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Run over the banks

Run over the banks

Author: Inder Malhotra
Publication: The Indian Express
Date: July 10, 2009
URL: http://www.indianexpress.com/news/run-over-the-banks/487428/

Introduction: Their nationalisation was a result of power play, not principle

Three years after the tsunami of criticism over the devaluation of the rupee had driven Indira Gandhi to a policy switch, from pragmatic to populist, she startled the country by nationalising 14 commercial banks. Most people thought this was the logical culmination of the populist surge but reality was complex. A bitter power struggle within the ruling party that was to lead to the first Congress split later had more to do with bank nationalisation than any other factor. The timing, July 1969, was dictated by the high-stake presidential election necessitated by the untimely death of President Zakir Husain, due in August.

In fact, the issue of bank nationalisation had been enlivening Indian political discourse since long before Indira Gandhi's rise to power. In 1951, soon after Sardar Patel's death, her illustrious father had invited socialist leader Jayaprakash Narayan, better known as JP, to join his government. JP had laid down 14 preconditions for cooperation, headed by immediate nationalisation of banks. Nehru dropped his initiative after telling JP: "If I could do all this, why would I need your help"?

Thereafter, the Leftists chorus for the takeover of banks was uninterrupted but Nehru and his successors had ignored it. However, the issue suddenly acquired salience after the 1967 general election in which the Congress party had lost nine states and suffered a loss of 87 seats in Parliament. The Congress Young Turks, led by Chandra Shekhar, later to become prime minister, demanded a series of radical measures to "win back the people's confidence." Bank nationalisation was on top of their agenda. But they had to contend with Morarji Desai who, as part of a compromise forced on the Congress by circumstances, had become deputy prime minister and finance minister in Indira Gandhi's cabinet.

An inflexible man, he was totally opposed to nationalisation but was open to less drastic measures. The party compromised on "social control" on banks by monitoring their lending policies for two years. Before long the power struggle between Desai and Indira, far from abating, escalated, largely because the Syndicate of party bosses that had initially sponsored her as prime ministerial candidate to keep Desai at bay, had suddenly joined him against her. The Young Turks seized the opportunity vigorously to demand immediate bank nationalisation. To their shock, Indira Gandhi closed ranks with Desai and insisted that social control must be given a fair trial for a "minimum of two years."

Ironically, she was to go back on this in less than a year when she learnt that the combination of Desai and the Syndicate was determined to nominate N. Sanjeeva Reddy as the Congress presidential candidate as a first step towards ousting her. The Congress Parliamentary Board was to take this critically important decision at Bangalore but its meeting was to be preceded by that of the Working Committee. Absenting herself from it, she sent it a note titled "Some Stray Thoughts, Hurriedly Dictated." In it she did not endorse bank nationalisation but indicated that she was prepared to "consider" nationalisation even before the expiry of the two-year limit.

The hint to her opponents was clear - "let's compromise again" - but they refused to take it, and chose Reddy by a majority of four to three. Reacting like a "wounded tigress," she hit back but at a target other than the one generally expected. Her home minister, Y. B. Chavan, had "betrayed" her and voted with her opponents. She left him alone, but divested Desai of the finance portfolio - on the ground that it was "unfair" to "burden him with the responsibility" to implement policies he did not believe in - and took over the finance portfolio herself. But she asked him to stay on as deputy prime minister without portfolio. Desai understandably refused. Fat was now well and truly in the fire.

Two days later she called in I. G. Patel, now Union economic affairs secretary. After ascertaining that banking was under his charge, she told him, without any preamble or pretence: "For political reasons, it has been decided to nationalise the banks. You have to prepare within 24 hours the bill, a note for the cabinet and a speech for me to make to the nation tomorrow evening. Can you do it and make sure that there is no leak?"

Patel rang up L. K. Jha - formerly secretary to Lal Bahadur Shastri and Indira and now governor of the Reserve Bank in Bombay - and asked him to to come to Delhi immediately, and bring with him R. K. Seshadari, a Reserve Bank officer who, during an earlier stint in the finance ministry, had prepared, at the instance of T. T. Krishnamachari, a former finance minister, a bill to nationalise banks "as a contingency measure." Seshadri possessed the only copy of that document. The three worked through the night, Jha and Seshadari in the governor's suite at the Delhi branch of the Reserve Bank and Patel at his house in Teen Murti Lane. The prime minister had all the papers she needed the next morning.

Twenty-four hours later, on a Saturday, the ordinance to nationalise 14 major banks was issued and instantly became a sensation, inviting sharp criticism from Indira Gandhi's critics and enthusiastic support from the people at large. Parliament was to meet on Monday. To enact the ordinance into a law became its first task. Bank nationalisation surely affected the presidential poll and contributed to Reddy's defeat and the Syndicate's doom. But that is a long and complicated story to be told separately. Two facts about nationalisation of banks, however, merit a mention. First, when the Supreme Court invalidated the law passed by Parliament, the prime minister simply took over the management of banks without touching their ownership. She neatly sidestepped other judicial challenges, too. This inevitably accentuated her tussle with the judiciary that had started much earlier on a different issue. Secondly, in Delhi, crowds of workers, rickshaw drivers and others danced with joy on hearing the news. Almost none of them had ever darkened the door of a bank or was likely to do so in future. But all of them were happy that something was being done for the poor and the rich were being put in their place.

- The writer is a Delhi-based political commentator

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