The house of tata meets the second industrial revolution

Development of labour management system of industrial enterprise in colonial India: A case study of the Tata Iron and Steel Company.. Annual pig iron production before 1929/30 is the sum

The House of

Tata Meets the

Second Industrial Revolution

An Institutional Analysis of Tata Iron and Steel Co in Colonial India

Studies in Economic History

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This monograph is one result of research done over the past seventeen years, duringwhich I have accumulated many debts of gratitude in Japan, India and the UK

guidance to sustaining and developing my work, my deepest debt is without a doubt

to my graduate school academic advisors, Emeritus Professors Yonosuke Hara and

whom have been to me much more than just teachers and supervisors as mentorsand colleagues Professor Hara is a scholar who has always tried, mainly throughpersonal example, to impart to his students the basic values of deep curiosity,

ideas and standard narratives Moreover, the advice he lent from the perspective ofdevelopment economics was instrumental in helping me organize my argumentsabout the development of modern business enterprises It was Prof Nakazato whobeginning in the late 1990s led me intrepidly into the genuine study of Indianhistory, taking time out from his own brilliant research to impart constant advice to

Both his intelligence and tolerance have constantly lighted the way for this long andwinding journey on a quest to write something original and informative about thebusiness and economic history of India under the Raj

I would also like to express my deepest appreciation to Profs Yukio Ikemoto,the late Haruka Yanagisawa, Toru Yamamoto, Yukihiko Kiyokawa, TakashiKurosaki and Keijiro Otsuka, who were always ready with constructive and per-ceptive comments concerning my ideas

February 2000, Dr Sugata Mukherjee, my local academic advisor and former fessor at the Centre for Study in Social Science, Calcutta, gave this rather lost and

con-scientious care, not only in the classroom, but more importantly in the rigours ofsurviving daily life in Calcutta, making my stay both a productive enterprise and apleasant life experience My deep appreciation also goes out to Emeritus ProfessorRajat K Ray of Presidency College and Emeritus Professor Benoy Chaudhuri of

v

Calcutta University, who graciously shared their precious time with me, giving meboth invaluable instruction and informative comments about my work I would like tothank once again everyone I was privileged to learn from and study with while in India.

I would also like to express my thanks to Emeritus Professor Brian Tomlinson

institute, thus providing precious access to otherwise unreachable archival materials

in the UK Without their generous support and understanding, some of the chapters

of the present monograph could never have been completed

Speaking of sources, most of the documentation used to prepare the present

Centre for Excellence in Jamshedpur and the Tata Central Archives in Pune, where

I was a frequent visitor from early on when the idea of this study was still forming

in my mind In Jamshedpur, I incurred a huge debt of gratitude to Mr Sanjay Singh,

Viraf M Mehta and Rajiv Soni, divisional managers of the department, all of whompatiently allowed me to study the invaluable documents under their care for hours

on end I would also like to express my heartfelt gratitude to the Russi Mody

Messrs H Raghunath, Farzan R Heerjee, Purnendu Bose, Manoj Kumar, Ahmad,Hossain, Bappa Mandal and Binoj Kumar While in Pune, I was extremely fortu-nate to have met the kind acquaintance of Messrs Rejendra Prasad Narla and Rajiv

Besides the two Tata Archives, I had the opportunity to consult valuable archivalmaterials at the British Library, the National Archives of India, the MaharashtraState Archives, the Centre of South Asian Studies Archives of University ofCambridge and University of Dundee Archive Service, all of whose staff I owe mydeepest appreciation for their professionalism and consideration

Parts of the present monograph have been previously published in academicjournals and thus would like to thank the Indian Economic and Social History Review,Modern Asian Studies and International Journal of South Asian Studies for their kind

1 Nomura, C (2011) Selling steel in the 1920s: TISCO in a period of transition Indian Economic and Social History Review, 48(1), Copyright © [2011] (SAGE Publications) Reprinted by permission of SAGE Publications; Nomura, C (2014) The origin of the controlling power of managing agents over modern business enterprises in colonial India Indian Economic and Social History Review, 51(1), Copyright © [2014] (SAGE Publications) Reprinted by permission of SAGE Publications; Nomura,C (2012) Why was Indian steel not exported in the colonial period? —The influence of the British standard speci fication in limiting the potential export of Indian steel in the 1930s Modern Asian Studies, 46(5), Copyright © [2012] (Cambridge University Press) Reprinted by permission of Cambridge University Press; Nomura, C.(2010) Development of labour management system of industrial enterprise in colonial India: A case study of the Tata Iron and Steel Company International Journal of South Asian Studies, 3, Copyright © [2010] (The Japanese Association for South Asian Studies) Reprinted by permission of The Japanese Association for South Asian Studies.

Last but not least, I would like to dedicate this monograph to my parents,Tadashi Nomura and Noriko Nomura, and my wife and son, Ikuko and Torao, whohave supported me with limitless love and encouragement throughout the researchand writing stages.

1 Introduction 1

1.1 The Research to Date 2

1.2 A Different Perspective 6

1.3 A Review of the Research to Date on TISCO During the British Colonial Period 9

1.4 Summary 12

References 19

2 The Development of the Modern Business Corporation in 19th Century India: Building the Foundations for the Emergence of TISCO in the 20th Century 23

2.1 Developments in the Modern Business Corporation During the 19th Century 24

2.2 Economic Policy, Transportation Facilities, Energy Sources and Improvements in Market Integration 26

2.3 Capital Transactions: Company Legislation, Stock Exchanges, and Managing Agents 30

2.4 Labour Transactions and the Management Subcontracting System 41

2.5 Limited Growth of the Iron and Steel Industry Under Contradictory Government Policies 47

2.5.1 The Development of the Iron and Steel Industry in India in the Second Half of the 19th Century 47

2.5.2 Changes in Government Economic Policy 50

2.5.3 BISCO’s Failure to Produce Competitive Steel 54

References 56

ix

3 TISCO During the Decade of the 1900s: The Formation Period 61

3.1 The Formation of TISCO Under 19th Century Settings 62

3.1.1 The House of Tata During the 19th Century 62

3.1.2 The Dream of an Iron and Steel Venture and Evolving Government Policy 64

3.1.3 The Search for Minerals 67

3.1.4 Three Blueprints in the Formative Stages of the Tata Iron and Steel Venture 70

3.1.5 Capital Funding 75

3.2 TISCO’s Corporate Structure and Managerial Hierarchy 83

3.2.1 The First Tier: The Shareholders (Board of Directors) 83

3.2.2 The Second Tier: Managing Agents 87

3.2.3 Tier Three: General Manager and Staff 90

3.2.4 Tiers Four and Five: Foremen and Millhands 93

3.3 Conclusion 96

References 100

4 Initial Failure to Produce Competitive Steel, Capitalization Problems and the Institution of an Internal Financing System 103

4.1 Quality and Cost Challenges Facing TISCO During the 1910s 104

4.1.1 Producing the World’s Cheapest Pig Iron 104

4.1.2 Setbacks in Steel Production and Market Segmentation Regarding Quality 108

4.1.3 India’s Strong Preference for BSSS and TISCO’s Response 111

4.2 The High Cost of Steel Conversion 120

4.2.1 Low Labour Productivity 122

4.2.2 Fixed Capital Problems 124

4.3 World War I, GES and Internal Financing 129

4.3.1 The Outbreak of the War and Its Impact on the Iron and Steel Market 130

4.3.2 GES and Its Realization 133

4.3.3 Preparations for Internal Financing 140

4.4 Conclusion 144

References 146

5 Labour Unrest and the Introduction of a Direct Labour Management System 149

5.1 The Outbreak of Labour Unrest at TISCO in the Early 1920s 151

5.2 The Impact of Wartime Inflation on Real Wages 163

5.3 Post-GES Industrial Accidents on the Rise 168

5.4 First Attempts at Direct Labour Management 171

5.4.1 The Labour Employment Bureau 171

5.4.2 The Tata Technical Institute 173

5.5 Labour Union Membership and Its Limitations 178

5.6 Conclusion 180

References 182

6 The Financial Crisis of the 1920s, the Introduction of Tariff Protection and“Imperial Commitment” 183

6.1 The Rapid Drop in Steel Prices 185

6.2 The Impact of Rupee Appreciation on TISCO 186

6.3 TISCO’s Financial Condition During the First Half of the 1920s 189

6.4 Changes in Government Economic Policy After the First World War 191

6.4.1 Protective Tariffs on Steel in Colonial India 192

6.4.2 The Characteristics of Protective Tariffs on Steel 195

6.5 The Positive Effects of Protective Tariffs on TISCO’s Financial Situation 198

6.6 Avoiding Excessive Protection 200

6.7 Conclusion 203

References 204

7 Continuing Labour Unrest, Efficiency Enhancing Schemes and Improvements in Labour Productivity During the Late 1920s 207

7.1 A Brief History of the Labour Movement at TISCO: 1927–1929 209

7.1.1 Phase 1: From the Indian Tariff Board Report Through the Outbreak of Sporadic Strikes, 1926–1928 209

7.1.2 Phase 2: The Lockout of June and July 1928 218

7.1.3 Phase 3: The Beginning of Negotiations with the Appearance of Subhas Bose and His Challenge to Homi’s Leadership, August to September 1928 220

7.1.4 Phase 4: Schism Within the Labour Movement and the Formation of the Jamshedpur Labour Federation, October 1928 to March 1929 222

7.1.5 Phase 5: An Abrupt End to the“Honeymoon” Period and the 1930s 226

7.2 The Positions of Striking Workers Within TISCO’s Corporate Structure 228

7.3 Striker Grievances and the Role of Labour-Management Reorganization? 232

7.4 Working Conditions and the Introduction

of an Incentive-Enhancement Scheme 240

7.5 Conclusion 249

References 249

8 The 1930s: Failure in Export-Oriented Development and Conservative Attitudes Towards Further Expansion 251

8.1 Full Self-sufficiency TISCO Steel Products of the 1930s 252

8.2 Self-sufficiency and Tariff Protection 255

8.3 The Real Reason Behind TISCO’s Reluctance to Venture into Exports 256

8.4 Why TISCO Did Not Produce Non-BSSS Products for the World Market 261

8.5 Some Background 261

8.6 Squabbling Between TISCO and IISCO Over Shares of Stock 263

8.7 Dashed Hopes of Jointly Established Steel Plants in India During the 1930s 265

8.8 Conclusion 267

References 268

9 Conclusion 269

References 272

Bibliography (Unpublished Primary Sources Only) 273

Index 275

AITUC All India Trade Union Congress

xiii

TFP Total factor productivity

Fig 1.1 Domestic pig iron and steel production in colonial India:

Archives Data on the pig iron production of Bengal Iron and

Reed, The Indian year book, Bennett, Coleman and Co Ltd

C P Perin and C M Weld, Perin and Weld Report, 1905, Tata

book, op cit Production data on Indian Iron and Steel Company

ibid Pig iron production data in British India from 1932/33

from Government of India, Statistical abstract for British India

modern western technology, among whom TISCO, BISCO and

IISCO were the leading players Annual pig iron production

before 1929/30 is the sum of the output of these three

are available in Government of India, Statistical Abstract for

company using modern Western technology in colonial India

Annual statement of the sea-borne trade of British India

three different types of data (quantity and value): imported

xv

and exported iron (I), imported and exported steel (S), and a

combination of iron and steel (IS) Unfortunately, more than half

iron and steel were estimated from the third category, assumingthe data in the third category can be divided into iron and steelfigures in the same proportion as the first two categories In

short, estimated iron imports = I + (IS) * ((I)/(I + S)) and

estimated steel imports = S + (IS) * ((S)/(I + S)) Exports

except bazaar rates after 1935, from Reserve Bank of India

(1954), Banking and monetary statistics of India Data on Indianbazaar rates after 1935 from Reserve Bank of India Report on

from Jan to June were generally higher than those from July

(in Rs.) Sources Japanese data from Fujino et al (1979) Indiandata from Sivasubramonian S 2000 Rs./Yen exchange rate datafrom Government of Japan, Statistical abstract of imperial

due to a marked decline in yen-based nominal wages and a

sudden depreciation of the yen against the rupee after 1931

(Rs./Yen decreased from 1.47 in 1931 to 1.05 in 1932

Government of India, Annual Statement of Sea-Borne Trade

of British India Delhi: Department of Commercial Intelligenceand Statistic Data on domestic supply from TISCO, Annual

prices; %) Sources Steel price index data from Government ofIndia Annual Statement of Sea-Borne Trade of British India

Delhi: Department of Commercial Intelligence and Statistic

(Contains data on the total quantity and value Average price

Fig 4.4 Sources of long-term capital of TISCO: 1914–1944 (Rs lakhs).

Source TISCO, Annual reports of TISCO, Tata Steel Archives,

Annual reports of TISCO, Tata Steel Archives (The sharp drop

prices) Sources Price data from Government of India, Index

numbers of Indian price Calcutta: Central Publication Branch

based on data for employees working in the main productive

departments, such as the coke ovens, blast furnaces, the open

figures for 1918/19 based on nine months of available data,

wages between 1918/19 and 1919/20 was probably due to the

suspension of wage payments during the strike lasting more than

chart attached to a letter of Keenan to directors of TISCO, 20

March 1930, Industrial Relations Papers, Files 70, p 130, Tata

the introduction of a direct labour management system

indicates TTI graduate) Sources Keenan to Tata Sons on 15

August 1933, Indianization Programme Papers, Tata Steel

indicates TTI graduate) Source Keenan to Tata Sons on 15

August 1933, Indianization Programme Papers, Tata Steel

Incidentally, Superintendent Mathur also was not categorized

(base year 1916/17) Sources Data on iron ore, limestone,

India (1924b, p 192) Data on iron ore, limestone, dolomite, and

1930, Tariff Board Papers, Files 24, Tata Steel Archives Data

Industrial Relations Papers, File 105, p 39, Tata Steel Achieves

1

employees working at main productive departments, while the

figures for 1924/25–1929/30 are average wages for all TISCO

employees regardless of worksite, excluding contract (unskilled)

Exchange rate indexes from Government of India Statistical

abstract for British India Delhi: Department of Commercial

on iron and steel, cotton, and jute price indexes from

Government of India Statistical abstract of British India Data

The prices ofiron and steel products are calculated as the total value of each

Data on payments to labour for 1924/25 to 1937/38 from

Industrial Relations Papers, Files 105, p 39, Tata Steel

from TISCO, Annual reports of TISCO, Tata Steel Archives.

Sources Data on the import and export of each steel material

from Government of India, Annual Statement of the Sea-BorneTrade of British India (Contains three different sets of data: onefor imported and exported iron (I), one for imported and

exported steel (S), and one for a combination of both iron and

steel (IS) Unfortunately, some steel articles are included only in

therefore estimated from the third set, assuming that the data in

proportion as total imported/exported iron and total

steel articles = (imported IS of combination of both iron and

steel articles such as galvanized sheets and plates) * ((total

imported S)/(total imported I, and total imported S)) Exports

were calculated in the same manner) Delhi: Department of

Commercial Intelligence and Statistic (abbreviated AS below)

Data on domestic production from TISCO, Annual reports of

TISCO, (Steel categories in this source is sometimes

inconsistent with the GoI Annual Statement; therefore, the itemcategories here have been determined in the following manner:)

List of Tables

and France as percentage of total steel imports:

from the four leading steel exporters (Belgium, Germany,

of labour in open hearth departments at TISCO

xxi

Table 4.12 Paid-up capital of the topfive business enterprises in India’s

at TISCO for three selected months in 1927, 1932

Chapter 1

Introduction

The determining factors and process of the growth of modern business corporationsare two of the most salient topics for historians studying the development of moderneconomies Corporate growth requires that transformations occur in such areas astechnology, production equipment and facilities, human resource skills andknowledge, managerial capacity, marketing networks, as well as, relationshipsamong upstream and downstream industries; and the overall success of these

which forms the backbone of the development of modern economies

The research done to date on the growth and development of modern businesscorporations in Western Europe, the United States and East Asia have clearly

development They include the level of market integration in pre-modern/moderneconomies, the relationship between the state and the market, the extent of

informational asymmetry in the market and business entities, and the development

of economic institutions and corporate organization

Modern business corporations have existed in India since the mid-19th century,although their development was limited in scale and scope under the British

various perspectives Two of those perspectives have been particularly emphasized:one focusing on the role of government economic policies in limiting growth; theother considering factor endowment as the essential determining factors

Despite the accumulation of research done from these two perspectives, they

limited, for two different reasons First, both perspectives tend to assume somewhatextraordinary state or market conditions working in the background; and secondly,

1 Following Rungta ( 1970 , Chap 1), we consider that the “modern business corporation” in colonial India is the same as a joint stock company in this monograph.

© Springer Nature Singapore Pte Ltd 2018

C Nomura, The House of Tata Meets the Second Industrial Revolution,

Studies in Economic History, https://doi.org/10.1007/978-981-10-8678-6_1

1

both have been hampered by limited access to primary sources related to businessfirms of the colonial period The present monograph will address these insuffi-ciencies by offering a new perspective developed by such scholars as DouglassNorth and Alfred Chandler since the 1960s and in the process delving into the largecollection of documents related to the Tata Iron and Steel Company (TISCO),which has been carefully preserved in the archives of the House of Tata, the owners

of TISCO

The analysis will proceed on two levels First, we will attempt to measure the

policy and factor endowment, on the growth of modern business corporations incolonial India Then, based on the extensive use of the primary sources preserved in

Based on this two-level analysis, we will attempt to show that colonial

measures had an overall negative effect on the further development of TISCOduring the colonial period Moreover, factor endowment in colonial India cannot

that the pattern is better explained by the development/underdevelopment of

systems that the company developed from the mid-1910s on The analysis willproceed chronologically, rather than thematically, in order to clarify the intercon-

we see as problems plaguing the research to date on modern business corporationgrowth in colonial India, before proceeding to a more in-depth explanation of theperspective to be offered here, including placing that perspective within the context

of the existing research done on TISCO to date The chapter ends with a chapter bychapter summary of the monograph

Just before the Great Depression, India was ranked as the twelfth largest alized country in the world in terms of the value of its manufactured goods, placing

comparatively high level of national production of industrial goods was not

2 Stores are goods purchased by the government for use by its various agencies.

has cited characteristics of modern economic growth to include“a decline in theshare of agriculture and related industries; rises in the shares of manufacturing andpublic utilities; shifts within manufacturing from less to more durable products, and

to a limited extent from consumer to producer goods; increases in the shares ofsome service groups (personal, professional, government) and declines in the shares

example the share occupied by manufacturing in national production, which wasalmost equal to the shares of mining, manufacturing, and public utilities, increasedfrom 31% of the national product in 1839 to 51% in 1879, and in the United

the share of the manufacturing sector in NDP barely reached 7% by the end of the

In sum, the colonial Indian economy did not go through the kind

of general transformation described by Kuznets as modern economic growth Thedevelopment of modern business corporations, which is another marked feature of

The slow character of industrial and corporate development in colonial India hasbeen analysed by numerous scholars, whose diverse views may be broadly cate-gorized into two types, both of which assume, as mentioned above, the extraor-dinary capacity of either the state or markets to coordinate economic transactions

3 The manufacturing sector in colonial India consisted of a group of mills working under the

de finition of a “factory” under the Indian Factory Acts For example, in the case of the Act of

1922, a factory was de fined as an entity that “employed 20 or more persons and which used mechanical power ” (Sivasubramonian 2000 , p 197).

4 Factories employed 584,000 employees in a total workforce of 131.64 million in 1900/01 This figure grew to 2.14 million out of a total workforce of 148.43 million in 1940/41.

5 Here we will focus on the modern business corporation as a driving force of modern economic growth in the manufacturing sector —that is, an “organized (registered)” manufacturing sector in the Indian context —while excluding the sector typically called “the unorganized (unregistered) manufacturing sector ” This does not mean that business corporations in the unorganized sector are not worth investigating As a matter of fact, the unorganized sector played a signi ficant role in modern domestic and global growth (Piore and Sabel 1984 ) However, as is suggested by Chandler, Amatori, Hikino and Colli, big business corporations employing capital intensive technologies were the leading actors in the achievement of modern economic growth (Chandler

1990 ; Chandler et al 1997 ; Amatori and Colli 2011 ) In addition to the modern technology-based textile industry, they were part of the food processing, cigarette making, chemical, petroleum

re fining, primary metals and transportation equipment industries In India, these large corporations have continued to contribute to modern economic growth to some extent since the mid-19th century For example, net value added for the organized manufacturing sector (at 1938/39 prices) grew from Rs 298 million in 1900/1 to Rs 2,173 million in 1947/8, while the net value added for the unorganized manufacturing sector increased from Rs 1,400 million in 1900/1 to

Rs 1,732 million in 1947/8, indicating that growth in the organized sector was more powerful than in the unorganized sector (Sivasubramonian 2000 , pp 293 –4).

Thefirst view, expressed by such scholars as A K Bagchi, R K Ray, ParthaSarathi Gupta and D Banerjee, shares the general understanding that a publicentity, such as a government, has the considerable capacity to lead modern eco-nomic development through broad interventions in economic activities (Bagchi

commercial and industrial policies of the colonial government had been friendlier to

open under colonial non-interventionist commercial and industrial policies tofacilitate the participation of British manufactures in it Such a British-centric at-titude of the colonial state deprived Indian industry of the opportunity to growunder such interventionist policies as tariff protection or priority grants for Indianindustrial producers to supply government stores Even when the government didlevy tariffs temporarily on goods, such as steel or sugar, particularly after the

Appropriatefiscal and monetary policies for the development of Indian industries were notimplemented by the colonial state, because it deemed such measures counter to the

in its global trade balances would have resulted in greater credit default risk in theIndian economy, which had been heavily endowed with British investment capital

The second view asserts that the slow development of the Indian colonialeconomy can be explained mostly by market mechanisms with minimal reference to

pro-ponents of this view, such as M D Morris, emphasize that the role of the state inthe colonial Indian economy, which they measure in terms of the share of gov-

6 This view is also shared by Chandra ( 1966 , 1979 ) and Mukherjee ( 2002 ).

7 Kohli also shares this view, suggesting that during and after the colonial period, the Indian economy failed to grow at a comparable pace with other Asian countries, such as South Korea, because before and after independence, the Indian government was incapable of realizing cohesive central economic planning (Kohli 2004 ).

8 This view was also basically shared by Anstey ( 1929 ).

9 Morris writes, “In no decade between 1872 and 1947 did the state’s annual share of GNP average more than 10%; usually it was less than that ” (Morris 1983 , pp 553 –4).

had few means at hand to address the problem, resulting in lower growth rates for

These two conventional views do indeed deepen our understanding of thepossible determining factors and the process of development, but there are still

that the colonial state could have accelerated industrial development if it hadadopted more protectionist policies cannot remain unchallenged in the light of thehighly deteriorating risk of protective policy over productivity and incentives for

Detailed analysis is required to assess how and to what extent non-interventionistpolicies could have or did hamper industrial development in colonial India.The proponents of the second view attribute much importance to marketmechanisms and factor endowment However, they fail to fully explain why the

the early 20th century and South Korea and China during the second half of that

pro-ductivity, which, in turn, originate largely from different levels of mechanization,

will argue that the problem of what appears to be an uneven working of marketmechanisms in different regions to improve labour productivity should also betaken up from this second view Furthermore, the assumption held by its proponentsthat colonial India had less effective measures for reducing uncertainty in economicactivities and transactions may well be open to debate, since colonial India did in

fol-lowing chapters

Another weakness in the proponents of these conventional views is the fact thatthey rarely utilize the archival records of private corporations in their studies This

is regrettable due to the fact that such records represent a treasure trove of

other economic factors Also by consulting such primary sources, we can betterassess the validity of their assumptions

10 Interestingly, these two views and two representative paradigms of development economics, economic interventionism and economic liberalism, share a basic understanding of the capacity of the state and the market overall Details of the development of the two representative paradigms are surveyed, for example, in Meier ( 1995 ).

11 Negative in fluences of interventionist economic policies have been widely studied For example, see Panagariya ( 2008 , Chap 3).

12 As will be explained in Chap 2 , Japan and India before the early 20th century were, at least, at a similar level of wage-rental ratios.

1.2 A Different Perspective

whom have raised doubts concerning the assumed high capacity of the state ormarkets to coordinate economic activities In addition, the analysis will be basedlargely on previously untapped archival evidence of a private business corporation

in the hope of overcoming the supposed scarcity of primary sources

expressed by Chandler, North, Williamson and others concerning the capacity ofthe state and markets to oversee and coordinate, stemmed from a tendency of theconventional research to overlook the idea that transactions guided by either stateplanning or market mechanisms suffer from risk and informational imperfection.That is to say, economic development is supported by an expanded division of

sup-plemented by measures to reduce the risk and informational imperfection of eachtransaction Therefore, focusing on the implementation of such supplementarymeasures could better elucidate determining factors and processes of economicdevelopment In concrete terms, such measures include terms such as institutions,economic institutions, organization, and corporate organization and are conceivedthrough both public and private initiatives

There are scholars, such as Chandler, for example, who consider that thedevelopment of these measures was particularly crucial for the growth of modernbusiness corporations One of the driving forces of modern corporations is theachievement of economies of scale by drastically expanding business activities, butsuch expansion also tends to complicate production and marketing transactions

transactions, successful modern corporations would not otherwise have experiencedthe kind growth they achieved In this study, we will examine the determiningfactors and processes of the comparatively slow development of modern business

implemented to supervise and coordinate complicated production and marketingtransactions

Change and Economic Performance

Institutions are rules of the game in a society, or, more formally, are the humanly devised constraints that shape human interaction In consequence, they structure incentives in human exchange (North 1990 , p 1) …Institutions reduce uncertainty by providing a structure to everyday life They are a guide to human interaction (ibid., pp 1 –2).

Institutions include any form of constraint that human beings devise to shape human interaction Are institutions formal or informal? They can be either, and I am interested both

in formal constraints —such as rules that human beings devise – and in informal straints —such as conventions and codes of behaviour (ibid., p 4).

follows:

[A] crucial distinction … is made between institutions and organizations Like institutions, organizations provide a structure to human interaction …what must be clearly differentiated are the rules from the players The purpose of the rules is to de fine the way the game is played But the objective of the team within that set of rules is to win the game —by a combination of skills, strategy, and coordination; by fair means and sometimes by foul means Modeling the strategies and the skills of the team as it develops is a separate process from modelling the creation, evolution, and consequences of the rules (ibid., pp 4 –5) [O]rganizations are created with purposive intent in consequence of the opportunity set resulting from the existing set of constraints [such as institutions] ’ (Ibid., p 5).

business corporations, although we must admit that we will occasionally use other

examine how colonial India succeeded or failed in developing such economicinstitutions and corporate organization to reduce the risk and informationalimperfections via both public and private initiatives Then we will analyse to what

modern business corporations in colonial India

colonial India, although they might not have been effective enough to push the

Companies Act, stock exchanges, managing agents, direct and indirect labourmanagement systems and selling agencies are all examples of such institutional

attention For example, in case studies of the textile industry, which Chandler

13 We must admit that it is occasionally dif ficult to distinguish the two in actual situations.

14 Recently economic historians of colonial India have focused on the critical roles played by various sorts of economic institutions and corporate organization when examining the growth of the Indian economy in the colonial period (Chaudhary et al 2016 ; Kranton and Swamy 1998 ,

2008 ; Roy and Swamy 2016 ).

characterized as one of the leading sectors of the First Industrial Revolution,15Chandavarkar and Chakrabarty have shed light on how Bombay cotton mills andCalcutta jute mills developed their labour management systems during the colonial

agency system, which was the pivot point for modern business corporations inpre-independence India in monitoring and coordinating short- and long-term

rela-tionship of institutional and organizational development, or underdevelopment, tothe limited growth of modern business corporations in colonial India Moreover,most existing studies focus on the major industries of the First Industrial Revolutionrather than those of the Second, such as the iron and steel industry taken up in this

additional investment in capital equipment and labour management to obtain stantially greater merits of economies of scale than the industries of the First

institu-tional and organizainstitu-tional innovations introduced by one of the leading modernbusiness corporations in colonial India, TISCO, and how such developments were

Fortunately, the records of this company are preserved at the Tata Steel Archives

in Jamshedpur and the Tata Central Archives in Pune Details about the archivalsources which the author consulted are contained in Bibliography The intensiveuse of these voluminous records, which enable the researcher to analyse the history

15 Chandler cited the nucleus industries of the First Industrial Revolution to include machine-driven textile industries, the iron industry intensively using of coal and the iron-ship building industry, while noting, “[these industries] lacked the potential for economies of scale comparable to that of the industries of the Second Industrial Revolution ” (Chandler 1990 , p 251) Chandler ’s core industries of the Second Industrial Revolution comprised oil re fining, food processing, mass light machinery production, and electrical equipment manufacturing in the case of the United States, and the production of chemical and heavy machinery, including electrical equipment, steel and electronically produced nonferrous metals, in the case of Germany.

16 In addition, several studies clarify the development of economic institutions and corporate organization for modern business enterprises of the First Industrial Revolution in colonial India For example, Goswami ( 1991 ), Gupta ( 2005 ), Morris ( 1965 ) and Kiyokawa ( 1976 , 1983 ) deal with the jute and cotton mill industries.

17 According to the works of Angus Maddison and ‘The Maddison Project’, the Second Industrial Revolution had a bigger impact on per capita GDP growth of late industrialisers than the First Industrial Revolution did.

18 The signi ficance of archival sources based research on colonial India’s business history has been noted by various scholars (Simmons 1984 , 1987 ; Tomlinson 1988 ).

1.3 A Review of the Research to Date on TISCO During the British Colonial Period

1930s The company, however, failed to explore foreign outlets in subsequent years,despite achieving international competitiveness in some types of steel by the early1930s The Tatas became a leading business family in India, exerting wide-ranging

The importance of TISCO in the history of Indian industrialization has promptedextensive research on the company, all of which shares a common tendency to

develop-ments, but avoid investigating the limitations of that development This body of

books written by journalists, and published memoirs of TISCO staff (for example,

aca-demic scholars The second type is the research done by economic historians who

transactions and management decisions Finally, there is research done by historianswho specialize in the history of either TISCO, in particular, or the iron and steelindustry, in general, some of whom have utilized Tata Family archival records in

or the formation of the industrial working class

All of the research contains substantive descriptive and statistical information,

development For example, Bagchi has summarized the major factors determining

[T]he major factors which contributed to the survival of the steel company were (a) the initial advantages enjoyed in terms of location of the plant, (b) the initially favourable attitude of the government to the enterprise, possibly induced by the decline of British steel

in the Indian market, (c) the grant of protection to the industry by the Government of India both as a reward for the loyal service of TISCO in the First World War and as an insurance against another major war, and (d) the steep reduction in costs effected by TISCO during the period 1923-33 (Bagchi 1972 , p 291).

1.3 A Review of the Research to Date on TISCO During the British … 9

The work of Spiegelman (1960) has shown that it was a supply of long termcapital that was essential for TISCO to achieve better economies of scale and toovercome low productivity He suggests that government intervention, such as tariff

have examined how the company developed its labour management system with thepurpose of promoting steady corporate growth

While learning much from this body of research, the present study attempts tomake new contributions in the following six ways To begin with, we will consider

development of its economic institutions and corporate organization The salience

of these institutional measures is statistically shown in a growth accounting ysis, details of which appear in Appendix to this chapter According to this analysis,

explained by capital formation, while another 40% is explained by total factorproductivity (TFP), which represents the extent of improvements in technological

archival sources will show that the growth of capital formation and improvements

developments in capital and labour transactions, such as the introduction of an

indirect labour management system by a direct system from the end of the 1910s on

direct labour management systems, various types of economic institutions andcorporate organization, such as the Indian Companies Act, the formation of stockexchanges and the managing agent system, jointly contributed to enhanced capital

com-plementary relationships between such economic institutions and corporate

(enacted in the 1850s) and the stock exchanges and managing agents system formedduring the latter half of that century complemented each other during the earlydevelopment of the modern business corporation, in general, and TISCO, in par-

and direct labour management system successively developed at TISCO during the

institutional measures; and we intend to delve deeper than ever into this issue here.Next, we will also take up the subject of the durability and transformation of theabove-mentioned economic institutions and corporate organization, some of whichoriginated in the 19th century among modern business enterprises belonging to theFirst Industrial Revolution While adhesiveness, or path dependency, was a keyword to describe institutional measures from the 19th into the 20th century, we will

the 20th century to suit the needs of burgeoning heavy industries of the SecondIndustrial Revolution We will additionally see that occasionally, adhesiveness toinformal/personal connection-based institutional settings place strict limitations onfurther progress of modern business enterprises.

Fourth, we will pay particular attention to the development of the labour

organization Contrary to assertions made by Bahl and Datta, we will try to evaluate

the workforce itself, we will focus on the shortage of individuals capable of

inadequately examined in the scholarly research to date While the effects of tariffprotection and rupee appreciation policies, for example, have received widescholarly attention, the impact of other colonial policies on Indian industry has not

quality of steel that could be procured by public agencies, mining regulations and

steel products by the early 1930s That being said, government policy also

period

19 Issues such as working class consciousness have been intensively studied by historians of subaltern groups, who tend to see failure on the part of India ’s industrial labour force to form a functioning united class consciousness, leading to the subsequent failure to organize trade unions capable of successfully negotiating with corporation owners and managers In her detailed study of TISCO ’s labour force during the colonial period, Bahl opposes this view, writing, “The TISCO workers did become class conscious in the sense of their awareness of a common pattern of life, disposition and actions Based on this consciousness they challenged the prevailing social relations and struggled to change them In this sense they were successful in creating a class consciousness, though not in a revolutionary sense ” (Bahl 1995 , p 405).

20 Emphasizing a persistent divisiveness existing among the workers at TISCO, we disagree with Bahl ’s assessment, while at the same time recognizing that this divisiveness gradually narrowed over time We think it more constructive to clarify in detail how this slowly narrowing divisiveness persisted under the in fluence of various aspects, such as factor endowment, government policy and international/domestic market conditions.

21 Roy ( 2010 , Chap 5) has noted that such a persistent human resource scarcity was a general feature of labour management systems employed by modern business corporations in colonial India.

1.3 A Review of the Research to Date on TISCO During the British … 11

Finally, we do not adhere to the notion that the history of TISCO under colonial

dif-ficulties in expanding its production output, particularly after the 1930s Here, we

umbrella of tariff protection that continued from the 1920s on, the management ofTISCO began losing incentive to enhance productivity, while growing moreintrospective after the 1930s, thus forming an important context for the develop-ment of an inward-looking cum interventionist policy after national independence

This monograph is composed of nine chapters, including this Introduction

emergence of TISCO, which arose during the second half of the 19th century andincluded government laissez faire economic policies, the factor endowment situa-tion of colonial India, transportation networks, energy sources, progress in marketintegration internally and externally, and economic institutions and corporateorganization pertaining to primary input transactions, such as capital and labour.Here, we show that personal connections of those involved in transactions helpedset up the institutional measures, although we will suggest that these personalconnection-based institutional settings occasionally limit the further progress of thetransactions We will also suggest that India had developed several conditions inpreparation for First Industrial Revolution industries such as textile manufacturing,but was not yet prepared for Second Industrial Revolution industries, like steelproduction

after the turn of the century from two perspectives First, after reviewing the history

the basic requirements of the iron and steel business, such as hiring a technical staffand procuring iron ore, coal, capital and labour Secondly, we suggest that some ofthe personal connection-based institutional measures in place since the mid-19th

terms of price and quality during the early 1910s In this same chapter, we alsoanalyze in detail the corporate structure of TISCO during the colonial period,

structure made up of shareholders, managing agents, general managers, lower

a rigid division of labour This rigidity would become one of the causes of seriouscommunication failures that arose between management and labour and among the

detailed analysis of corporate structure would be one important approach instudying the business history of colonial India, but such a methodology has rarely

been applied Thus hopefully this chapter will act as a both an incentive and model

optimally sized capital transactions was one of the root causes of the high cost andlow quality of TISCO steel during the early 1910s An opportunity to overcome

capital on the stock exchanges, which had functionally deteriorated during the war

efforts, also greatly expanding its labour force during that decade This inordinateexpansion of human resources would result in a dysfunctional labour managementsystem, a serious deterioration in labour productivity and a series of strikes thatplagued TISCO between 1920 and 1928 Faced with serious negative TFP growth

indirect labour management system, in which the recruitment and management ofmost of the labour force was subcontracted to foremen or lower management stafflevel persons who utilized their personal connections to recruit and manage theirlabours The result was a system whereby the company took direct responsibilityfor the management of the bulk of the workforce Here we describe how thetransition did not go smoothly, resulting in continued large-scale labour unrest

half of the 1920s, the dysfunctional labour management system led to workersattempting to form trade unions However, these efforts also encountered major

management and highly diverse workforce The continuing labour management

within the context of such events in the early part of the 1920s as the severe steel

the protective tariff policy that was introduced by the government in 1924, whichrequired the company to improve its labour productivity by further re-organizing itslabour management system

tariff protection, had decided that a better organized labour management systemwould result in increased labour productivity; however, progress did not proceedsmoothly, due to the lack of intermediaries between company management and theworkforce, as well as a breakdown in communication among the workers themselves

On the other hand, the author shows that despite such problems, TISCO succeeded ingradually improving labour productivity and TFP from the mid-1920s on

The 8th chapter turns to TISCO during the 1930s, which during thefinal years ofthe previous decade had achieved steady growth due to complementary institutional

said, the 1930s marked a gradual slowdown in growth and development due tostagnating capital formation According to Chandler, modern business corporationsare able to achieve continuous growth by four methods: horizontal integration,vertical integration, geographical expansion to distant areas, and/or the develop-

decade, TISCO did not attempt to speed up its expansion Why TISCO did notexpand production capacity to achieve further development is the question exam-

Appendix: A Growth Accounting Analysis of TISCO

During the Colonial Period

Let us begin with a review of the iron and steel market of colonial India, in which

period There were three leading pig iron-producing companies in India up through1936/37, the Bengal Iron and Steel Company (BISCO), the Indian Iron and Steel

steel-producing company up to the mid-1930s

period, increasing its saleable steel production from 20,000 tons in 1912/13 to

1912/13 to 66% in 1936/37

exceeded 100% during the early years of the 1920s Despite such an early

only 10% during that same time This discrepancy did not diminish substantiallyduring the whole period represented by the data This indicates that Indian pig ironwas highly competitive internationally as early as the early 1920s; however, Indian

22 Minor contribution of Mysore Iron Works to pig iron production is excluded due to ability of data.

unavail-steel completely failed to achieve the same status prior to the mid-1930s Since pigiron is the essential input for the production of steel ingot and other steel products,pig iron and steel are typically produced in a set of continuous production processes

hearth furnace for steel ingot production), in which regard TISCO was no

exploiting the availability of cheap pig iron to expand its steel production

In brief, the history of TISCO during the colonial era is the story of the

reduce the discrepancy between the market competitiveness of pig iron and steel

by the beginning of the 1930s, while further improvement suddenly halted from themid-1930s on

the 20th century? Growth accounting analysis helps answer the question Followingthe work of R M Solow, growth accounting analysis has been broadly utilised byeconomic historians and economists to clarify the causes of growth at various levels

of economic activity In growth accounting analysis, the proximate sources ofeconomic growth are explained by the growth of inputs, such as labour, physicalcapital and land, and the productivity of those inputs The factors of production areweighted to provide measures of total factor inputs Under a neoclassical frame-work, factor income shares usually take the form of weights The portion of growthattributed to changes in TFP is the residual that is unexplained by changes in factorinputs Normally, the residual is considered to represent technological and man-

development of a modern business corporation like TISCO over time

We begin with the standard Cobb-Douglas production function and competitiveassumptions,

DY/Y ¼ DA/A þ SKDK/K þ SLDL/Lwhere Y, K, and L indicate net value added, real gross block capital, and size of theworkforce, and SK and SL are the factor income shares of capital and labour,

factors such as economies of scale, technological innovation, improvements in

com-puted as

DA=A ¼ DY=Y  SKDK=K  SLDL=L

includes such factors as economies of scale, technical innovation, improvements in

corporate organization, the results imply that various successive efforts to increase

Fig 1.1 Domestic pig iron and steel production in colonial India: 1909 –1937 (1,000 tons) Sources Tata Iron and Steel Company (TISCO) figures from Annual reports of TISCO, Tata Steel Archives Data on the pig iron production of Bengal Iron and Steel Company (BISCO) figures from 1917/18 to 1929/30 from Reed, The Indian year book, Bennett, Coleman and Co Ltd BISCO figures before 1917/16 from an interpolation of production data in 1904 and 1917/18.

1904 figures from C P Perin and C M Weld, Perin and Weld Report, 1905, Tata Steel Archives 1917/18 figures from Reed, The Indian year book, op cit Production data on Indian Iron and Steel Company (IISCO; founded 1918) figures from 1919/20 to 1929/30 from ibid Pig iron production data in British India from 1932/33 from Government of India, Statistical abstract for British India.

1 There were a few pig iron producers in colonial India using modern western technology, among whom TISCO, BISCO and IISCO were the leading players Annual pig iron production before 1929/30 is the sum of the output of these three companies For pig iron production after 1932/33, annual figures are available in Government of India, Statistical Abstract for British India 2 TISCO was virtually the only steel-producing company using modern Western technology in colonial India prior to the mid-1930s; thus, the steel production figures in Fig 1.1 are equal to that of TISCO

23 Wolcott ( 2016 ) has also noted exceptionally high growth in TISCO ’s productivity during the colonial period based on an analysis of the company ’s labour productivity According to her analysis, the labour productivity growth achieved by other leading industrial ventures in colonial India, such as cotton mills, was much less than that of TISCO.

Fig 1.2 Net demand1for pig iron and steel: 1909 –1937 (1,000 tons) Sources Import and export figures 2 from Government of India, Annual statement of the sea-borne trade of British India Domestic production figures from the same sources as for Fig 1.1 1Net demand = total domestic production + imports − exports 2 Annual statement contains three different types of data (quantity and value): imported and exported iron (I), imported and exported steel (S), and a combination of iron and steel (IS) Unfortunately, more than half of the data are included in the third type Individual figures for iron and steel were estimated from the third category, assuming the data in the third category can be divided into iron and steel figures in the same proportion as the first two categories In short, estimated iron imports = I + (IS) * ((I)/(I + S)) and estimated steel imports = S + (IS) * ((S)/(I + S)) Exports were calculated in the same manner

Fig 1.3 Pig iron and steel self-suf ficiency ratios (%) Sources Same as Figs 1.1 and 1.2

In addition, growth infixed capital formation, whose income share was 0.45 on

Period 1, suggesting that both capital formation and TFP are two leading sources ofthe growth of the modern business corporation

The analysis of sub-periods is enlightening During Sub-period 1 (1913/14 to1916/17), TISCO began producing pig iron and steel under the protection naturally

(15/26) of growth during this sub-period can be explained by a high rate of TFP

Table 1.1 Results of TISCO growth accounting analysis a (%): 1913/14 –1939/40

Period Annual growth rate of

net value added in 1913/14 prices G(Y)

Annual growth rate

of real gross block capitalbG(K)

Annual growth rate

of labourcG (L)

Annual growth rate of TFP G(TFP) Period 1 (1913/14 –

105, pp 39 –40, Tata Steel Archives; for 1938/39–1939/40 from Annual reports of TISCO, Tata Steel Archives for the years in question

a G is annual growth rate, Y is net value added in 1913/14 prices, L is workforce size only, K is real gross block capital, TFP is “total factor productivity’’

b Real gross block capital is calculated by nominal gross block of 1913/14 + P

(annual growth of nominal block capital)/(steel price de flator) Real gross block capital stock data has been used instead of net gross block capital stock data without consideration of wear on production capacity This is because net block capital stock gives too sharp a decline in output capacity

c Labour income share among value added is assumed to be consistent throughout the period at 0.55, which is the 17-year average

growth, whilefixed capital formation explains 31% [(18 * 0 45)/26] This was theinitial period of product development when TISCO increased yield through theprocess of learning-by-doing.

formation to attain economies of scale during this time, it failed to expand

formation was completely offset by negative TFP growth and resulting smallincreases in annual growth rates

Efforts to overcome such failures in coordination and monitoring became leadingsources of growth in productivity in Sub-periods 3 and 4 (1923/24 to 1932/33), as

the transformation effected in the labour management system which contributed tosuch high growth

The gradual, robust development of TISCO, however, slowed during Sub-period

5 (1933/34 to 1937/38) The production of saleable steel increased almost 50%

with the increasing ratio of domestic demand, but the market occupancy ratio of

increase appreciably during Sub-period 5 Why did TISCO not expand productioncapacity to achieve further development and obtain a higher market share? This is

an interesting question since during a decade when its was enjoying considerable

3.5 and 23.3% during the 1920s), TISCO had plenty of capacity to raise block

pos-sible causes for the growth/stagnation of the company during the colonial period,

follow

References

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Anstey, V (1929) The economic development of India London: Longmans, Green.

Bagchi, A (1972) Private investment in India, 1900 –1939 Cambridge: Cambridge University Press.