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Forging Capitalism in Nehru’s India
Oxford University Press
India’s capitalist class has historically arisen from the bazaar. Our businessmen have also, since medieval times, been known for their various trading and financial innovations — from the hundi (an indigenous bill of exchange-cum-mobile credit and long-distance remittance facility) and goladari (warehouse receipt financing), to fatka (futures) and teji-mandi (put and call options) contracts. The same creativity has been seen even in more recent times in various rotating savings-and-credit funds (chits, nidhis and kuries) and the stratagem of selling pan masala and shampoo in sachets.
The flip side of the bazaar supplying the basis for capital accumulation, however, has been the businessman’s general detachment from the production process itself. Unlike moneylending or buying and selling of commodities — which merely redistribute value already in existence — it is production in factories and farms, and innovation in laboratories, that really create new value and products. But given that businessmen in India’s time-honoured caste system were predominantly recruited from the Vaishya or mercantile order within the varna vyavastha, production was never in their DNA, so to speak. The Shudra and Dalit castes responsible for actual production, on the other hand, did not possess the capital to progress beyond being artisan-entrepreneurs.
The end-result was that a true industrial capitalist class couldn’t emerge, as the mainstream Vaishya businessmen — the only ones with money and capital — found it more expedient to allocate their resources for trading, usury and speculation in the bazaar.
The present book is interesting not for stating the obvious — the Indian business class’ largely merchant/moneylending/speculative origins that made it less inclined to invest in industry, research and other long-gestation projects. That even the industrial ventures of the old Bania-Marwari conglomerates weren’t independent of their larger trading, financial and speculative interests, is an established fact. The surpluses from industrial concerns were often, indeed, diverted to non-industrial activities and other group firms — so much so that adequate provision wasn’t made for depreciation of equipment, leave alone technological upgradation and modernisation.
The author, Nasir Tyabji, is equally right in emphasising the role of the managing agency system, which allowed promoters to float joint-stock companies and run them the way they chose to, with all the advantages that limited liability conferred: until 1913, Indian companies weren’t required to even have a board of directors, while it was only in 1936 that a clause mandating managing agents to be appointed by shareholders’ resolution was introduced.
Tyabji’s real focus, though, is on the post-Independence Nehruvian period that, he claims, was notable for attempting social engineering in order to “nurture the development of entrepreneurs with a truly ‘industrial’ frame of mind”. Integral to this was administrative coercion along with policy measures for “extending the time horizons of the business community” and “transformation of a class of merchant-usurers into industrialists”.
Now, there’s no doubt — and this is something even scholars like Pulapre Balakrishnan have pointed out — that economic policymaking had some amount of ‘integrity’ during the Nehruvian era, with the state being relatively independent of corporate and other special interests unlike today.
Also, it’s true that unethical business behaviour and profiteering by Indian capitalists during World War II, followed by rampant bazaar speculation and evidence of financial manipulation as revealed by the investigations into the operations of Haridas Mundhra and the Dalmia-Jain group, did not particularly endear the business class to the general public. It led to a series of actions — including removal of tax rebate eligibility on company reserves not utilised for upgradation of plant/machinery and steps culminating in the abolition of the managing agency system in 1970.
But whether these measures — extensively documented by Tyabji based on Jawaharlal Nehru’ private papers, among other things — amounted to ‘social engineering’ is a moot point. Controls on reserves with a view to discourage their ‘non-industrial’ utilisation, or abolishing managing agencies to make companies purportedly board-managed entities accountable to shares, hardly helped in creating a genuine industrial capitalist class in India. Nor did the Indian state, during Nehru’s time or afterwards, really seek to ‘discipline’ capitalists a la South Korea or Taiwan. Indian capitalists, at the end of the day, have failed to transcend their fundamental ‘Vaishya’ character.
The Ciplas, Dr Reddy’s Labs, Bharat Forges or Mahindras, and even initiatives such as the Tata Nano, are exceptions to the larger reality.