By the end of the 1970s, it had become apparent to policymakers that industrial licensing, subsidies, and statutory controls were getting in the way of India’s growth. Licensing had failed to develop industries according to the priorities of the five-year plans, hindered the growth of capacity in nonessential industries, and failed to curtail monopolistic tendencies and ensure a broader regional distribution of industries. Large firms were prohibited from expanding capacity under the Monopolies and Restrictive Trade Practices Act of 1969, small firms were restricted to producing items reserved for small-scale industries, price ceilings disincentivized the production of goods, and public sector manufacturing enterprises ran chronic losses. For the decade up to 1975, the average rate of manufacturing growth fell from around 7 to 3.5 percent per annum. The growth of registered manufacturing decreased from 8.3 to 2.7 percent per annum. The Indian economy was falling behind its Southeast Asian counterparts.
It was in this context that the Morarji Desai government and Charan Singh (Minister of Finance) established the Dagli Committee to evaluate the controls on prices, production, distribution, licenses, and imports and to assess whether they had met their stated objectives and which aspects needed to change. The committee was chaired by Vadilal Dagli, Editor of the economic weekly Commerce, with Era Sezhiyan; Bagaram Tulpule; L. C. Jain; and Sanjoy Sen as members. In its report, the committee made a number of general observations. It stated that the regime of controls and subsidies had outlived its usefulness, and all economic ministries ought to review the rules and update or remove them where they overlapped, as it usually led to confusion. Regulations ought to be valid for a specific period and directly address issues of resource allocation, redistribution, basic consumption needs, technological self-reliance, and job creation. The committee also suggested that the government limit the duration of orders issued under the Essential Commodities Act of 1955, periodically review trade policies, simplify foreign exchange controls, and loosen rent controls in urban areas. It stated that price controls must extend only to consumption goods and the intermediate inputs needed to create them. Before the recommendations of the Dagli Committee could be implemented, however, the Desai government fell in 1979. The import-decontrol process started only after Indira Gandhi returned to power in 1980.
The Dagli Committee emphasized the need to streamline and periodically review economic controls to ensure they aligned with objectives like resource allocation, redistribution, and technological advancement. Its recommendations highlighted the importance of reducing overlapping regulations and revising outdated policies, laying the groundwork for future economic reforms.
