The second and final part of the article on Marwari enterprise and its present-day relevance.
Having a business presence spanning much of the subcontinent is a feature that has distinguished the Marwaris from other prominent trading communities.
The latter — the Parsis, Sindhis, Gujarati Banias/Jains, Lohanas and Bhatias, Nattukottai Chettiars, Punjabi Khatris/Aroras or Muslim Memons, Khojas and Bohras — have historically had more geographically concentrated inland operations: Some of them had predominantly overseas mercantile or investment interests.
The ability to draw on extensive pan-Indian bazaar connections made a huge difference during the interwar years, more so with the Great Depression. It tilted the balance against foreign trade, in favour of those whose business activity was largely domestic-focused.
The Marwaris were the ones to make the most out of the disruption of normal trading channels during wartime. The speculative profits earned from fatka and teji-mandi transactions — that rose manifold at the numerous commodities exchanges formed in this period — they partly funnelled into industry. That also included buying out the units of beleaguered European managing agencies, to whom they were previously brokers and financiers.
Exemplifying this trajectory was Ramkrishna Dalmia, arguably the greatest Marwari businessman before Independence.
Originally from Chirawa in Jhunjhunu district of Rajasthan’s Shekhawati region, Dalmia went to Kolkata to join his maternal uncle’s bullion business. In no time, the ambitious young man had launched his own operations, starting with gambling on silver prices during World War-I, followed by shares at the Calcutta Stock Exchange and trading in commodities.
Dalmia’s industrial debut was through a sugar mill in 1933 at a site in Bihar’s Rohtas district. Over time, it also housed plants manufacturing cement, asbestos, paper, board, vanaspati, sulphuric acid, chlorine, caustic soda and bleaching powder. These units — besides a foundry, central workshop, power house and a rail feeder line connecting the 3,800-acre complex — became part of a single entity, Rohtas Industries, that may have well anticipated today’s much-touted Special Economic Zones.
But Dalmia did not stop there. In 1937, he challenged the quasi-monopoly of ACC — a combine of 10 cement firms formed only the year before — by commissioning plants at Karachi and Dandot (both now in Pakistan), Charkhi Dadri (Haryana) and Trichy (Tamil Nadu), apart from the Rohtas Industries facility. The ensuing price war lasted till 1941, when the World War boom lifted sentiments.
From speculation, trading and manufacturing, Dalmia’s next port of call was finance. In 1943, he promoted Bharat Bank Ltd. This, along with two insurance ventures (Bharat Insurance and Bharat Fire & General Insurance), provided a captive fund pool, especially for the takeover binge that Dalmia indulged in over the next few years.
The companies he bought — with interests as diverse as flour-milling, sugar, jute and cotton textiles, civil aviation, railways, coal mines, electricity supply and newspapers — belonged mainly to British concerns like Govan Brothers, Andrew Yule and Bennett Coleman, whose owners weren’t too bullish on business prospects in Independent India. By 1948, he also had controlling stakes in Punjab National Bank.
Ramkrishna Dalmia’s case is illustrative on three counts. The first, of course, is the raw drive and venturous spirit of a first-generation entrepreneur it highlights.
The second is the role of kinship and community ties, a valuable resource pool not available to every aspiring tycoon. Dalmia benefited from learning the ropes under an uncle, well entrenched in Kolkata’s Marwari trading circles. Even his initial foray into sugar was with a big land-owning relative in Bihar. All the subsequent ventures involved his brother, Jaidayal and son-in-law, Sahu Shanti Prasad Jain – under the ‘Dalmia-Sahu Jain’ group banner.
The third element was the extent to which Dalmia’s business operations remained grounded in the bazaar. The ‘speculative’ phase did not end with putting up factories. Rather, the proclivity for playing the market — including diverting public issue proceeds from one company to finance the activities of others, or booking fictitious losses on share transactions between group entities — only rose with time.
The above three facets — inherent risk-taking disposition, ability to leverage community resources, and overwhelming bazaar orientation even after entry into the ‘modern’ industrial sphere — can be said to apply to Marwari enterprise broadly, with their associated strengths and weaknesses.
In Dalmia’s case, his adroit speculative skills eventually got the better of him. As details emerged of how deposit and premium monies from banks and insurance firms controlled by the group were used to fund acquisitions — of Bennett Coleman, among others — he had to suffer the ignominy of a two-year jail term in 1956, just like Satyam Computers’ Ramalinga Raju some five decades later.
Even before that, the Dalmia-Sahu Jain empire was partitioned among his brother’s and son-in-law’s families, for reasons still shrouded in mystery and intrigue. Many of the erstwhile group’s concerns, including Rohtas Industries, have since folded up, while the surviving ones, save Bennett Coleman, cannot really be considered in the top league.
The route ahead
That links up with two major limitations of Marwari, or even Indian, enterprise in general.
The first has to do with entrepreneurial zeal and ‘animal spirits’, which, in most family-owned businesses, tends to disappear along with the founding patriarchs. The Bangurs, Modis, Singhanias, Shrirams and Dalmias represent this trend in varying degrees.
The same possibly holds for the Birlas as well: Among its various factions today, only the $ 40 billion Aditya Birla Group can measure up to, if not surpass, the vision of G.D. Birla. And that happened because his grandson, Aditya Vikram, chose to tread an independent path. In the seventies — when most others, particularly Marwaris, were happy doing business domestically — he established viscose staple fibre, spun yarn, carbon black and palm oil refining units all across South-East Asia. The latter’s son, Kumar Mangalam, has gone one step further, in aiming for global leadership in the industries where the group is active: Viscose and acrylic fibre, carbon black, aluminium and cement. That calls for no less ambition and animal spirits, even if more evolved and organised than innately present in first-generation entrepreneurs.
The second limitation flows from an inability to transcend the bazaar that provided the basis for capital accumulation for most Marwari firms (unlike for say, an Infosys or Dr Reddy’s Laboratories). But innovativeness in trading and financing – where there’s probably not much JP Morgan, Goldman Sachs or even Walmart can teach our Banias — is inadequate and certainly cannot substitute for knowledge of the factory floor and production processes.
Weakness on the latter front may not have mattered in a closed domestic economy, where the trader-industrialist’s choice of industry was dictated more by the profits it offered and the availability of licenses at that point of time. It was both theoretically and practically feasible, then, to straddle diverse industries and operate suboptimal capacity plants using borrowed, outdated technologies. These could be ‘managed’ even from a distance, without going too much into the technical details of manufacture.
The partha system of accounting devised by the Marwaris was perfectly suited for this purpose. Under it, every group firm provided informed estimates of how much it cost to manufacture a given quantity of their product. Based on it and the expected profits corresponding to the sale price, the promoters sitting at their gaddis in Kolkata or Mumbai compared the unit’s actual daily earnings to the normative partha cash flows. If substantial deviations occurred, a trouble-shooter was sent to check out the ground situation and report back. In extreme cases — rare in a protected economic environment — it led to a shake-up of the plant team or closure of the business.
The above detached approach has limited relevance in the post-liberalisation era, where the success of Lakshmi Mittal, Kumar Mangalam Birla or Anil Agarwal owes largely to their focusing on particular industries and building global-scale state-of-the-art plants.
While their in-born talents in buying and selling or having connections from relatives already in business will always stand the Marwaris in good stead, that by itself is not enough in today’s world where other things are increasingly mattering more.
Read also: The Marwari business model-I