The turning point in India's economic policy came shortly before Business Standard was born; in 1974. Over the previous five years, Indira Gandhi had nationalised 14 big banks, the general insurance companies, coking coal mines and then non-coking coal mines. The monopolies law had been passed, and shackles put on the "big" Indian business houses. Then the Foreign Exchange Regulations Act (FERA) was amended to put shackles on foreign companies operating in the country.

The result? Bajaj Auto, being part of a "monopoly house", was not allowed to expand production, though it had a waiting list for its scooters that stretched for nine long years. If you wanted a groom for your daughter, you sometimes had to offer the chap the scarce commodity called a Bajaj scooter as inducement. And under FERA, global companies with subsidiaries in India had to offer their shares to the public at a fraction of their real value - the price being determined by the Controller of Capital Issues.

Salaries for company bosses were capped, and remained unchanged despite rampant inflation. And when Indira Gandhi took charge as finance minister, after sacking Morarji Desai, she used the 1970 Budget to jack up the maximum income tax rate to more than 97 per cent. If you added the effect of the wealth tax, anyone with some wealth found his combined income and wealth tax burden totalling more than 100 per cent of his income on the margin. Women who had lost their husbands sometimes had to sell their homes in order to pay the estate duty.

Price controls had been clamped on everything from paper to steel, from tyres to cement, and from medicines to cars. The Premier (earlier Fiat) cars that the babus preferred had the lowest price, naturally, and the babus gave themselves preferential quotas. They were also allowed (by themselves!) to sell their quota cars after three years. Because of the shortage, the resale price in the market for a three-year-old car was more than the controlled price of a new one; so the babus could replace their old car with a new one every three years, and have some money left over. Meanwhile, sarkari economists sat in an outfit called the Bureau of Industrial Costs and Prices (all Soviet-style offices are called Bureaus) and made detailed calculations on whether a price increase could be allowed. They did not seem to notice that black markets flourished in the items under price control. One Bureau chairman recounted how tyre traders, rolling in black market premiums, were lighting their cigars with hundred-rupee notes, Chicago gangland style.

The imports of many items were "canalised". So newspapers could not import newsprint; the job would be done for you by a government company. If it delivered brown, unbleached paper at a high price, tough luck - you took what you got. Politicians got kickbacks on the trade deals, of course. Meanwhile, if you wanted to go out of the country, you were allowed all of $8. For this you had to fill out a "P" form, stand in queue at a Reserve Bank counter, then come back some hours or a day or two later to collect your "precious" foreign exchange.

In this socialist haven, labour laws had been tightened and trade unionists agitated against the use of computers, on the ground that they would reduce employment (ironic, given what was to follow). Then, Indira Gandhi in 1973 promoted the ultimate stupidity: abolition of private wholesale trade in foodgrain - which meant government agencies had to take complete charge at every grain mandi that existed. A brave and outspoken economist at the Planning Commission, B S Minhas, protested against the suicidal move. The Commission's deputy chairman, a socialist politician called D P Dhar, accused him of being "soft" on big farmers. "And you are soft in the head," the irrepressible Minhas retorted. The takeover went ahead, ignoring the fact that it was a drought year, and there wasn't much grain to be had. Prices started soaring.

The man pushing many of the socialist ideas, and some aimed at subverting the Westminster system in order to give the executive greater sway, was a communist lawyer called Mohan Kumaramangalam. He had gained ascendancy because Indira Gandhi's government had been reduced to a minority in the Lok Sabha in the wake of the Congress split of 1969, and she leaned on the Communists for support in the House. Kumaramangalam wanted a "committed" bureaucracy, and a "committed" judiciary - committed to the prime minister, though that is not what they said. The three senior-most Supreme Court judges were superseded in order to handpick a new Chief Justice, who had sided with the government in important cases. Those superseded resigned, causing an almighty uproar.

Then, fate intervened. Kumaramangalam died in an Indian Airlines plane crash in the summer of 1973. Simultaneously, Sanjay Gandhi's ascent meant that other Leftists got sidelined, like P N Haksar who had been Indira Gandhi's principal secretary in the prime minister's office. The practical C Subramaniam became finance minister, and the sensible P N Dhar held sway in the prime minister's office.

(As an aside, Mao had told Brajesh Mishra at a 1970 reception in Beijing that India and China should become friends again. But any possible rapprochement with the Chinese was scuttled by a premature leak of the news. Mishra believed that the source of the leak was Haksar, who apparently thought the Russians would be upset if India made up with the Chinese. Even 40 years later, Mishra would talk about it with regret, if not a trace of bitterness.)



The 1969-74 quinquennium , marked by all the radicalism, had seen economic growth drop to 2.5 per cent, from nearly four per cent under Nehru, and inflation cross 30 per cent. While Selig Harrison in 1960 had talked of India's "dangerous decades", this was India's most destructive half-decade. Its consequences would take decades to undo, and the task remains only half-done.

Slowly, ever so slowly, like the pendulum reaching the limit of its swing on one side, halting and then beginning to swing back, the direction of the government's economic policy began to change. Through the years of Emergency rule (1975-77), the Janata governments (1977-80), Indira Gandhi's return to power in 1980, and Rajiv Gandhi's tenure (1985-89), the return swing of the pendulum gained momentum, though at a fraction of the pace of the reforms launched in China. Price controls got lifted, the monopolies law was rendered irrelevant, many foreign exchange controls were eased, companies were allowed "automatic" expansion of capacity, and the waiting list for Bajaj scooters eventually disappeared. By 1991, the country was ready for more radical change. But few remember that the pendulum had begun to swing in its new direction just before Business Standard was born. It took a brave publisher to bring out a financial newspaper in that environment.

The writer is Chairman, Business Standard Ltd. He was editor of the paper from 1993 to 2009