British and Indian Capital

bThis article provides notes on British and Indian capital.

British and Indian Capital # Introduction:

The EIC before 1857 never seriously considered India as a profitable investment outlet for British capital resources as well as the inflow of British entrepreneur-ship into productive enterprises in India. Truly speaking, pre-Sepoy Mutiny period in India was characterised by a one way flow of resources from India to Britain or what is euphemistically called, “the drain of wealth from India”.

However, after 1857, the inflow of British capital and enterprise into India rose to an appreciable extent. Bulk of the imperialist capital was mainly invested in the externally oriented sectors like plantations, jute and coal, and the trading and banking infrastructure established to service this sector. This ultimately led to the perpetuation of the subordination of Indian capital to British capital with the ulterior motive of feeding Britain and other countries with cheap raw materials and food.

Anyway, British capital found its safe and big room in India after 1857. During the period 1854-1859, nearly 150 million pounds of British capital were invested. But such figures were not a reliable one because of the lack of availability of data during this time. A large part of the foreign capital was invested through joint stock companies or managing agency houses who began their career basically as traders and later became organizers and managers of industry. In view of this peculiarity involved in foreign investment, it was difficult, if not impossible, to calculate precisely the amount of such capital.

Position, however, changed since the beginning of the 20th century when most of the capital employed in privately-owned enterprises was under foreign, mainly British, control. P. P. Pillai estimated that, in 1909, 470 million pounds of British capital were invested in India. Another estimate of Sir George Paish showed that out of the total British investment of about 365 million pounds in India and Ceylon in 1909, only 2½ million pounds were invested in commercial and industrial undertakings.

This amounts to saying that the share of industry as such was even smaller. However, during the two World Wars and the Great Depression, the volume of foreign capital declined in India. A. K. Banerjee calculated that the net inflow of foreign capital to India amounted to Rs. 37 crore in 1921, Rs. 55.3 crore in 1922, and Rs. 38.7 crore in 1923; after which the amount tapered off to Rs. 4.1 crore in 1925.

It is known to all that British investments established a special “foreign trade cum investment pattern” having a raw material bias. Of course this put a great drain upon the resources of India to pay back this capital with interests.

Alternatively, one can say that “the multiplier effects in terms of income, employment, capital, technical knowledge, and growth of external economies of these investments were largely exported back to the developed countries.” In view of this, Indians developed an anti-British capital stance. But the question is whether India’s industrial development would have been able to flourish without the inflow of foreign capital.

This is a million dollar question because Indians did not accept that the country faced ‘Hobson’s choice’—either to utilize foreign capital or to have no capital at all. Anyway, because of her economic links with the capitalist world, she had to ask foreign capital to roll into India. What was most unfortunate was that the import of foreign capital was not voluntary but was forced upon India as a consequence of foreign rule.

Of course, paucity of capital, and not “shyness of native capital”, enticed foreigners to put the bag of foreign capital in India. Through the mechanism of ‘drain of wealth’, the alien ruler transhipped the potential of the country, making its accumulation virtually impossible. It is true that native capital was somewhat shy but that had not been “coaxed” a little by the foreign government.

People’s readiness to invest money in government paper bringing no more than a return of 3 p.c. clearly exemplified that there was no dearth of loan-able capital in this country. Capital investment in industries and manufactures was sure to yield more return. But such did not come because the Government was very much recalcitrant in providing any security to native capital employed in India. “Thus”, said the Indian leaders, “foreign capital came to India not to augment native capital but to suppress it, not to serve it but to become its master, not to develop Indian resources but to despoil them”. Indeed the fault lies at colonialism as it cannot be conducive to forward movement in the ‘dependent state’.

The major sources of foreign capital invested in private industry were Indian companies managed by British citizens and British individual residents in India. Brian Davey argues that managing agencies were initially a logical outgrowth of the colonial economy. The agency houses flourished at the expense of Indian capital as they occupied monopolistic positions and enjoyed the blessing of the colonial economy.

The agency houses flourished at the expense of Indian capital as they occupied monopolistic positions and enjoyed the blessing of the colonial government. Because of official or semi-official measures of discrimination against ‘native’ businessmen, most of Indian industrial enterprise was staffed by the Europeans appointed by managing agencies. Thus the whole relationship between Indian and British capital centred around the operation and domination of the managing agency houses. Further, Indian business frequently had to suffer racial discrimination in the allocation of funds.

Amiya Bagchi argues that most of the capital invested in the enterprises controlled by Europeans came from their earnings in trade, industry, banking, and employment in various offices of the governments in India. Although, by definition, all this must be construed as investment of ‘foreign capital’ in India, it represented no real transfer of resources from the European industrialised countries to India.

Indian capital took a spurt forward in the inter-war years (1919-1938). Foreign capital investments declined and, after 1931, there was a net outflow of foreign capital. Now, capital for the major sectors of the new industry was provided by Indians. Progress in banking and insurance was mostly provided by Indian capital.

After the World War I, Indian capitalist classes displayed its power and, during the depression years (1929-1934), it reaped the full advantage. Capital now tended to move in those directions where the return was the highest. Because of the limitations of the market and the lack of governmental assistance, the bulk of Indian capital remained outside the ‘organised sector’, altogether as a parasite upon pre-capitalist production.

British and Indian Capital # Collaborative and Conflicting Role between European and Indian Capitalist Classes:

Britishers deliberately painted Indians as lacking in energy and business capacity, incapable of organising industries, hoarding their wealth, and not investing the same for the creation and maintenance of new industries. Such ‘incapability thesis’ is corroborated by the fact that an independent native capitalist class developed in India especially after the World War I.

The early industries—coal, jute, tea, plantation, banking, etc.—sprang up in India due to the pioneering zeal and enterprise of British entrepreneurs. Amiya Bagchi, while searching for a genuine explanation, holds that there was neither a ‘conspiracy thesis’ of entrepreneurial dominance nor a theory of absolute superiority of European entrepreneurs in all fields of activity.

According to Bagchi, the real explanation lies in the political factors. The British Government enjoyed different degrees of control and domination in different parts of the country which displayed different patterns of development. The major industrial ‘node’ of India was Calcutta since it was the seat of the government. This meant a much bigger share of government patronage.

Further, the institution of managing agency houses and the concentration of capital in the hands of a few European managing agency houses gave the British entrepreneurs the advantages of individual or collective monopolies. These agency houses with industrial interests had strong interests in trade, especially in raw materials.

The ambivalent state aid or tariff protection also resulted in the different degrees of facility enjoyed by the Indians and Europeans. Thus, Indian entrepreneurship had been strangulated. In fact, there was no shortage of entrepreneurship in India. What was lacking was the benign atmosphere.

Indian capitalist class did not develop an organic link with British capitalism; nor was it integrated with foreign capital in India. Indian business­men, mainly the Marwari’s, behaved as traders and speculators, rather than industrialists in the true sense of the term. However, a metamorphosis came in after 1914 when these people shunned off their roles as middlemen. Above all, Indian industrialists did not develop as junior partners of British entrepreneurs.

However, there were a few compradors and junior partners of British capital who did not belong to the Indian capitalist class. The important Indian capitalist classes showed apathy towards foreign capital — industrial or financial.

On the contrary, Indian industrial and finance capital developed keen competition with British capital. And, in the process, developed a long-term antagonism and lack of collaboration between European and Indian capital. But one must not think that the Indian businessmen never cooperated with the European business groups or with the British rulers. Indian capitalist classes retained a relationship of short-term dependence and accommodation. This means that there existed a two­fold relationship of the Indian capitalist classes to the European businessmen.

British and Indian Capital # Long-Term Conflict:

The Indian capitalist classes displayed a basic antagonistic stance with imperialism at every conceivable economic issue. The long-term conflict lay in the facts that the European businessmen were in privileged position in exploiting the vast resources of India and “that the full development of productive forces was thwarted by the actual or imagined requirements for the stability of the imperial system.”

Even caught on the wrong foot, the Indian capitalist classes gave not only ample support to nearly every field of industry but also threw themselves open to compete with either British home capital or British capital in India. Foreign rulers, consequently, became busy in keeping their fields intact. Unperturbed by this vindictive attitude, the Indian capitalist classes stood up firmly to project themselves as an independent entity.

Major areas of conflict are:

(i) First came the conflict with the British home industry which flourished under the aegis of one-way free trade. As a result, British and other foreign industries captured the Indian market which privilege the Indian capitalist classes wanted to demolish. Side-lined by the British home industry, they vigorously demanded tariff protection for their industries. However, antagonism culminated when Imperial Preferences were introduced.

The policy of Imperial Preference as well as changes in the political climate led to a change in the position of European businessmen vis-a-vis the Indian businessmen. Dissatisfied with the systematic bias in favour of European businessmen, Indian capitalist classes launched campaign for tariff autonomy throughout the 1930s.

(ii) Another area of conflict was the foreign capital investment in India after the First World War. The thesis that India’s economic development revolved around investment of foreign capital had been strongly rejected by the Indian capitalist classes.

They even went on saying that the foreign capital that poured in India was itself the result of the country’s economic exploitation; it was meant for the development of further exploitation and not for the country’s overall development. The policy of discriminating protection introduced in the 1920s helped this process of exploitation. The progressive Indian entrepreneurs raised the slogan of “Indian domination of Indian industries”. But one thing should be borne in mind that the native capitalist classes were ‘shy’ enough to expel foreign capital. “Given the relatively small size of the existing foreign capital and the fact that only a small part of it was linked directly with British monopoly capital at home, and given the projected withdrawal of patronage by the state, they felt strong enough to compete with it on equal terms.”

They argued that foreign capital must not be allowed to strengthen its arm in the country. In view of this reasoning, they objected to the entry of giant industrial corporations in various key or heavy industries. They also demanded complete reservation of these industries by Indian—private or state—capital.

(iii) Banking business by British finance capital was another conflicting area. Indian capitalist classes fought to oust British capital from India and Indian capital should acquire a dominant position in the country’s banking and insurance business.

However, Indian protests did not end here. Indian capitalist classes relentlessly agitated in the 1920s and 1930s against the rupee-pound linkage and against its overvaluation as these measures were interpreted as encouragement of imports of foreign manufactures and foreign capital.

(iv) The ‘banias’ were interested in surplus appropriation, particularly from foreign trade and shipping business. The entire Indian capitalist class rallied behind individual Indian efforts to appropriate a larger share of these and other items. The Indian capital classes were also highly critical of the drain or export of Indian social surplus.

British and Indian Capital # Short-Term Dependence and Collaboration:

Despite this sort of Indian capitalists histology to European businessmen and, ultimately, to British rule, which had sapped the power of the per- capitalist rulers of India, it had created the ground for the emergence of Indian capitalists as the dominant class.

Definitely this involved contradiction because of the fact that European businessmen were in a vantage position in exploiting the vast resource of this country and that the complete development of productive forces was choked to death by the “actual or imagined requirements for the stability of the imperial system.” Brushing out this contradiction, one notices that many individual business groups found it profitable to collaborate with British business groups.

The most important collaborators with British enterprise in Western India were the Parsis, and Premchand Roy Chand, Dwarkanath Tagore, Neel Comol Sen in Eastern India in the 19th and early part of the 20th centuries. However, one notices a change in the degree of association between European and Indian business over the 19th century. “As industrial capitalism changed the face of Britain and—aided by financial and political arrangements—tightened its grip over the Indian market, the European gains from collaboration with Indians on something approaching equal terms lessened.”

In Eastern India, European businessmen succeeded in ousting Indians from positions of partnership. However, in Bombay region, the terms of collaboration between Indian industrialists and British businessmen remained more equal than in the rest of India.

After the First World War, Indian businessmen began to climb upwards as soon as the national movement gathered momentum and the British imperial power weakened. Disturbed by this development, the Government of India thought it wise to provide some ‘carrots’ to Indian businessmen. However, not all businessmen asked for favours from the Government. In Eastern India, one finds evidence of a more direct conflict between Indian and European businessmen than elsewhere.

Bipan Chandra holds that the following factors muted the long-term conflict between the Indian and British businessmen who entered into short-term compromises, accommodation and cooperation with the colonial administration:

Firstly, though the Indian capitalist’s class did grow up almost indepen­dently and did not depend on British capital, it did, in the short-run, depend on the government for its multifarious administrative functions. No doubt, British colonialism raised its ugly head in this colony, but for day-to-day administration to have internal stability and social peace, these capitalist classes could not become totally hostile to the colonial government. Partial as well as complete dependence on the government for innumerable purposes “compelled the Indian capitalist class to adopt a moderate political approach and to function in the economic realm in a close relationship with the Government”.

Secondly, Indian capitalist classes got a privilege to grow continuously. Sometimes they were subject to oppression but they were never directly or nakedly suppressed. The two World Wars acted as bonanza for them to reap windfall profits and rapid growth. Consequently, anti-imperialist sentiments were pushed behind in the short-run.

Finally, in order to nurture and preserve the colonial system in this country, the British Government thought it profitable to provide multifarious concessions to the Indian capitalist classes to enable it to grow. Two important factors explain this phenomenon: First was the crisis of the colonial economy which found reflection in stagnation of the overall economic growth of the country, and the second was the mass-based national movement.

“The necessity of containing economic and political discontent compelled the colonial authorities to give concessions to the Indian capitalist class, especially in fields where no major British interests were involved.” Thus we can conclude that the hostility between Indian and British capitalist classes was often blurred by short term concessions, collaborations, compromises and accommodation, particularly before the First World War.