The politics of textiles: the Indian cotton-mill industry and the legacy of swadeshi, 1900-1985 9780803994409, 0803994400, 9788170362968, 8170362962

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The Politics of TEXTILES The Indian Gotton-Mill Industry and the Legacy of Swadeshi 1900

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J*

1985

S R B Leadbeater

THE POLITICS OF TEXTILES

I

THE POLITICS OF TEXTILES

The Indian Cotton-Mill Industry and the Legacy of Swadeshi, 1900-1985 N-/

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lea db eate r

Sage Publications New Delhi • Newbury Park • London

To my mother and father, Diana and Gordon Leadbeater C opyright© Simon Robert Brough Leadbeater, 1993

All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 1993 by Sage Publications India Pvt Ltd 32 M-Block Market, Greater Kailash I New Delhi 110 048 Sage Publications Inc Sage Publications Ltd 2455 Teller Road 6 Bonhill Street Newbury Park, California 91320 London EC2A 4PU Published by Tejeshwar Singh for Sage Publications India Pvt. Ltd., phototypeset by Micron Computers & Allied Services, New Delhi and printed at Chaman Enterprises, New Delhi. library of Coagress Catalogiag-ia-PabUcattoa Data

Leadbeater, S. R. B. (Simon Robert Brough), 1961The Politics of Textiles: The Indian Cotton-Mill Industry and the Legacy of Swadeshi, 1900-1985 / S.R.B. Leadbeater. p. cm. Includes bibliographical references and index. 1. Textiles industry—India—History—20th century. 2. India—Politics and government—20th century. I. Title. HD9866.I62L43 1993 338.4*767721 0954—dc20 92-17600

ISBN 81-7036-296-2 (India) 0-8039-9440-0 (U.S.)

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CONTENTS List of Tables

6

Glossary

7

Preface and Acknowledgements

9

Introduction

1. 2. 3. 4. 6.

12

The Growth of the Indian Cotton-mill Industry and the Decline of British Imperialism The Social Origins of Entrepreneurship and Industrial Finance The Economics of Class Solidarity and the Nationalist Cause Independence and the Transfer of Power Patterns in the Evolution of India’s Textile Industry

Conclusion

29 66 96 144 193 247

Appendix I

: A Biographical Compendium of Interviewees

266

Appendbc II

: Statement of Textile Policy

266

Appendix IH

: Reservation of Articles for Production by Handlooms

274

Bibliography

292

Name Index

303

Subjsct Index

308

LIST OF TABLES 1.1 1.2

1.3 1.4 2.1 3.1 4.1 4.2 4.3 5.1 6.2 6.3 6.4 6.6 6.6

Growth of the Cotton-mill Industry in the First Half of the Twentieth Century Imports of Cotton Piecegoods (Grey, Bleached, Coloured and Printed) from the United Kingdom into Bombay, Calcutta and Madras from the years 1885 to 1947 India’s Trade in Cotton Piecegoods and Yarn India’s Trade and World Production Figures in Gold, 1925-35 Investment in the Ahmedabad Textile Industry Vicissitudes in the Rupee Exchange Rate, 1898-1931 A Guide to the Rates of Excise Duty on Millwoven Cloth Growth of Revenue from Excise Duty on Cotton Cloth and Yarn (in crores of rupees) Cloth Allocation for the Second Five-Year. Plan Production and Availability of Cotton Cloth in India (1900-1939) Total Production of Cotton Cloth, 1951-81 State-wise Distribution of Authorised Powerlooms in 1981 (in thousands) Estimates of Production in Handlooms and Powerlooms, 1956-81 (million metres) Closure of Mills The Growth of the Indian Cotton-mill Industry

34

34 36 62 78 122 173 174 178 208 208 212 214 229 229

GLOSSARY AMA

Ahmedabad Millowners’ Association

ATMA Composite Mills

Ahmedabad Textile Mills' Association Mills with both spinning & weaving facilities East India Cotton Association Federation of Indian Chambers of Commerce and Industry Gujerat Textile Corporation Indian Cotton Mills’ Federation Indian Merchants’ Chamber, Bombay International Textile Manufacturers’ Federation Artisan & trading societies akin to the medieval guilds found in Britain Millowners’ Association, Bombay Northern India Cotton Textile Mills’ Association National Textile Corporation A manufactured textile commodity non-violent non-cooperation

EICA FICCI GTC ICMF IMC ITMF Mahajans MOA NICTMA NTA Piecegood Satyagraha SIMA SITRA TLA

Vaishnava Vanias

South India Mills’ Association South India Textile Research Association Textile Labour Association - founded Ahmedabad and otherwise known as the Majoor Mahajan. A Hindu trading caste prevalent in Gujarat

PREFACE AND ACKNOWLEDGEMENTS This book concerns the rise and fall of some of the most powerful and richest businessmen in India, the pioneers of India’s industrial revolution. Paradoxically they reached the zenith of their economic power and political influence when British days in India were drawing discernibly to a close. After a decade of Indian history the Indian cotton millowners’ business prosperity began to decline, and maintained a low ebb until perhaps the late 1980s, forty years after independence. Industrial policy had been liberalised under Rajiv Gandhi, but the benefits of the textile policy promulgated in 198S were only some years later beginning to be felt by the larger manufacturing concerns.1 When I visited The Millowners’ Association in Bombay (MOA) I was struck by the faded portraits of former presidents of the association in the entrance hall; mainly parsee knights and baronets. The offices themselves had a Dickensian charm if redundant air, something confirmed by my conversations with the people who worked there. When I later met Sir John Burns in Dunblane, Scotland, he seemed surprised and saddened at my description of the MOA offices. He had been president in 1936 before returning to Britain to join the Board of James Finlay and Company. In 1956, he told me, millowners were still the pre-eminent businessmen of Bombay, and the offices of their association reflected this reputation. Something must have happened in the next thirty years. In my view British India was an environment more conducive to the social status and economic activities of millowners—and for them to exert political influence, even if it was obliquely directed against the British—than the India which was to take shape after 1947. Equally, I would argue, some of the ideals associated with the independence movement have been forgotten with the decline of the mill industry. Millowners, and the cotton they produced, were bound up in the patriotic struggle through sw adcshi. In independent India Mahatma Gandhi’s support for the handloom weaver has been remembered by his political heirs more than the millowner’s support for Gandhi. 'M. Rahman, ‘Textile Industry. On the Upswing', India Today (15 January 1987) pp. 53-54.

10

The Politics of TextHes

My research in January to July, 1986, took me the length if not breadth of India. At every stage I was received with considerable hospitality and helpfulness. I should like to thank the millowners and managers I met, who talked about their industry and experience of pre-independent India. This was slightly unexpected as I know some writers have encountered difficulties in obtaining data and background information while conducting research in this field. Dr. John Harriss said he and the historian Raman Mahadevan: found it impossible to obtain access to company records, or even get members of the big mill families to talk. I have the impression that it may be particularly difficult to do research... because the big concerns... are still closely organised family concerns.2 I should like to mention some individuals, not all of them associated with the textile industry, who were particularly welcoming during my stay in India. I am grateful for the hospitality of the Rt. Revd. Magbul and especially his wife, Mrs. Jane Caleb for the opportunity to stay at Bishop’s House in the centre of New Delhi opposite Rashtrapati Bhavan. I should also like to thank Professor Aswini Ray of Jawaharlal Nehru University, who was my first academic contact in India and who has subsequently contributed to having this book published. In Delhi I am also grateful to Dr. Vinay Bharat Ram, of Delhi Cloth Mills, and to Dr. Sanjeev Gupta and Mr. V.K. Majumdar, for permission to use the resources of the Federation of Indian Chambers of Commerce and Industry. In Bombay I should like to thank the Bombay Millowners' Association and the Indian Cotton Mills' Federation, particularly Mr. D.K. Athvankar and Mr. S.T. Nathan respectively. The latter was indispensable for making contact with millowners in and around Bombay. In Ahmedabad Professor V.L. Mote of the Institute of Management was very helpful, as was his secretary Mr. Janardhana Rao. Of the millowners in Ahmedabad I should especially like to thank Mr. Madanmohan Mangaldas and Mr. Gautam Sarabhai, the latter with whom I established a very useful correspondence since leaving India. In Coimbatore I made contact with the Lakshmi Mills Company. I must in particular thank Mr. G.K. Sundaram for his kindness while Correspondence from John Harriss, School of Development Studies, University of East Anglia. Dated 19 July 1985.

Prcfac« and AcknowtedgMnent«

11

in Coimbatore, and since leaving I owe a debt to the company secretary, Mr. B.N. Perumalswamy, for maintaining a lengthy correspondence. I should also like to thank Mr. D. Varadarajan of Sri Varadaraja Textiles Private Ltd. However, in Coimbatore 1would have met comparatively few millowners had it not been for Dr. P.V. Veeraraghavan, deputy director of the Southern India Textile Research Association. He introduced me to a great many people connected with the industry. Back in England I was fortunate enough to meet Mr. Neville Wadia, who I am also grateful to for maintaining a lengthy correspondence. I should also like to thank Mr. Ramlal Parikh, of the Gujerat Vidyapith, who in recent correspondence has been most helpful in providing evidence of Gandhi’s early relationships with Ahmedabad industrialists. I am grateful to the Economic and Social Research Council, which provided me with a studentship to study at Oxford and for my fieldwork in India. I should like to thank the librarians of the Indian Institute in Oxford, particularly Dr. Simon Lawson. The librarians of the India Office Library, London, were also most helpful. Special thanks are due to my supervisor Mr. Gavin Williams, whose encouragement sustained me throughout my time in Oxford, and even managed to maintain contact during my fieldwork. I should also like to thank Mr. Vijay Joshi for his guidance and support in publishing this work. In this connection I should also like to thank Dr. Vernon Hewitt, with whom I travelled in India, and who has been of invaluable help since. Finally I should like to mention Mr. Alex Gunasekara, who introduced me to the problems of Third World Development as an undergraduate, and sparked the interest in India to culminate in this book. Milton Keynes June 1991 S.R.B.L.

INTRODUCTION THE EVOLVING STRUCTURE OF THE INDIAN COTTON INDUSTRY Textile manufacture is India's oldest industry, having existed on a factory footing for nearly one hundred and fifty years. The most significant features in the industry's history are the circumstances of its birth in the 18S0s, and the factors which led many cotton millowners in the late 1980s to describe it as a ‘sunset’ industry.1 From the 1850s, changes in global trading patterns rocked the economic foundations of the Empire and resulted in shifts in investment from agricultural commodity production and trade to industry. Perhaps surprisingly, the main reasons for the industry’s decline after the colonial period were the circumstances resulting in independence and their subsequent influence upon the development of post-independent India. At the beginning of the Second World War India was the second largest textile producer in the world after the United States.2 In the early years following the war India was the third largest exporter of textile products, followed closely by Japan.3 In the 1950s4and 1960s,5 however, the so-called newly industrialising countries, (the NICs) of South Korea, Hong Kong and Taiwan as well as Pakistan, and Japan, each substantially eroded India’s share of the world market. Indian cotton manufacturers lost their market share to more efficient competitors, in part because they concentrated on the domestic market and as a result lacked the compulsion to modernise.6 The Indian industrialisation process illustrates ‘the achievements and problems of a large country with stringent policies of import-substitution’.7 In contrast, ‘from its very inception, the export-oriented industrialisation of Hong Kong [for example] has developed under conditions of unrestricted free trade and an explicit policy of laissez-faire’.* In the 1980s India improved her export performance; as well as being easily the largest producer of woven cloth, a position held by America before the war,9 India was the largest exporter of cotton

Introduction

13

piecegoods, her nearest rivals being Hong Kong and Japan.10 India's exports of yam remained indifferent being outstripped by South Korea and Taiwan in particular, but also by a number of developed countries.11 Paradoxically, this improved export performance coincided with one of the ‘worst phases in [the cotton industry’s] chequered history’.12 The fate of the Indian textile industry has always been determined more by domestic considerations rather than in her ability to secure export markets. From the late nineteenth century India’s textile industry sustained a rapid rate of growth by displacing the imports of British piecegoods. But this commitment to import substitution in many respects has come to blight the industry’s future. Protectionism clearly reserved the Indian market for Indian producers. But from 1947 the millsector’s share has been progressively eroded by decentralised handloom and powerloom weavers and millowners proved incapable of compensating for a shrinking home market by improving their export performance. Factory cotton manufacture in India, as with industry in general, was introduced by the British in the wake of their political conquest of the subcontinent. The first cotton-mills were set up in the 1820s by either East India Company employees or colonial administration officials, some thirty years before either British or Indian businessmen took an interest in investing in cotton manufacture. In the 1850s Indian businessmen set up textile units in Bombay, but not without the collaboration of British partners. The first centre of Indian entrepreneurial initiative was Ahmedabad, where the early mills were financed by local capital and managed exclusively by Indians. Broadly speaking, India’s economic relationship to Britain in the first half of the nineteenth century was one of supplying primary produce (raw cotton, spices, indigo, etc.) and providing a market for manufactured goods. Additionally, India’s exports to countries other than Britain contributed to making up a deficit in the British balance of payments. The trade in opium from India to China was probably the first instance of Indian exports bolstering the British trade balance through a third country. However, from about 1850 the world demand for raw materials began to decline, reducing the value of India’s exports. This caused considerable revenue problems for Britain, and disrupted India’s internal economy; rural producers and indigenous bankers suddenly discovered that they would not

14

The Politics of Textiles

receive as high a return for their crops or agricultural investment. The result was an influx of investment into manufacturing enterprises, and cotton-mills in particular, which hitherto had been ploughed into agriculture or the trade in primary commodities. The cotton industry in India has always possessed a diverse structure. In the eighteenth and early nineteenth centuries India had a reputation for handicrafts of very intricate designs which were consumed largely by the princely courts, but which also found a considerable market in Europe, Africa and the Americas. The international trade in handicrafts was, however, all but obliterated by the mid-nineteenth century by the invasion of cheap British imports into India and the operation of import controls into Britain. What remained were weavers producing for the local needs of the village. They produced mainly khadi cloth, in which yarn was spun and cloth woven, by hand. The cotton-mill industry which emerged in the 1850s can be divided into two sub-sectors, being concentrated most heavily in Bombay and Ahmedabad. In these centres although the early mills started up with only spinning capacities, very soon the vast majority were functioning as composite mills, that is, they were designed to spin yarn and weave cloth. Both centres continued to expand from their inception (in the 1850s for Bombay and a little later for Ahmedabad) until the 1930s, when simultaneously, with the growth rate of western India’s textile industry appearing to falter, there developed in Coimbatore, south India, a textile centre made up almost exclusively of spinning mills. The main reasons for this were first, that the mills started by supplying the demand for yarn from the handloom weavers in Madras, and second, that the Madras provincial government was not sympathetic to mill managements’ requests to expand into composite operations. Thus before independence there were two sub­ sectors in what can be described as the organised and decentralised sectors. The organised sector comprised spinning mills in southern India and the composite mills of the north. Within the decentralised sector there were small-scale producers who both spun and wove khadi cloth by hand, and there was the new development of handweavers who took their yam from the mills. After independence this structure evolved to accommodate a considerable expansion of the decentralised sector, and the growth of spinning mills within the organised sector. Government policy remained sympathetic to the decentralised weavers and imposed

Introduction

15

restrictions on the millsector. With the dramatic increase in population, however, there was a corresponding increase in the demand for cloth. This demand could only be met by the introduction of the powerloom, since government policy intended that new cloth requirements should be met by the decentralised sector. The powerloom was a hybrid creation, sharing some of the techno­ logical advantages of the mills, but by virtue of belonging to the decentralised sector was largely exempt from the government’s punitive regulations. The emergence of the powerloom to become the largest component of the decentralised sector has proved to be the single most significant factor in the textile industry’s evolution. It has had a crucial impact on the development of the other sectors, especially the organised sector. Since independence practically the only growth in the number of mills has been in spinning units, found mainly, but not exclusively, in the south, which thrived on the increased demand for yarn from the powerlooms in the decentralised sector. The composite mills of Ahmedabad and Bombay, by contrast, have been in decline, largely due to severe competition encountered from powerloom woven cloth. The millowners in these cities, for something approaching a century, had been the undisputed industrial elite. If there has been a decline of the textile industry in general, this has not corresponded to the health of some of its constituent parts. Rather other sectors of textile manufacture have expanded and prospered at the expense of the composite mills. The central question raised in this book is why has the composite mill sub-sector been in decline since independence. The explanation lies in the dynamics of what will come to be understood as the problem of intersectoral conflict. Intersectoral conflict has its structural antecedents in the involvement of millowners in nationalist politics and in their support for the swadeshi movement. In its basic appeal swadeshism urged Indians to buy goods manufactured at home instead of buying British imports. But for the millowners it inexorably led to divisions on a regional and sector basis, in as much as different centres of the industry produced different products for different markets. From the outset Ahmedabad produced for the Indian market, in direct competition with British imports. Bombay, which always had closer commercial links with British businessmen than Ahmedabad, initially focused on producing yam for export to China. Having lost this market in

16

The Politics of Textiles

the early years of this century, turning to the home market they encountered stiff competition in the shape of Japanese imports, and significantly not those emanating from Britain. This led to Ahmedabad millowners becoming fairly vociferous in their support for nationalist causes, while their Bombay counterparts were more reluctant to participate in the Non-cooperation or Civil Disobedience protests. Anything which promoted the sale of Indian goods had to be seized upon by a new industry unsure of its market. The swadeshi movement, however, developed as a theory as early as the nineteenth century, at a time when nationalist politics were the reserve of English educated Brahmins. After Gandhi’s return from South Africa and particularly his ascension to the leadership of Congress in 1920 it became a vehicle for mobilising India’s vast rural populace. But when Gandhi asked Indians to buy Indian cloth, he meant khadi cloth. While he accepted that Indian mill cloth was a good second best, and readily accepted financial contributions from millowners, this was largely for reasons of political expediency. Gandhi considered that the mills starved villages of piral employment; in consequence the swadeshi movement encouraged a set of values in relation to industrial development which questioned the legitimacy of the very existence of an organised millsector. As a political legacy after independence these values were translated into government textile policies. In giving support to Indian nationalism the millowners embraced an ideology antithetical to their long-term interests. C.V. Radhakrishnan, the Secretary-General of the Indian Cotton Mills’ Federation (ICMF), describes the place of textiles in the nationalist struggle in which the mills do not feature at all: The struggle for freedom was inextricably linked with the spinning wheel. The swadeshi movement was symbolised by the bonfire of foreign textiles and the cry to restore the pristine importance of Indian artisans and craftsmen particularly engaged in textile manufacture. The spearhead of the freedom movement included wearing of khadi, charka-spinning and [the) boycott of foreign textiles and other goods. With the dawn of Independence, the policy makers began to give form and content to the various economic concepts they preached during the freedom movement.13

Introduction

17

The first policy-makers to give content to the economic concepts preached in the swadeshi movement were situated in Madras State. There the chief minister, T. Prakasam, curbed the spinning mills’ ambitions of becoming composite and had as a long term aim the closure of the mills. He was followed by C. Rajagopalachari, one of Gandhi’s closest allies on the conservative wing of Congress, who vigorously pursued the same policies of trying to shut down mills. The other factor militating against government policies sympathetic to millowning interests after independence were the socialist leanings of the first prime minister, Jawaharlal Nehru. After independence Nehru’s ideas on socialist planning, with an emphasis on heavy industries, were much more influential than Gandhi’s policy towards village reconstruction. The textile industry was unfortunate enough to fall between these two stools; on the one hand, cottonmills did not comprise heavy industry and as such could not receive the government’s full support, and on the other, they clearly were not particularly labour intensive, nor located in rural areas. Because of this they could not contribute to the government’s attempts to provide employment through decentralised agencies. Thus the twopronged ideological bent of the new government was likely to operate against the healthy working of the cotton-mills, either through a socialist and nationalist concern promoting producer goods’ industries, or the more Gandhian emphasis on supporting rural producers. My contention is that the cotton millowners’ contribution to the nationalist movement helped unleash political forces which ultimately were to act to their detriment. It might be argued that they had little choice, that they tried to make their own history but could ‘not make it under circumstances chosen by themselves, but under circumstances directly encountered, given, and transmitted from the past’.14That is, other than supporting the colonial government (which a minority did) they had to choose between Nehru’s socialism or Gandhi’s ‘rural idiocy’. They chose the latter in large part due to the clever manoeuvreing of G.D. Birla, a Calcutta Marwari millowner. But while Nehru’s socialist strategy was watered down, the legacy of the millowner’s support for Gandhi resulted in post-independent government policies which discriminated against the mijlsector in favour of decentralised weavers, and must, therefore, in large measure explain the difficulties experienced by the composite mills from the mid-1950s to the present day.

18

The Politics of Textiles

With independence the political legacy of the swadeshi movement resulted in government policies which supported the decentralised sector of cotton manufacture. In turn, this inevitably led to contemporary regional and sectoral divisions amongst millowners, but this time on a north-south basis and between spinning and composite mills. The southern spinning mills have interests in common with decentralised weavers rather than northern millowners. They approve of the government’s positive discrimination in favour of the decentralised sector, while northern millowners attribute blame for their own problems on the very same policies. This encouraged a series of ad hoc government policies, which attempted to mollify one sector at any given moment in time, but which failed to recognise, let alone reconcile, conflicting interests of a basic economic kind. The outcome was that finally, after four decades since independence, the textile industry reached an impasse in 1985, initiating the promulgation of a new textile policy.

SOCIAL THEORY AND THE STUDY OF INDIA'S TEXTILE INDUSTRY

Explaining the relations of economic phenomena to political processes engages a form of ‘economic sociology’ which is concerned ‘with the relations between the economic and non-economic aspects of social life—how they overlap, how they influence one another’.15 ‘Economic sociology is the application of the general frame of reference, variables, and explanatory models of sociology to that complex of activities concerned with the production, distribution, exchange, and consumption of scarce goods and services’.16 Sociology in this sense attempts to understand the influence of politics on the economic and vice-versa. Sociological explanations are also ‘necessarily historical’.17 Sociology, according to C. Wright Mills, should attempt to make the forces of history intelligible to the individual: Seldom aware of the intricate connexion between the patterns of their own lives and the course of world history,... men do not usually know what this connexion means for the kinds of men they are becoming and for the kinds of history-making in which

Introduction

19

they might take part. They do not possess the quality of mind essential to grasp the interplay of man and society, of biography and history, of self and world. They cannot cope with their personal troubles in such ways as to control the structural transformations that usually lie behind them.18 The history and biographies I am concerned with relate to that of India’s textile industry, contrasting its development in colonial and post-independent periods, and employing accounts of some of the individuals who influenced and witnessed that development. In the colonial period the most immediately definable political force to have had widespread support from textile manufacturers was that of nationalism. Rostow and Myrdal are theorists who have identified nationalism as a impetus to industrial growth among developing countries. Rostow treats nationalist-oriented growth as a reaction to advances by international competitors while Myrdal regards it as arising from the vicious circle of impoverishment that develops in the relations between developed and underdeveloped nations.19 In particular colonialism and the political and economic imbalances it incurs, along with exposure to western education and ideas, have stimulated nationalistic sentiment, which acts as a powerful stimulant for economic development: Nationalism is a sine qua non of industrialisation, because it provides people with an overriding, easily acquired, secular motivation for making painful changes. National strength or prestige becomes the supreme goal, industrialisation the chief means. The costs, inconveniences, sacrifices, and loss of traditional values can be justified in terms of this transcending, collective ambition.... To the degree that obstacles to industrialisation are strong, nationalism must be intense to overcome them.20 In India, the component of the nationalist movement which aimed to bolster the sale of Indian manufactures to the detriment of British imports was the swadeshi movement. For the post-independence period the emphasis shifts from social factors like nationalism, which may have given an impetus to textile manufacture, to the political constraints which may explain the cotton-mill industry’s recession. George Rosen argues that independence led to shifts in political and

20

The Politics of Textiles

economic power and thus to the development policies of the FiveYear plans, and that these policies in turn influenced the distribution of political and economic power: ‘The development plans and policies become the very stuff of politics, with decisions being determined by political action, and the effects of those decisions in turn having profound political consequences for the party of administration responsible for the decisions’.21 The Indian cotton-mill industry emerged during an important period in India’s history, from its earliest beginnings in the 1850s, a time when the economic functioning of India within the Empire was starting to change, and then later in the early twentieth century, when as a more mature industry its prosperity became linked with the politics of national liberation. By 1935 Indian industry had successfully competed with, and had virtually taken over, British industry’s share of the Indian market. My main question does not concern how this occurred, but rather the effect this pattern of development had on the industry’s future. At independence India’s textile industry appeared to be on a footing to compete with the rest of the world, only to lose out to the NICs abroad and to the decentralised sector at home. We must ask what intervened to prevent the millsector from fulfilling what in the early 1950s was considerable promise of prosperity and expansion? The key factor, I will argue, was the impact of post-independent government policies, implementing a number of economic strategies in relation to industrial development which have their origins in a central component of the ideology and politics of the nationalist struggle. METHODOLOGY AND RESEARCH SOURCES

My concern is to explain the uneven development of the textile industry since 1947 in relation to its development in the colonial period. The focus of my study lies with that of millowners and managements, and not with powerloom or handloom weavers. Moreover, my aim is not to understand the growth of nationalism in the pre-independence era or the ideology behind successive government textile policies discriminating against the millsector since 1947. Instead my methodology and research sources have led me chiefly to investigate how a class of businessmen attempted to

Introduction

21

manoeuvre within what were for them external political and social forces, in so much as they did not create them, or very much influence their creation, or outcome. The swadeshi movement was something millowners tried to manipulate as late-comers, attempting to direct a social current which they played no part in initiating, and over which they had little control as to its result, for after independence they were largely excluded from the political process of formulating textile policy. This has become the crux of the millowners’ problem: ‘they cannot cope with their personal troubles in such ways as to control the structural transformations that usually lie behind them’.22 A sociological analysis is best suited for an investigation of the economic behaviour of millowners in the light of political constraints placed upon them in both colonial and post-independence periods. Comparing the millowners’ involvement in nationalist politics and their attempts to lobby the government after 1947, as well as making comparisons between the policies of the colonial government and its successor, also necessitates a historical dimension to the study. The main reason for the textile industry’s decline after independence lies in the direction of government industrial policy; however, the thinking underpinning the government’s industrial strategy is derived from the past. It would be wrong to assume that millowners- ever shared a consensus of opinions. Bombay and Ahmedabad millowners had different material interests, and there were often political divisions between millowners who were for or against Congress. In attempting to understand the political position of the miUowning class as a whole, or the divisions within it, a biographical approach can be employed. Key individuals became the spokesmen of factions within the millowning class at particular junctures in their relationship to the nationalist movement. A good guide to the political postures adopted by the various chambers of commerce at different stages in the nationalist struggle can be gleaned by looking at the political activities of some of the more famous millowners involved with them. The usually conservative Indian Merchants’ Chamber (IMC) forced Sir Purshottamdas Thakurdas to resign from the Chamber’s executive committee, followed by thirteen senior members, because he attended the Third Round Table Conference with the government in 1932. Following Gandhi’s imprisonment earlier in the year all employers’ associations followed Congress’s lead in boycotting the

22

The Politics of Textiles

Conference, which suggests a radicalisation of business opinion in general, if not of Sir Purshottamdas. Later in 1936 the Bombay Manifesto was signed by leading conservative businessmen who objected to Jawaharlal Nehru’s brand of socialism, following his Lucknow speech as the president of Congress. Then in 1944 the Bombay Plan appeared to support much of the post-independence planning that Nehru himself envisaged. Thakurdas was a signatory to both documents. Most millowners initially rejected swadeshism; then when they saw they could profit out of swadeshism and/or could not effectively resist it, they tried to control it. But, with the significant exception of G.D. Birla,23 they demonstrated very little awareness of the historical forces with which they were involved. Freedom for India was clearly going to liberate some people more than others, just as the Raj imposed its constraints on freedom very selectively. The colonial administration rarely acted expressly on behalf of Indian manufacturers, but the ‘functional representation’ of many employers’ associations, not least the millowners’ associations, effectively enfranchised industry in the reformed local and national legislative assemblies after 1937. Outside the assemblies they could form alliances with British businessmen to lobby the government, suggesting that they had some influence, and more freedom than most, under an anti-democratic colonial regime. Much more so than when the franchise was suddenly and indiscriminately accessible to everyone, which inevitably led to the concerns of India’s poor weighing more heavily on newly elected politicians than the affairs of affluent businessmen. Independence gave a voice to the populous rural poor (situated largely in the north of India) or at least to the politicians who organised them, which appeared to deafen the government to pleadings from the business class. C. Wright Mills did not have industrialists, and certainly not Indian millowners in mind when he wrote The Sociological Imagination. His argument rests on the premise that ‘ordinary men and women’ are unaware of the relationship they share to the wider social structure and to history. However, I hope to develop a case that there existed a similar hiatus between the millowners’ collective perception of their reasons for involving themselves in nationalist politics, and the consequences this would have for them beyond independence. They ignored the conflicting material interests they had with each other, and did not foresee the longevity of the ideology they employed in the nationalist struggle. The millowners’ attempts to change or

Introduction

23

modify government policy today can only be done ‘within the framework of what their predecessors constructed for them’.24That framework was laid down by the involvement of millowners in the swadeshi movement; it set the agenda. The current generation of millowners struggle with government legislation, the tenets of which their grandfathers adopted to fight the British. From another time and place the same ‘tradition of all the dead generations weighs like a nightmare on the brain of the living’.25 The basic argument of this book, therefore, is that swadeshism, as a historical movement, has resulted in a political legacy, which translated into post­ independence government policy has meant discrimination against the organised sector in favour of the decentralised sector. As the business class fought against the structural constraints which colonial domination inevitably entailed, the character of their vehicle of protest equally inevitably suggested the type and character of the constraints independent India would impose. Millowners who supported the swadeshi movement did not foresee this as they failed to see beyond the narrow economic interests of their region, or potentially even their own individual mills. And attempts to alter government policy in the last decade, characterised by parochial outlooks and ad hocism, suggest that nothing very much has changed. The problems facing contemporary millowners have taken the form of a conflict between spinning mills and composite mills, between different regions of the industry, and between cotton-mills and the handloom and powerloom weavers. Yet in the respective representations to government of each region’s or individual mill’s problems, there appears to be no recognition of any underlying problem. Instead, composite mills in Ahmedabad complain of encroachments made by the decentralised sector through the government’s ‘reservation of articles for the production by handlooms’ policy,26 while spinning mill managements in Coimbatore applaud government protection of the decentralised sector, but grumble that their state government ought to allow more powerlooms in Tamil Nadu so that they would not have to rely on transporting their yarn up country to the powerlooms in Bhiwandi, Maharashtra, who in turn systematically undercut the Bombay mills’ market for cloth. The problems besetting the textile industry are thus overwhelmingly structural. This point is made well by V. Shanbhag when he says ‘the organic objectives of the diverse subsystems within the organised and decentralised sectors must be recognised as having

24

The Politics of Textiles

provided them their roles as competitors in the same race’.17 There is little doubt that by placing considerable handicaps on the organised sector the government allowed the decentralised sector to compete with it effectively. Nevertheless, while I shall look at the role of government policy my chief ambition is to investigate how the millowners have exacerbated their own plight. This is still to accept that the linchpin initiating and sustaining intersectoral conflict, and regional conflict between the cotton-mill centres, remains the government, but at the same time my interest lies in how mill­ owners and managers as a collective grouping have responded. The government’s policy of divide and rule has almost been equalled by the machinations of millowner associations vying with each other, board room struggles within individual mills, and the widely rumoured family disputes. Chapter 1 locates the emergence of industry and cotton manufacture in particular within the context of the changing economic relations between India and Britain. The Indian textile industry developed at different stages and for two principal reasons. First, in the last century of British rule the value of India’s export of primary commodities declined which resulted in a switching of investment from agricultural production and trade to manufacturing. The relationship between the decline in exports and the increase in industrial investment is not one which can be determined accurately, and in any case it fluctuated. In the mid-nineteenth century the decline of the opium trade and export of raw cotton probably influenced the early growth of the textile industry in Bombay and Ahmedabad. But the much larger drop in raw material exports between the First and Second World Wars also boosted the development of the textile industry, particularly in areas away from western India, such as Coimbatore. Second, from the 1880s onwards the industry developed on the basis of import-substitution, by displacing British imports in the Indian market. Chapter 2 traces the social, ethnic and economic origins of some of the early entrepreneurs. Many of the first industrialists in Bombay originally traded in primary commodities, often silk, opium or raw cotton. Those in Ahmedabad were known as ‘indigenous bankers’, that is, they invested in the production of, or trade in, primary commodities. The merchant and banking elite could be described as members of the ‘comprador bourgeoisie’ in so much as they provided foreign firms with access to Indian markets and supplies.

The Politics of Textiles

25

With the decline in the world demand for primary produce they turned to manufacture. The Hathisings, for example, who used to own a fleet of ships with which they exported opium to China, as well as being indigenous bankers of considerable antiquity, eventually became one of Ahmedabad’s most important millowning families. The other feature of early business activity was the religious affiliations of the first industrialists. In Bombay the most successful businessmen were Parsees and in Ahmedabad they were Jains. Both these groups tended to avoid the censorship potentially inflicted by their communities for engaging in commerce, unlike the Hindus or Muslims, where in the former case only certain fairly lowly castes were supposed to engage in trade, and in the latter, usury was expressly forbidden by the Koran. However, the relative isolation of Parsees and Jains from their local communities, and the obligations to them, was probably more important than any religious constraints on trade. This factor may also partially explain the entrance into manufacturing of the Naidu sub-caste Hindus in Coimbatore and the Marwaris in Calcutta in the 1920s and 1930s, by virtue of the fact that they each constituted immigrant populations. The former originally came from Andhra Pradesh and the latter from Rajasthan. In this Chapter I employ case studies of three Ahmedabad millowning families in order to relate macro economic phenomenon to the patterns of investment and entrepreneurship within family units. With the shift in investment from agriculture and trade in primary commodities to factory production, the sympathies of the business class underwent a change, which is documented in Chapter 3. This resulted in some millowners supporting the swadeshi movement. At the same time business was developing new outlets for articulating its particular interests, largely through their 'functional representation’ in the reformed legislative assemblies after 1937. The business class’s support for the Non-cooperation and Civil Disobedience protests was thus nuanced by (a) their unique ability to pressurise the colonial administration, and (b) the regional divisions emerging between Bombay and Ahmedabad millowners largely on the basis of different economic interests. Solidarity, however, did develop between the Marwari traders, who apparently stood to gain little economic advantage from the repeated boycotts of the foreign cloth they dealt in, and the Ahmedabad millowners. But in general the lack of unanimity on the part of the business class

26

Introduction

in support of Congress’s political campaigns lay in their diverging economic interests, not in their respective degrees of patriotism. Chapter 4 sets the scene for my central argument that the political act of independence was the main factor initiating the decline of the composite millsector. The industry first had to encounter the socialist leanings of government economic planning, supervised by Prime Minister Nehru. Perhaps surprisingly, before independence industry approved of central planning with their publication of the Bombay Plan of 1944. The question then centres on what power the business class retained in the post-colonial state. I challenge the argument that industry only supported Congress in so far as with independence it hoped to be able to direct government policy in its favour. It is more likely that businessmen did not anticipate any diminution of their influence with the new government. It was a surprise to find themselves the hostages to national planning, in which on the one hand heavy industry such as iron and steel received a much higher profile than organised textile manufacture. On the other, immediately after independence the Chief Minister of Madras introduced some of the Gandhian principles that swadeshism held dear by trying to curb the growth of spinning mills throughout the state. Textile policy throughout the next three decades managed to reverse the market shares of the decentralised and organised sectors of cloth production to the position in which the former now has the lion’s share. However, the most recent statement of June 1985, which proposes an integrated policy, recognised for the first time that government policy had induced the intersectoral conflict which has done so much damage to the industry. Chapter 5 concerns itself with the overall structure of the textile industry and analyses how this has been shaped by government policies since independence. The decline of the composite millsector has been characterised by a fluctuating export performance, decreasing market share in the domestic market, and industrial ‘sickness’. I also look at the development of the decentralised sector in a historical perspective, outlining the growth of powerlooms in relation to the impact this has had on the organised sector. Powerlooms were originally promoted by the Bombay composite millowners, but within the millsector have only benefited the spinning millowners in the south. The latter have thrived on the uptake of yarn from the powerlooms in states of north India especially Maharashtra. This has resulted in regional divisions amongst the

27

The Politics of Textiles

cotton-mills and a sector solidarity between spinning mills and powerloom weavers, resurrecting the type of segregation in the industry which existed in the colonial period, although the lines of conflict are now drawn on different economic issues. The new textile policy while recognising intersectoral competition faces the intractable problem that its implementation would be welcomed by some sectors and some regions, but not by others.

Notes 1. For example, the Managing Director of the Arvind Mills in Ahmedabad. Interview with Arvind Lalbhai (13 March 1986), Ahmedabad. 2. P.T. Bauer, Indian Economic Policy and Development (George Allen and Unwin Ltd., London, 1951), p. 17. 3. Manmohan Singh, India's Export Trends and the Prospects for Self-sustained Growth (Clarendon Press, Oxford, 1964), Table V.I., p. 74. 4. Singh, op. cif., p. 77. See Deepak Nayyar, India's Exports and Export Policies in the 1960s (Cambridge University Press, 1976), Table 4.3, p. 65„ 5. Nayyar, op.cit., p.65. 6. J. Cavanagh and F. Clairmonte, The World in their Web: Dynamics o f Textile Multinationals (Zed Press, London, 1981), p. 183. 7. Sanjaya Lall, Transnational Corporation Linkages via Subcontracting’ (United Nations Centre on International Corporations, New York, 1981), p. 12. 8. F. Frobel, J. Heinrichs and O. Kreye, The New International Division o f Labour (Cambridge University Press, 1980), p. 90. 9. In 1984 India produced 8,503 million square metres and America 3,343 million square metres. ‘Production of Woven Cloth in Select Countries', Table 80. Handbook o f Statistics on Cotton Textile Industry (Published by the ICMF, Bombay, Eighteenth Edition, 1986), p. 104. 10. India exported 530.8 million square metres in 1984, Hong Kong 529 and Japan 436.7 million square metres. ‘Export of Woven Cotton Piecegoods by Select Countries’, Table 82. Handbook o f Statistics on Cotton Textile Industry, p. 106. 11. India exported 9.7 million kgs. in 1984, compared to Taiwan which exported 16.9 and South Korea which exported 62.1 million kgs. ‘Export of Cotton Yarn and Thread by Select Countries’, Table 81. Handbook o f Statistics on Cotton Textile Industry, p. 105. 12. 60th Annual Report of the Sree Meenakshi Mills Ltd. (1983*1984), p. 12. 13. C.V. Radhakrishnan, ‘New Textile Policy: Through a Looking Glass’, Reprinted from the Financial Express (22 & 23 July 1985), p. 1. 14. Karl Marx, T h e Eighteenth Brumaire of Louis Bonaparte’, In: David McLellan

28

Introduction

(ed), Karl Marx: Selected Writings (Oxford University Press, Oxford, 1977), p. 300. 15. Neil Smelser, The Sociology o f Economic Life (Prentice-Hall Inc., Englewood Cliffs, New Jersey, 1976), p. 2. 16. Smelser, op. cit., p. 4. 17. Philip Abrams, Historical Sociology (Open Books, Shepton Mallet, Somerset, 1982), p. 2. 18. C. Wright Mills, The Sociological Imagination (Penguin Books, Harmondsworth, Middlesex, 1959), p. 10. 19. Walt W. Rostow, The Stages o f Economic Growth (1961); Gunnar Myrdal, Economic Theory and Underdeveloped Regions (1957). 20. Kingsley Davis, ‘Social and Demographic Aspects of Development in India’, In: S. Kuznets, W.E. Moore and J.J. Spengler (eds), Economic Growth: Brazil, India, Japan (1975), p. 294. 21. Rosen, op. cit., p. 4. 22. Mills, op. cit., p. 10. 23. See Alan Ross, The Emissary: G.D. Birla; Gandhi and Independence (Collins Harvill, London, 1986). 24. Abrams, op. cit., p. 3. 25. Marx, op. cit., p. 300. 26. For example, the Reservation Order of 1 April 1986. Reproduced in Appendix II. 27. V. Shanbhag, ‘Sickness in the Textile Industry: A Contextual Analysis’, In: V. Padaki & V. Shanbhag (eds), Industrial Sickness: The Challenge in Indian Textiles (ATIRA, Ahmedabad, 1984), p. 25.

1 THE GROWTH OF THE INDIAN COTTONMILL INDUSTRY AND THE DECLINE OF BRITISH IMPERIALISM The history o f cotton and o f textiles is not only the history o f the growth o f modem industry in India, but in a sense it might be considered the history o f India.... Jawaharlal Nehru THE DEVELOPMENT OF THE COTTON-MILL INDUSTRY IN THE COLONIAL PERIOD The cotton-mill industry first came to India from without; through the enterprise of expatriate businessmen and government servants. The earliest beginnings of textile manufacture on a factory scale date back to 1818 when a mill was established at Fort Gloster, fifteen miles from Calcutta. Henry Gouger, an English merchant, founded the Fort Gloster Mills, later known as the Bowreah Cotton Mills Company Ltd.1 A decade later in the south of India, the French Ambassador-General of Pondicherry set up a cotton-mill. It was known by the name of Blin and Delbrick Hill.2 Early entrepreneurial ventures of this kind were, however, for the most part short-lived affairs. It was thirty years before James Landon, an Englishman who had spent many years learning the cotton trade in America, set up the more successful Broach Cotton Mills Company in Gujarat near Ahmedabad in 1855.3 Two Scotsmen founded one of the first cotton-mills in south India, one which still operates today. Andrew and Frank Harvey set up a business at Bellary in 1880 which was mainly concerned to export raw cotton to Britain. In 1883 they also built a textile mill, The Tinnevelly Mills Company at Ambasamudram, 35 miles from Tinnevelly, which at the time was the last railway terminus in the south. This was a spinning mill, and as a power source it harnessed the water power from the Papanasam Falls by damming the River Tambrapami. The 'Water Mill', as it

30

The Politics of Textiles

was locally called, started production in 1885 with 10,000 spindles. Through a series of mergers the same company, now known as Madura Coats, employed 20,000 people a hundred years later in 1980.4 And in Coimbatore at the turn of the nineteenth century, Sir Robert Stanes, a British textile millowner encouraged G. Kuppuswamy Naidu to start a ginning factory,5 which today forms the basis of The Lakshmi Mills Company Ltd. These pioneering industrial undertakings at first made little impression on Lancashire’s domination of the Indian cotton market, through the virtually unlimited opportunities for importing piecegoods through Madras, Bombay and Calcutta. It was the nucleus of the new largely Indian-owned textile industry centred around Bombay and especially Ahmedabad which first dented the British monopoly.6 In 1854, a Parsee named Cowasjee Davar, with some British financial backing, set up the Bombay Spinning and Weaving Mill at Tardeo near Bombay.7 Seven years later, on 30 May 1861, the first cotton-mill in Ahmedabad started production. This had modest beginnings, starting off as.a spinning factory of 2,500 spindles employing 63 millhands, and catering to the demand for yarn from the local handloom weavers. But the Brahmin, Rao Bahadur Ranchhodlal Chhotalal, who effectively founded Ahmedabad as the ‘Manchester of India’, did not have a very smooth ride with his first business venture. To begin with he had considerable difficulty in raising enough capital from the conservative merchant class of Ahmedabad, and second, his first consignment of machinery ordered from England was lost at sea when the cargo ship caught fire on its passage round the Cape. To make matters worse the British engineer, brought over from England in order to set up the machinery, died of small-pox. A fresh order was placed for the machinery, which on arrival had to be landed at the Port of Cambay and then transported by bullock carts to Ahmedabad under Ranchhodlal’s personal supervision. He surmounted an unpromising start to establish the Ahmedabad Spinning and Weaving Company Ltd.8 Davar also set up the Bombay Throstle Mill in 1859. A year earlier in Bombay another Parsee, Maneckjee Nusserwanjee Petit floated The Oriental Mill. Then after a break of ten years The Maneckji Mill was set up by Parsee Sir Dinshaw Maneckji Petit.9 Sir Dinshaw also founded the Bombay Dyeing and Manufacturing Company with The Hon. Nowrosjee N. Wadia, initiating the long

The Growth of the Indian Cotton-miU Industry

31

involvement of the Wadia family in textile manufacture.10 In Ahmedabad Ranchhodlal added another mill in 1863 and by another Hindu’s enterprise the Becherdas Spinning and Weaving Company started production in 1867. A decade later the Gujarat Spinning and Weaving Company signalled the entrance into Ahmedabad’s textile industry of Jain financiers, who would come to dominate it in later years. H.R. Aiyer argues that the pioneers of the cotton industry were mainly merchants, selling Indian raw cotton to the British textile industry. Years of experience with the British trade gave them the courage to initiate their own industry.11 Technical innovation also contributed to the growth of the industry. S.D. Mehta claimed that ‘the market for the products of Indian mills had been found hitherto on the basis of a superior competitive strength, buttressed by a mechanical alignment that was superior to that of the English textile industry in 1905, in so far as the large scale adoption of ring spinning was concerned’.12 In the 1870s Britain recognised the importance of India as a market for textile machinery, and until 1914 supplied over 95 per cent of India’s requirements. The most significant development in the technical sphere in the eighties and nineties was the adoption of ring spinning. The Rabbeth Ring Spindle had been invented by an American many decades before it came to India. The conservatism of English millowners, however, precluded it from being given a fair trial in Britain.IJ The relative vitality of the Indian industry is evident from its willingness to run counter to the accepted Lancashire technique. Progressive entrepreneurs and technicians, including a few from Lancashire, aimed to expand Indian industry through modern technical innovation. In 1883, Mr. Brooksby, a spinner attached to Jamsetji Tata’s mill in Nagpur, went on leave to Britain. He brought back to India two short frames manufactured by Brooks and Doxey. With further experiments, the ring spinning frames swiftly became standard technology in every textile mill, whilst Lancashire was still reliant on mule spinning.14 This mechanical advance gave the Indian mills an advantage over Britain. Additionally, there was the introduction of revolving flat cards, used in spinning and swiftly applied throughout India. By the inception of Ahmedabad’s industry in 1861, although nearly a decade had passed since the foundation of Bombay’s first cotton manufacturing plant, there were only a dozen or so mills in and

32

The Politics of Textiles

around that city.15 Growth had been at first slow until the beginning of the American Civil War when the North blockaded the Southern States, temporarily halting Lancashire’s supply of raw cotton. There was then a sudden demand for India’s crop to the tune of 14 lakh bales in 1864, a marked increase from the 5.1 lakh bales exported in 1859.16 With the end of the war, however, there was a sharp fall in cotton prices and the many farmers who had shifted to cotton cultivation during the boom war years faced bankruptcy. A period of stagnation for cotton cultivators followed, to be subsequently reproduced in the cotton-mill industry. The depression eventually lifted with a new level of demand for yarn from China and Japan, bringing about an increase in the number of spinning mills. Between 1870 and 1875, 17 new mills were built. In 1875 there were 750,000 spindles and 8,000 looms in production. By 1885 there were 90 mills throughout India employing 2,145,646 spindles and 16,537 looms. Of these nearly 50 per cent of spindles and 75 per cent of looms were installed in Bombay. By 1890 there were 136 mills, many of the new mills being established in the south of India. The industry was then beset by several periods of faltering demand. The first resulted from the famines of 1895-1900. The second from a bubonic plague outbreak in 1896 which led to a mass exodus from Bombay. Third, in 1902, American speculation sent the price of cotton soaring. The high prices made production, especially that of coarser manufactures on which the Indian industry at that time depended, unprofitable, adversely affecting both the handloom and mill sectors. Fourth, China, India’s chief foreign market for yarn, temporarily stopped taking supplies from the Bombay spinning mills. This was partly because of the outbreak of war between Japan and Russia, and partly due to the development of a Chinese cotton spinning industry. The victory of Japan in the Russo-Japanese war in 1904 heralded the return of prosperity. The boom was prolonged for some years because of the increasing demand for Indian textiles in many Asian and African countries.17 Agricultural prosperity returned; the plague ceased to frighten people away from the urban centres; the price of cotton resumed its previous level and China again imported Indian yam. Bombay enjoyed unprecedented prosperity, one especially pronounced in the yarn industry.18 By 1911 the total number of mills had risen to 261. With the outbreak of the First

The Growth of the Indian Cotton-mM Industry

33

World War the initial reaction was one of panic, but as the later war years saw a scarcity of manufactured goods, the substantial rise in prices brought boom conditions until 1921.19 The post-war depression harshly affected Indian commerce as a whole. By 1925 employers were imposing wage cuts which caused widespread industrial disputes. The millowners lobbied for the abolition of the excise duty on cotton textiles introduced in 1896. The Government of India eventually acceded to their demands, but not before the Japanese textile industry had established a hold on the Indian market. The Bombay industry sought and was given protection. The Special Tariff Board of 1926 imposed a duty of 1V% annas per lb. or 5 per cent ad valorem, whichever was higher, on all imported yarn. This form of protection was retained until 1947.20 With the Second World War the demand for Indian textiles increased sharply because of the requirements for the uniforms of the allied forces, coupled with the opportunity to meet the civilian clothing market previously supplied in good measure by Lancashire. By the end of the nineteenth century there were about 167 mills with nearly 5 million spindles and 40,000 looms. The progress of the industry from the beginning of this century until just after independence can be gauged from Table 1.1. Table 1.2 details the drop in imports from the United Kingdom of piecegoods and yam into India. They also show the impact of the Marwari traders’ boycott of foreign cloth in Calcutta in 1931, during the Civil Disobedience campaigns. The volume of imports reaches its lowest point towards the end of the Second World War at the same time when the cotton weaving industry, judged by the number of looms, reaches its peak. D.R. Gadgil argues that the fairly even development of the textile industry in this period can be attributed to several factors. From the beginning of the century the Lancashire industry had been disadvantaged by higher freight charges and larger revenue duties imposed on imports into India. The export of Indian yam to China, however, had fallen as a result of Chinese and Japanese competition. Indian production of woven goods increased by 46 per cent from 1914-20 and imports of British piecegoods fell during the war years21 so that despite the fall in exports, the production of coarse and fine cloth was higher after the First World War. For the interwar years, B.S. Rao presents figures, given in Table 1.3, which show that the home production of yarn increased by over one half and that of piecegoods almost doubled, alongside reductions in imports and

34

The Politics of Textiles

Table 1.1

I 1

Growth o t (fee Cottoa-adH ladastry bt the first Half o f the Number o f Mills

Number o f Spindles

Number o f Looms

Number o f Millhands

1909* 1914 1919 1924 1929 1934 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951

259 271 258 336 344 352 389 388 390 396 401 407 417 421 423 408 416 425 445

6,053,231 6,778,895 6,689,680 8,313,273 8,907,064 9,613,174 10,059,370 10,005,785 19,961,178 10,026,425 10,130,568 10,222,107 10,238,131 10,305,169 10,353,973 10,265,841 10,533,799 10,849,026 11,240,635

76,898 104,179 118,221 151,485 174,992 194,388 202,464 200,076 198,574 200,170 200,890 201,761 202,388 202,814 202,662 197,469 197,807 199,775 201,484

236,924 260,924 293,227 356,887 346,925 384,938 441,949 430,165 459,509 480,447 502,650 505,562 509,778 495,456 488,370 466,477 463,075 433,816 425,032

8

1 1 31 August

* Year ending 30 June. Sonrce: Report o f the Working Party for the Cotton Textile Industry. Chaired by Sir A. Ramaswami Mudaliar (April, 19S2), p. 8. Table 1.2 Importa of Cottoe Piectgoods (Grey, Bk achtd , Coèoared »ad Priated) from the limited Kingdom iato Bombay, Cakatta aad Madras from the yean 1885 to 1947 Year

1885 188$ 1887 1888 1889 1890 1891 1892 1893

Piecegoods Bombay

Calcutta

Madras

Sq.Yards 547,773,459 700,061,881 585,502,258 652,344,548 634,608,171 665,550,786 572,065,309 548,944,867 604,439,138

Sq.Yards 911,987,148 1,159,407,968 988,370,500 1,045,951,384 1,031,000,980 1,037,911,379 961,686,226 1,013,742,658 1,009,441,511

Sq.Yards 93,757,204 143,318,736 117,502,619 138,271,060 144,140,943 115,224,797 108,083,576 93,892,053 106,086,291

The Growth of the Indian Cotton-mW Industry

35

TaMc 1.2 (coat.)

Year

1894 1895 18% 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934

Piectgoodt Bombay

Calcutta

Madras

Sq. Yards 719,324,449 484,780,087 574,410,316 472,597,133 557,597,951 611,556,220 461,938,302 629,976,200 475,541,800 520,373,400 593,591,100 637,039,600 611,705,100 646,598,400 470,956,400 481,389,100 624,859,600 622,516,400 658,026,700 804,333,100 617,498,700 354,966,900 481,857,500 851,853,300 429,754,300 275,575,100 569,054,700 265,737,000 410,565,000 476,873,200 553,405,800 524,457,900 504,044,100 576,045,900 687,653,200 511,977,900 317,988,200 231,407,000 339,930,400 258,655,100 326,065,000

Sq.Yards 1,161,138,343 925,203,136 1,163,967,702 932,328,974 1,202,254,978 1,266,926,546 1,086,463,274 1,127,753,500 1,176,051,500 1,119,542,300 1,193,265,900 1,292,516,900 1,189,552,900 1,298,662,500 1,005,027,600 1,180,586,000 1,129,898,600 1,226,065,400 1,451,819,200 1,547,872,400 1,378,930,300 1,052,246,400 1,035,437,900 898,827,200 449 044,800 423,299,200 656,277,100 744,049,100 854,974,300 797,622,700 938,652,800 767,338,700 902,411,700 924,941,700 710,112,300 687,826,200 345,331,500 71,021,300 129,501,100 131,375,900 161,206,000

Sq.Yards 140,749,235 99,427,366 86,265,292 121,396,515 91,950,978 93,492,746 120,383,837 129,392,500 119,878,000 129,898,800 145,618,800 119,829,700 142,636,200 131,107,800 200,636,400 108,497,400 109,976,800 138,414,300 173,698,700 210,797,700 160,552,000 106,332,200 88,153,700 78,153,700 33,046,000 37,684,300 69,872,000 50,486,100 77,837,700 89,096,800 91,324,300 72,441,200 93,138,100 84,499,100 92,249,700 108,049,200 75,803,600 59,272,200 78,127,500 66,094,000 59,385,000

36

The Politics of Textiles TsMe 1.2 (coat.)

Year

1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947

Piecegoods Bombay

Calcutta

Madras

Sq. Yards 306,200,000 258,847,000 224,494,000 183,935,000 139,130,000 61,565,000 25,657,000 4,690,000 1,074,000 375,000 969,000 10,181,000 7,463,000

Sq. Yards 138,804,000 96,010,000 67,800,000 69,100,000 37,657,000 9,747,000 4,280,000 995,000 1,333,000 782,000 200,000 1,349,000 2,321,000

Sq. Yards 56,439,000 36,014,000 30,900,000 20,285,000 20,262,000 8,542,000 4,836,000 480,000 931,000 12,000 64,000 845,000 1,118,000

Soon*: Report o f the MOA (1956) Statistical Data. Table 1.3 India’s Trade In Cotton Piecegoods and Yarn 1926

1939

Percentage increase + decrease -

1.

Yarn (million lbs.)

(a) (b) (c) (d) (e)

home production imports exports net imports home consumption

2.

Cotton Piecegoods

(a) 0>) (c) (d) (e)

home production imports exports net imports home consumption

807 49 55 -6 801

1,233 41 37 +4 1,237

+ 52.8 -16.3 -32.7 + 166.7

2,259 1,788 459 1,329 3,588

4,270 600 221 379 4,649

+ 89.0 -66.4 -51.9 -71.5

Soarce: B.S. Rio, Surveys of Indian Industries (Oxford University Press, Madras, 1958), p. 3.

The Growth of the Indian Cotton-mill Industry

37

exports of both commodities. A.K. Bagchi suggests that at the turn of the century Bombay was the main centre of yarn production, catering mainly to the export trade to China. Despite foreign exchange problems and political instability in China, exports of cotton twist and yarn increased from 143.2 million lbs. in 1889-90 to 242.6 million lbs. in 1899-1900. Then with the plague in Bombay exports plummeted to 119.3 million lbs. in 1900-1901, recovering to 298.5 million lbs. by 1905-6. Thereafter stagnation induced by Japanese and indigenous competition resulted in only 152.3 million lbs. of cotton twist and yarn being exported in 1911-12, improving only to 198.9 million lbs. by 1913-14. In contrast the domestic demand for cotton piecegoods increased steadily, except for the periods of famine between 1895-1900. As a result there was a good reason for the Bombay mills to pay greater attention to the domestic market. As totton manufactures accounted for more than 36 per cent of the total number of imported commodities coming into India between 1900-1901 and 1913-1422 and since cotton-mills and handlooms together supplied only about 34 per cent of the total domestic consumption of piecegoods in 1900-1901 ‘there was enormous scope for the substitution of imports by domestic production’.23 The tendency towards the substitution of domestic goods for imports, however, only offset the effects of the decline in yarn exports to China by about 1914.24 According to Bagchi, new investment in the industry was thus governed by three factors. First and foremost, it was intended to displace imported cotton piecegoods, second, to defend the Chinese market for Indian yam against Japanese and Chinese competition, and third, to supply Indian mill-spun yam, in place of imported yam, for the consumption of the handloom sector. A pattern of regional specialisation emerged to correspond to these three factors. Bombay continued to export yam to the Chinese, the centres in the south of India (such as Madras and Coimbatore) catered mainly to the demand for coarse yam from the handloom weaver, and Ahmedabad concentrated on supplying cotton piecegoods to the domestic market.25 From about 1905-6 new investment was predominantly chan­ nelled into the import-substituting cotton-mills. As it was Ahmedabad which specialised in the home demand for cotton piecegoods, this region gradually became the centre of the importsubstitution textile industry in India. The dropping off in yam exports from Bombay resulted in a marked decline in the profitability of

38

The Politics of Textiles

purely spinning mills in comparison with mills which wove yam into piecegoods. The decline of yam exports was reflected in the increase in the ratio of looms to spindles in cotton production alone, and in the varying rates of development for the different regional centres of the industry. In 1900 the cotton-mill industry was almost entirely concentrated in western India. It had grown up around Bombay and Ahmcdabad, Bombay being much the bigger centre. In 1900-1901, about 56 per cent of looms and 53 per cent of spindles in all of India were located in the Bombay mills. But from 1900 to 1914 Ahmedabad grew much faster than Bombay. The Ahmedabad mills had a much higher ratio of looms to spindles than the Bombay mills, and they produced a larger proportion of yam with counts26 above 20s than Bombay or elsewhere.27 There was then, in the first half of the twentieth century, a transition away from production for export towards production for the home market. This sustained the growth of India’s textile industry so that in 1939 it had become the world’s second largest, after the United States, with an annual output of 4,000 million square yards of mill manufactured cloth.21 But as R.K. Ray points out ‘it was not merely an expanding domestic market, but also a growing share of it at the expense of Manchester, that enabled the cotton-mill industry to grow almost continuously through the difficulties of the interwar period’.29 The development of India’s textile industry depended upon its relationship with competitors overseas, those from Japan and particularly Britain, and on the extent that the Government of India upheld their interests to the disadvantage of the Indian industry.

IMPERIALISM AND THE GROWTH OF TEXTILE MANUFACTURE

The relationship between the growth of the Indian cotton-mill industry and the gradual decline in British imperialism in India is a tenuous one. There are, however, opposing arguments setting out to establish very definite relationships. On the one hand R.P. Dutt suggests that the emergence of indigenous capitalism caused the downfall of British India by eroding its economic basis. On the other, B.R. Tomlinson claims that global economic factors, over which neither the India Office nor the Government of India had control,

The Growth of the Indian Cotton-mM Industry

39

initiated the 'decolonisation’ of India, and resulted in the development of domestic industry. Neither of these positions is wholly satisfactory for a number of reasons. One of the most important is that while omitting to consider the political role of the Indian bourgeoisie in securing independence (which should not be exaggerated), both Dutt and Tomlinson also ignore the part played by politics in general and the contribution of the nationalist movement in particular. The Government of India from the beginning of the twentieth century was faced with growing fiscal problems and accompanying political pressures about how to deal with them emanating both from Britain and India. The India Office was demanding that India should continue to offset Britain’s trade deficit with the rest of the world at a time when India’s exports of primary commodities were declining in value. This put pressure on the exchange rate between the rupee and sterling and increased the British government’s reliance on the revenue from the ‘home charges’30 and other invisible earnings. In turn Indian industrialists usually became involved in politics when aspects of government policy began to hinder their commercial operations. In consequence they adopted rather ad hoc political positions in relation to currency questions and tariff measures. Their most coherent political gesture was to support the swadeshi movement which promoted the sales of Indian goods as opposed to British imports. But even this was supported in some quarters more consistently than others. Palme Dutt,31 applying Lenin’s theory of imperialism32 to India, argues from the premise that the main purpose of the Empire was to provide a captive market for British manufacturers, most obviously Lancashire millowners. From this he attempts to show that the growth of local manufacture, in forcing out British imports, eroded the principal economic functioning of India as part of the Empire, and that independence naturally followed in its wake. Dutt asserts that the millowning class formed a national bourgeoisie, that is, they wanted to develop indigenous resources and industry, which placed them in opposition to foreign capital and the colonial government. Thus the millowners’ commercial interests combined with their politics in a form of ‘economic nationalism’. Dutt identifies three imperialistic stages during the British administration of India. After Clive’s victory at the battle of Plassey in 1757, the East India Company developed a monopoly over India’s

40

Ths Politics of Textiles

trade which Dutt describes as ‘mercantile capitalism’. The abolition of the Company’s monopoly in 1813 opened the door to a phase, of ‘industrial capitalism’. ‘Finance capitalism’, characterised by very high levels of British investment in India, marked the final period of colonialism from the turn of the nineteenth century until independence. During the ‘industrial capitalist’ phase of imperialism India supplied raw cotton to Britain and more importantly offered a vast and captive market. During ‘finance capitalism’ Indian industry was increasingly substituting locally produced manufactures for British imports. It was in re-capturing the domestic market and displacing Lancashire that Indian producers secured independence. There are two main problems with Dutt’s argument. First, in asserting import-substitution as the main force behind the process which culminated in independence Dutt reduces political aspirations to economic determinants when sometimes the two diverged. While for millowners there were considerable economic gains to be had in substituting for British piecegoods, it was the swadeshi movement which clearly conceived of import-substitution as a political tool. Many millowners supported the boycotts of foreign cloth and A.K. Bagchi suggests that the effects of the movement may in practice have worked more markedly in favour of the mill sector than for the handloom weavers. However, the ideology of swadeshism appealed, on the whole, to cottage producers and to the sale of khadi cloth.33 Moreover, irrespective of swadeshism, there were other reasons for the decline of the Lancashire trade in textiles during the interwar years,34 such as the increasing cost of freight. Second, Dutt’s premise that the Empire rested solely on preserving a captive market for British manufacturing interests is at fault. R.K. Ray accepts that the First World War ushered in a new phase of British imperialism, quite different from the previous century in the method of appropriating India’s ‘surplus’. The new mechanism for the transfer of ‘surplus’ was the interest charged on India’s vastly increased sterling debt. This is what Dutt means by 'finance capitalism’. Before the war India was economically important to Britain (a) as a vast market for British manufactures, (b) as a guaranteed outlet for profitable investment and (c) as an important link in the settlement of Britain’s balance of payments. Ray considers the latter element to be the most important, ensuring a transfer of resources from India to Britain through a complex series of multilateral trade balances.33 He does not assess the erosion of

The Growth of the Indian Cotton-mill Industry

41

Britain’s hold on the Indian market as the most important factor leading to the decline of the Empire. India’s political subordination to the Raj had resulted in an artificially heavy trade deficit with Britain, arising from the imposition of home charges and the import of invisible services (shipping, insurance, etc.). To meet this deficit India had developed a large trade in exports to countries with which Britain normally had an adverse commodity balance of trade. India’s export 'surplus’ thus balanced Britain’s trade deficit with the rest of the world. As a net earner of non-sterling foreign exchange which went to meet her sterling obligations to Britain, India enabled the British to command an increasing volume of imports from countries outside the sterling area.“ After the First World War, however, there was an increasing shift from a multilateral to a bilateral settlement of obligations in the trade of Britain and India. Malaya began to replace India as the most important net earner of non-sterling foreign exchange. In the case of the United States, with which Britain had a huge deficit, Malaya was producing an export surplus of £46 million in 1929, compared to India’s £19 million. By 1937 the process had gone even further, so that India was now producing an export surplus with regard to the United States of only £12 million. By this time, as A.E. Kahn says, there had been a virtual ‘elimination of India’s great offsetting triangular trade balances with Britain and the rest of the world’.37 At the end of the interwar period this problem was compounded by the fact that India was not only consuming less British manufactures, but also starting to compete with them abroad. In the three years before the First World War Britain’s share in India’s total imports was 62.8 per cent and on the eve of the Second World War it stood at 30.5 per cent. Britain’s diminishing share in the Indian market was connected with a change in the commodity composition of the foreign trade of India. From 1920-24 to 1935-39 India’s imports of manufactures came down from 76.7 to 64.4 per cent of total imports while her export of manufactures increased from 24.8 to 30 per cent of total exports. At the same time her imports of raw materials increased from 7.4 to 19.8 per cent of total imports and exports diminished from 50.2 to 46.7 per cent of total exports.3* Britain’s former role as the ‘workshop of the world’, and the world’s banker and clearing house for the multilateral obligations of international trade, perceptibly declined in the interwar period.

42

The Politics of Textiles

Before the First World War roughly 25 per cent of Britain’s total production was exported, but on the eve of the Second World War she was exporting only 12.5 per cent of her products. The older export-oriented industries, such as iron and steel, textiles and engineering, had declined in relation to the new industries producing mainly for the home market, such as electrical goods, automobiles, hosiery and chemicals. The’decline of the traditional export industries reduced the need to import raw materials of the old type, including raw cotton from India. The growth sectors of British manufacturing industry in the interwar period were not so dependent on producing for the less developed imperial economies than they had been before the First World War.39 Kahn reports that the purchases of British cloth piecegoods by India, China, Japan and Hong Kong, which in 1913 took 54 per cent of Britain’s total exports, declined by 91 per cent between 1913 and 1937.40 India was consequently of declining commercial value to Britain. But in the build up to the Second World War she came to occupy a crucial political and strategic position. A reliance on the Indian Army to uphold the British position ih the East against the Japanese, entailed military expenditure, swelling India’s sterling debt, which had already increased enormously by her military contribution in the First World War. Increased military expenditure and rising indebtedness went together; the financial aspect of the economic relationship between India and Britain came to overshadow the commercial one. ‘This new relationship was predominantly that of debtor and rentier, not of supplier of raw materials and manufacturer of goods’.41 ‘Finance capitalism’ represented the stage in the imperial domination of India in which the major part of the ‘surplus’ levied by Britain came in the form of the interest charged on India’s sterling debt, a largely financial as opposed to commercial relationship, and signified that the Indian economy had ceased to be predominantly a colonial supplier of raw materials and importer of manufactures. The world demand for India’s raw materials had declined in the interwar period. The breakdown of the triangular trade also had a considerable impact on the Indian economy. B.R. Tomlinson suggests that the ‘depressed world demand’ for Indian exports, especially raw materials and agricultural produce, disrupted the economy’s ‘internal credit networks’.42 This resulted in a decline in the numbers and

The Growth of the Indian Cotton-mid Industry

43

influence of indigenous bankers who had previously invested in trade and agriculture, and in the emergence of joint-stock banks more inclined to invest in industry. Moreover, in the 1930s depression agriculture became less profitable, and whereas before profits would have been ploughed back into rural concerns, now 'the decline in the profitability of agriculture and the disruption of established marketing networks that resulted from the depression provided an incentive to diversify investment’.45 From the mid-1930s onwards in Madras, for instance, landlords and rural traders began to invest increasingly in industry, especially in sugar and cotton. The Chettiars and Naidus diversified from trading and indigenous banking into cotton-mills. As company floatations boomed, Madras established its first stock exchange.44 Tomlinson argues that Indian traders, and the indigenous bankers who financed and profited from their trade, could no longer find a ready export market for primary products and so took to manufacturing as a profitable alternative. He also draws a connection between the decline in the demand for India’s exports of primary products and India ceasing to be important in the multilateral settlement of Britain’s trade deficit with the rest of the world. Additionally Britain could no longer look to the export of manufactures to India for domestic growth. The combination of these two factors resulted in Britain increasingly using the revenue from India’s debt to offset her trade imbalances. In explaining the relationship between the growth of the Indian cotton-mill industry and the wane in British imperialism the question of timing is very important. The industry expanded most dramatically on the basis of import-substitution in the early half of the twentieth century. There were approximately 160 mills in 1900, a figure which had nearly tripled by the time of independence. This expansion occurred during the period of what Dutt calls ‘finance’ and not ‘industrial’ capitalism, which calls his argument into question. But the textile industry was founded in the 1850s, and so Tomlinson’s argument that the decline of India’s raw material exports resulted in investment in industry can only be partially true for the south of India in the 1930s and perhaps also in the case of the Marwaris based in Calcutta who did not engage in manufacture until after the First World War.45 Tomlinson’s argument cannot account for the origin of manufacturing activity in India. Any connection between the growth of the cotton industry and

44

The Politics of Textiles

the decline of imperialism can only be drawn at a late stage in each’s development. The first cotton mills did not develop against the interests of foreign capital, but on the contrary with its full support. Moreover, the majority of mills were designed to spin only yarn, and most of those thrived on an export market. In the nineteenth century the prosperity of the spinning mills was linked to the export demand for raw cotton. If anything it could be argued that an export trade in raw cotton led to the export of yarn, and hence to the development of the spinning mills. A decline in the export of India’s raw materials and eventually of yam, and an increase in the export of full-manufactures, resulted in new investment in composite mills and industry in general. In this respect Tomlinson’s argument has validity. But Dutt’s and Tomlinson’s greatest failing is their accounting for the end of Empire solely in economic terms. Both suggest that the development of Indian industry was somehow in contradiction to imperialism. Dutt raises the spectre of a national bourgeoisie who wished to fend off foreign capital and the colonial apparatus which served its interests. Tomlinson, in the final analysis, offers a similar position, in so much as his argument rests on the premise that India ceased to be economically viable for Britain which resulted in a gradual relinquishment of the Raj’s control. Consequently they ignore the possibility that nationalist forces succeeded in making colonial government in India politically unworkable. In the end the Raj lacked the resources to subordinate India in the face of mass protest when hitherto it had been able to engage in a largely constitutional duel with the isolated voices of nationalist or business opinion. It was the fact that more resources were necessary to quell a turbulent populace which made India economically non-viable. And that surely is a question of politics more than anything else. THE MULTILATERAL SETTLEMENT OF BRITAIN'S DEFICIT AND THE RUPEE EXCHANGE The twentieth century witnessed the build-up of contradictory as well as complementary relations between sections of the Indian bourgeoisie and foreign capital. This in turn led to a complicated balancing act performed by the colonial administration in serving

The Growth of tha Indian Cotton-mid Industry

45

the interests of the India Office and British businessmen (those at home and in India) while being careful not to alienate Indian capitalists. The political outlook of millowners was radicalised by the conflict over shares of the Indian market, and led to their support for the swadeshi movement and a struggle to erect tariff barriers against Lancashire opposition. The battle lines, though, were not always so clear cut. In the mid-twenties British millowners operating in Bombay joined with their Indian counterparts in pressing for a lower rupee exchange rate,4* and in 1933 Bombay millowners (to the outrage of those in Ahmedabad) signed an alliance with the Lancashire millowners in what became known as the Mody - Lees Pact. In the former case a community of interests had developed between British and Indian businessmen operating in the same economic environment and under the same political constraints: in the latter the issue centred on the conflict over the Indian market, when the Bombay millowners were threatened more by Japanese imports than by those from Lancashire, which did not stop Ahmedabad millowners from accusing them of being unpatriotic. The multilateral settlement of Britain’s deficit and the rupee exchange also had a direct, if more marginal influence, in encouraging millowners to participate in nationalist politics. Although India relied on capital inflow to keep the balance of payments in equilibrium, the first decade of the twentieth century witnessed a period of comparative stability in the exchange rates of the rupee. India had gradually been converting to a managed currency system and foreign exchanges by around the turn of the century were for the first time put under central control. The origin of these currency changes went back to 1893 when the Government of India was unwilling to let the exchange value of the rupee depreciate any further through the continuous rise in the value of silver to gold, and therefore closed the Indian mints to the free coinage of silver at a time when the rupee was a silver based currency. The rupee was then transformed into a token currency at a rate fixed arbitrarily at Is. 4d., which the government hoped to control in accordance with the value of its bills. In fact the market value of the rupee failed to rise to Is. 4d. until 1898, when the government decided to peg exchange rates to this level by making proper reserves in Britain and India, laying down the foundations for the goldexchange rate mechanism. The essence of the system, therefore,

46

The Politics of Textiles

depended on the government’s willingness to smooth out any abnormal fluctuations in the rupee’s exchange rate by officially intervening in the balance of gold in London and that of silver in India. Chaudhuri maintains that at the turn of the century, with prosperous trade, especially in exports, the adoption of the goldexchange standard provided India with a modem and automatic mechanism regulating the supply and demand for foreign exchange.47 There are no proper estimates of India’s balance of payments during the two world wars, but the position appears to have improved in both these periods. For the interwar period A.K. Banerji gives an estimate of India’s current and capital accounts for 1921-22 to 1938-39.4* In 1921-22 the balance of commodity transactions was against India, due to the rise in imports after the war-time shortages. For the remaining years the balance was favourable, the depression not altering the size of the trade balance because of the inclusion of treasure in commodity transactions. From 1921-22 to 1930-31 India was a net importer of treasure on private account, but from 1931-32 she became a net exporter of gold, the total size of the outflow being often more than a quarter the value of exports. Without the export of gold the commodity balance would have shown a deficit in the years immediately following the depression. In contrast to the wide fluctuations which marked the visible trade balance, the payments under service transactions exhibited greater stability, but with the net balance being uniformly against India. With the outbreak of the Second World War, and the British government’s orders for commodities connected with the war effort and the increased military expenditure in India generally, the balance of payments turned in India’s favour and there was a rapid accumulation of sterling balances in London, amounting to Rs. 16,404.7 million by 1946. India’s interest earnings on foreign assets exceeded her interest payments on foreign liabilities by Rs. 13 million in 1946 and by Rs. 54 million by 1947.49 The result was that India became a creditor and not a debtor by the end of the war. The Government of India took the opportunity to repatriate India’s sterling debt, and Chaudhuri estimates that India paid off 320 million of sterling securities by 1945-46.50 R.K. Ray argues that Britain’s enormous borrowings from India to meet the financial requirements of the war eradicated her last great ‘vested interest’ in India, the sterling debt, thereby removing a potential impediment to withdrawal

The Growth of the Indian Cotton-mill Industry

47

after the cessation of hostilities.31 The Government of India’s monetary policy had always been subject to attack from nationalist businessmen. The Bombay cotton magnates in particular advocated a cheap money policy to stimulate industrial growth and welcomed currency inflation as a method of easing credit and raising internal purchasing power. Since the 1890s the Bombay protagonists had assaulted the government’s monetary policy for not expanding the currency sufficiently. The gold-exchange standard was seen as a means of ‘draining’ India’s resources to Britain and of obstructing the formation of native capital. The currency contradictions of 1920-26 were perceived as a plot to stunt India’s industrial growth and to open up the domestic market to cheaper British imports. The post-war boom and subsequent slump seriously affected Bombay. The high price of raw cotton in 1923-24 pushed up production costs, while the slump in cotton prices of 1924-25 disturbed the up-country market for Bombay’s goods. By May 192S unsold stocks were piling up and the government’s currency policy was blamed.52 In August 1925 a Royal Commission on Indian Currency and Finance was appointed under Lieutenant-Commander Edward Hilton-Young. Reporting in July of 1926, the commission recommended (a) an exchange rate of Is. 6d. for the rupee on the grounds that since 1925 prices in India had ‘adjusted’ substantially in relation to world prices, (b) the creation of a gold bullion standard whereby gold would not circulate as currency, but the currency authority would be under obligation to buy and sell gold without a limit in quantities of not less than 400 fíne ounces at rates determined with reference to a fixed gold parity of the rupee, (c) amalgamation of the paper currency and gold standard reserves and (d) the creation of a central bank.53 Throughout the 1920s, beginning with the acceptance of the majority report of Sir Henry Babington-Smith’s Committee which recommended an exchange rate of 2s., and especially after the establishment of the Indian Currency League by Thakurdas in 1925, criticisms of currency management by the Government of India quickened apace. The critique had two main strands. First, the Bombay School (as those demanding currency reform were called) argued for a currency standard based on gold. At the beginning of the First World War the rupee was tied to sterling at a rate of Is. 4d. As sterling itself was based on the bullion system (until 1926), the

48

The Politics of Textiles

government could adjust the internal value of the rupee to its external purchasing power by selling or buying bills, known as ‘council bills’, which could be met for gold in London. The demand for an automatic standard administered by an independent bank was not only directed against a method of currency speculation, but also aimed to curtail the British Treasury and India Office practice of transferring rupees to Britain as a means of bolstering the international value of sterling. Second, Indian capitalists were concerned with the rate of exchange between the rupee and sterling. The Bombay School lobbied for the pre-war rupee exchange rate of Is. 4d., largely through their chief protagonist Sir Purshottamdas Thakurdas. B.R. Tomlinson argues that the main thrust of their campaign was directed not against the implications of a high exchange rate for foreign trade, but against the contraction of currency, the tightness of credit and the fall in internal prices that were the results cf the new rate. The government argued that prices in India had already ‘adjusted’ to the higher exchange, and that a lower rate of exchange could result in inflation which would adversely affect the poor. Most Indian representatives to the commission tried to show that prices were already too low to sustain a healthy amount of internal commercial activity and that they would fall still further if the Is. 6d. rate was maintained. The argument centred on the adjustment of the internal economy to the higher external exchange on two points, first, the level of wages in the Bombay cotton-mills, and second, the price of raw cotton and certain foodgrains, notably pulses. With the inflation of the first war years and the post-war boom wages for millhands had increased in real terms by 68 per cent: this was greater than in Bengal where industrial wages had increased by less than SOper cent. The relevance of this fact for monetary policy concerned Hilton-Young’s Commission. According to Sir Victor Sassoon, who represented the MOA before the commission, the ‘stickiness* of wages in adjusting to the then declining price level demonstrated the damage that deflating the economy could do to Indian industrial enterprises, and was, therefore, a major indicator of the need for inflation. To Sir Basil Blackett, the Finance Member of the Viceroy, Lord Irwin, this was an internal problem for the millowners and not one with which the government ought to be concerned, implying that the answer for the millowners was to force down wages.54 As the general strike of 1926 demonstrated

The Growth of the Indian Cotton-mW Industry

49

dramatically, cutting wages to secure a fixed exchange rate of sterling against gold was the prevailing orthodoxy of the Bank of England and the British Government. The debate over the price level of agrarian produce had wider implications. To the millowners lower prices for the major cash crops of western India, relative to pre-war levels, caused a depression in the up-country market for their own goods. Thakurdas and Sassoon argued that a lower exchange rate would increase the price of agricultural products internally and also stimulate exports; in turn this would improve the purchasing power of the Indian peasant and, therefore, expand the market for textiles. Kevin Watkins, however, argues that the Bombay School’s attempts to link internal deflation to the exchange rate left something to be desired for a number of reasons. First, enquiries into agricultural debt revealed that credit arrangements were for the most part not institutionalised and that, therefore, the world market for exports had only an indirect bearing on interest rates. Second, Thakurdas’s argument did not refer to the terms of trade facing specific crops, which meant that his generalised account never satisfactorily estabUshed a clear relationship between a high exchange rate and internal deflation. Third, there was no consideration of the position of farmers and peasants who sold their crops predominantly in the home market, and who, therefore, were not directly affected by world commodity prices and exchange rates. Fourth, during the twenties the declining productivity and per capita availability of foodgrains would have proved more of a barrier to increased consumption than marginal changes in the exchange rate. Finally, Watkins argues that the biggest weakness of the Bombay School’s case against the high rate was their inability to show convincingly that the Is. 4d. rate was the rupee’s ‘proper level’, anymore than government attempts to ¿how that it was Is. 6d.55 Tomlinson argues that both the government and the Bombay School projected the view of the rural economy that was necessary to support the rest of their case. The government’s view was determined by their wish to allow the ‘natural forces’ of the world economy transform Indian agriculture, while the arguments of its critics only applied to the affluent cotton growers of west India, with whom the millowners dealt. The limitations of the Bombay School’s model of the agrarian economy were revealed in the examination of D.P. Khaitan before the Royal Commission. Khaitan failed to argue convincingly that a high exchange rate would affect the wheat

50

The Politics of Textiles

producer, as he was forced to admit that most Indian wheat was not exported and that much of it never entered the cash economy at all. The cotton cultivator presented a better case because cotton was entirely a cash crop hit by the fall in world prices.36 However, if the Bombay School’s argument is premised on the assumption that a high exchange rate would lead to internal deflation through the higher cost and reduced quantity of exports, Tomlinson fails to recognise that the government’s claim that India’s economy had already adjusted to higher world prices and the Is. 6d. exchange rate was based on the spurious assumption that the bulk of India’s consumption requirements were made up by imports. If the Bombay School’s argument about the scope of the deflationary effects of the high exchange rate on the internal economy cannot be sustained, the government’s view that the economy had adjusted to world prices presents the reverse case, that the effects of a high exchange rate were transferred throughout the internal economy through imports. As Thakurdas’s argument is flawed on the grounds that many rural producers do not cater to the export market,.it is equally true that the majority of India’s population do not consume imports. The urban middle class would consume some imports, but this does not hold to anything like the same extent for rural consumers, who made up the vast majority of the population. In fact India’s economy had not adjusted to the higher world prices through the new exchange rate. As Watkins reports, when in 192S the rupee reached Is. 6d. gold, the government took the absence of major disruptions in prices as evidence that this was the 'natural rate’ of exchange. But between 1924 and 1926 the Calcutta price index, for example, fell by approximately 11 per cent, despite the government’s injection of Rs. 16 crores.37 The government’s underlying reason for maintaining a high exchange rate was that it facilitated the smooth payment of the home charges. Between 1878 and 1892 when the world price for silver, and hence the rupee sterling exchange rate, fell dramatically, the rupee cost of the home charges rose by some SO per cent, and brought sufficient pressure to bear on the budget that the excise on Indian cotton manufactures was introduced in 1896. This precedent, coupled with treasury interest made a high exchange rate the keystone of official policy.3' The government was right to be sceptical that millowners had the interests of the peasantry at heart. But though they oversimplified

The Growth of the Indian Cotton-mM Industry

51

their argument and attempted to give it a broader nationalist appeal through an avowed concern for rural producers, in terms of their own interests the millowning class had a good case against the government’s fiscal policy. A high exchange rate gave Lancashire an advantage by reducing the price of cotton piecegood imports. And although it is difficult to establish to what extent a high rate depressed internal demand, it probably still had some influence in restraining the market for Indian cotton manufactures. The Government of India’s acceptance of the majority report of Hilton-Young’s Commission resulted in the Currency Act of 1927, and established what could be described as a gold bullion-cum-sterling, and not gold against legal tender, currency. However, it was the retention of the Is. 6d. exchange rate, as against Is. 4d., more than the question of the currency standard, which caused considerable critical public controversy until the beginning of the Second World War. The Is. 6d. appeared viable for the first three years, but thereafter the fall in prices of India’s agricultural exports following the onset of the world depression in the early 1930s put a severe strain on the foreign exchanges. When England left the gold standard, the rupee became officially linked to sterling from 24 September 1931. The unchanged rupee-sterling exchange rate also implied a depreciation of the rupee in terms of gold and consequently a rise in the price of gold in terms of rupees. The price of gold on the Bombay market rose from around Rs. 21-4 per tola19 in August 1931, to Rs. 36-12 in April 1935. As the rupee was equivalent to Is. 6d. the price of gold in India was consistently lower than the price abroad, which made it profitable to export gold. In 1931-32 there was a net export of Rs. 57,98 lakhs worth of gold. This marked the beginning of a cumulative drain of India’s gold, which appeared even bigger from the vantage point of world annual production figures. As Table 1.4 demonstrates, while the annual world production of gold was increasing, reaching the record figure of 30 million ounces in 1934-35, India was importing progressively less gold each year until she actually became a net exporter in 1931. Exports of gold from India, in the ten years ending March 1941, amounted to 43 million ounces, valued at Rs. 3,759 million.60 The underlying nature of the export of gold was again subject to controversy. Certainly it reversed India’s historic role as a sink for precious metals from the West. The government’s view was that allowing for a proportion of distress sales, the bulk represented profit

52

The Politics of TsxtNes

realisations on an asset hoarded for capital appreciation. Indian public opinion regarded gold exports largely as distress sales whose proceeds should have been absorbed by the government to bolster the country’s metallic reserves. The outbreak of war in 1939 preclud­ ed a review of the monetary standard. Policy was confined to low and stable interest rates to assist war finance on a 3 per cent basis.61 TaMe 1.4 ladfa'f T née ami W *U Pndmedom F^upes * GoM, 1925-35 Year

Net Importa or Exports ( - f 0B thousands o f oz.)

Annual World Outputb (in thousands o f oz.)

1925-26 1926-27 1927-28 1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35

6,135 3,385 3,181 3,785 2,523 2,242 -7,629 -8,353 -6,695 -5,694

19,031 19,369 19,446 19,583 19,673 22,371 24,266 25,514 27,339 30,678

‘Compiled from the reports of the Controller bf Currency bBank for the International Settlements, 6th Annual Report, p. 24. Ssork Reproduced by R.N. Bafcfai, ‘Banks and Industrial Finance in India’ (London University Ph.D. thesis, 1937), p. IS.

The multilateral settlement of Britain’s balance of payments with countries outside the sterling area affected the commercial operations ’ of Indian businessmen principally in the effect it had on the rupee exchange rate. This led some of them to adopt nationalist political positions. But the problems the Indian government encountered in currency management were themselves an element in the gradual breakdown of the multilateral settlement of Britain’s debt. In turn this had the knock-on effect of providing an environment more conducive to India's industrialisation, under Indian auspices, than that which had existed in the nineteenth century, with the decline in exports of primary commodities resulting in investment in industry. This presented still greater problems for the colonial administration in as much as new investment was channelled from agriculture into the import-substituting textile industry, creating for the first time a contradiction between foreign capital (operating outside India) and Indian capitalists, as both were reliant on the Indian market. The form this conflict took, the impact it had upon the development of the textile industry and the promotion

T h « Growth of the kxflan Cotton-tn* Industry

53

of diverging political positions amongst millowners, is the theme of the next two chapters. Notes

1. S.J. Koh, Stages o f Industrial Development in Asia. A Comparative History o f the Cotton Industry in Japan, India, China and Korea (Philadelphia: Univcnity of Pennsylvania Press, 1966), p. 88. H.R. Aiyer, Economics o f Textile Trade and Industry in India (Vora A Co., Publishers Private Ltd., Bombay, 1977), p. 4. suggests that a man named Bowreah set up the Bowreah Cotton Mills in 1818, and does not mention any involvement of Henry Gouger. 2. Aiyer, op.dt., pp. 4-5. 3. S.D. Mehta, The Cotton Mills o f India, 1854-1954 (The Textile Association, Bombay, 1954), p. 12. 4. Madura Coats. The First Hundred Years Madura Coats. Centenary Stationary (1980). 5. Nilkan Perumal, The Life o f a Textile Pioneer. G. Kuppuswamy Naidu (Kuppuswamy Naidu Charity Trust for Education and Medical Rdief, Coimbatore, 1977), pp. 14-15. 6. Aiyer, op. d t., p. 5. 7. Again there seems to be some discrepancy between sources. For example, B.S. Rao, Surveys o f Indian Industries (Oxford University Press, Madras, 1958), p. 2., puts the date at 1854 and not 1851, as does Koh, op. cit. , p. 90. 8. Glorious Record o f a Hundred Years. The Cotton Textile Industry o f Ahmedabad. Reprinted from The Indian Textile Journal (Bombay, June 1961), p. 3. 9. V.B. Kulkarni, History o f the Indian Cotton Textile Industry (Millowners* Association, Bombay., 1979), pp. 11-12. 10. The Bombay Dyeing and Manufacturing Company. Diamond Jubilee, 1879-1939 (1939), Title Page. 11. Aiyer, op. d t., p. 6. 12. S.D. Mehta, op. a t., p. 91. 13. S.D. Mehta, op. d t., p. 43. 14. Neil Charlesworth, British Rule and the Indian Economy, 1800-1914 (MacMillan Press Ltd., London, 1982), p. 37. 15. D.R. Gadgil, The Industrial Evolution o f India in Recent Times, 1860-1939 (Fifth Edition) (Oxford University Press, Bombay, 1971), p. 55. 16. Aiyer, op. d t., p. 6. 17. Aiyer, op. d t., p. 7. 18. Gadgil, op. d t., p. 255. 19. Aiyer, op. d t., p. 7. 20. Rao, op. d t., pp. 2-3. 21. Gadgil, op. d t., p. 255. 22. A.K. Bagchi, Private Investment in India. 1900-1939 (Cambridge University Press, 1972), pp. 9-10.

54 23. 24. 23. 26.

The Politics of TsxtHes

A.K. Bagchi, op. a t., p. 10. A.K. Bagchi, op. eft., p. 23S. A.K. Bagchi, op. eft., p. 10. Counts of 20s and below indicate a low quality yarn and count« in the region of 50s and 60s a high quality yam. 27. A.K. Bagchi, op. a t., p. 233. 28. Which excludes handicraft and cottage production. P.T. Bauer, Indian Economic Policy and Development, p. 17. 29. R.K. Ray, Industrialisation in India. Growth and Conflict in the Private Corporate Sector, 1914-1947 (Oxford University Press, New Delhi, 1979), p. 71. 30. The maintenance expenditure of the India Office, including the pay, pensions and training costs of military and civilian personnel. 31. R. Palme Dutt, India, Today and Tomorrow (Revised and abridged Edition of India Today) (Lawrence and Wishart., London, 1953). 32. V.l. Lenin, Imperialism, The Highest Stage o f Capitalism (1917). 33. A.K. Bagchi, op. eft., p. 224. 34. See I.M. Drummond, British Economic Policy and the Empire, 1919-1939 (George Allen A Unwin Ltd., London, 1972),pp. 121-40. In Chapter 4 he argues that theLancashire trade died of its own accord, a fact which nationalist historians have tried to ignore. 35. Ray, op. eft., p. 7. 36. Ray, op. cit., p. 9. 37. A.E. Kahn, Great Britain and the World Economy (Sir Issac Pitman and Sons Ltd., London, 1946). Cited by Ray, op. cit., p. 9. 38. Ray, op. cit., p. 8. 39. B.R. Tomlinson, The Political Economy o f the Raj, 1914-1947. The Economics o f Decolonisation in India (MacMillan Press Ltd., London, 1979), p. 47. 40. Kahn, op. d t., p. 94. 41. Ray, op. d t., p. 10. 42. Tomlinson, op. d t., p. 41. 43. Tomlinson, op. d t., p. 43. 44. Ibid. 45. Thomas A. Timberg. The Marwaris. From Traders to Industrialists (Vikas Publishing House. Pvt. Ltd., New Delhi, 1978), p. 41. 46. Tomlinson, op. d t., p. 53. 47. Chaudhuri, op. d t., pp. 874-75. 48. A.K. Banerji, India's Balance o f Payments: Estimates o f Current and Capital Accounts from 1921-22 to 1938-39 (Asia Publishing House, London, 1963). 49. Ray, op. a t., p. 14. 50. Chaudhuri, op. d t., p. 876. 51. Ray, op. cit., p. 14. 52. B.R. Tomlinson, ‘Monetary Policy and Economic Development: The Rupee Ratio Question, 1921-1927’. In: K.N. Chaudhuri and C.J. Dewey (eds), Economy and Society. Essays in Indian Economic and Social History (Oxford University Press, New Delhi, 1979), p. 205. 53. A.G. Chandavarkar, ‘Money and Credit, 1858-1947’, In: D. Kumar and T. Raychaudhuri (eds), Cambridge Economic History o f India, p. 772. 54. Tomlinson, ‘Monetary Policy and Economic Development’, p. 205.

The Growth of the Indian Cotton-m HI Industry

56

55. Kevin Watkins, 'India: Colonialism, Nationalism and Perceptions of Development’ (Oxford University D.Phil. thesis, 1985), pp. 187-88. 56. Tomlinson, ‘Monetary Policy and Economic Development’, Note 37, p. 211. 57. Watkins, op. a t., p. 184. 58. Watkins, op. a t., p. 180. See also Kumar’s discussion of the home charges and the necessity of a high exchange rate. D. Kumar, ‘The Fiscal System’, in: D. Kumar and T. Raychaudhuri (eds), Cambridge Economic History o f India, pp. 937-38. 59. 1 tola = 11.6638g. 60. Chandavarkar, op. cit., p. 773. See also R.N. Bagchi, ‘Banks and Industrial Finance in India’ (London University Ph.D. thesis, 1937), pp. 18-19. 61. Chandavarkar, op. cit., p. 773.

2 THE SOCIAL ORIGINS OF ENTREPRENEURSHIP AND INDUSTRIAL FINANCE A striking continuity will be apparent here. A set o f rich banking families who bad earlier operated through the Pedhis, floated the textile mills and later pioneered the great chemical complexes.1 THE GENESIS OF THE COTTON-MILL INDUSTRY: AHMEDABAD AND BOMBAY COMPARED The religious and social climate in India prevalent in the late nineteenth and early twentieth centuries at first sight would appear to place several constraints on industrial development. Most obviously casteism would seem to restrict social mobility, and thus discourage mass entrepreneurship. Additionally particular religious precepts, not just those of Hinduism, could easily have had a similar effect. For example, the Jains, strict vegetarians, hold that all forms of life are sacred; their priests wear masks over their mouths lest they inhale and accidentally kill micro-organisms. Machine production would cause the unseen deaths of thousands of insects, and so perhaps it would come as a surprise to find a Jain setting up a cotton-mill. Upon closer inspection, however, it can be seen that rather than precluding industrial activity India's religious and social climate encouraged a division of labour along caste and religious lines, although not one rigidly adhered to. Within Hinduism the priestly castes, the brahmins, continued to eschew or to be unsuccessful in commercial activity, whereas many of the early millowners came from one of the numerous trading Bania castes. Alongside caste divisions different religions implied different lifestyles and orientations which were more or less conducive to business activities. Hindus, for example, have a strong extended and patriarchal family structure, while Par sees, who number just over 100,000 people, are

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more individualistic and possibly more open to western ideas.2 The Parsees were the first to make an entrance into manufacturing in association with British businessmen. Casteism is complicated by its regional dimensions. The Marwaris are a Bania trading caste originating from Rajasthan, and the Nadars a trading caste from the south of India. Similarly different religions are prominent in different regions. The Par secs originally migrated from Persia to Gujarat, and this is where they still predominate. The Jains are based in Gujarat, especially in and around Ahmedabad. Whatever constraints religion may have placed on individuals setting up an industrial concern, the cohesion a particular ethnic group was able to sustain in its trading practice proved important to the success of such ventures. The early millowners depended on the support of investors, suppliers, traders and industrialists of a fellow caste or religious denomination, thus the first millowners in Bombay were Parsees, and relied upon their contacts with the British and themselves. In Ahmedabad. although the first millowner was a Brahmin, very shortly afterwards the Hindu Vaishnava Vanias and Jains became the predominant millowners. In Calcutta and elsewhere in northern India the Marwaris emerged to become leading industrialists. Weber and Marx advanced the view, held more recently by Indian theorists such as R.S. Rungta and D.R. Gadgil, that India's social environment was not conducive to economic growth. This was either because of the religious constraints Hinduism in particular placed on more rational forms of economic action, or the lack of a modern communication system capable of breaking down the isolation and autarchy of village communities. Weber argued that the slow growth of industrial development in India was due to India’s predominant religious ethic, that of Hinduism: ‘in which every change of occupation, every change in work technique, may result in ritual degradation is certainly not capable of giving birth to economic and technical revolutions from within itself, or even of facilitating the first germination of capitalism in its midst’.3 Marx in his articles to the New York Daily Tribune in the 1850s argued that the railway system would be the forerunner of modern industry.4 Gadgil agreed that the economic transition of India from predominantly isolated, self-contained village units, towards modem industrial organisation, depended on the opening up of India through roads, railways and steamship routes, bringing Indian markets and supplies of

58

The Politics of Textiles

raw materials to the West.5 Improved communications must have helped Indian and British firms, but this does not diminish the importance of the religious and social climate peculiar to India and its effect upon indigenous industrial development. Rungta argues that ‘modern business corporations in India owe their existence to foreign influences and traditions’.6 He goes on to say that it was mainly from the operations of European Chartered Companies, the most notable of which was the East India Company, granted a charter by Elizabeth I in 1600, that Indian merchants learnt about modern forms of business organisation. The ancient indigenous institutions of the guild type and territorial groups of traders and artisans had, he argues, almost entirely disappeared by the end of the fifteenth century, due to the advent of European trade and the political changes which followed in its wake. Furthermore, he agrees with Morris D. Morris who argues that 'wherever and whenever industrial functioning required the disruption of traditional distinctions (castes), they were apparently swept away with ease.’7 The evidence undermines each of these contentions in part. The British were the first to introduce industry to India, as opposed to small-scale manufacture and trade, and the first Indian industrialists initially gained their business experience under the tutelage of British firms, or imported machinery and expertise in the form of engineers from abroad. Calcutta remained the bastion of British dominated commerce until well into this century, and in Bombay the first Indian industrialists relied on British collaboration in the early days. However, the nucleus of Indian industry was wholly Indian-owned, Indian-inspired and most importantly self-generating. Contact with the British may have kindled the spark of industrial initiative, but the industrial revolution which took place in India from the 1860s onwards was fuelled by an Indian market and Indian enterprise. The first Indian owned cotton-mill was started up b> a Parsee in Bombay. But the cotton-mill industry initiated in Ahmedabad in 1861, albeit with some British association, was under entirely different circumstances, and heralded a new dawn of industrial enterprise in a climate quite unlike Bombay. The enterprise culture of Ahmedabad casts considerable doubt on Rungta’s central proposition that ‘indigenous institutions of the guild type’ played no part in India’s industrialisation. Ultimately the Ahmedabad Mahajans and ancient trading traditions financed by the elite banking

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families superseded the influence of a foreign pattern of industrial development patronised by Parsees in Bombay as the most significant factor explaining the success of Indian industry. Cowasjee Davar was born in 1815 the son of Nanabhoy Framjee Davar, a leading merchant who had extensive trading connections with leading British commercial houses in Bombay. Because of his father’s early death at the age of forty and because his older brother died seven years later, Cowasjee found himself in charge of Nanabhoy Framjee’s Sons and Company when he was only thirty years old. In 1846 he took the lead in the floatation of the Commercial Bank of India. In 1852-53 he set up the Bombay Hydraulic Press Company, which helped boost the export trade in raw cotton. In 1854 with Edwin Heycock he floated the Mercantile Bank of India, and later in the same year on 7 July he brought cotton manufacture to western India with the Spinning and Weaving Company, ahead of James Landon, who started up in the next year.1 Davar was a Parsee without the religious or cultural constraints which Weber felt characterised Hindus, and which might have inhibited his entrance into commercial activity. The Parsees were also fortunate in avoiding the caste and religious rivalries which typified many Indian social relationships then and now. They enjoyed friendly relations with the British rulers, Hindu Rajahs and Moghul Nawabs, principally through the medium of commerce. Since the eighteenth century they had traded with China in raw cotton and opium. Sir Jamshedji Jeejibhoy (the first Parsee baronet), Khurshedjee Rustomjee Cama (founder of the first Indian business house in London in 1855), Nusserwanji and Jamshedji Tata, all started in Bombay or Calcutta, went to China and opened branches in Hong Kong, Shanghai or Canton, from where their businesses expanded to other parts of the world.9 Typically, successful Parsee entrepreneurs began their careers by being apprenticed as ‘boys’ to a European agency house, where after gaining experience they would then be allowed to act as broker for the firm. Finally they would break away from the company and establish their own venture, either alone or with fellow Parsees or Europeans. Thus Parsees who floated companies, either as cotton presses or fully fledged mills, had secured a reputation elsewhere, as well as the contact and resources to back a new company.10 The Parsees in the early seventeenth century were artisans, often

60

The Politics of Textiles

weavers. The majority did not, however, become industrialists by virtue of their crafts. Amalendu Guha argues that the Par sees’ ‘artisan background, however important, was less so than their trade both in the matter of capital formation and setting up of manufactories’.11 There is no evidence of a cotton manufacturing plant being set up by a master weaver. Sir Jamshedji Jeejibhoy was bom in Gujarat in a poor weavers family of priestly lineage. He started his career in his teens as a China trader's employee, and later traded with China on his own account.12 Guha perhaps overstates his point, particularly in the case of the Wadia family. In the early eighteenth century the Wadias were Bombay’s master shipbuilders, their chief customers being the East India Company. Guha argues, however, that they were never able to ply this profession as a spring-board for industrial development. Instead it was in their ‘participation in the China trade in raw cotton and opium that enabled them in the third generation to become substantial shipowners and real estate owners by 1909” .13 Neville Wadia as a direct descendant of the master shipbuilders is in a position to contest Guha’s argument that the Wadias only invested in industry having engaged in trade first. The first master shipbuilder in the Bombay docks was Lowji Nusserwanji Wadia (1700-74), who emigrated from Surat. He had two sons, Bomanji and Maneckji. From the time Lowji ‘joined the Bombay dockyards in 1736 right up until about 1880, one member of the family or other, sometimes descendants of Bomanji, sometimes descendants of Maneckji, were always the master builders in the dockyards... owned by the East India Company’.14 Neville Wadia is a descendant of the Maneckji branch of the family. Maneckji (1720-92) had a son, Rustomji (1766-1812). His son, Kurshetji (1788-1863) was the fifth master builder. His son, Ardeshir (1808-77) was first employed as an assistant builder and then as chief inspector of machinery, and was the first Indian to become a Fellow of the Royal Society of London. Ardeshir had two sons: Rustomji (1828-93) who had a daughter named Jerbai and Nusserwanji (1833-91) who had a son, Nowrosjee. Nowrosjee married his.first cousin, Jerbai. He became a member of the Bombay Legislative Assembly and founded Nowrosjee Wadia and Sons. The Hon. Nowrosjee Nusserwanjee Wadia joined forces with Sir Dinshaw Petit to establish Bombay Dyeing. The origin of the company goes back to when Petit owned the Cotton Spinning and

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Weaving Mill at Tardeo, at which point Nowrosjee was the general manager. At that time they used to purchase turkey red, green, orange and other dyed yams from manufactures abroad for the purpose of weaving fancy cloth. Then they conceived of the idea that if there was a dyeing processing plant in India it would obviate the need to import dyed yams. The company’s agent in Glasgow, Peter Harrower, was contacted with the view of enquiring whether a skilled dyer could be induced to come to India and start a processing plant. Hence Mr. John Alston and Mr. William Reid joined the board of the new company. The company was a joint Parsee-British venture from its inception, ‘with British know-how and Parseecapital’.15A British presence was retained until at least the Second World War. The board of directors in 1939 consisted of Sir Ness Wadia as the chairman, with his son, Neville, Sir Jamsetjee Jejeebhoy (6th. Bt.), J.R.D. Tata, and the Englishman, P.T. Harrison, as ¿he other directors.16 The company today is thoroughly Indianised, with the Wadias still at the helm as Neville Wadia’s son, Nusli, is the current chairman. The Parsees were important industrialists, but their rise to industrial prominence differed significantly from that of businessmen elsewhere. They initiated a different path of industrial development, and they differed in their relations with the British. Most Parsee enterprises were founded in association with British capital. Even solely Indian owned companies owed a lot to British managerial initiative. In 1895 42 per cent of the managerial and supervisory staff of Indian owned Bombay mills were English. As late as 1925 the proportion was still 28 per cent.17 Industry developed in Bombay at the height of British capital’s involvement in India. The development of Parsee enterprises was not an outcome of their attempt to compete with British capital either in terms of British Imports or British manufactures produced in India. Rather, Parsee businesses grew alongside and often in partnership with British capital, because the development of their industries was complementary to British ; capital’s involvement in the Indian economy at that point in its evolution. The foundation of cotton manufacture in Ahmedabad, which was to establish the pattern of India’s future industrialisation, occurred through entirely different circumstances. It was more Indian in terms of business management and its unique way of raising industrial

62

The Politics of Textiles

finance. Moreover Ahmedabad possessed a tradition of trade and commerce, and an established social hierarchy which had evolved around it found nowhere else in India. The religious and social environment was the principal reason the textile industry came to Ahmedabad given a number of unfavourable economic and climatic conditions. As Kenneth Gillion says, ‘it was far from inevitable that a modem textile industry should have developed in the city... in some ways it was even an unsuitable place for one’.1' The only local fuel was wood, and by 1895 most mills had to import coal and later brought it from Bengal and central India. There was no local port, which meant that most supplies had to come the three hundred miles by rail from Bombay. The climate was not even accommodating, being very dry and causing a tendency for the thread to break. Finally, the supplies of local cotton were not very suitable, only coarse counts were available, and from 1895 higher quality yarn had to be imported from Egypt. But more importantly, as Gillion says, western influence was minimal: Nor was there any great disruption of the traditional culture, which some have assumed to be a pre-requisite for economic growth. Indeed the case of Ahmedabad confirms the opinion of those who regard the extent of western contact and the extent of infrastructure provided as less important causal agents in economic growth than cultural factors of a more indigenous and long standing.19 ‘Ahmedabad’s advantages were not locational, but social and moral’. Ahmedabad possessed since time immemorial an institution known as the Mahajan,20 which was something akin to the artisan and trading guilds of medieval Britain. The difference was that the Mahajans in Ahmedabad collectively coordinated and regulated bankers and merchants along caste and religious lines so that the former in particular attained a special status in the Ahmedabad community. Artisans were organised into guilds known as panches, which had the same machinery for arbitration in business disputes. Banking, however, had a higher status than trade, and the latter a higher status than small-scale production. The Jains, as the bankers, dominated commercial life in Ahmedabad during the eighteenth and

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nineteenth centuries, but the Vaishnava Vanias, a Hindu trading caste, emerged as the dominant textile traders. This enhanced their social status, which led Ahmedabad to bestow its ultimate accolade on the head of the cloth dealers market; he became known as the Chautano Sheth (head of the cloth market), as distinct from the head of Sharaf Mahajan (the bankers’ guild).21 It was not, however, a Jain or a Vaishnava Vania who initiated the cotton-mill industry in Ahmedabad, but someone from a most unlikely caste. Rao Bahadur Ranchhodlal Chhotalal was a Brahmin, or to be precise a Sathodara nagar, one of the sub-castes of the nagar caste. Traditionally members of this caste adopted clerical occupations, and had an historic association with the Princely courts and the British. Ranchhodlal himself started his career as a government clerk in 1842. Within ten years he was the Assistant Superintendent to the Political Agent of Reva Kantha, the highest position that an Indian could aspire to. His career then came to an abrupt end when he was suspended pending a charge of corruption in which he was supposed to have taken Rs. 8,000 from the Raja of Lunawada in May 1853. Fortunately by this stage he had already begun to think in terms of alternative employment. His idea was to transplant western technology onto Indian soil. And in this respect his British connections served him well. He knew a Captain George Fulljames, who originally came to India as a geologist, but who also served as a Commandant of the Gujarat Irregular Horse between 1843 and 1850.22 Fulljames’s brother, Thomas, had some association with the British Company, Bryan Duncan and Company, and knew James Landon, who was then a cotton merchant who lived in Broach and who had made a substantial fortune out of his trade. The British connection, although useful in terms of acquiring the necessary technology, could not help in raising the capital needed for investing in a manufacturing plant. Ranchhodlal was initially let down by his bankers in Baroda, but by 18 August 1858, he registered the Ahmedabad Spinning and Weaving Company as a joint-stock venture. The most important promoters were close friends and orthodox Vaishnava Vanias, Achratlal Girdharlal Veragi (1821-85) and Damodardas Mohanlal (1831-96). Bholanath Sarabhai, another friend since childhood and an important financier, was also a significant promoter.23 The machinery was imported through the

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The Politics of Textiles

agent Cama and Company, for which Ranchhodlal depended upon personal contacts. He knew Dadabhai Naoroji, one of the founder directors of the mercantile company with its head office in London, taking the name from its Parsee chairman K.R. Cama. The first mill in Ahmedabad was situated within the old city walls near the Sabarmati river. This location gave the mill the colloquial name of the ‘Shahpur Mill’, which started production on 30 May 1861. Two years later Ranchhodlal founded his second enterprise, the Ahmedabad Ginning and Manufacturing Company Ltd. His son Madhavlal increased the company's operations, and although he did not have the entrepreneurial flair of his father, gradually took over the reins.24 The next mill to be set up after Ranchhodlal’s was the Bechardas Spinning and Weaving Company, in June 1867. The founder was again not from a caste associated with trading. Bechardas Ambaidas Laskari (1818-89) was of the Kanbi caste, the name of his caste coming from the sanskrit word krishmi, meaning ploughman. The commercial classes of Ahmedabad did not become involved in cotton manufacture until the end of the 1870s, and then initially with an ancillary industry. In 1876 Bholanath Sarabhai (1823-86) floated the Ahmedabad Calico Printing Company Ltd., which had the ambition of buying textiles and printing them, something for which Ahmedabad is famous. The majority of share capital was held by Bholanath Sarabhai’s family, but Ranchhodlal held a significant number of shares in the company, and his son Madhavlal was appointed manager of the mills. Unfortunately the company went into liquidation in 1880, partially due to competition from the local and well-organised cottage textile printing industry, and from poor management. Evidently there was seldom any consensus of opinion, and management decisions went awry. The first cotton-mill owned by Jains was the Gujarat Spinning and Weaving Company set up in 1877. Two brothers, Mansukhbhai (1855-1913) and Jamnabhai (1859-1924) Bhagubhai, encountered some opposition from their community in initiating this concern on the grounds that manufacturing would entail the loss of insect lives. But from this point onwards new industrial ventures were almost always promoted by Jains or Vaishnava Vanias. The first company set up by the latter was the Trikamlal Harilal Spinning and Manufacturing Company in 1888. The promoters were Harilal

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Harivallabhadas, Narottamdas Gulabchand, Trikamlal Jamnadas, Trikamlal Bhogilal and Govindlal Amritlal. Prominent among the Vaishnavas who emerged as textile magnates in the late nineteenth century were Motilal Hirabhai (1848-1938), Achratlal Harilal (1857-1925), Trikamlal Jamnadas Girdharlal Amritlal (1844-1921), Trikamlal Bhogilal (1821-99), Amritlal Damodardas (1856-1929), Balabhai Damodardas (1857-1937), Mangaldas Girdhardas Parekh (1862-1930), Chamanlal Girdhardas Parekh (1874-1946) and Maganlal Jaychand (1848-1913).“ On 26 October 1898, the pioneer of Ahmedabad’s textile industry died. But by the time of Ranchhodlal’s death a pattern had already been established to supersede his entrepreneurial spirit. The Mahajans of the Jains and the Vaishnava Vanias had nurtured their particular business culture. Ranchhodlal had no such support from his caste, with the exception of Bholanath Sarabhai, and in the early days had to seek aid from the commercial nagarsheth classes of the city. But as he became successful, and perhaps when he felt more secure, he tried to keep them at a distance. Some time before his death he is reputed to have said to his son and godson, 'do not allow Jains and Vanias to manage your mill affairs’.26 When Ranchhodlal died he had already been overtaken as the biggest individual millowner, and the Vanias as a caste easily dominated the millowners. By 1898 there were 25 mills, with 450,266 spindles and 5,887 looms, employing 16,134 hands. The Vaishnava Vanias controlled 14 mills and the Jains seven. The rest were controlled by non-trading castes, including Ranchhodlal’s two mills. There was additionally the Ahmedabad Fine Spinning and Weaving Company, established the year before by Sorabji Dinshaw Karaka, a Parsee. He also established the Hitwardhak Cotton Mills in 1900, but this went into liquidation a year later. Another Parsee, J.N. Tata founded his Advance Mills in Ahmedabad in 1903.27 The Parsees, however, were never a significant force in Ahmedabad. Neither were the British, and the only excursion of British capital into an exclusively Indian reserve was that of Mr. Collinson Shorrock’s,2® who set up the Shorrock Spinning and Weaving Company in partnership with Chandulal Achratlal Mahadevia and Mafatlal Gagalbhai. At least one senior manager, however, was employed at quite a late stage in the city’s industrial development. Sir John Burns joined the board of the Calico Mills when Ambalal Sarabhai was still chairman.29

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The Politic* of Textiles

THE PATTERN ESTABLISHED: THREE PIONEERING MILLOWNING FAMILIES The biography of three millowning families will serve to demonstrate the pattern of industrialisation established in Ahmedabad. The point to be made is that while Ranchhodlal was the first, he was by no means typical of other Ahmedabad millowners, and although in the early days he was associated with them, Ranchhodlal became increasingly isolated. The future lay with the trading caste Hindus and the Jains, and Ranchhodlal as one of the exceptions did much to prove the rule that certain ethnic groups in India have proved better industrialists than others. This is not to adopt Weber’s position entirely, as he said that commercial activity was an anathema to the religious codes found peculiarly in India. As Morris D. Morris has said, religious hurdles can be overcome. But the point remains that the Nagar caste and the Jains both had to overcome obstacles to commercial activity laid down in their faith and community’s response, yet only the Jains have sustained themselves as leaders in the industrial field. The reason for this lies in different community structures and responses. Once they had set up in business, and overcome the initial objection that manufacture was bound to entail killing insect life, the Jains could turn to the Mahajans, which they had traditionally dominated in trade and finance. But the Brahmin community would never support industrial ventures, and by Ranchhodlal eventually distancing himself from the commercial castes of Ahmedabad, his sons failed to build upon their father’s success and did not manage to sustain the momentum for corporate stability and growth very much beyond his life time. Ranchhodlal’s mills went into liquidation in 1930. The two most important Jain millowning families are the Sarabhais and the Lalbhais. Of the Vaishnava Vanias, the Mangaldases were amongst the most important, although now the family own only one mill, which is situated in Bombay.30 The Sarabhai Family Bholanath Sarabhai (1823-86) had pioneered a printing process in Ahmedabad when he floated The Ahmedabad Calico Printing Company Ltd. in 1876. Ranchhodlal’s son became general manager

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as Ranchhodlal had some financial stake in the mill. The company went into liquidation in 1880.31 Both Bholanath and Ranchhodlal were Nagar Brahmins and this probably accounts for their childhood and business associations. Among the financiers of the printing company was Sarabhai Maganbhai Karamchand, a member of one of the leading Jain banking families of Ahmedabad.32 He was no relation of Bholanath Sarabhai. As Maganbhai Karamchand had no son of his own, he adopted Jethabhai, his daughter’s son, and Sarabhai Maganbhai his niece’s son, as his heirs. When both were infants Maganbhai Karamchand instituted a trust to look after family affairs a few months before his death in 1864. The trustees consisted of Ranchhodlal Chhotalal, Bechardas Laskari, Umabhai Hathising Kesrising and Bhanubhai Trikamdas. As a trustee Ranchhodlal exercised considerable influence over family matters. It was largely due to him that the other trustees had agreed to invest some capital in the printing concern set up by Bholanath Sarabhai in the first place. When the company went into liquidation the mill was put for auction, but as the price offered did not reach the amount of the loan given,33 the trustees decided to take over the running of the mill and were able to acquire it for Rs.1.10 lakhs on 26 September 1880. The company’s name was now changed to the Ahmedabad Manufacturing and Calico Printing Company Ltd. and the trustees became the managing agents under the name of the late Maganbhai’s firm, Messrs. Karamchand Premchand.34 The young Maganbhai Sarabhai joined the board of directors of the managing agency of the new company in 1881 at the age of twenty. Ranchhodlal had been appointed chairman, in a caretaker capacity. The Sarabhai and Ranchhodlal team brought the company into profitability, but not without a struggle. Experience suggested that printing alone was not a sound proposition, and one of the reasons for this was the high cost of cloth. Between 1880 and 1881 a weaving plant was introduced, and then because of the high cost of yam a spinning section was added with 7,000 spindles in 1883, which rose to 20,000 spindles by 1889.3S But it was not until printing was temporarily stopped that the mill began to prosper. Finishing processes, including printing, were gradually re-introduced.36 By the time Sarabhai died in 1895 the mill was on a sufficiently secure footing to start competing with other Ahmedabad mills.

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The Politics of Textiles

The next generation of Sarabhais to run the Calico mills until well after independence were led by Ambalal Sarabhai. He adopted the name Sarabhai as a surname for the first time.37 Ambalal was born on 9 March 1889, into what was now a highly reputed family of the Dasha Shrimali Jain Bania community. He was only five years old when his father, Sarabhai Maganbhai, died, and was brought up by his uncle, Chimanlal Nagindas, who chaired the Jubilee Mills. With his uncle’s death Ambalal had to give up his education in the Gujarat College, from which he matriculated in 1908, in order to manage the family’s business concerns. In 1910 he married Shrimati Saraladevi, daughter of Sir Harilal Ghosalia of Rajkot. After the death of his uncle he controlled and managed the affairs of the Calico and Jubilee Mills and also the affairs of their agency companies.38 He was then only twenty. By the time of the textile strike and Gandhi’s fast in 1918, when he was the president of the Ahmedabad Millowners’ Association, he was twenty-nine.39 The Calico mills were successful mainly because of an innovative and progressive management. In the early 1920s the mill was doing well, but competition was increasing. At that time Calico, like other mills in India, were only making coarse counts (thick yarn) which when woven into cloth could not compete with imported fabrics. In 1922 Ambalal decided to build a new mill for the manufacture of medium and fine counts of up to 140s40 in order to enter into direct competition with imported cloth. After some difficult years the new mill started to do well, and so the whole group was converted to manufacturing medium and fine counts.41 The Calico Textile mill, which in its first year had a turnover of Rs. 0.23 lakhs, besides being the first fine count mill in India, in 1922 also installed India’s first sewing thread plant. This boosted the company’s assets to Rs. 58.08 lakhs and the turnover to Rs. 70.25 lakhs. In 1937, a diamond mesh mosquito netting plant was added to the textile group, further increasing its assets and turnover to Rs. 88.41 lakhs and Rs. 101.23 lakhs respectively. In 1947 the company diver­ sified into chemicals, in order to manufacture caustic soda, increasing the company’s assets and turnover to Rs. 91.93 lakhs and Rs. 442.16 lakhs respectively by the time of independence.42 In 1958 the com­ pany had 139,120 spindles and 2,400 looms in the two mills, the Calico Mill and the Jubilee Mill. Departments for bleaching, mercerising, dyeing, printing and finishing were installed at the Calico Mill,43 and together both mills were employing 8,000 people in 1955.44

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The Latbhai Family

Kasturbhai Lalbhai was one of the few millowners who were equal in stature to Ambalal Sarabhai. Kasturbhai came from a nagarsheth family of Oswal Jains. The latter were supposed to have been converts from Hinduism in Oswal, which was formerly the capital of Marwar in Rajasthan, in 500 B.C. Their conversion to Jainism in likely to have occurred in the seventh or eighth centuries.45 Kasturbhai could trace his family back to Shantidas Zaveri, a merchant prince who was given the title of nagarsheth by Jehangir (the father of Shah Jahan, who commission«! the Taj Mahal) in return for his services as a jeweller. As a leading Jain family they were principally concerned with commerce and not manufacture. Their first venture into the cotton industry came in 1895 when Manibhai Premabhai and his son Umabhai promoted the Hathising Manufacturing Company. The mill was rather short-lived, however, and was taken over by Mansukhbhai Bhagubhai in 1903.46 In the end it was a lesser branch of the family which succeeded in textile manufacture. Some time after the death of nagarsheth Vakhatchand in 1814, the family divided into two branches. The oldest son, Hemabhai, continued the nagarsheth line, while another son, Motibhai, founded a separate line. The head of the Motibhai branch during the speculation mania of 1861-65 was Dalpatbhai Bhagubhai. He made a small fortune and established a banking firm, Messrs. Dalpatbhai Bhagubhai and Company.47 It was his son, Lalbhai Dalpatbhai (1863-1912) who in 1897 floated the Saraspur Mills and later the Raipur Mills in 1905. On his death on 12 June 1912, his sons were given the Raipur Mills, and his brothers the Saraspur Mills. At this point Kasturbhai, who was then at the Gujarat College, was persuaded to join his older brother, Chimanbhai, and to begin work at the Raipur Mills. He was then only seventeen. Initially he was placed at the time-keeper’s office, checking the workers’ attendance and preparing their salary slips. Within six months he was transferred to the stores department, and in this capacity had to visit different towns and check the quality of cotton purchased. He soon became a good judge of the cottongrowing districts. In 1913 Kasturbhai installed 336 looms in the Raipur Mills, when hitherto the mill had only possessed a spinning capacity.4* In 1921 he promoted the Asoka Mills, with an initially planned

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The Politics of Textiles

paid-up capital of Rs. 12 lakhs and an installed capacity of 20,000 spindles and 500 looms. Because of the reputation of the Raipur Mills there was a big rush for Asoka shares. Kasturbhai was able to increase the share capital to Rs. 24 lakhs and increase the installed capacity to 40,000 spindles and 1,000 looms.49 In 1923 Saraspur Mills went into liquidation, and this enabled Kasturbhai to acquire it and begin production again under his own family’s management.30 In 1928 he set up the Aruna Mills. The flagship of the Lalbhai group was promoted in 1931. Arvind Mills was set up taking advantage of a slump in textile machine manufacture. Kasturbhai negotiated through Sir Ness Wadia whose firm were the agents for Messrs. Platt Brothers of Oldham, England. Kasturbhai suggested that he would be willing to place a large order for textile machinery if he was given a discount of a third. Sir Ness felt that a maximum discount would be 10 per cent, but agreed to send a cable to England setting out Kasturbhai’s offer in which he proposed to place an order for one lakh spindles and combers, out of which 40,000 would form a firm order with an option on the balance within two years, the standing order being cancelled if the finances were not available. Due to the depression and the size of the order, Platts agreed, to the astonishment of Sir Ness, who then himself placed an order for 50,000 spindles for the Bombay Dyeing Mills.' Thus the machinery for Arvind was bought at a record low rate. The balance of 60,000 was placed for Nutan, Raipur and Asoka Mills.51 The establishment of Arvind Mills was also significant because it was designed to cater for the demand in fine and superfine varieties, at a time when only the Calico Mills were able to manufacture cloth with the higher counts of yarn.52 In the same year a smaller mill was established to produce medium quality goods. This was the Nutan Mill. Kasturbhai’s primary motive in establishing this mill may have been to provide for his nephews.53 He had three married sisters: Shrimati Dahibehn, Shrimati Manekbehn and Shrimati Kantabehn. For the benefit of their sons he promoted Aruna Mills and Nutan Mills and obtained the New Cotton Mills in 1935. Moreover the Lalbhais diversified into chemicals before independence, at an earlier date than Ambalal Sarabhai. The Anil Starch Company was set up in 1939, followed by the Amrit Chemical Company and the Atul Dyeing and Manufacturing Plant.54 The group of seven mills are still in the hands of the family. Shrenik Kasturbhai, Kasturbhai’s son, is the managing director on the finance

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side, and Arvind Lalbhai, Kasturbhai’s nephew, is the managing director on the technical side. Gunottam Hutheesing is the group chairman. The Mangaldas Family

The Mangaldases were Vaishnava Vanias, «nlike the Lalbhais and Sarabhais who were Jains. Even though Gillion argues that the ethic of the Jains was in greater or lesser degree adhered to by most Gujaratis, and certainly by the Vaishnava Vanias, the difference is significant in as much as the latter might be expected of all the different ethnic groups to enter manufacturing, as they are members of the trading caste.53 Sheth Mangaldas Girdhardas Parekh was born in the Visa Porwad Meshri (Vaishnavite) Bania community of Ahmedabad, on 8 May 1862. If Ranchhodlal Chhotalal was known as the father of the cotton-mill industry in Ahmedabad, Mangaldas Parekh was known as the ‘foster father of the industry’.56 His father, Girdhardas Harivallabhdas Parekh had been involved in the cotton trade, but initially with limited success. He set up his first company in 18S9, which failed in 1862, the year Mangaldas was bom. In 1864 he began a business bringing yam from Bombay, some of it imported, and supplying it to the Ahmedabad weavers.57 Mangaldas passed his matriculation exam at Bombay University when he was twenty, and then joined the Shahpur Mills (owned by Ranchhodlal) as a store clerk, along with another future industrialist, Mansukhbhai Bhagubhai.5* Mangaldas supervised inventories— stocks of cotton, yam, cloth, etc. — in the mills’ godowns, kept an account of incoming and outgoing goods, and entered into correspondence with Bombay and foreign firms. This was good business experience, and enabled him to get a grasp of a mill’s requirements and of market rates. He then started his own mill-store business in 1886.19 In 189S he set up a mill-store company in Bombay, in cooperation with Hormasji Manekji Mehta, a Parsee, and Isaji Sumar, a Muslim. The Ahmedabad firm was known as Messrs. Chamanlal Mangaldas and Company (Chamanlal was Mangaldas’s younger brother), and the Bombay firm was called The Mill Stores Trading Company of India. These firms dealt directly with the textile machinery and spare-part dealers of England. Two of his customers were Ranchhodlal and Mansukhbhai Bhagubhai.

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The Politics of Textiles

Having consolidated his mill-store operations, Mangaldas entered the yarn and colour business. By 1892 he was sufficiently well connected and established to venture into manufacturing. He was joined by a friend of the same caste, Balabhai Damodardas of the Shodhan family, who had also received his apprenticeship in Ranchhodlal’s mill. They founded the Aryodaya Spinning and Weaving Company, with an authorised capital of Rs. 5 lakhs, divided into 500 shares of Rs. 1.000 each.60 The mill started as a spinning mill with 8,000 spindles, but by 1930 it had developed into a fullfledged mill of 53,364 spindles and 1,297 looms. From this single mill Mangaldas promoted, or helped to promote, something like nineteen companies. Chief amongst these were cottonmills. In 1902 he took over the management of Rajnagar Mills, and in 1912 acquired the Rajnagar Ginning and Manufacturing Company for Rs. 342,000 and the Haripur Spinning and Manufacturing Company for Rs. 401,000, and managed them together as the Rajnagar Mills. In 1913 he acquired the Vepar Uttejak Spinning and Manufacturing Company from the liquidators, and in 1914 it started production as the Aryodaya Ginning and Manufacturing Company Ltd. He also managed mills outside Ahmedabad, chiefly in Bombay. In 1904 he acquired the Victoria Mills, and in 1916, the Jubilee Mills of Bombay.61 Sheth Mangaldas Parekh died in 1930, leaving two sons. Mathuradas Mangaldas Parekh was bom in 1911, and Madanmohan Mangaldas in 1917. Madanmohan was 13 when his father died, and now he is in charge of the family affairs. After graduating from Bombay University in 1936 he became a director of Aryodaya Spinning, Aryodaya Ginning and Victoria Mills. On his brother’s death he became the chairman of the Mangaldas group, but his main success in industry has probably come in ventures unrelated to textiles. He has held directorships in a variety of industries, such as the Great Eastern Shipping Company Ltd. and until the banks were nationalised in 1967, was a director of the Bank of India.62 The Mangaldas, Lalbhai and Sarabhai family enterprises are representative of the entrepreneurial, cultural and economic backgrounds which engendered the growth of the cotton-mill industry in Ahmedabad. Every industrialist who initiates a venture in something new must have an entrepreneurial flair. By itself, however, it is not enough; Ranchhodlal was an entrepreneur par excellence, but his family are not amongst the industrialists who dominate

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India's business world today. Instead these three families have the secret of continuity which has sustained family fortunes throughout successive generations. The underlying reason for this is that early success could be built on by caste solidarity among business groups used to operating within the Mahajans. Mangaldas set up his first company with a fellow Vania, and the Lalbhais and Sarabhais were always keen to keep their industry a Jain and indeed a family concern. In later years there has been some intermarriage between the business houses. Ambalal Sarabhai’s eldest son, Suhrid, married Chimanal Lalbhai’s (Kasturbhai’s brother) daughter, uniting the two Jain families. Interestingly, Ambalal’s daughter Shrimati Linabehn married Madanmohan Mangaldas, uniting two business houses if not castes. Ranchhodlal, despite being on very good terms with each family and indeed acting as an advisor in business affairs, ultimately stood apart. Moreover, his sons probably lacked his business acumen, which would have made itself felt when the old man died. Explaining why industrial development occurred in a certain place, at a certain time, is usually a question of pointing to a concatenation of fortuitous factors. In Ahmedabad one of those factors was an enterprise climate peculiar to that city. The early millowners in Bombay were mainly members of the Parsee community who took advantage of a business environment dominated by the British until the turn of this century. Ahmedabad industry was rather un-British, and its continued progress and prosperity soon brought it into conflict with British manufacturing interests, not so much with those originating from Bombay, but from Lancashire. One of the biggest problems facing the early pioneers was the question of finance. Ahmedabad had a number of families whose fortunes lay in a historic role as moneylenders. Yet these families were the last to engage in manufacture, although some of them have now survived the longest. But in response to the initial lack of interest shown particularly by the Jain nagarsheth banking families, Ahmedabad developed a unique system of raising industrial capital. INDUSTRIAL FINANCE It is significant that the banks never contributed very much to the financing of India’s cotton industry. Organised banking did not

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The Politics of Textiles

emerge to cater to the needs of industry. R.N. Bagchi differentiates between five main credit institutions of the organised sector in operation after the First World War. The largest and most influential bank was the Imperial Bank of India, founded in 1921 as a jointstock concern out of the amalgamation of the Presidency Banks of Bengal, Bombay and Madras. This was succeeded by the Reserve Bank of India, established in 193S following the Royal Commission on Indian Currency and Finance chaired by Edward Hilton-Young. Second, there were the ‘exchange banks', foreign joint-stock banks with their head offices outside India. Out of seventeen such banks few were concerned with trade inside India. Messrs. Thomas Cook and Sons and the American Express Company dealt mostly with tourist traffic. The Chartered Bank of India, Australia and China, the National Bank of India, the Mercantile Bank of India, the Eastern Banks, Lloyds Bank and the Hong Kong and Shanghai Banking Corporation, financed colonial trade. Third, Indian jointstock banks, which as purely Indian ventures, are worth investigating in more detail, if only to show their limited role in financing industry. Fourth, cooperative banks, established under the Cooperative Societies Acts of 1904. By 1934 there were 236 cooperative banks, whose objective was to limit rural indebtedness.63 Fifth, post-office savings, which started life as government savings banks in 1833-3S, becoming post-office savings in 1882. The growth of these savings is a more reliable indication of the development of a banking habit amongst the Indian people at large than the progress of the jointstock banks. By 1933 there were over two million depositors, with deposits of Rs. 434,537,000.64 Another two credit agencies, not located in the organised sector, are the insurance company and postoffice cash certificates, neither of which contributed to raising industrial capital. The Indian joint-stock banks had a rather chequered career, easily vulnerable to overspeculation and wild shifts in political climate. It was not until 1860 that the concept of limited liability was legally ratified, and not until the Indian Company Act of 1936, that special provisions relating to the definition of minimum capital and cash reserve requirements and other operating conditions for banking companies, were incorporated into the law.63 Even after the recognition of limited liability the growth of joint-stock banks was slow. The American Civil War, increasing the demand from Britain

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for Indian raw cotton, led to twenty-five floatations, most of which were short-lived. At the end of 1870 there were two joint-stock banks with reserves of Rs. 500,000 and more, and by 1900 this had increased to nine. These included the Allahabad Bank (founded 1881), the Alliance Bank of Simla (1874), the Oudh Commercial Bank (1881), and the Punjab National Bank (1894).66 In the few years preceding 1913 there was a rapid extension of joint-stock banking, especially in the Punjab, promoted by the opening up of the canal colonies and the growing export trade in wheat, many of which in terms of their business integrity and financial acumen were dubious concerns. Keynes warned of the oncoming crash67 initiated by the collapse of the People’s Bank founded by L.H. Lai, and followed by another fifty-five.“ Deposits fell from Rs. 256,585,000 in 1910 to Rs. 225,919,000 in 1913, and touched bottom with Rs. 178,727,000 in 1915.49 The First World War boom conditions raised deposits and induced more floatations, inducing a more even pattern of development which on the whole was sustained throughout the interwar period. The post­ war depression, however, did claim some victims, notably the Alliance Bank of Simla in 1923.70 But by 1934 there were thirty-six banks with the large deposit of Rs.7,677,726,000.71 Of these banks, two, the Bank of Baroda and the Bank of Mysore, were the official banks of the states in which they operated. These two, therefore, did no$ Q ^ e fall into the same category as the remainder, whose activities were purely commercial and did not have the advantage of acting as state bankers. The remaining four, the Central Bank of India, the Bank of India, the Allahabad Bank and the Punjab National Bank, were the only important instances of purely private enterprises engaged in banking on a joint-stock basis. The contribution of joint-stock banks to the growth of Indian manufacturing was negligible, at least in the initial stages of industrialisation. In the case of Ahmedabad the major reason for this was that joint-stock banks were promoted and financed by the traditional banking families who were not interested in investing in industry to begin with. The banks represented an alternative to sinking funds in untried and untested manufacturing ventures. For example, the Bank of Ahmedabad was promoted by the Hathising Kerisings, who did not even dabble in manufacture for another forty years. Many of the new joint-stock banks were set up during the

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The Politics of Textiles

speculation fever of the American Civil War years. Among the Jain traditional banking families who speculated heavily were nagarsheth Premabhai Hemabhai, Dalpatbhai Bhagubhai, Bhagubhai Premchand. Maganbhai Karamchand, and the Hathisings. The Vaishnava Vanias included Damodardas Mohanlal, Girdharlal Harivallabhdas, Trikamlal Jamnadas and Harilal Harivallabhdas. Many failed, but none considered turning to manufacturing despite the blockade of the Southern States of America offering some of the same advantages to industry as those which had encouraged the speculation. The troubles Ranchhodlal had in raising industrial finance are welldocumented. In the late 1840s he was based in Baroda, and there he approached the renowned banking firms of Hari Bhaktis, Samal Bechars and the Gopalrao Mairals, who had established themselves in the 1770s. The fust two controlling families were Vaishnava Vanias, and related by marriage. They were not attracted by Ranchhodlal’s proposition. Then he turned to the banking families of Ahmedabad. He approached Maganbhai Karamchand who at that point had established working ties with Parsee businesses in Bombay and was later to help finance the Calico mills. But for now he was not interested. Ranchhodlal then went back to Baroda. In the meantime he got the backing of Gaurishankar Oza, who from 1849 had been the Chief Minister of Bhavnagar State, and the Raja of Rajpipla. The firms of Samal Bechar and Gopalrao Mairal this time agreed to back Ranchhodlal along with other shareholders in Baroda. They let him down at the last moment when James Landon, who was about to embark for England on Ranchhodlal’s behalf in order to buy the necessary machinery, could only offer them a letter of guarantee from Messrs. Leckie and Company. This was accepted by the Raja and the Chief Minister, but not by the Bania shareholders and bankers of Baroda.72 It was another ten years before Ranchhodlal managed to get sufficient financial backing. In the absence of an institutional source of raising industrial capital, the mills of Ahmedabad developed a unique system of generating financial support. In the early days the mills were financed from public subscriptions. By the interwar period this method of raising industrial capital had begun to wane, but in the late nineteenth century it was an indispensable factor in contributing to the growth of the cotton industry.

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Before the First World War almost all deposits used to come from the public in Ahmedabad and adjoining areas. After the war some industrial concerns in Ahmedabad flourished and accumulated reserves, which were then inter-deposited. These deposits by mill companies took the place of deposits from rural areas which by then had considerably fallen off, due partly to the decline of their prosperity, and partly due to competition from government securities. It is said that the Ahmedabad public considered it safer to deposit their money with a mill than with a bank, and this is attributed to the business integrity of the early millowners. But by 1931-32» in view of the high rates of interest offered in government securities, postal certificates, municipal loans and debentures, investors were induced to invest their money in these deposits and shirked from investing it in the mills, the more so in depressed times.73 The rate of interest which managing agents charged to the mills for the money which they advanced was never more than 6 per cent, and compares favourably with the rate of interest on deposits, in as much as the agents had to advance any deficiency in the total finance required. Table 2.1 shows the various sources from which the Ahmedabad mills obtained their finance in 1930. It shows the crucial role of public subscriptions and the important part played by the managing agencies. It also demonstrates the negligible contribution of banks. ‘Ahmedabad perhaps is the only place in which industry runs on finances received from the public and managing agents with little or no assistance from banks’.74 A representative of the Ahmedabad Millowners’ Association remarked that nearly 80 per cent of the financial backing of textile companies was made up by deposits and by managing agents.75 That the banks were unhelpful is true throughout India, albeit not to the same extent as in Ahmedabad. In Bombay 9 per cent of finance came from the banks, but here 49 per cent was supplied by share capital and only 11 per cent from public deposits.76 The level of public subscription in the Ahmedabad cotton-mills was unique. Why did the mills in Ahmedabad obtain little or no assistance from the banks? So far as block capital was concerned, Bagchi argues that the banks were naturally unwilling to invest their funds, raised in the form of short-term deposits, in long-term investments of the fixed assets of mill concerns. In order to raise working capital the

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Ahmedabad mills in turn did not wish to pledge or hypothecate their stock with the banks, as the Bombay mills did. They claimed that if they did the whole fabric of credit, including their deposit system, would be ruined. Ts b k 2.1

larmtmemt la the Akmtedabad Textiles Iadmstry As on 1 October 1930 The amount loaned by managing agents The amount loaned by banks The amount of deposits from the public The amount of share capital The amount of debenture issued

Ahmedabad Mills (56 Mills) in Rs.

Percentage of Total Finance

26,400,000

24 ft

4,200,000

4 ft

42,600,000

39 V*

34,000,000

32 It

800,000

1%

Soarce: R.N. Bagchi, ‘Banks and Industrial Finance in India’ (London University Ph.D. Thesis, 1937), p. 71.

A more important agent in financing Indian industry was the unorganised credit centre. A.G. Chandavarkar argues that in terms of the overall pattern of internal finance, the unorganised or non-institutional sector of the Indian banking and financial system may be described... as a residual sector, consisting of an amorphous mass of indigenous bankers and moneylenders operating as traditional family businesses, usually in combination with trading and other activities 71 There is no clear distinction between indigenous bankers and moneylenders, except that bankers in addition to making loans, accepted deposits and dealt in indigenous bills of exchange, hundis, an unsecured promissory note payable within ninety days. Any differences between indigenous bankers and moneylenders were not as important as what they had in common. Both operated with their own capital and often worked with loans in kind; rural producers may have wanted seed and artisans raw materials, all of which had

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traditionally been mediated through the merchant-cum-moneylender. Indigenous bankers and moneylenders were often known as Shroffs or Sahakars and belonged to specific regional and caste groups. Examples would include the Marwaris from Jodhpur and Jaipur in Rajasthan, the Khattris from the Punjab and United Provinces, the Multanis and Shikarpuris from Sind, the Natukottai Chettiars and the Kallidaikurichy Brahmins in Tamil Nadu. And despite the Islamic prohibition of usury, there was a significant proportion of Muslim moneylenders, although they preferred to operate in the predominantly non-Muslim areas of peninsular India, such as the Pathans from Afghanistan and the North West Frontier Province.71 The involvement of moneylenders and indigenous bankers in Indian commerce is probably as old as India herself, and cbvered a vast range of business activities, from wholesale and retail trade, to accepting deposits and making loans to individuals and firms, as well as the more political functions, remittances, discounting of bills of exchange, mint masters, money changers, revenue collectors for the government, and so on. There were noted indigenous bankers, such as the Jagatseths of Bengal whose transactions were described by Edmund Burke as being as expansive as those of the Bank of England, and whose credit was accepted to the extremes of north and south India.79 Or the Chettiars of Madras, who had extensive trading links with Ceylon and South East Asia. Overtime, however, economic and political factors eroded their influence in the Indian economy. In 1778 the system of government revenue collection through the indigenous agencies was abolished. The introduction of uniform rupee coinage in 1835 deprived them of the lucrative commission charges on the interchange of money. But the main business of indigenous bankers and moneylenders remained intact, to finance the shon and medium credit of agriculture, trade and industry. The Central Banking Cpmmittee of 1929 estimated that the unorganised money market financed about 90 per cent of India’s internal trade. The Madras Banking Enquiry Committee found that 75 per cent of farmers’ borrowings in south India were from ‘moneylenders’.80 The exact size of the unorganised sector was impossible to measure accurately at that time, and the same is probably true today, so these percentages should be treated with caution. Nonetheless it is clear that the bulk of economic activity between 1858 and 1947 was financed by the unorganised credit agencies.

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THE AHMEDABAD PATTERN OF INDUSTRIAL DEVELOPMENT AND THE INDUSTRIALISATION OF INDIA A strong case can be made for describing the leading Vaishnava Vania and nagersheth Jain families as indigenous bankers, turned joint-stock bankers in the mid-nineteenth century.11 Only in the late nineteenth century did they concern themselves with manufacture. But once they had established themselves as cotton-millowners they set the pattern for most of the future industrialisation of India; a pattern of new investors in manufacture coming from predominantly banking and trading backgrounds, to be replicated, particularly in the case of Marwari enterprises, albeit at a later date. In Bombay the Parsees were the first to industrialise, and although they do not have the same indigenous banking origins, having originally been farfners or artisans, they shared with the Marwaris and the Jains a history in trading as the precursor to their entrance into industry. Parsee enterprises developed in an environment dominated by British capital and usually in collaboration with British capitalists. In Ahmedabad, capital was almost exclusively Indian. In the early days of the textile industry’s development, in the mid to late nineteenth century, Ahmedabad and Bombay did not even share the same market. Ahmedabad manufactured piecegoods for the domestic market while Bombay looked predominantly to China as an export market for yarn. Originally Ahmedabad millowners obtained their deposits from the town’s local population and from the surrounding countryside; capital which would hitherto perhaps have been ploughed back into rural concerns or trade. The entry into manufacture of indigenous bankers suggests perhaps that macro-economic changes had reduced the income they derived from their former commercial activities. Both Gillion and Mehta concur that in the aftermath of the American Civil War speculation fever Ahmedabad’s financiers began to find their traditional outlets of investment increasingly restricted. On the one hand, the modern banking system was intruding into the moneylender’s territory, and the government seemed to be taking steps to ameliorate rural indebtedness by curbing the high rates of interest. The passage of the anti-usury acts, such as the Deccan Agriculturalists Relief Act of 1879, was a warning to rural moneylenders that a major source of their profits would be subjected

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to much greater restraint in the years to come.12 On the other hand, the trade in rural commodities was in decline. The opium trade had dropped off dramatically and since the end of the Civil War the export of raw cotton was considerably less lucrative. Gillion says that the indigenous bankers had already derived considerable capital from these activities, but that they ‘now had more capital than they could profitably use in accustomed ways’.*3 The contraction of traditional trading patterns and concomitant commercial functions questioned the continued pre-eminence of an established elite. Nevertheless the nagarsheths and leading Vaishnava Vanias held back from manufacture, partly perhaps out of a sort of ‘city snobbery’. But also because ‘for the commercial elite... the decision to transplant foreign technology and business methods into Indian soil meant the diversion of their resources and attention from a field which [had] promised sure profits to one where the profit potential was unknown'.** Their approach appeared to be to watch the endeavours of a nagar entrepreneur, rather than risk burning thenown fingers. Ranchhodlal’s pioneering efforts ‘set an example that triumphed over the slumbering stupor of the conservative citadels of Gujerati capitalism’,*5 and initiated a pattern of industrialisation in which elite financiers soon became the dominant millowners. V.B. Kulkami suggests that the ‘foundation of the Indian cottonmill industry was... well and truly laid in Bombay’.* He refers to the city’s excellent communications and notes that it was to become India’s premier commercial and industrial city. However, if we look at India as a whole, the pattern of industrial growth in Ahmedabad is more illustrative of the shape of things to come. When India’s agrarian economy became depressed towards the end of the nineteenth century, indigenous bankers turned to manufacture as an alternative source of investment. This was the pattern of industrial investment and entrepreneurship established in Ahmedabad. In contrast the path to industrial development taken by the Parsees in Bombay proved to be the exception, rather than the rule, and was superseded as a model of entrepreneurial response. The Marwaris as well as being indigenous bankers also engaged in trade. By the early 1900s, after the British, they had gained commercial pre-eminence in Calcutta over the native Bengalis and Khatris.*7 After the First World War they moved into manufacturing. T.A. Timberg cites Pavlov who argues that this trend

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was accentuated in the interwar period. Pavlov suggests that the decreased demand in the export market, especially after the world depression of 1929-33 and high value of the Rupee at this time, led Marwaris to search for new investment opportunities in industry.8* Timberg supports this argument by pointing out that industrial development in the 1930s, notably the production of high grade cotton manufactures, sugar and cement, was all oriented to the internal market, as compared to the external orientation of the older jute and cotton textile industries.19 The pattern of financiers and traders entering industry was not confined to the north. Tomlinson points out that the Chettiars and Naidus of south India diversified from trading and indigenous banking into cotton mills.90 This view is supported by Christopher Baker. He argues that during the 1930s depression merchants counteracted the decline in profits from raw cotton trading by investing in spinning facilities.91 The largest centre of the textile industry in the south was Coimbatore. The town’s first mill, the Coimbatore Spinning and Weaving Company Ltd., was set up as early as 1888 by Messrs. Stanes and Co., of whom Sir Robert Stanes was the driving force. The mill was probably established in Coimbatore because of the locally grown cotton, which also supplied a prosperous handloom weaving industry in neighbouring districts. Much of the cotton, however, was exported. A number of ginning factories thrived by cleaning and processing the cotton prior to its movement to Madras and Bombay for shipment to Europe. There were eight factories in the local area by 1894, the largest of which was situated in Coimbatore and also owned by Sir Robert Stanes.92 Coimbatore’s second cotton mill was the Kaleeswara Mills Ltd., established eighteen years after the Stanes’ venture in 1906 (and later amalgamated with the Coimbatore Spinning and Weaving Company in 1929) by two Indians of the Nagarathar community. After a long lull, in 1922 and 1923 respectively two mills were set up by Naidu families in Peelamedu, three miles from Coimbatore. No new mills were then set up until the end of the decade when four were established.93 The early millowners in Coimbatore were chiefly agriculturalists, and have a distinctive religious background. The vast majority of them were Hindus of the Naidu sub-caste. Originally they were members of the Kamma Naidu Community from the districts of Guntur and Chittoor in Andhra Pradesh. In the eleventh century

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they fled to Tamil Nadu out of fear of Mohamed Gazni’s Moslem invasion of North India.94 Today, although assimilated into Tamil culture, when at home the millowners still speak in their native Telugu.95 One such immigrant was Perija Govindaswamy Naidu, who farmed 100 acres of corn fields in the late nineteenth century. He engaged in light trade, such as that in tobacco, and was a director of the Janopakara Nidhi Bank in Coimbatore, with whom he had a permanent loan of Rs. 1,000.96 His son, G. Kuppuswamy Naidu, began trading in tobacco in 1905, switching to cotton shortly afterwards. He then had the idea of setting up a ginning factory in order to extract refined lint from the raw cotton which he could then supply to the charka weavers and spinning mills in Coimbatore. At first he used oxen to propel the ginning rollers until Robert Stanes suggested that he use oil fired engines. Thus Kuppuswamy and Sir Robert pioneered the use of an oil engine powered ginning press in the early 1900s, although it should be pointed out that they never colluded in their respective ventures.97 When, in 1908, Kuppuswamy’s maternal uncle gave him Rs. 80,000 for Kuppuswamy’s share in the maternal family home, he founded the Lakshmi Mills Company.98 This was one of the earliest mill companies in Coimbatore. It was not until the 1930s that there was a spate of company floatations in cotton spinning. The completion of the Pykara Hydro-Electric Works in 1932 led to a considerable increase in the number of mills. Originally this hydro - electric scheme was conceived because of the potential demand from the mills for power. In 1932 there were 9 mills, a figure which had increased to 12 in 1934, to 16 in 1935, 21 in 1936, 23 in 1937 and 24 in 1938." Most of the city’s industrial development, however, was to take place after independence.100 Kasthuri Sreenivasan argues that there were basically three commercial groupings to enter cotton manufacture. The first were the merchant communities in the port cities, who had some acquaintance with industry and contacts with imports and exports. The other two came much later. They were the moneylending class and the prosperous agriculturalists, who from trading in cotton turned to ginning and eventually to cotton spinning on a factory scale.101 The path which the Parsees took to becoming industrialists traversed that of being artisans, entering trade, and finally manufacture. The Jains and Vaishnava Vanias of Ahmedabad

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entered industry from a background in indigenous banking and trade in agricultural commodities. The Marwaris, Chettiars and Naidus, perhaps less established as indigenous bankers, were still originally engaged in finance in the unorganised sector, and trade, and in the case of the latter, agriculture, before taking to manufacture. The timing of the entrance into industry of each ethnic group differed. The Parsees of Bombay began founding industrial concerns from the mid-nineteenth century onwards. The Jains and Vaishnava Vanias of Ahmedabad did not set up any cotton mills until towards the end of the century. The Marwaris engaged in manufacture after the First World War, and the Chettiars and Naidus were the last on the industrial scene, not generally initiating manufacturing companies until the 1930s, well into the interwar period. COMPRADOR OR NATIONAL BOURGEOISIE? That Parsee businesses were unique in the extent of their collaboration with the British raises the question of whether Parsees represented a different sort of bourgeoisie to that found in Ahmedabad and elsewhere. Hamza Alavi argues that with the establishment of peripheral capitalism we find the growth of indigenous bourgeoisies: at varying levels of development, including not only a comprador bourgeoisie that is ancillary to foreign capital, but also an industrial bourgeoisie whose relationship with foreign capital is ambivalent. Foreign capital opposes the development of this local rival but at the same time, insofar as it does develop, certain sections of foreign capital... will seek collaborative relations with it.102 Amalendu Guha, focusing on their politics, considers whether the Bombay Parsees were a comprador bourgeoisie. He excuses the more constitutional protests of, for example, Jamsetji Tata, by arguing that his politics were tactical. Thus one of the Tata mills was called ‘Empress Mills’, opening on 1 January 1877, when Disraeli proclaimed Victoria as Empress of India,103 and one the ‘Swadeshi Mill’. He also cites how Sir Ness Wadia funded the Swarajists in

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return for their support on the fiscal question. Guha is trying to suggest that there was nothing fundamentally different in the politics of Parsee millowners in Bombay and industrialists from the rest of India, such as Ahmedabad. ‘Surely there was a difference, but it was one of degree not of kind'.104 This may be correct, but Guha misses the point. Whether a bourgeoisie can be regarded as comprador is better understood first and foremost in terms of its mode of production, and second in consideration of its politics. In Marxist analysis the comprador bourgeoisie is loosely defined as having interests ‘in trade rather than manufacture, exists in a state of cooperative subordination to the colonial bourgeoisie and is held to be dependent upon the colonial state for survival’.103 However, while many industrialists sprang from trading backgrounds, it was only at the point Par sees entered banking and manufacture that they collaborated with British capital. Moreover, many traders in the Non­ cooperation and Civil Disobedience periods of nationalist insurrection, who could be described as an element within the comprador bourgeoisie by virtue of their occupations as traders in British imports and who were, therefore, 'ancillary to British capital', often supported boycotts against their immediate economic interests, and certainly did not behave as compradors might be expected to. A different interpretation of the role of the comprador bourgeoisie is offered by S.K. Ghosh. He distinguishes the comprador from the industrial bourgeoisie as performing roles which are 'complementary—not competitive’,106 and says ‘a comprador has come to mean a bourgeois who serves foreign capital and whose interests have been intertwined with its interests’.107 In contrast, despite the national bourgeoisie's 'dependence on imperial capital in some respects (for example, for capital goods and markets), their interests are not interwoven. Its aspirations are most often frustrated by the imperial and comprador bourgeoisie... and the policies of the state which mostly serves their interests’.10* Ghosh does accept that there was an 'antagonistic contradiction between imperialism and the independent development of capitalism' in India,109 but argues that most capitalist developments were not the outcome of the strongest contradictions with the imperialist policies of the Government of India, but rather developed under the auspices of comprador collaboration. He suggests that there: was also a contradiction between the Indian big comprador

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bourgeoisie and British capital, but such contradiction was over secondary issues, such as tariff protection, fiscal autonomy... sterling-rupee ratio... sterling balances etc. Over matters concerning respective shares of spoils there were conflicts between metropolitan capital and the Indian capitalist class. Such conflicts could be resolved within the framework of the imperialist system itself. But on the primary, basic issue whether imperialist control and exploitation should be liquidated, the Indian big bourgeoisie which grew up under the fostering care of imperialism and played a complementary role to that of metropolitan capital, sided with imperialism and opposed the people.110 There is some confusion of definition here. The Indian bourgeoisie’s interests were unlikely to be with the ‘people’, whatever that might mean, irrespective of their comprador or national bourgeois inclinations. Most of all they were interested in their business, and what is at issue is whether the nature of that business was complementary or was in competition with that of metropolitan capital. The latter requires careful consideration. Many millowners, particularly those in Bombay, had associations with British capitalists and British capital, but this does not necessarily make them comprador, that is, their business operations did not promote the operation of a colonial economy, defined in terms of its export of raw materials and import of finished goods, and lacking a manufacturing base of its own. A comprador bourgeoisie in this case would engage itself in the import of cotton piecegoods and the export of raw cotton. Although the Bombay millowners collaborated with British manufacturing capital in India, this was quite a different thing from collaborating with metropolitan capital operating outside the country, with, for example, the Lancashire cotton millowners. As the next chapter will show, British capital in India often took the side of their Indian colleagues in opposition to government policy which, in regard to the cotton industry, often sought to uphold the Lancashire millowners’ lobby’s interests. Tomlinson quotes Sir James Grigg, the Finance Member of the Government of India, who complained about expatriate businessmen: Birla and Benthall hunt together for quick profits and the latter does not see that he is thereby weakening his own ultimate safeguard (viz British power) and that he, or rather his competitors

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and successors, will be swallowed up completely.... Personally I wouldn’t mind if every British businessman in India disappeared tomorrow....1" Ghosh argues that the history of India’s development of capitalism can be divided up into three phases: first, from the 1850s until the First World War; second, from the First World War until 1947—which marked the end of direct colonial rule; and third, the period since 1947.1,2 For the first period Ghosh attempts to dismantle R.P. Dutt’s contention that the development of Indian capitalism was in contradiction to British imperialism.113 Ghosh argues that India’s industry developed ‘as an appendage of the industrialisation in the metropolitan country’.114 Between the 1850s and the First World War, Indian owned industries were chiefly those of cotton, iron and steel. The entrepreneurs who set up cotton-mills in Bombay and Ahmedabad were closely associated with British capital115 as brokers and banias and shroffs, and as its local intermediaries, had close links with feudal princes and landlords. A few were even bureaucrats in the service of the colonial government. Much of the capital for new ventures was derived from profits in the opium trade with China and the cotton boom speculation during the American Civil War; each typically comprador activities. The first Indian millowner, Cowasjee Davar, as we know, had long associations with British capital as a broker to Brown King and Company, and W. and T. Edmund and Company. Another Parsee millowner Dinshaw Petit was the broker to Dyrem, Hunter and Company, and Hormasji Bamarji Wadia was the broker to Forbes and Company, and also accumulated capital through the raw cotton and opium trade. Ranchhodlal, who set up Ahmedabad’s first mill was a friend of a Raja, himself a bureaucrat in the service of the colonial government and, Ghosh claims, was a descendant of an indigenous banking and merchant family. Shareholders in Ranchhodlal’s mill included Premabhai Hemabhai and Hathessing Kesrising, both of whom were rich from the trade in opium and cotton. Ranchhodlal was awarded the ‘Companion of the Indian Empire’ as was Ahmedabad’s second millowner, Bechardas Ambaidas Laskari.116 This allows Ghosh to quote A.D.D. Gordon who says that ‘the rise of the industrialists was dependent upon their role as compradors in the first instance’.117

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The growth of the cotton industry in both Ahmedabad and Bombay in relation to the indigenous banking and merchant origins of the early entrepreneurs has already been documented. Ghosh is right to identify the origins of the early millowners as comprador, but for the wrong reason. As leading merchants and bankers they traded in, and financed the trade in, primary commodities. This economic activity in conjunction with the typical export-import operations of a colonial economy distinguishes their role as that of ‘compradors’. But the ability of traditional elites to earn an income through such comprador activities was ephemeral. Gradually they switched their investments from trade and entered manufacturing. In so doing they stopped performing the role of a comprador bourgeoisie engaged in the economic activities complementary to the operations of a colonial economy. Instead they began to constitute a ‘national bourgeoisie’ by virtue of their new position as industrialists. As such their commercial operations did not necessarily have to be incompatible with that of metropolitan capital. Metropolitan capital, based in Britain and India, had different and sometimes diverging interests. On the one hand, British capital in Bombay was complementary to the activities of Par see businessmen and did little to hinder the development of Indian industry in Ahmedabad. On the other, Lancashire’s business operations were quite incompatible with those in Ahmedabad. Thus a tension developed between the national bourgeoisie in Ahmedabad and Lancashire millowning interests. But just because a similar tension did not arise between British capitalists operating from Bombay and Parsee millowners (and Ahmedabad millowners) does not make Parsee businessmen any less a national bourgeoisie. What they shared with the Jains and Vaishnava Vanias were comprador origins in trade and finance, but as industrialists they were all members of a national bourgeoisie. At the beginning of Ghosh’s treatment of the second phase of India’s industrialisation, from the First World War until 1947, he mentions in passing the contention by V.I. Pavlov, that the bourgeoisie which started off as comprador, changed into the national bourgeoisie during the interwar years, especially the 1930s."* But Ghosh effectively ignores this contribution, by asserting that the remaining Indian capitalists to enter manufacture were comprador by virtue of some of their members’ loyalist politics, and because they entered manufacture with the same

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background as the nagarsheths of Ahmedabad, only simply at a later date. The Marwaris made the biggest entrance into manufacture. G.D. Birla began as a broker to British firms and was one of the first to trade with a Japanese company, Mitsui, in the procurement of raw cotton. After the First World War he set up a jute company in Calcutta and bought cotton mills in Delhi and Bombay.119 Another Marwari, Jamnalal Bajaj, was one of Gandhi’s chief benefactors and an important figure in Congress. Gandhi called him the 'merchant prince’. He also supplied raw cotton to Japan, especially to Mitsui. By 1913, according to Timberg, his firm shipped out annually 40,000 bales and earned Rs.75 lakhs profit.120 Ghosh also pays considerable attention to D.Cf.M., one of the top ten business houses in India. Lala Sir Shri Ram’s great-grandfather first made his fortune by serving the British as treasurer for the commissariat at Karnal and as Kotwal (a police officer) of the Ferozepur and Delhi cantonments. During the Mutiny of 1857 he supported the British. The Delhi Cloth Mills began operations in 1891, set up with an English foreman and employing British machinery.121 The company was founded in 1889 by four Delhites: Lala Gopal Rai, Shri Ram Krishan Dass, Shri Srikrishan Dass and Shri Banarsi Dass, Lala Gopal Rai’s brother-in-law. Lala Gopal Rai died in 1906, but not before his younger brother, Lai Madan Lai joined the firm in 1902, and his son, Lala Shri Ram, in 1905. The latter was to take the lead in company affairs in the years to come. His particular triumph during the First World War years was to secure large orders from the government for the supply of canvas for the troops’ tents.122 Ghosh’s point is that this continued the collaboration with metropolitan capital, which was furthered when D.C.M. diversified in the 1930s into sugar and pottery in technical collaboration with the German company Rosenthal. Although Ghosh claims that there are two distinct phases of India’s industrialisation occurring before independence, he treats them as if they were essentially the same. His case in the period before the First World War is that the Parsees of Bombay and the nagarsheths of Ahmedabad originally traded as compradors, that their entrance into manufacturing depended upon their comprador contacts, and that their continuing collaboration with metropolitan capital confirmed them as compradors, irrespective of whether they were chiefly engaged in trade, financed trade, or were industrialists. In

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the period after the First World War he makes exactly the same case against Marwaris. This, together with naming individuals of conservative political outlooks, is enough for Ghosh to dismiss the thesis that the Indian capitalist class was a national bourgeoisie whose development was in contradiction to the operations of British imperialism. What he ignores, however, is the operation of larger economic factors (such as the decline of the opium trade in the nineteenth century), which forced a comprador bourgeoisie to change their business activities in order to survive as the traditional elite. They thus ceased to perform a role complementary to the operations of a colonial economy, as the financiers and traders in primary commodities, and began to compete with metropolitan capital based in Britain. The transition from Parsee merchant or nagarsheth banker to millowner reflected the macro-economic changes which from the end of the nineteenth century onwards was the undoing of the colonial economy of India. Differences of degree between the nationalism of the Bombay and Ahmedabad millowners cannot, therefore, be explained in terms of one city’s industrialists representing a national bourgeoisie and the other a comprador bourgeoisie. Members of a national bourgeoisie are quite capable of having different interests. In this case these were derived from the second significant factor which made Ahmedabad’s industrialisation qualitatively different from that of Bombay. In the initial stages of industrialisation each city’s mills had a different market orientation. Ahmedabad developed by recapturing the home market from the near monopoly position held by British imports. The mills in Bombay thrived on an export market in yarn to China. This chapter has suggested that the origin of India’s cotton-mill industry, and indeed of industry in general, can be found in the entrepreneurial response and social climate of Ahmedabad. The entrepreneurial pattern of commercial enterprise initiated by the Jains and Vaishnava Vanias was to be followed by a new generation of millowners in the next century, of Marwaris and other trading castes, who would come to dominate Indian industry. Bombay witnessed India’s first Indian owned cotton-mill (despite the collaboration of British capitalists), but the model of Davar’s entrepreneurship was not to be followed by anyone other than fellow Parsees in Bombay. This is not, however, merely to distinguish between two types of industrial development. It also explains why a class united by occupation and business concerns should still come into conflict over

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diverging economic interests. The different political responses of Ahmedabadi vis-a-vis Bombay millowners in relation to the different patterns of industrialisation having developed in those, cities will be drawn out in the next chapter. Notes

1. R.K. Ray, ‘Pedhis and Mills: The Historical Integration of the Formal and Informal Sectors in the Economy of Ahmedabad’, Indian Economic and Social History Review, Vol. XIX, No«. 3 A 4 (July-December 1982), p. 388. 2. Interview with Neville Wadia, 3 November 1986, London. 3. Max Weber, The Religion o f India. The Sociology o f Hinduism and Buddhism, Hans H. Gerth A Don Martindale (eds) (The Free Press, New York, 1958) p. 112. 4. For a good summary of Marc’s views on India, see BÜ1 Warren, Imperialism, Pioneer o f Capitalism (NLB Verso Editions, London, 1980), pp. 11-47. Passim. 5. D.R. Gadgil, The Industrial Evolution o f India in Recent Times, 1860-1939 (Oxford University Press, Bombay, 1971), p. 1. 6. R.S. Rungta, The Rise o f Business Corporations in India, 1851-1900 (Cambridge University Press, 1970), p. 1. 7. Morris D. Morris, The Emergence o f an Industrial Labour Force in India. A Study o f the Bombay Cotton Mills, 1854-1947 (University of California Press, Berkeley and Los Angeles, 1965), p. 200. 8. S.D. Mehta, The Cotton Mills o f India, pp. 14-15. 9. Rungta, op. cit., p. 57. 10. Rungta, op. d t., p. 58. 11. Amalendu Guha, ‘More About Parsee Sheths: Their Roots, Entrepreneurship, and Comprador Role, 1650-1915’, In: Dwijendra Tripathi (ed),Business Communities o f India. A Historical Perspective (Ramesh Jain Manohar Publications, New Delhi, 1984), p. 118. 12. Guha, op. d t., p. 120. 13. Guha, op. d t., pp. 122-23. 14. Correspondence from Neville Wadia (7 September 1987), p. 1. 15. Correspondence from Neville Wadia (7 September 1987), p. 3. 16. The Bombay Dyeing and Manufacturing Company Ltd., 1879-1939, Diamond Jubilee (1939), Tide page. 17. Brian Davey, The Economic Development o f India. A Marxist Analysis (Spokesman Books, Nottingham, 1975), p. 96. 18. Kenneth L. Gillion, Ahmedabad: A Study in Urban History (University of California Press, Berkeley and Los Angeles, 1968), p. 74. 19. Gillion, op. d t., p. 76. 20. See Shirin Mehta, ‘The Mahajans and the Business Communities of Ahmedabad’, In: Tripathi, op. d t., pp. 173-83 and Max Weber, The Religion o f India, pp. 33-39. 21. The origin of the title of Sheth is obscure. It is said that the Moghul Emperors bestowed the hereditary tide of Nagarsheth onto certain key families and that

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it then caught on as a term of respect denoting an important businessman. Alternatively it is derived from a sanskrit word denoting the caste occupation of a merchant prince. Chetty is the Tamil version of the same designation, and is often found in the surnames of busmenmen in south India rather than preceding their name as in Gujarat. 22. Makrand Mehta, op. a t., p. 14. 23. Makrand Mehta, op. c h ., p. 26. 24. Makrand Mehta, op. a t., pp. 71-75. 25. Makrand Mehta, op. a t., p. 92. 26. Quoted by Makrand Mehta, op. a t., pp. 105-6. 27. Directory o f the Ahmed*bad Mill Industry, 1929-1956 (Published by N.N. Desai, Ahmedabad, 1956), p. 349. 28. Gillion, op. a t., p. 89. 29. Interview with Sir John Burns, (11 September 1986), Dunblane (Scotland). 30. The Victoria Mills owned by Madanmohan Mangaldas. 31. Makrand Mehta, op. a t., pp. 67-68. 32. A.K. Rice, Productivity and SoomJ Organisation: The Ahmedabad Experiment (Tavistock Publications Ltd., London, 1958), p. 23. 33. Ibid. 34. Makrand Mehta, op. a t., pp. 87-88. 35. Makrand Mehta, op. a t., p. 89. 36. Rice, op. a t., p. 23. 37. Correspondence from the Secretary to Gautam Sarabhai to the author, (20 February 1987), p. 1. 38. D irectory o f the Ahmedabad M ill Industry, p. 347. 39. Howard Spodek, ‘The “ Manchesterisation” of Ahmedabad’, Economic Weekly, Vol.XVIIl.No.ll, (13 March 1965), p. 487. 40. Ibid. 41. Ranchhodlal was the first to give the lead away from very coarse cloth production. In 1888 the mills in Ahmedabad manufactured cloth with yam of 20s and 30s count. By mixing better quality yarn from Egypt with the local staple he was able to produce a mixture of above 80s. Makrand Mehta, op. a t., p. 107. 42. Calico Since 1880, Centenary Publication (1980), p. 27. 43. Rice, op. cit., p.24. 44. Rice, op. cit., p. 27. 45. Dwijendra Tripathi, The Dynamics o f a Tradition. Kasturbhai Lalbhai and his Entrepreneurship (Ramesh Jain Manohar Publications, New Delhi, 1981), pp. 9-10. 46. Makrand Mehta, op.d t., pp. 98-99. 47. Makrand Mehta, op.d t., p. 99. 48. Kasturbhai Lalbhai. A Biography (Published by the A.D. Shroff Memorial Trust, Bombay, 1978), pp. 9-10. 49. Kasturbhai Lalbhai. A Biography, p. 13. 50. Directory o f the Ahmedabad M ill Industry, p. 252. Jl. Kasturbhai Lalbhai. A Biography, p. 15. 52. Tripathi, op. cit., pp. 68-69. 53. Spodek, op. cit., p. 488.

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Spodek, op. a t., p. 489. Giilion, op. a't., p. 87. Directory o f the Ahmedabad Mill Industry, p. 219. Directory o f the Ahmedabad Mill Industry, p. 218. Ibid. Makrand Mehta, op. d t., p. 94. Makrand Mehta, op. a t., pp. 95-96. Directory o f the Ahmedabad Mill Industry, pp. 218-19. Interview with Madanmohan Mangaldai