Jairam Ramesh's book 'Intertwined Lives' on bank nationalisation

Political compulsions may have prompted Indira Gandhi's fateful decision to nationalise banks but it was her Principal Secretary P N Haksar who choreographed the policy

As late as 9 July 1969, Haksar was not entirely convinced that banks had to be nationalized right away. Then three days later came the assault on Indira Gandhi’s authority with the announcement of Sanjiva Reddy as the Congress’s presidential candidate. Subsequently, Morarji Desai’s resignation was secured after four days. My guess is that between 12 July 1969 and 15 July 1969, Haksar and Indira Gandhi must have confabulated and decided to shed their caution on bank nationalization. On 16 July 1969, she asked PNH [P N Haksar] to meet with K.N. Raj, one of India’s most distinguished economists, and find out his views on bank nationalization. Another eminent economist, P.N. Dhar, was also present when PNH and Raj met. Dhar was to later write that Raj strongly favoured nationalization but felt it would take at least six months to carry it out.
 
But just three days later, on 19 July 1969, 14 banks were indeed nationalized, making one of Indira Gandhi’s ‘stray thoughts’ an immediate reality. This account is from the memoirs of D.N. Ghosh, who was then the official concerned in the banking division of the Ministry of Finance and who was to later become the chairman of the State Bank of India (SBI). It was the night of 17 July 1969 and Ghosh recalls being summoned to Haksar’s residence:
 
I saw that Haksar was browsing through a mass of papers, among which I could spot the Reserve Bank publication, Statistical Tables Relating to Banks in India. He was trying to figure out how many banks accounted for 80 per cent to 85 per cent of the total resources of the system. Off the cuff, I said the number could be 10 to 12 banks.
 
Just then, the Union Minister of State for Company Affairs, K.V. Raghunatha Reddy, strolled in and stood listening to our discussion. He piped up that it was a golden political opportunity to nationalize all banks and that we should go ahead with the bold decision. Haksar waived his suggestion politely and requested him to keep his impetuous radicalism to himself. Haksar wanted to be left alone till he himself had been fully briefed on a subject that was entirely foreign to him. I then asked him if the Prime Minister had made up her mind on nationalizing the banks. ‘Not yet’, he replied. ‘We are to discuss this tomorrow morning’. He was not sure if it would be possible to sort out all the legal conundrums involved and have the ordinance [for nationalization] ready by 19 July which was a Saturday. The date was crucial for two reasons.  [Acting] President V.V. Giri was due to demit office on the forenoon of 20 July and the Lok Sabha would begin its monsoon session on 21 July.
 
The choice of Ghosh by Haksar to be the ‘keeper of secrets’ as far as bank nationalisation was concerned reveals much of how PNH operated. A. Bakshi, who was then deputy governor of the RBI, had worked with Haksar in London in the early-1950s. They were ideologically also similar and were exceedingly close personal friends. Thanks to Haksar, Bakshi would join the soon-to-be-created department of banking in the Ministry of Finance and later become the comptroller and auditor general (C&AG) of India in 1972. It was Bakshi who had given the seal of approval to Ghosh and had joined the duo late that night of 17 July 1969 for confabulations.
 

According to the author, it was between 12 July 1969 and 15 July 1969 that Indira Gandhi and P N Haksar must have confabulated and decided to shed their caution on bank nationalisation

The next day, Ghosh writes, the prime minister herself summoned him in the morning. She wanted to be convinced that the legislative draft for nationalization of banks could actually be prepared in less than 24 hours. When she was told that such a draft had, in fact, existed from the end of 1963 when nationalization of five banks had first been considered, she appeared to relax and swore Ghosh to absolute secrecy saying that in case of any hitch he should apprise PNH. For the next few hours, Haksar, Bakshi, Ghosh and a few others who had been specially commandeered for this purpose, like R.K. Seshadri (an RBI official) and Niren De (attorney general) slogged to prepare the ordinance—which was an executive order that would have to be ratified by Parliament later.
 
At 8.30 pm on the night of 19 July 1969, Indira Gandhi addressed the nation on radio and announced the nationalization of banks. This was one speech of hers which had not been written or even worked upon by Haksar. Right down to the last comma and full stop, it was I.G. Patel’s draft. It was indeed ironic because not only was he one of Morarji Desai’s favourites, but he himself was at that time a votary of social control….
 
Haksar was also responsible for what he himself called ‘a somewhat unorthodox’ appointment in the RBI to get nationalization of banks achieve its socio-economic objectives. The RBI Governor L.K. Jha wanted a bureaucrat, failing which a banker. PNH was not terribly enthused by Jha’s names and got Indira Gandhi’s approval to appoint a 39-year-old industrial economist called R.K. Hazari as a deputy governor in place of Bakshi. Hazari had shot into fame in the late-1960s as the author of a deeply researched study on the functioning of the industrial licensing system in actual practice. Hazari was young by RBI standards but commanded great respect. He would go on to spend six years at the RBI.
 
Haksar fought quite a battle with the bureaucracy and succeeded in establishing a Department of Banking in the Ministry of Finance to take forward the objectives of bank nationalization. He would also get the prime minister to over-rule L.K. Jha, I.G. Patel and others and make Bakshi in charge of the new department. Ghosh himself was a key part of it and he recalled to me:
 
While he [PNH] took it upon himself to see that the department of banking, the new entity established after nationalization, is manned by competent individuals, he never interfered with its functioning. I would also assert that in no decision on central banking, commercial banking and allied matters he had brought to bear any personal influence.
 
Ghosh also remembers that some four years after bank nationalisation, he and Haksar were travelling by train to Calcutta and he asked him whether he believed the decision taken in July 1969 with such great speed and secrecy was the right one. PNH replied promptly: ‘Of course, I have always believed so. We would have in any case taken that step, sooner or later. Timing was dictated by political necessity.’

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Reproduced with permission