Tales Of Trade: The Delicate Balance Between Risk And Trust

This is a series based on The Stories of Indian Business Series: 10 Extraordinary Tales of Trade, published by Penguin Random House and edited by Gurcharan Das.

The Marwaris: From Jagat Seth to the Birlas

- By Thomas A. Timberg

The business world rewards those who take risks. The incredible achievements of the Marwaris have often been credited to their extraordinary risk-taking ability. ‘You don’t want to compete against a Marwari!’ is the wisdom of the bazaar. GD Birla’s colossal success in the market for jute futures during the First World War, which laid the foundation for the Birla family’s entry into industry, is credited to his phenomenal appetite for risk.

Less well known is the remarkable story of Ramkrishna Dalmia, about which he wrote in his book Some Notes and Reminiscences in 1948 which he published through the press of the Times of India, the famous newspaper that he owned.

Dalmia came from arid Rohtak in Haryana, not far from Rajasthan, the homeland of the Marwaris. Although his great-grandfather was one of the wealthiest men in India, young Dalmia grew up in penury in Calcutta during the 1930s’ Depression. Dalmia was twenty-two when his father died and he had to support his mother, grandmother, three sisters and his wife in a single room that he had rented for Rs 13 per month. He was young and adventurous and wanted to get rich quickly. He had speculated in silver and lost and suffered the humiliation of defaulting on his debts. Declared insolvent, he had become persona non grata in the marketplace. He was down and out without a rupee to his name when he received a telegram from London informing him that the market for silver was set to rise.

Dalmia rushed to the bazaar and entreated his friends and associates to buy silver. But he was spurned and laughed at. He next went to a wealthy astrologer, who had predicted that Dalmia would one day grow very rich. The astrologer agreed to purchase silver worth £7,500, for which young Dalmia would earn only Rs 100 as commission. The astrologer also gave him Rs 10 for sending the telegram. Since he did not have the fare for a tonga, Dalmia jumped on to a tram to the general post office and sent off the telegram.

The next day, as he was praying during his daily dip in the Ganga, a messenger came from the astrologer and told him to cancel the transaction. Dalmia was stunned and he rushed to the astrologer and pleaded before him, reminding him of his prophecy, but to no avail. On his return home, he received a telegram confirming the transaction along with the bad news that the market had gone down and that he had lost half the capital the same day. The market, however, turned very quickly in the next few days and since he had not squared his account, he suddenly found that he had made a significant profit.

Trust Is At The Heart Of It

One of the lessons of Dalmia’s story is that trust has a central place in business life. When Dalmia defaulted on his debt, he broke a promise, and the market punished him swiftly. By losing the trust of his peers in the market he turned from a somebody to a nobody, a terrible thing to happen to any human being. William James, the American philosopher, explained in his classic, The Principles of Psychology that

no more fiendish publishment could be devised than that one should be turned loose in society and remain absolutely unnoticed…If no one turned around when we entered, answered when we spoke, or minded what we did, but if every person we met ‘cut us dead’ and acted as if we were non-existent things, a kind of rage and impotent despair would ere long well up in us.

The fact is that our self-worth is held hostage to the opinion of others, and while we may not admit it, the truth is that we all seek to be ‘somebody’.

In the world of Marwaris and Banias the word for trust is sakh and it is linked closely to honour.

It is a crucial indicator of a merchant’s standing. Sakh is at the heart of creditworthiness and business integrity and means much more than wealth and financial strength. It is acquired through an unblemished record in honouring obligations, being generous to the needy and having a philanthropic outlook. The cotton trader Ramvilas Poddar began as a humble dalal or broker in the raw-cotton trade but soon reached an eminent position in the bazaar by quickly building a reputation for honesty and acquiring sakh within the community. This helped Poddar set up an independent brokerage and encouraged older and established firms to entrust their money to a newcomer in the bazaar.

GD Birla, who established the great Birla fortune as we have just mentioned, confirms the importance of sakh. In describing Birla’s life as a jute trader, Medha Kudasiya tells us that most of his transactions in buying raw jute or selling the finished product were based on the trader’s word. The commodity fluctuated on a daily basis and there were often great swings in price between morning and evening. Sellers and brokers presented their offers on a rough sheet of paper in the morning but the mills took their decision in the evening. The offers were invariably honoured, no matter how the market fared during the day.

My friend Raju Kanoria, who also started his life in the jute business and went on to become a president of FICCI, the prestigious chambers of commerce, corroborates that at the East India Jute & Hessian Exchange prices were confirmed on a handshake. He went on to add that a similar system based on trust operated in the case of finished stock. The jute mills held finished goods in stock for buyers against Pucca Delivery Orders made months in advance and the mills never dared to default on them. When Kanoria was eighteen he had the good fortune to meet GD Birla whose only advice to young Kanoria was ‘to trust people if you want to succeed’.

- Edited excerpt from Gurcharan Das’ introduction to the book.

Watch Thomas Timberg, in conversation with Gurcharan Das, on the history of India’s Marwari business tycoons.