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Mainstream, VOL LIV No 25 New Delhi June 11, 2016

India’s Black Sunday

Saturday 11 June 2016, by Nikhil Chakravartty

From N.C.’s Writings

The following piece was published as ‘New Delhi Skyline’ in this journal precisely fifty years ago. It is being reproduced on the occasion of the fiftieth anniversary of the 1966 devaluation that had enormous impact on India’s politico-economic landscape.

For days the papers were fed with reports of differences between the Planning Minister and the Finance Minister about financial allocations for the Fourth Plan programme. And so in the Capital when the Press Information Bureau sent out warning of an important announcement almost near midnight, the word went round on Sunday evening (June 5, 1966) that perhaps Sri Sachin Chaudhuri had resigned.

The plausibility of such an assumption was strengthened because only a few weeks ago, it was known that Sri Chaudhuri had opposed in the Cabinet the World Bank proposal for foreign majority participation in Indian enterprise, a proposal which was sponsored by the Prime Minister’s two economie ADCs—Sri Asoka Mehta and Sri Subramaniam—and backed by Smt Gandhi herself, but was defeated in the Cabinet. The reported annoyance of the Finance Ministry circles that Sri Mehta should have conducted the aid talks in Washington poaching into their time-honoured preserve also lent colour to the speculation that perhaps even Sri Chaudhuri had turned and resigned. For a very brief interlude the Finance Minister’s patriotic bonafides were regarded as being above question. The spell was broken at 11 in the night with his rather monotonous broadcast announcing the bomb-shell news of the Cabinet decision in favour of devaluation of the rupee. Next day Sri Chaudhuri left nobody in doubt as to where his loyalties lay when he claimed the credit for having thought of devaluation of the rupee even before he was pitchforked to Finance Ministership as a Santa Claus gift by Shastri.

But careful observers in the Capital were not exactly caught napping. The high-level discussions during the two previous days had a note of extraordinary urgency: even the PAs of some of the Ministers involved, for once found themselves being placed in the dark. Sri Subramaniam’s postponement of the Moscow visit looked rather odd, particularly at a time when the Food Minister desperately needed a face-lift for his election campaign image.

Actually, it was known in the Capital for a few preceding days that the detailed reports of Sri Asoka Mehta’s confidential te-te-â-te-te with the World Bank boss did contain reference to the US insistence on devaluation of the rupee and that the Planning Minister gave the tacit assurance that devaluation would be considered, only if it might be staved off till after the General Elections. There was, however, the general impression in the circle of Delhi economists that even if the World Bank would not wait till the General Elections, the devaluation would not perhaps come till about September—though it was known that Washington had almost made it clear to New Delhi that the Aid India Club would not meet until the devaluation had taken place.

While it is undestandable that no Government would like to announce that it had accomplished a Command Performance, the impression is inescapable in New Delhi—an impression which is widespread, ranging from the Opposition critics to the sources close to the US Embassy—that devaluation was decided upon over the week-end at the climax of high-powered ‘persuasion’ from Washington. After Sri Asoka Mehta’s spectacular demonstration of grovelling in Washington, expectations rose in the Prime Minister’s camp that the first substantial dose of aid would soon be forthcoming and so there would be no need to devalue the rupee so soon after the adjournment of Parliament. But these hopes were rather shockingly belied when the latest despatches from Indian emissaries in Washington dealing with the World Bank and IMF made it clear that not a dollar would come without immediate devaluation. The Shylock would accept nothing but the pound of flesh, here and now, and New Delhi’s case is certainly not in the hands of a Portia who could outwit the greedy money-lender.

It is evident now that when the Finance Minister and the Planning Minister were vociferously assuring Parliament that there was no question of the rupee being devalued, at that very moment the Government had already been showing signs of strain in standing up to the IMF pressures; though rather pathetically Sri Sachin Chaudhuri in his confrontation with the press tried to explain these away as mere pieces of wise counsel from a friendly club. New York Times however preferred the term “pressure” for the recent US approach to New Delhi.

Meanwhile, the World Bank had its own horse inside the New Delhi walls. The Reserve Bank Governor, Sri P.C. Bhattacharyya, the Government of India’s Economic Adviser, Dr I.G. Patel (an old IMF hand) and the Prime Minister’s Secretary, L.K. Jha—all three confirmed devaluationists—worked overtime to sell devaluation while its leading apostle, Sri B.K. Nehru, now emboldened by his success in tackling the Prime Minister to get on with Mr Johnson, pressed hard for it, so much so that a Finance Ministry official cracked in private that one wondered if B.K. had already joined the IMF, as he has been aspiring to do after his retirement as India’s Ambassador.

At the Sunday morning Cabinet meeting, Sri Manubhai Shah’s was the most emphatic opposition to devaluation; actually, the last annual report of his Ministry presented to the Budget session of Parliament had made the most convincing case against tampering with the value of rupee. (The Commerce Ministry circles are cut up with Sri Chaudhuri’s public observation that its report did not reflect the Government viewpoint.) Others who are reported to have expressed their apprehension about the proposed measure were Sri Jagjivan Ram, Sri Sanjiva Reddy, Sri Chavan and Sri Nanda, with Sri S.K. Patil pointing to the risk of such a step being taken before the General Elections. Support for devaluation naturally came from the teen murti, Sri Asoka Mehta, Sri Subramaniam and Sri Sachin Chaudhuri (incidentally the three non-descripts in the Congress Party hierarchy), and heavily backed by Smt Gandhi herself. Since there has never been any voting in Cabinet deliberations, it was easy for Government spokesmen to give out—with a slight overstretching of the truth—that it was a “unanimous” decision.

On Sunday morning, the Finance Minister, just before the Cabinet meeting, mentioned the imminence of devaluation to the President. It is believed that in his personal capacity Dr Radhakrishnan expressed his concern about the wisdom of such a step, particularly with regard to its impact on the morale of the nation.

The same evening, Sri Kamaraj was having an informal dinner with some friends. Anxiety was writ large on the face of all of them; and although what the Congress President said was strictly off the record, most of New Delhi pressmen knew by then that he had already made it abundantly clear to the Prime Minister his very pronounced objection to the devaluation of the rupee.

The manner in which the Government took the decision to devalue the rupee has come in for adverse comments. Not to speak of the Congress Parliamentary Party Executive, even many of the senior Ministers were told about the impending proposal only at the eleventh hour: there was no prior consulation, no effort at arriving at a unified understanding inside the Cabinet, evaluating the pros and cons of such a serious step. The way Parliament was actively misled into the belief that there was no devaluation in the offing has been objected to not only by the Opposition leaders but by a number of noted Congress MPs. Leaving aside the Bombay AICC, even responsible members of the Congress Parliamentary Party Executive had not been sounded, not to speak of being formally consulted, on the need of such a move.

Sri Sachin Chaudhuri’s plea that the Cabinet decision was the product of intense indigenous introspection on the part of the Government is thus far less seriously believed than the almost overwhelming impression that the measure had to be hustled through because of the SOS from India’s representatives in Washington that the IMF would not move even to provide for stand-by credit unless and until devaluation was decided upon. The piper did not call the tune himself.

This is precisely the reason why practically all sections of New Delhi opinion are worried over the political impact of devaluation both at home and abroad. The fact that the Government has chosen to knuckle under the US pressure and has almost agreed to let the US strategy work out its own logic on the Indian economy, will be a very big drawback for it in terms of its standing in the country. The prestige it could command inside the country as an independent authority with a strong sense of self-respect refusing to give in to pressures from any quarter, has been badly undermind. Although the trend started under Shastri, he could rehabilitate his personal position as also that of the Government during the fighting with Pakistan. But now the walk down the slippery path, started with Smt Gandhi’s talks in Washington, is likely to very severely affect her own standing as also that of her Government in the eyes of the people. It is this aspect of the question which has been troubling Sri Kamarj most, for the Congress President knows the disastrous consequences of a situation like this in terms of vote-catching in an election year.

New Delhi observers have been noting the significance of another aspect of the political development created by devaluation. The Opposition parties would be far better placed in the election battle with the inevitable rise in prices, which in today’s context could no longer be ascribed to certain economic mysteries but to the plain fact that devaluation had to be brought about to curry favour with Washington. This is a point which not only the Left Opposition but even some conservative circles are bound to exploit as is clear from the first round of reactions.

Inside the Congress, the Left-wing critics, already consolidated in the struggle against the Foundation and the Fertiliser deal, are in a much more belligerent mood and with them have joined Sri Morarji Desai’s supporters. They have the advantage of the fact that Sri Desai ’s supporters. They have the advantage of the fact that Sri Desai has long been a staunch opponent of devaluation. A large section of Congressmen who were so long rather passive in pronouncing judgment of Smt Indira Gandhi’s economic policies are likely to come forward in bitter opposition to the devaluation decision. Sri Babubhai Chinai is a case in point. For with all his support to the Government in combating Left-wing critics, Sri Chinai was emphatic in opposing devaluation at the Jaipur session of the Congress.

There is no gainsaying the fact that by this one single master-stroke of unwisdom, Smt Gandhi’s team has split even its supporters in the business world, and the law of Indian politics has shown that when the business world gets split, political homogeneity of the Congress could hardly be maintained. It has no longer remained a case of the Left-versus-Right inside the organisation but of an overwhelming nationalist protest against a Government decision, inspired by a small coterie wedded to the American approach to economic policies.

An interesting reaction noticeable in the Capital is that devaluation has come as a natural corollary of ten years of economic policy pursued by the Government; in other words, the present crisis was the inevitable outcome of the grandiose physical planning pursued since the Second Plan-Frame was adopted under Nehru. While it is understandable that the unwavering critics of physical planning should take up such a position, the same criticism has today been coming from quarters that once backed Nehru but are now overwhelmed by the immediate impact of the economic crisis. A favourite argument now bieng sold by circles close to Sri Asoka Mehta and Sri Subramaniam has been that there was no other way-out except devaluation at this particular point of time, and that they should not be held responsible for the sins of the Nehru period. They glibly make out that the perspective of the 1956 Plan-Frame could be carried out only under the Draconian compulsions of the Chinese Way, thereby quietly ignoring that many of the contemplated measures for capturing “the commanding heights” of the economy were persistenly scuttled both from within and outside the Government.

This way the aridity of the Left, both inside and outside the Congress, in giving a total perspective in planning is today being exploited in much the same manner as in the early fifities the die-hards used to counter the very talk of planning by the forward-looking elements, as regimentation and hence negation of democracy.

The attack on the very concept of planning has been brought back unde the new slogan of “a marked-oriented free economy”. What is being trotted out is a totally phoney planning in which the direction of development is set by the guidelines from the World Bank, the centre of implacable opposition to Indian planning for the last ten years. In other words, thanks to the well-thought out strategy of the Asoka Mehta-Subramaniam axis, the strain in the economy has been sought to be overcome, not by firm measures against vested interests unleashing a nationwide mass crusade, but by handing over the initiative to Washington. The Rake’s Progress, started with the massive PL 480 bounty under Shastri, has now reached new heights with rupee devaluation under Indira. The Prime Minister can rightly claim to be carrying forward the Shastri legacy, but not Nehru’s.

In the eyes of friendly countries, Smt Gandhi’s Government has not enhanced its prestige. In The USA, judging by the reactions in the Capital’s American colony, one could say that this is regarded as a triumph of US intervention—both political and economic—in the affairs of India at the moment of her distress. Whatever else, such reactions do not represent any sense of respect for the powers-that-be in New Delhi. In the Afro-Asian diplomatic circles here, there is perceptible misgiving that our economy is now getting irretrievably moving to the whims of the Wall Street, and therefore thee will be far less assertion of independence against Washington’s intervention in foreign affairs as well. The possibility of Smt Gandhi playing anything more than a low second-class role in world affairs is greately discounted.

Uneasiness is bound to come up in Moscow and Eastern European capitals at this clear shift in New Delhi’s economic policies in favour of Washington. While the quantum of promised aid from the Communist world may not be sliced down, concern at the political weakness of the GOI as being unable to withstand Western pressure is likely to grow and the expectations about New Delhi playing a purposeful role in world affairs will to a large measure disappear. On the other hand, the Peking thesis that India has gone under the heels of the dollar might get more hearing than at any time in the past. Perhaps Smt Gandhi may be expecting to salvage a portion of the lost glory during her proposed visit to the USSR, and also by playing host to the non-aligned troika summit in the autumn.

In New Delhi’s dealings with Pakistan, India’s truncated political stature brought about by devaluation may prove to be a handicap. The extent of its capitulation to American pressure, now patent to all, will not be missed by Rawalpindi. If the Indira Government is prepared to listen to Washington’s “advice” in the sphere of the country’s internal economy, there is no reason why it could not be “advised” by the same super-authority with regard to Kashmir. One step leads to another: if George Woods could win his point on devaluation, why can’t Dean Rusk win his on Kashmir? After all, Sri Asoka Mehta had his “meeting of minds” with both. If such calculations dictate President Ayub’s policy-stand with regard to this country, New Delhi has to thank itself. The political implications of the capitulation on devaluation may prove to be far-reaching and one wonders whether the Prime Minister realised that in agreeing to devalue the rupee, she was not just grasping a solitary nettle—as one New Delhi correspondent picturesquely put it in his chivalrous defence of Smt Gandhi—but getting lost in a whole jungle of deadly thorns.

This ominous situation bodes ill not only for the Congress but for Smt Indira Gandhi as a political personality A senior Congressman with a sense of Social Democratic history was found on the day after devaluation to be drawing a parallel with the situation in Britain in mid-1931 when Ramsay MacDonald, facing an economic crisis, chose to split his party and went over to the Tories, to form the so-called “National” Government. Sri Rajagopalachari’s encominums showered on Smt Gandhi coupled with his call for a national government almost gives a realistic touch to this historical parallel.

What she has really suffered is a devaluation of the political assets that she had inherited from her great father. Many in the Capital would be reluctant to concede that a political heirloom necessarily comes as a matter of personal right—just as statesmanship cannot always be an inherited virtue, as is writ large in New Delhi today, staggering under the humiliating blow of the Black Sunday, the blackest in independent India.

(‘New Delhi Skyline’, Mainstream, June 11, 1966)