Cambridge: Cambridge University Press, 2018. xiv, 298 pp. (Tables, maps, illustrations.) US$36.95, paper. ISBN 978-1-316-63748-7.
This wide-ranging and illuminating book links the history of business in India to broader global and national trends across three centuries. Tirthankar Roy, a distinguished economic historian, compellingly synthesizes a vast body of primary data, secondary sources, and scholarship that is “usually narrative, biographical, and regional” (2). He contends that the development of capitalism in India is best understood through the lens of powerful constraints imposed by scarce capital and knowledge, and the forces, principally integration with the world economy and state intervention, that enabled businesses to surmount these obstacles.
Two sets of theoretical concerns frame the study. The first is the slow development of industrial capitalism in India. As in his earlier Economic History of India 1857–1947 (Oxford University Press, 2011), Roy challenges the idea of a “Great Divergence” between the West and India (and a fundamental incompatibility between India’s social structures and entrepreneurship) by pointing to the numerous businesses and industries that flourished in the colonial period. He also argues, more controversially, that integration with the British Empire enabled access to scarce capital, new technology, and world markets, and thereby eased constraints to the development of capitalism that predated colonialism.
While caste and community ties did help to bridge gaps in contracts, information, and finance, Roy contends that these ties were less important in facilitating entrepreneurship than is commonly thought. Business communities (Chettiars, Marwaris, Parsis, Bohras, and others) were internally heterogeneous, and communities supported entrepreneurs only after a venture demonstrated its viability. Weak social ties were often decisive in the success of an enterprise, especially in the cosmopolitan port cities. And over time, community networks were eclipsed by more developed capital and information markets.
The organization of business is the second theoretical issue that animates the book. Family firms, not joint stock corporations, were the modal form of enterprise in India. Indo-British enterprises in the colonial period were organized as “managing agencies” that usually entailed a partnership that would manage several (often publicly held) companies. Like family-dominated conglomerates in India today, managing agencies did business in many unrelated areas. Roy suggests that both forms were adaptations to scarce capital and managerial talent, with the family brand now serving the reputational function of the erstwhile managing agency, while raising similarly tricky questions for corporate governance.
Roy’s account begins in the twilight of the Mughal Empire, which knit trade together across the Indo-Gangetic plains in textiles, wool, horses, jewels, crafts, and luxuries. A separate, cosmopolitan sea trade, sponsored by smaller coastal states, consisted mostly of cotton textiles transported by substantial Indian shipping merchants. After the Mughal Empire disintegrated, the British East India Company consolidated its hold over the subcontinent, united the inland and coastal zones, and sparked a migration of merchants to the emerging coastal centres of Bombay, Calcutta, and Madras.
As competition from Industrial Revolution-era Britain intensified, some domestic Indian industries, such as hand-spun cotton textiles, ironwork, and long-distance shipping, collapsed. But merchants prospered by facilitating new British-backed trades and shipping in indigo, tea, cotton, and opium. Plagued by a weak financial system and high capital costs, the volatile markets in these goods generated perennial conflicts between peasants, landlords, and moneylenders.
The advent of Crown Rule, after the British successfully quelled a major rebellion in 1857 (with the crucial support of Indian businessmen), sped India’s integration with the world economy. This integration was accelerated by a free trade regime; standardized property and contract laws; steamships, railways, and the telegraph; and a new (albeit minimal) administrative and military apparatus.
International trade in grains and cotton boomed. This trade underwrote purchases of capital and skilled labour from abroad by new companies engaged in manufacturing, trading, and banking. The domestic textile industry revived, and new exporting industries emerged in goods such as jute fibres and tea. Although family firms remained commonplace, there was a trend towards increased formalization, as well as the growth of Indo-European managing agencies and Indian conglomerates.
Foreign demand for grains and jute collapsed after World War I and agriculture stagnated. But Roy argues that productivity in manufacturing and trade continued to rise, in contrast to the thesis that colonialism and capitalism produced only drain and deindustrialization. “Capitalism went right,” he suggests, while “[p]easant production went wrong” (73).
After World War I, big industrialists, allied with nationalist politicians, successfully lobbied for protective tariffs for sectors such as textiles, iron and steel, and chemicals. The tariffs imposed conditional and negotiable duties on goods (such as Japanese textiles) coming from outside the British Empire. Roy argues that this discretionary feature had a salutary impact in some cases—the government pushed Tata Steel to become more efficient—while failing in other cases, notably in the fragmented cotton mill industry.
A similarly uneven record would blot India’s post-independence policy, which emphasized heavy industry and discouraged trade. Freed from foreign competition, large incumbents plied consumers with substandard goods, while manipulating the “License Raj” to restrain new entrants.
Yet, the policy regime was not a complete victory for business. To conserve and allocate capital, the state monopolized major sectors including heavy engineering, oil, fertilizer, telecommunications, and banking through inefficient public corporations (that perhaps merit greater consideration than they get in the book). Moreover, Roy notes, the losers among private business receive scant scholarly attention. They “traded, banked, ran small firms, and ran the exporting managing agencies” (157). These smaller enterprises, the engine of pre-World War I growth, withered. Their fortunes only turned with India’s reintegration with the world economy in the 1990s.
Roy’s work will not settle enduring debates on the impact of colonialism or the influence of community networks on entrepreneurship. Nonetheless, it is an engaging introduction and landmark study in the history and politics of business in India. By documenting (indeed celebrating) diversity and divisions within India’s myriad entrepreneurs, communities, and firms, Roy’s work shifts scholarship beyond the perspective of “capital” as a monolith with singular interests. Scholars will profit from examining how political competition among these divergent interests influences democracy and development, at a moment when international integration threatens to reverse itself, with far-reaching implications for the future of business.
Gautam Nair
Harvard University, Cambridge