Profit in the time of Fabian socialism

INDEPENDENCE SPECIAL/ BUSINESS BARONS

Or why politicians thought making money was a bad thing and ought to be penalised.

I hate the very mention of the word profit," Jawaharlal Nehru, India's first prime minister (1947-64), once told J R D Tata.

Impressed by the rapid industrial strides made by the Soviet Union in the 1930s when the rest of the world was reeling under the Great Depression, Nehru had become a socialist to the core when Independence came in 1947, though of the Fabian variety. His strong views guided government policy on business right up to 1991.

The 1948 Industrial Policy Resolution (reinforced by a more restrictive edition in 1956) and the draconian Industries (Development and Regulation) Act, 1951 firmly established the licence-permit-quota raj in the country.

Businessmen came to be known better for the politicians and bureaucrats in their pockets than for their strategic acumen.

Still, Ghanshyam Das Birla, his closeness to Mahatma Gandhi and other prominent Congress leaders notwithstanding, could not get his ambitious Durgapur steel project off the ground in the early 1950s. Har Prasad Nanda of Escorts was penalised for not keeping earthen water jars in his factory, though he had electric water dispensers.

The 1950s saw protracted investigation into alleged income tax violation by leading business houses. Ramakrishna Dalmia, the maverick Marwari with six wives, was sent to jail in 1962 for financial impropriety. Few businessman, naturally, had any love lost for Nehru.

More was to come. Banks were nationalised in 1970, coal mines in 1971. (Tisco mines were left untouched as these were "efficiently managed".) Legislation kept piling up to clip the wings of businessmen: the Monopolies & Restrictive Trade Practices Act came in 1970 and the Foreign Exchange Regulation Act in 1973.

The first whiff of change came when Rajiv Gandhi came to power in 1984. Businessmen started finding that their applications were getting processed speedily. It had to wait till 1991 when the control raj was finally dismantled by the P V Narasimha Rao government.

In the early-1980s, the soft underbelly of Indian business was first exposed when Swraj Paul of London mounted an unsuccessful raid on Escorts Ltd and Delhi Cloth Mills Ltd.

"Mahindra is an interesting company to take over. And better even is Tisco," Paul was quoted in the media as saying. Long used to running their businesses with a small stake, businessmen were comfortable with the large stakes held by government-owned financial institutions which could be controlled through political connections "" the Birlas, at that time, owned more of Tisco than the Tatas! But when the institutions turned out in Paul's support, businessmen went scurrying to save their empires.

By the mid-1980s, the country's leading business families started falling apart, often bitterly. The Birlas, Modis, Singhs of Ranbaxy and the Shrirams all decided to divide the family assets between the various factions. Families were multiplying faster than the businesses, making it hard for the members to pull together.

Around the same time, a new dynasty was in the making. Dhirubhai Ambani re-wrote the rules of Indian business. He was the first to show that there was serious money to be made by working your way through the maze of government rules and regulations. Unable to get funds from banks and financial institutions, he started courting the stock markets like nobody else before him.

The capacities he planned were always large scale, his goals audacious. Mobile telephone services will work only if a long distance call costs less than a postcard, he advised his older son, Mukesh, when he was getting into telecommunications in the 1990s.

Post-liberalisation, India saw an unprecedented burst of entrepreneurship. Sunil Mittal, who had started life by selling generator sets in Ludhiana, quickly became the country's uncrowned telecom czar. Infosys spawned an army of billionaires. The stranglehold of the families on Indian business was gone.