British contribution to India’s Indusrial,scientific and technological development

EXTRACT FROM THE MANUSCRIPT”WHAT AILS INDIAN ECONOMY” (1998/2004)

The British during their rule brought railways to India in 1853,within a few years of the invention. Postal system was introduced even earlier in 1837,Telegraph line was opened for traffic as early as 1851, immediately after invention of telegraphy. Similarly telephone service was introduced in 1882, within six years of invention. Electric supply commenced in 1897 and hydro-Electric Power Station was established in 1902. Coal mining on modern scale commenced in eighteenth century itself. Radio broadcasting commenced in 1927, feature film production started in 1912, modern banking was introduced in 1881 and Reserve Bank of India was established in 1935; Geological Survey of India was established in 1850, and is one of the oldest such institutions in the world.

Similarly India Meteorological Department was established during the British time, as early as 1875.Council of Scientific and Industrial Research (CSIR) was also established during the British time in 1942. Indian Council of Medical Research was established in 1911(as Indian Research Fund Association). Modern Universities were established as early as 1850s.Even in cultural matters, the British established several institutions like the National Library in Calcutta Central Library in Mumbai and Connemara Public Library in Chennai, as also Anthropological Survey of India and Archaeological Survey of India.

At the time of the British leaving India, India already had a fairly well established industry. It had about 350 textile mills with about 10 million spindles, nearly 0.2 million looms, over 100 sugar mills, hundreds of rice mills, oil mills, several cement factories with a production of over 2.5 million tonnes, many paper mills with production of about 0.15 million tonnes (paper production started as early as 1812), machine tool industry, a fairly large steel industry ( the first steel factory was established in West Bengal state in 1870, Tata Iron and Steel Company in 1907 Indian Iron and Steel company in 1919,and Visveswaraiya Iron and Steel Company in 1923), Kolar gold mine, over 53000 km route length of railways (the present route length is just 10000 km more), 20000 coaches (the present strength is only about 40000) about 200000 wagons ( the present strength is only abbot (300000 wagons), well established national highway road system, 17 light houses, ship building industry (the shipyard at Visakhapatnam was established in 1941),coal and other mining industry etc.”

The British did not establish so many institutions etc in other countries where they ruled even after many years of granting independence to India i.e till 1950s and 1960s)

INTERNAL DEBT and ECONOMIC DEVELOPMENT

EXTRACTS FROM MANUSCRIPT, “WHAT AILS INDIAN ECONOMY”

While India has incurred more foreign debt than is required, it has contracted less domestic debt than is required to meet the legitimate development needs. According to the Reference Manual, “India 1998”, the total domestic debt in 1997 is Rs. 334914 crores which works out to about Rs.3500/- per person. (per capita foreign debt is Rs.4300/-)

Most of the developed countries have much larger per capita domestic loan than India whereas in India, external debt is higher than internal debt…….

……thee is absolutely no valid reason for not incurring more debt to Reserve Bank of India ( this is same as printing currency notes) to meet the developmental needs. The total, both domestic and foreign debt per capita comes to only about Rs.8000/-. The total debt of USA is over $ 5 trillian( $500000crores or Rs.22000000crores)(in 2004 over US$ 11 trillion) and the per capita debt is over $20000 or Rs.860000(approximate) which is about 100 times that of India. Japaese Government’s debt is US$4 trillion-$400000 crores or Rs.17500000 crore. The per capita debt is Rs.15,00,000 which is about 180 times that of India. In the case of most of the developed countries the per capita debt is much higher than in India. The countries could develop only because of the high debt and the fact that they wanted to rely on themselves……….. since Nehru’s time…the elite, intellectuals, economists, administrators etc. justify their inaction/indiffdrnce to the needs of the people, by saying that India does not have resources to undertake large projects and hence the problems of the people could not be solved.

One of the two major reasons for the economic backwardness of the country is the theory…….that India did not have resources.(the other one was that India was over populated…..these leaders did not understand that manpower is the main resource. Instead of utilizing the manpower they went about taking of reducing population growth by introducing family planning programme even as early as 1950s when the density of the population was even lower than that of many European countries.

The secod resource is land. India has sufficient cultivable land even today-i.e. even when the population has increased and the government had encroached upon fertile land for non-productive purposes..

The third resource is money. The leaders did not understand that money at that time was coins and currency notes.(In 2000s it is cheques, credit cards besides currency notes.) While coins are expensive to mint,currency notes could be printed easily by the Reserve Bank of india and the government could have borrowed from the Reserve Bank…….

Even after more than 50 years of independence,there are villages which do not have lakes and which they need and where there is possibility for lakes. Even in the 1990s/2000s, there is need and of course, scope , for thousands of canals of hundreds of kilometres etc. For these works,what is required is just simple tools which the village artisans can make,man power and cattle energy,which the country has in abundance and also local-Indian currency to which the government has unlimited access. There is no need for the government to sign Memorandum of Understanding with Reserve Bank of India on limiting deficit financing. The monetary and other policies of the government are to be decided by the elected representatives of the people and not by officials of Reserve Bank of Indian who are not answerable to the people.

Indian Projects- no need for foreign loans

There is news that India will get a loan of $160 million from World Bank for modernizing roads in Rajasthan. When the money is received by India, the equivalent amount of Rs.996 crores will be brought into circulation in India. It may come from the reserves and /or from printing currency notes. Roads can be modernized without importing any material from abroad or in other words there is no need for foreign exchange for the project. Only Indian Rupees is needed and this is available in India or can be printed. Inflation will be there whether loan is taken from World Bank or the Indian currency is released into circulation without taking loan in foreign currency from abroad. So in cases where imports are not required for projects loans should not be taken from abroad and the required amount should be loaned by Reserve Bank of India.

Money, Printing of Currency Notes, Inflation (contd)

Excerpt from the manuscript “What Ails Indian Economy?”

Coinage is said to have been invented by the Chinese only around 700 BC. Paper currency is believed to have been invented, again, by the Chinese only around the 11thcentury AD. For trade between countries, even as late as 16th century AD, barter system was used.

At present Indian currency notes are issued by the Reserve Bank of India (RBI)/Ministry of Finance (central government). If more money is required more currency notes could be issued by the RBI and the government could borrow from them. Under the heading INTERNAL DEBT, it was seen that the per capita debt of the government is only Rs.8000 in India, while it is Rs.860, 000 in USA and Rs.1500 000 in Japan. To start with, Government could borrow an additional amount of Rs.100, 000 per head. The total per capita debt would go up to only Rs.108,000 which is just about 12% of per capita debt in USA and about 7% of per capita debt in Japan. By the additional borrowing, the government can mobilize capital of Rs. 1,00,00,000 crores. At an average wage rate of Rs.70 per head in rural areas,( the wage rate per day for a male worker is Rs.50- 70 and for female worker, it isRs.25-30 and for a supervisor around Rs.100 in states like Tamilnadu), this amount will be sufficient to pay wages for about 140000 crores man days. But under the heading EXCESS POPULATION/ LABOUR, for the massive works, the estimated man-days of labour required is only 5165 crores (51650 million). After meeting expenses on wages, there will be large amount of money which can be used for purchase of all the required materials, tools, etc, as also for undertaking other works.

If Japan and USA can manage with large internal debt, there is no reason why India cannot mange with much lower internal debt of Rs.108000 per head. All consequences of inflation etc. have to be tackled as and when they rise, but in anticipation and fear of inflation, internal borrowings need not be limited to the abysmally low figure, thereby depriving the people of work and means of livelihood. Fear of inflation should also not lead to the country’s GDP remaining at a very low level- among the lowest in the world.

From the above it is clear that there is no real shortage of capital and money in the country for undertaking huge projects and for providing buying power to the people

(written about 10 years ago)

(to be continued.)

India- Government’s control of the economy

In the initial years of independence, public sector had a large presence in the Indian industry and banking. This presence was further enlarged during the Prime Ministership of late Mrs. Indira Gandhi. Several private banks were nationalized. The managements of several companies were taken over by the Government. Several other companies were nationalized. This is how National Textile Corporation came into being. State and Central governments also set up many new factories. Now the situation is changing. Several government companies are being sold to private sector. Governments’ stake in many commercial and industrial establishments is being diluted. Thus the control of the governments over the economy has diminished.

Governments’ intentions should not only be to promote industries but also to have visible presence  for obvious reasons. In stead of inviting foreign equity participation in Indian companies, the governments (state and central) should set up investment companies which should take up equity in new companies as also in existing companies to induce Indian entrepreneurs to set up factories and commercial establishments and to expand existing ones. Indian companies should normally be allowed to seek technical collaborations only with foreign companies.

Governments  should borrow from Reserve Bank of India for setting up investment companies. Later on the loan amount could be monetized. This will lead to only as much inflation as bringing in equity from foreign countries.

Investment by Foreign Institutional Investors should also be restricted as ultimately, they would take away more foreign exchange than they bring in. As of now, the foreign exchange reserves of the country are more than adequate and there is no need to worry about this.

Loans from International Organisations

There is news that the Government of India is seeking a loan of US$3 billion or Rs.15,000 crores from World Bank for converting about 6,000 kilometers of single-lane national highways into two-lane highways.

For road works foreign exchange is not required too much. If the government wants money in Rupees, it can raise loans in India itself. If it difficult to raise loans from the public, it can borrow from Reserve Bank of India (RBI). If RBI has any difficulty, it can create a special purpose fund by printing currency and lending to the government. The amount can be recouped over a period of time, say 10 or 15 years.

If the government wants some quantum of foreign exchange, it can withdraw from the country’s foreign exchange reserves. These reserves are over $260 billion and have been deposited in foreign government bonds and in foreign banks yielding very low interest.

Thus, there is no need to seek loan from World Bank or any other international organizations.

Credit Rating Agencies-Is there a need?

India has allowed western credit rating agencies to operate in the country. It has also allowed the establishment of local credit rating agencies. Government of India and regulatory authorities including Reserve Bank of India and Securities and Exchange Board of India recognize the ratings of these agencies. People also give consideration to these ratings in taking decsions on investments. How do the agencies come to conclusions about the financial strength or weakness of a company  and how can one rely on their findings?

First of all, it is not possible for any agency to rate any manufacturing or financil services company correctly. Secondly, how can one be sure that its ratings are not subjective? Can the rating agency prepare any report on a company without the company’s full cooperation? Will the company provide any information which will show it in a bad light?

Reserve Bank of India and a few research organisations estimate the national GDP to the accuracy of 0.1% i.e say 5.7% or 5.8% and keep revising the same. When it requires the entire government machinery to estimate GDP to the accuracy of 0.1%, how can any smaller organisation or institution do it? At the most one can say that because of good rains, the agricultural production may go up by 10 or 15%; the production of fertilizers, pesticides, agricultural implements etc. may also go up by 5% or 10% etc. If there is increse in wages of the entire working class, one can predict that the demand and hence production of consumer durables may also go up. But no agency can estimate that the economy of a large country like India can grow, say  by 7.1% or 7.2%.

The ratings of the agencies is creating havoc in stock markets. Many companies abandon proposed projects which affects the growth of the economy. There appears to be a need to seriously consider whether there is need for the credit rating agencies.