The Marwaris Read online

  Thomas A. Timberg

  The Marwaris

  THE STORY OF INDIAN BUSINESS

  From Jagat Seth to the Birlas

  Introduction by

  Gurcharan Das

  Contents

  About the Author

  List of Maps

  List of Family Trees

  Introduction by Gurcharan Das

  1. Preface

  2. The Beginning of the Bazaar Economy

  3. The Marwaris, the Bazaar Economy and the British Raj

  4. The Marwaris in Independent India: in Traditional Industries and Sunrise Sectors

  5. Do the Marwaris and the Bazaar Economy Still Shine After 1991?

  6. What Produces Business Success: Lessons Learned

  7. Conclusion: What are the Marwaris left with?

  Afterword

  Notes

  Bibliography

  Acknowledgements

  Follow Penguin

  Copyright Page

  PORTFOLIO

  The Marwaris

  THOMAS A. TIMBERG is a scholar and consultant on economic development. His writings cover subjects ranging from Baghdadi Jews in India to contemporary microfinance and Islamic finance. His Harvard doctoral dissertation was on the Marwaris as industrial entrepreneurs, and he has continued to follow the affairs of the members of this community.

  GURCHARAN DAS is a world-renowned author, commentator and public intellectual. His bestselling books include India Unbound and The Difficulty of Being Good; his newest book is India Grows at Night. A graduate of Harvard University, Das was CEO of Procter & Gamble India before he took early retirement to become a full-time writer. He lives in Delhi.

  List of Maps

  Marwari Presence in India

  Shekhawati Region

  Jhunjhunu District

  Western Rajasthan

  Marwari Presence in India

  List of Family Trees

  The Tarachand Ghanshyamdas Family Tree

  The Birla Family Tree

  The Ramdutt Goenka Family Tree

  Introduction

  ‘The thrill, believe me, is as much in the battle as in the victory.’

  —David Sarnoff, 1891–1971

  One sultry evening in 1971, I ran into Tom Timberg in Bombay. I recognized him right away from my days at the university. He was fair and tall, and stood out in the crowd at Chowpatty, his shock of brown hair flying wildly in the strong breeze. He was returning to the US after a year in Rajasthan and Calcutta, having completed research for his PhD dissertation on the rise of Marwari merchants. His enthusiasm was infectious and I took him home, and he found in me a good listener. I was fascinated by his riveting account of how a tiny community from the desert sands of Rajasthan had spread out to every corner of north, east and central India, settling in thousands of villages and towns in the nineteenth century. With their enormous appetite for risk, the Marwaris controlled much of India’s inland trade by the end of the First World War. Gradually they turned to industry after the war, and by 1970 they controlled much of the nation’s private industrial assets, and by 2011 the Marwaris accounted for a quarter of the Indians on the Forbes list of billionaires.

  Timberg and I talked late into the night but his account had only reached the 1930s. I was amused at the thought of this irrepressible brown-haired ‘yogi’ travelling from one district to another in north-west Rajasthan, poring over the commercial records of this quiet and secretive community. I must have ingested a fair amount that evening for I remembered some of his anecdotes when I wrote India Unbound a quarter of a century later. The crucial question he posed that night is the same one that hangs over this book: What makes Marwaris so successful? He wrestles with it in a different manner than his earlier work as he brings the Marwari story to date.

  Timberg said to me that night that a nation needs many things to succeed economically, but the most important of all is the entrepreneur. An entrepreneur takes great risks when he combines the factors of production—capital, labour and land—with technology. His argument amounted to a challenge to Max Weber’s famous thesis, which argued that the industrial revolution did not come to India partly because the traditional Indian businessman lacked the ‘Protestant ethic’ of thrift, hard work and rationality, which had helped northern European and American businessmen to accumulate capital and exploit the new technology of the steam engine. Timberg claimed that India was equally blessed with the Marwaris, Banias, Jains and other business communities whose work ethic could be as effective as the Protestant’s. India required craftsmen, scholars, public servants, but it also needed merchants. The pursuit of artha, economic well-being, was the traditional dharma of the Bania. This was not an intuitive idea to the socialist mind of the twentieth century. Thus, Mahatma Gandhi and others had to remind Indians during the freedom struggle about the rightful place of the businessman in nation building. It also became a theme in early-twentieth-century Hindi literature during the freedom struggle when Maithili Sharan Gupt, for example, wrote, ‘After “made in India”, let India everywhere appear.’

  Old and New Prejudices against Money

  When I was growing up I knew the Marwari only as the furtive shopkeeper around the corner in villages and towns dotting India. Like the Jew in Europe, he was the last-resort moneylender who charged vicious rates of interest, dispossessing widows of their land and their jewellery when the loan was not repaid. This old prejudice intensified during our ‘socialist age’, during the first forty years after Independence. It was only after 1991 that our perception of the Marwaris and business people began to change. By and large, the Marwaris have not enjoyed the social status that they have yearned for. My own view changed dramatically when I entered the world of business in Bombay and discovered how much they were revered and even feared for their enormous commercial skills and talent.

  A successful merchant has always provoked envy and it is not surprising that the Marwaris have been at the receiving end of resentment and even loathing, especially in Bengal where they achieved their greatest success. Timberg once related the story of a boarding house in Calcutta where he stayed in 1970 at the height of the Naxalite insurgency. Also residing there were two tenants, a Marwari and a Bengali. The Marwari was a heavyset insurance salesman from Bikaner, energetic, enthusiastic and loud. The Bengali tenant, annoyed by his buoyancy, burst out one morning: ‘The Naxalites will surely get you one day, you Marwaris!’ To which the insurance man replied calmly, ‘Before they do, we will join them.’ The answer reflected the supple nature of the Marwaris, and indeed of most business communities. Their ability to adapt to situations and a flexibility of mind are surely important traits responsible for their extraordinary success.

  When I met Timberg in Bombay in the 1970s, many believed that the Marwaris had been great beneficiaries of the socialist ‘Licence Raj’. In fact, R.K. Hazari in his famous Monopolies Inquiry Commission report in 1967 indicted them for having taken advantage of the licensing system by cornering licences, which limited competition in the market. This report led to the dreaded Monopolies and Restrictive Trade Practices (MRTP) Act, which penalized an entrepreneur for producing beyond his licensed capacity—this at a time when the country was starved for the supply of almost everything. I recall at the time that there had been an unprecedented cold wave and sales of Vicks VapoRub, one of the leading products of my company, had risen dramatically. I was warned by our lawyers that we might have to go to jail for ‘exceeding our licensed capacity’. Instead of promoting competition, MRTP raised barriers to entry and ended up promoting monopoly. No wonder it is remembered as one of the most oppressive faces of our socialist age.

  I primarily disagree with the conclusio
ns of the Hazari commission. I feel that the Marwaris lost out during the forty years of the socialist licensing. Since market share was won in a bureaucrat’s office when a licence was acquired, it distorted a businessman’s behaviour. Instead of focusing on the market, the businessman applied his talents to managing the government. Competition is the school in which companies learn to perfect their skills. By closing the economy and discouraging competition, socialism made Indian business houses complacent and insensitive to customer needs. They lost the incentive to improve their products and acquire marketing skills. When the economy opened in 1991 and markets became increasingly competitive, the old business houses were suddenly in trouble. They had to relearn business skills and it took them more than a decade to do so.

  Timberg in his present volume returns to these themes forty years after his first book on the Marwaris appeared on the stands in the late 1970s, in English and in Hindi. He now inquires whether the Marwaris will continue to play a large role in the future and how they will serve India’s development in the twenty-first century. Although Timberg specifically asks this of the Marwaris, one can extend it to India’s other traditional business communities. A way to ponder on this is to ask another question—if over sixty countries introduced the same reforms as India did in the early 1990s, why then did India become the world’s second-fastest growing economy in the first decade of the twenty-first century? My own hypothesis is that India has been fortunate in having communities who for centuries have known how to conserve and grow their capital. When opportunities arose, they responded. If you set in motion liberal reforms in such a society, you will get a ‘bigger bang for your buck’, as the Americans put it. This is borne out by the fact that 67 per cent of the Indian billionaires on the Forbes list for 2011 had a surname from a traditional business community. This is, of course, politically incorrect thinking, suggesting that our much-reviled caste system might have some redeeming features.

  The Virtue of Being Risk-Takers

  The business world rewards those who take risks. The incredible achievements of the Marwaris have often been credited to their extraordinary risk-taking ability. ‘You don’t want to compete against a Marwari!’ is the wisdom of the bazaar. G.D. Birla’s colossal success in the market for jute futures during the First World War, which laid the foundation for the Birla family’s entry into industry, is credited to his phenomenal appetite for risk. Less well known is the remarkable story of Ramkrishna Dalmia, about which he wrote in his book Some Notes and Reminiscences in 1948 which he published through the press of the Times of India, the famous newspaper that he owned.

  Dalmia came from arid Rohtak in Haryana, not far from Rajasthan, the homeland of the Marwaris. Although his great-grandfather was one of the wealthiest men in India, young Dalmia grew up in penury in Calcutta during the 1930s’ Depression. Dalmia was twenty-two when his father died and he had to support his mother, grandmother, three sisters and his wife in a single room that he had rented for Rs 13 per month. He was young and adventurous and wanted to get rich quickly. He had speculated in silver and lost and suffered the humiliation of defaulting on his debts. Declared insolvent, he had become persona non grata in the marketplace. He was down and out without a rupee to his name when he received a telegram from London informing him that the market for silver was set to rise.

  Dalmia rushed to the bazaar and entreated his friends and associates to buy silver. But he was spurned and laughed at. He next went to a wealthy astrologer, who had predicted that Dalmia would one day grow very rich. The astrologer agreed to purchase silver worth £7500, for which young Dalmia would only earn only Rs 100 as commission. The astrologer also gave him Rs 10 for sending the telegram. Since he did not have the fare for a tonga, Dalmia jumped on to a tram to the general post office and sent off the telegram.

  The next day, as he was praying during his daily dip in the Ganga, a messenger came from the astrologer and told him to cancel the transaction. Dalmia was stunned and he rushed to the astrologer and pleaded before him, reminding him of his prophecy, but to no avail. On his return home, he received a telegram confirming the transaction along with the bad news that the market had gone down and that he had lost half the capital the same day. The market, however, turned very quickly in the next few days and since he had not squared his account, he suddenly found that he had made a significant profit. A prudent man would have booked his profit, but Dalmia was a risk-taker. He stole his wife’s only ornament and pawned it for Rs 200, and made another bet through another agent for another £10,000. The silver market rose again and he doubled his capital, which he used to buy more silver through a third agent. Soon his profits had risen sevenfold.

  Dalmia desperately wanted to unburden himself, and as he was friendless, he confided in his mother. He told her that he had stolen his wife’s jewellery. She ordered him to immediately retrieve his wife’s ornament from the pawnbroker and never to try and earn again from stolen capital. She also assured him that they could live comfortably on Rs 50 per month. He gave in to his mother’s wishes and sent a telegram to his agents to book his profits. But as luck would have it, the telegram got garbled in transmission; the market rose again dramatically, and now his profits were fifteen times his capital, as a consequence of which he had become a very wealthy man. Thus, Dalmia laid the foundations of a vast industrial and real estate empire, and went on to become, as Timberg tells us, one of the three largest industrialists of India. When I was a child, the names ‘Tata, Birla, Dalmia’ were mentioned in one breath in our home. He was also a bon vivant and had a colourful personal life, with many marriages and passionate affairs.

  Dalmia does not explain if he followed any method while speculating. There does not appear to have been an ‘art of managing risk’ which Timberg speaks about in this volume. He seems to have employed intuition, not unlike George Soros when he bet against the British pound, or the early Rothschilds, the famous Jewish family that financed many kingdoms in Europe. Despite the rationalization that many speculators offer after the fact, the truth is that luck does play a big part in the markets for commodity futures. Hence, Dalmia comes out sounding like a gambler at heart, not unlike the famous Yudhishthira, the ‘unhero’ of the Mahabharata.

  Trust Is at the Heart of It

  One of the lessons of Dalmia’s story is that trust has a central place in business life. When Dalmia defaulted on his debt, he broke a promise, and the market punished him swiftly. By losing the trust of his peers in the market he turned from a somebody to a nobody, a terrible thing to happen to any human being. William James, the American philosopher, explained in his classic, The Principles of Psychology, that

  no more fiendish punishment could be devised than that one should be turned loose in society and remain absolutely unnoticed . . . If no one turned around when we entered, answered when we spoke, or minded what we did, but if every person we met ‘cut us dead’ and acted as if we were non-existent things, a kind of rage and impotent despair would ere long well up in us.

  The fact is that our self-worth is held hostage to the opinion of others, and while we may not admit it, the truth is that we all seek to be ‘somebody’.

  In the world of Marwaris and Banias the word for trust is sakh and it is linked closely to honour. It is a crucial indicator of a merchant’s standing. Sakh is at the heart of creditworthiness and business integrity and means much more than wealth and financial strength. It is acquired through an unblemished record in honouring obligations, being generous to the needy and having a philanthropic outlook. The cotton trader Ramvilas Poddar began as a humble dalal or broker in the raw-cotton trade but soon reached an eminent position in the bazaar by quickly building a reputation for honesty and acquiring sakh within the community. This helped Poddar set up an independent brokerage and encouraged older and established firms to entrust their money to a newcomer in the bazaar.

  G.D. Birla, who established the great Birla fortune as we have just mentioned, confirms the impo
rtance of sakh. In describing Birla’s life as a jute trader, Medha Kudaisya tells us that most of his transactions in buying raw jute or selling the finished product were based on the trader’s word. The commodity fluctuated on a daily basis and there were often great swings in price between morning and evening. Sellers and brokers presented their offers on a rough sheet of paper in the morning but the mills took their decision in the evening. The offers were invariably honoured, no matter how the market fared during the day.

  My friend Raju Kanoria, who also started his life in the jute business and went on to become a president of FICCI, the prestigious chambers of commerce, corroborates that at the East India Jute & Hessian Exchange prices were confirmed on a handshake. He went on to add that a similar system based on trust operated in the case of finished stock. The jute mills held finished goods in stock for buyers against Pucca Delivery Orders made months in advance and the mills never dared to default on them. When Kanoria was eighteen he had the good fortune to meet G.D. Birla whose only advice to young Kanoria was ‘to trust people if you want to succeed’.

  The visible embodiment of sakh is the negotiable financial instrument called Hundi. A centuries-old Bania innovation, the Hundi was akin to a bill of exchange which allowed a merchant in a remote village to remit or receive large sums of money on the basis of trust. For instance, a merchant from remote Gujarat, after selling his raw cotton in Bombay, could minimize risk by receiving a Hundi in lieu of cash. Instead of receiving payment in cash with all its inherent risks during transit, he would take a Hundi for the equivalent amount drawn by the buyer in his favour. The Hundi entitled him to present it to an agent in his village and collect his money there. This made it possible to transfer funds without having to physically transact in cash. While the Hundi began as a remittance facility, it evolved over time as a credit instrument which the holder could use to take a loan. The lender extended the loan amount at a discount on the value of the Hundi and subsequently encashed it at par. In sum, the Hundi became a negotiable instrument.