The creation of India Inc BOOK REVIEW

Few mainstream policy economists have devoted much time to Indian economic history, but that is changing with Penguin’s Portfolio series. In Goras and Desis Omkar Goswami revisits some of his work and that by others, and excavates a rich set of facts, factoids, and stories. Entertaining and informative, it is a journey on which the author regales us with stories, informs with numbers, and even teaches us with crisp analysis.

Don’t be fooled by the title, this book is not so much about goras or desis, it is also not so much about management agencies as much as it is about the making of modern Indian corporate enterprise, more so its manufacturing sector.

The colonial government had slowly taken over the administration of India, and for the first time in many centuries a single, overarching power was monopolising the country. Production technologies had already changed in the west, and many were yet to enter India. At the same time colonialism had also destroyed traditional economic relationships and systems of trade. Great arbitrage opportunities were revealing themselves every day across the spectrum of economic activity by the mid-1800s.

From coal to shipping to iron cotton to jute, a few opportunistic men – of varying colour, caste and creed – used a neat mechanism of having a foot in each door as it opened. And so came the management agency; with relatively little capital the entrepreneur-manager would start a new venture, take in capital from others, give them decent returns and give himself even better returns through salaries and profitsharing and various other commissions.

The managing agency system enabled a few desis and goras who better understood the new economy, to quickly put together a series of productive enterprises across a broad range of sectors. Capitalism worked hand in glove with profiteering and sometimes even nationalism to rapidly build a large manufacturing base. Given that those who owned a minority share had almost total control over such enterprises, selfserving actions, unethical and even illegal means were sometimes used to promote the interests of the entrepreneur.

But that is where Mr Goswami’s book distinguishes itself. Though he carefully disentangles the forces of moral hazard that applied on the management agency owners, his non-judgemental style is refreshing. Not for him the uncouth, profiteering bloodsucker, as banias or Marwaris were almost universally painted. Where there was an R K Dalmia there was also Jamnalal Bajaj, for a Jagmohan Mundhra there was also a Ghanshyam Das Birla, who in Mr Goswami’s eyes may well have been Superman! He quotes G D Birla as saying, “I think the only solution to our present difficulties lies in strengthening the hands of those who are fighting for the freedom of our country… [Swaraj] is a question of bread”. Birla was addressing FICCI in his presidential address in the presence of the Viceroy of India.

Mr Goswami devotes a lot of space and anecdotes to that family that Bengalis love so much, but little to the other great Bengali entrepreneurs, who we all know were trailblazers but not much more. At least the Bengalis get some space; the south Indian entrepreneurs get a little less, and Islamic ones almost none. Why did the great Indian Islamic traders, who were sailing the seas in an area spanning Malaysia to Madagascar for many centuries, not enter the manufacturing space? The Parsis, Gujarati Jains and Marwaris would together have been a small part of India’s great merchant classes from pre-colonial times. What is it about colonialism that these managed to exploit new opportunities, which other risk-taking classes could not?

Did the opium trade – doubtlessly a child of colonialism – give an inordinate advantage to trading communities from western parts of India or who were in its periphery? Did this inordinate advantage prevent other business communities from coming up? Or did it have to do with the great skills required to trade on the highly profitable but risky Silk Route for many millennia? For one thing, Mr Goswami reveals, the desis who finally made it, did it on the basis of speed and flexibility, opportunism and risk-taking instinct, not simply access to capital.

The author nicely illustrates the principal-agent problem as it operated between shareholder and entrepreneur in the management agency system. But there was another principal-agent problem that management agencies neatly circumvented. That is the problem of moral hazard between the entrepreneur and the manager. One of the biggest difficulties in managing diverse businesses is keeping control, which also means keeping professional managers and babus in check. At a time of slow communications and transport, rapidly changing political-economic conditions, emerging technologies, and a demographic shift in the commercial space from goras to desis, would keeping managers in check not have been difficult? But many management agencies, running highly diversified portfolios, were able to keep control and ran disparate businesses quite efficiently for almost a century and more. How did they do this? What was their system of monitoring? How did they punish erring managers? How did they reward them?

Mr Goswami researches and writes very well, and inspires curiosity. But he leaves you asking for much more than he can admittedly deliver in 248 pages. He should write more economic history; Penguin should ask him to do a volume 2. And I encourage those interested to read Gurcharan Das’ brilliant introduction after they have read the book. Managing Agencies and the Making of Corporate India Omkar Goswami Penguin Random House 248 pages; ~299 (paperback)