Stock ledgers from the 1800’s sit on a shelf. (Photographer: Christinne Muschi/Bloomberg)

Tales Of Trade: The Origins Of Indian Business  

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.

Tales of Trade: How The Railways Transformed India, But Didn’t Make It America

The railways were born of the industrial revolution, and like the English language, they helped to unify India. They had a profound effect on millions of lives as people began to move and merchants began to send their goods to distant parts of the country.

But how did British capital, which also built railways in America, bring about an industrial revolution there? And why did it fail to trigger an industrial revolution in India? The railway network had neglected freight, and also that its construction had bypassed significant geographical parts of the country. This is because the Indian railways were designed by the British to exploit natural resources and only use it as a means to export finished goods.

Moreover, India’s agriculture remained stagnant. You cannot have an industrial revolution without an agricultural surplus or the means to feed a rapidly growing urban population.

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Tales Of Trade: The Modern Corporation’s Roots In The East India Company

The modern corporation is, indeed, a child of the East India Company and there is much to learn from the mother’s failures and successes. In its extraordinary history lie answers to the great questions faced by business people throughout history—how to mitigate risk, raise capital, build trust with customers and suppliers, motivate employees, keep shareholders happy and achieve a harmonious relationship with society. The Company was one of the pioneers of the shareholder or joint-stock model of corporate enterprise. By separating investors from the professional managers who ran the business, it achieved a division of labour that made it more efficient. Unlike the ‘owner’ or ‘partner’ model of business, it was able to distribute risk widely—it shielded shareholders from losses as they were only responsible up to the value of their paid-up capital. Since it was a ‘legal person’, it could act independently beyond the interests of its investors.

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Tales Of Trade: Managing Agencies, India’s First Venture Capitalists

The managing agency system evolved in the second quarter of the nineteenth century as an answer to the scarcity of venture capital, lack of trained managers, undeveloped capital markets and political uncertainty. For centuries, business in India has been concentrated in the hands of trading communities, the vaishyas, who have run it as a family firm. The managing agency structure played to their strength as innovative financiers. It provided them a low-risk means to either buy existing weak industrial enterprises or start new ones.

With all these advantages, managing agencies were quickly successful, and the innovative structure became popular both with British gora and Indian desi business communities; it went on to guide India’s entry into modern industry, trade and commercial agriculture over the next century and a half.

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Tales Of Trade: 19th Century Bombay And The Draw Of The Rule Of Law

Until the post-Mughal regional kingdoms stabilised the wandering life of a merchant entailed risks of every kind. Hence the merchant sought the protection of a city. But Bombay offered much more. Hence Banias from commercial centres all over western India began to stream into the island, bringing with them an abundance of entrepreneurial dynamism. As a result it acquired its peculiarly cosmopolitan character early on. Anyone could rise to the top as long as he had what it took. The stories of Jamsetjee Jeejeebhoy and Premchand Roychand are testament to this. Public philanthropy brought respectability to commerce and dignity to the bourgeoisie, as our author explains in some detail.

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Tales Of Trade: The Delicate Balance Between Risk And Trust

The business world rewards those who take risks. The incredible achievements of the Marwaris have often been credited to their extraordinary risk-taking ability. 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. 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. A lesser known story is that of Ramkrishna Dalmia, which illustrates that success doesn’t last long if it isn’t based on trust.

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Tales Of Trade: How ‘Dharma’ Anchors Business And Markets

If more people understood that markets are sustained by moral notions (such as dharma), capitalism and the business world would not have such a poor image in the public mind. It is a mistake to think that the market is based solely on greed and profit-maximizing behaviour. In fact, Adam Smith, the profoundest thinker about the market, was clear about this. The dharma texts constantly remind us that there is a right and wrong way to conduct business dealings.

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