(Back in Melbourne – first blog post.)
S.V. Raju (of Freedom First) got the following Masani speech scanned and OCRd for me, in response to my blog posts (article/s) against government-to-government foreign aid (e.g. this one).
This is what Minoo Masani said in the Parliament in 1966. (I've annotated in colour for convenience.)
FOREIGN CAPITAL, YES! GOVERNMENTAL LOANS, NO!
(From a speech by Minoo Masani in the Lok Sabha on 3 May 1966. Reproduced from Congress Misrule and the Swatantra Alternative by Minoo Masani, 1966.)
The thing I am concerned with is the extent to which this Budget seeks to dump on the shoulders of the foreigner the greater part of the burden of the development of this country. In gross terms, India is asking for 75 per cent more economic aid for the Fourth Five Year Plan than it did for the Third Plan. The share of the United States and the World Bank in the totality of economic aid is to go up, if the Government’s wishes are responded to, from two-thirds to three-fourths of the total.
Professor Shenoy, one of our most able economists, has calculated that, if the aid received is valued, as it should be, in terms of the real conversion value of the rupee, which is today 9 rupees to the dollar, then the support that this Budget demands from foreign aid is around two-thirds of the capital outlay for the year and about one-third of the total budgetary disbursements. Professor Shenoy goes on to make a remark, which is startling, that “except for a year or so in the case of one or two countries, at no time of the post-war reconstruction phase did any of the Marshall Aid countries receive aid in such massive proportions.” As has been said, it is a shame, it is scandalous, that we should be that dependent on the crutches of foreign aid.
Let me make it clear that we on these benches are not against international cooperation and the acceptance of foreign capital. Far from it. We are very much for it. But we are against excessive dependence on Government-to-Government loans. We look upon Government-to-Government loans as a drug, if not a poison, a drug that has to be taken in very small quantities and for very specific purposes, while we look upon equity capital as vitamins, as nutrition, as something that can be taken in as large proportions as possible with benefit to the body politic. We think that the Government-to-Government loans are only valid and legitimate if given for infrastructure, for limited purposes like education, irrigation, power, transportation, communications, but nothing else. [Sanjeev: I disagree even with that!!]
THREE REASONS WHY FOREIGN AID (SOFT LOANS) IS BAD
There are three reasons why Government-to-Government loans, which our Government is pursuing today in Washington and New York, are bad for this country. It is a fallacy first of all to suggest, as was done the other day in a press communique arising out of the Prime Minister’s discussions with industrialists, that loans are cheaper than equity capital. Nothing of the kind. The mere fact that loans are available at a lower rate of interest does not make them cheaper. In deciding what is cheap or expensive, it is the rate of return you get on that capital which is more important. The fact is that the Government cannot use these loans or capital remuneratively, and in fact this Government has not clone so over the last several years. ‘“re know of the colossal misdirection of resources, specially in the State sector, which has been taking place during the Second and the Third Plan.
The second reason is that the Government-to-Government loans come at our risk. However badly our Government invests this money, India has to repay the capital and interest. This is not so when private capital comes in. When a private investor comes to invest his money, he comes at his own risk. If lie makes a profit, he can take his profit back. If lie makes a loss, he leaves the money in this country and goes back empty-handed, The Government and this country have not to pay for his failure.
A third consideration is the political strings that Government-to-Government loans have; they are full of implications of a political nature. This is not just hindsight on our part. In the Election Manifesto of my Party, published in 1962, we had said this on the subject:
The Congress Party’s pattern of planning is based on extensive foreign aid that hangs on the slender thread of international peace which may snap any day. The Swatantra Party is totally opposed to the policy of huge foreign debts being incurred without any plan or prospect of adequate exports to enable India to discharge these obligations. The Party will endeavour its best to halt this grievous programme without damage to the national reputation. The Party will support and encourage the flow of foreign capital into private enterprises in India which would contribute to rapid industrial progress.
As I said, ours is not mere hindsight. We were prophetic in a sense. Last year, in August-September, what we foretold, i.e., that this foreign aid would dry up as soon as war took place, actually happened. Today, our Planning Minister is there in Washington pleading that the suspended aid should be revived. We think that this is altogether undesirable from the point of view of the country.
Therefore we come to this conclusion that, unless this Government’s policies, which we have been fighting for six years, are radically changed, the effect of any more international assistance in Governmental loans will be to bolster the rotten planning and the bad economic policies of this Government and, as Rajaji has rightly pointed out, to give this mis-Government, for that is what it is, another lease of life by propping it with political support and thus interfering in our internal affairs.
Now people will ask: is there not a change for the better? Is there not a more pragmatic approach to these questions? Is not the Government, under pressure from the World Bank, changing its policies? It is true that recent statements of the Prime Minister have shown a fresh and pragmatic approach. In her “person to person” broadcast, for instance, she said that socialism should not be “a book of words nor a bundle of highsounding promises.” I congratulate the Hon. Prime Minister on this unintended but very accurate description of the policies of the Governments of the two Prime Ministers who preceded her!
In her reply to her critics in her Servants of People Society speech on April 30, there are many encouraging things. Encouraging in particular is her reference to the successful recovery of Germany and Japan with the help of U.S. aid. We have always said these two countries should have been our example, not the wretched Soviet Union. They are a model for this country.
Then she went on to say that “this is a changing world where new problems keep cropping up and these have to be solved in a new way.” She also stated that “policies are not a stone edict which cannot be changed. Policies are there to serve the people. If they do not do good to the people, we shall change them.” And finally she stated the “Government rules and regulations cannot change the ills of the country. It is the people who can do it.” An excellent. sentiment. This sentiment might well have been picked from the Manifesto of My Party!
I want to assure the Hon. Prime Minister that if she pursues this pragmatic, fresh line of thought, the younger people throughout the country will rally behind her and the whole country will support her.
Unfortunately, the one party from which she has not got any support is her own Party and her own Government. It is perhaps natural that the two former Ministers who were removed from office for improper behaviour or unfitness to hold office by their own Prime Minister, who was a personal friend of both of them, should lead the attack on the Prime Minister with the ridiculous idea that the Government is out to sell the country. This is not unexpected from two Communist fellow-travellers of their ilk. What is surprising is that so many good members of the Congress Party have not come forward to say a word in contradiction.
For instance, Mr Krishna Menon spoke with a jibe and a jeer about that great and friendly country, Brazil, three times as big as our country. While he was making that cheap jibe here, the Brazilian Ambassador in India announced at the same time that his country was in a position to give us a free gift of 500 tons of rice to help our country out of the mess to which this Government has brought us! Though it is a small gift, they are in position to give and we have to accept it. That is the main point. It is hardly a country at which a finger can be pointed.
No doubt, Mr Malaviya and Mr Menon would want us to follow the example of Nkrumah and Sukarno, two gentlemen very much of the same kidney, who in their own countries have been thrown out of power or are in the process of being thrown out of power. Any day, Brazil is a better example than the Ghana and Indonesia of Nkrumah and Sukarno, which they would want this country to emulate.
But what is amazing is that, apart from the Prime Minister, there has been no fighting response from any member of this Government or any member of that party. On the contrary, there are apologetic noises, and the Government is entirely on the defensive. Recently, Cabinet Ministers have one after another made apologetic statements.
The fact is that a drastic change in overall policy is necessary if India is to survive, and this needs to be frankly admitted. Let me quote a sentence from Mr Mulgaonkar’s article in the Hindustan Times of April 27 to show that we are not the only people who notice this cowardly, apologetic attitude on the part of this Government in the face of the challenge from the crypto-communists and communists. He wrote:
The challenge of the Malaviyas is easy to meet on the facts. And that is exactly how it is not being met. The Government, far too often, gives the impression of being on the defensive, of denying that a change is sought, of laboriously searching for loopholes in the wording of past policy declarations to justify what it knows to be compelling reasons to alter course if total bankruptcy is to be avoided.
I must regretfully say that I see no indication that Mr Mulgaonkar’s good advice is going to be taken.
Let us assume that even if foreign loans are undesirable in a big way, we are in such a plight today that this Government had to send my friend Mr Asoka Mehta on what may be called a fire brigade operation. Let us assume that that may be justifiable as a short-term expedient. But what is the way they are going about? Our needs are urgent. The essential supplies for industries are running out. If they are not available in the next few months, the wheels of our enterprises will grind to a stop. But the Government is so handling this matter that the outlook is that there will be no decision by the Consortium till October, and after the Consortium makes its recommendation, the U.S. Congress will be asked to consider what appropriations to make. For the six months’ delay which will thus take place, we shall have nobody to thank but our own Government.
I feel that the Prime Minister’s mission to Washington was badly misconceived. I would like to compliment her on the grace and the charm with which she behaved, the dignity which she showed, and the hearts that she won. That was a very good thing, and we were all very happy. But between establishing an intellectual rapport and getting the assistance that this country needs there is a great difference. Fair words, it has been said, butter no parsnips. She, unfortunately, announced before she went there that she did not want to talk business or to ask for aid, and President Lyndon Johnson took her at her word, quite rightly and naturally, from his point of view, although it does not suit us. He took her at her word and said: “Fine, in that case, please send someone to talk to the World Bank,” or, in American parlance, he passed the buck, and he was perfectly entitled to, because we gave him the opportunity.
I think the Prime Minister should have gone properly equipped with the necessary people, accompanied by my friend, the Finance Minister, to talk business with the American Government and come back with some concrete proposition. When Mr Macmillan or Mr Wilson or General DeGaulle cross the Atlantic, they do not go just to establish a rapport. When Dr Erhard goes to discuss hard concrete business, he comes back and reports to his people on what be has brought back. I think that, if the Prime Minister had done that, she could certainly have got very good dividends.
And now what happens is that this Government can find no more suitable person to send to negotiate this very delicate business than the author of that egregious Saugar speech, with its many follies and its howlers. Was that the best person for this Government to send in order to inspire confidence in the economic realism of this country?
And what does he do? On April 21, in the Indian Express he is quoted as saying:
I have not travelled 10,000 miles in order to discuss the exchange value of my currency. What we do with our rupee is a matter for the Government of India to decide. We shall not discuss it with anybody.
What impertinence! You ask people to take a rupee and say: “This is 20 cents; give us 20 cents worth of goods,” and they say to you: “But this is not 20 cents; your paper rupee is worth only 10 cents. Therefore, let us discuss what is to be done about the fact that you have by your inflationary policies brought your rupee to half its value.” You can answer them; you can say: “We do not believe in devaluation,” nor do we. But you cannot say that you will not discuss it.
The value of the rupee, like the value of the rouble or the pound, is a matter of international concern. When you do interational business and try to sell your rupee and get goods in return or other currency in return, then it is everyone’s business, particularly that of the World Bank, to say that your rupee is not worth what you pretend. And to send a person who makes this kind of egregious remark, which must have made a painful impression anywhere outside this country, except amongst these limited ranks, is something that is a matter for worry. In other words, this Government is following a policy which has been well described by a journal as “a combination of subservience and bluff.” This is not the kind of policy that is going to win the regard or the friendship or the help of the world. It makes such a painful impression in India that one can only wonder what kind of impression this Government is making abroad.
This Budget has thrown the greater part of the burden of the development of this country on foreign shoulders. Instead of going out for foreign capital, which would be productive, they want to go in for more and more Government-to-Government loans, thus mortgaging further the economic future of this country. And they are going about it in a most inept way.
I frankly do not see any hope for this country unless another Government, which is more pragmatic, which is more open-minded and which is less doctrinaire, can take its place and face the world on more equal terms
. [Sanjeev: This hope did not materialise. FTI is the entity working hard towards that goal today.