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The Hindu
2 days ago
- Politics
- The Hindu
Review of Srinath Raghavan's new book on Indira Gandhi
Srinath Raghavan's latest book, Indira Gandhi and the Years That Transformed India, examines her political career as India's long 1970s. It takes a chronological arc: her assumption of prime ministerial office in 1966, her struggle to take tight control of the Congress party, her landslide electoral win of 1971, thereafter her leadership of the country in the war with Pakistan, the imposition of Emergency, loss to the Janata Party in 1977, her stint in opposition, return to office in 1980 and her assassination in 1984. Placing this extended decade in a global context, Raghavan argues that 'the long 1970s were the hinge on which the contemporary history of India turned, transforming the young postcolonial country into today's India.' In an interview, Raghavan explains various ideas and events that marked these tumultuous years. Excerpts: In this political history of the Indira Gandhi years, a word that recurs repeatedly is Caesarist/Caesarism. In your view, is it central to understanding the changes that she oversaw, and how it transformed the Indian polity? Caesarism refers to a style of politics in which the leader seeks directly to connect with the people, bypassing party structures or the parliament. I found it useful to understand an important change in the Indian politics ushered in by Indira Gandhi – more useful than currently modish terms such as populist or charismatic. Democratic politics has, by definition, an element of populism. And charisma is only one aspect of the Caesarist style of leadership. Was she already inclined to the Caesarist style? Did her style shift-shape along the way? Indira Gandhi adopted this mode of leadership in response to the specific problems confronting the Congress party. The party's drab performance in the 1967 elections underlined its inability to carry with it significant sections of the electorate. At the same time, it accentuated the power struggle within the party between the prime minister and the regional grandees who controlled the machine. Indira Gandhi moved towards a Caesarist style both to undercut her rivals in the party and revive its electoral fortunes. Her decision to split the Congress was undoubtedly a crucial first step. But equally important were the extraordinary performance of her party in the general elections of 1971 and the decisive military victory over Pakistan later the same year. These, in turn, propelled the party to a massive win in the State elections of 1972. None of these could have been predicted when she broke the old Congress. But cumulatively they cemented her control of the party. Without such dominance it is difficult to imagine the party tamely falling in with her decision to impose the Emergency in June 1975. The triumphs of 1971-2 to the imposition of Emergency in 1975 and the rapid consolidation of the Emergency regime — do you see a vein of risk-taking running through the entire arc? Or did, as in the popular view, fortitude give way to paranoia? I don't see her as an inveterate risk-taker. Rather she had a sharp, instinctive grasp of power relations (whether in domestic or international politics), an instinctive sense of timing and a willingness to make bold choices. These qualities worked for her in the crises of the early years, but they also led to counterproductive outcomes in later years—not only the Emergency but also her handling of the problems in Punjab, Assam and Jammu and Kashmir during her final term in office. All along, she tended to blame difficult situations on the machinations of her domestic or international opponents. This made her somewhat impervious to introspecting on her own choices and their consequences. Yet, as her bete noire Henry Kissinger once said, even the paranoid can have real enemies. You write that 'the long 1970s placed the Indian economy on the road to liberalisation, if only via a crooked path'. Do you think this point remains little appreciated? Indeed. The received wisdom on Indira Gandhi's economic policies is that they were 'socialist' and they tightened the grip of the state on private capital. This is true, but it is also a partial picture. In fact, the heyday of nationalisation and state control in the early 1970s proved brief, though it was damaging enough. The embrace of these policies coincided with the onset of a global economic crisis triggered by the collapse of the Bretton Woods system of stable exchange rates and the oil shocks that followed the Arab-Israel war of 1973. Such was the impact of this global crisis on the Indian economy that Indira Gandhi was forced to embrace conservative macroeconomic policies and move in the direction of liberalising controls on the economy. Before and during the Emergency as well as in her last term in office she adopted strong anti-inflationary policies. During these periods, she also espoused pro-business policies — policies that were viewed favourably by established players like J.R.D. Tata and newer entrants like Dhirubhai Ambani. In so doing, she put the Indian economy on the long road towards liberalisation. The tenure of the Janata Party was a vital phase of the long 1970s. How much was Indira Gandhi a defining factor in the manner and pace at which the regime unravelled? The Janata government was united in its desire to fix Indira Gandhi after 1977, but divided on how best to proceed. This led to some spectacular own-goals such as the abortive move to arrest her in 1978. Indira Gandhi, for her part, proved more astute in playing on the faultlines within the Janata Party and on the thrusting ambition of some of its leaders. In particular, her move to support Charan Singh's bid for premiership ensured that the Janata Party was broken beyond repair or rapprochement. How important were these years out of power, 1977-1980, in her own eventual evolution? These were undoubtedly the most challenging years of her political life. Yet, her ability to retain a grip on a section of the Congress party, to revive her popular fortunes by dramatic moves (such as in support of the Dalits after the massacre in Belchi), and to bounce back by winning the 1978 by-election in Chikmagalur — all showcased her political instincts and tenacity. At the same time, these years also led her further down the path of personalising power in the party (which she split for a second time) and of relying on her younger son, Sanjay Gandhi, who was clearly the dynastic heir apparent. You conclude that while the Janata government had successfully rolled back the Emergency, it did not reconfigure the coordinates of parliamentary democracy put in place on Mrs. Gandhi's watch. Yet, did its record inform the coalition governments to come in later years, of the 'third front', BJP, and the Congress? The Janata government certainly foreshadowed the era of coalition politics that began in the late 1980s. While several of the main protagonists of this period were active in 1977-79, it is not clear they had learned much from that bitter experience. Rather, the record of some of the later coalition governments bore out the dictum that the only thing we learn from history is how to make new mistakes! You choose not to speculate about the reasons for her announcement of elections in 1977. But did this announcement embed in the Indian political system the centrality of elections? The outcome of the 1977 elections demonstrated that even the most powerful political leader could be unseated and humbled. Coming in the wake of the Emergency, when institutional checks and balances had manifestly failed to uphold democracy, elections were now regarded as central to Indian democracy. A decade ago you had published a profile of Indira Gandhi - from then to now, has your assessment of the arc of her prime ministerial career altered? My assessments have changed in a couple of ways. The availability of newly declassified archival materials, including from the Prime Minister's Secretariat, has enabled me to understand better the ideas and impulses that lay behind many of the choices and decisions made by Indira Gandhi and her contemporaries. This is true even of such well known episodes as the nationalisation of banks. At the same time, I have developed a deeper appreciation of the gulf between intentions and outcomes, and how the latter were decisively shaped by the wider, including the global, currents of the long 1970s. At the outset of her premiership, for instance, Indira Gandhi wanted to restore the economy to the track of planned economic development (on the Nehruvian model). But the economic imperatives and crises of the period effectively led to rather a different model of political economy — one that combined targeted anti-poverty programmes with a liberalising, pro-business outlook. This framework has proved durable and continues to shape Indian political economy today. The interviewer is a Delhi-based editor and journalist. Indira Gandhi and the Years That Transformed India Srinath Raghavan Allen Lane ₹899
Indian Express
6 days ago
- Politics
- Indian Express
Srinath Raghavan at Idea Exchange: ‘Institutional rules of the game were considerably weakened even before the Emergency'
Historian Srinath Raghavan on the build-up to the Emergency, its transformative impact on Indian polity and the lessons that we should learn. The session was moderated by Chief of Political Bureau Manoj CG. Manoj CG: Fifty years ago, India had its first brush with authoritarian rule, what we call the Emergency. Looking at the long arc of Mrs Indira Gandhi's years as Prime Minister then, how do you see her shadow in 2025, be it on politics, her party – the Congress – institutions, nation and the concept of leadership? I wanted to situate her long stints in power and out of power from 1966 until her assassination. And the idea of doing that was to get away from the Emergency itself, which tends to be the focal point of discussions. Important things happened both before and after the Emergency, which I think left a longer imprint. When we say that Indira Gandhi did something, we tend to think of it as something done intentionally. As a historian, I think it's also useful to remember the consequences of what her actions were rather than simply the intentions behind them. It's important to understand what she accomplished. Three things have cast a long shadow on politics, democracy and our political economy. First, we went from a period of more or less one-party dominant rule under the Congress to one where the Congress became a dominant player, but in a much more competitive environment. The competitiveness of Indian democracy that we see from the fourth general elections — 1967 onwards — is a very important feature. That very competitiveness led to a disregard of rules, norms and procedures, which are as important as elections in structuring democracy. The Emergency is the most extreme and shocking example of that kind of disregard for the rules of electoral democracy. The second aspect is strengthening of the executive vis-a-vis the legislature and the judiciary. The Janata government did attempt to undo some of it but still the overall institutional balance of power remains tilted towards the executive. This is true even of coalition governments. Mrs Gandhi had an ability to make charismatic, Caesarist appeals directly to the electorate. So the function and role of the party system itself underwent a very significant change in her time. The party was no longer the instrument which aggregated people's preferences and revealed them during the elections. Rather, it supported the political appeal of the leader. A similar model of leadership, where the charisma of an older patriarch follows on to the next generation, is seen not only in national politics but also state politics. The third impact was on political economy. There was a somewhat unwilling and unwitting move towards liberalisation of the economy, which actually started from about 1975, even before the Emergency. That process was important because it put India on this long road towards liberalisation. Though I wouldn't give much credit to her on that. She left her own impression on the welfare economy instead. We saw targetted schemes aimed at particular groups because they came under certain thresholds. The poverty line, for instance, became the longest and the most important imprint. And it continues. Manoj CG: Do you think her decision to choose Sanjay Gandhi first, and the Congress party's decision to bring in Rajiv Gandhi after her killing, laid the template of dynastic politics in India? The Congress party that elected Indira Gandhi as Prime Minister in 1966 was a very different kind of an entity from what it became during her time. She, of course, broke that party quite consciously in 1969. But what she found much more difficult through the 1970s was the ability to reorganise the party in ways that could actually strengthen its machinery. So the move towards relying on her son, first, the younger one, Sanjay Gandhi and subsequently Rajiv Gandhi, comes out as a result of her inability really to institutionalise the party. Manoj CG: Do you think the Congress needs to break from Mrs Gandhi's legacy going forward? There is very little that we see by way of an alternative leadership. And even if we do, like Sharad Pawar or Mamata Banerjee, they walk out. No ambitious politician has a significant pathway to the party's top leadership, given the kind of a family holding structure that this party has come to acquire. It started under Mrs Gandhi and has now just gone on for so long that it is very difficult, even for Congressmen themselves, to conceive of an alternative. That will require a break with this model, which, I think, is both cognitively and practically quite difficult for most people in this party to conceive of and execute. On leader over party | Mrs Gandhi had an ability to make charismatic, Caesarist appeals directly to the electorate. So the function and role of the party system itself underwent a very significant change in her time What should be the legacy of Indira Gandhi that the Congress party should carry? What was both a source of her strength and weaknesses was that she was a very bold and tenacious leader. Splitting the Congress party, a party of the nationalist movement, in 1969 was a dramatic move. She did it again post-Emergency though the party was already truncated at that time. But during the 1971 Bangladesh war, she was initially hesitant, tentative, she assessed. But when she felt the time was ripe for a decisive move, she was willing to make it and even break taboos. For instance, the peace and friendship treaty with the then Soviet Union in August 1971 was a decisive move against non-alignment, a key aspect of the party's foreign policy orientation. If the Congress party could recover a fraction of her chutzpah and the willingness to gamble and try new things that she demonstrated, perhaps it would have been stronger. But for that, fundamental structural issues have to be addressed. Manoj CG: Was the Emergency a natural culmination of her authoritarian streak? We tend to focus on why Indira Gandhi did the Emergency. But an equally important question is, how was it possible for an Emergency to be declared? After all, you have a political system. It has all kinds of checks and balances supposedly. There are various institutions in play, there are various political forces at hand. Despite all of this, how was it possible for an authoritarian rule to be imposed? The parliamentary party has always a certain kind of a check on the executive. But Mrs Gandhi, by her willingness to break the party and then subsequently those spectacular electoral victories that she won, practically became the entire party. It was beholden to her rather than she in any way being controlled by it. The second thing was the strengthening of the executive vis-a-vis Parliament and then the judiciary. The supersession of judges in 1973 was a very important moment. So the institutional balance of power was already secreted to the executive by June 12, 1975. After the Allahabad High Court ruling of June 12, 1975, (which found Mrs Gandhi guilty of electoral malpractices and barred her from holding elected office for six years) Jayaprakash Narayan demanded that the Prime Minister should step down in response to a popular demand, even though the Supreme Court said that she had a conditional stay, that she could stay on in power. Indira Gandhi paid them in the same coin. By that time, all the institutional rules of the game were considerably weakened. Without that, it is actually difficult to imagine how the Emergency could have been imposed. Vikas Pathak: Did Indira Gandhi bring in a new normal where the leader was seen as strong enough to deliver what institutions, which are a maze of procedures, could not? Has that stuck to Indian democracy? That's a very accurate assessment. Soon after the imposition of the Emergency, she announced a 20-point programme for various kinds of economic development and social policies. While some things done during the Emergency, for instance, have not been attempted subsequently, the underlying template that you need a strong leader to deliver specific things for specific segments of Indian society remains. Vikas Pathak: Why did she decide to revoke the Emergency? From June 1976 onwards, various assessments were being prepared for the Prime Minister on the progress of the Emergency. Initially, there was a sense that the government was decisive about moving against labour unions. There was a move towards redistribution of land for Dalits and other groups. When she realised the diminishing returns of continuing with this regime, the unfavourable aspects of population control policies and sterilisation, and that it would be better to move towards elections, she withdrew. To Indira Gandhi, the Emergency was only an interlude. On Congress | If the Congress party could recover a fraction of her chutzpah and the kind of willingness to gamble and try new things that she demonstrated, perhaps it would have been stronger Ritika Chopra: What convinced you that the Emergency story was worth retelling? What archival discoveries surprised you? The reason I wanted to write this book was because of the new archival material that I came across while researching for another book on the creation of Bangladesh. I came across private papers of Mrs Gandhi's principal secretary PN Haksar and other people close to her. The Janata Party's own papers, which are available in Teen Murti, allowed me to look at her from her opponents' lens. So I wanted to situate her within the broader historical context of her times and how those contexts were changing quite dramatically. The period between the late 60s and the mid-80s was a period of turbulence across the world. If you look at the 1970s, democratic governments everywhere were on the rope. India is only an extreme example of what happened. Part of the reason for that was the global economic and energy crisis of that period. So I wanted this broad picture within which to situate her actions. Harish Damodaran: What was the difference between Indira Gandhi of the 60s (rupee devaluation), the 70s (bank nationalisation and welfare schemes) and the 80s (when she secured a $5.8 billion IMF loan despite US opposition)? The rupee devaluation attracted strong political opposition, including from her own party. Bank nationalisation is perhaps the single most important economic decision taken in independent India. One of the things we learnt from documents now available in the Prime Minister's Secretariat is that it's only after the banks were nationalised that she actually started asking people what to do with the machinery. A new fiscal monitoring machine was created. Similarly, we tend to think of the 1970s as this high period of the socialist face of Indira Gandhi's economic policymaking. I feel, however, that the socialist face was actually already at an end by 1974 or thereabouts just as global inflation and its effects were kicking in. Through the Emergency, what you see is a slow attempt at taking away various kinds of controls. What scholars talk about as a pro-business kind of a tilt in the 1980s is already in evidence from the mid-1970s. She took an IMF loan in 1980 but she also took one in 1974, which is why I think 1974 is the breaking point. If you look at the conditions of the 1974 IMF loan, there is a very strong anti-inflation package, including wage freezes. In fact, the 1980 loan offer is built on that model and came with a homegrown conditionality. This suggested that instead of the World Bank and financial institutions imposing conditions on India, we ourselves would roll out measures to address their concerns. Aakash Joshi: Did Mrs Gandhi's leadership destroy the Congress' institutional mechanism and internal democracy? Much of the illiberal tendencies in subsequent governments, be it on federalism, preventive detention or role of governors, are traced back to Mrs Gandhi. What's your assessment? Where Indira Gandhi failed entirely was that having broken the party, she could never find other means of reconstituting it. She tried various things. The Youth Congress was from time to time trumped up as this great solution to the problem of institutionalisation. Again, to give credit to the Youth Congress and even perhaps to Sanjay Gandhi, they did bring in a new set of leaders. Nevertheless, that was not an answer for having new institutional structures. I do not believe the Congress of the old variant could have continued on course either. Something would have changed irrespective of whether she came on or somebody else did. Also illiberal tendencies did not begin with Mrs Gandhi. Preventive detention has been a feature of statute books for pretty much the time that the Indian Constitution has existed. The Constitution itself actually provides for preventive detention, funnily enough, in those parts which talk about fundamental rights. But what changed under her was the kind of preventive detention laws that she brought about, like the Internal Security Act of 1975. The Janata government repealed the Maintenance of Internal Security Act (MISA) but brought in a new preventive detention law. On what enabled Emergency to happen | there is a much more collective responsibility that the entire Indian political elite of the time had. without that kind of collective abdication of the rules of the game, you would not have had a system which collapsed this way Similarly with the governors, I think no other Prime Minister or no government has used Article 356 (which mandates President's Rule) as much as Indira Gandhi did. That led to, especially in her final term, the whole Centre versus State kind of dynamic. Yes, she aggravated and accentuated many of the worst features of our legal political system but everything cannot be assumed to have originated from her. Rinku Ghosh: The Emergency has set a template that non-Congress parties now use to justify their actions in a tussle of whataboutery. What does this portend for future governments? What kind of lessons should we learn from this particular episode in our history? I say this fully conscious of the fact that history itself does not offer any lessons. It's only historians like me who tell what the lessons of history are, which is why we constantly disagree with each other. Rather we must ask , what was it that enabled the Emergency to happen? And when we ask ourselves that question, we understand that there is a much more collective responsibility that the entire Indian political elite of the time had for this disastrous turn that Indian politics took in 1975. Because without that kind of collective abdication of the rules of the game, in some ways, you would not have had a system which collapsed this way. If we believe that the rules of the game are of no consequence, then we are setting ourselves up for graver and more serious disasters. Deeptiman Tiwary: What actually hit Mrs Gandhi's popularity really badly, making her lose from her pocketborough in the elections that followed the Emergency, was forced sterilisation. Do you think the move that allowed the government to actually enter people's homes was a body blow? I don't think so. If you had a normal situation where fundamental rights were enforceable by courts, you could be pretty sure that people would immediately go to the courts and would have at least got a stay on some of what the government was trying to do. But the coercive drive was possible precisely because of the broader framework of authoritarianism within which the Emergency was happening. So I think that the coercive aspects of the sterilisation drive are only one dimension of the broader authoritarian turn that Indian politics had taken during this particular period.
Scroll.in
05-06-2025
- Business
- Scroll.in
How Indira Gandhi's nationalisation of banks enhanced the infrastructural power of the Indian state
In early August 1969, the chief minister of Tamil Nadu, M Karunanidhi, penned an enthusiastic missive to the prime minister. 'I emphatically welcome this bold step of yours,' he wrote, 'which is perhaps the most significant in the last 20 years of the history of independent India.' Two weeks earlier, Indira Gandhi had promulgated an ordinance nationalising fourteen private banks. More than three decades on, Karunanidhi's judgment would be echoed by the official historians of the Reserve Bank of India (RBI), who wrote: 'It remains, without doubt, the single most important economic decision taken by any government since 1947. Not even the reforms of 1991 are comparable in their consequences – political, social and, of course, economic.' These verdicts sit awkwardly with much of the writing on Indira Gandhi's decision to nationalise the banks – a decision that is rightly seen as driven by political considerations. However, in focusing all but exclusively on the intention behind nationalisation of banks, we risk occluding its historical significance. To get the measure of this, we need to plumb the consequences that flowed from this decision. Bank nationalisation tremendously enhanced the 'infrastructural power' of the Indian state: its ability at once to syringe resources out of the society and to pursue policies aimed at securing the society. These were enabled by constructing a novel fiscal-monetary apparatus and grafting it to the focus on targeted alleviation of poverty. In the short run, it also cemented the prime minister's power vis-à-vis her party and considerably advanced her Caesarist mode of politics. Finally, when the economic temperature began to soar, it enabled her government to adopt difficult measures and showcase the muscle of the executive. Let's start with the construction of what has aptly been described as the 'fiscal-monetary machine.' Bank nationalisation led to a major expansion of the banking network, especially in rural India. By incentivising people to deposit their money, these bank branches soaked up the savings of a large section of society that had hitherto lain out of the formal banking system. A significant portion of these deposits was siphoned away by the government – by getting the banks to purchase government bonds. In any system, banks will hold some government securities, for these are risk-free sovereign-guaranteed assets. In the Indian case, the government cornered a big chunk of the sector's resources by legally mandating banks to hold a specified quantum of their assets – calculated as a ratio of their total deposits – in government bonds. In effect, this 'Statutory Liquidity Ratio' (SLR) specified the amount of money banks had to lend to the government. Furthermore, banks were required legally to deposit a certain amount of cash, which earned no interest, with the RBI – the 'Cash Reserve Ratio' (CRR). This enabled the government to borrow more from the RBI. By steadily hiking the SLR and the CRR, the government was able to borrow an increasing proportion of the monetary system's resources and deploy it for fiscal requirements, especially for agricultural subsidies and poverty reduction programs. The SLR went from 25 per cent in July 1969 to 36 per cent in September 1985, and the CRR from 3 per cent to 9 per cent over the same period. By the end of the long 1970s, the banks and the RBI together held 67 per cent of government securities. If we include the state-owned Life Insurance Corporation's holdings, then the nationalised financial sector accounted for a whopping 78 per cent of government debt. At the same time, the government used the nationalised banking system to lend to poorer sections of Indian society, whose 'credit worthiness' would have deterred most commercial banks. In so doing, the government effectively forced the banks to pursue its agenda of poverty reduction. Between 1969 and 1990, bank branches were opened in some 30,000 rural locations that had no financial or banking institutions. Rural lending rates were kept lower than urban rates; savings rates worked in the opposite direction. By 1990, rural households were getting almost a third of their credit from the nationalised banks. Over this period, bank expansion, savings mobilisation, and provision of credit significantly influenced growth in per capita output and poverty reduction in rural India. There were, of course, limits to how far this fiscal-monetary machine could travel. For one thing, the massive 'preemption' of the banking sector's resources by the government choked the flow of credit to other commercial and industrial requirements. For another, the requirements of lending to the government and poorer segments of society reduced the profitability of the banks. For a third, it enveloped the central bank in a double bind. On the one hand, the government's mounting borrowing requirements compelled the RBI to lend to it directly. This expanded the RBI's balance sheet with a multiplier effect down the banking system and the consequent risk of inflation. On the other hand, the RBI's freedom to wield its main monetary policy tool – interest rates – was abridged. All said, in the long 1970s this system did not run out of steam; though the ride was anything but smooth. This fiscal-monetary apparatus did not spring fully formed from anyone's forehead. Policymakers and bureaucrats, economists and bankers felt their way towards constructing and tinkering, regulating and fine-tuning it. At the moment of bank nationalisation, the government had no clear ideas of what it wanted to accomplish. The discussions since 1967 on 'social control of banking' had hardly moved beyond windy expressions of intent. A lengthy note prepared for the prime minister had merely underlined the need for 'more intensive home work' on 'equitable allocation and efficient use' of bank deposits and resources. Unfortunately, the assignment had no takers because it was regarded as political hot air. Nor did the idea of nationalisation have much traction in the bureaucracy and the banking system. The then secretary to the prime minister, LK Jha, told her that 'it would be difficult to argue that nationalisation of the banking system is necessary to increase public control over private banks.' Contrary to the claims of the left-leaning 'Young Turks' in the Congress party, nationalisation would not reduce the flow of credit to big businesses: 'One could as well ask why is it that the Railways, which are State-owned, carry such a high proportion of freight which emanates from the bigger industrial groups.' The government, he argued, had adequate control over the financial system to channel industrial and agricultural credit. Two months later, Jha was appointed as the governor of the RBI. When Indira Gandhi decided to take the plunge, Governor Jha was kept out of the loop until the last minute – owing to his dislike of the idea. The speed and secrecy with which the move was executed ensured that no expert, barring IG Patel in the finance ministry, was consulted. When the announcement was made on 20 July 1969, the government – like the dog that caught the car – had to quickly decide what to do next. The immediate concern was to deal with the organisational changes necessitated by this move. Thereafter, the legal challenge to bank nationalisation in the Supreme Court consumed substantial energies of the government. Yet the prime minister knew from the outset that she needed expert knowledge and policy advice. Among those to whom she first turned was the chairman of the Syndicate Bank, TA Pai. A progressive banker from Manipal in Karnataka, Pai's thoughts proved influential in shaping the discourse on the fiscal-monetary apparatus. Not surprisingly, Pai would later join the Congress party and serve in Indira Gandhi's third cabinet. Pai suggested two principal objectives for the nationalised banking system: broadening the base of banking and paying attention to neglected sectors. India had hardly 12 million bank accounts for a population of 500 million. The challenge was 'to convert a system of class banking into banking for the masses.' The banks had total deposits of Rs. 43 billion, when, by international standards, the deposits should have stood at least at Rs. 120 billion. Worse, half of the existing deposits came from just three states: Maharashtra, Gujarat, and West Bengal. By contrast, six states accounting for 40 per cent of the population – Jammu and Kashmir, Madhya Pradesh, Rajasthan, Bihar, Orissa, and Assam– contributed a paltry 6 per cent of the deposits. 'It is imperative therefore that banking should spread more intensively in all these states.' Conversely, the Indian banking system had only 1.8 million borrowing accounts. Syndicate Bank had the highest, with 180,000 accounts, while the State Bank of India, with 10 times the loans, had only 122,000 borrowing accounts. 'This shows that the banks are catering only to a few in the country and when we know that nearly 600 accounts have borrowed 50 per cent of the total advances, viz. Rs 15 billion we can appreciate the tragedy of the situation.' Bank credit, he argued, could 'act as a potential catalytic in the economic growth of the people.' The new system should have clear priorities, such as small-scale industry, retail trade, self-employed professionals, students, and agriculture. Bank finance, he wrote, 'must make even subsistence farmers into surplus farmers.' Instead of aiming at annual increases in credit to agriculture and industry, targets should be linked to 'the total advances as a percentage to be achieved within a reasonable period.' In the days after the nationalisation, the bureaucracy was humming with rumours of Governor Jha's imminent resignation. Indira Gandhi requested him to stay in the saddle: 'I shall need to rely a great deal on you … It should be possible for you to pick out the priority areas for action . . . so that we can give the people the feeling that the nationalisation of banks will affect their lives in some concrete way.' Jha promptly sent her two detailed notes. The governor observed that 'concern for the underprivileged sections of the community and the desirability of improving their access to credit facilities can be said to be one of the prime objectives of nationalisation.' He listed several 'areas for special attention': 'small scale industries, retail trade, specially in the rural areas, individuals who operate their own trucks or autorickshaws on hire … the self-employed generally. Artisans like carpenters and tailors, people who run service and repair establishments.' In short, the more productive segments of the emerging informal economy. Further, with the advent of the Green Revolution, there was 'a much greater need for credit for the farmer both for his inputs and for his marketing.' The nationalised banks should adopt 'a rationalised programme of branch expansion … paying special attention to those States and those parts of the country which have so far been neglected.' Having focused on constructing the capillaries of the new apparatus and on enabling the flow of credit to poorer sections, Jha turned to the apex and its requirements. Banks were required by law to maintain 25 per cent of their deposits in government securities (the Statutory Liquidity Ratio) and 3 per cent of their deposits as cash (Cash Reserve Ratio) with the RBI. 'After nationalisation,' he wrote, 'a progressive step up in the investment of the banking system in Government securities will be undertaken to bring the level of investment around 30 per cent and this can be achieved without any change in the law.' The governor had put his finger on an open sesame. But he would rapidly be disabused of his hope for a gradual increase and a moderate ceiling. Within months, the government escalated the SLR and CRR rather close to Jha's 30 per cent. By the mid-1980s, they added up to 67 per cent.
