strings to further his very legitimate business interests—there was no other option. But the real rot stemmed from an ill-conceived coal nationalisation that has proved an unmitigated disaster and which has cost India dearly.

It is curious that the Hindalco chairman was named after Mohan Kumaramangalam, the charismatic Communist-turned-Congressman who presided over coal nationalisation and other socialist excesses. Today, to take liberties with Karl Marx, the fawning of an earlier generation must be weighing “like a nightmare on the brains of the living.” 

Sunday Times of India, October 20, 2013