These words written more than 50 years ago, before the nationalisation, have much relevance for policymakers and the general public.
With the increasing number of frauds in India’s public sector banks, the public opinion is questioning the need for government running banks in India. Banks nationalisation commenced in 1969. Following is an excerpt from the piece that was published in a booklet of ‘Forum for Free enterprise’ on 9th March 1964. Banks were not yet nationalised at the time but there was an increasing chatter about it. The author tried to create awareness about the harmful implications of nationalising banks. These words written more than 50 years ago have much relevance for our policymakers and the general public.
Ideologically, public ownership of banking is regarded as a means to establish a new society, with plenty and lesser hardship for the toiling masses. It is hoped that the I elimination of profits would lead to a greater contribution by the banking system to the country’s development and bring the employees higher wages and better working conditions. These are the twin expectations-that economic progress would gather momentum and that industrial democracy would be appreciably nearer. Our experience of the working of the public sector during the last decade and a half, however, shows that these hopes may prove to be largely illusory, for they are based on the idea that a mere transfer of ownership from one sector to another, could by itself, bring about a radical change.
Nationalisation by itself does little more than eliminate the shareholder: it leaves nearly all the problems of management, organisation, priority, productivity, research and expansion still to be solved. The advocates of public ownership of banking speak and write as though the socialist movement would automatically bring about a brave new world. It is, therefore, necessary to remind them that nationalisation is only a point of departure, not the end of the journey.
Problems would really arise after nationalisation.It is not always clear what is meant by replacing the commercial motive by a spirit of service. If it means that considerations of profit will not affect the policy of the nationalised banks, it is certainly wrong. All the public sector financial institutions like LIC, SBI, ICICI, IFC are today making adequate profits; the State Financial Corporations have been criticised precisely for their failure to earn sufficient profits and their dependence upon Government subsidies. Parliament has been concerned at the miserably low return on the huge investments in the public sector industrial undertakings. Moreover, if the nationalised banking system does not operate on commercial principles as a strictly business proposition, how is the board of management, Parliament and the nation going to determine whether the nationalised banking is a paying proposition or a losing concern? From another point of view, it is doubtful whether the Government could gain substantial advantages by departing from the age-old principles of banking and business and giving new weight to social as against financial factors. There are many schemes in our public policy which bring social benefit, but no direct monetary return. The return that they bring is in the shape of a general increase of productivity or commercial activity. In every way, socially, economically, politically their object is very desirable and useful. (You can read the complete original piece here. )
