Question

Reforms brought by indira gandhi

Answer 1

Last year, both Sonia Gandhi and Pranab Mukherjee sang the virtues of bank nationalisation. They said it had helped India survive the slowdown. Many ridiculed these as political statements intended to glorify the author of bank nationaliation , Indira Gandhi.
Now comes a defence of bank nationalisation from chief economic adviser Kaushik Basu. Basu says that bank nationalisation led to a rise in savings and investment and helped push up India’s growth rate. I have myself long contended that bank nationalisation contributed to the acceleration in growth to 5.5-6 % in the eighties and provided the basis for improved bank performance in the nineties and thereafter.
That is not how today’s liberalisers perceive bank nationalisation. They perceive it as the apogee of India’s socialist past, an act that damaged the entire culture of lending and saddled us with a government-dominated banking sector. In short, the very antithesis of reforms . Wherein lies the truth? The question is worth addressing because the answer may give us a more nuanced understanding of what constitutes economic reform.
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In 1969, Prime Minister Indira Gandhi announced the nationalisation of 14 banks. At the time, Mrs Gandhi faced a challenge from the old guard in the Congress . She also believed that the private owners of banks were in cahoots with the Swatantra Party. By nationalising banks and sacking Morarji Desai as finance minister, Mrs Gandhi felt she could upstage her opponents within and outside the Congress, bolster her slogan of garibi hatao and gain the votes of the nation’s poor. She succeeded admirably.
Politicians will always have an eye on votes. The test of their actions is whether there is congruence between their pursuit of power and the larger national interest . Was there more to bank nationalisation than sheer political opportunism?
Even then, there were reasons to think so. Mrs Gandhi had advocated ‘social control’ of banks as early as in 1967 after the Congress debacle in the general elections. At the time of bank nationalisation, she said that it was needed in order to reach banking to the weaker sections of society.
In retrospect, the economic argument for bank nationalisation becomes even clearer. I explained this in an article in EPW (March 11, 2007). Under government ownership, bank branches jumped from 8,000 in 1969 to 32,000 in 1980 and further to 60,000 in 1990. Savings are not money under the mattress . Savings are what come into the financial system. By sweeping money from individuals into the financial system , bank branch expansion caused in an increase in the savings rate from 12% in 1969 to 20% in 1980.