The Super Profit Folly

The Prime Minister’s international policy is still a verbal attachment to his oft-repeated creed. There is no harm in such dogmatism. In practice, he is fairly sensibly hunting for and receiving real foreign assistance from real friends in order to improve Indian defence. It is not useful now to expatiate on the defects arising from this half-hearted deviation from past policy. We have to be content at present with what has been gained. The “great, dynamic and powerful” Chinese have decided, for their own good reasons, to give us time for indulgence in our own ideology.

     The Budget of Courage, to use the name the PM has given to the savage thing Sri Morarji has hatched, will meanwhile crush the middle classes out of existence, bear heavily on the wretched poor and, worst of all, inaugurate an era of increased corruption and black-marketing and deterioration of morale. But, in this article, I shall deal only with one aspect of this Budget—its effect on the prospects of industry in our country. It is needless to point out at the very outset that we have not by any means reached our goal in industrial expansion. We have yet much ground to cover. Consequently what will hurt the prospects of expansion in that field would be great and dangerous folly—however courageous it may be according to the PM’s ideas of courage, and whatever satisfaction it may give to ignorant sadism.

     When the Government is concerned only with law and order it could, without much danger to public welfare, pass into the hands of any party, clique, or dictator. But when Government has taken over much if not all of the country’s economic affairs, it is a positive calamity if it goes into ill-informed and incompetent hands. What has happened today brings this truth into the field of bitter experience. Summer is coming on us, but there is no summer in the hearts of the fixed income section of our people or in the hearts of the industrialists.

     If the PM or the Finance Minister or any influential element in the Cabinet had adequate knowledge of how the most useful, most productive and most important industrial concerns in our country have built themselves up in the course of their long histories and come to be what they are today, the proposal now placed before Parliament to put a ceiling on profits through what has been wrongly called the ‘super-profits tax’ would never have been a possibility.

     The garnering and ploughing back of what is gained as profits into the business itself instead of frittering it away as high managerial income or salaries, or dividends distributed among shareholders, is the secret of the success and the present high value of several companies in the national economy. The proposal to place a ceiling on profits, and for the State to sweep the spill-over into the Exchequer for governmental spending, leaves no room for development, apart from the equally important question of an attractive scale of return to those who invest in the business or buy shares therein. Making the turnover as big as possible, relative to the capital originally invested, and ploughing a big share of the profits made by such turnover into the business back again, paying off debts incurred for capital and otherwise are the managerial secrets of healthy expansion.

     The super-profits tax might be justifiable had we reached the end of development and expansion, and it were only a question of who should take the profits, the State or the investors, and in what proportions. Unfortunately and admittedly, there is a great deal of expansion and development yet to be made and it would be futile to depend on fresh capital issues for the purpose and to destroy the best and most legitimate way of finding the capital, viz., by ploughing back profits into the industry.

     The super-profits tax does nothing less than destroying the life-stream of growing industry. The leaden hand of this ill-conceived levy will choke the private sector and prevent planning expansion and bar all future prospects of development.

     Logically, but only logically, the better alternative would be for the Government to take over all the industries along with all responsibility for expansion. Government would then easily realize the relation between expansion and profits, and see the effect of spending off in current expenditure what a thriving industry yields without putting back the bulk of it for expansion. But, of course, nationalization is impracticable, and it would be folly even if it were practicable. The businesses would be ruined by government management before any lesson could be learnt.

     Our industrialists, specially the honest ones among them, are dazed. They seek audiences with those in power. They are unable to make any impression or convey relevant knowledge to the laymen who have seized power and rule the country monkeying with the national economy. They do not listen, because they believe the witnesses are interested. They go to sleep if they tried to listen.

     The only way to convey a sense of importance and save our industry from being ruined is to give a shock and tell the Government that industry cannot accept the super-profits tax law or work under it. It should be withdrawn completely and the affair should be taken away from the hands of the Finance Ministry and placed in the hands of an expert committee of persons who really understand the processes of building up and maintaining industries. This committee should be asked to hammer out that part of the annual budget of expenditure and revenue which is sought now to be covered by this super-profits tax proposal. Industry is not just money-lending or usury as ministers brought up in a Bania tradition may be led to think. It is a creative endeavour of considerable difficulty, not a case of money breeding money under a biological law. We may look down on usury, condemn it and control it. But we cannot treat the art of multiplying the turnover and earning profit through the added value of skill and good husbandry on investment as an evil on par with money-­lender’s interest.

     And the strategy of opposition to this ill-conceived proposal should be total opposition and not bargaining for concessions which may help individuals but not save the industry as such— total opposition, not in the sense of revolutionary non-cooperation, but insisting on a total withdrawal of the proposal and the substitution of a committee of men who know the business in place of the present ignorant mechanism. What is it that can be expected to be spent in the year for strengthening national security? How can that sum be raised without killing or blocking further expansion of industry? These matters should be gone into openly and justly, and with adequate knowledge.

     Raising money by itself would be of no use for defence, unless there is an expanding and flexible industrial organization in the country to convert that money into what we want. If by the very process of raising the money we destroy or maim the industrial organization into which the money is to be poured, in order to produce what we want, we achieve nothing. Unless indeed all the extra money is intended to be used up in road-making and other works calling for what may be called, in this context, only unskilled labour.

     And this is only about the effect of the budget in the field of industry. The savagery it implies for the middle and the poorer classes is a longer story.