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Business Conduct in Late Colonial India

Economic historians have tended to recognise an almost unfractured racial solidarity that prevailed among the European business class in colonial India, not only locally within the country but also with the "white" colonial government and the manufacturers in Britain. This almost unexceptional race-based harmony was attributed to the complementarity of business interests including an attempt to keep off native competition. It has been generally agreed that the larger interests of race took precedence over economic interests of individual members of the European business community in India. This paper presents data on a section of the European business community, that reveals behaviour contradictory to this general understanding. Based on an analysis of business behaviour of the European business community in Kanpur between 1900 and 1939 it is argued that the business conduct of the European commercial community in colonial India was primarily influenced by economic interests and not by any reasons of racial solidarity.

Business Conduct in Late Colonial India

European Business in Kanpur 1900-1939

Economic historians have tended to recognise an almost unfractured racial solidarity that prevailed among the European business class in colonial India, not only locally within the country but also with the “white” colonial government and the manufacturers in Britain. This almost unexceptional race-based harmony was attributed to the complementarity of business interests including an attempt to keep off native competition. It has been generally agreed that the larger interests of race took precedence over economic interests of individual members of the European business community in India. This paper presents data on a section of the European business community, that reveals behaviour contradictory to this general understanding. Based on an analysis of business behaviour of the European business community in Kanpur between 1900 and 1939 it is argued that the business conduct of the European commercial community in colonial India was primarily influenced by economic interests and not by any reasons of racial solidarity.


I European Business in Colonial India

rade and industry in colonial India was, by and large, always dominated by the Europeans.1 The Europeans not only held the major share of India’s external trade, but also dominated important industries like jute, tea, coal, etc. The presence of Indian big business houses in industry was largely confined to the cotton textile industry. Only after the first world war did the situation change to a degree to favour the Indian business community. Scholarship on economic history of colonial India almost unexceptionally attributes a significant racial harmony among the European business class.2 Europeans, not only in India but also their counterparts in Britain, apparently operated as a collective to stave off native competition. Pioneering works like that of Bagchi (1972) and Ray (1979) have convincingly pointed out the advantages cornered by the European business class through favourable yet racially discriminating government policies and cartel formations which “systematically” kept out Indian competition. It has been claimed that national level associations like ASSOCHAM were formed during the politically sensitive inter-war period precisely with the objective of containing the growing strength of Indian big business through representation in the central legislature. Further, it has also been contended that the colonial state’s discriminating policies to promote British industries (vis-à-vis the Indian business community) also favoured European trade and industries in India. Contradicting the hypothesis of racial discrimination, Morris (1987) argues that there was no racial barrier to entry for Indians in the European-dominated industries. He explains that the dichotomy of investment between the two groups was due to a difference in perception of the investors of an essentially “identical” situation. Pressing this argument further, Morris elaborates that there were two rates of profit operating in India and the Europeans were satisfied with the lower rates (in keeping with those existing in the north Atlantic markets), whereas the Indians sought higher rates of return. Morris argues that this could be the reason for the Indians not having invested in jute before 1914 [Morris 1987:139]. Opposing the above contention, Gupta argues that the jute manufacturers (unexceptionally Europeans before the first world war) maintained a monopoly on the jute industry as “the level of profits was not only fabulously high for a new industry – net profit of 60-70 per cent being frequent but, could be maintained even in depression years” [Gupta 1987: 216]. Also, it is very difficult to comprehend from Morris’s argument why Europeans did not invest substantially in the Indian-dominated industries like cotton textiles, particularly if it was so much more “profitable” (unless of course if the Europeans as a race were averse to higher profits!). Ray offers an alternate explanation and suggests that there were two distinct markets – one of the elite which was export-oriented and dominated by the Europeans while the Indians generally concentrated on the “domestic mass market” [Ray 1992: 37].3 Though this was not strictly true, for instance at the turn of the 20th century, the Bombay cotton textile industry got its initial impetus largely from supplying coarse cotton yarn to the Chinese market.

Literature suggests that apart from complementary economic interests, an overriding racial solidarity emanating largely from social linkages also seemed to have bound the European business community, not only locally in India but also with that in Britain. Amartya Sen (1992) in a pioneering paper suggests that the Europeans refrained from conflictual competition with manufacturers in Britain because of a common “social ethos”. He argues that the Europeans did not enter into cotton textiles and iron and steel industry in India in the free trade period to avoid social conflict with the “home” manufacturers. Bagchi adds that not only in the period of laissez faire economy but also during the period of protection in the inter-war years the Europeans displayed similar sentiments (1992: 181), though he qualifies this general observation in later works by citing discrete instances of dissent by the Europeans [Bagchi 1997]. The European business class supported the colonial government and its obvious mandate for advancing the interests of the mother country not only when it was economically advantageous to the Europeans located in India, but sometimes even when it was not so. Thus literature suggests that the larger interests of race often took precedence over those of the individual members of the community. Economic historians seem to have generally accepted this explanation, though authors like Bagchi (ibid) and Ray (1979) have pointed out instances when this collective appears to have fractured because of regional differences in interests. On the whole though, there is limited scholarship on the European business class in colonial India. Further, the existing literature treats the collective as a monolithic entity, with largely homogeneous interests.

In the present study we bring forth data over the first four decades of the 20th century in India that contradicts this general understanding. The European business community of Kanpur took positions that were substantively different from the norm on several important economic issues that characterised colonial India. The basic reason for the “anomalous” position of European business in Kanpur was that its economic interests differed fundamentally from those of the Europeans based in the presidencies. The majority of the Europeans in India supported the colonial government and its imperial policies because their business interests were complementarily aligned to that of the metropolitan centre. But businessmen, including the Europeans, whose business interests did not fit into the imperial scheme of things often found the policies of the colonial government detrimental to their business. This was particularly true for the manufacturing industries catering to the domestic market. The Europeans in Kanpur who were mainly into domestic-oriented industries like cotton textiles, leather and later sugar, were not only opposed to several government policies but also had serious contradictions with the economic interests of the European business community elsewhere in India as well as in Britain. Our assertion is based on a study of the industries in Kanpur for the period 1900 to 1939. The paper is divided in four sections. In the introductory Section I, as has been laid out above, we propose the basic argument of our paper and also present a brief literature review on European business behaviour in colonial India. In the second section, we bring forth data on the contradictory positions taken by the European commercial community of Kanpur in the period under study. In the third section, we explore the possible reasons for this contradictory behaviour and subsequently argue that the positions of the European businessmen in Kanpur were essentially guided by their economic considerations, which stemmed from the peculiar nature of their business and not their social (racial) affiliations. In the final section, we draw some conclusions regarding big business behaviour in colonial India.

II European Business Community in Kanpur: 1900 to 1939

The industrial city of Kanpur was created primarily because of colonial intervention and British enterprise. Unlike other industrial centres, Kanpur does not have any industrial history prior to the colonial rule. The city was founded in 1778 as an army camp, and by the 1940s it had became the fourth-largest industrial centre of India. It had been able to attract private investments in various sectors and industrial activity reached its peak in the areas of textiles and leather – two important industries of the colonial economy. The European business community dominated the industries of Kanpur for the period under study. Though Indians were always present, they did not have any significant big business till the 1930s. Bagchi actually cites the case of Kanpur’s industrialisation to explain the typical pattern of European dominance in Indian industries in the colonial period. “No other industrial city displays these factors (of European dominance) supporting the maintenance of European control better than Kanpur” [1972: 186]. Interestingly, the Europeans in Kanpur went into cotton textile industry, which was otherwise dominated by the Indians in other industrial centres like Bombay and Ahmedabad. Kanpur’s rise as a manufacturing and trading centre is significant also because it was the first non-port city to attain such industrial prominence.4

The present study spans four decades covering the most tumultuous times of modern history not only in India but the whole world in recent times. Significant global and local (national) events like the world wars, the Great Depression and the rise of different nationalist movements, etc, had completely transformed the economic, social and political spheres in most countries, including India. The commercial community in India including those in Kanpur, both Europeans as well as Indians, had to continuously realign their respective stance in order to accommodate these changing times. We have chosen this period to demonstrate that the contradictory behaviour of the Europeans in Kanpur was not due to any specific, momentary subjective clash of interests, but was because of fundamental differences in economic interests with the rest of the business community in India.

Annual Reports of Upper India Chamber of Commerce

The primary source of data for the present study is the annual reports of the Upper India Chamber of Commerce (UICC) – the most important mouthpiece of the European commercial community in northern India. The Upper India Chamber of Commerce, situated in Kanpur, was formed in 1888 and only the presidency chambers of Bengal, Bombay and Madras preceded it in importance during the colonial period. The chamber played a crucial role in shaping the industrial and fiscal policies of the region. It took active interest in activities of the provincial and central legislature and played a key role in shaping important constitutional subjects like the Morley Chelmsford Report, the Simon Commission, the Franchise and Delimitation Committees, the Round Table conferences and the Joint Select Committees [UICCa 1936: 6]. The chamber was entitled to send two nominated representatives to the legislative councils of the province. The member in charge for finance in the United Provinces discussed all important finance related issues including the budget with the president of the chamber, before presenting it in the legislature [UICCb 1988: 22]. The chamber was the most important mouthpiece of the European business of Kanpur on all issues affecting it including government policies, industrial disputes, political positions and labour. The central committee of the chamber which included the president and other important members coordinated with the government, bureaucracies, other chambers of commerce and commercial bodies and associations. The chamber also had dedicated committees for important industries like cotton textiles, leather, sugar, etc, to look over the interests of members associated with them. Further, there was a committee to mediate on labour issues in the region. The role of the chamber was central to European business in Kanpur because their interests were fundamentally different from those of the presidency chambers.

The annual reports of the Upper India Chamber are available from the year of its inception. These annual volumes are on an average of 300-400 pages each, and record all important issues handled by the chamber5 during the year, including all communications related to it. They also contain the annual presidential address which summarised the important events and happenings of the year pertaining to the general economy, the main industries of interest to the chamber, labour and the political climate – both local and national. These documents give a comprehensive coverage of all events, legislations, decisions, etc, affecting the businesses affiliated to this chamber. Almost all scholarships of the period covered, mention these reports as one of their archival sources and yet none of them seem to have done any detailed analysis of these reports. An in-depth study of the reports during the course of this study has thrown up new and hitherto unexplored facets about several issues of the period that have been missed by earlier works.6 This also indicates the need for relooking at existing data sources to gain a new understanding. For the present paper, we have done a detailed study of these documents from 1900 to 1939 to get a year-to-year understanding of the development of industries in north India, primarily located in Kanpur.

Literature has broadly divided the development of large-scale enterprises in colonial India into three distinct phases. Though these phases cannot be defined as discrete compartments, the dominant pattern of investments distinguishes them from each other [Ray 1992: 53]. As has been mentioned above, we have a spread of data over the period under study, which show that the European business community of Kanpur took contradictory positions from the norm on almost all economic issues, but for the purpose of this paper we will restrict our scope to only a few important issues to illustrate the above assertions.7 The 40-year period from 1900 to 1939 has been divided in to the following phases in accordance to the norms in literature: (i) 1900-14: Free trade economy; (ii) 1914-18: first world war; (iii) 1919-39: interwar years.

For each phase we would give a brief description of the business environment and follow it up with a detailed discussion of the specific issues that emerged in each period.

Phase I: Free Trade Economy (1900-14)

This phase is dominated by private European enterprises, which relied heavily on international markets. The period saw the development of light manufacturing industries like jute and cotton textiles, plantations – like tea, coffee and indigo – and mining industries. Coal industry, catering mainly to the internal railways, and a very modest steel industry, also began during this period. Of these, only the cotton textile industry was dominated by the Indians. Due to the high export bias of both trade and manufacturing in this period, owning and controlling external trade routes was crucial for business. Except for Bombay, the Europeans, mostly British, controlled the external trade of all other ports in the country. In Bombay too, though there was a significant presence of Indians, major part of the trade passed through the hands of the Europeans [Bagchi 1972: 167-68]. The period till 1914 is marked by the professed free trade policy by the government of India. The European commercial community in India supported this policy as it not only promoted trade over manufacturing but also favoured export-oriented industries like jute and tea. In contrast, such a policy was not conducive for industries geared towards the domestic market. The fledgling cotton textile industry, which could have gained immensely by even a modest tariff protection on cotton and yarn, suffered competition not only in their overseas market but also in the domestic market. This was largely because India was the most crucial external market for the most important industry of Great Britain – cotton textiles [Saul 1960]. The Indian business community that engaged in cotton textiles opposed the government’s free trade policies. Significantly, the European business community in Kanpur, which also primarily catered to the domestic market, opposed them too. Speaking in the congregation of all crown colonies to discuss issues concerning inter-empire relations in Montreal in 1903,8 the representative of the UICC publicly asserted that the trade relations between India and the Great Britain were not satisfactory from India’s point of view.

…India has been consistently loyal to the Mother Country, but …the loyalty has (not) been reciprocal. They seem to me to show that Mother Country, as a shopkeeper, is not swayed by sentimental considerations, but that she buys where it suits her pocket, the most important part of a man’s anatomy… [Annual Reports of Upper India Chambers of Commerce (henceforth ARUICC) 1903: 22-25].

Duty on Indian Cotton Textile Manufactures: In 1894, the Indian government, for purely revenue purposes, imposed a modest tariff of 5 per cent ad valorem on all imported goods including cotton piece goods and a duty of 3½ per cent on cotton yarn. But in 1896, due to the insistence of textile interests in Great Britain concentrated in Manchester, the Indian government was forced to introduce a countervailing excise duty on Indian-made piece goods. The Europeans engaged in imports of cotton textiles from Britain welcomed this measure. The Indian business community, of course, viewed this as a symbol of subservience of the Indian government to Great Britain and specifically to the Lancashire lobby [Mehta 1954]. Significantly the members of the chamber, who were all Europeans at the time, but engaged in manufacturing of cotton textiles, expressed sentiments very similar to the Indians because of overlapping business interests. Speaking in the Montreal conference referred to earlier the representative of the chamber reiterated the sentiments that the Indian government was not supportive to industries in India:

India, as well as Canada and the other self-governing colonies, aim at being self-contained…Canada and other self-governing Colonies (have supported) their manufactures and industries with the aid of bounties and protective tariffs. India is doing the same without the aid of protection. Indeed…India in her efforts towards industrial expansion is liable to penalties for her enterprise. Let me instance the case of the excise duty on cotton goods. Only a very few years ago India, which for many years up to that time had been an absolutely free trade country, in her need was driven to impose a 5 per cent duty on nearly all imports, except raw material and machinery for purely revenue purposes. There was no suggestion of protection. Yet …the secretary of state for India issued a mandate from London requiring the imposition of a countervailing excise duty on cloths produced in Indian cotton mills…that this action was taken at the instigation of Lancashire, and the demand was acceded to …(was clearly) from political motives. Had India possessed the power of self-government in the smallest degree, such an incident would have been impossible… Last year, when as a desperate measure a corn tax was levied in England, no one appears to have suggested that wheat from India should be free, nor that the Home farmer should pay a countervailing excise just to put him on equality with his Indian brother [ARUICC 1903: 24] (emphasis added).

Further attributing the imposition of this excise duty by the colonial government to the political pressure of the Lancashire lobby (Lancashire sent 60 MPs to the House of Commons [Chatterjee 1992: 13], and not to any genuine concern for upholding free trade, the delegate of UICC to the eighth congress of chambers of commerce of the British empire held in London in June 1912, S M Johnson sarcastically quipped:

…(B)ut as you know, the worship of free trade in the United Kingdom is devout, and accordingly the British government interposes and says you really must not have these import duties unless you put on countervailing duties. …A wag in one of our legislative councils once said there are always sixty reasons for observing the free trade fetish in regard to cotton cloth, those being the 60 votes in parliament possessed by Lancashire [ARUICC 1912: 375].

The chamber also contended that the duty was imposed to inhibit the growth of an indigenous textile industry, which they (the members of the chamber) thought should rightfully capture the market that was hitherto being served by imports. To give an idea of the quantum of imports from Britain – between the years 1911-12 and 1913-14, India imported around 125 million pounds (in weight) worth of yarn and 8 million pounds (in weight) worth of piece goods [Bagchi 1972: 231-32]. Quoting again from the speech of S M Johnson,

…(I)f there is to be progress in India’s industrial development she should aim at supplying her own needs to the very fullest extent…Is it right that a country growing its own raw material, having 30-crore inhabitants should not be able to compete with foreign importation? [ARUICC 1912: 376].

Phase II: First World War (1914-18)

The four years of the first world war irrevocably changed the political economy of the globe. Though Britain was on the winning side its economic and political hegemony over the world’s economy declined and new power centres emerged from the ravages of the war. India did not directly participate in the war but because of the imperial connection, Indians also had to face trade and commerce restrictions. Indirectly this provided a situation conducive for the development of Indian industry, and the business interests associated with the UICC also benefited from this forced protection. But, this led to further contradictions with British industries. The war emphasised the strategic importance of India in the imperial scheme of things and the government of India was compelled to take unprecedented measures to boost industrial development of the country, like instituting the Indian Industrial Commission in 1917.

The economic interests of the European business community in general in India were closely tied to imperial interests and therefore they wholeheartedly supported measures like “imperial preference” (giving preferential treatment to goods from United Kingdom and the empire as a whole) and “protectionism” (imposing tariffs on goods from outside the empire) during the war. The European commercial class of Kanpur on the other hand was opposed to the policy of restricting trade within the empire and were keen to explore trade relations with countries outside the empire. Thus though the chamber professed its explicit loyalty to Great Britain and the Allied efforts in the war they opposed all policies that were detrimental to their immediate economic interests. They feared that the imperial character of the Indian state would compel it to promote the interests of “home” industries and trade at the cost of indigenous efforts including their own. A few months before the first world war, the Indian government made a proposal for unification of weights and measures practices within the country. The government of India strongly advocated the adoption of English yards and pounds to align it with the rest of the British colonies; but the chamber unequivocally opposed the move, and instead pressed for the adoption of the more widely used metric system.

It is argued that the foreigner (non-English) would benefit by this (adoption of the metric system) to which I reply that India as a trading nation would be equally as glad to do business with Germany and Italy as with England or Scotland. In my opinion India should be free to develop in whatever way may seem best, her own trade first, wherever that trade may be, the interests of Great Britain being only secondary considerations…(A)nd after all India as a country wants trade, profitable trade first of all, and inter-empire trade only as secondary considerations [ARUICC 1914: 253-54] (emphasis added).

Even after the formal commencement of the war, the chamber opposed a proposal to impose discriminatory export duty on Indian products headed for countries with which Britain was at war. Explaining their stance which was different from the rest of the European community the chamber reports:

It is necessary in this connection to point out that from its very composition, as representing the main manufacturers rather than importers, this chamber’s interest and therefore recommendations lie more in the direction of improving the self-supporting position of Indian manufacturers and Indian industry than in devoting its energies to diverting German trade and industry to the United Kingdom, and it is realised that, this being the case, the proposals of this chamber must in some respect differ from those of the presidency chambers, the members of which are very largely interested in fostering imports into and exports from this country [ARUICC 1914: 310].

Phase III: Inter-War Years (1919-39)

The 25-year period starting from the first world war witnessed important political and economic developments, which finally led to the transfer of power in 1947. During the war there was reduced international trade and large quantities of capital accumulated in the hands of Indian speculators and traders. Subsequent growth in industry, unlike the earlier period, was primarily oriented to the domestic mass market and was led by the Indians

– particularly the marwaris. Besides the established cotton textile industry, other light manufacturing industries like sugar, paper, etc, emerged and grew, protected from international competition owing to the war, the depression and imposition of tariffs. After the period of enforced protection owing to the first world war, the colonial government adopted the system of discriminating protection in 1923. This was as much to assuage the Indian big business and its increasing association with rising nationalist movement as to promote the protected industries. But due to the lack of a clear industrial policy the attempt did not have a profound impact [Bagchi 1972: 45-47]. Authors like Bagchi (ibid), Chatterjee (1992) and Ray (1979) have also held the “sound” finance policy and strong deflationary policy of the government in the face of acute depression largely responsible for arresting the possibility of higher industrial growth. On the other hand, Dewey (1978), Kumar (1983) and Tomlinson (1979), while conceding that the overall government’s assistance to industry was limited, do not subscribe to the analysis that British interests significantly influenced the levels of tariffs in India. Gupta, by a thorough search of archival data, concludes in support of the former assertions (1987: 202). British businessmen in India, with their primary interests in international trade and export-oriented industries like tea and jute, did not foresee any advantage in the protectionist policy of the government and generally opposed it.

The Indian capitalists, on the other hand, had consistently campaigned for protection and welcomed the government’s tariff policies [Markovits 1985: 57-60]. The cotton textile industry, particularly in Bombay, got a respite from Japanese competition by this policy [Chatterjee 1992]. The Indians also entered newer industries aimed towards import substitution. The inter-war period, in contrast (to the earlier period), saw a sharpened conflict between foreign capital and indigenous enterprise. This conflict arose from the resistance of the European interests to the increase in import-substitution industries, predominantly an Indian initiative, catering to the domestic market for goods of mass consumption [Ray 1979: 5]. Markovits attributes the relative “passivity” of British capital to the decline of the British colonial grip on India. “Once the Raj was reduced to a strategy for survival, British enterprise in India also lost much of its dynamism and hung on to its position but lost its major incentive to expansion” [Markovits 1985: 62]. Ray on the other hand, denies the influence of extra-economic considerations for business decisions by the Europeans and concludes that profitability of the enterprise was the only guiding factor for investments [Ray 1979: 243].

Unlike the stance taken by a overwhelming majority of the European commercial class on the issue of protection the European business community of Kanpur supported the protective policies. They actively campaigned for protective tariffs to all industries not only those related to their direct interests, like cotton textiles and sugar (though their market share in the sugar industry declined during the period), but also for industries in which they had no interest at all. Further contesting the claims of the “free traders” (who were mostly Europeans), that India would gain from a reversal to the free trade policy the chamber forcefully spoke in favour of continuation of the protective policies:

Free trade policy advocates in influential circles have caused some alarm to industrialists generally, and it is high time the fallacies of the Free Trade school were exposed. An idea seems to be prevalent among certain persons that India is paying very dearly for protecting her industries... (On the contrary) the first fruits of a free trade policy in India...would be the complete ruin of the cotton and sugar industries, by the successful dumping from Japan and Java respectively...and India would be reduced to being a supplier of raw products to the highly organised and protected industries of other countries, at such competitive prices as they wish to dictate… (We) also emphasise (that) once it is decided that an industry requires protection it should be adequately protected and no attempt should be countenanced, for importing interests, to whittle down protection [ARUICC, 1935: 14-15] (emphasis added).

The Indian government followed a deflationary policy to cope with the depression. But this probably further dampened the already depressed domestic market; the nationalist movement as well as the Indian big business community opposed the stringent measures adopted by the government. The chamber also strongly opposed the monetary and fiscal policies of the government of India during the period of global depression [ARUICC 1935: 10].

At the time of depression India required a favourable visible balance of trade of about Rs 70 crore to meet her external obligations for debts and services rendered to London, i e, towards “home charges”. The depression had greatly reduced India’s exports, which were mostly in primary products, and the shortfall was made good by exporting bullion to London. From 1931 onwards India turned into a net exporter of bullion and exported bullion worth Rs 349.41crore between 1931 and 1939. During the years of depression, gold accounted for one-third of merchandise exports of the country [Lokanathan 1946: 3]. When the whole world was reeling under severe trade depression, the positive balance of trade supported by the forced gold exports bolstered the creditworthiness of India. The plight of the common people could have been mitigated to an extent if the government had used this opportunity to raise debt at the prevailing low interest rates and invested in productive projects. But the government did no significant investments in infrastructural development like the railways, irrigation and the roads (Public Works Department), on the contrary investments in these sectors actually declined during the period [Rothermund 1981: 11-15]. The European business community in India who were largely dependent on the external trade supported these measures as it ensured that value of the rupee remained stable (did not slip down) despite very adverse local conditions.

There is a controversy among economic historians regarding the nature of this gold transfer, which came almost wholly from private disinvestments of the agrarian population. Tomlinson asserts that there was a speculative interest too for the sale of gold and substantial profits were made from this trade [Tomlinson 1979: 37]; most others like Lokanathan (ibid), Markovits (1985) Mukherjee (2002), Ray (1979) and Rothermund (1981) regard it as a coercive measure of the government which further taxed the already impoverished rural masses. The chamber was unequivocally opposed to this policy of the government as they felt that most of the gold exported was “distress” gold. They felt that government of India, which had done practically nothing to alleviate the miserable conditions that prevailed in the country, should in the very least not distress the people further through such coercion.

This continued drain in India’s stock of gold to balance her trade is very unsatisfactory, and cannot continue indefinitely…(as the) bulk of gold exported is “distress gold” originating from the hoards of the agricultural population, which is rural… If exports of merchandise do not rapidly increase, or imports decrease, and the gold reserves of the people are exhausted, then no amount of artificial props can permanently maintain the external exchange value of the rupee [ARUICC 1934: 9].

But the most persistent contradiction that the chamber had with the imperial government and the rest of the European commercial community in India all through the inter-war period was on the issue of rupee-sterling ratio. Rupee-sterling ratio: The overriding concern of the government of colonial India was to have a balanced budget at all costs. The most significant manifestation of the above concern during the inter-war period was the fixing of the rupee-sterling ratio, which was fixed at 1s6d in 1925 instead of 1s4d as existed before the war. Officially, the government had reasoned that a higher ratio would reduce its commitments abroad and would also help to improve the country’s image as a borrower. But, the ratio was probably artificially maintained by the deliberate deflationary policy pursued by the government [Bagchi 1972: 65-66]. The Europeans in general, including the capitalists, supported the government’s decision for a higher ratio. Ray asserts that this was because repatriation was higher up in the English businessmen’s agenda than reinvestment during the period.

It is curious to note that European businessmen wanted a higher exchange rate of the rupee even though this would produce an adverse impact on exports of jute tea and other export products controlled mainly by European interests in India. Nothing more clearly underlined the fact of their preference for remittance as against reinvestment of their war profits [Ray 1979: 247].

Besides repatriation, attractive investment possibilities in east Asia seem to have also withheld British investments in India during the period [Bagchi 1972: 216]. The Indian manufacturers kept agitating for a lower ratio all through the inter-war period, as a higher value of rupee made imports cheaper, thereby increasing competition for the domestic market. The industries of Kanpur were beset with a very strong Japanese competition besides that from UK all through the inter-war period. Therefore, the chamber also strongly opposed the higher value of rupee which promoted imports and were therefore not conducive for industries in Kanpur [ARUICC 1928: v].

The “ratio” question kept cropping up periodically all through this phase and increasingly the issue became politically contentious with European businesses in India as well as in England rallying for maintaining the higher ratio, while the Indians pushed for a lower ratio [Markovits 1985: 144-45]. In 1938, Indian big business houses forced the Congress to bring up the issue in the legislative assembly. All the major European chambers affiliated to ASSOCHAM decided to support the government against what they considered a “political move to undermine the special powers of the Governor General” [ARUICC 1938: 290]. Even in such a politically sensitive situation the delegation committee from the UICC refused to support the general position of the ASSOCHAM and stuck to its demand for a lower ratio.

My committee in the first place does not agree with the opinion expressed by the Bengal Chamber…that the issue, when the fixation of the exchange value of the rupee was under discussion (in 1925-26), was one primarily between the government of India and a certain section of the Indian commercial community. This chamber was then strongly of opinion that the exchange value of rupee should have been fixed at its then gold exchange value i e, 1s4d, and not at its then sterling-exchange value of 1s6d, which had the effect of placing 12½ per cent above the gold standard when other countries were having difficulty in even attaining the gold standard…(I)t is understood that this question will be raised in a motion for adjournment in the central assembly. Apparently Bengal Chamber considers that the European Group should oppose the motion, not on its merits but because in some manner it may develop into an attack on the governor-general’s special powers. This appears to my committee to be an inadequate reason for attempting to prevent the discussion of a subject of such transcendent importance to the economic life of India [ARUICC 1938: 293] (emphasis added).

Summarising Positions

Historically, by a peculiar combination of economic, locational, social and political factors (which we have not explored in the present paper), the European business community in Kanpur entered and flourished in an industry which was not patronised by the Europeans in India in general – cotton textiles. Thus from the very inception of large enterprises in the city, the Europeans chose to enter an industry which had as a rival politically the most powerful industry of Britain, in spite of the risk of inviting adverse social pressure in Britain “as well as in India” (from British cotton textile importers) [Sen 1992]. Subsequently too Kanpur’s European business interests were largely confined to manufacturing industries, catering primarily to domestic markets. And as we have systematically tried to make a case on the basis of data spanning over four decades of British domination of India, the European business community of Kanpur consistently took positions in contradiction with the expected behaviour of Europeans in India. No amount of racial compulsion could make them sway from their positions, which contradicted those of the larger European business community including those in India and in Britain, when it conflicted with their own economic interests. No feeling of loyalty and patriotism for their home country could make them shy away from opposing the government policies even during extremely uncertain times like war.

But what could induce this collective to stick to such a consistently “anomalous” behaviour? It needs to be emphasised that we are not talking about a few whimsical individuals, but a collective, who were not confined to a peculiar industry but represented an array of industries and their “contradictory” view is not on a specific issue but actually over a host of significant economic issues spread over 40 years. And finally, and probably most importantly, these were not their private musings, but their formally documented official positions taken in important national and international fora. Let us attempt an overall analysis of the possible reasons for the “unexpected” behaviour of the European business community of Kanpur and the implications of the same on our understanding of nature of business in colonial context.

III Discussion

As has been mentioned earlier, European business in India, particularly those that were based in the presidency cities, was primarily interested in trading – especially external trade. Though the presidency chambers had significant manufacturing interests, the stronger trading community far outnumbered them. Further the manufacturing, trading and other interests of the European commercial community in India, particularly those situated in the presidency cities, also had a significant common characteristic

– they largely catered to the export market. Thus they benefited from the imperial policy for free trade in the pre-first world war period and opposed the moves for protection by the Indian business community for domestic industries during the inter-war years. They supported the policy of discriminating protection adopted by the colonial government that favoured the British industries. The European dominated UICC on the other hand, had predominantly manufacturing interests that catered to the domestic market like cotton textiles, sugar and leather. Kanpur was an important centre for internal trade, but being situated in the hinterlands with no port in proximity, it had no significant linkages with the external trade of the country. This peculiarity of the chamber of having homogenous domestic-market oriented manufacturing interests, often led them to take positions in contradiction with the other European chambers that were dominated by trading interests.

The cotton-textile industry in India including in Kanpur faced a stiff competition from Britain, as cotton textile was also Britain’s most important industry. The political clout of the Lancashire lobby, given the colonial context, made this industry particularly vulnerable. But since cotton textile was the main industry of Kanpur, the chamber joined the native business class in consistently opposing the interference of Lancashire, even at the risk of inviting censure from both the domestic European business class as well as those in Britain. The members of the chamber were heavily dependent on government patronage – especially on large orders for the army, which were accorded to them basically because of their being of British origin [Bagchi 1972: 186]. And yet, as the contradictions between the Indian textile manufacturers and those in Britain sharpened, the Europeans in Kanpur were forced to throw in their lot with the interests of the Indian business class because of their own business compulsions. Jute industry in India also had competition from Dundee manufacturers, but jute was a comparatively insignificant industry for the economy of the UK, and as jute products were primarily for the export market there was no serious contradiction between the jute manufacturers based in India and those in Britain.

Another factor which probably influenced the business behaviour of big businesses in India was that unlike export-oriented industries, which are not greatly affected by lack of local linkages, domestic-oriented industries necessarily cannot grow in isolation beyond a certain level. A domestic-oriented industry needs linkages and support of related industries. Probably because of this reason, the chamber campaigned for protection not only for industries in which they had direct and increasing interests (like cotton and leather), but also for industries in which their shares declined during the period, like sugar. Whereas the European business community in India in general opposed the protectionist policies during the inter-war period as it “might after all encourage the growth of indigenous Indian entrepreneurship and force the Europeans to compete with the Indians in somewhat more equal terms in the home market” [Bagchi 1972: 423]. The industries in Kanpur were dependent on the domestic market and this probably accounts for their concern for the very large exports of bullion during the depression years, which originated largely from the rural population. On this issue the chamber criticised the government for not only not adopting measures to alleviate the condition of the agriculturists but instead actually forcing them to part with their meagre savings. We feel that the possible backlash on industry because of an impoverished agricultural population must have also been an important consideration for the chamber’s stand. In the inter-war years, Indian big business advocated for a lower rupee-sterling ratio to deter imports, which was detrimental for the indigenous industries. Markovits puts forth this incident as a conclusive evidence for the collaboration of the Indian big business with the political agenda of the Congress party to further their own economic interests [1985: 145]. Though a lower ratio would have also benefited the export industries, a majority of the Europeans opposed it. During the 1930s, the rupee-sterling ratio became a very contentious issue along racial lines. And yet, even in such an obviously politically charged context, the UICC refused to support the general position of ASSOCHAM and instead stood by its demand for a lower ratio. Further, historians attribute the anomalous stand by the European business community on the ratio issue to their increasing inclination towards repatriation during the inter-war period [Chatterjee 1992; Markovits 1985; Tomlinson 1979]. Pushing the above argument further one can probably deduce that the European business community in Kanpur, unlike the rest of the European community, were more interested to continue and expand their existing enterprises in India, than to repatriate their profits.

Thus, one may argue that the UICC represented a collective which displayed all the advantages of small groups within a larger community [Olson 1971]. Constituting of a relatively smaller collective, compared to the presidency chambers, and having a fairly homogenous and non-clashing intra-group economic interests (most of them were engaged in manufacturing), they were able to put across their positions without any serious breaking of ranks. The collective had serious divergence of interests with the larger collective of Europeans (who were predominantly engaged in international trade) and yet, they could formally put forth a unanimous and consistent viewpoint on several contentious issues that came up during the period. There were no serious rifts in the group and therefore there was a fairly consistent pursuance of the so-called “collective good” for a long and complex period in history. And yet, this “special interest group” took advantages of all the opportunities that came their way because of their inclusion in the larger collective of race. Or in other words the members of the chamber actively pursued the interests of the sub-group and hoped to gain a “free rider’s” advantage of belonging to the dominant race, even though the sub-group’s interests clashed with that of the larger collective.


Existing literature on the European business community in colonial India suggests that their positions were determined exclusively by their social context, i e, by their race. It is asserted that even economic decisions were influenced primarily by the racial affiliation of the business collective. In this paper, we contend with the existing literature through an analysis of the European business community of Kanpur whose behaviour consistently contradicted the norm during a crucial period of the colonial rule. Neither a sense of overriding racial loyalty to the colonial rulers, nor brotherhood feelings for the European business community in India could prevent this business collective from taking public positions that could be construed as detrimental for the race. On the basis of data on the European business community in Kanpur we have systematically argued that the nature of business was of primary importance in determining the behaviour of business collectives in colonial India. Thus the data on the European business community in Kanpur suggests that, as is often inferred from the existing literature, extra economic considerations like racial affiliations, “social ethos”, etc, do not essentially determine economic behaviour of the business class, which is guided mainly by their economic interests. To quote Ray on the above assertion:

The exact significance of non-economic motivations can never

be appreciated until the possibility of explorations of investment

decisions in terms of profit incentive has not been thoroughly

explored. This is something which propagandists and scholars,

who emphasised cultural attitudes and political motives did not

always care to explore in the past [1979: 35].

The study also brings out the need for alternate categories for understanding historical developments in colonial India’s economic history. As has been stated earlier in the present paper, existing literature treats the European business community as a monolithic whole with homogeneous interests, and has focused all its enquiries on the presidency chambers and extrapolated its views for the wider collective on the above erroneous assumption. As demonstrated in the present paper, existing scholarship has generally missed out the complex dynamics within this racial group. The fracturing along economic interests of this racial group leads to many new dimensions of enquiry in colonial India. At the most preliminary level it suggests the need to look beyond simplistic categorisations of the commercial class along racial lines and explore new categories based on nature of business – manufacturing vs trade or nature of market – export vs domestic, etc.




[The present paper is based on a larger work which has been awarded a PhD (to the first author) by the economics department of Jadavpur University, Kolkata. We have gathered innumerable debt from several individuals and institutions during the course of data collection and though to unable to thank them separately, the authors would like to put on record their gratitude for all help received. We are greatly indebted to Amiya Kumar Bagchi without whose guidance the paper would not have taken the present shape. The paper would not have been possible without the moral, professional and personal support of Rahul Varman who went through innumerable drafts of this paper and made many valuable suggestions. The usual disclaimers regarding the remaining faults in the paper holds here too.]

1 The British constituted the majority of Europen presence in colonial India. But trade and commerce was dominated by individuals and groups of Scottish origins. The term European, as used in this paper, is for an inclusive category for persons of both Scottish and British origin. Individuals from any other country of Europe are referred to by their specific country of origin.

2 The terms business community, business class, business group, business collective have been used synonymously without any reference to their anthropological or other technical meaning.

3 Domestic industry, domestic market, domestic demand refer to those industries whose primary consumers lie within the country and which are dependent primarily on internal trade.

4 Kanpur’s economic history has undergone dramatic swings in the last two centuries. From its inception in 1778 as an up-country army camp of the East India Company, Kanpur rapidly grew as an industrial and trading centre. The important industries of the city were textile, leather, ordnance and engineering. But, in the last three decades of the 20th century, industrial activity has rapidly declined and, at present, almost all the large-scale factories of the city have either closed down or stopped functioning. Cotton and indigo plantations flourished in the early 19th century. Leather was the most important industry during this period. The central location of the city also helped in the movement of merchandise and Kanpur emerged as a leading trading centre. The start of large-scale industrial activity can be dated to 1861 when the first integrated textile mill came up in Kanpur

– the Elgin Mills. By the end of the century there were four large textile mills running in the city. Leather industry also expanded during this period. Among other industries that came up during this period were wool and heavy chemicals. The development of these industries was primarily due to the captive demand provided by the army. By the beginning of the 20th century, Kanpur was already an important industrial centre of north India. But, the most hectic industrial activity in the city has been during the two world wars and the period between them – basically 1914 to 1945. The boom created by the first world war benefited traders of both European and Indian origins, who made enormous profits (largely by hoarding and speculation) during the period. This strengthened their position in trade and finance. Many new industries also came up during the period. This period also saw the emergence of Indian-owned enterprises, the most important of them being the house of Juggilal Kamlapat (the J K Group). Three cotton mills, a jute mill, an oil mill and a steel rolling mill of the J K Group came up during this period. All this industrial activity created a large employment base. In 1920, there were 44 factories employing around 28,000 people, by 1939 it had gone up to 90 factories employing around 56,000 people. The onset of the second world war propelled the local industries to an unprecedented and exponential growth. In the six war years the number of factories doubled to 176 and the employment rose to 1,16,252.

5 We have used the term “the chamber” to refer to the Upper India Chamber of Commerce or UICC. Whenever we have referred to the other chambers of commerce we have used their full name. So, unless otherwise mentioned “the chamber” stands for the Upper India Chamber of Commerce. ARUICC stands for Annual Report of Upper India Chamber of Commerce.

6 My thesis advisor often repeated that I had hit upon a “gold mine of information”.

7 The paper is a part of a larger work which formed my PhD thesis Industrialisation Process of Kanpur City 1914 to 1945, 2003.

8 All the important European Chambers of the empire had sent representatives to this conference to present their respective interests.


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