Thoughts on Indian Economy 1970-1980 (Pt. 2)

The Emergency lasted 21 months. Indira Gandhi is made to believe by her advisors that she would be able to legitimise her position by calling elections, which she is certain to win. As covered in the previous article, the economy was in bad shape in 1976-77 & India was facing tremendous international pressure on matters of human rights. Elections are called in 1977, and as one might expect, Indira Gandhi lost. For the first time since independence, a non-Congress government comes to power - or is the word ‘governments’ better? The Janata Party is a loose coalition of opposition groups who aligned less on ideology and more on their resentment of Indira Gandhi. In fact, their political slogan was “Indira Hatao, Desh Bachao”. There was another “Indira Hatao, Indiri Bachao” poetically capturing the excesses of sterilisation.?

The coalition doesn’t last long - within 3 years, elections are called again. While the ambitions and differences of the coalition partners is extensively written about, it is interesting to consider their striking ideological differences on economic policies: the Janata Party was made up of several factions

1. We had the socialist group (George Fernandes, Raj Narian), advocating socialist principles, emphasising state control over key industries, wealth redistribution, and extensive social welfare programs.
2. The pro-market group (Atal Bihari Vajpayee, Morarji Desai who was the PM) supported liberalisation measures, deregulation, and reducing the bureaucratic hurdles for businesses. They believed that economic growth could best be achieved through market mechanisms.
3. There was the agrarian faction (Charan Singh, Deputy PM & later PM) that focused on the interests of farmers and rural communities, advocating for agrarian reforms and rural development.

In fact, George Fernandes who was the Minister for Industries and a vocal critic of multinational corporations, went after Coca-Cola and IBM asking them to reduce foreign ownership to 40%. They were also asked to find Indian partners.? Coca-Cola refused to share its trade secrets with an Indian company. Together with IBM, it would quit the country (they’d eventually return in the 90s). Coca-Cola's exit prompted the entry of another popular soft drink, Thums-Up. Owned by the Parle company, Thums-Up, given its unique taste suited for the Indian palate, would rise to popularity soon. Coca-Cola would eventually acquire Thums-Up in 1993.

It is interesting to note here that Japan implemented the same strategy, i.e. asking foreign companies to enter into technology sharing agreements with local companies in case they wish to set up businesses there. These companies complied with the conditions probably because Japan was growing rapidly. India was not able to project the same economic potential in the late 70s.?

In 1978 a major amendment to the Constitution was introduced - the abolition of the Right to Property. The Right to Property was removed as a ‘fundamental right’ and was made a ‘legal right’. The abolition was aimed at facilitating land reforms, addressing issues of inequality in land ownership and making it easier for the government to acquire private land. This amendment would have significant consequences in later decades.?

As time progressed, it would be impossible to reconcile the vast differences between the coalition partners and the Janata Party eventually folded up in 1980. Indira Gandhi returned to power. Sadly, she lost her son Sanjay Gandhi in a plane crash earlier in the same year.?

While there are many facets to Sajay Gandhi’s life, I’d like to cover the Maruti story here. In 1970 Sanjay conceived the idea of a ‘people’s car’ along the lines of Volkswagen (who Maruti will attempt to woo several times). The Indian government, led by Indira Gandhi, supported the project. Maruti Motors Limited was incorporated in June 1971. The project received substantial support due to Sanjay Gandhi’s political connections despite his lack of experience and expertise in the automotive industry. Maruti is awarded nearly 300 acres of land in Gurgaon and the plan is to produce indigenous cars that would be priced at Rs. 8,000. Nothing goes per plan - till 1976 only 21 units have been produced. In comparison, Toyota (which started sprinting only in the early 60s) was manufacturing nearly 3 million units around this time.

After Indira Gandhi lost power in 1977, the court ordered the winding up of Maruti. The project picked up steam again in 1980 when Indira Gandhi returned to power, now under the name Maruti Udyog Limited. The Maruti episode is an example of everything that was wrong with the Indian economy in the 1970s.?

Maruti aside, there were other notable companies that took birth in this decade. Shiv Nadar started Hindustan Computers Limited (HCL) in 1976 from a garage. Narendra Patni set up Patni Computer Systems Limited in 1978. Jaypee Group and the RPG Group were also established in this decade. Closer to home Dr Vijay Sankeshwar started VRL in Gadag in 1976. And the two towering giants of the Indian entertainment industry - Tips and Yash Raj Films - were born in this decade.?

Now… I have a confession to make.?

One of the reasons I decided to split the article on the 70s into two, is because I wanted to write about a personality who transformed the lives of millions, and whose actions would shape the future of his nation, and the world.?

The son of a landowner, who studied in Moscow, would become a military leader, and who would later be persecuted by his own party. It doesn’t stop there - him and his wife were both put to work in a tractor repair plant. His son was paralysed as a result of a physical assault. He would be forced to spend two years in solitary confinement - but nothing can stop him. Even during his confinement one thought plagues him - how can modernisation help rebuild his nation.?

Often when I see this graph (below) I ask myself - what happened? The answer seems clear - Deng Xiaoping happened.

Deng came to power in China in 1977-78. A man whose principle was to “keep a cool head, and maintain a low profile… but aim to do something big” would transform China into a world leader.?

His policies are legendary, some of which are worth mentioning in detail:

1. The “Open Door Policy” opened China to foreign businesses, inviting them to establish operations within its borders. This pivotal move paved the way for international investment and economic collaboration.
2. The creation of Special Economic Zones (SEZs) in cities like Shenzhen and Xiamen catalysed foreign investment, fostered innovation, and spurred export-oriented industrialisation. These zones served as experimental hubs for economic reforms and modernisation efforts.
3. The Household Responsibility System revolutionised agriculture by replacing collective farming with a model that allowed households to lease land from the state. This change enabled families to cultivate crops and sell surplus produce, dramatically boosting agricultural productivity and rural incomes.
4. Gradual price liberalization was carefully implemented to allow the market a greater role in resource allocation while avoiding inflation and social unrest. This measured approach ensured economic stability during the transition.
5. State-owned enterprises (SOEs) underwent significant restructuring to operate more like private businesses. Reforms included granting managers greater autonomy, introducing performance-based incentives, and eventually permitting some SOEs to go public.
6. To support these new economic policies, comprehensive reforms in legal and institutional frameworks were introduced. This included establishing laws to protect property rights and regulate business practices, creating a more robust and reliable economic environment.

Was everything rosy and picture perfect? Of course not - nothing is. But it's nearly there. China benefited immensely from these economic reforms. More importantly, these reforms lift nearly a billion people out of poverty. Here’s a quote from his biography, “Commanding Heights”, by Daniel Yergin and Joseph Stanislaw. "I have two choices," said Deng. "I can distribute poverty or I can distribute wealth." He clearly did the latter.?

Where would India find her own Deng??

Maybe in Andhra Pradesh where a man who considered Deng as his idol entered Lok Sabha for the first time in 1977. Narasimha Rao’s time was to come soon.