Indian Economic and Political

History

Term I Pre- Mid-Term

2019-20

Session 5

Rajesh Bhattacharya
Email:
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Emergence of Modern Industries in
India

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European Agency Houses
 Since 1813 (EIC loses monopoly in trade), private traders enter.
 European private traders adopted a business organization called
agency houses, so called because agency houses
a) acted as business agents for others against a fee and
b) agent of a firm in London
 Agency houses participated in China trade (opium) and indigo
trade.
 Agency firms needed Indians as agents—known as banians—to
assist them in a myriad ways. The banian was the centre of the
operation and received a percentage of sale proceeds.
 Indians have their first encounter with modern business forms and
ideas ( as they first developed in Europe) as banians and agents of
the European Agency firms.

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 Comparison: Variables explaining emergence of
modern industrialists in Ahmedabad, Bombay and
Calcutta
a) Occupational background: whether industrialists
came from trading/banking background or
artisan/manufacturing/technical background
b) Attitude of colonial state: To what extent British
colonial rule hindered or promoted industrial
development
c) Minority status of community (religious , caste-
based etc.): migrant traders as minority
community in host society often succeed more
than the native majority community; Max Weber
argued there is a strong connection between
religion and entrepreneurship

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Industrialization in Eastern
India: Marwaris in Calcutta

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Major Industries in Calcutta
 Jute industries in Bengal—controlled by the
Scots. At the time of World War I, all the 50 jute
mills were under the control of European
managing agencies, and 97% of the directorial
positions were held by Britons.
 The Britons managed 86 % of tea plantations.
96% of the largest tea companies had board of
directors that were exclusively British .
 47% of the firms in coal industry were managed
by non-Indians. 89 % of the major collieries were
controlled by European, mostly British, firms.

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The entry of Marwaris in
Industries
 The Marwaris had kinsmen scattered throughout
India which helped them in networking; they have
been present in Bengal for long.
 They dealt as brokers, banians, sub-contractors,
agents to Europeans, making themselves almost
indispensible to trade practices.
 They operated in trading of opium, spices, jute,
etc.
 They amassed capital in trade, finance and
speculation (using instruments like futures and
options).

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Entry of Marwaris into industry
Marwaris moved from trade into industry in 2 ways after
WWI—
i) The establishment of new jute mills and collieries
ii) Steady purchases of shares in companies controlled by
European managing agencies, to a point where Marwaris
could first force their way into the boardrooms and then
take over the firms
 The Marwaris provided the British with raw jute, short-
term credit, and long-term loans. The British did need
mediators in trade and finance, but did not welcome the
Marwaris.
 Scottish arrogance and consequent business hostility.

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Industrialization in
Western India: Parsis in
Bombay

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The Western Scenario in the first
half of the 19th century
 Bombay, coming later under the British rule,
was spared the worst excesses of the early
decades of the Company rule.
 Also, the Bombay Presidency being a
chronically revenue-deficit area, depended on
remittances from the Bengal Presidency, which
made the EIC dependent on merchants and
bankers.
 Bombay replaced Surat by the middle of the
18th century as the main port on the West.
 The Europeans made their base in Bombay and
drew Indian merchants and shipbuilders,
particularly Parsis, from Surat area.
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The Parsis of Bombay
 The relationship between the Parsis and the
British in Bombay was a continuation of their
positive relationship in Surat.
 As the Parsis in Surat were economically
independent and prosperous, the British had to
create an attractive economic environment to
persuade them to migrate to Bombay.
 The Parsi community had a unique
relationship with the British. They were more
‘Westernized’ than the other communities.
They were loyal to the British during the
Mutiny in 1857.

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Opium Trade
 Since 1770s the fortunes of Indian merchants were
linked to the China trade. Opened up opportunities
for merchants in Ahmedabad, Surat, Broach,
Cambay, Baroda, Bombay.
 In Western India, opium trade remained a
clandestine operation. Malwa opium was grown in
regions within a princely state. Thus its supply was
controlled by indigenous merchants; private Indian
merchants shipped it to China and earned profits.
EIC couldn’t stop this and hence had to legalize
opium trade against export permits.
 In contrast, in Bengal, production and trade of
opium was tightly controlled by the Company.

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Parsi industrialists
 The pioneers in the Bombay textile industry came
almost entirely from among the Parsi traders, shippers
and financiers of Bombay
 The Parsis started their careers as traders (in opium and
raw cotton). Then, some became formal brokers to
British trading houses and, finally, diversified into the
cotton industry.
 Parsi tradition was to send their sons to work in the
British firms, where they could learn on the job. The
European businesses in Bombay warmly welcomed
these trainees.
 Yet, others—Hindus, Muslims, and Jains—also became
increasingly important in this period.

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Difference between Western and
Eastern India
 Bombay benefitted from the large class of merchants
from Gujarat, with a larger ethnic and communal
diversity—Hindus, Parsis, Muslims, Jains etc.—in
Bombay business circle.
 In the East, business was entirely dominated by
Europeans, until challenged by the Marwaris in a bitter
business fight colored by racism. Bombay benefited
from a “more dynamic atmosphere of emulation and
competition” and “less racial and communal strife”.
 The Bombay industries also showed greater flexibility to
adopt innovations and tackle changing market
conditions, including orienting themselves towards the
domestic market.
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Industrialization in Western
India: Hindus/Jains in
Ahmedabad

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Ahmedabad
 After 1818, the British officially began to rule
Ahmedabad. but the old city preserved its
traditional structure of guilds and castes as well as
its commercial outlook.
 The Indians built Ahmedabad. British did not
have a major role in commercial life of
Ahmedabad.
 In the early 18th century, many weavers, traders,
and artisans fled the city because of the war
between the Mughals and Marathas.
 Stable administration by the British brought back
indigenous traders and weavers who settled there
again in the nineteenth century.

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Mode of financing Ahmedabad
textile mills
 The occupational background of the textile industrialists
in Ahmedabad differed from that of their counterparts in
Bombay.
 None of them had any experience in a British trading
firm or had ever worked as a broker for a European
trading company. Some of them profited handsomely
from cotton trade during American Civil War. They
mostly came from banking background. Ranchhodlal
Chhotalal, who set up the first mill in Ahmedabad, was a
Hindu civil servant.
 Banks and shareholders financed Bombay’s mills to a
greater extent than in Ahmedabad. Ahmedabad mills
were financed by small individual deposits for a fixed
interest rate. 24-26/08/2020 IIM Calcutta
Occupational Background of
Pioneers in Indian industries
 In India, the early industrialists had a
background of trading, banking and
speculating.
 Indeed, they were not artisans, craftsmen,
technicians, or mechanics (i.e. people
connected to manufacturing) who had owned
small workshops and then expanded.
 This is often cited as the major difference
between Indian and British industrialization

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Attitude of colonial state
 In Calcutta, Indian businessmen were
excluded from the upper ranks of the
business hierarchy and faced British racism
and hostility.
 In Bombay partnerships between Europeans
and Parsis were a common feature and there
was much less hostility and discrimination.
 In Ahmedabad, the colonial state displayed
neither a positive nor a negative attitude
towards Indian businesses.

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Minority status and religious background
of pioneer industrialists
 Marwaris in Calcutta: They were Hindus
and Jains from Marwar; the British
considered them insiders but the Bengalis
considered them outsiders.
 Parsis in Bombay: Initially, they were a
majority, later they became a minority
since 1850s.
 Hindus in Ahmedabad: Majority
community and insiders.
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