Private Industry and the Second Five-Year Plan:The Mundhra Episode as Exemplar of Capitalist Myopia

The resignation of T T Krishnamachari from the finance ministership in early 1958 was the culmination of three developments evolving concurrently. The first was the M C Chagla Commission of Enquiry Report, which ultimately led to Jawaharlal Nehru accepting Krishnamachari’s resignation. The second, the “Mundhra episode” was media managed with the encouragement of industrial interests who found that the controls established as part of the industrialisation drive accompanying the Second Five-Year Plan made serious and unacceptable inroads in private capitalist decision-making. The third development involved social engineering, a concerted effort to push the bearers of merchant and usurer capital towards industrial capitalist norms. This paper, based on contemporary records, argues that the more profound reasons for Krishnamachari’s fall was the “Rama Rau affair” of late 1956. It holds that the institutional subordination of the Reserve Bank of India was intended to mould monetary policy to the requirements of industrial development. It concludes that Krishnamachari tripped in attempting to coerce street-smart businessmen in control of industry to behave like true industrialists.