INDIAN BUSINESS HISTORY Fallacies of Interpretation

Dwijendra Tripathi

Lecture Delivered at Godrej Archives, Mumbai on 9 October 2007

1

INDIAN BUSINESS HISTORY

Fallacies of Interpretation

I am exceedingly grateful for this opportunity to be here this evening.

For, the occasion has a direct link with what has been my life long

mission. For more than forty years, my principal preoccupation has

been to promote academic interest in Indian business history through

teaching, research and publications. And I derive some satisfaction

from the fact that today Business History is not such an unknown

phenomenon in the country as it was when I started working in this

area. At least no more people ask me with sarcastic curiosity what

business History is as many used to do when I first started exploring

the field. In fact, many prestigious institutions have incorporated

aspects of Indian Business History in their programmes of teaching

and research and some have even formal courses as part of their

History curriculum. However, the historian needs primary

documentary material to build up his or her account. He or she can

not go very far in their quest without such sources. The Indian

business historian has not been very fortunate in this respect. For, in

most cases, he has to manage without access to the company

records. Most Indian firms do not preserve their records, cases of

wanton destruction are by no means rare, and maintaining the

records in a most haphazard fashion is a common occurrence. I have

had personal knowledge of business houses that were unaware of

2 what kind of historical records they possess and where and how they

are kept.

Viewed against this dismal state of affairs, the Godrej Archives and

the Tata Central Archives, the cosponsors of this lecture, have set an

example, that if emulated by others may vastly improve the situation.

These are pioneering initiatives in organising repositories of business

records. I still recall with great deal of nostalgia my association with

the launching of the Tata Central Archives about fifteen years ago.

The Godrej Archives followed suit a few years later. Even a casual

knowledge of the kind of material about their parent organisations

these repositories preserve is sufficient to suggest how great a

service they are rendering to the cause of business history and

therefore to business itself. For there can be no better ambassador of

social goodwill for business than an authentic history.

My choice of the theme for this evening’s lecture ¾ Fallacies of

Interpretation in Indian Business History ¾ is a reflection of the state

of general understanding of our business past in the absence of

access to primary records.

‘Fallacies of Non-Interpretation’, perhaps should have been a more

apt title. For, practically all the major generalisations about the Indian

business behaviour and business systems are more in the nature of

deductive formulations or impressionistic judgements than the

conclusions informed by empirical data. Most of these originated with

Western writers but have continued to enjoy an unduly long life partly

because Western enunciations about us have in our eyes an aura of

authenticity around them, but mainly because the inaccessibility to

3 basic source material has kept the historical scholarship by and large,

aloof from exploring the antecedents and evolution of Indian

business. I will try to examine jointly with you in this lecture how these

formulations befog our understanding of an important facet of our

national experience.

One of these formulations owes its origin to a maverick Dutch scholar

Jacob C. Van Leur that peddling was the most distinctive feature of

the Indian business when the European traders began to penetrate

our markets. He made this suggestion in the course of a review

article published in 1940, which was later incorporated in a book

published posthumously. Though he did recognise the existence of

some big merchants ¾ ‘merchant gentlemen’ as he called them ¾

peddling, according to him was ‘the work of the mass of merchants’.

Van Leur was utterly unfamiliar with India; he had never attempted

any serious study of this country, and perhaps never visited it. The

only Eastern society he was somewhat familiar with was Indonesia

where he worked for some time as a civil servant of the Dutch

colonial administration. It seems that his views on India were a sheer

projection of what to him appeared the situation in Indonesia. I am

using the word ‘appear’ advisedly, for his observation about

Indonesia too emanated from sheer impressions, and not from careful

research. In the words of a contemporary Dutch writer, ‘he never

made a careful study of the empirical data available even in his days’.

In fact, Van Leur ‘lacked the right temperament’ for empirical

research if we go by the assessment of the same author. His review

article, thus, should be regarded, as C.A. Bayly has suggested, ‘as

4 heuristic rather than a substantive exercise in historical writing’. I

would have followed Bayly’s advice and left Van Leur to rest in peace

but for the fact that his formulation about the basic character of Indian

business in the 17th and 18th centuries has continued to find an echo

in the works of more patient researchers, and still reverberate through

informal discussion. Some of the papers presented at an international

conference organised in Holland about a decade ago to mark the

fiftieth anniversary of Van Leur’s death also underline how seriously

he is still taken in certain quarters.

The fact of the matter is that it was known even during Van Leur’s

time that powerful merchants operated in almost every part of India in

the 17th and the 18th century and even later. Persons like Virji Vora

and Abdul Ghafur in Surat, Shantidas Zaveri and Kapurchand

Bhansali in Ahmedabad, Malay Chetti and Kasi Viranna at the

Coromandel Coast, and Hiranand Sahu, the forerunner of the future

house of Jagat Seth, and the Armenian merchant Khwaja Surhand in

Bengal operated on a large scale. Associations of merchants

representing different trades existed in many cities. These would

have been wholly unnecessary, if the number of actors in these areas

were not sufficiently large. According to a document of 1725 lodged

with Anandji Kalyanji Pedhi at Ahmedabad, this premier city of

Gujarat alone had at least fifty-two associations of this kind, known as

mahajans. We also know that an extensive network of hundi for

transferring funds operated throughout the land. Such a network

could not have functioned without the presence of a large number of

creditworthy merchants and bankers through the entire length and

5 breadth of the country. The big merchants understandably operated

from large cities. Relatively smaller urban centers had merchants

carrying on operations of more modest scale and within more

restricted areas.

I am not suggesting that peddling did not exist in pre-modern India. It

did. But it was primarily a feature of rural areas and India in this

respect was not unique. N.S.B. Gras has rightly pointed out that

peddlers operated in the rural sectors of Europe and America as well

before the rural-urban dichotomy vanished in these markets in the

wake of economic development. Significantly, the Banjaras were the

only tribe in India that had peddling as their principal occupation, but

their number was already dwindling by the end of the 18th century. To

identify Indian business with peddling on the basis of the Banjara

presence or other actors of this kind on the rural scene is like

mistaking the hillocks at the foot of a mountain for the entire range

itself.

A preponderant number of the Indian merchants, both big and small,

undeniably belonged in premodern times to the Vaishya stock among

the Hindus or were the followers of Jainism. Muslims were not

entirely absent from the scene, but barring just a few exceptions, like

the Ghafurs and the Chellabys of Surat, they were engaged in small

trades and most of them were converts to Islam from the Hindu

trading castes. Regardless of their caste or community origins, these

merchants, including those who had accumulated enormous capital

through trade or moneylending or both, took no step whatsoever to

lead India to the next stage of capitalistic development. It is generally

6 believed that on the eve of the European commercial penetration,

India was ‘among the most advanced and cost competitive

industrialised countries in Asia’ but its business class could not

sustain the tempo, and India lagged behind in the race for economic

progress. This has given credence to another misconception about

the Indian business behaviour that has proved to be more

widespread and enduring than the peddling thesis.

This misconception had its genesis in the writings of the celebrated

German sociologist Max Weber. Incidentally, Van Leur was a great

admirer of Weber whose theories of modernisation had exercised a

great influence on him during the early phases of his career. Weber

attributed the slow capitalistic development in India to what he called

the ‘Indian spirit’. There has been considerable debate about what he

meant by ‘Indian spirit’ and there is some ground to believe that

Weber’s formulations about India have been misinterpreted and

misconstrued. But there is no doubt that the prestige of his name is

generally associated with a view that holds India’s cultural values and

traditional social organisation responsible for arresting its business

developments. This view would have us believe that there is a

preponderant content of ‘other worldliness’ in Hindu religious-cultural

ethos, and this proved to be subversive of material ambition and,

therefore, deterrent to achievement motivation, without which no

business breakthrough is possible. To make the matters worse, this

subversive element in the Hindu value system, according to this view,

reinforced the occupational immobility, supposedly imbedded in the

caste system. Although an impressive corpus of literature refuting this

7 thesis has emerged in recent years, yet it continues to resurrect itself

off and on in one form or the other.

Apart from the fact that the entire formulation is based on a wrong

notion of Hindu values and the dynamics of the caste system, it is

basically deductive in character that ignores the historical realities.

For, nothing in the business behaviour of the Indian mercantile class

even during the premodern times suggests that they lacked the

desire or will to excel in business or maximise the gains from their

operation. I can cite any number of testimonies from foreign

observers of those periods in support of the business acumen of the

Indian business. True, these merchants failed to use their commercial

gains to move forward towards industrial capitalism, but this had

more to do with the absence of objective preconditions necessary for

industrial transition than the religious-cultural orientation of the

principal actors. The prevailing state of technology could not have

permitted an industrial breakthrough, and given the state and nature

of curriculum, heavily dominated by classics and literature, no serious

quest for new technologies would have been possible. Added to

these was the limited size of the markets ¾ an inevitable

consequence of myriad impediments to free flow of goods and

services even within the geographical limits of the subcontinent.

As for the caste system being an entry barrier into business for

persons of non-Vaishya stock, I would like to point out that non-

Vaishyas were not entirely absent from the business scene even

during those days when caste was still the principal determinant of

occupational choices. If more of them were not lured into the

8 profession, it was simply because the material environment did not

offer strong enough inducements to break the caste barriers. As the

existing opportunities were already pre-empted by the mercantile

classes ¾ classes for whom business was the prescribed occupation

under the caste dispensation ¾ others could have thought of

transcending their own prescribed occupational boundaries and

embrace business as a profession, only if there were a definite

expansion of opportunities ¾ opportunities that could have promised

a higher expectancy of reward than their current occupation offered.

This was hardly possible in pre-colonial and early colonial times,

given the static character of business situation. The result was a

rough equilibrium between the perceivable business opportunities

and the time-honoured socials arrangements to exploit them. Thus, if

the social composition of the business class did not become more

heterogenous, it was more due to the material constraints, rather than

the existing social organization.

In fact, as the material environment became more favourable, the

caste division increasingly became much less constraining in

occupational choices. The growing European presence on the Indian

business horizon coupled with the widespread infrastructural changes

that came in the wake of the rising British power had much to account

for this development. At the risk of some oversimplification, I would

place the beginning of this process somewhere in the latter half of the

18th century, when the British free merchants and agency houses

began to appear on the business horizon of India. Their pioneering

role in opening up new fields that had been hitherto left unexplored

9 and the aggressive business methods with which they pursued their

goals pointed to new vistas of business. By the time the British

emerged as the sole paramount political power in the subcontinent in

the first quarter of the 19th century, business was already becoming

an attractive profession for such classes of Indians who had until then

kept aloof from the field.

The growing contact with European liberalism and the beginnings of

modern system of education gave a further jolt to the prescribed

bases of occupational choices. No wonder then that the period after

1830 witnesses the entry into the business fold of persons belonging

to the sections of population not normally identified with business

profession under the conventional social order. Bengal, as a

beneficiary or victim of new influences, was the principal theatre of

new classes of Indians taking to business profession during the

1830s, defying age-old customs and dogmas. Perhaps, the most

prominent symbol of this kind of change was Dwarkanath Tagore, a

Brahman, who using the rubric of a single firm, promoted and

managed a number of joint stock companies. His method of

enterprise creation and management anticipated in many ways the

managing agency system that developed fully a little later and

remained the most dominant form of business organisation in colonial

India. Though legally abolished now, the system still continues to

influence the structural basis of business even to this day. Viewed in

this fashion, Dwarkanath Tagore, the grandfather of the Poet, must

be regarded as the father of modern business in India.

10 The business trends, witnessed in Bengal during the 1830s and the

early 40s, became increasingly firm as the colonial masters brought

about widespread infrastructural developments. The main purpose

behind activities in this realm was to facilitate an efficient

administration of the land so necessary for exploiting its resources for

the benefit of the metropolitan country. While serving their primary

purpose eminently well, these infrastructural changes also produced

an ancillary effect entirely unintended by the alien rulers. This was the

manifold increase in the size of the market and substantial expansion

in the business opportunities. Access to the necessary technology,

thanks to the imperial connection, completed the missing link for the

transition to an industrial economy. The result was the emergence of

a new breed of business actors who were more attracted to

promoting modern, machine-based industries than merely

commercial ventures.

The industrialists came from a variety of social backgrounds, but a

large number of pioneers of new industries hailed from castes and

tribes which should have kept them aloof from any kind of business

venture, had they followed the age-old prescriptions and conventions

in choosing their careers. In fact, persons like Ranchhodlal Chhotalal,

a Nagar Brahman who founded the Ahmedabad textile industry,

Rajendra Nath Mookerjee, a Bengali Brahman who played a critical

role in promoting and developing Martin Burn, a prestigious

engineering firm, Laxmanrao Kirloskar, a Maharashtrian Brahman

who was the first to launch the production of modern agricultural

implements in India, and the Khamma entrepreneurs, like the Naidu

11 brothers, who provided an identity to the Coimbatore cotton industry

did more to promote modern industries in India than the traditional

business families.

As the opportunity base continued to expand in later years, business

as a profession continued to attract people belonging to the social

collectivities, that under the traditional social arrangement, were

excluded from it. Significantly enough, out of the eighteen large

groups under Indian control at the end of the colonial era, as many as

nine had been developed by families that technically did not belong to

the so called business castes, and most of them had no prior

connection with the world of business.

The continuing expansion in the opportunity base also induced large

sections of mercantile elements to leave the cosy world of trading and

moneylending and enter the more competitive field of industry.

Barring the Parsees, who were quick to realise the value of modern

industries because of their contacts with European operators and

European environment, others in the trading and moneylending

businesses were rather slow to grasp profit potential of new lines.

The Marwaris in the North and the Chettiers in the South, for

instance, despite their enormous financial resources, kept away from

the industrial scene well up to the end of World War I. But this is

understandable. For with their deep involvement in businesses in

which they had already proved their mettle, they considered it more

prudent to wait until the profit potential of the new lines was firmly

established ¾ until they were fully convinced that transferring

resources from the conventional fields would not mean an opportunity

12 loss for them. But once they shed their ambivalence, they entered the

modern sector with a bang and carved out a dominant position for

themselves in the industry.

The perspective I have tried to present through this broad survey

should make it quite clear that the so called religious-cultural

constraints seemed to impede business developments in India only

so long as the objective-material conditions were too weak to

generate fresh business opportunities; only as long as they were too

stable to cause a disequilibrium between the opportunity base and

the social arrangement to exploit it, and only as long as they were too

static to prop up a sustained process of change. As the surrounding

environment became more supportive, as the material forces

expanded the opportunity base, the so called ‘otherworldliness’ in the

Indian ethos proved to be too impotent to block the rising tide of

material ambition among the Indian businessmen, and the time-

honoured occupational arrangements proved to be too ephemeral to

prevent the gravitation of new elements into the business profession

unhintered by their social origins. The process of change began

during the colonial period as an unintended byproduct of the

instruments of exploitation without any positive support from the

state. And yet, by the end of the colonial regime, the hollowness of

the socio-cultural explanation of the Indian business behaviour had

been already exposed. When Manmohan Singh drew attention to

some unintended benefits of colonialism in his recent Oxford speech,

he received flak from many quarters. I do think, however, that history

has a duty to pay even the devil his due. At any rate, what was left of

13 the socio-cultural explanation of Indian business behaviour was laid

to rest by the developments of the post-colonial era, when spurred by

the facilities and conscious inducement provided by the state,

persons belonging to a variety of social collectivities have given a

new shape and dynamism to the Indian business. None in the right

frame of mind, I think, would now accuse the Indian business actors

of the lack of material ambition or assume that age-old occupational

division proved to be too impregnable a fortress for the wind of the

material forces to dismantle.

While the theory of cultural determinism in its basic character stands

rejected, an offshoot of it has not completely lost its sheen. This

relates to a formulation that has the prestige of the late D.R. Gadgil’s

name attached with it. According to this view, India developed a

bunch of business communities, unlike other capitalist societies that

developed business classes. Gadgil’s preference for the term

‘business community’ with reference to the business developments in

India was due to his belief that because of the ‘social divisions and

stratification, business groups belonging to different regions and

castes do not show similarity of behaviour patterns or a degree of

social cohesion which would justify their being called members of one

business class’. Neither Gadgil nor others who followed his line of

reasoning have adequately explained the precise meaning of the

term ‘community’ or what distinguishes a community from a class. But

the context in which they have used the term suggests that for them it

denotes a cluster of business elements, who apart from a common

occupation, also share certain socio-cultural ties such as caste,

14 regional, or linguistic affiliation. And these ties, according to this

formulation, set them apart from one another in the matter of the

structures and strategies they adopted to manage their respective

businesses.

Even a casual look at the Indian business scene would reveal that

this is far from the reality. Gadgil had selected Parsees, Gujaratis,

and Marwaris to support his hypothesis. But all the differences he has

pointed out in their approaches pertain to their behaviour on the

social plane, not in realm of business. These differentiations

admittedly did play some role in shaping the business behaviour in

pre-colonial times when the Indian markets were much more

fragmented. But as the markets became more integrated with the

consolidation of the territorial unity, and as the business elements

drawn from different social, territorial, or linguistic groups became

increasingly more interdependent, both capital and business

practices slowly but surely moved towards a kind of fusion that can

not be associated with any formation other than a class.

It is appropriate to recall in this connection that the modern

enterprises that came to the fore in colonial India had similar

organisation structures and their management pursued similar

strategies to achieve their goal regardless of the social collectivities

with which they were generally identified. Practically all of them

functioned within the rubric of the managing agency system,

practically all of them raised finances from traditional sources, there

was great deal of commonality in their method for conducting their

marketing operations, and all of them demonstrated similar traits in

15 the choice of technology for producing their goods and services.

Thus, even though the business actors might have differed in their

social behaviour, they demonstrated a great deal of essential

similarity in their approaches to business. And as they consolidated

their position, they made common cause to safeguard their business

interests. The birth of the Federation of Indian Chambers of

Commerce and Industry (FICCI) in 1927 was perhaps the most

eloquent symbol of the culmination of a process that resulted in the

rise of a distinct business class much before the colonial era ended.

The post-colonial developments only reinforced it.

To be fair with Gadgil, his observation about the business

communities was in the form of a suggestion. He expected this to be

explored further. But his followers accepted it as a firm thesis without

examining it. We as a people love to draw circles around us. The

uncritical acceptance of the community formulation is yet another

example of our propensity for this fruitless pastime.

These few examples, I think, are enough to suggest that a closer look

at the Indian business history will not only clear many misconceptions

about the Indian business system, but also offer much needed

corrections to some stereotypes about our social-cultural realities.

Such an exercise, it seems to me, will also provide additional insights

into some other facets of our past. The impact of British colonialism

on India can be taken as a case in point. It has been rightly stressed

from the times of Dadabhai Naoroji and Romesh Chandra Dutt until

our own days that the overarching purpose of the colonial

government’s policies was to ensure the economic exploitation of

16 India for the benefit of Great Britain. This view of British colonialism,

however, does not constitute a great revelation. For, exploitation is a

necessary concomitant of colonialism, exploitation is the very raison

de etre of colonialism. But a study of the attitude adopted by the

Indian industrialists towards technology choices and development will

reveal that colonialism had a much deeper impact than the

exploitation paradigm suggests. The most distinctive characteristic of

this attitude was a slavish and uncritical acceptance of the production

devices and processes used in the metropolitan country, even though

there was no official fiat to compel Indians to use a specific

technology, and in some areas at least better alternatives were

available.

The cotton textile industry that marked the birth of modern business

in India offers perhaps the best example. Not only did the pioneers of

cotton manufacturing borrow wholesale the production technologies

¾ the spinning and weaving machinery ¾ but also imitated their

British counterparts in the matter of physical layout of their premises.

During the early years of the industry, when no alternatives had yet

been developed, this was perhaps understandable. But even

subsequently when mechanical devices more compatible with the

Indian conditions had been developed, they continued to cling to the

British technology. It is generally recognised, for instance, that the

ring spindle, developed in the United States, was better suited than

mule for spinning short staple cotton that Indian mills used. Ring also

required much less labour efficiency to operate. And yet the ring

frame registered very slow progress in India. In fact, the popularity

17 graph of ring in India rose almost as slowly as it did in Great Britain.

Japan in contrast, where textile manufacturing made its debut more

than a decade later, showed much greater preference for the ring

technology right from the start, and replaced the mule spindles in its

mills much more quickly.

The same thing happened with regard to another technology ¾

automatic powerloom ¾ that began to gain popularity in the United

States and Japan around the beginning of the 20th century. Even

though the device owed its birth to a British inventor, the British mills

were rather slow to adopt it because the automatic powerloom was

considered unsuitable for weaving the kind of products the British

mills specialised in. Even though no such constraint should have

impeded the use of this device in India, and the automatic powerloom

could have greatly reduced the labour cost, Indian mills continued to

stick to the ordinary powerlooms well until the fag end of the colonial

era, simply because the British producer did so.

The technological myopia of the Indian cotton producers proved

disastrous for their competitive advantage in the East Asian markets,

which they had dominated well until the end of the 19th century. By

1913, Japan supplanted India as the major supplier of textile goods in

these markets. Worse still, Japan began to make inroads into the

Indian markets as well, where certain Japanese varieties enjoyed

price advantage despite heavy import duty. For this development the

Japanese preference for technologies that cut down the cost of

production is much to account. A major reason for the Indian cotton

producers sticking to less appropriate technologies, was what I would

18 like to call ‘colonial syndrome’. By colonial syndrome I mean an

instinctive inclination of a subject people to emulate the practices,

institutions, and even behaviour of the ruling race, resentment against

political subjugation notwithstanding. Great Britain then was the

leading industrial nation in the world, and the Indians had a much

greater exposure to its glittering economic might due to the imperial

connection. They naturally concluded that the technology that was

good for the most industrialised nation of the world would be good for

them as well. The advice of the British experts further reinforced the

instinctive preference of the Indian cotton producers. India’s colonial

connection, thus, placed an unwarranted and undesirable limit on

their technological choices and even inhibited experimentation to

modify the imported technology to suit Indian conditions and needs.

This approach to technology choice and development was repeated,

only with minor variations and rare exceptions, by the promoters of

other industries as well throughout the colonial times. Regardless of

the line they were engaged in ¾ whether capital intensive industries

or consumer goods industries ¾ the Indian industrialists by and large

followed their British counterparts in selecting their production

processes. This was true even of the business houses whose leaders

themselves were equipped with technical competence, such as

Laxmanrao Kirloskar and Praful Chandra Rae. Political sympathies

made no difference either. Business leaders with radical views like

Walchand Hirachand did not demonstrate more technological

autonomy than those who were more subdued in their nationalist

feelings and more cautious in expressing them, such as Ganshyam

19 Das Birla. The colonial syndrome seems to have affected them all in

more or less equal measure. And the unfortunate hangover of a static

approach to technology generated by the colonial syndrome seems to

have inhibited the indigenous contribution to technical advancement

in Indian industries for a long time even after the country became

free.

An enquiry into the technology choices by Indian industrialists thus

reveals that the pernicious effect of colonialism on our life and

thought was much more pervasive than mere tangible exploitation

which has been the focus of most of the existing studies. Following

the business historian’s trail does not revise our views of colonialism,

but it certainly broadens our understanding of it. There may be many

more such issues to the understanding of which business history may

make similar contribution.

If this is so, if business history throws new light on many social and

political aspects of our national experience, is it proper to confuse its

scope with only those aspects of an economic function that may be of

interest to the boardrooms of enterprises? Is it proper to identify it

with the narrow range of transactions and functions? I do not think so.

The more I think about the subject, the more I interact with it, the

more I am convinced that it has a much broader canvas. Many look

upon business history as a poor relation of economic history. I find it

much closer to social history though with a distinct identity of its own.

To realise its full potential, however, Business History needs business

records. I commend the efforts that the houses of Tata and Godrej

20 are making in this respect and hope that other business groups follow

their example.