Book Review | Finance ministers who shaped early post-Independence India

Finance ministers (FMs), despite their dour calling, do not always follow the bland, understated credo expected of them. This is one message in this carefully packaged, extensively researched tome on eleven, post-Independence, Indian FMs, till the Emergency in 1977.

The chronological narrative follows three themes. First a brief overview of the budgets presented by each FM — a refresher for fiscal policy wonks and deeply instructive for eager learners. Second, an informed and lively peek into the personal dynamics between the Prime Minister (PM) and each FM and between each FM and the Reserve Bank of India (RBI) all situated within the political economy context over the three decades.

What struck this reviewer was how many FMs resigned from office in those early days — a practice that ended soonafter. R.K. Shanmukham Chetty, India’s first FM resigned because of a “procedural lapse” in allowing income tax cases filed against some Gujarati businessmen to be withdrawn, just before a government sponsored amendment kicked in ending such exemptions. T.T. Krishnamachari, India’s fourth FM, was forced to resign when his attempt to nudge Life Insurance Corporation of India to fund a dodgy Calcutta-based stock manipulator, Haridas Mundhra, became public.

Others resigned when personal convictions became misaligned with the PM’s. India’s second finance minister John Mathai resigned in protest against the proposed Planning Commission being converted from a technocratic, think tank advising government (much like the Niti Aayog today) into a parallel Cabinet, facilitating Prime Minister Nehru to push grandiose, underfunded schemes for industrialisation.

Pandit Jawaharlal Nehru’s third FM, C.D. Deshmukh, ICS, served for six years with the equanimity born of deep administrative experience. But Pandit Nehru’s imperial approach irked him. The PM unilaterally overturned a Cabinet decision to reorganize Bombay state into Gujarat, Maharashtra, and Bombay by announcing in January 1956 that Bombay would become a centrally administered territory. Bombay city went up in flames of protest. Feeling let down, Deshmukh, a Bombay resident, resigned.

India’s fifth finance minister Morarji Desai resigned in 1963 when he was out maneuvered by the Congress president Kumaraswami Kamaraj’s plan that all senior Congress leaders — barring Pandit Nehru — resign and make way for freshers by devoting themselves to party building.

The gainer was TTK who had all three prerequisites which Nehru, much like any modern CEO, cherished intelligence, high energy levels and the ability to get things done. He became FM for the second time in 1963. Sadly, Pandit Nehru died soon after in May 1964. TTK found his relationship with the new PM, Lal Bahadur Shastri, not as cozy. Policy disagreements surfaced.

The PM favoured devaluation to fix the deteriorating external account. TTK opposed it favouring high import tariffs to protect basic domestic industry and an overvalued rupee to keep necessary imports cheap. Expectedly, fresh allegations against TTK surfaced, linked to the business dealings of his family and a possible (albeit unestablished) conflict of interest. Matters escalated when the PM sought a secret judicial opinion on a memorandum against TTK filed by 11 Congress MPs. Resenting this lack of faith in him, TTK resigned to make way for the more malleable greenhorn, Sachindra Chaudhuri, in 1966.

Soon thereafter Prime Minister Shastri died in January 1967 and Indira Gandhi became Prime Minister. Morarjibhai was back as FM and Deputy Prime Minister. The new PM was bolstering her forces by co-opting established Congress leaders, to vanquish the Kamaraj led syndicate within the Congress party, which sought to dominate her.

Sadly, Morarjibhai’s strong convictions were his undoing, yet again. He opposed a popular move to abolish the Privy Purses of erstwhile princely rulers — an annual tax-free amount paid by the government — since it would mean unilaterally revoking an agreement. He opposed nationalisation of private banks since it would create an inefficient publicly owned banking sector when better internal governance and more credit for rural areas and small industry could be achieved by an empowered RBI enforcing “social control” via the boards of private banks. For the PM, bank nationalisation was a political weapon to establish her credentials as a strong, anti-big business, pro-poor leader.

Morarjibhai was divested of the finance portfolio but allowed to remain Deputy Prime Minister sans a portfolio — an offer he expectedly refused by resigning for the second time.

Similar interesting vignettes trace the long-standing government view of the RBI as a subordinate office of the Union government. TTK scathingly dismissed the RBI as a mere “section” of the government during his face-off with RBI’s second Indian governor Sir Benegal Rama Rau, ICS, in 1956 over RBIs autonomy in setting interest rates. Two decades later, in 1976, the then secretary, economic affairs, Manmohan Singh, a future RBI governor, finance minister, and Prime Minister, would direct that the RBI submit written policy notes in advance to the government and consult to avoid unforeseen clashes. It is not for nothing that the Indian Prime Minister is presidential in everything but name — a status quo that persists. There is much to learn in this book for the patient reader.

India’s Finance Ministers: From Independence to Emergency (1947-1977)
A.K. Bhattacharya
Penguin (Business)
pp. 435; Rs 999