Business & the Indian Environment: A Socio-Historical Context

Dr. Abhijit Kothari

This Class Note has been prepared with a view to provide very broadly, a flavour of the
Indian business environment in history. It is by no means an economic history of India
nor is it a definitive business history 1 . Its primary purpose is to provide a socio-historical
context to the Indian businessman and his business practices. Chronologically much of
the description is applicable for the Mughal period and some for the early period of the
East India Company, for reasons explained below. This is primarily to demonstrate how
“indigenous systems” of business had become well-established through centuries of use
and evolution and for the reader to be able to see continuities as well as disruptions with
current practices.

Is is an ungainsayable fact that the policies of the British East India Company and
subsequently the British Government played a significant role in altering the landscape of
business in India. Likewise, the Policies of the Government of India in the post-
independence period have also affected in a major way current business practices.
However, since these influences are often discussed in the popular media, it is assumed
that the reader is likely to have some familiarity with this material. It is therefore a
conscious decision not to deal in any detail with the late colonial period as well as the
post-independence period for the purpose of this note. Similarly since one sees greater
continuities in current business practice with what is described as “inland trade”, this note
does not deal with the coastal trade despite some inspiring examples of ‘great merchants’
in the coastal trade.

The purpose of this note is also to show how, for the Indian businessman, business is not
merely a “rational, maximizing economic activity”. The unique intermingling of social,
religious and business practices formed over the centuries provides a whole different
world view. Traces of this persist even today despite an overwhelming acceptance of
modern business practices and a much higher level of integration with world economy.
This is particularly true in smaller, more traditional family businesses. Whereas this note
does not agree with the “nativists” who are unwilling to accept what they term as
“Western management practices”, it tries to show that there is a legacy of valuable
systems, practices and institutions that have come down through the ages. That this
legacy has survived albeit with modifications and adaptations to the changing economic
environment is in itself evidence of its value.

This note is thematically rather than chronologically structured. Section 1 describes how
various institutions of trade arose as the scope of business expanded. The purpose is to
show the sophistication and richness of business systems that existed even before
exposure to modern business practices. It also demonstrates how these were uniquely
suitable to the business environment of the time.

1
For that, the reader may refer to the Cambridge Economic History of India Vols I & II and the Oxford
History of Indian Business
Section 2 deals with the interactions of business with social and political institutions such
as the state, caste, family and religion. Once again, the emphasis is on the embeddedness
of business systems in their social and/or political context.

1. Business Systems: History & Evolution

That a fairly vigorous system of trade existed in Ancient India is beyond dispute but the
precise nature of trade and structures remain speculative since the texts available,
primarily Sanskrit works, do not give many details. Buddhist texts, on the other hand are
a good source of information regarding trade. References to merchant caravans can be
found dating back to 600 BC. Migrant traders or banjaras plowed along fixed routes
buying and selling goods along the way.

Historically, India’s economy was agri-based. Manufacturing in India was a household

enterprise with individual artisans making various goods. Combined with the limited
geographical reach and the small markets, scaling up was not an option that could be
considered. Majority of the trade involved the buying of goods from the producers
(whether farmers or artisans) and selling these products in markets relatively far away.
Given the poor road network, the lack of security and the need to pass through various
kingdoms each with its own taxes and tolls, the trader-merchant’s basic function was to
assume the risk of transporting goods to markets where the prices that could be fetched
would more than compensate for the risks assumed. These would usually be the larger
cities and towns. The merchant-trader, therefore needed to judge the requirement of
goods –both in terms of type of goods as well as volumes, judge the prices that could be
fetched and then source the goods, transport them with all the risks that it entailed and
finally sell them in these markets. If one were to look at the state of the infrastructure
(roads, communication, law and order, multiple authorities etc.) during much of the
history of India, this job was fairly complex and the risks involved were high.

Garg (1984) mentions three ancient trade routes : Uttarpath that started from Tamralipti
(near Kolkatta) and went up to Kabul via Pataliputra, Benares, Kaushambi, Kanauj,
Mathura, Delhi and Taxashila, Dakshinpath that started from Kapilvastu and went up to
Madurai via Kaushambi, Vidisha, Ujjain, Burhanpur and Kanchi, and the third route that
branched off from Ujjain and went on to Brigukacch (Bharuch)

During the Mughal period, these routes changed and new routes developed, the most
important being the Surat-Burhanpur-Gwalior-Dholpur-Agra-Delhi-Lahore-Kabul route
that ultimately ended in China. An important branch of this route went from Lahore to
Persia via Multan and Kandhar.

The existence of these routes played an important role in development of cities as

political and administrative centers. The fact that these cities were important trade centers
drew attention of the administrators and royalty who chose to make them centers of
administration as well. It is interesting to note that several of the locations that lay along
the ancient trading routes continued, with the usual fluctuation in fortunes, to be major
centers of trading up to the British Rule in the early nineteenth century. It was only the
setting up of the railway network and other communication systems by the British that
changed the role that these towns played

The bazaar has its origins in the period between 600-300 BC. For convenience, shops
were set up on both sides of a street in the centre of the city. With growing
specialization, separate markets evolved for different kinds of merchandise, giving rise to
specialized activities. This pattern can be seen in the towns and cities of India even
today. In the cities of India the commercial districts are often segregated according to the
merchandise that they deal in. (e.g. in Ahmedabad one still refers to various parts of the
trade district in the walled city as Dawa bazaar (medicine market), ramakda bazaar (toy
market), zaweriwad (jewellery market) etc. In addition to logistical convenience, this
system also allowed rapid flow of information regarding prices and creditworthiness of
the participants in the market.

As the urban economy flourished, villages fed the towns. With settled land tenure during
the Mughal period, agricultural surplus increased. Monetisation of revenue also led to
the need to sell the produce. Thus the mandi (market) evolved. Where heavy volumes
were required to be handled, a ganj (agricultural produce market yard) was set up in a
specific area of the town. Small towns in Gujarat still have a ganj bazaar-where today,
most transport and truck operator offices are located. There would be several wholesale
merchants, commission agents, moneylenders associated with a ganj. The rise of the ganj
also gave rise to a host of specialized intermediaries such as the broker, the commission
agent, the distributor etc. It also led to the emergence of an efficient information network
that conveyed price and supply information between mandi towns to enable the traders to
exploit arbitrage opportunities and make profits.

It led to the formation of a vigorous futures market in agri-products. Double entry book
keeping systems were in use (Bhargava, 1935). In addition, a simplified system of
weights and measures based on half and quarters of standard weight evolved which
paralleled the currency system that existed at that time (Garg 1984). This allowed for
ease of calculations. The mudiya or modi script was evolved by the traders especially in
Western India. This was a simplified version of devnagari script that allowed continuous
flow when writing and thus allowed speed while writing the books of accounts. Although
the origins of this script are not known, it was very standard by 17th century (Garg 1984).
Apart from ease of writing, this script provided secrecy so that those ‘outside’ the
business could not understand the books of accounts. Traces of this can be seen even
today in the hat vanika employed by several Sindhi businessmen to write their account
books.

A wide range of local castes participated in the peddling trade – whether local, or that
connecting village with town. Market towns that emerged were connected to each other
and to the indigenous financial market through the network of hundis (promissory notes)
and arhatiyas (brokers, agents). These professions over a period of time came to be
dominated by communities with strong migrant tendencies as well as those who had
accumulated capital due to an already strong trading/moneylending tradition. Among
these were the Banias of Rajasthan, Gujarat and United Provinces (both Vaishnav &
Jain), the Khattris of Punjab, the Lohanas of Sindh and the Chettiars from South India.

With monetisation of the revenue system, the importance of money increased and along
with it, the importance of those that wielded it—the merchant-traders. “Rulers, warriors
and village headmen needed silver rupees, and this caused them to admit men of
commerce to a small share of power or to step into the ring as lenders and traders
themselves” (Bayly 1983, pp 163). What this meant was that the importance of the
merchant-trader was acknowledged by rulers and the state. Since the merchant networks
extended across India to areas beyond the ruler’s kingdom, they were used to pay tribute
by the rulers, and later by the East India Company to transfer their funds across the
nation. This in turn led to a situation where commerce achieved greater respectability
and the commercial magnates had a more privileged position than the military
aristocracy. This also led to an emergence of multi-caste organizations among the
merchant class. Examples are the Mahajan in Ahmedabad and the Naupatti Sabha in
Benares. 2

2.1 Business and Caste

As mentioned earlier, distance trade was the domain of communities that were either
migratory in nature or that were sanctioned by the varnashram system to practice trade.
Caste has often been considered a component that prevented “modern capitalism” to
develop in India. Whereas this may be partially true, this was by no means the only
factor. There were several other reasons why the Western capitalist model did not take
off in India. A largely monsoon-dependent, high risk, agri-based economy was an
important reason. A dispersed market with large geographical spread and therefore low
demand was yet another reason. Poor physical infrastructure and fragmented political
regime also contributed to low industrial development. Caste in fact, often played a
positive role in providing institutional support where there was a lack of formal
(regulatory and legal) institutions. Caste and kinship networks provided information
networks, credit information and acted as a regulatory mechanism that prevented default.
Caste also acted as an institution that provided opportunities, however elementary, for
individuals to become economically self-sufficient. It was not uncommon for well
established businessmen to help “settle” less fortunate caste members in their businesses
by offering employment or business patronage. Bayly (1983, p179) notes how the Dassa
Porwal Gujaratis in Benares customarily brought in poor young men from towns in
Gujarat and other regions , married them to their daughters and set them up with houses
and capital in Benares. Similar practices have been observed among the Marwaris in
Kolkatta who set up basas with community kitchens that provided lodging and boarding
to the young Marwari men who had been brought to Kolkatta by the seths as employees.
The author has made similar observations about the Palanpuri Jains and the Sindhis. 3

2
For more details see Mehta (1991), Bayly (1983, pp 177)
3
Kothari, A, “Mercantile Webs : Trade-community clusters among the Sindhis and Palanpuri Jains”,
unpublished doctoral dissertation, DDU, 2008
As seen in the earlier section, there were several commercial organizations that were
formed that transcended caste considerations. These were class-based and the binding
factor was the nature of business that the members were involved in. However caste did
play the role of restricting opportunities to within the mercantile communities by
restricting access to capital and business resources to outsiders. Thus a majority of India’s
early industrialists came from what were considered ‘the mercantile communities’ such
as the Marwari & Gujarati Vaishnavas & Jains, the Khattris in Punjab and the Lohanas
among the Sindhis. This was true through most of India’s history and even up to the
period of the ‘70s in post-independence India. Any list of India’s large business houses
would be sufficient evidence of this (the exception being the Parsi community which
became ‘mercantile’ due to a whole different set of historical reasons). Earlier, the
financial requirement for an entrepreneurial venture was not very large and
caste/community networks were sufficient to raise the required funds. However with
increase in scale and with the spread of modern banking and liberalization of the
economy, a marked shift has occurred in the caste-business nexus. One can now see a
large number of non-mercantile communities that have a significant presence in the
economy of India (examples would be the Brahmins, Mapillais, Reddys, Muslims,
Patidars, Marathas, Gounders, Jats and Kalwars)

2.2 Business and the state

The state and the traders had a very close, if sometimes antagonistic, relationship. All
rulers realized the importance of traders in generating economic growth. On the other
hand, few rulers could resist the temptation to make up shortfalls in revenue from the
easiest source—the traders. The merchants were subject to the vagaries of state policy in
terms of taxes, tolls and trading rights which were granted at the pleasure of the state. In
several cases, they were called on to make “loans” to the state (whose repayment was
uncertain, with or without interest). Often, the ruler would seize summarily all the wealth
of merchants “in the interest of the state.” 4

Bayly notes how the Hindu and later, the Mughal notions of kingship were invariably tied
up with conspicuous consumption, generosity in spending and display. Kingdoms where
aristocratic public spending was high, had a far better developed commercial tradition
than others. Therefore, a merchant who found favour with the court could obtain several
benefits for himself. The case of Shantidas Zaveri of Ahmedabad (Mehta 1991) and that
of Hira Nand Sahu in Patna (Tripathi 2004) are good illustrations. In certain parts of
India notably Rajputana and Gujarat, members of the business communities were often
absorbed in state administration particularly revenue and accounts and they had
increasing influence in matters of state policy. It was not uncommon to find that the
dewans of many states came from business communities.

A characteristic of most traditional merchant/business communities in India today is to

maintain a low profile and shy away from any ostentation in their lifestyle. Although in

4
Banarsidas cites the case of his father, whose property was seized by his patron. Banarsidas, Ardha
Kathanak ed M.P Gupta (Prayag, 1943) pp 1, 52, 58
certain cases, such as the Jains, this is by virtue of their religious practice, even the
Vaishnavas, whose religious practice is far from austere, exhibit this characteristic. This,
perhaps, is a legacy from the days when it was prudent to remain away from the public
eye so as not to be a victim of the state.

Since government policy has played a major role in development of small industry in
Asia, Rutten and Upadhya (1997) observe that businessmen use various strategies to
develop contacts with the powerful bureaucrats and government officials. In some cases,
businessmen enter the political arena directly by standing for elections as their case in
Thailand illustrates. The origins of several politicians in Maharashtra in the Sugar co-
operatives also seem to lend support to this. Whereas networks are important where
institutional mechanisms for contract enforcement are poor, the authors claim that they
remain important even in heavily institutionalized societies as seen by the fact that most
studies of entrepreneurs have found social networks to be central to their functioning—
whether in Europe or Asia

2.3 Business and Religion

It is not the aim of this section to examine the religious practice of any particular sect or
group, but rather view religion in a more general manner. The intention is to illustrate
how religion was intertwined with business practice and to get an idea of the formative
role that it played in mercantile practice.
In terms of the general economy, the role of temples in development of urban economy in
South India has been recorded. Rudner (1994) shows how the Chettiar community was
organized around their various village temples. In North India, it was the pilgrim centers
that played a similar role in stimulating the general economy of the area. The pilgrim
population was an important influence on the organization of the markets. Religious fairs
and events led to an influx of pilgrims from all over the country. Markets and bazaars that
were set up at these times were a source of income for the local trade as well as the
itinerant traders who brought their goods. The rulers also earned an income by way of
taxes on these goods. Pilgrim movement was also responsible for maintaining a flow of
funds to and from these centers. A person coming on pilgrimage from Gujarat, Bengal or
Maharashtra to Benares or Mathura would come with a hundi drawn on a local banker.
These funds could then be used by the merchants to purchase goods from Gujarat, Bengal
or Maharashtra. This maintained balance in the flow of revenue.
Another way in which the general economy of the pilgrim towns flourished was by way
of receiving donations to shrine centers. Mathura and the Braj area around it developed
because various patrons-royal or otherwise, made donations to their family shrines in this
region. Grants from Rajputana families were made from generation to generation to the
family priests in Gaya, Mathura and Benares. These grants contributed substantially to
the growth of these centres. Interestingly, with the decline of the Rajputs, the Marathas
continued to provide royal patronage to these cities. Maths, inns and other infrastructural
facilities for the welfare of pilgrims were set up.
In the case of Jains, the expenditure of merchant families on temples, bazaar and dwelling
houses made a significant contribution to the urban economy. For the Jains, the
establishment of a city as a sacred place was more or less permanent and it assured that
despite a general depression or a shift in the economic fortunes of the region, the center
would always continue to receive donations and temples. E.g. The Jains spent more than
Rupees 25 lakhs on religious buildings and public facilities in Delhi alone between 1790
and 1820 (Bayly 1983:142)
In more modern times, we see a persistence of this form of philanthropy. In any pilgrim
town in Gujarat or Rajasthan (and perhaps most of India) one will observe that prominent
business persons have set up scores of inns or dharamshalas for the benefit of pilgrims
belonging to their jati (community). Although, today some of them are not as particular,
preference is invariably given to members of their jati.
Although, by and large, the religion of the merchant was not directly relevant to obtain
patronage from the rulers, there were instances where this became a factor. The Khattris
of Punjab were mostly Nanakpanthis (a sect of Sikhism) and were therefore favoured by
the Sikh rulers at the expense of other Hindu and Muslim traders in the area. But such
cases were the exception. (Bayly 1983:140)
At a social level, religion played an important role in organizing the merchant groups.
Religious observances created solidarity among merchant groups in many areas for
instance it was usual for all Vallabhacharya sect members regardless of their caste or
region of origin to worship together at the Krishna Temple and to contribute to its
welfare. The solidarity was not only concerned with their mercantile activities. It was a
factor of urban organization that dealt with issues of local-defence associations, festivals
as well as community worship. The decline of the Mughal Empire led to self-
organisation among local bodies. Religion was one of the bases for this organization.
Revival of Hindu religion in the new states that emerged played a formative role in
setting standards for mercantile behaviour and practices. Merchant concerns were not
restricted to business alone. Construction and maintenance of temples, religious
buildings and charitable institutions were also in the purview of mercantile activity.
Status and credit in society were acquired by taking an active role in the temple as well as
the bazaar.
At an individual level, the extent to which religion was woven into the merchant’s world
is best demonstrated by mercantile practice. All books of accounts begin with invocations
to Laxmi (the goddess of wealth), and the family deity. The books of accounts are
worshipped at the beginning of the year along with the instruments of writing. These
books are not seen as symbols of materialism but as “icons of continuity, credit and
honour of the family.”(Laidlaw 1995:374) Among the merchants of North and West,
there is even a day for worship of wealth in the form of Laxmi-the goddess of wealth 5 .

5
Dhanteras on which day Laxmi is worshipped occurs two days before the festival of Diwali
The Sindhi Lohanas to this day, make a model of a shop which is worshipped. These
practices continue to be observed even today in most mercantile families. 6
This section has shown how certain mercantile practices derive legitimacy by being
incorporated into religious traditions. The interweaving of religious and mercantile
traditions ensures their perpetuation from one generation to another. These act as
markers of family as well as business values and their transition into the next generation
makes for preservation of these values.

2.4 Business and Family

The family is considered to be the primary social unit anywhere in the world. And
everywhere in the world, the family firm is the norm forming the majority of all
businesses. However, the case of India is unique due to the interrelationship seen
between the family firm and the institutions of caste, religion and family.

Conceptions of the right family, piety and credit were central to the basic operations of
the family firm as a unit. Businessmen strived to reach the goal of a respectable ‘great
merchant’. This meant playing an active role in the temple as well as the bazaar. One
had to conform to the ‘rules’ of the bazaar. The basis of the merchant’s position was his
firm’s credit or sakh in the market. This was constituted by the totality of relations in
transactions in both the commercial and the social spheres. The family and the firm were
therefore not distinct entities. The kind of marriage, the social relations that one
maintained in the community all affected one’s standing. Mercantile decisions were not
purely economic but reflected the widest implications for the life of the family as a social
group. Many of the goals of the firm went beyond mere ‘economic rent’ and
encompassed ‘incalculable social benefits’. A simplistic reading of this behaviour has
led several scholars to conclude that this social behaviour was a way of acquiring ‘status’
or ‘credit’ which could then be converted to economic capital. Although partially true,
this appears to be too simplistic. This behaviour was a result of a different ‘world-view’
and not merely calculative. The merchant household was a profit making enterprise as
well as a set of relationships through which honour and prestige were acquired and
developed. Bayly notes how as a symbolic gesture, old account books were returned to
the ancestral home in the village that the family had left several generations ago. Thus
the books of accounts embodied the honour of the family and could not be shown to
‘outsiders’.

When viewed from this perspective it is obvious that there was no difference between
perpetuation of the firm and the perpetuation of the ‘good name’ of the family. Shastric
tradition maintained that a merchant was responsible for debts incurred up to three
generations before his. Therefore, the notion of stewardship was built into merchant
families’ practice.
6
With increasing use of computers, these old bahis or books of accounts are being replaced by Personal
Computers. In a display of the strange adaptability of the Indian merchant, one finds that it is the
computers that are paid homage to with kumkum and flowers on the day of Sharada Pujan.
The issue of marriage was also linked to the family firm. This did not mean that
marriages were viewed as ‘business alliances’. But a socially unacceptable marriage
would reflect on the firm’s credit or sakh. Thus alliances had to be chosen with care and
there were a large number of rules and restrictions (over and above those imposed by
caste endogamy) that had to be followed.

Given rigidities in occupational practices, when it came to diversification, a ‘vertical

integration’ was more or less ruled out. However diversification could be carried out by
increasing scope of trade in terms of number of commodities as well as by increasing
geographical spread. The motivation for diversification was often the social obligation of
establishing various family members and making them economically self-reliant. This
ultimately resulted in a ‘trust’ based network that expanded the scope of the exiting firm.

3.0 Concluding comments

Although the account above was meant to give the reader a broad picture of the origins
and evolution of business in India through various centuries, its relevance is not restricted
to history alone. It is important to note firstly that what we see as ‘official’ globalization
in the last twenty years, is built upon centuries’ old practices of trade transactions
between different cultures and societies. Undeniably, India entered into the global market
after the opening up of economy 1991. However, what needs to be remembered is that
that was the first entry India was making after becoming a nation-state in 1947. India’s
history does not begin in 1947, much less 1991. This note has contextualized this aspect,
and also thereby emphasized that any understanding of business in India today must take
account of the past, and do justice to a society that has had sophisticated and long-
standing practices much before ‘business’ came to be taught in business schools.

In addition to a long established practice of trans-border and transnational business that

India has been a witness to, the account above also draws attention to the fact that
business studies must not be studied or taught without some understanding of ‘other’
factors tied into business. The discussion on the role of caste, community and religion
illustrates how ‘business’ never means ‘only business’, and therefore any discussion on
business in India must not be seen from an exclusively ‘professional’ point of view, one
that separates the personal from impersonal. This is not to say that factors such as the
ones outlined above make Indian business less professional, but to emphasise that the
meaning of performance and professionalism are also context-specific.
References

Banarsidas, Ardhakathanaka: Half a Tale by Mukund Lath (Translator), Rupa & Co,
2005

Bayly C. A.1983, Rulers, Townsmen and Bazaars North Indian Society in the Age of
British Expansion 1770-1870., New Delhi, OUP

Bhargava B. K. 1935 Indigenous Banking in Ancient and Medieval India, Bombay, D. B.

Taraporewala Sons & Co.

Garg, V. K. 1984 Trade Practices & Traditions: origin & Development In India, New
Delhi, Birla Institute of Scientific Research

Laidlaw James 1995 Riches and Renunciation: Religion, Economy and Society among the
Jains, Oxford, Clarendon Press

Mehta, Makrand 1991, Indian Merchants & Entrepreneurs in Historical Perspective,

New Delhi, Academic Foundation.

Rudner, D. W. 1994, Caste and Capitalism in Colonial India The Nattukottai Chettiars,
Berkeley, University of California Press

Rutten, M. & Upadhya, C. 1997, Small Business Entrepreneurs in Asia and Europe:
towards a comparative perspective, New Delhi, Sage

Tripathi, D. 2004 The Oxford History of Indian Business, New Delhi, Oxford University
Press.

© Abhijit Kothari. No Part of this class note may be reproduced without the written
consent of the author.