As Jet Airways Nosedives, Revisiting Nehru and Nationalisation of Private Business

Shiv Sena, the Bharatiya Janata Party's ally, has urged the Narendra Modi government to take over Jet Airways, the ailing private carrier which recently stopped all its operations.

This would mean nationalisation of Jet Airways – using public money to save a badly managed private business. That too in a sector where the Indian government’s own airline, Air India, is bleeding the average taxpayer through accumulated losses of more than Rs 53,000 crore despite the continuous bailouts. To put this number in perspective, this is more than India’s entire health budget for 2017-18.

This proposal rekindles the dark nationalisation days of Prime Minister Indira Gandhi. As is well-known, for political and ideological reasons, Indira Gandhi went on a nationalisation spree with the government taking control of banks, general insurance and a host of other things such as coal mines, copper, textiles, wagons, iron and cotton.

Nehruvian socialism is often blamed for Indira Gandhi’s nationalisation misadventures. In fact, Nehru has been the most convenient punching bag in the last five years. Right from China blocking the designation of Masood Azhar as a global terrorist to the woes of today's farmers, Nehru, who died more than 50 years back, is mysteriously held responsible for all the failures of the current government.

Also read: Why Hindutva Ideologues, and Some Liberals, Love to Hate Nehru

No stone has been left unturned to deliberately spread malicious and fake propaganda about Nehru on all forums including on social media. Such spiteful Nehru bashing has caused much damage to the rich legacy of India’s greatest prime minister yet.  

Nehru on nationalisation   

Coming back to the nationalisation debate, Nehru’s nuanced approach towards issues like nationalisation has not got adequate attention even by Nehruvian scholars who have often presented him as an idealist and socialist.  

The fact of the matter is that Nehru’s approach towards nationalisation of private businesses was not that of a typical socialist who would like the state to have control over all means of production. While there is no denying that Nehru’s economic vision was guided by lofty socialistic principles, unlike Indira Gandhi, Nehru consciously eschewed left-wing populism. Economic pragmatism, respect for rule of law and realism were as relevant for Nehru as idealism and socialism.    

The impact economic pragmatism had on shaping Nehru’s economic policies is quite evident from the stand he took on nationalisation of private capital. Quite contrary to countries like Soviet Russia, China and other Asian and African post-colonial states, Nehru’s India did not indulge in large-scale, ideology-driven nationalisation of private investment.

It is interesting to note that in 1947, the Economic Programme group of the All India Congress Committee had decided that for existing undertakings in India, the process of transfer from private to public ownership would commence after five years. This position met with stiff resistance from the Indian capitalist class. Due to these concerns, the 1948 Industrial Policy Resolution made some changes on the policy on nationalisation. The policy said that the issue of nationalisation would be dealt with after ten years on the basis of circumstances existing at that time.

On February 17, 1948, Nehru in a speech to the Constituent Assembly made a case against nationalisation by saying:

“if we squander our resources in merely acquiring for the state existing industries….for the moment we may have no other resources left, and we would have spoiled the field for private enterprise too. So, it is far better for the state to concentrate on certain specific, vital, new industries, than go about nationalising many of the old ones”.

Expressing his reservations about the nationalisation of private investment, Nehru, in a letter to the chief ministers on March 3, 1953, wrote:

“as for nationalization, the real test is how far this adds to our productive capacity as well as to the smoother working of our Plan. Mere nationalization does not add to that productive capacity much, if it all.  It might indeed mean a lessening of it. At the most it means a transfer of ownership with the same production and the available resources being utilized for compensation. It is far better to use our resources for new State enterprises, leaving the old ones to carry on as they are, subject to some kind of control by the State. Thus production grows and the public sector grows till it becomes the dominant sector”.

Nehru also expressed his anguish at how some political leaders in India loosely used words like confiscation and expropriation of private property, utterly disregarding the constitutional provisions. During the discussions in parliament on the fourth constitutional amendment to right to property, Nehru reminded his fellow parliamentarians that:

“it is odd that words like confiscation of property and expropriation are thrown about when actually what the Constitution — or the amended Constitution, if you amend it — says is that there will be no such thing except by law and except on payment of compensation”.

Nehru’s view against nationalisation was not just limited to domestic investment but also extended to foreign capital. During the discussions on the fourth constitutional amendment, Nehru made it very clear that his government was against nationalisation of foreign investment. Nehru said in the parliament:

“I am surprised to hear the proposal being put forward repeatedly that we must confiscate or expropriate foreign capital. I cannot imagine anything more thoughtless and unrealistic; it has no relation to reality…. Let us not… pursue this talk of expropriating foreign capital; it is not worth it. We are not such a poor country as to go about indulging in tactics which will lose us the goodwill and the credit of the world, and which will, perhaps, leave a feeling of wrong-doing in our minds and hearts”.

Compensation for expropriation

In order to assuage the concerns and fears of foreign investors including on the issue of nationalisation, Nehru himself, on April 6, 1949, laid down the foreign investment policy statement in the Constituent Assembly. This statement assured foreign investors that if the Indian state acquires any foreign investment, just and fair compensation shall be paid for the same. The statement also assured foreign investors that in such cases, necessary facilities would also be made available to them to remit their money to their home country.   

Also read: The BJP Wants to Erase Nehru. Let's See What India Would Have Been Without Him

Nehru was pragmatic enough to understand that private and foreign investment was critical for India to plug the savings gap and to bring in valuable foreign exchange. Thus, he ensured that India does not spoil the field for foreign investment.

Consequently, barring some instances, foreign investment was not nationalised in India during Nehru’s leadership. The few instances of nationalisation of foreign investment involved were as follows. First, the Imperial Bank of India, which had 10% British shareholders, was nationalised in 1955 in order to spread banking services.

The compensation awarded to these shareholders was three times the original capital paid fully in cash. To the Indian shareholders, the compensation was paid partly in cash and partly in government-owned bonds. Second, India nationalised the life insurance business in 1956 to spread insurance services to the entire population. This affected foreign insurers who were doing business in India.

Like in the case of Imperial Bank nationalisation, a robust method for paying compensation was designed and implemented in order to dispel fears of confiscatory tendencies. Third, the decision of the Mysore government (a state within India from 1948 to 1956 that later became part of the state of Karnataka), to nationalise Kolar Gold mines, which were under the management of a British Company, John Taylor and Sons Ltd. The compensation was based on the market value of the company’s shares though on the intervention of the Central government, the Mysore government paid a higher compensation.

Not like Russia or China

In sum, Nehru’s India consciously decided not to indulge in nationalisation and expropriation of both domestic and foreign investment. Even if it did, in some cases, it was based on public interest, following a legal process and after payment of compensation.

India’s approach towards nationalisation of foreign investment was very different from the approach countries like Soviet Russia and China followed where foreign investment was expropriated by the state without compensation or restitution in violation of international law. The Chinese approach to the nationalisation of foreign investment, as part of the 1949 Communist revolution, was that the right to nationalise foreign property was an inherent attribute of national territorial sovereignty and that the exercise of this fundamental right was not subject to any pre-condition such as public purpose, due process and compensation.

Also read: The Nehru That India Cannot Forget

Thus, while Nehru was inspired by the Soviet Union economic model and was sympathetic to China, he was also fully aware of the excesses of communist regimes. The fact that the Indian approach to the nationalisation of foreign investment differed from China is even more remarkable in view of the fact both India and China shared the same colonial experience in which foreign investment and international trade became the basis of subsequent political domination.

Despite populist demands and pressures, Nehru did not give in to the nationalistic temptation and to the prevailing anti-foreign mood. Nehru’s economic pragmatism and visionary leadership, rather than belief in dogma or an ideology ensured that Indian approach to nationalisation was based on economic and constitutional logic and not on populism or parochial nationalism.

What a stark contrast to the kind of political leadership we see in India today.

Prabhash Ranjan is an Assistant Professor of Law at the South Asian University, New Delhi. Some parts of this article are excerpts from Ranjan’s latest book India and Bilateral Investment Treaties: Refusal, Acceptance, Backlash (Oxford University Press: 2019).

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