Restriction On Credit

The structure of future progress, based on the two pillars of unsupportably huge borrowings and present inflation, fast growing to an intolerable pitch, is sure to tumble down. The call to hold the price line, in spite of inflation arising out of policies to which the ruling party clings, is meaningless. The Government wants bank credit to be curtailed, thereby making expansion impossible. Without business and industrial expansion no progress is possible. Probably the idea is that all capital must come out of what the Government proposes to make out of taxes and levies, and it must all be put into its own ill-managed business and no money should be available for the expansion of the private sector. Private industry cannot grow or live under these restrictions oil credit. An eminent friend who is competent to judge such matters writes:

I feel very sad at the way the Indian economy is being led by the present administration. The consequences of their actions and policies are the exact opposite, in most cases, of the intentions it the Indian economy is not rescued from inflation, controls and State-ism, lasting economic and social progress is just not possible. On the other hand, their combined effect may be to take us along the road that China went. It is a great pity that our policy makers in India refuse to see this.

     The ruling party seems pathetically to stick to the notion that prices rise by reason of conspiracies among businessmen. Malaria shows its head not by reason of a conspiracy between doctors and patients, but by the mosquitoes carrying the poison. It is the curtain that keeps them away and the steps taken to reduce their breeding, that will reduce malaria not the smashing of thermometers or an order to prohibit their use. It is wrong budgeting, and huge deficits worked out by the printing of currency at Nasik that raise the prices. ‘Holding’ it by force cannot cope with it, but will be suicidal. The perspiration that seeks to ease the fever corresponds to the rise in prices. The perspiration is not the disease. it is an attempt by the law of economics to restore the imbalance, as once the London Economist wrote. The doctor’s work is to remove the cause of the fever, not obstruct nature’s reaction, however inconvenient it may be for the time being.

    Where government creates inflation through expansion of currency to make up for deficit financing, bank credit follows as an inevitable concomitant. The colt runs along with its mother. We cannot drive the latter forward without expecting the former, its offspring, to run with it. Even if the most patriotic of men cause inflation, it must result in the shooting up of prices. There is a proverb in Tamil that even if the gods eat it, neem is bitter. It cannot change its nature because those that eat it are good souls.

     Bank credit is an integral part in the machinery of production and to hope to set things right by stopping, or impeding it is an utter error of policy. Compelling necessity will drive people to worse sources of credit than scheduled banks, and where there is no compelling necessity, expansion stops, to the prejudice of progress, the will-o-the-wisp that takes Mr. Nehru in this direction. All hopes of expansion of industry and reduction of unemployment would have to depend on the broken reed of the ‘public sector’. No wonder that the friend from whose letter an extract has been given a little earlier, writes in a tone of extreme pessimism.