Freight equalisation policy was adopted by the government of
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
to facilitate the equal growth of industry all over the country. This meant a factory could be set up anywhere in India and the transportation of minerals would be subsidised by the central government. The policy was introduced in 1952, and remained in force until 1993.
The policy hurt the economic prospects of the mineral-rich states like
Bihar
Bihar (; ) is a state in eastern India. It is the 2nd largest state by population in 2019, 12th largest by area of , and 14th largest by GDP in 2021. Bihar borders Uttar Pradesh to its west, Nepal to the north, the northern part of West Be ...
(including present-day
Jharkhand
Jharkhand (; ; ) is a state in eastern India. The state shares its border with the states of West Bengal to the east, Chhattisgarh to the west, Uttar Pradesh to the northwest, Bihar to the north and Odisha to the south. It has an area of . It ...
),
West Bengal
West Bengal (, Bengali: ''Poshchim Bongo'', , abbr. WB) is a state in the eastern portion of India. It is situated along the Bay of Bengal, along with a population of over 91 million inhabitants within an area of . West Bengal is the fourt ...
,
Madhya Pradesh
Madhya Pradesh (, ; meaning 'central province') is a state in central India. Its capital is Bhopal, and the largest city is Indore, with Jabalpur, Ujjain, Gwalior, Sagar, and Rewa being the other major cities. Madhya Pradesh is the seco ...
(including present-day
Chhattisgarh
Chhattisgarh (, ) is a landlocked state in Central India. It is the ninth largest state by area, and with a population of roughly 30 million, the seventeenth most populous. It borders seven states – Uttar Pradesh to the north, Madhya Prade ...
),
Uttar Pradesh
Uttar Pradesh (; , 'Northern Province') is a state in northern India. With over 200 million inhabitants, it is the most populated state in India as well as the most populous country subdivision in the world. It was established in 1950 ...
and
Odisha
Odisha (English: , ), formerly Orissa ( the official name until 2011), is an Indian state located in Eastern India. It is the 8th largest state by area, and the 11th largest by population. The state has the third largest population of ...
, since it weakened the incentives for private capital to establish production facilities in these areas.
As a result of the policy, businesses preferred setting up industrial locations closer to the coastal trade hubs and markets in other parts of the country.
Rationale
The freight equalization concept made "essential" items available at relatively constant prices throughout the country. These items included
coal
Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen.
Coal is formed when dea ...
,
steel
Steel is an alloy made up of iron with added carbon to improve its strength and fracture resistance compared to other forms of iron. Many other elements may be present or added. Stainless steels that are corrosion- and oxidation-resistant ty ...
and
cement
A cement is a binder, a chemical substance used for construction that sets, hardens, and adheres to other materials to bind them together. Cement is seldom used on its own, but rather to bind sand and gravel ( aggregate) together. Cement mix ...
among many others. The idea was to promote balanced regional development of industries throughout the country but it developed few coastal states like
Maharastra
Maharashtra (; , abbr. MH or Maha) is a state in the western peninsular region of India occupying a substantial portion of the Deccan Plateau. Maharashtra is the second-most populous state in India and the second-most populous country subdivi ...
,
Tamil Nadu
Tamil Nadu (; , TN) is a States and union territories of India, state in southern India. It is the List of states and union territories of India by area, tenth largest Indian state by area and the List of states and union territories of India ...
and
Gujarat
Gujarat (, ) is a state along the western coast of India. Its coastline of about is the longest in the country, most of which lies on the Kathiawar peninsula. Gujarat is the fifth-largest Indian state by area, covering some ; and the ninth ...
on the exploits of east Indian states.
Results
Industrialists interested in setting up plants anywhere in the country would get
coal
Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen.
Coal is formed when dea ...
,
iron
Iron () is a chemical element with symbol Fe (from la, ferrum) and atomic number 26. It is a metal that belongs to the first transition series and group 8 of the periodic table. It is, by mass, the most common element on Earth, right in f ...
ore,
aluminium
Aluminium (aluminum in American and Canadian English) is a chemical element with the symbol Al and atomic number 13. Aluminium has a density lower than those of other common metals, at approximately one third that of steel. I ...
etc. at the same price as they used to get in the mineral-rich states. A factory could be set up anywhere in the country and the transportation of minerals would be subsidised by the central government. As a result, there was growth of heavy and middle level-industry outside the mineral-rich regions of the country.
The policy took away the competitive advantage of the eastern parts of the country, and benefited the
western
Western may refer to:
Places
*Western, Nebraska, a village in the US
*Western, New York, a town in the US
*Western Creek, Tasmania, a locality in Australia
*Western Junction, Tasmania, a locality in Australia
*Western world, countries that id ...
,
southern
Southern may refer to:
Businesses
* China Southern Airlines, airline based in Guangzhou, China
* Southern Airways, defunct US airline
* Southern Air, air cargo transportation company based in Norwalk, Connecticut, US
* Southern Airways Express, M ...
and
northern
Northern may refer to the following:
Geography
* North, a point in direction
* Northern Europe, the northern part or region of Europe
* Northern Highland, a region of Wisconsin, United States
* Northern Province, Sri Lanka
* Northern Range, a ra ...
regions. According to British academic
Stuart Corbridge
Stuart Edward Corbridge, FRGS (born 1957) is a British geographer and academic specialising in geopolitics, development studies, and India. From September 2015 to July 2021, he was Vice-Chancellor and Warden of Durham University. From 2013 to 201 ...
, the policy discouraged the establishment of "resource-processing industries in eastern India, as opposed to the extractive industries, which seem to have imposed on the region a version of the '
resource curse
The resource curse, also known as the paradox of plenty or the poverty paradox, is the phenomenon of countries with an abundance of natural resources (such as fossil fuels and certain minerals) having less economic growth, less democracy, or worse ...
' noted more frequently in
sub-Saharan Africa
Sub-Saharan Africa is, geographically, the area and regions of the continent of Africa that lies south of the Sahara. These include West Africa, East Africa, Central Africa, and Southern Africa. Geopolitically, in addition to the List of sov ...
."
In the western region, the policy especially benefited the coastal states such as
Maharashtra
Maharashtra (; , abbr. MH or Maha) is a states and union territories of India, state in the western India, western peninsular region of India occupying a substantial portion of the Deccan Plateau. Maharashtra is the List of states and union te ...
and
Gujarat
Gujarat (, ) is a state along the western coast of India. Its coastline of about is the longest in the country, most of which lies on the Kathiawar peninsula. Gujarat is the fifth-largest Indian state by area, covering some ; and the ninth ...
. The finance minister
T. T. Krishnamachari
Tiruvellore Thattai Krishnamachari (1899–1974) was an Indian politician who served as Finance Minister from 1956 to 1958 and from 1964 to 1966. He was also a founding member of the first governing body of the National Council of Applied Econo ...
also equalised the freight, which greatly benefited the cement manufacturers in the
South India
South India, also known as Dakshina Bharata or Peninsular India, consists of the peninsular southern part of India. It encompasses the Indian states of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, and Telangana, as well as the union territo ...
n states, as
limestone
Limestone ( calcium carbonate ) is a type of carbonate sedimentary rock which is the main source of the material lime. It is composed mostly of the minerals calcite and aragonite, which are different crystal forms of . Limestone forms whe ...
and
dolomite Dolomite may refer to:
*Dolomite (mineral), a carbonate mineral
*Dolomite (rock), also known as dolostone, a sedimentary carbonate rock
*Dolomite, Alabama, United States, an unincorporated community
*Dolomite, California, United States, an unincor ...
became cheaper to transport from North India.
The North Indian areas that benefited from the policy included
Delhi
Delhi, officially the National Capital Territory (NCT) of Delhi, is a city and a union territory of India containing New Delhi, the capital of India. Straddling the Yamuna river, primarily its western or right bank, Delhi shares borders w ...
, its surrounding districts and
Punjab
Punjab (; Punjabi: پنجاب ; ਪੰਜਾਬ ; ; also romanised as ''Panjāb'' or ''Panj-Āb'') is a geopolitical, cultural, and historical region in South Asia, specifically in the northern part of the Indian subcontinent, comprising ...
.
The sufferers of this policy were the states of
West Bengal
West Bengal (, Bengali: ''Poshchim Bongo'', , abbr. WB) is a state in the eastern portion of India. It is situated along the Bay of Bengal, along with a population of over 91 million inhabitants within an area of . West Bengal is the fourt ...
,
Bihar
Bihar (; ) is a state in eastern India. It is the 2nd largest state by population in 2019, 12th largest by area of , and 14th largest by GDP in 2021. Bihar borders Uttar Pradesh to its west, Nepal to the north, the northern part of West Be ...
(including present-day
Jharkhand
Jharkhand (; ; ) is a state in eastern India. The state shares its border with the states of West Bengal to the east, Chhattisgarh to the west, Uttar Pradesh to the northwest, Bihar to the north and Odisha to the south. It has an area of . It ...
),
Madhya Pradesh
Madhya Pradesh (, ; meaning 'central province') is a state in central India. Its capital is Bhopal, and the largest city is Indore, with Jabalpur, Ujjain, Gwalior, Sagar, and Rewa being the other major cities. Madhya Pradesh is the seco ...
(including present-day
Chhattisgarh
Chhattisgarh (, ) is a landlocked state in Central India. It is the ninth largest state by area, and with a population of roughly 30 million, the seventeenth most populous. It borders seven states – Uttar Pradesh to the north, Madhya Prade ...
),
Uttar Pradesh
Uttar Pradesh (; , 'Northern Province') is a state in northern India. With over 200 million inhabitants, it is the most populated state in India as well as the most populous country subdivision in the world. It was established in 1950 ...
and
Odisha
Odisha (English: , ), formerly Orissa ( the official name until 2011), is an Indian state located in Eastern India. It is the 8th largest state by area, and the 11th largest by population. The state has the third largest population of ...
. These states lost their competitive advantage of holding the minerals, as the factories could now be set up anywhere in India. This was not the case in the pre-independence era, when the major business houses like the
Tatas
The Tata Group () is an Indian multinational conglomerate headquartered in Mumbai. Established in 1868, it is India's largest conglomerate, with products and services in over 150 countries, and operations in 100 countries across six continents ...
and the
Dalmias set up industries in
Bihar
Bihar (; ) is a state in eastern India. It is the 2nd largest state by population in 2019, 12th largest by area of , and 14th largest by GDP in 2021. Bihar borders Uttar Pradesh to its west, Nepal to the north, the northern part of West Be ...
, and most of the engineering industry was located in the state of West Bengal. Even after the removal of the policy in the early 1990s, these states could not catch up with the more industrialised states. In 1996, the
Commerce & Industry minister of West Bengal complained that "the removal of the freight equalisation and licensing policies cannot compensate for the ill that has already been done".
References
Further reading
*
Centripetal Bias in the Federal Fiscal Relations in India, Growing Regional Disparity and Feeling of Discrimination : A Case Study of West Bengalby Polly Datta
{{Policies of India
Government finances in India
Policies of India
History of rail transport in India