Business History Session 8

Business History
Indian Businesses prior to independence
Emergence of Industrial groups Bombay and Calcutta
• In the 19th century Bombay’s wealth was firmly hitched to her two
main exports, raw cotton and opium; and her leading imports
became cotton piece-goods, metals, silk and sugar and later mill
stores and machinery.
• The banias of Gujarat – both Hindu and Jain – had for long been
bankers, traders and shopkeepers.
• They were active in the coasting trade between Bombay and the
Kathiawar and Konkan, from where they bought grain,
vegetables, fruits, and mutton for the growing populace in
Bombay.
• The early decades of the 19th century also witnessed other
important commercial communities gravitating to Bombay. Chief
among them were the Bhatias, the Khojas and the Memos.

Business History
Emergence of Industrial groups Bombay and Calcutta
• The Marathas had been the original inhabitants of the island of
Bombay, but until 1818, they had their political centres in Poona
and Satara.
• In the 1864 census, only 1,728 persons were classified as
merchants or bankers. The census took place at a time when
the population of Bombay had expanded rapidly in the wake
of the cotton boom of the 1860s.
• In 1850, the bania firms of Bombay were regarded as rivalling
those of the Parsis in prosperity; they tended to specialize
particularly in banking, inland trade and money-lending.
• Bombay prospered with the growth of the textile industry,
dependent on the cotton plantations of Gujarat and the
Deccan plateau.

Business History
Growth of Joint Stock Companies : 19th & 20th centuries
• In the words of BN Ganguli in Readings in Indian Economic
History : “A form of joint stock company had come into being
about the middle of the 17th century and European
companies, particularly Portuguese and Dutch, were
competing to buy Indian merchandise.”
• The small merchants of the Coramandal coast eagerly
accepted the idea of forming joint stock companies, though
the wealthy Surat merchants did not really favour it in the
first instance.
• Generally a joint stock company comprised 5 – 10
merchants who together subscribed an amount varying from
10,000 to 150,000 pagodas.

Business History
• The emergence of the East India company, as the arbiter of
India’s political destiny, had many economic and commercial
repercussions. Upto 1834, the company had pursued a
policy of keeping other Europeans away.
• Some of the monopoly privileges had, however, been
abolished in 1813 and India had been partially opened to
free private enterprise of the British traders after Napoleon’s
defeat at Waterloo in 1815.
• The secret of the powers of the East India company lay in
their naval strength. By the close of the 18th century, they
had already attained an oligopoly, controlling a large portion
of internal and coastal trade.

Business History
• In the middle of the 19th century, the proportion of Indian
population living in large cities would seem to have been
higher than in many countries in contemporary Europe and
America.
• In the subsequent period, the rate of change towards
urbanization slowed down and picked up only after the
1920s.
• The size of the trading community was restricted by caste;
according to DR Gadgil (Origin of the Indian Business Class,
India Office Library) since India exported large quantities of
cotton textiles to Europe till almost the end of the 18th
century, it enjoyed a substantial comparative cost
advantage.

Business History
• The invention of the steamship and the phenomenal
expansion of trade and commerce with the coming of the
railways, telegraph and cable, helped the founding of joint
stock banks and insurance companies.
• As early as in the 1780s a plan for the founding of a General
Bank was conceived and , in a public meeting held at
Calcutta on March 17, 1786, the Articles of the Association
of the Bank were adopted.
• Insurance on modern lines started in India during the 18th
century. It began with marine insurance. During the last
quarter of the 18th century, Indian foreign trade was mainly
controlled by the European agency houses.

Business History
• The Oriental Life Insurance Company was founded in 1822 in
Calcutta. The Oriental Government Security Life of Bombay
came later. By 1851, there were 25 insurance companies.
The Oriental Life Insurance Company was reconstructed in
1834 and permitted to underwrite the life risk on Indian lives
also.
• There was a very severe financial crisis in 1829-32. The
European community comprising civil and military officers and
traders had mostly deposited their savings with these agency
houses.
• Consequent to the failure of these houses, the Europeans
naturally wished to promote banking companies so that
banking and trading activities could be separated and the
security of deposits ensured.

Business History
• Between 1829 and 1850, 14 new banking companies were set
up.
• The British Navy almost ruled the seas. For almost a century
from 1815 to 1914, the British supremacy remained
unquestioned. The U.S., Germany and Japan began their
industrial growth after the 1860s and 1870s, but it took them
time to catch up with and graduate to the status of world power
States.
• The passing of the First Companies Act of 1850 removed the
greatest obstacle in the growth of companies by according
them the privilege to sue and be sued.

Business History
• Beginning with 1790, during the next 67 years, the British
introduced far-reaching changes in the landholding, land
revenue, education and legal systems of the country, which
made investment in land quite attractive.
• The first iron works, the Porto Novo Steel and Iron company,
was set up by one Health, who was an Engineer.
• The first person to start coal mining was incidentally a British
magistrate of Chhotanagpur. The servants of the company
also possessed administrative experience and to this was
added their asset of having a host of friends in key positions in
the Government.

Business History
• The Bank of Bombay was established in 1840, with a share
capital divided into 5,225 shares of Rs. 1,000 each. 38% of the
shareholders were Indians subscribing 1,553 shares.
• Among the Indian shareholders Parsis were the dominant
group followed by Gujarati banias, Bohras, Khojas and
Memons.
• The first shareholders’ list of the Bank of Madras, incorporated
in 1843, contained the names of 237 persons who subscribed
2,700 shares of Rs. 1,000 each. Only 18 of them were Indians
– 9 were North-Indians and the rest were Chettis.
• The Assam company was constituted in England in 1839 with
the object of setting up tea plantations.

Business History
• The Capital stock of the Company was divided into 10,000
shares of 50 pound sterlings each. The Bengal Bonded
Warehouse was incorporated in 1838 and had a subscribed
capital of Rs. 1,000,000.
• Of the first 171 shareholders, 45 were Indians, mostly
Bengalis.
• The market for shares was limited to the relatively small
number of Europeans in the country and, among Indians, to a
handful of wealthy Chettis in Madras, a small community of
Parsis and other merchant communities in Bombay, and the
Bengali elite of Calcutta.

Business History
• The Union Bank of India raised capital in Jan. and May 1836,
in April 1837, in Jan. and May 1838, and in June 1839. The
capital was increased from Rs. 1,500,000 to Rs. 10,000,000.
Banking issues were almost over subscribed. The servants of
East India company looked for safe and long term commitment.
• The Indian Companies Act of 1850 was highly significant. This
was also the first time that the Government of India had shown
a legal interest in commercial institutions.
• 1853 marked the opening of the first railway line. 1854 saw the
beginning of the first truly national industrial enterprise when
Covasjee Davar started a textile mill in Bombay.
• In 1855 Auckland and Sen in Calcutta started India’s first Jute
mill.

Business History
• The Act of 1857 permitting limited liability to joint stock
companies provided a further impetus.
• Although the number of commercial banks in India had
increased, the facilities for financing companies did not
improve to any significant extent.
• The total paid up rupee capital of all Indian companies working
at the end of March 1901 amounted to a bare 25 million pound
sterlings.
• During the 1850s, the merchantile community underwent
changes of great significance.
• The Parsis were trading in close association with the
Europeans in cotton and opium and were also associated in
shipbuilding.

Business History
• Besides, some of them were already trading with China.
Jamshedji Jeejibhoy, Khurshedjee Rostomjee Cama,
Nusserwanji and Jamshedji Tata, all started their tutelage
(Authority over someone) and went to China.
• The East India Iron company was founded in 1850 by a body
of Madras businessmen with a capital of 40,000 pound
sterlings.
• The growth of trade between India, China and Australia,
resulting from the progress of steam communication, made
the business of exchange and remittance very attractive for
the banks.
• The Merchantile Bank of India was initially started in Bombay
and only afterwards moved to London.

Business History
• In 1856, the British Parliament passed an Act allowing
companies, except the banking and insurance ones, to be
formed on the principle of limited liability, and this example was
followed in 1857 by the Indian Legislature.
• The development of railways and the tariff policy set the pace
for the type, location and development of industries. A revival
of interest in the tea industry was to grow even more in the
latter part of the 19th century.
• The Financial Association of India and China was formed on 22
June 1864, with a capital of Rs. 10,000,000. In the early 1865,
there was an enormous increase in the number of new projects
that were floated. In 1864-65, 48 other banks and financial
companies registered between 1863 and 1865 amounted to
amounted to Rs. 206,000,000

Business History
• A 150 odd companies, barely a few months old and without
having declared a single dividend, were able to command a
premium.
• By the end of June 1866, the collapse was complete. Ovder
60 merchants lost over a million rupees each. Of these, the
liabilities of 24 bankruptcies alone amounted to Rs. 190 million,
and of the others to Rs. 70 million.
• The liquidation of estates and companies continued upto 1872.
The Bank of Bombay returned only about Rs. 100 on a fully
paid share of Rs. 5,000.

Business History
• 776 companies were registered all over India between
Jan.1866 and March 1882. The rate of new registrations had
almost doubled. Of the 1,149 companies registered in India
during the entire period from 1851 to 1882, only 503 had
survived by the end of March 1882.
• 58% of the total number of companies that had closed down
had been registered in Bombay, and only 16% in Bengal,
36.6% had trading and other interests; 22.7% were banking
companies; 12.8% were engaged in screwing and pressing jute
or cotton; 7.2% had coastal and river navigation business; and
6% were doing insurance business of various types.

Business History
• Cotton, Tea and Jute mills together accounted for more than
half of the aggregate paid-up capital at the end of March 1882.
Cotton was by far the most important from the viewpoint of the
capital employed.
• The opening of Suez canal in 1869 had provided an impetus to
the nascent industries in the Bombay port area. Until 1869 the
distance from Europe to Calcutta and to Bombay was almost
equal as the ships had to come ia the Cape of Good Hope and
Colombo.
• By 1882, 10,069 miles of railway lines had been laid. The first
cable service between Europe and India was established in
1866. While coal was sold at about Rs. 4 per ton in Calcutta,
Bombay still found it cheaper to import coal from Britain.

Business History
• The agricultural sector in the country exhibited growth.
Between 1891-92 and 1900-01, the area under cultivation went
up from 168 to 181 million acres.
• The years 1882 to 1901 were those of significant development
for corporate enterprise. During this period, 2,692 companies
were registered and the annual registrations increased four
fold, but at the same time as many as 1831 companies also
became extinct.
• Indian entrepreneurs like Jamshedji Tata realized the need for
high standards and were at the forefront of high quality and
good management and were pioneers in ring spinning at the
same time as in the U.K.

Business History
• By 1896, 16,000 miles of new railway lines had been opened
for traffic. There were also great extension in the no. of post
offices and telegraph stations that were established in the
country.
• By 1900, the telegraph had fully come into its own. In 1885,
the rate for overseas telegrams was reduced by half.
Telephones were also being increasingly used. There were
also improvements in shipping and port facilities.
• Electricity, first used in the cotton industry around the mid
1890s, made it possible for the mills to run extra shifts.
• The Bombay stock market was first organized

Business History
• JN Tata was the first industrialist to realize that such a course
of action would be profitable. The Bombay cotton mills were
largely pioneered by the Parsis, the Gujaratis, the banias,
the Bohras and the Jews.
• The Marwaris had gained control of a number of jute
pressing and baling companies. Within the last two decades
of 19th century they had come to be the mainstay of the
share market.
• The Marwaris came to dominate many sectors of the
economy in the wake of World War II, boom in 1943-46 and
the takeover of erstwhile European companies in the post-
war period of 1950-60.

Business History
• From 1880 to 1883, the jute industry enjoyed a degree of
modest prosperity. In 1894 many mills installed electric
lighting and worked 14 to 15 hours a day.
• At the end of March 1895, the jute companies numbered 13
and their aggregate paid-up capital amounted to
Rs.14,634760.
• At the height of the boom, in Aug.1896, the share of jute
companies was quoted at Rs. 30 to 75. The industry
continued to make moderate profits until the end of the
century.

Business History
• The rupee paid-up capital of all tea companies, at the end of
March 1901, amounted to about 8 percent of the total paid
up capital of all rupee companies. Towards the latter part of
the 1890s, many rupee companies were converted into
sterling companies.
• The demand for Indian tea had increased enormously.
England had originally been a coffee consuming country and
the Lloyds of London, the famous underwriters of insurance,
entered in the coffee business in the 17th century. England
switched over to tea later.
• The coal mining industry received its first breakthrough in the
middle of the 1850s when the East Indian Railways was
linked with the Ranigunj coalfields.

Business History
• It was cheaper to obtain coal from Calcutta first by means of
coastal and later by railway transport.
• At the end of 1900, the capital expenditure of the Indian
railways amounted to 196 million pound sterlings. The
Punjab National Bank had become very important by 1900. It
had been established in 1895 largely by Arya Samajists.
• The Indian joint stock banks, which were owned mainly by
Indians, concerned themselves mainly with internal trade
• Many insurance companies were formed during the period of
the cotton boom in Bombay, and at the end of March 1896,
there were 183 insurance companies, and their total paid-up
capital amounted to Rs. 899,010.

Business History
• The Bharat Insurance company limited was registered in
1895 and it had been set up with the help of Lala Lajpat Rai
and Lala Harkishan Lal.
• The sugar industry tended to expand rapidly towards the end
of the last century, though it really grew in the 1930s and
1940s, when protection was granted.
• In Bombay, the Indians were dominant in the business of
shares and stocks. In 1860, the number of brokers had
increased to 60 and at the height of the cotton boom, there
were as many as 200 to 250 brokers in Bombay.

Business History
• The Companies Act passed in 1956 made very strict
provisions regarding the terms of appointment of managing
agents, the duration of their office and the methods of their
remuneration as also what their powers and duties would be.
• Banking operations were the first to develop the principle of
the joint stock company. The first joint stock bank, General
Bank of India, was formed in Calcutta in March 1786; it was
promoted principally by the Europeans in the service of the
East India company.
• JN Tata revolutionized the whole concept of management
and displayed a determined will for ushering in a new
industrial order.

Business History
• Apart from Greaves Cotton, and Tata Sons, M.Petit, Morarji
Gokuldas and Mangaldas Nathubhai managed their mills in
an enlightened manner.
• The Cotton textile industry in Bombay assumed national
importance after 1871. The Parsis and the Gujaratis were in
the lead. There was a heavy (50%) fall in the price of jute
shares in 1874.
• India’s imports were over Rs. 700 million annually during the
last decade of the 19th century. The capital employed ini the
industrial sector of India at the end of 19th century amounted
to a bare Rs. 400 million.

Business History Session 8

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Business History Session 8