Chapter 141: Formulating a Fuel Policy

Over the Arabian Sea

7 September 1950

They flew home in the small hours, east along the Makran coast. The Dakota had been exchanged at Tehran for the Avro York, and the York droned on through a clear dark sky. Ram had the aisle seat. Nehru sat opposite with a rug over his knees, and Shroff a row behind with a ledger open under the reading lamp. K.P.S. Menon and Shaktidas were asleep.

Ram had not slept. He had a pad on his knee, and on the pad, he had drawn a figure he had not drawn since his student days at Allahabad: a horizontal beam, two arrows pulling against each other, and a small circle at the centre.

"That looks like a problem from a physics examination," Nehru said.

"It is the only way I can say what I saw." Ram turned the pad. "You did natural sciences at Cambridge, Jawaharlal. You will tell me if I am talking nonsense."

"I shall enjoy it very much."

"Take a rope. Two men pull it, one at each end. As long as the forces are equal, the rope does not move, and a man looking at it would say it is at rest, which it is. But it is at rest under tension. The pull on each end has to be carried by every inch of the rope. A little more load and it does not move; it only stretches, until it reaches the point where the weakest fibre goes. Then the whole thing parts, and the energy that was stored in the strain is released all at once."

"A taut rope."

"The Anglo-Iranian Concession is a taut rope. The Company pulls one way with the sanctity of a signed contract. Iran pulls the other with the conviction that the contract was extorted. Neither side has moved in three years, so a visitor might think nothing is happening. But every year the strain grows, because the oil flows, the profits are counted, and the Iranian share is compared with the Treasury’s. I could feel the tension in Tehran as one feels a wire in a high wind."

"The equilibrium is stable, then," Nehru said. "If nothing moves."

"That is the point I wanted to reach." Ram drew a bowl, and beside it a dome, and a small circle on each. "A marble in a bowl is in equilibrium. Push it, and it rolls back. Disturb it, and it settles. A marble on a dome is also in equilibrium. It does not move. But the least touch and it runs away, and the farther it goes, the faster it goes, because every inch makes the next inch easier. The first is a stable state, and the second is an unstable one. What I saw in Tehran is a marble on a dome."

"Why a dome? Why not a bowl?"

"Because there is nothing in the system that pulls it back. In a bowl, the further you push, the harder the walls push back. Here, each concession makes the next demand louder. If the Company offers fifty-fifty, which it will not because the British are a prideful lot and have been on a losing streak recently, offering equality to a country that was content with a nominal share so far is not the proper form, any of these, really.

"Even if they keep everything aside and offer it, the Majlis will ask why it was not offered ten years ago. If it refuses, it hardens the people who say they have no choice. The Shah has no authority to pull either side back. Razmara is a general without a party. Mossadegh is a man whose whole life has been spent insisting that Iran deserves more and being ridiculed for it; it has hardened his position."

Nehru was smiling, a little sadly. "I did not do much in the laboratory at Cambridge, Ram. But I know the difference between a dome and a bowl."

"Then you know why I am afraid."

"I know why you are afraid of the break. When?"

"I cannot say. I have no instrument that reads the date, only the slope." Ram tapped the pad. "Perhaps Razmara is dismissed. Perhaps he is killed. Perhaps the Majlis rejects the Supplemental Agreement, and a better one is offered in six months, which I would put at two chances in ten. But if the marble rolls, it will roll hard.

"Iran nationalises the company and the wells. London answers with an embargo or worse. Abadan stops. India imports most of her refined fuel from Abadan, Bahrain and Kuwait, and they share the same ships and the same insurers. We should be without kerosene for the lamps and diesel for the pumps within two months."

"You are certain?"

"No, I am afraid though, and in need of a second source."

"A second source?"

"A second support. A system that has two supports does not fall when one fails." He drew a second horizontal line under the first. "We have been buying other people’s oil for sixty years. The British drilled it, refined it, shipped it, and sold it to us at their price. I want us never again to be in a position where a quarrel in the Gulf can put out the lights in Calcutta."

He drew a line across the pad, and under it wrote a word.

"First, we look for our own. I do not know whether there is any. Assam has a little, Burma more, and the Cambay basin and the Bombay shelf have never been properly examined, because the British did not wish us to find anything. I want a national exploration commission with the best geologists we can hire and a sum of money, to drill where a private company would not. If it finds nothing in ten years, we have lost a little. If it finds something, we have changed the country."

"A state enterprise."

"One state enterprise. We will have to build this sector and industry up from the ground up and hope for a private exploration company to recognise the opportunity and rise. I am told oil exploration is a capital-intensive effort; we could issue a bond to raise money for it."

"Burmah Oil?" Nehru looked at the pad on Ram’s knees and recognised the company.

"Is the second, it is a British company with its head office in Glasgow, its board in London, its owner, the Government in India, and its mind in the City. I want its head office moved to Bombay, and its marketing, its Assam holdings, Digboi, and half of Burmah-Shell separated into an Indian company, part State, part public. Call it Bharat Petroleum. The Visakhapatnam refinery goes to it as a joint venture with Standard-Vacuum."

"You have a talent for names."

"Thank you." He drew another line. "The gas, the plant, and the refineries. A state company run on commercial lines, with its own accounts and board. Call it the Indian Oil Corporation. It would take the gas from Iran if we can get it, build the pipeline and the ships, run the processing plants, and build two or three refineries of our own design. Dr. Brandt will be its first technical adviser."

"Why so many refineries?"

"Because it is the one part of the business that nobody can take from us." Ram leaned forward. He had begun, without noticing it, to speak more quickly. "We may never have much oil. But oil is useless until it is refined. A country that can refine any crude cheaply has a value that does not depend on owning a single well."

"I do not follow."

"Crude oil is not all alike. Some is light and sweet and easy. Some is heavy and sour, full of sulphur, hard to refine, and cheap to buy. The great refineries in America and Europe are built for the light crudes. If we build refineries that can take anything, we can buy the cheapest crude in the world and make the same products from it as anyone else. We should be the refinery of last resort and of first resort. Any country that has crude and no refinery would send it to us."

"A mill that will spin any cotton."

"Exactly. We cannot grow all the cotton. We can spin it better and cheaper than anyone. In twenty years, I want a third of the oil that crosses the Indian Ocean to pass through our refineries and storage. Not owned by us, only processed by us. A country that refines a third of the world’s seaborne crude has a say in what it costs."

"And Iran?" Nehru said. "You have not said what we do about Iran. I do not want us to stand aside. You interrupted me in Tehran, Ram." Nehru said mildly.

"It is not our fight. The British distrust and clutch their purse with every word that comes out of my mouth, and Mossadegh did not take to me as he did to you" Ram turned a page. "I raised nothing about the gas in Tehran. If the Company and the Majlis settle, it can be bought openly, at a fair price, from whoever sells it. If they do not, it is not ours to touch.

"And Nehru-ji, a promise made in a sickroom is a promise the Majlis will hold you to, and we would have to honour, because our promises should matter. I just told Mossadegh a narrow path that may lead to profit for everyone, but as I said, he did not take to me very much indeed," Ram replied in the same mild tone.

Shroff had put down his ledger. He had been listening for some time with the expression of a man who dreads what he is about to be asked and is already calculating the answer.

"Prime Minister, before the cheerful part, the money. Let me begin by saying what I do not like." Shroff took off his spectacles and rubbed his nose. "Exploration, fifty crores over five years if it is not to be a farce. The pipeline from Khuzestan to Karachi, with compressors, perhaps forty. The plant at the field, twenty. A dozen converted tankers, a dozen crores. Two refineries at thirty each. I am not counting Visakhapatnam, which is the Americans’ money. Call it two hundred and fifty to three hundred crores. At three rupees thirty to the dollar, that is not so very large. It is about ninety million dollars."

"That does not sound alarming."

"It is not, Prime Minister, for the dollars. It is alarming for the rupees. Let me explain." He laid his ledger flat. "India has two purses. One is in dollars, and it is full. The British are paying their interest, I am told, to the day. We have the Export-Import line, the Soviet barter, the maritime fees. I could buy every compressor in America tomorrow. The other purse is in rupees, and it is what pays for the dams, the school meals, the soldiers, the clerks, and Dr. Kurien’s tanks. That purse is not full. We run a deficit in it every year, and we fill it by creating money. Every dollar the British pay us is turned into rupees at the Reserve Bank, and every rupee so created chases the same quantity of grain."

"You are worried about inflation?"

"A little, so far. The famine reserves hold it down. But if I add three hundred crores of spending to the rupee side, I add three hundred crores to the money supply. That is a very pleasant sum, and a very dangerous one. Our national income, by my own estimate, is about nine thousand four hundred crores. Three hundred is three per cent in a year, on top of everything else."

"You do not wish to print anymore? What about the bond? Open to only domestic buyers."

"I do not wish to print it. As for your bond proposal, I will be quite plain about my doubts."

"Say them."

"First, who has the money? Our savings, if the Reserve Bank’s survey is to be believed, are about six per cent of income. Five or six hundred crores a year. Most of it does not go anywhere I can reach. It goes into gold, jewellery, land, cattle, a loan to a neighbour at forty per cent. The peasant does not save in paper. The paper has failed him. In ’43, the rupee bought a third of what it did in ’39. In ’47, the Lahore banks failed, and a good many refugees lost everything they had put in them. A man who lost his deposit at Lahore will keep the next one under the floor."

"That is the case against."

"It is one half of it. The second half is that the post office already takes his money, and not much of it. Post Office savings and the National Savings Certificates bring in perhaps thirty or forty crores in a good year. Your first issue of fifty crores would more than double the whole habit. I should not wish to see us promise fifty and raise ten."

"What would make the people buy?"

"Four things, I have thought about them." Shroff counted on his fingers. "The first is trust. A bond is a promise, and no promise is better than the man who makes it. Since August ’47, the Government has paid the British, the Americans, and the Russians on the day, but that does not matter to the populace. It has fed Ceylon, Burma, and the refugee camps. It has moved a hundred and fifty thousand people to Hirakud Nagar and given them houses. All that is known in the villages. I would not say the peasant trusts us. I would say he has stopped distrusting us."

"The second?"

"Convenience. He will not walk twenty miles to a district treasury. The bond must be sold where he already goes: the post office, the cooperative bank, the primary school, the Seva Vahini centre. Dr. Kurien’s cooperatives are in forty thousand villages. I should have a certificate sold at every one, in denominations of ten, twenty-five, and fifty rupees. A schoolchild’s stamp-book, if you like, filled stamp by stamp until it is a certificate."

"That is Gandhi’s idea."

"It is Gandhi’s idea of the paisa, and I do not mind borrowing it." Shroff did not smile. "The third is liquidity. A man who has lent his savings to the Government must know he can get them back. The bond must be repayable at par, on demand, after a lock-in of one year, with the interest foregone for early withdrawal. If he cannot get his money out, he will not put it in. Gold can be sold in any bazaar."

"And the fourth?"

"The return. I saw your notes for an interest of four per cent. It is not enough."

"Not enough?"

"Not enough, a moneylender charges forty or sixty. The bank pays one and a half. The post office pays three. A rupee in gold has risen every year since 1939. A man who buys a four per cent bond and sees prices rise at five per cent has lost money. He knows it. He may not be able to read, but he can count." Shroff leaned forward. "I should give him a little more. A modest bonus at maturity. Interest exempt from tax. And a small prize draw, a lottery in the old way. A few thousand rupees to a few holders every year. The poor will pay a good deal for a chance at a house."

"A lottery," Nehru murmured, with a trace of distaste.

"It is a very old habit in this country, Prime Minister, and a harmless one if the stake is not the whole of his savings. It costs me less than a point of interest and brings in twice the money."

"You are a cynic, Shroff-ji."

"I am an accountant. A cynic is an accountant who has been cheated."

Ram laughed quietly, so as not to wake Menon. "Go on. You have been listing what you do not like. I am waiting for what you propose."

"Very well." Shroff opened the ledger again. "A first issue of twenty-five crores, not fifty. Offered for six months. Half taken by institutions, the insurance companies, the Reserve Bank’s own funds, the provident funds, and the banks, which are under statutory obligation anyway. The other half sold to the public through the post office and the cooperatives, with the prize draw and the tax exemption. I do not expect it to be fully subscribed. I expect to raise eighteen or twenty, and I should regard that as a triumph."

"And the second?"

"If the first succeeds, thirty or forty, a year later. Larger every time, if the people are paid on the day. In five years, perhaps a hundred and fifty crores a year. I should not count on more." He hesitated. "It is the one source of finance that costs the Treasury nothing but interest and gives the public a reason to watch what we spend. That is worth a good deal, even if the sum is small."

"You are in favour?"

"I am cautiously in favour. I should not make it the whole of the funding. It is a third leg."

"What are the other two?"

"Let me say them aloud, so that I can be sure I have not forgotten one." Shroff took a fresh sheet. "First, the foreign exchange. The compressors, valves, pipe and tankers must be bought with dollars. We have them. Standard-Vacuum has already offered supplier credit for the Visakhapatnam equipment. The Export-Import Bank will finance the pipeline plant, if we ask. And the sterling interest, which has arrived on time since April, is two hundred and forty million dollars a year. Let me use that for the imports and keep the rupees for the labour."

"Second?"

"The people who will want to own what we build. Bharat Petroleum will be a company with a profit. Tata, Birla, Walchand, the Parsi houses, the Marwari families will all want a share. I should sell a quarter, perhaps a third, of its equity to the public, through the Bombay and Calcutta exchanges. It gives us capital and a hundred thousand shareholders. It is also the one way, if I may say so, to keep the new company honest. A board which must publish its accounts is a board which must explain itself."

"The Government would hold the majority."

"Fifty-one per cent. For ever." Shroff looked up. "It is also an excellent introduction to the habit of buying equity to the general public. The bond teaches them to lend. The share teaches them to own. I should like both lessons taught in the same decade."

"And the pipeline?"

"The pipeline, I would finance from its own earnings, if there are any. It is the most expensive item, and I should not like to start it before the plant is running. If Iran sells us the gas, the line to Karachi can be built in stages. If she does not, I should not build it at all. A thousand miles of pipe with nothing in it is the most expensive monument I can imagine."

"A cess," Nehru said. "A small tax on diesel and petrol, earmarked for the oil enterprises."

Shroff turned and looked at him with surprise. "Foreign Minister, that is an excellent idea. A cess of two annas a gallon, perhaps, which the consumer does not notice and which pays for the refinery that makes the petrol. I do not know why I did not think of it."

"I am a lawyer. We are very good at taxes." Nehru’s smile came and went. "I will say one thing, Shroff-ji. I do not want the burden to fall on the poor. Kerosene is the poor man’s light."

"Then we exempt kerosene, and tax petrol and aviation spirit, which are paid for by the rich."

"Agreed."

"Then, Prime Minister, I do not oppose the bond." Shroff snapped the ledger shut. "I only ask that it be small to begin with, and that it be a promise we keep to the last rupee. If we fail on the first, no one will lend us a second. If we succeed on the first, I think he will lend us a hundred."

"Twenty-five crores, with a prize draw," Ram said. "I accept it. Call it the Urja Bond. Every post office will have a poster."

"God help me," Shroff said, and put on his spectacles.

Far below, the Makran coast went by in the dark, a long pale scar between the sea and the desert. Beyond it, a single point of light burned in the sand, a flare stack on some forgotten field. Ram watched it until it sank behind the wing.

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