The Coming Serfdom in India
DECEMBER 01, 1966 by SUDHA R. SHENOY
Miss Shenoy, recently graduated from the London School of Economics, B.Sc. (Economics), hopes to enter university teaching in India.
The major issue that divides liberals (advocates of liberty) from "liberals" (statists) is the question of the importance of economic freedom. As the statist sees it, economic freedom is the "freedom" of the few to exploit the many. The right to vote, on the other hand, is common to all men. Hence, for statists, the dividing line between democracies and dictatorships is drawn in answer to the question: Are elections free or not? But it will be noticed that totalitarianism is the implicit criterion here: any situation which is not yet totalitarian would be described as "free" by the statist.
As the true liberal sees it, freedom is indivisible. Hence, measures ostensibly aimed at the weak political minority of businessmen will in fact only prevent the market process from functioning as well as it might have done, and will confer on some people — i.e., politicians and administrators —a power over their fellow men otherwise exercised by no one; a power deriving from this group’s ability to determine, de facto though not de jure, the uses to which resources may be put. This power, the liberal affirms, is of entirely another nature from the "power" alleged to be exercised by businessmen operating in a market context. Control over resources by businessmen is not only scattered among a much larger group of individuals; these businessmen themselves are in effect simply the agents of their fellow men in determining the use of these resources, via the market process of profit and loss. But where economic power is concentrated in the hands of a politically selected group, the chances for the emergence and establishment of a political opposition are precarious, to say the least. The statist overlooks the necessity for independent sources of material support for a political opposition; even though some opposition may seem to be present, the real criterion is the range of different views that would have emerged if economic power had not been so concentrated. In other words, freedom is more than one value among others; it is rather the foundation for a whole social order. Intervention embodies a principle that is diametrically opposed and must lead to the destruction of this social order (where it exists) and the establishment of an order founded on the principle of political exploitation: the politically strong exploiting the politically weak. In short, intervention leads to the suppression of potential political opposition and thus ends in totalitarianism.
India as an Oligarchy
This abstract and theoretical argument is vividly illustrated by the experience of India. Most statists regard India as an excellent example of economic planning combined with democracy. It would perhaps be more accurate to describe India as an oligarchy — in the Aristotelian sense of government of, for, and by the rich. These rich, however, unlike those who earn high incomes in a free market by supplying their fellow men’s needs, have obtained their wealth via the very instruments of planning — permits, licenses, quotas, concessions, and contracts. In the first place, virtually all investible resources — i.e., savings and foreign aid — are forcibly drawn (via capital controls and taxation) into the preferred "industrial" sectors, both private and public. The industrial output thus artificially produced adds nothing to the flow of goods and services for the starving, ill-clothed, and unsheltered Indian masses — but those businessmen, civil servants, and others sharing in this forced expansion obtain high incomes (legal and illegal). Hence, we see that the output of coarse cotton bought by the masses has expanded the least, while the output of rayon — a luxury in India — has multiplied by twenty-one times over the last 15 years and three five-year plans.1
In the second place, even this private industrial sector is very closely controlled by a minutely detailed network of regulations: government sanction is required to start, expand, or close down an undertaking; permits are required for virtually all raw materials and certainly all imported machinery and components. Government regulations extend to such points as the manner of conducting board meetings and the width of sari borders in the case of mill-made saris. In effect all these controls and regulations have created and protected private monopolies in virtually all fields of nonagricultural production.
Thirdly, there is import and exchange control. No imports of any kind are permitted without a license, and imports of a wide range of commodities are banned altogether. Prohibitive tariffs have been imposed on a large number of other goods. All this means that Indian producers of import substitutes have a highly-protected sellers’ market. To reinforce import control, all exchange earnings have to be surrendered to the Reserve Bank at the official price — which is well below the true market price. It is, of course, forbidden to send exchange or rupees out of the country in any form.
Fourthly, the government sector has continually expanded over the last 15 years — even though this sector provides the least employment and adds nothing to the real national income. The driving force here is public contracts; the larger the public sector, the larger are its contracts, and the larger, therefore, the rake-offs for the contractors and civil servants involved. (Where 100 rupees are accounted to be spent on a project, they never are. Some say 60 rupees are spent and 40 distributed; others would reverse the proportions — but no Indian would agree that the full amount was spent.)
Fifthly, there are innumerable other controls over the internal economic life of the country, ranging from controls over the movement of food grains between states, to those over the establishment of bus routes. All of these serve to increase the powers of officials over their fellow men.²
A Limited Private Sector
From all this, it will be clear how small is the sector of the Indian economy from which a political opposition can draw material support, and how minute a portion of even this sector is independent of the government.3 The industrial sector in India owes its establishment and continued existence to the government. In the absence of the forced draft of resources into it, and of exchange and import controls and tariffs, this sector’s artificiality and unviability would be quickly and unmistakably revealed. It follows that though Indian businessmen technically may be independent of government and even complain of some types of intervention, in fact they must be included as part of the government sector.
It is, therefore, hardly surprising that the opposition in India should be so small and that opposition parties should complain of a dearth of funds while the ruling party has no complaint in this regard. Naturally, virtually all businessmen are ardent supporters of the government. Again, a leading South Indian newspaper charged that government had used Journalists’ Wages Boards and newsprint controls to penalize papers consistently opposing it; charges have also been heard that government departments have threatened to withhold valuable advertising from the opposition press.4 And more recently, opposition M.P.’s have protested in Parliament against Criminal Investigation Department harassment —their telephones, they say, are tapped, their letters (even letters from their wives) are censored, and they are shadowed by C.I.D. plain-clothesmen.5 When M.P.’s are treated thus, the ordinary citizen can hardly feel aggrieved when he finds that letters abroad — even registered letters — are opened in order to ferret out violations of the Exchange Control Regulations.
Finally, the Essential Commodities (Amendment) Bill of 1966 is yet another straw showing the direction in which the political wind in India is blowing. As mentioned, food grains movement is controlled. Hitherto, the government could only impound food grains suspected of being moved illegally. But now the government can summarily confiscate both food grains and vehicles suspected of being involved in illegal movements; it is up to the poor merchant to prove his innocence.6
Perhaps the most ironic element in this whole situation is the role of foreign aid. Given in order to "feed starving orphans in Orissa" (as Milton Mayer would have it) or to "keep India from going communist" (as many Americans believe), it is in fact one major cause why orphans in Orissa are starving and why India is now so firmly set down the road to serfdom. This is because in India foreign aid provides the major portion of the finance for the Plans: for every rupee of internal resources, almost 2 rupees worth of resources comes from foreign aid. If aid is calculated at the official exchange rate for the rupee, its economic value is understated — even allowing for the recent devaluation. It is only if aid is calculated at the free market exchange rate that its true significance emerges. Planning in India, as has already been pointed out, involves essentially a forced transfer of resources out of the uses where they would benefit the masses — i.e., the agricultural sector — into an artificially created and propped up "industrial" sector. It follows that agricultural output has lagged far behind all industrial outputs; consequently, the Indian people are hungrier after three Plans than they were before. Per capita availability of food grains has fluctuated downward over the last 15 years, and stands today at about 14 ounces per day. Meanwhile, since planning implies the concentration of economic and political power in the hands of the ruling clique, it has effectively smothered a wide range of potential political opposition. It would not be too much to describe India as a one-party state.
Democratic forms in themselves are meaningless. The right to vote can be effective only in the context of a whole network of other freedoms. Elections can be free only in the framework of a free market and the Rule of Law.
1 The growth of the agricultural sector (from which 50 per cent of the national income is derived and which provides 70 per cent of total employment) is held down by yet another piece of interventionism: moneylenders’ legislation. This forbids the pledging of land, though this is virtually the only pledgeable asset of the farmer, sets ceilings on the interest rates legally chargeable, and otherwise circumscribes rural moneylending.
2 As if all this were not enough, after the Chinese incursion of October 1962, the government passed the Defence of India Regulations (DIR) empowering it to arrest and detain without trial persons suspected of being dangerous to the public safety. Significantly, the DIR have been used virtually against persons known to be associated with the opposition: see Swarajya (Madras), passim., for 1963, 1964, 1965. Although four years have passed, the DIR continue to be in force.
3 The Fourth Five-Year Plan (196671) proposes, in effect, to reduce even further this minute independent sector: the government will extend its trading activities, especially in food grains; and taxes on income and wealth—already the highest in the world (see N. A. Palkhivala, The Highest Taxed Nation in the World (Bombay, 1965) — will be raised even further.
4 See the editorial in The Hindu (Madras) 10 October 1959: "There are also certain considerations that the Prime Minister might have remembered while calling the Press to account, such as the power the State has deemed fit to take to restrict the supply of newsprint, to control imports of machinery, to fix wages and salaries and working conditions in newspaper offices. These are calculated to make it extremely difficult for newspapers to be as free from extraneous influence as the Prime Minister would presumably want them to be. If there is any single strong inducement for newspapers to adopt a particular line on any matter, it comes from the Government. If, in spite of this, a number of newspapers look with a critical eye on the formulation and implementation of various policies by the Governments at the Centre and in the States, the reason must be found in the policies themselves and not in any extraneous considerations.." (italics added).
5 See the report in The Times of India (Bombay) 6 September 1966.
6 Public speech by Mr. Minoo Masani, M.P., at Ahmedabad on 21 August 1966.