Bulls In The Pen

This anecdote is worth recounting because Indian entrepr­eneurs, especially the big corporate houses, have lately been at the receiving end for not displaying the necessary ‘animal spirits’. Given the prevailing propitious circumstances with the Chinese somewhat down in the dumps, it is believed by some that the inertia in displaying an aggressive investment stratagem may well end up as a case of missed opportunities for lifting the Indian economy to commanding heights. It has also given rise to serious misgivings about whether it is in India Inc’s DNA to even do so, given the historically predominant merchant background of the major corporate groups.

Actually, the historical track record of Indian entrepreneurs seems to suggest that they are anything but risk averse, which would imply that perhaps we are all barking up the wrong tree. The story of the rise and growth of the Indian entrepreneurial class in Imperial India against odds and in a less than a favourable environment fits the bill of an innovative and risk-bearing entrepreneur.

The Indian entrepreneurial class was a product of colonial commercialisation during the 19th century. The development of commodity markets provided the necessary impetus for the Indian merchant class to grow and flourish. The financing of the export trade in primary products from the hinterland to the ports—in principle, commodities such as opium, raw cotton and jute, oilseeds among others—as well as the distribution of the imported manufactured goods back to the interiors was almost exclusively in the hands of merchants from distinct business communities. These were all extremely risk-laden commercial activities, as was the very process of the development of credit and trade networks straddling across regions within and outside India.

The ability to mobilise capital with relative ease in a sit­uation of underdeveloped capital markets, access to mar­ket intelligence information on investment opportunities, and a natural propensity for risk-bearing activity together swung things in favour of the merchants from traditional business communities. It enabled them to move into industry with great alacrity when opportunities emerged. The entry of Indian merchant capital into the textile industry in the course of the 19th century in Bom­bay and Ahmedabad and later into jute by breaking thr­ough the Scottish oligopoly and somewhat later into other industries are clearly illustrative of fairly pronounced risk-bearing entrepreneurial behaviour.

The shift from trade and commerce into modern industry was not always easy and smooth. It required mobilising both short- and long-term capital at a time when capital and credit markets were imperfectly developed. Imported technology had to be adapted to suit local Indian conditions. The labour force, largely unskilled, had to be appropriately trained. Above all, the manufactured goods had to be pushed into the then highly competitive and fragmented market. All these were inherently extremely risk-laden operations and Indian entrepreneurs weren’t found to be hesitating to take the plunge since the climate for investment was favourable.

Illustration by Saahil

There is no dearth of the display of animal spirits in investment behaviour by Indians during this period either. The decision by the Tatas to enter steel production as far back as 1907 (Tisco), and later in the 1940s, the foray by many firms into technology and capital-intensive sectors like automobiles, aircraft manufacture, sewing machines and textile machinery are all illustrative of very aggressive entrepreneurial investment behaviour. Some examples—Birlas (Hindustan Motors & Texmaco),  Walchand (Premier Automobiles), Sriram (Jay Engineering Works, later Usha) and Naidus (Textools, later lmw) among others.

These investment decisions were perceived by a historian, Rajat Ray, as a clear case of overreach being influenced by “larger considerations of economic nationalism” rather than by “normal business considerati­ons”. Actually, isn’t the animal spirit entrepreneurial attribute itself influe­n­ced and shaped by the investment climate in a given historical context? Fur­thermore, if one notices a marked sluggishness or slowing down of investment in manufacturing or even in the supply of new entrepreneurs, shouldn’t one view this as part of the general cyc­lical process of boom and depression specific to capitalist development itself rather than point fingers at capitalists?

There is also a noticeable tendency to attribute the relative sluggishness in ind­ustrial investment to the traditional commercial moorings of Indian capital. It is argued that deep down, Indian industrialist were merchants, with an obsessive concern for quick and short-term gains, and unwilling to commit to projects involving long gestation periods. This is a specious argument as the Indian evidence clearly reveals.

It needs to be stated rather unambiguously that the notion of an unalloyed, pure industrial capitalist in the historical context of Imperial India is nothing more than a textbookish concept and one drawn heavily from the European experience. Even a cursory examination of the investment portfolio of most major industrial houses in Imperial India reveals that they rarely came anywhere close to representing the archetypal industrial entrepreneur who, having realised the commercial possibilities of factory production, relentlessly chose to concentrate their investment in industry.

On the contrary, investment in industry was primarily conditioned by the need for developing a diversified investment portfolio with a view to minimising risks and maintaining a high rate of accumulation. This, of course, did change, though gradually and unevenly, in post-independence India. The recent trend of large corporate houses entering the area of retailing reinforces the need to move away from such binary distinctions.

Moreover, hand-holding and the protective embrace of the state is not unique to India. The world over, capital has flourished precisely with the support of the state. Even the much-touted successful Korean chaebols experiment would have been infructuous without the support of a proactive Korean state and Japanese capital.

There is a fairly vocal and influential body of opinion that strongly maintains that the nascent Indian state, under the stewardship of Nehru, erred in opting for the import substit­uting industrialisation (ISI) development strategy. It is arg­ued, though counterfactually, that alternate strategies of eco­nomic development, especially the Korean model of ELI (export-led industr­i­alisation), would have yielded significantly different results for the better. The system of controls and regulations, integral to the ISI framework, by favouring the privileged few had the long-term eff­ect of seriously stifling the creative instincts of private enterprise. It is said to have den­ied a level playing field to those with entrepreneurial instincts. That it was only starting with the mid-’80s and the dismantling of the controls associated with the infamous permit raj that private enterprise got to breathe freely.

Though part of this storyline is not inaccurate, it is nuanced enough to accommodate the complexities inherent in this process of transition. The Nehruvian state did not start its developmental agenda on a clean slate. The historical baggage of colonial development, with all its incongruities inherited by the post-independent state, heavily influenced the options before it. Clearly, the import-substituting industrialisation programme was possibly the only path that the state could opt for given the structural features of Indian capital. The Indian capitalist class lobbied hard to ensure that this was so. The Bombay plan of 1944 is a reflection of the broad consensus towards the ISI model. Indian capital, despite its visibility, was in the late 1940s still rather fragile and vulnerable and required the protective umbrella of the state for growth. Whether it does so now is another matter altogether.