The Big Bharat Boom

IN THE WINTER OF 1944, AN EXTRAORDINARY conclave took place in then Bombay involving eight of India’s prominent industrialists, technocrats and administrators. It was held without fanfare. Later to be known as the Bombay Plan, a strategy was coined there after brainstorming by JRD Tata, GD Birla, Lala Shri Ram, John Mathai, Ardeshir Dalal, Purshotamdas Thakurdas, AD Shroff, and former Reserve Bank of India (RBI) director Kasturbhai Lalbhai. The ‘plan’ thrashed out was unique, a 15-year economic growth map for free India, irrespective of which party formed government. It envisaged a 130 per cent increase in agricultural output, 500 per cent in industry, and 200 per cent in services. The plan focused on long-term economic development and equitable income distribution. GD Birla was credited with detailing the level of GDP and per capita income India needed for 340 million citizens to surpass a basic standard of living, including roti, kapda, makaan, education, and health. The Bombay Plan came out years before the Planning Commission outlined the first five-year plan-based development model.

It was a testament to how big business could work with the state on core national development objectives for a newly independent country. It was a global precedent of sorts. Yet, the Planning Commission, set up by Jawaharlal Nehru on the Soviet Union’s socialist model, made little or no reference to this coalition of private businesses for national growth for politi­cal reasons. It was not until much later that both Nehru and his daughter Indira Gandhi would come in for direct criticism from the leftists who had a disproportionate say on matters of economics and politics as defined by the slogan ‘Tata, Birla ki sarkaar,nahi chalegi, nahi chalegi’. The implication was that, through the 1950s, 1960s, and even the 1970s, the Congress government cosied up to business magnates, prioritising their interests over those of ordinary Indians. As late as 1983, when the Tata Group launched India’s first packaged and iodised salt, it positioned it as desh ka namak, an obvious reference to how devoted the business house was to the national interest.

The stigmatising of business and wealth creators persists even today, irrespective of their contribution to India’s phenom­enal growth over the decades. It resonates deeply, especially in politics. In his new book The Nehru-era Economic History and Thought & Their Lasting Impact, economist Arvind Panagariya argues how the private sector had fallen in line with Nehru’s eco­nomic vision even before Independence. He notes the publica­tion of the Bombay Plan in two parts in 1944 and 1945. The plan was in agreement for state control of key industries, especially power and capital goods. Other historians have explained this as arising from the inability of India’s private sector, at that time, to make investments in these highly capital-intensive sectors. These sectors are what economists sometimes describe as in­stances of “market failure”. The acceptance of the Nehru model by the private sector was quite extensive. Panagariya writes: “It may be hypothesized that the authors of the Bombay Plan were especially sensitive to the possibility of being accused of trying to secure profit opportunities for themselves through the plan to the detriment of the welfare of the masses. Therefore, they devoted the entire Part II of the plan to measures necessary for equitable income and wealth distribution.”

These were highly unusual arguments to be made by a “capitalist class” in any country. But those were very unusual times. India had just exited from nearly two centuries of colonial rule and the private sector could not thrive on its own. It needed to march with the government. This, the Indian industrialist class did willingly to begin with, and later as a forced march. The noose around the private sector began to be tightened almost immediately after Independence. The eco­nomic priorities of a newly independent India were outlined in the Industrial Policy Resolution of 1948 that divided the in­dustrial sector into four parts, with the state having control of key industries. But even then, existing private industries in the heavy industrial sector were allowed for 10 years after which the government would evaluate the situation. That time arrived in 1956 when another industrial policy resolution was adopted. This was the death knell for any private sector participation in key industries. It was also the time when the first, faint criticism of the planning priorities was heard from the private sector. It was a voice in the wilderness.

It was not until 1991—35 years after the 1956 resolution— that the noose was relaxed a little. By then it had become fash­ionable in socialist and academic circles to blame the private sector for the failure of the planning process. It was blamed for the ‘destruction’ of the banking sector, never mind the fact that banking was nationalised in 1969. But the worst was to come much later, in the third decade of the 21st century, when Congress made a return to unbridled socialist thinking. Today it has become fashionable to blame key industrialists for virtu­ally all that ails India, from corruption to inequality, and from alleged cronyism to the alleged loss of economic vitality. Never mind the fact that in an increasingly protectionist world, a world tired of Chinese mercantilism and dumping of cheap goods, it has become essential to build and nurture ‘national champions’ in industry. India’s experience shows that solely relying on the public sector to do the job would be foolhardy. The private and public sectors have different strengths and different roles to play in ensuring that the Indian economy continues to grow at a fast rate.

WHILE NEHRU WAS CREDITED WITH ESPOUSING some form of Fabian Socialism that drove his devel­opment policies, Indira Gandhi was driven more by survival politics and not ideology in her leftward shift. The same desperate compulsions appear to be directing Rahul Gandhi today, even as India has scaled new heights in growth and development, and has been identified globally as the 21st-century economic powerhouse challenging China. In February 2022, Prime Minister Narendra Modi expressed shock at Gandhi’s brazen corporate-shaming in New India. “I am shocked to hear Congress leaders comparing wealth creators to coronavirus variants. What sort of attitude is this?” he had said, accusing Gandhi of trying to mislead the youth by tarring the spirit of entrepreneurship. Again, from the Red Fort, Modi had asserted: “Wealth creators are the biggest driving force of India’s growth story. They are the country’s pride. They must be respected and it is our commitment to provide them with the right environment to flourish.”

Modi’s riposte was to Rahul Gandhi’s accusation that “The government has created a new AA variant [reference to Gautam Adani and Mukesh Ambani] which monopolises all sectors.” That was not one-off. Demonising private entre­preneurship has been a standard ploy in Rahul’s toolkit. Earlier, he had accused the Modi government of deliberately handholding the likes of Ambani in the defence sector to the detriment of established PSU giants like Hindustan Aeronau­tics Limited (HAL). HAL later showed magnificent gains but Gandhi chose to remain silent. In January last year, the US short seller Hindenburg’s report on the Adani Group alleged that the group was engaged in decades-long fraud. A stock market meltdown followed, wiping out over $100 billion from the value of its companies. Rahul Gandhi, along with leaders of other Opposition parties, attacked the government for its alleged closeness to Adani. The group has recovered significantly since, with company shares hitting record highs.

Rahul Gandhi’s assertions were mostly unsubstantiated and mirrored the Left’s stance of demonising wealth and job creators. The charge of Modi’s ‘cronyism’ was equally mislead­ing, clouding the fact that the Adani Group’s rise had taken place over nearly four decades. The Hindenburg report almost derailed the government’s plans for a big investment drive in infrastructure through a massive infusion of funds and private-sector participation, leading many to view the attacks on corporate India as attacks on the nation itself.

The persistent Adani-Ambani bashing is not the only tool in Rahul Gandhi’s anti-wealth arsenal. In March this year, a new study from the World Inequality Lab found that the present-day golden era of Indian billionaires has produced soaring income inequality in India, now the highest in the world. The gap between India’s rich and poor is so wide that by some measures distribution of income was more equitable under British rule than it is now. The group of economists who co-authored the study included Thomas Piketty. In April, based on its findings that said only 1 per cent of India held 40 per cent of its income, Rahul Gandhi made a controversial comment about “doing an X-ray of people’s wealth” and distributing it to the poor. In the run-up to the Lok Sabha polls, his close adviser Sam Pitroda mooted an inheritance tax along the lines of the US where only a percentage of inherited wealth goes to the family. Gandhi, eventually, had to walk back on both issues.

When Congress controlled the levers of the Indian economy, empty slogans like ‘Garibi Hatao’ substituted for real solutions to poverty, unemployment and equitable wealth dis­tribution while the much-hyped 20-point programme of the Emergency era pretended to foster growth in manufacturing, services and other sectors. India consequently ended up with high inflation and low per capita growth. By the end of the 1980s, India had landed with a huge payment crisis. Contrary to the perception being created by Congress echo chambers today, there is noticeable democratisation of wealth creation. Besides, wealth creation is not restricted to a certain income class or select group of cities. Many startup/unicorn founders are middle-class and from Tier2/3/4 cities. In 2012, the list of rich entrepreneurs covered only 10 cities; this had surged to 76 cities in 2022. It is no longer just about the rich getting richer.

Today, both Adani and Ambani continue to remain at the centre of spending on infrastructure, internet connectivity, renewable energy, power and other sectors, taking India forward while carving a niche for themselves among top global private companies. Attacking Modi for facilitating their growth (and that of 20 others selectively), Rahul Gandhi has been claiming this as proof of the crony capitalism that the prime minister and his government have been practising. Congress hopes this would pay rich electoral dividends. But the slogans are an extension of the old leftist playbook where wealth creators were routinely accused of monopoly and exploitation of labour for profit. In the 1970s, an entire generation of Indians grew up on a staple of anti-industrialist slogans. Nehru’s heavy reliance on the public sector had already wreaked havoc on the economy. The result was an inefficient economy and prolonged stasis.

“There is a psychological problem with the Nehru-Gandhi family,” Modi once said, “Nehruji used to face abuses. [Such as], Birla-Tata ki Sarkar, etc. Now, the problem of this family is [the thinking that] the abuses that my maternal grandfather faced, Modi should also face them.” Talking about the controversy sur­rounding the purchase of the Rafale fighters, an issue during the 2019 General Election, Modi had said, “They think if they raise the Rafale issue, it will wash away the sins of Bofors.” In Febru­ary 2021, Modi had said in Parliament, “I would like to remind my friends in Congress that while the public sector is critically important for the economic growth of the country, so is a robust private sector. The culture of damning businessmen and entrepreneurs as outright crooks and wringing political capital out of name-calling them in public may have served parties well at the hustings in the past. But that has to stop. Wealth creators have a crucial role to play in the economy. Fruitful employment cannot be generated in a vibrant, youthful nation unless private enterprise distributes its wealth by setting up companies and employing people.” The timing of this speech de-stigmatising wealth creation and celebrating the private sector had an immediate impact on the economy.

But bereft of new ideas and growth blueprints, misery-mongering has returned as the topmost agenda of the Congress leadership, irrespective of the fact that a burgeoning middle class and an aspirational neo-middle class have moved away from these concerns of yesteryears. Rahul Gandhi has nonethe­less repackaged himself as a socialist. That it has failed to gain political traction in new India is evident from his electoral balance sheet, with Congress unable to reach three digits in three consecutive Lok Sabha polls. Gandhi is expected, never­theless, to strum the same tired notes for the coming elections.

LIKE THE TATAS AND THE BIRLAS IN ANOTHER ERA, Adani and Ambani are business magnates controlling huge empires of over $200 billion each, with interests spread across sectors like telecom, infrastructure, ports, fuel, power and gas, renewable energy, media, defence and aero­space, technology, etc. And their business interests lie not just in India but also in other countries, making them truly global Indian icons. Modi once vowed that by 2047, the 100th an­niversary of Independence, India would be a developed nation. He is not just India’s first prime minister to openly embrace his Hindu roots in office but also the first CEO of India to hail pri­vate-sector wealth and job creators in Parliament. India aims to be the third-largest economy by 2030. Focused growth drivers and the private sector have a major role to play in this. In order to achieve the $10 trillion economy by 2030, India has to consistently grow at 8-9 per cent annually. This is possible when per capita income increases and for that, investment needs to rise in urban infrastructure, SMEs and exports.

Even for Rahul Gandhi, criticism of private enterprise and family-run businesses is irrational. It is an accepted fact among economists that emerging economies go through such periods of rapid growth with attendant charges of crony capitalism.

While the contribution of other groups to the freedom struggle and free India’s growth has been recorded, not enough has been said about the role of business icons and family-owned businesses of the day. The growth of core sectors such as iron and steel was boosted manifold by the Tatas long before Nehru defined core sector development by PSUs. The first cotton textile mill was set up in Bombay in 1854 and TISCO was established by the Tata Group in 1907. Indian-owned private enterprises grew signifi­cantly between 1911 and 1921 and were present in the sugar, paper, steel and cement sectors, dominated by business houses such as Tata, Birla, Walchand Hirachand, Thapar, Dalmia, and others who bankrolled the freedom movement, brought the British under policy pressure, and built a strong foundation for industrialised India. An economist contextualised it thus: “Britain’s trade surplus with India was $292 million in 1910, which was reversed to a deficit of $80 million by 1938 with India, Burma and Ceylon. When the world was facing the Great Depression in the 1930s, India was recording industrial output growth. In 1935, India’s industrial production was 239.7 as against the global average of 182.7. Our industrial development happened through import substitution which was due to the rise of local business. In the first decade of twentieth century, India was among the top seven cotton spindle-holding countries and the top nine pig iron producers”.

Today, India tops the global list of family-owned businesses contribut­ing a big chunk of the national GDP and equally to the infrastructure sector growth story. Family-run businesses here, as elsewhere, are the oldest and commonest form of enterprise, having existed for centu­ries and laid the foundations of independent India’s growth. Globally, family-run businesses have created significant employment and are key contributors to national GDPs. Many countries have understood the contributions of such risk-taking, dynamic, entrepreneurial businesses, and given them special place in the economy as they make up over 50 per cent of GDP in most developing and developed countries.

Family-owned and private businesses play a key role in the overall growth of many capitalist countries, including the US. The private sector has generated job opportunities that boost consumption and stimulate further economic activity. In OECD economies, business activities account for about 72 per cent of GDP. Family-owned businesses, which make up 90 per cent of global enterprises, have driven job creation and entrepreneurship through history, according to a 2023 report. While the majority of these are mom-and-pop shops, some of the world’s largest companies, from Walmart to Ford, are also family-run.

In India, family-owned firms contribute 79 per cent of GDP, which is the highest in the world, while in the US they account for 54 per cent of GDP—and 51 per cent even in China. In South Korea, such businesses or chaebols like Samsung and Hyundai have emerged as global giants in semiconductors and automobiles. Samsung had begun as a small village store in 1938. Just as family businesses also own a large portion of global assets, they make up 27 per cent of private capital markets globally, with $6.1 trillion in assets under management (AuM)—more than doubling over the last decade. While the majority of family office assets are in­vested in funds, there is a growing trend of investing directly in target companies, such as tech startups. By 2027, Ernst & Young projects private markets will expand considerably, facing a similar trend seen over the last decade, with family offices playing a key role in driving this growth.

What Rahul Gandhi seems ignorant of is also the fact that India had become the fifth-largest economy by 2023, outranking even the UK. “India now has bragging rights to unprecedented growth, compared to several other so-called developed economies,” one analyst points out. India exited FY24 with a GDP of $3.6 trillion, an underlying growth of 7.6 per cent. Market cap has reached $4.4 trillion, making it the fifth largest in the world. And domestic retailers played a robust part in India’s capital markets, with Demat accounts surging to 151 million in March 2024 from 36 million in March 2019. India Inc has raised $92.9 billion through pri­mary markets over the last five years.

A recent report by SBI Research concluded that the Weighted Mean Income of ₹4.4 lakh in AY14 has soared by almost three times to ₹13 lakh in AY24. Over a span of eight years, there has been an addition of a monumental 4.81 crore ITRs, filed across the board, due to increased incomes. The number of people in each tax bracket has surged due to better incomes. For instance, the ₹5-10 lakh bracket grew from ₹37 lakh tax filers in FY14 to 1.1 crore in FY23. A significant 13.6 per cent of the population has left the lower income bracket and migrated upwards in AY23 compared to AY12.

The top 30 cities of India are usually expected to be ahead in formal savings. However, in the last four years, the share of cities ‘Beyond Top-30’ in total mutual fund assets has grown from 15 per cent to 26 per cent, underscoring the fact that the lower middle class and middle class from Tier 3 and 4 cities are increasing their investments in mutual funds. Accord­ing to a paper from the International Monetary Fund (IMF), through various Modi government schemes and initiatives, India has eradicated “extreme poverty”, which is down to less than 1 per cent, bringing down consumption inequality to its most negligible in 40 years. NITI Aayog says 13.6 crore people escaped the clutches of poverty between 2015-16 and 2019- 21. This proves that the Modi government actually worked for the poor and the aspirational middle class and delivered, in contrast to the non-performance of previous Congress governments. Modi has ensured the genuine democratisa­tion of wealth and individual enterprise in an India that intends to become Viksit Bharat by 2047.

employmentGDP growthIndira GandhiJawaharlal NehruNarendra ModiRahul Gandhiwealth creationWealth Issue 2024