Swarajya, June 25, 1966
Any one reading the report of the Reserve Bank Governor’s press conference in Calcutta held immediately after the devaluation order was issued, can realize the extreme gravity of the economic situation that has developed over the years as disclosed by the devaluation order.
In order that the sacrifices entailed in the process of devaluation may not be wasted, it is necessary that without waiting for the general elections to be over or for anything else, a clear declaration should be made that inflationary policies of all kinds will be scrupulously eschewed from now on and that, subject to whatever foreign assistance may be made available, the Government will live within its means.
As improved performance in the agricultural field is essential to save the country, an equally clear declaration is essential.. It is the poisonous weeds of uncertainty and disharmony that have hit our agriculture. It is this uncertainty and disharmony that have to be weeded out for the farms to flourish.
Drastic reduction in civil expenditure of the Union administration and the observance by Union and State Governments of fiscal discipline, eschewing deficit financing and overdrafts from the Reserve Bank, and a complete recasting and reduction of the Fourth Plan are necessary. New capital projects in the State sector should be given up, including the exceptionally costly and wasteful Bokaro steel project.
Participation of foreign capital must be encouraged in the private sector. No more foreign loans on a government-to-government basis should be taken except for the improvement of the infrastructure for development.
Capital building has been now rendered impossible by excessive taxation. Taxes must be reduced in order to supplement the programme of making our export commodities, cheaper for foreign purchasers and imports costlier for us, which alone, is what devaluation will do. When imports become costlier, local substitutes will also go up in price. There is a contagion that makes the rise in prices starting at some point affect all articles.
There should be a substantial reduction in both direct and indirect taxes and deposits and other levies, so as to make available a larger share of the national income to go into productive enterprise.
Without these reforms, devaluation by itself will do no good and will be only added misery to what has followed from the Congress Government’s previous policy.
The nation can no longer continue to confide the conduct of its affairs to the group that has now made its open confession of mismanagement.
Anyone reading the report of the Reserve Bank Governor’s press conference in Calcutta held immediately after the devaluation order was issued, can realize the extreme gravity of the economic situation that has developed over the years as disclosed by the devaluation order. If the disease was serious, the remedy that has been adopted now is also fraught with many grave consequences. This too can be clearly seen from the statement of the Reserve Bank Governor.
India had abundant sterling balances twenty years ago and was not in debt to creditors abroad. It has not gone since then through any devastating war like the nations whose currency devaluation has been quoted by way of defence and apology to confuse the ignorant public. Devaluation in our case is a belated confession of mismanagement of civil affairs and is not due to war or any other catastrophe. Within a brief period of less than twenty years the Congress Government has reduced the nation from solvency to monstrous indebtedness and bankruptcy, leading up to a heavy currency devaluation under pressure, for the sake of further heavy borrowing from the old creditors. The rake’s progress threatens to continue.
The confession of gross mismanagement is not comparable to the confession of an approver, which requires corroboration. It is guilt admitted by the principal offender himself which calls for no corroborating evidence. The Congress Party yet wants the nation to allow it to remain in power, and asks us to continue to live under crushing taxes and bear further taxation, and live with the devaluated rupee.
The repeated but unheeded warnings given by spokesmen of the Swatantra Party both in Parliament and outside during the past two years that devaluation of our rupee would become inevitable if the Congress Government persisted in its inflationary policies such as deficit financing, excessive taxation and the adoption of unwise giant Plans, seeking to invest non-existent resources in a wrong order of priorities—in favour of slow and low return—giving industries to the neglect of agriculture and welfare goods—have come true.
The Government has belatedly realized the futility of adhering to an artificial rate of exchange which has no relation to the facts of price levels here and abroad. It is now admitted that devaluation has been necessitated by the big rise of internal prices during the last decade. The Finance Minister tells us that it is beyond the capacity of Government to bring down the general price level in the country to the level that prevailed even five years ago.
The Swatantra Party has been ever since its inception cautioning the Congress Government against the perils of its inflationary policy. It has pointed out the invalidity of the academic plea that inflation was inescapable in a ‘developing’ economy. The criminal disregard of warnings given by competent people has landed the country in its present predicament causing hardship and distress to honest citizens of all classes. The entire responsibility for the situation which has compelled the devaluation of the rupee must rest on the shoulders of the Congress Government which has shown utter unfitness to remain in office a day longer. The Congress Party should be removed from office not for its devaluation order, but for what brought about devaluation. Even now devaluation has been very unwillingly accepted by the Congress leadership, if I may put it frankly, only to ensure the obtaining of further big aid from the World Bank and the USA, so that the Government may be saved from sinking along with its Fourth Plan.
In order that the sacrifices entailed in the process of devaluation may not be wasted, it is necessary that without waiting for the general elections to be over or for anything else, a clear declaration should be made that inflationary policies of all kinds will be scrupulously eschewed from now on and that, subject to whatever foreign assistance may be made available, the Government will live within its means.
As improved performance in the agricultural field is essential to save the country, an equally clear declaration is essential that all rights in land legally enjoyed by owners will be scrupulously preserved and respected. Barring changes to improve the lot of tenants and workers, it should be declared unambiguously that ownership in land will not be tampered with and everything will be done to help small peasant-proprietors to increase their production and facilitate the marketing of their surplus production, and that there will be no compulsory procurement or restrictions on movement of food grains. This, and this alone, will give the needed incentive to better agricultural production. The notion that all that is wanted is distribution of fertilizers is an illusion. It is the poisonous weeds of uncertainty and disharmony that have hit our agriculture. It is this uncertainty and disharmony that have to be weeded out for the farms to flourish.
Drastic reduction in civil expenditure of the Union administration and the observance by Union and State Governments of fiscal discipline, eschewing deficit financing and overdrafts from the Reserve Bank, and a complete recasting and reduction of the Fourth Plan are necessary. New capital projects in the State sector should be given up, including the exceptionally costly and wasteful Bokaro steel project.
Participation of foreign capital must be encouraged in the private sector. No more foreign loans on a government-to-government basis should be taken except for the improvement of the infrastructure for development.
While as an inevitable result of the past mishandling of affairs we have now to submit to and suffer the pains and penalties, including the devaluation of the rupee and all that follows from it, any attempt along with it to adopt a policy of coercion in order to keep down the consequent rise in prices would be an attempt to do the impossible, which will only expand and multiply the black-market and fail in its objective. Holding the price-line should not be thought to be a physical circus performance to be done with the help of the criminal law. It is a thing to be done by attending to the causes. In particular, there is no justice in punishing the hard-working peasants for the crimes of the Congress. Any attempt to achieve the impossible through coercion will only help the Communists to develop chaos out of the people’s anger.
Putting duties on jute and tea against over-exporting is to let go the bird in the hand to catch the birds in the bush. Giving special incentives and assistance to existing units of industrial production may go some way to alleviate trouble. But the root of the matter is to give scope for saving and to give incentives for investing such saving in increased production. Capital building has been now rendered impossible by excessive taxation. Taxes must be reduced in order to supplement the programme of making our export commodities, cheaper for foreign purchasers and imports costlier for us, which alone, is what devaluation will do. When imports become costlier, local substitutes will also go up in price. There is a contagion that makes the rise in prices starting at some point affect all articles.
There should be a substantial reduction in both direct and indirect taxes and deposits and other levies, so as to make available a larger share of the national income to go into productive enterprise. It is needless to say how necessary it is to dismantle the structure of permits, licences and controls, import licences, exchange controls and restrictions on travel, so as to bring nepotism and the pulling of strings to an end and allow full play to competitive enterprise increasing production and bringing down prices.
Without these reforms, devaluation by itself will do no good and will be only added misery to what has followed from the Congress Government’s previous policy. Can the Congress Ministry be expected to do these things now or in the future?
It is in the hands of the electorate to act decisively so as to inspire the nation to a total change from frustration to hope, from dishonest practices to civilized conduct, from despair and idleness to sustained effort. This great change will come into being if the electorate summons up the courage to dismiss the Congress and opens the way to the constitution of a truly democratic parliament and a patriotic cabinet with a sense of humility and realism.
