Marwari ethic and the spirit of Capitalism


Medha M. Kudaisya, The life and Times of G.D. Birla, Oxford University Press, New Delhi, 2003, 434 pages, Rs

Owning a dynamic, indigenous entrepreneurial group like the Marwaris would seem to give India a competitive advantage in the world economy, yet the Marwari has never quite won the respect from Indian society that he has yearned for. Most Indians know him as the furtive shopkeeper around the corner. Like the Jew in old Europe he is the moneylender of last resort, who charges extortionate interest and dispossesses widows of their land and jewellery when the loan is not repaid. Or he is perceived as the ruthless tycoon who did not stop at anything, including the pre-empting of licences during the hypocritical forty years of the Licence Raj.

The story of the Marwaris is a fascinating tale of how a tiny community from the desert sands of Rajasthan spread out to every corner of north, west, and central India, settling in

 thousands of villages and towns in the 19th century. With their enormous appetite for risk, Marwaris seized control of India’s inland trade, then gradually turned to industry after the First World War, and as recently as 1997 they controlled roughly half the nation’s private industrial assets. Although the profile of Indian business has begun to change with our success in information technology, but in 1997 fifteen of the twenty largest industrial houses were of vaishya or bania trading caste, and eight were Marwari. The question is what made them so spectacularly successful?

The answer to that question will not be found in Medha Kudaisya’s fine book, The Life and Times of G.D.Birla. There are hints, however. It had something to do with their wonderful support system. When a Marwari travelled on business, his wife and children were cared for in a joint family at home. Wherever he went in search of trade, he found shelter and good Marwari food in a basa, a sort of collective hostel run on a co-operative basis or as a philanthropy by local Marwari merchants. Ghanshyam Das (GD) Birla’s grandfather, Shiv Narian, the founder of the Birla Empire, settled in a basa when he first came to Bombay in the 1860s. When the Marwari needed money, he borrowed from another Marwari trader on the understanding that the loan was payable on demand, “even at midnight,” and he would reciprocate with a similar loan. At the end of the year, they tallied and settled the interest. He could count on community banks to insure his goods in transit and collect his dues when the goods arrived. His sons and nephews were apprenticed to other Marwari traders, where they earned their salary through profit sharing, learned business skills, and accumulated capital to start their own business when they were ready.

The Marwaris achieved their biggest successes in the British trading post of Calcutta. They smelled the chance for big money and they flocked there to become brokers and agents to the British (who called them “banians”.) Ramdutt Goenka was a typical example. He came to Calcutta in 1830. Starting as a clerk to a Marwari firm, he gradually became a broker to the major English firms. Nathuram Saraf began as a clerk in Ramdutt Goenka’s firm and he graduated to become a “banian” to other British firms. He opened a free hostel for migrants from the Shekhavati area of Rajasthan and GD Birla used to say that this hostel spawned many entrepreneurial careers. At night, the young apprentices would exchange stories of their commercial exploits of the day and draw lessons from them. Some of these stories became legendary. Passed on by word of mouth for generations, it was their version of Harvard Business School cases. The arrival of the Delhi-Calcutta railway in the 1860s quickened the migration to Calcutta and by the turn of the century, Marwaris had become dominant in the jute and cotton trade. During World War I, they made spectacular profits speculating in cotton, jute and hessian, and these profits laid the foundation for many industrial careers after the War.

Marwaris are socially conservative, and that too might help to explain their success.  They took to English education much later than most other communities like the Bengalis or Punjabis, for example. But now their children routinely get MBAs and have a similar way of life as the young in other communities and as other young professionals. Nevertheless, they continue to be more religious and tradition continues to have a greater hold. Although professional executives run their businesses, most of them are from their community. Although they engage in the most sophisticated enterprises, their strength lies in the way they use old family networks and traditional accounting and financial controls. The Birlas, for example, continue to monitor the financial performance of their companies on a daily basis.

Medha Kudaisya’s The Life and Times of G.D.Birla is a sober, scholarly work, whose biggest strength is that it is among the first business biographies that is not a hagiography. It grew out of a PhD thesis for Cambridge University, and it is well researched, based for the first time on unrestricted access to Birla private papers. It offers a ringside view of the political and economic forces that have shaped our country in the 20th century, including the funding of the nationalist movement and the Congress Party. There are fascinating insights, for example, into the attempts at “reform by stealth” during the brief period that Lal Bahadur Shashtri was Prime Minister. GD Birla, more than anyone could see what “a precious opportunity had been lost” when Shastri died prematurely. I try to imagine, what sort of nation we might have been had the 1991 reforms begun in 1965! This has to be one of the tantalising ‘what ifs’ of Indian history.

Kudiasya poignantly describes the slow decline of GD Birla’s stature in national life after the death of his Sardar Patel, whose advisor and protégé he was. However, this did not necessarily reflect in the decline of his economic fortunes (with the exception of the nationalisation of Bharat Airways and his insurance company). Kudaisya describes in some detail how he moved with strategic foresight into basic industries after Independence, and the heartbreaking episode concerning the rejection of his Durgapur steel plant after so much work had gone into it. If his aluminium company, Hindalco, is anything to go by, he would have created a world class steel company as well. Today, after liberlisation, Hindalco is the lowest cost producer of aluminium and is one of our best companies. Just as Tata Steel is world class today; so too might have been Birla Steel; instead we are saddled with the unmanageable public sector company, Sail, which continues to struggle and keeps guzzling public money.

The best part of the book is the account of Birla’s growing relationship with Madan Mohan Malviya and Lala Lajpatrai and his growing involvement in nationalistic politics, culminating in his close relationship with Mahatma Gandhi. Equally noteworthy is how he suffered during the Indira Gandhi years when he was an easy target of any young, unscrupulous socialist (like Chandrashekhar) who wanted to make his mark in public life. Morararji Desai, in particular, comes out looking like an arrogant prig, happy to take the money of industrialists but without any grace or gratitude. Birla was too much of an old style Congresswallah; anyone else would have chucked up the Congress Party after Shastri’s death, when the rot began to set in, and joined the Swatantra Party.

Nehru was always suspicious of Birla, and not only because he had been Sardar Patel’s protégé. In Motilal’s and Jawaharlal’s case it was a caste prejudice, reinforced by the latter’s English education at Harrow and Cambridge, where he acquired the English upper class bias against trade and learned socialism from the Fabians. When he came to power in 1947, Nehru institutionalised the prejudice into the mindset of the national state. Lord Wavell, the British Viceroy in the 1940s, also shared the prejudice against Marwaris, who he thought were like the Lombards and the Jews in Europe. Nevertheless, he recognised G.D. Birla’s uniqueness and he paid him a huge compliment by preferring him to JRD Tata as Queen Mary’s companion for lunch in Bombay. JRD was then the young head of the largest and most respected business family, and Wavell wrote:

I think Queen Mary would find G.D. Birla better company than J.R.D. Tata if she wishes to invite one of them to lunch. Tata is a pleasant enough fellow to meet, but I have not found him communicative, and as a casual acquaintance he is much the same as any other wealthy young man who has had a conventional type of education. Birla has plenty to say, and whatever one may think of Marwari businessmen and their ways, he is well worth talking to. I think Queen Mary would have a very dull lunch with Tata and quite an interesting one with Birla.

Mahatma Gandhi, a bania himself, had no qualms about accepting money from Birla or other businessmen. Nor was he contemptuous of commerce like Nehru. He came from Gujarat, which had many ports and vigorous commerce, and where the merchant was held in higher esteem. Gandhi believed that a businessman’s wealth was not his own but held in trust for the rest of society. Today’s business titans of the new economy, men like Narayana Murthy and Azim Premji, oddly enough are closer to Gandhi’s way of thinking about the place of business and wealth in society. And fortunately, the old socialist attitudes to business are practically dead in the minds of the nation’s young, even though they linger in the minds of the ruling class, and this slows reform.

There are wonderful moments in the book, especially the descriptions of GD’s childhood in Pilani among women and without men, where Vaishnav religion pervaded the day. This religiosity never left him, and the Gita in particular was a great source of strength to GD during crisis. The men in the family were continuously away in Bombay and Calcutta, making their separate fortunes, and expanding the family’s wealth, and GD went to a local school, where there were no books and classes were held in the open air. In the end, of course, the education he received there was wholly inadequate, he realised, and he plunged into reading English books after he left Pilani. His proficiency in English placed him in a privileged position in the family firm from the beginning because he could negotiate with English brokers.

The weakness of the book—and it is a major flaw—is the inability of the author to tell us why GD succeeded in business.  How did the Birlas succeed in making so much money? Why did they win when others lost? I found it frustrating that there is nothing to explain GD’s legendary ability to hire, train, and retain so many managers who ran his many companies when he was busy with politics? Aditya Birla inherited the same ability, and perhaps that is why he was GD’s favourite and he got the lion’s share of his empire. Equally disappointing is her silence on the division of the Birla companies. There was a real fight and it caused so much heartburning and she dismisses the whole thing in half a page.

The real failure of the book in the end is that it does not uncover the man within. This is not easily done, of course, because GD was (and Marwaris, in general are) secretive. Hence, he had thrown a challenge: “Certainly, no Indian can write my biography because biography isn’t an Indian skill,” he had said to Ian Jack of London Times in 1978. But it the job of biography ultimately, isn’t it—to uncover the man within?

It is true that Indians have traditionally not accorded a high place to making money. It is also true that a certain amount of antipathy to business exists in all societies. But Aditya,  GD’s grandson, could not understand why the Indian public chose to target the Birlas as the ugly face of big business. He thought it unfair. After all, they had supported the nationalist movement for independence; they had invested huge sums in charities and philanthropy; they had maintained an austere and quiet life-style and reinvested their entire surplus rather than consuming it; they had come as close as anyone in the practice of Mahatma Gandhi’s idea of trusteeship—that the bania’s wealth belongs to the community and the businessmen is merely a trustee of this wealth during his lifetime.

In one of his letters, GD offered the following advice to Aditya when he was studying at MIT: “eat only vegetarian food, never drink alcohol or smoke, keep early hours, marry young, switch-off lights when leaving the room, cultivate regular habits, go for a walk everyday, keep in touch with the family, and above all, don’t be extravagant.” Aditya thought that his grandfather’s advice symbolised the ethic of the Marwari merchant, with restraint and austerity its defining tone, not dissimilar to the ethic of Protestant, Jewish, or Chinese business families. It captured the spirit of conservation that leads to accumulation. With all this going for them, why should the Birlas not be more esteemed?

Many think that the Birlas, were the great beneficiaries of the Licence Raj. They point to the Hazari Committee which had pointed a finger at the Birlas for pre-empting 20 per cent of all licenses awarded by the government between 1957 and 1966. From 20 companies in 1945 Birla companies had grown to almost 150 by 1962, and wasn’t this monopostic? I could not disagree more with this popular misconception. I believe the Birlas behaved in a rational manner, as any businessman would towards his competitor, and what was wrong was not the behaviour of the Birlas but the incentive system of the Licence Raj in that hypocritical, ugly world that ended in allowing our bureaucrats to kill our industrial revolution at birth.

Far from doing the Marwaris a favour, the Licence Raj made the Marwaris lose touch with the market. Competition is the great school where companies acquire skills. It is through intense rivalry in the market place that businesses learn to improve their products, hone their marketing skills, and improve their systems in order to become more responsive to the customer. The Licence Raj, by eliminating competition, distorted their behaviour and suppressed their business skills and made Indian businesses complacent and insensitive to customer needs.

When the economy opened in 1991 and markets became increasingly competitive, many old Marwari businesses were in trouble. Some of these will never recover, but for the others it has taken more than a dozen years after the economic reforms to become competitive. The shining example is the Aditya Birla Group, the direct inheritor of Ghanshyamdas Birla’s legacy, now headed by Kumaramangalam Birla. Its success is due to a great part to Aditya, who decided not to invest in India in the late sixties, when he realised the monster of a political economy that Indira Gandhi was creating, and which would not allow an honest enterprise to exist in India.  He created instead a commercial empire instead in highly competitive South East Asia, which taught his managers competitive skills that came in handy when India finally opened up in 1991. Forty years of Indian style socialism fortunately was not able to destroy India's legendary entrepreneurship, although it did distort its behaviour.