The Culture of Business: A Study of the Finance Business in the Vijayawada Region of Andhra Pradesh
A Synopsis submitted to the University of Hyderabad for the Award of the Degree of
Doctor of Philosophy In History
Department of History School of Social Sciences University of Hyderabad Hyderabad – 500 046 2007
(S. Department of History.Ananth)
I hereby declare that the work presented in this thesis entitled ‘The Culture of Business: A Study of the Finance Business in the Vijayawada Region of Andhra Pradesh’ has been carried out by me under the supervision of Prof. University of Hyderabad. The thesis or a part thereof has not been submitted for any other degree at this university or any other University.
School of Social Sciences. Hyderabad – 500 046.
(Prof. University of Hyderabad. S. University of Hyderabad. Atlury Murali Department of History School of Social Sciences University of Hyderabad Hyderabad – 500 046
This is to certify that the thesis entitled ‘The Culture of Business: A Study of the Finance Business in the Vijayawada Region of Andhra Pradesh’ submitted by Mr. Hyderabad – 500 046.
Dean. Department of History.Ananth for the award of the Degree of Doctor of Philosophy in History. Atlury Murali) Supervisor. Hyderabad – 500 046.CERTIFICATE
Head. University of Hyderabad. Department of History. This dissertation has not been submitted either in part or in full to any other university or institution of learning for the award of any other degree. is a record of bonafide work carried out by him under my supervision and guidance.
Our study disagrees with conventional theories that the surplus of the
Karl Polanyi. It would not be far from the truth to claim that approximately 70% of contemporary Andhra Pradesh’s leading business groups have their origins in the region that has been the focus of this study. A good starting point may be by asking a question: what motivates a reputed international finance company (GE Money) to establish its branch in a petrol station? This study unravels the intricacies of the consumption and production of finance business along with its day-today mechanics.Ananth This study on the culture of finance business looks at important issues that affect contemporary non-metropolitan Indian society and economy in its day-to-day functioning. which is often considered the finance capital of the state. Karl Polanyi has rightly observed. The origin of the prosperity and the surplus deserves greater attention than has received thus far. Detailing the debates surrounding historical origin of the agrarian surplus enables us to place the subsequent developments in proper perspective as well as to understand the phenomenon of financialisation and commoditisation. our study attempts to understand the mechanics of the finance business as it operates at the ground level in the country. Very often business practices are conditioned both by the economic conditions and the cultural practices. it is imperative to point out that a number of businesses across the country are similarly founded on socio-cultural norms and practices By using a region specific analysis. 48. he acts so as to safeguard his social standing. This could largely explain how the local culture often leads various businesses to react differently based on local conditions.S. In the foregoing chapters. It goes beyond a simple empirical study of the provincial (or local) character of the finance business and financiers. a study of the business practices of the region also throws light on the practices of the dominant business groups of Andhra Pradesh as a whole. While this study may seem region specific. reproduced and circulates in the region. Our study has traced the historical origins as well as the cultural and sociological conditions under which finance capital and speculative behaviour flourished reinforcing each other. The Great Transformation: The Political and Economic Origins of Our Time. “man’s economy. Therefore. 2001. Boston.
. He does not act so as to safeguard his individual interest in the possession of material goods. as a rule. his social claims. his social assets” 1 . is submerged in his social relationships. It is a study of the nature and dynamics of finance capital and its impact in one of the most prosperous regions of Andhra Pradesh – Vijayawada.The Culture of Business: A Study of the Finance Business in the Vijayawada Region of Andhra Pradesh
Dr. Beacon Press. p. we have analysed the characteristics of finance capital as it is produced.
all of which are aimed at diversifying and containing risk to the large institutional players. This study attempts to understand the operational dynamics of finance capital in the everyday lives of small towns. a typical feature of finance capital. The most obvious impact of the anicut is the increase in acreage under cultivation. This growth of the larger. that the rise of the transport sector. along with trading in agricultural surplus has been cited as one of the important reasons for the growth of the region and one cannot narrow the origin of the surplus to merely to the availability of the agricultural surplus. especially in the post-independence period. We have argued. The obvious change in the finance business has been the metamorphosis of lending that in the pre. The economic growth in the district was definitely greater than the neighbouring districts. Financial markets have increased in size as well as in qualitative and quantitative functionality. which are often referred to Tier II and Tier III cities in official terminology. However. disagrees with conventional theories that lay primacy on the building of the anicuts as the sole cause of the origin of the present day surpluses. Since then.and early colonial period was geared to extract the surplus product to one that aimed to take over land. a process that we have termed ‘financialisation’. lenders have largely (though not completely) transformed themselves to a lending business that is more interested in collecting interest. it would be erroneous to claim that the construction of the anicut had no impact. By the first three decades of the twentieth century. which in turn led to an increased cost of ownership of land and a crash in the return on investment on the land holdings. It is clearly discernible that there has been a gradual spread of the markets (commodity as well as credit and financial) over the past one hundred years. The last five decades have seen the birth of innovative financial products. The endogenous growth.present is the consequence of the British construction of the anicut across the river Krishna. This is most clearly visible in the region that is the focus of this study. A combination of the British land revenue settlements and the anicut construction did have a substantial impact on the economic and social structure in the district. formal financial market space has led to changes in the nature and profile of financing. along with land revenue. it would be equally erroneous to claim that the construction of the anicut and the canal system were solely responsible for the growth of the city and the region. a statistical analysis of the area under irrigation. rice-milling (and other agro-based industries) and commodity trade along with the phenomenal growth in education have largely been responsible for the economic development of the region. This changed only with the Great Depression and the subsequent collapse in the agricultural prices. at least as far as the economic growth and business opportunities are concerned. which did not have access to greater irrigation facilities. However. It has been argued that the governmental developmental strategy has paid off in the region. lease rates as well as land prices. Our study. therefore. trade and other statistical data reveals that the boom experienced by the city and the region in general is largely a post independence phenomenon. However. lending was undertaken with the intention of gaining proprietary rights over the land that the borrower mortgaged. This is not to
as they often believe that their business is risky. but not limited to them. that led to the exponential growth after independence include governmental developmental programmes that were introduced after independence. clearly indicates that the agricultural surplus and trade were predominantly responsible for the development of the region. providing education to members of the family and then in finance business (money lending). the growth of banking. The statistical data we have used in the study clearly indicates that the growth and prosperity after independence was far greater than the prosperity after the building of the anicut. it is important to understand the reasons for diversification from agriculture to other businesses by the dominant business groups in the region. (and occasionally in Bangalore or Chennai). Ranga had pointed the phenomenon of a few enterprising Kammas in every village. This diversification is most visible among the Kammas of the region. Since the late nineteenth century. chit funds and urban real estate among other things. this pattern of investment is still followed by the relatives of emigrants to USA or Europe in the region. As already pointed out. They would like ‘regular source of income’ (meaning a risk free income) . The usual pattern of investment by those with substantial surplus (especially among the Kammas) has been to first purchase a house or plot of land in urban area. N. Moreover. In fact. the growth of the transport sector. the view that the one sided movement of capital from agriculture to the urban regions does not satisfactorily explain the nature of economic development. All the observers (including Gail Omvedt and Carol Upadhya) have pointed out that the cause for diversification to be either solely or largely based on the economic motivation. who have ten or twenty acres of land and were anxious to start a business. Each family attempts to diversify their income streams. At this juncture. The community’s predominant investments have been in the purchase of agricultural lands. It is this tendency that we analysed in detail. this prosperity has largely been built on the financialisation of the economy. the combined activity of the rich peasant doubling as a moneylender –
. G. Among the factors.claim that there is no attempt to take over the proprietary rights of the property mortgaged in contemporary India. The past decade has seen this pattern of investment among other communities in the region. N G Ranga’s observation about Kamma landholders wanting to establish businesses. An interesting aspect of the post 1970s development is the large-scale investment in buying agricultural land by any successful professional or businessman. One may read this as evidence that capital generated in agriculture in the preindependence period was far in excess of the requirement in agriculture and hence the tendency to diversify? One aspect of the local region (that holds true even for the present) that has been overlooked is the fact that the impact of great depression effectively changed the thinking about investment among the Kamma community. the movement of capital in the region has been two-way rather merely from the village to the town – a practice that continued till the late twentieth century. This growth is in both qualitative as well as quantitative terms. if not later.more like rents. Hyderabad. then proceed to purchase agricultural land in the district and subsequently purchase further urban real estate in either Vijayawada.
Thus. especially Vijayawada. The movement of capital from the urban centre (Vijayawada) to the countryside has become a marked feature of the post-colonial period. Despite its unconventional character. the finance businesses that we have studied. asset diversification and socially desirable feature that creates an aura of ‘dependability’ or classification as a reliable person for undertaking business due to their assets rather than their mainstay economic activity. and patterns of investment in the region. that a confluence of factors discussed above played a crucial role in the generation of surplus in the region. We have exhaustively analysed the culture of lending. Thus. when investment in land is considered an essential part of the dominant social and economic communities’ diversification process. The centrality of the social networks. The production and reproduction of these social networks under changing conditions have been exhaustively dealt with in this study.S. The substantial shift in the economic (and social dynamics) in the region may said to have occurred in the 1960s and 1970s largely because there was a shift of emphasis to financial services and transport business over agriculture. The economic and social developments have been traced in the study and it has been pointed out that there was a two-way movement of capital from the villages to the urban regions (especially Vijayawada) and vice versa since the colonial times. It is pertinent to note that local social networks have a substantial impact on circulation of capital and often. The impact of these factors would be felt in the first three decades after India’s independence when other factors such as increase in process. Since then land ownership has become an insurance. including lending and the stock exchanges. abolition of Zamindari system and other developmental works undertaken by the government combined with the entrepreneurial spirit of the dominant caste group (the Kammas) led to the economic and political rise of Vijayawada. but also the rise of the Kammas as a dominant community in the economic and political sphere of Andhra Pradesh. their functioning at different levels. Sathyanathan clearly indicate that lending was largely within the lenders’ immediate social circle and that diversification was essentially a feature of the post-depression period. it may be pointed out. the growth of the region is intricately linked not only to the growth of the Vijayawada city.G. the nature of capital and lending during the colonial period to gain insights into the movement of capital. At the same time. Statements by contemporary observers like N. it is common for successful businessmen to invest a substantial portion of their profits in agriculture. A good example that may be cited is the common classification of a person with good quality wet agricultural land as a ‘safe’ borrower. have great relevance for understanding the
. we have agricultural surplus that moves into a number of economic activities in the urban areas of the region.R. along with their impact on the economics of lending occupies a place of pride in this study. economic practices are conditioned by cultural practices. and their impact on different social and economic groups.Ranga and W. In fact.‘commission agent’ in trading agricultural surplus all indicate a two way movement of capital.
local surplus is integrated into the national and even international finance capital networks. that there have been instances. With the entry of the national and international institutions. The larger point is the manner in which business innovation happens outside metropolitan centres but also beyond the formal bureaucratic and legal apparatus of the state and then willingly integrates into the more established and legally valid institutional framework. This early entry and exit into a business has been the hallmark of businesses in the region. It is this ability of finance businesses which in the longer term laid the ground for the subsequent entry of institutional players. to other business to create new markets. The stock exchanges and the finance companies have been in the forefront of creating and broadening the channels and networks for the movement of capital. It is therefore incorrect to assume that there is at all times a contest between smaller finance businesses and corporate entities. when local players exited even before the government put in place regulatory mechanism related to some of these businesses. Through these networks. The most recent example of a local business that gone on to get listed on the Bombay Stock Exchange is MIC Electronics Limited. This study has pointed out that. financing bids (tenders) for contractors and aqua related businesses among others.larger economic picture at the state as well as national level. this agility and nimbleness is a historical product. it becomes possible to understand the complex processes by which locally generated surplus acquires the apparently uncanny ability to anticipate and fund future booms that require huge capital. Innovative enterprises that have graduated to viable business corporate institutions abound in the region. financing infrastructure in the newly created Chattisgarh state. The IPO was completed in April 2007 and the company is the first listed company of its kind in the business of Light Emitting Diode display boards (commonly known as LED boards). Lenders. we have pointed out. It is pertinent to note. By paying attention to finance business of the Vijayawada region. Indigenous systems in the past and the informal systems of the contemporary period have always been marked by a level of sophistication that never ceases to baffle observers. to this day have the ability and resources to arrange lakhs of rupees loans and transfer the money to different parts of the world using their own networks – something that the formal banking system is not yet able to do. The examples of innovative businesses that have been the focus of our study (apart from the stock exchanges) include the cable business as established by Master Channel (that was later bought over by Zee Telefilms Limited and renamed as Siti Cable). the local players move out. Locally prevalent ‘systems’ (which are in fact informal practices) vary from area to area and swiftly change according to the needs of their customers. We have shown that small businesses with a highly localised origin and sphere of operation have proved to be agile and simply moved on rather than attempt to challenge institutions whose economies of scale they cannot match. It is imperative to emphasise that business innovation is often a by-product of limited business opportunities that are available and the tendency to work around the existing legal systems. both Indian and international. The level of sophistication and business acumen can be gauged from the fact that some financiers were able to exploit the steep fall in the
. diversifying yet again.
interest rates in the U. As such the notion of ‘harmless fraud’ is illustrative of the sociocultural foundations of business practices. This study has drawn attention to instance when it is not the helplessness of the public to challenge a violation of the law or bring it to the notice of authorities but its active connivance that has ensured the perpetuation of illegal actions. ample evidence of the agility and sophistication of the businessmen of the region becomes apparent when we note that the city’s elite was purchasing luxury homes (which also provided a rent) in far away Ooty. Further. Though not legal. The relationship. ‘Harmless fraud’ signifies a minor and inconsequential transgression of the law. like exchange of goods and services for money and vice versa is sufficient proof of their integrity irrespective of the tenets of the law of the land. Conceptualising the term ‘harmless fraud’ to try and understand the dichotomy between legality and social acceptability has been a challenge for this study. activities that are classifiable as harmless frauds are broadly acceptable to society. Often individuals.A to raise low cost funds. Drawing on popular usage of the term. but only measures aimed at overcoming stumbling blocks to the conduct of business. in its most generalised form. In case these business transactions are not in consonance with the law but acceptable to both the parties. or rather the gap between these two. Of late there has been some discussion on the distinction between the two. Thus. Such business practices often fall in the liminal zone between speculation and entrepreneurship where the law is kept in suspended animation. The obvious question that it raises is that of conditions in which a society tolerates or even encourages the violation of law. the concept of ‘harmless fraud’ (as perceived in the region and as used in this study) may be said to consist of a set of practices that are perceived to cause little or minimal harm to individuals and therefore justify the bypassing rigid/oppressive/restrictive laws. especially in the realm of business. way back in 2001. Any violations of laws under such conditions are not only considered to be minor transgressions of laws. These low cost funds are then deployed in businesses and investments in the Vijayawada region to increase their profitability. Our study has brought out in detail. believe that the completion of a business transaction to the satisfaction of both the parties. using their social networks. The relationship between illegality and social acceptability that exists in the region is studied in the context of mass participation in the unofficial stock exchanges.S. The concept of ‘harmless fraud’ has been used to try and understand how the relationship between legality and legitimacy is worked out locally. One manifestation of the harmless fraud is in fact. pyramid schemes and certain other kinds of finance business. the dichotomous but important relationship between legality and legitimacy. draws attention to interesting areas of social and economic life where there is a seemingly blatant violation of laws that is widely known but goes without retributive action from the apparatuses. The study analysed the importance of these issues in the context of everyday business practices in the Vijayawada region. we have used ‘harmless fraud’ to understand a number of every day economic activities. Often both sides involved are aware of the state of affairs. quite harmful and allows us to understand the increasing instances of economic
. a popular hill station in Tamil Nadu. then it is believed that there is no case for intervention by the institutions of the State.
including businesses. politicians. Notably. pyramid schemes can only collapse under their weight. The role of trust has been highlighted in our study. Money. There is an idiomatic expression in Telugu about money which captures this notion: ‘inapa pettelo moolugutondi’ (it is moaning in the safe) . has to circulate or it becomes unproductive. The fact that speculative activity abounds in the region means that innovative business idea will always find a source of capital. participate enthusiastically in activities. that is produced from a variety of sources such as agriculture. Speculative financial activity in the region is both a weakness and strength of the region.as if money locked up experiences pain! Speculation is often viewed in simplistic binaries. the person filing the court case was an ‘insider’ who knew all along the illegality of the stock exchange.fraud that affect larger sections of the urban middle class than ever before. Stock markets are known to crash. according the folk wisdom in business circles.at least until a court case was filed by a person who felt he was cheated. The evidence offered by the unrecognised stock exchanges of Vijayawada proves the need for a change in emphasis. bureaucrats. meaning that they have a lot of ‘free time’ or ‘spare time’ at their disposal. legitimacy of illegal businesses and social acceptability of such businessmen means that it becomes more difficult for the state to intervene as all sections (like police. A further point about harmless fraud is that it is often intimately linked to speculation. We stress the need to look beyond a mechanistic view of law and underscore the need to take cognisance of generally acceptable social norms. This combined with the surplus. This willing participation in fraudulent business is a point to be noted. who have at times received formal training in law or commerce or banking. regulation becomes a difficult task if we are to take a mechanistic of law. state and members of the community. Further. The history of the unofficial. either necessary or bad. The unrecognised stock exchanges of Vijayawada and get-rich-quick pyramid schemes are best examples of harmless fraud. We. which are illegal and wildly speculative. need to recognise that the middle class is both victim and perpetrator of economic crimes because the fraudster too is a member of the middle class. The importance of the speculative activity that thrives in the region is strengthened by the socio-cultural networks and norms. intelligent members of the middle class. Nevertheless. The concept of harmless fraud enables us to understand the role and complex inter-relationships that exist between different players. we have drawn attention to instances of the so-called victim being fully aware of the illegality of the business. trade and services
. especially the latter. participants are aware of that it is in the logic of the business to fail. The elastic conception of legality. unrecognised stock exchanges of Vijayawada clearly shows that institutions of the state were clearly aware of its illegality but refused to act . however. Our study argues that. We have suggested that this is but one sign of the nature of finance capital but is also context specific insofar as it highlights the huge premium in this region on ensuring the mobility of capital. etc) are fully aware of what is happening but are unable or unwilling to act. The nuances of speculation in the region are best understood when we look at the finance business to be an ‘idle business’ (as one successful financier put it). In the unofficial stock exchanges as well as pyramid schemes.
gambling or simply ‘wasted’ (as another financier put it). any company or business that hopes to operate profitably in the region but does not provide any mechanism for peddamanushulu to arbitrate is bound to
. as the informal arbitration system is referred to in the region. In case such systems or processes do not exist. the negative repercussions of the speculative mass mentality is clearly discernible in pyramids schemes and innovative frauds that are found in abundance in the region. Speculation has its own allure in the region. pyramid schemes and various other speculative enterprises have created their share of a tiny category of successful speculators. A financier’s hours of work are flexible and often can be adjusted according to their convenience. This ‘free time’ is often spent on unproductive activities like banter. The institution of peddamanushulu. It is in this context that the institution of peddamanushulu has been conceptualised and analysed. the elastic nature of the institution enables it to survive. nearly all the financiers in the region have interests that are either spread out over one or more sectors like real estate.G. Our study has pointed out that N. The fact that the contemporary elite in the city have risen to their present status as grandee bourgeoisie from first generation entrepreneurs with humble economic origins. they would be invented by capital. We have argued that the peddamanishi is not necessarily a member of a traditional elite (caste elder or zamindar. While the positive impact of speculation is the ability to raise capital for new hitherto untested business ventures. This is reinforced by the fact that the stock exchanges. commodities. The institution’s ability to solve problems transcending caste and class is a unique aspect of the business culture. for example) but often a respectable member of the business community who rose from rather humble origins. aquaculture. Interestingly. The more enterprising financiers use their ‘free time’ on a working day to pursue other speculative activities such as trading in stocks. publicity might prove to be lethal for illegal businesses by drawing the attention of agencies of the state. Capital of all variants and irrespective of its geographic origin (local. agricultural gardens. speculating in real estate or participate in pyramid schemes. discuss and often resolve their disputes without any adverse publicity that might be detrimental to their long-term business interests. provided people put in the right kind of effort.related economic activity provides them with ample opportunities to speculate. thrive and operate under most circumstances. enables the contending parties to meet in an informal environment. stocks or commodities. Ranga’s observation that the lack of avocation was a cause for this speculative fervour and this speculative activity needs to be looked at in this perspective. The institution of peddamanushulu thrives on its ability to draw upon various cultural and social practices and idioms that are a part of the lived experience of people. The peddamanishi is an important sign of how modern institutions fabricate lineage and invent traditions although they are in fact products of a specific time and place. While there are no steadfast rules under which the peddamanushulu operate. national or international) requires a value system and arbitration mechanism that provides satisfactory results with minimal cost and minimal damage to business. We argue that. Further. means that the common perception that quick money is not only possible but also easy.
An excellent example of the debilitating consequence of the lack of informal arbitration mechanisms is the micro-finance business. this has led to coercive attempts to collect the dues and a public outcry and against such coercion. but economic as well as sociocultural—to the rampant spread of globalised finance capitalism. In contrast. legal grounding of the company or their ‘systems’. especially of the local genre.be trapped in a myriad of legal problems. have continued their business – mostly unhindered. It is not in the form of political movements alone that arrest the growth of mega corporations. has no space for arbitration in case of dispute or inability of a borrower to pay the lender. the finance companies. national and international institutions and flows. In the Vijayawada region. We. At a time when the nation’s economy is being more and more closely integrated with the ebbs and flows of global finance capital. This public outcry. A study like this also alerts us to points of resistance—not political. due to the existence of various mechanisms to settle disputes informally. The micro-finance business.
. as well as other examples shows that irrespective of the economic influence. as it operates. but also entrenched forms of local capitalism and its customs and folklore. that the study of this region and its business practices is indeed rewarding and offers many insights into the social-cultural foundations of economic activities. Micro-finance Institutions (or MFIs) have been forced to abandon their business and look at other regions and states to expand their business. participants are expected to conform to teerpu of the peddamanushulu. both national and multinational. therefore conclude. The case of Kotak Mahindra. the study of the provincial capital provides vital clues on the manner in which locally generated capital finds its way to the state. has forced state intervention leading to a complete halt in the microfinance business in the region.