A Business History of India: Enterprise and the Emergence of Capitalism from 1700, 2018

The world economy is in distress due to the pandemic and some economies are being impacted more than others. Regrettably, India seems to be in the category of being one of the hardest hit economies with Bloomberg reporting that the Indian economy may suffer for the next five years, (19 November 2020). This gloomy forecast is a sharp reversal from the high growth estimates from just a few years ago. Then, the world was captivated by India’s rising stature in the world economy, and now India is staring at the risk of losing its growth status. Tirthankar Roy’s book A Business History of India is essential reading that presents a balanced point of view about the Indian economy with a holistic perspective of the pitfalls and the potential of the Indian economy.

The book uncovers a consistent pattern of challenges and opportunities through its evidence based analysis of the 300 years of Indian business history (1700 - 2015). These patterns reveal the benefits of globalization while also reminding us about the cost of protectionism. The author defines globalization in the Indian perspective as “the capacity to buy knowledge from the world” (240). This is a unique book about Indian business history where the author has analyzed the important eras of Indian history – Mughal Empire, East India Company, British Rule, and Independent India through a common lens of three themes: access to capital, integration with the global trade, and the migration of labour. The data driven analysis along these themes uncovers an authentic tale of consistency and continuity across the different eras. The author is a well- known scholar in Indian business history and is currently a professor of Economic History at the London School of Economics.

There is a detailed explanation about the challenges encountered by entrepreneurs in India across the 300 years due to the inefficient and ineffective financial system. The nature of challenges has changed over the years, but the characteristics have remained similar as the high cost of capital continues to compel entrepreneurs to explore alternative ways for financing. This alternative way of raising capital was through community networks in the 18th century while in the 21st century, this is done through the political network. The capital market has started to provide entrepreneurs with more options to raise capital, albeit the percentage of market capitalization to GDP is still hovering slightly lower than the global average.

The book convincingly argues about the importance of globalization across all eras and this sentence aptly summarizes this: “India sold grain and cotton in the 1800s and software and clothing in the 2000s. These are different types of trade, but both acts of sale created the power in private hands to purchase know-how and skills abroad” (258). The growth of the IT sector shows the rise of entrepreneurship through better integration with the global network instead of any political or family network. The comparative advantage of labour and the global experience of entrepreneurs created the capacity to develop the skills required for exporting IT services. This in turn increased labour migration and improved the balance of payments.

The book has critically analysed the role of the state in business across different periods. The period of the Mughal Empire and East India Company was marked by the trading of agricultural products without the existence of any mechanism to enforce contracts. The British rule in the 19th century created legal and contractual framework along with the infrastructure for ports and railways. These structural developments propelled the growth of trade (agriculture goods and textiles) between India and Britain and this growth eventually led to investments in industrialization. Tata group’s origin illustrates the role of trading in industrialization. Jamshetji Tata used profits from global trading to set-up a cotton mill, and then to start a steel factory after gaining the know-how from his global networks. This example also illustrates that global know- how played an important role in the survival and growth of certain companies like Tata while many family run companies succumbed to capital or trade issues. The author concludes that Britain encouraged free trade between Britain and its colonies, but they did not build an overarching economic policy for India.

In the twentieth century, there was a rising sentiment in India against trading as the nationalist movement saw trading as both immoral and anti-national. These negative perceptions about trading continued even after independence, and as a result India adopted restrictive trading policies. This led to a downfall of several trading businesses and a decrease in private investments. During the period of 1950-1980, the state was the largest investor as India pursued a Soviet style “import substitution” industrial policy. The government heavily invested in industries such as steel, coal, aviation, telecom, power etc.

Indian government started to ease the trading policies in the 1980s and this spurred growth in private investments and the rise in the integration of the Indian economy with the global network through joint ventures. Bell Canada had a joint venture with Tata.

Indian economy went through extensive reform in 1991 to open most of its sectors to private investment. This stimulated the growth of the Indian economy to a higher level, (6-8% in 1993- 1996). It also increased the percentage of private investment to GDP. Aviation, telecom, and banking were some of the sectors that were opened for private investments in the early 2000s and this led to euphoria and exuberance in these sectors. However, this euphoria was short-lived as most of the companies in these sectors subsequently went through distress. Over expansion, lack of corporate governance and political interference are cited as key reasons for this downfall.

The book has ignored the geopolitical constraints of the 1950-1980s. India was embroiled in military conflicts with its neighbours - Pakistan and China during this period and the global trading policies and frameworks were not well developed. These factors would have influenced India’s trading and industrial policy. This shortcoming aside, this is a must read book for business historians as it highlights the significance of globalization for sustained economic growth.

The frameworks laid out in this book can be applied to not only evaluate the current problems in low productive sectors of the Indian economy, such as agriculture, where 41% of the population works while the sector only produces 16% of the country’s GDP. Perhaps, more importantly the author also provides a lens through which the history of other economies can be critically analysed.