ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Modern India's Pioneer Economic Adviser

India is the unique domain of the economic adviser, which goes back to the legendary Kautilya, minister to Chandragupta Maurya. The pioneer economic adviser of modern India, however, was a little known American economist Ralph Whitenack, who served with distinction the Gaekwar of Baroda, Sayajirao III during 1906-09 and 1918-19 and was the prime architect of the Bank of Baroda. This article reviews his work in Baroda and its contemporary lessons.

NOTES

Modern India’s Pioneer Economic Adviser

Anand Chandavarkar

abolished after Steuart’s tenure, although the company did appoint Thomas Malthus as a professor of political economy (1805) at its Haileybury College for training its cadets. John Stuart Mill too worked for the East India Company in its final years (1956-57) and opposed its transfer to the

India is the unique domain of the economic adviser, which goes back to the legendary Kautilya, minister to Chandragupta Maurya. The pioneer economic adviser of modern India, however, was a little known American economist Ralph Whitenack, who served with distinction the Gaekwar of Baroda, Sayajirao III during 1906-09 and 1918-19 and was the prime architect of the Bank of Baroda. This article reviews his work in Baroda and its contemporary lessons.

My grateful thanks to the late Manu Shroff who cheerfully accessed the Baroda state archives for the data in this article, which is dedicated to his memory.

Email: anandchand@starpower.net

Economic & Political Weekly december 22, 2007

I
ndia can justifiably claim to be the birthplace of economics and the economic adviser in the person of Vishnugupta Kautilya (Chanakya) the minister-adviser of emperor Chandragupta Maurya and author of the classic Arthashastra (The Science of Economics) in the fourth century BC [Rangarajan 1992; Kangle 2000], a work unparalleled in the annals of Europe and the Orient. Machiavelli’s medieval treatise The Prince was essentially a manual of realpolitik devoid of economic content. But Kautilya’s work fully measures up to the critical standards of modern analytic economics as so strikingly demonstrated by the researches of Balbir Sihag (2005, 2007) into the relevance of the Arthashastra for public goods, taxation, and the principalagent problem.

Kautilya had a worthy successor in the Scottish economist, James Steuart, the author of the seminal two-volume book on the An Inquiry into Principles of Political Economy (1767), who became an adviser to the East India Company (1772) and for whom he wrote the Principles of Money Applied to the State of the Coin in Bengal [Sen 1957]. Sen rightly regards Steuart as the first economic adviser to the government of India and commended his case for detailed intervention into every aspect of economic life. He even remarked that “it would not be any great exaggeration to say that A P Lerner’s chapter on functional finance seems almost a paraphrase of Steuart” (1957: 122). As the author of a “dirigiste” treatise on econo mics Steuart was singularly well qualified to advise a corporation like the East India Company which progressively exercised governmental powers over steadily widening territories in India till 1857 when finally the British crown assumed full sovereignty. It is not known why the office of economic adviser to the East India Company was British crown. Thus the American Ralph Whitenack had distinguished precursors when he took office in 1906 as the economic adviser to a princely ruler, the Gaekwar of Baroda, Sayajirao III, which puts him more in line with Kautilya than with Steuart.

Whitenack the Economic Adviser

Sayajirao III, the Gaekwar of Baroda, under the tutorship of English teachers like F A H Elliot, and his Indian preceptors like the diwan of Baroda, T Madhavrao and Dadabhai Naoroji, as well as role models like maharaja Chamarajendra Wodeyar (r 1863-94) of Mysore developed an intense interest in the modernisation of his state, based on a voracious appetite for books and new ideas since his younger days as attested by his English biographers, Stanley Rice (1913) and Edward St Clair Weeden (1913).

This intellectual passion for the modernisation of Baroda state, so akin to the spirit of the Meiji rulers of Japan, was the prime motive for his travels to Europe and the US, which further deepened his interest in education, art, and architecture. On his visits to the US, Sayajirao travelled extensively throughout the country,visiting Washington DC, Philadelphia, Chicago, Denver and San Francisco, meeting academics as well as frequenting museums, art galleries, and libraries. On his first visit there in 1906, Sayajirao met the distinguished African-American scientist social reformer, Booker T Washington, founder of the Tuskegee Institute in Alabama, as well as Ralph Cahoon Whitenack, an economics graduate of the Ivy League Brown University (Providence, Rhode Island) and a fellow at Wisconsin University, who had also practical experience in industry, manual training, carpentry, machine shop and foundry before serving as private secretary to the treasurer of the American Bridge Company, Philadelphia.

NOTES

Struck by his talent and background as well as his typical Yankee importunity, Sayajirao invited him, at the age of 30, to join his service as adviser, industrial development and to report directly to him.

Predictably, the British resident in Baroda, major Pritchard, strongly demurred to this proposal, “wanting to know more about Whitenack’s family and background, being primarily concerned about possible meddling by him in the political affairs of the state”. But Pritchard was confounded when even before the finalisation of the appointment he found that Whitenack had landed in Baroda in November 1906 along with Sayajirao, who had deftly bypassed the government of India and managed to get the approval of the secretary of state for the employment of Whitenack for a period of six months. His appointment order, dated November 27, 1906, was issued by the ‘amatya’ (dewan), R C Dutt, the noted economist historian, designating him “as expert adviser in matters relating to the industrial development of the state” at a salary equivalent of $ 250 per month effective from November 3, 1906. On appointment, however, Whitenack wrote a lengthy fourpage letter specifying his requirements requesting a change in his title to economic adviser to the government and an extension of his term for not less than two years and not more than four years. The terms as approved were as follows:

  • Salary of Rs 1,000 per month: Rs 1,250 in the second year, subject to all state taxes.
  • ‘Bhatta’ (travelling expenses) and mileage as per rules. Provision of a tent while travelling on duty as necessary.
  • First class return passage to New York at the end of service which in the event was extended till September 3, 1909.
  • In accepting the offer Whitenack was actuated “by a desire...to know India and to carry back to my own nation the unbiased truth concerning India and its people.” For his part, Dutt, although an economist, very commendably did not feel threatened by the appointment of Whitenack.

    What prompted Sayajirao to opt for an American economic adviser despite the accepted primacy and ready availability of British economists? He was aware that in fields like engineering and architecture there was no question of conflict of interests, Indian against British, as evidenced by his ready employment of the British engineers R F Chisholm and major Mant as state architects whose work included the Laxmi Villas Palace, Kamathi Bagh and the British Residency. But in matters economic he shrewdly sensed that there was an ever present potential of conflict between Indian and British interests as in banking and industry. Equally, Whitenack unlike the common run of ivory-tower British economists, had a unique blend of hands-on industrial experience and a sound knowledge of economic fundamentals. Whitenack too was perceptive enough to insist on a change of title to economic adviser because he realised that industrial development required a conge nial macroeconomic environment. For his part, Sayajirao had the vision to accede to Whitenack’s very professional plea for a broad-based role to be fully effective as a practical economist in an alien environ ment. Whitenack was also the first American academic to be employed in India in a non-teaching position in contrast to the essentially commercial and consular relations between India and the US in the 19th century [Bhagat 1970].

    In the event Whitenack amply justified his appointment as so well-documented in the excellent history of the Bank of Baroda by Tripathi and Misra (1985), which shows the critical role of Whitenack in the foundation and successful working of the Bank of Baroda against very heavy odds, a noteworthy achievement in contrast to the short-lived Bank of Rohilkhand founded in 1862 by the Nawab of Rampur state. Doubtless, the well-clued Sayajirao was only too mindful of the Rohilkhand episode and the sad discomfiture of a fellow princely ruler.

    Sayajirao, realising that his state was a woefully under-banked region despite its considerable industrial development as evidenced by textile mills and the pioneering Alembic Chemical Works (1905), showed himself highly receptive to the draft constitution of Whitenack’s projected “The People’s Bank of Baroda” the nucleus for the Bank of Baroda which was finally registered under the Baroda Companies Act of 1897. Whitenack readily sensed the apprehensions of the Baroda financial and business community that the proposed opening of branches of the Bank of Bombay and the Specie Bank in Baroda would only serve to siphon Baroda deposits into metropolitan Bombay credit channels and therefore worked strenuously to set up an independent Bank of Baroda. He rapidly built up a consensus between the ‘shroffs’ (those who ran private credit societies), the government and other interested parties to provide for: a state deposit of three-fourths of the paid-up capital of the bank or Rs 7.5 lakh, whichever was lower, at 4 per cent interest per annum; the amount of the interest-free government fixed deposit was reduced from Rs 3 lakh to Rs 2.5 lakh, since the initial paid-up capital was to remain limited to Rs 10 lakh, the net effect of the preceding two concessions was that during the first five years, i e, the period of concessions, the fixed deposits with or without interest would equal its paid-up capital. After much controversy a compromise formula was evolved under which the Baroda government agreed to give a loan of up to Rs 7.5 lakh at 4 per cent interest for 15 years. This was over and above the state’s interest-free deposit of Rs 2.5 lakh already agreed upon. In his note to the maharaja, who gave his approval on December 16, 1907, Whitenack emphasised: “The bank is not designed to assist the Baroda government in financial transactions by providing loans, since government has ample funds of its own but to help the people in their industrial pursuits”. He also added that the “scheme should be fully expounded and discussed in the state before the company is registered”.

    Accordingly, Whitenack proposed to convene a public meeting, very much on the lines of American town hall meetings, to educate the people on the objectives and usefulness of the proposed bank, which was duly held on July 19, 1908 in the presence of Sayajirao himself. The

    available at

    KC Enterprises

    3-6-136/6, Street No. 17 Himayathnagar Hyderabad 500 029 Andhra Pradesh Ph: 09396250107

    NOTES

    very next day, July 20, the Bank of Baroda was registered under the Baroda Companies Act of 1897 under the patronage and support of the Baroda government and was authorised to operate throughout Baroda, Gujarat, Kathiawad, and Bombay, with the subjects of Baroda being given preference in the allotment of shares. The board of directors included four promoters, prominent shroffs and financers in the state, the accountant general of Baroda, a member of the royal family Sampatrao Gaekwad, Whitenack in his personal capacity, and Vithaldas Thackersey as the first chairman. The bank also took over from the treasury the task of receiving and paying money on behalf of the state and began to operate as the state bank with effect from June 15, 1910. It was thus founded on a unique blend of private enterprise and state patronage based on an astute consensus well crafted by Whitenack.

    Whitenack as a Civil Servant

    Whitenack’s Baroda service as economic adviser terminated on September 3, 1909 when he returned to the US to become a fellow at Harvard University and also spent a year each at the universities of Paris and Munich before ending up at Keio University in Tokyo, Japan. But the India bug continued to bite Whitenack and he expressed renewed interest in reemployment in Baroda for a term of two to three years at a salary of Rs 1,500 per month with first class fare from America and back. There was an opening for a director of education but as Seldon, the British resident observed, Whitenack “would not be half as valuable as a junior Bombay civilian and he would cost fully as much”. A state official B L Gupta (title not indicated) advised against Whitenack’s re-employment, as “his administration of the education department is not likely to be more efficient than it is at present”. But the dogged Whitenack was undeterred and wrote (February 15, 1916) to the dewan, Manubhai Mehta asking for reemployment at a lower salary of Rs 1,250 per month and also expressing his desire to write a book on the social and economic life of India, with reference to the reforms in Baroda state. Mehta responded on January 1, 1917 asking Whitenack whether he would like to work as his private

    Economic & Political Weekly december 22, 2007

    secretary or “in some similar capacity”. Later in a note to Sayajirao, Manubhai Mehta, the dewan posed the following points for determination by Sayajirao in a note dated April 13, 1917.

    1 Is it desirable that Whitenack’s services should be reengaged? 2 Should he be paid Rs 1,250 per month with a certain tenure of three years to begin, with his future prospects and terms being left for settlement by mutual agreement hereafter? 3 Should he be appointed to do the work of the general secretary in charge of local self government, industries, commerce and agriculture? 4 May he be allowed to join any time after July next, Mehta added: It depends on the pleasure of Huzur, 2, 3, and 4, if he is to be reengaged, Yes.

    On the same date, Sayajirao noted: “I generally approve of the minister’s recommendation, I think a European or American knowing English thoroughly well is very necessary for the expanding needs of the Administration. I prefer Whitenack, though we have to pay him a bit high as he already knows the state.”

    Mehta, presumably after consulting Sayajirao, appended a postscript to the above note before passing it down: “Whitenack will be expected to learn Gujarati and the revenue rules of the state, so as to augment his own usefulness to the state”. Finally, Whitenack was appointed (1918) as a joint revenue commissioner with direct jurisdiction over the departments of the excise customs, agriculture, cooperative credit. On April 14, 1919, he also functioned as price controller and director of civil supplies in the difficult war years. Thus in his second assignment Whitenack functioned like a broad-based economic civil servant with primarily executive responsibilities in contrast to his mostly advisory functions in his first assignment. But in both capacities his work was fully effective and highly regarded, although, surprisingly, he left behind a mass of unpaid bills judging by the numerous complaints against him by suppliers of goods, including an amount of Rs 301 from Alpin and Huggat Co, Bombay and an advance of Rs 667 to Whitenack for his wife’s travel from Tokyo.

    After his death, the Baroda government received a letter dated June 3, 1919, from a close friend of Whitenack, one Homer of the College of Liberal Arts, department of economics, Southwestern University, Evanston, Illinois, asking for information about his career for an obituary in the American Economic Review, December 1919. The letter was duly forwarded under the orders of the dewan by the political secretary to Whitenack’s wife who at that point was companion to the maharani of Vijayanagar. Thus ended the unusual saga of the lone American economist who served with distinction in India as a pioneering economic adviser, civil servant, and institutional architect. His most enduring monument will always be the hugely successful Bank of Baroda and its impressive branch network, national as well as overseas. The freewheeling Gujarati-speaking Yankee was a natural who was completely attuned to the exuberant entrepreneurial and social ethos of Gujarati Baroda and yet could read the mind of the Gaekwar. Equally, it is only fair to recognise that Whitenack’s achievements were rendered possible only because of the perspicacity of Sayajirao, whose creative modernity has been oddly caricatured as mimicked modernity [Bhagavan 2001:1].

    The Political Process

    The appointment of Whitenack as an economic adviser was a singular event at a time when even Keynes had not contemplated a similar functionary, when recommending an economist (George Findlay Shirras) to fill the post of director of statistics in India (1914-21). Amazingly, even Britain did not have a economic adviser at the time of Whitenack’s appointment. Keynes even when he proposed the establishment of an economic general staff to serve under the economic advisory council in 1929 (of which he was a member), envisaged a collegial approach to economic advice rather than vesting it in a single ranking functionary. British India too did not have an economic adviser till the appointment of B K Madan to the Punjab government (c 1935) and of Theodore Gregory (London School of Economics) to the government of India (c 1937). The appointment of Madan was largely the imaginative initiative of Fazli Hussain, the unionist minister, under dyarchy before the advent of provincial autonomy (1937), who

    NOTES

    a cossetted business community and a kleptocratic bureaucracy.

    Clearly, a supposedly feudal ruler like Sayajirao showed greater acumen and statesmanship than the hyper-modernist first prime minister of India in using the services of an economic adviser. Whitenack’s experience is also a stern cautionary tale. No technocrat can be effective without the understanding and endorsement of the chief executive. In fact, the success of the Whitenack-Sayajirao nexus validates the varied criteria of effective economic advice formulated by no less an authority than the economist Lauchlin Currie, the architect of president Roosevelt’s New Deal Economic Recovery Programme, and much later economic adviser to the Republic of Colombia (1981).

    This essay is in the nature of a prolegomenon based as it is exclusively on the personal file of Whitenack (Section 47, No 70) in the Baroda state archives. The relevant quotations in the text are all from this file. The fascinating theme of the adventurous Yankee at the Court of the Gaekwar still awaits an exhaustive monograph by a committed scholar drawing on all available records in the Baroda state archives and the Bank of Baroda.

    Note

    1 Reportedly, Nehru, when flying out of Bonn with B P Adarkar, a reputed economist, then the Indian trade commissioner to West Germany, turned to Adarkar. “What is the secret of Germany’s phenomenal economic recovery?” who forthrightly responded: “Prime minister, I know the answer but you will not like it. It is free enterprise.” An impassive Nehru merely looked out of the plane window.

    References

    was quick to recognise the talents of the young Madan, fresh from his laurels as a PhD for his ground-breaking dissertation, published later as India and Imperial Preference, and his very productive tenure as secretary, Punjab board of economic inquiry. No Congress ministry under provincial autonomy followed this example. Gregory, an avowed laissez faire economist, was appointed primarily at the instance of the then finance minister, James Grigg for whom Indian economists were essentially writers of textbooks unfit for high office.

    Independent India saw the appointment of Gyan Chand as the first economic adviser to the cabinet which did not last too long as the spirited Chand submitted his resignation soon enough when he found that Nehru ignored not only his advice but even his bare presence even though Gyan Chand, an avowed Maoist economist like Joan Robinson, had no ideological differences with Nehru the arch planner. Eventually, Gyan Chand found congenial employment as adviser to the equally socialist prime minister of newly independent British Guyana, the charismatic Cheddi Jagan, and lasted out his full contractual term. But then economics and economists in general were a blind spot of Nehru judging by the experience of B P Adarkar1 and the resignations of three expert finance ministers, Shanmukham Chetty, John Matthai, and C D Deshmukh from his cabinet.

    Nehru never really saw the point of economic expertise the way he iconised scientists like Homi Bhaba and Mahalanobis,

    the mathematical statistician, and dumbed down dissenting economists like B R Shenoy regardless of the cogency of their dissent. Nehru’s acclaimed political and cultural pluralism was perversely matched by an unreconstructed economic dogmatism, deriving from a peculiarly jaded brand of Fabian post-office socialism, that simply refused to recognise the market economy as the prime engine of growth and the ultimate matrix of equity and social justice. Thus Nehru was also the progenitor of the Hindu rate of growth

    – an ironic euphemism for socialist stagnation (1947-1991) in a massive institutionalised rent-seeking society of licences and permits, a truly Faustian pact between

    Bhagat, G (1970): Americans in India, 1784-1860, New York University Press, New York.

    Bhagavan, Manu (2001): ‘Demystifying the ‘Ideal Progressive’ Resistance through Mimicked Modernity in Princely Baroda, 1900-1913’, Modern Asian Studies, 35.2, pp 385-409.

    Currie, Lauchlin (1981): The Role of Economic Advisers in Developing Countries, Greenwood Press, Westport, Connecticut.

    Kangle, R P (2000): The Kautilya Arthashastra, 3 parts English translation with critical and explanatory notes, Motilal Banarsidass, Delhi.

    Rangarajan, L N (1992): The Arthashastra, edited, rearranged, and translated, Penguin Books, New Delhi.

    Rice, Stanley (1913): Life of Sayajirao III, Maha raja of Baroda, 2 Vols, Oxford University Press, London.

    Sen, S R (1957): The Economics of Sir James Steuart, Bell, London.

    Sihag, Balbir S (2005): ‘Kautilya on Public Goods and Taxation’, History of Political Economy, 37.4, pp 723-53.

    – (2007): ‘Kautilya on Moral and Material Incentives and Effort’, History of Political Economy, 39.2, pp 263-92.

    Tripathi, Dwijendra and Priti Misra (1985): Towards a New Frontier: History of the Bank of Baroda, 1908-83, Manohar Publications, New Delhi.

    Weeden, Edward St Clair (1913): A Year with the Gaekwar of Baroda, Dana Estes, Boston.

    Dear reader,

    To continue reading, become a subscriber.

    Explore our attractive subscription offers.

    Click here

    Comments

    (-) Hide

    EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

    Back to Top