Nehru and his Industrial Policy Resolution of 1956- a view from the pavement                                    Prof. Prodyut Das    

08/02/2025  Much of our problems in Atmanirbharata stems from not having developed an Indian Design Culture. The I956 was a severe set back to competitive free enterprise that is needed.

Prior to Independence the entire Industrial production of India was by the Private sector.  Despite the low demands of an impoverished economy these Industries were profitably managed and its products when not curtailed by a colonial policy of protection of imports, were appropriate to the market. The goods were competitive so the British often resorted to excise duties to protect their “home” product.

When the Second World War broke out the Indian Industry without Government support quickly expanded in range and technology to include aircraft, armoured cars and weapons grade steels and displayed much innovation. Boroline and Sulekha Ink tablets came from demands of air supplied Jungle warfare as did the innovative “Parajutes”- a disposable parachute made not of the traditional silk or Nylon but cheap jute cloth. Tata’s assembled  aircraft and made a start on Locomotives, buying out the EIR workshop near Jamshedpur to start.  

One would have thought that with the need to rebuild after the devastation of colonial occupation every resource would be used disregarding political bias but instead a “Socialistic Pattern of Society’ was ushered in, Beneath the wrappings, the policy was a carefully planned means of throttling the growth of the Indian economy.

The Nehruvian Industrial Policy was de facto, a fraud on the Indian people. It throttled private enterprise, protected only the interests of the Colonial Masters and the ruling party. It was so blatantly anti- national in interest that even Nehru (a surprisingly cunning politician for all his being “a saint who wandered into politics” as Mani Shankar Iyer so fatuously described him- as late as 2013) was careful to introduce it in two phases.

First came The Industrial Policy of 1948 where it was suggested that the Government would be the dominant Industrializing Force which was acceptable given the enormous goodwill the populace had for the Leadership of that era. The Industrial Policy resolution of 1956 which was probably unconstitutional was at the same time the death potion for the Indian economy and an assurance for the -ex colonial masters- the London bankers and the Kremlin- that their interests were in good hands. It is no coincidence that the very controversial 1956 policy was introduced only after Nehru had managed to get rid of all the front-line Leaders who could have stopped him in his tracks. Gandhi and Patel were dead. Whosoever may have actually been behind Gandhi’s assassination the greatest beneficiary was JLN, Netaji was probably in a Soviet prison, Rajaji had walked out of the Congress and Jinnah had gone over to the other side. The big business men had been suitably vilified and blackmailed into submission by a series of enquiries e.g. Dalmia, Mundhra and the then FM TT Krishnamachari.  

The ruthlessly anti- national anti-Industry character of the 1956 resolution can be seen by a simple example. Lala Hirachand Walchand wanted to set up an aircraft Factory in Calcutta in collaboration with Curtiss of USA. The British did not allow him but they did not prevent him from setting it up in Mysore Raj territory. The 1956 Industrial Policy forbade by law the setting up of aviation Industry in the private sector. The irony has to underlined: What the Colonial Masters had permitted, Nehru had prevented- leaving the country dependent till this day on foreign imports. Like the words in the Irish song, “The growing of the Green” “The Irish Shamrock is forbidden by Law, to grow on Irish ground! Who was Nehru pleasing?

What did we get from the 1956 Industrial Policy (IPR) ?

What did we really get from such throttling of Private enterprise and the PSUs dominating the “Commanding heights of the Economy” all of which was done in our name. If you will permit an oxymoron, the short answer is that Marxist economics don’t work in the long run.

The list of Government run enterprises in the ‘60s, 70s were impressively large but most were once healthy Private Companies that had been rendered unviable by State control over inputs (raw materials, power and transportation) and a taxation regime where goods had cascading taxes often to  the extent of a 65% of the selling price, not to mention a personal taxation rate that went up to 93%. The proceeds from such “seizures” – one cannot call them taxes surely was supposedly used to set up the Welfare state and the Temples of Modern India- the old buzzard was always a bit of a maudlin wind bag. The actual “new” Industries over a 30- year period 1950-1980-were remarkably few 

1.      Four Steel Plants totaling 10 million tons of which about half was obsolete Soviet technology.

2.      A clutch of overstaffed but production-wise limited Companies-

BEL (electronics)

BEML (railway Coaches & Earthmovers)

Chittaranjan (Steam Locomotives)

DLW (Diesel Locomotive Works)

Heavy Electricals Limited HE(I)L.

HMT (Machine Tools & Watches)

ICF (Railway Coaches)

HFF (Photo Films)

HAL (  Antibiotics)

The numbers of new set ups were fortunately few because inefficiencies were high.

a)      Most were over staffed in the name of job creation but this “populist” approach destroyed permanently the work culture.

b)     Management by inexperienced “in transit” bureaucrats and centralized command under “Planning Commission” (PC) in Delhi made budgetary support essential and sustained propaganda about “building socialism” and “evils of mill owners” necessary.

c)      The Socialist nonsense benefitted the politicians and the IAS increasing their “control” over the people; the Common man paid for it all, grateful that their burden was labeled as “enforced savings” and all for a better future that never came during the duration of socialism- because it was never meant to be.

d)     Despite declaration of planned growth basic principles of planning for efficiency and economics were ignored. The three new factories for MiG production were in three far flung locations because the locations were in the home states of the three Committee members. It later put strain on Logistics. The Tank Factory was 2000 kms away from the front line again for reasons other than logic. One city Bangalore, had about half of the industries of the above list, possibly because in those days one did not need air-conditioning in BLR. So much for pontifications by the Planners about balanced growth. Coal & Steel prices were equalized and much of the revenues from Jute exports was spent elsewhere but that was to set up a running feud between the Centre and the Sate so that people got a bit of free theatre and were distracted form asking uncomfortable questions.

The Government’s attempts to run modern Industries was characterized by comic contradictions. Yes, there was a Planning Commission but planning for Indian development was not its priority. The Leftist Economists have had for long and loudly had had their says; the people have been retired them.

A view of the above from the common people below.  

What was it like for the common people. Some examples:

3.      A NP chewing gum, one of the cheapest of sweets cost 5np but you could not chew it because chicle the essential gum, was not imported so as to save foreign exchange. The annual requirement may have been 500 kgs or a ton which was considered wasteful. Of course, those who mattered could get Wrigley’s PK in the Khan Market. At the same time the ministry of Defence thought nothing of setting a entirely new factory to manufacture Shaktiman Trucks with MAN collaboration when TATA’s were already having proven capacity and could have done the job at a fraction of the savings so patiently extracted by “Enforced savings; the inefficient PSUs were to dominate.

4.      In 1960 a 5^th standard schoolboy wanted to buy 3 model aircraft plans worth 5 shillings approx. Rs.3.75. The Hazaribagh PO had the International Money order forms but he could not send for it because the rules did not permit. He did not get his plans Multiply that by a hundred thousand times and if today we are wasting thousands of crores on Fighter aircraft projects because our Chief designers lack design culture. Does the oh-so pompous ghosts of the planning Commission take the responsibility?

5.      If one wanted anything in a little more quantity, a bag of sugar or 10 bags of cement  you had to apply to some damn babu. Possibly bribe him to release the “permit”. The Government had replaced the allegedly bad Zamindar with a doubtlessly corrupt clerk no better than you or I.

6.      A HMT watch- two models available- cost Rs 98 to 105 in the ‘60s. In the beginning two years you had had to be a nephew of the then COAS to get one (fact I am telling you!), Two three years later you had to know someone in the Government. Later you queued up to get one all because the PC Windbags failed to sympathies with the needs of the people they professedly laboured.

7.      Despite building half of a DVC composite irrigation cum generation project, the floods did not stop but we had a critical food shortage. Power shortages had made their presence felt by the ‘60s not because the capacity was not installed but because unionized labour was already refusing to do even their PSU level duty. When Gen. PS Bhagat VC took over as Chairman of DVC he dramatically increased power generation -only to be shunted out with alacrity.

8.       The process of getting a scooter or a telephone was not only tortuous but prolonged. There were quotas for the Armed Forces, the babus. You, dirt from the street, applied and waited. 12 years for a scooter, forever for a phone. Despite such demands the production was kept at an uneconomic level. The allowed production of phones ,watches, and scooters in the ‘60s was all of 100,000 per annum.

Effect of the 1956 Policy on the Industry

We blame Hindustan Motors for bad quality and true we blame but the real culprit was the Planning Commission. It is impossible to manufacture a car of that technology to the desired quality when the production was pegged at 100 units per day. The investments on good dies – required for the doors and bonnets to slam nicely shut -required productions of at least 4-500 cars per day to break even. The same with painting. When Maruti was finally ushered in its production was about 500/day so the Socialist Government knew what was needed but steadfastly avoided doing that. India could have been an exporter of cars to Africa but that was not what the London Bankers wanted.

Much deploring used to be done about the brain drain. There are about a 100,000 IITians from the 5 IITs in the US alone. Most went because there were no paying jobs in the castrated Private sector and in the PSUs the more strategically important the job the lower was its pay. STC, a government organization dealing with import of Copra and Plam oil and disposal of old cars of the Foreign Embassies paid a salary of Rs.960. The pay for past Graduate IITian at HAL Aircraft design Bureau was Rs 550. Coincidence? happenstance or enemy action?

How did we get there?

To understand how we got there we have to wriggle out of the conditioned reflexes of what the Left Wing “Historians” and “Economists” have assiduously propagated and construct a different model which proposes the following hypotheses:

1.      The involved Great Powers-in this case The United Kingdom and the Soviet Union did not grant us Independence from the milk of human kindness. USSR and UK were far too weakened by war and “war sickness” to keep India under control, unlike the French in Indo China or the Dutch in Indonesia.

2.      Despite their conflicting Ideologies, the contending Powers were agreed on a few essential points. These were;

a)      India was not to become another Japan in terms of Industrial capability and had to be economically and particularly Industrially castrated.

b)     Britain knew that it could not beat USSR and so conceded the match to the Soviet Union in exchange for assurances that London Investments in India would not be overrun. Indian Industrial competition was to be nipped in the bud.

c)      The Soviet Union, which had graduated to superpower status riding on the back of captured German war technology, wanted, after its economic recovery, India to be an almost exclusive market for its rather crude commercial technology.

It is naïve to accept that hardened London Bankers or the Russians were so impressed by Gandhi’s saintliness and Nehru’s “modern outlook” (beneath the veneer the man was as tribal as they come) that they handed over the keys to the duo and departed without looking back. The fact was the London bankers put into action their plan B which had been simmering on the back burner since 1920s. This plan evidently had several components all of which had devastating economic repercussions:

A)   A partition of the country. Nehru’s uncompromising actions to destroy the UP and Bengal Zamindars in the name of “liberating “ the people was the actual cause of the partition blamed variously on others,

B)    A calling of an “auction” amongst the then Indian Leadership to be the Managing Agent of the “Independent India”. It was here Nehru and Gandhi may have called the “winning” bid. Gandhi anointed Nehru but- purpose served- did not survive long thereafter and one suspects that Nehru for all his grief, may have had that grief tempered by a sense of relief.

 

An note to the assumptions

Of all the countries in the world India has probably the most hilarious History in the world. It would make a good “Bumper fun book for boys” but I will restrict myself to just four,

i)                  Alexander and his soldiers after just one clash with the Indian Infantry, became homesick. Having magnanimously restored Porus to his throne they did not go back through their own supposedly pacified and safe “conquered” territory but stupidly wandered through the Thar desert suffering greatly.

ii)                The British came to India for spices but instead of using it – they seem to like Chicken Tikka masala well enough -continued to boil everything in water for centuries thereafter.

iii)              Technically the Enfield Rifle cartridge seems to require no different greasing than it’s predecessor, the Brown Bess- Mutton tallow for Extreme pressure lubrication and a vegetable oil for water proofing. So where was the need for Beef and pork tallow? The British knew the ways of India. A hypothesis is that a Westminister enquiry on The East India Company’s ruthless exploitation of the natives was looming and a Mutiny deflected the attention rather neatly.   

iv)              Why did Carmichael Smythe, Colonel of 3^rd NC-an old India hand who knew his sepoys – goad his troops by holding that ill- fated parade on Sunday 10^th May 1857 against the imploring advice of his other officers like Gough or Waterfield.

Oh, there are answers all right but I won’t here go into them. The problem with our Marxist historians is when they point in one direction you can be sure they are trying to divert your gaze from some crucial issue unless of course they are busy trying to get new worshippers for their great granddad Marx.

I put to you for consideration  the proposition that The Planning Commission was commissioned to keep the London Bankers in riches and my generation in poverty. It is again no coincidence that we liberalized only after Maggie Thatcher declared finis to Britian as a superpower in 1985 and the USSR collapsed in 1989. With the owners dying India found its first steps to emancipation from a fraudulent Socialism when the inherent inefficiencies of socialism caused the Indian economy to collapse.