The Hindu Business Line : The India business story

Knowledge of client's business is one of the first musts for any professional accountant. For a bigger picture, here is The Concise Oxford History of Indian Business, by Dwijendra Tripathi and Jyoti Jumani (www.oup.com). The focus of the book is on the modern phase of Indian history after the transition to an industrial economy, as the prologue informs.

Begin from `the turn of the eighteenth century,' when all that the country had as physical infrastructure were "a few trade routes and river-ways which were serviceable only during some parts of the year". Trade faced many hurdles. One was `the danger of theft and violence' en route.

Another obstacle to trade was the `the existence of an intricate web of customs barriers, or chowkies', which had multiplied `largely on account of political fragmentation'. Even goods that transited `within the jurisdiction of a single ruler' bore levies at multiple points. "Provincial rulers, local chieftains, and even powerful zamindars could extract imposts for goods passing through their territories."

In a chapter titled `Merchants during the Imperial crisis', one reads how large amounts, required to finance military expeditions, were raised as loans from moneylenders and traders. "In many cases, profits from money-lending were reinvested in trade, creating a multiplier effect." Peshwas fought many wars, and the moneylenders were "an integral part of the administrative apparatus, very often accompanying the army to attend to the financial need of the campaigns."

In due course, `most of the districts' had to be mortgaged, or their revenue farmed out. When the British annexed Ahmedabad in 1817, `following the Peshwa rout in the last and decisive Anglo-Maratha war,' it seems the moneylenders rejoiced, because of `the financial embarrassment of the Gaikwads and their inability to honour the shroffs' claims against them.'

There were bankers for the British too, to finance `military operations against the Indian rulers'. Interestingly, "through the north Indian bankers, the British gradually gained access to the countrywide hundi network to transmit funds from the Calcutta region to Bombay, perennially in deficit, to finance the wars of conquest in western India."

Read about the `agency houses' such as Forbes & Co in Mumbai, "the forerunner in the public loan systems that the Government launched in 1813", and Chase and Parry in Madras, which "bought and sold navy bills, and traded in Madeira wines."

A detrimental consequence of high interest for financing was inadequate attention by companies to building reserves and amortising assets. "Some enlightened managements like Graves Cotton & Co had a clear-cut policy of building up a dividend equalisation fund that enabled them to declare dividends at a uniform rate of 10 per cent every year, and J. N. Tata was probably the first mill owner to allow for depreciation while calculating the net profits." Wish the Institute of Chartered Accountants of India highlighted such nascent best practices.

Wonderful read.

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