Business History: Managing Agency System in India

• Introduction to Business History, IPM Term IX, Sessions 1 to 5 from IIM Indore

Managing Agency System in India

• A managing agent was a person, firm, or company responsible for the overall or significant part of a company's management, deriving authority from an agreement with the company.
• The managing agency system emerged following the Charter Act of 1833.

The Charter Act, 1833

• The Charter Act of 1833 occurred amid significant changes in Great Britain due to the Industrial Revolution.
• Laissez-faire was adopted as the government's principle toward industrial enterprises.
• The liberal movement led to the Reform Act of 1832.
• The Parliament was called upon to renew the Charter in 1833, reflecting an atmosphere of liberalism and reforms.

Industrial Revolution

• New manufacturing processes were implemented in Europe and the United States between 1760-1820 and 1840.
• The Industrial Revolution transformed business, economics, and overall society.
• These transformations continue to have a major impact, shaping the world today.
• Pre-industrialization, most European countries had economies largely based on farming and artisan crafts.

Laissez-Faire

• Laissez-faire is an economic philosophy of free-market capitalism that opposes government intervention.
• Originating in the 18th century, laissez-faire theory suggests economic success is more likely with less government involvement in business.
• The concept of Laissez-Faire leads to:
  • Improved business environment
  • Economic growth and development
  • Minimal or no interference from the government in business
  • Economic matters or individuals
• Benefits of Laissez-faire include:
  • Removal of bureaucracy
  • Stimulated corporate innovation and creativity
  • Encourages business autonomy
  • Reduced market competition
  • Freedom from regulations, trade restrictions, corporate taxes, tariffs, and subsidies
• Criticism of Laissez-faire include:
  • Income and wealth inequality
  • Creation of monopolies due to fewer or no government rules
  • Represents the affluent section of society
  • Prevents from new players entering the market
  • Results in lower wages, higher product prices, and limited supply

The Charter Act, 1833

• The Charter Act of 1833 is also known as the Saint Helena Act 1833 or the Government of India Act 1833.
• The control of the island of Saint Helena was transferred from the East India Company to the Crown.
• The British Parliament passed it to renew the Charter Act, 1813 of the East India Company and renewed the charter of the EIC for 20 years.
• Resulting from Laissez-Faire and the Continental system of Napoleon Bonaparte, the Company's trade monopoly, excluding tea and trade with China, was ended.

Continental System/Continental Blockade

• Napoleon's strategy aimed to weaken Britain's economy by prohibiting trade between Britain and states occupied by or allied with France.
• Aside from subduing Britain, the blockade was meant to establish French industrial and commercial dominance in Europe.
• The embargo pushed British merchants to seek new markets aggressively and engage in smuggling with continental Europe.

The Charter Act, 1833 & the Office of Governor General

• The Governor-General of Bengal became the Governor-General of India with exclusive legislative powers.
• Bombay and Madras presidencies were deprived of their legislative powers.
• The Governor-General of India was granted civil and military powers.
• For the first time, the Government of India had authority over the entire territorial area possessed by the British in India.
• Lord William Bentick was the First Governor-General of India.

The Charter Act, 1833 & the Governor General Council

• The members of the Governor General's council, reduced by Pitt's India act 1784, was increased to 4.
• The fourth member had limited powers and could not act as a member of the council except for legislative purposes.
• The Governor General Council had authority to amend, repeal, or alter laws across India for any British, Foreigner, or Indian.

The Charter Act, 1833 & the Administrative Body (EIC)

• The East India Company's activities as a commercial body ended and became purely administrative.
• The company held the territories in India "in trust for his Majesty, his heirs and successors".

The Charter Act, 1833 & the Open Civil Services

• The Act attempted to introduce open competition for Civil Services selection.
• It stated Indians should not be debarred from holding company positions, offices, and employment.
• This attempt was nullified after opposition from the Court of Directors.
• The concept of a merit-based modern Civil Service in India was recommended in Lord Macaulay's Report in 1854.

The Charter Act, 1833 & the Legal British Colony

• The Act allowed the English to settle freely in India, which effectively legalized British Colonization of India.
• Slavery was ended and Act provided for the mitigation of slavery in India.
• The British Parliament abolished slavery in Britain and all its possessions in 1833.

The Charter Act, 1833 & the Law Commission

• The Indian Law Commission was established in 1833, with Lord Macaulay as its first chairman.
• The Act provided that laws made in India should be presented in the British Parliament.

Managing Agency System in India & the East India Company

• The former servants of the East India Company established operations as general merchants, trading and gaining knowledge of the local markets.
• These traders used their connections with British monopolies to act as agents, creating a pipeline through which British Capital flowed to India.

Managing Agency System in India & British Agencies

• These agencies were branches of British monopolies linked with British banks.
• The masters of these agencies were the financial oligarchy in Britain, who used the system for the formation of private British capitalist enterprise in India and simultaneously subordinating it to England's interests.
• While British agencies exploited and enslaved India, Indian agencies manifested Indian capital to seek independent enterprise within large-scale industry.

Carr, Tagore, and Company Facts

• The Managing Agency System refers to an agency house that promoted and then acquired management of a joint stock company.
• Carr, Tagore, and Company promoted and managed the Calcutta Steam Tug Association.
• It established the first equal business partnership between an Indian and a European.
• William Carr departed for England in 1836.
• Tagore brought an insolvent merchant, William Prinsep, into his firm.

The Prinseps - William H. Prinsep (1794–1874)

• William H. Prinsep was a merchant with Palmer & Co. and Carr, Tagore and Company.
• Founder of the Union Bank, Bengal Tea Association, Bengal Coal Company.
• Owned the Bengal Salt Company.
• Served as Sheriff, Fort William, Calcutta, and was an amateur artist.
• Retired to Hyde Park Place, London.

The Prinseps - James Prinsep (1799–1840)

• James Prinsep was a numismatist, linguist, artist, scholar, and Secretary of the Asiatic Society.
• Son of John Prinsep and brother of Henry Thoby Prinsep and William Prinsep.
• The executor of James Prinsep's estate, William Prinsep, died at sea returning to England in 1840.

Carr, Tagore and Company (cont.)

• On January 2nd, 1836, Tagore purchased India's largest coal mine for Rs. 70,000.
• The firm promoted a series of coal-utilizing enterprises, leading India into the age of the steam engine.
• On February 20th, 1836, Tagore purchased the steamer Forbes
• On February 26th, 1836, the joint stock company, Calcutta Steam Tug Association, was formed.
• The association planned to operate the Forbes.

Calcutta Steam Tug Association

• Provided for the Association's continued existence for 5 years, with shareholder meetings twice a year to approve accounts and declare dividends.
• The initial capital was Rs. 200,000, divided into Rs. 1000 shares each.
• No shareholder could hold more than twenty shares.
• Voting was structured: 1 vote per share, 2 for 5 shares, 3 for 10 shares, and 4 for 20 shares.
• There were five annually elected directors.
• Carr, Tagore and Company were appointed secretaries, earning 5% of the steamers' net earnings.
• Launched its second tug in October 1896.
• In September 1837, decided to double the capital by issuing 200 new shares to purchase two additional tugs.
• From its establishment, the Steam Tug Association annually paid more than 10%.

The Calcutta Steam Tug Association operated in:

• Steam tugging and river steamboats
• Tea
• Coal mining
• Railway promotion.
• Tagore formed the association instead of operating the Forbes as an adjunct of his agency house because capital was needed.
• The Forbes cost Rs. 110,000, and the plan was to purchase a second steamer for Rs. 90,000.
• The joint stock form freed Tagore from the full risk of the new enterprise and were promoted for civic and economic improvement in Calcutta.
• Dwarkanath's coal was consumed by the Steam Tug Association which also used his docking facilities.
• The investing public grew averse to allowing new joint stock companies to fall into agency houses hands and were still tainted by the scandals of their defunct predecessors.
• The European mercantile community pursued their commercial interests and expected relatively quick returns on their investments.
• Investing merchants tended to depart from partners once they had accumulated his fortune.

Carr, Tagore, and Company Stats Between 1836 and 1846

• Six joint stock companies were promoted and managed.
• Only two were able to bequeath: the Steam Tug Association and the Bengal Coal Company.
• Two lost control.
• Two failed.
• The world-wide commercial crisis of 1847 caused the the Union Bank to fail in December 1847.
• On January 15th, 1948, Carr, Tagore and Company closed its doors.
• On August 1st, 1846, Dwarkanath Tagore died in London.
• Tagore's former partners, D.M. Gordon and James Stuart tried to retain the secretaryship of the Association and was challenged by a faction of shareholders.
• Captain Engledue accused the Association was worth Rs. 300,000.
• Tagore's old partners won by 47 votes to 12.

Bengal Coal Company Details

• In 1844 Carr, Tagore and Company formed the Bengal Coal Company
• 700 of the 1100 shares each valued at Rs. 1000 ,were received
• In 1848 Gordon and Stuart claimed that as successors had a perpetual right to the management
• They were freely elected and agreed to relinquish the principle of perpetual management.
• The mine had been relatively well run with dividends rising from 6% in 1840s to 12% in 1850s.
• In 1867, Gordon and Stuart retired from business
• In 1908, the Bengal Coal Company hired Andrew Yule and Company as managing agent.

Indian General Steam Navigation Facts

• Mackenzie began to operate the company exclusively for the Steam Tug Association and Carr, Tagore and Company.
• Mackenzie purchased equipment and stores from Steam Tug with no receipts for the expenditures.
• The questionable price paid for coal, purchased from Bengal Coal Company (39% of the total operating expenses)
• Mackenzie was dismissed in July and September 1847
• Gordon, Stuart and Company attempted but failed to rally shareholders in England in 1850.
• Shareholders voted and chose Kilburne and Company in 1873.

Bengal Tea Association

• In February 1839, and William Prinsep called a meeting of prospective shareholders to form it.
• The prospectus was called for a capital of Rs 1,000,000 divided into 2000 shares.
• Carr, Tagore and Company members owned or controlled 475 shares.
• On February 12, a group of capitalists in London founded the Assam Company with plans to raise five times the capital of the Bengal Tea Association.
• Cockrell and Company declined joining
• On May 30th, 1830 the Bengal Tea Association agreed to merge with the Assam Company. 1911-91 Industrial Statistics are:
• In November 1841, William Prinsep, the original secretary, left for England, with a warning against the committe for excess spending given.
• The Calcutta directors were men of business whose hands are so full of other duties.
• In 1866 Calcutta Committee was abolished.
• In 1867 Kilburne and Company was employed as the Calcutta agents.

Bengal Salt Company

• In 1838, George Prinsep founded the Bengal Salt Company.
• The factory manufactured salt by "solar evaporation".
• In March 1839, after George Prinsep died and William Prinsep acquired the position of provisional secretary of the company.
• In 1839, the government monopolized the wholesale distribution of salt; William Prinsep assessed the shareholders Rs. 90 per share to keep the company afloat.
• In 1841, The solar salt process had to be abandoned due to heavy rains.
• By 1848: The Bengal Salt Company was disbanded.

Calcutta Steam Ferry Bridge Company

• T.J.Taylor of the Madras Army with Carr, Tagore and Company founded the Calcutta Steam Ferry Bridge Company in 1839.
• In September 1839, T.J.Taylor died and William Prinsep replaced him as secretary.
• the Company applied to the Government for the privilege of running steam ferries across the Hughli for 21 years.
• Sold shares did not sell and the expense of equipment was more than contemplated.
• Lack of Governemnt permission and Government financial aid lead to lack of viability

Business Operations

• Joint stock enterprises had financial advantage.
• Ran enterprises for their own benefit.
• Exploited their control of purchasing for profit and integrated their industries vertically and horizionzontally

Stages of Industrialization

• Pre-war Period (1850-1914)
• World War I (1914-1918)
• Inter-War Period
• World War II (1939-1945)

Pre-War Period Overview

• Large-scale industry took off from the middle of the 19th Century.
• Capital partly came from foreign investments and internal accumulation from the first wave of commercialization in India.
• Large-scale industry rose across the world, including Europe and North America.
• India, as as resource-rich colony, with a potential candidate.
• Steam ships and the telegraph brought the continents closer.
• On November 17th, 1869 the Suez Canal was opened
• During the American Civil War (1861-1865), American cotton supplies were cut off from Britain's textile industry which lead to:
  • Boom in cotton prices
  • Cotton-mill industry in western India
  • Cotton spinning and weaving
  • Jute spinning and weaving and a
  • Rise of Bombay and Ahmedabad

World War I: (1914–1918) Industrial Overview

• India was not directly involved in the war while Britain was
• WW1 caused an increase in shortages worldwide and cut of machinery, raw materials, and chemicals coming from Britain or Germany.
• Had excess demand for Indian goods.
• Affected handloom weaving, which relied on English yarns.
• Industries gained: Steel, Jute and Cotton mills.
• Massive shortage-induced inflation.
• By the end of the war, industrial production had expanded with conditions fertile for new industry starts.
• This lead to growing nationalist discontentment & Induced changes in government policies given purchase of industrial goods for defence, railways, or administrative use was earlier heavily dependent on Britain.
• Government was perceived as indifferent and hostile to Indian entrepreneurship
• In 1905: Indian Industrial Conference

The Inter-War Period

• The Fiscal Autonomy Convention (1919), accepted India's pursuit of a independent tariff policy
• The Indian Industrial Commission (1916 – 1918) and Indian Fiscal Commission (1921 – 1922) promoted the use of protective tariffs that provided the protected industry had natural advantage with the objective to stress the government responsibility in matters of technical and scientific advancement.
• Financial limitations where a constraint while After 1921 the provinces gained responsibility were even more constrained.
• In the first half of 1920 industries like sugar, iron & steel, cement, paper and woollen was established and expanded.
• Infrastructure was improved: such as railways, electricity extended into the interior.
• New factories came up in Coimbatore, Kanpur, Madras and Jamshedpur with increased competitions in textiles & steel with Japan coming on the scene.
• Steel over supply happened while the market grew in Jute and profit margins were low.
• 1925 – 1935 saw a mild or deep depression worldwide with cheap imports and failing competition against Japan in textiles industry .
• The Nationalist argument stated: overvalued currency made imports cheaper. The resulting overvalued rupee made the import of machinery cheaper and increased investments but other key industries were saved by tariff protection with the exception of Jute.
• During the Inter-War Period:
  • Depression did not have a deep impact with the real income from industry remaining constant.
  • Money-wages were fairly flexible with Doward rigidity of money wages.
  • Keynes did not hold industries by and large with increased debt.
  • A great deal of mortgaged assets and sales transpired.
  • Banking seems to have benefited and credit availability increased

World War II: (1939–1945) Industrial Overview

• The World war Developed excess demand and prices soared.
  • Indian industry by 1939 was more diversified and better equipped to do so then in 1914 with increasing industrial incomes.
  • Massive scarcity of food, was a a bad time for labour and labour-intensive occupations.
  • Industry and heavy chemicals: large-scale industry continued to depend on importing capital goods with technicians brought overseas.

Indian Industrial Overview Statistics (Various Indicators)

• Industrial Indicators
  • Organization
  • Technology
  • Regulation
  • Vintage
  • Examples
• Includes insights into:
  • Large-scale industry
  • Small-scale industry Modern Traditional

1911-91 Industrial Statistics are:

• British India
  • Princely State statistics
• Indian Union -Total Employment and Industrial Employment
• Industrial Organizations -Large Scale industry -Small Scale industry

Bombay Mid 19th Century

• Transferred commercial capitalism into Industrial capitalism:
  • Trading, commerce and administrative jobs where depended Parsees their livelihood.
  • Parsees where some of the principals traders and Shipbuilders.
  • Parsees engaged with commerce with foreign countries .
  • Parsees opened themselves to new influences and Values, India from Persia in the 18 century.
  • Parsees Closed their doors and traded needed services as Middlemen to deals with the Indian populations with commercial activity of their current capital.

Jamsetji Nusserwanji Tata's Industrial Endeavors

• Tata came from a family of priests well for who has well over twenty-five generations.
• The Pasree religion does not include a conflict between priestly duties and the business profession.
  • Shipper,china trader export cotton Opium, and import copper, brass and gold.
• In1839 Jamsetji was born.
  • 1867: British invaded Abyssinia.
  • Tata has has commissariat contract.
  • JN purchased and old factory for clothing: textile Alexandria mill (1869) + oil factories.
• Export of mangos to Europe in cold storage steamers
• Preservation of perishable food items in an ice house
• Development of sericulture in Mysore
• 1871 Saw JN left for London.
• The Central India Spinning Weaving and Manufacturing Company in 1874 was started by IN in Naur
• By 1886, Swadeshi Mills in Bombay started
• 1903, Advance Mills in Ahmedabad created a new device for that was yet to be introduced in the US with simpler machinery. Several Labor welfare measure as was managing the reporting salary directors Tata.

Tata's Legacy

• The launched Taj mahal hotel
• The required high finance and skilled labor to establish an iron and steel industry and would not be favored.
• Saw in his report: ""Report on the Financial Prospects of Iron-working in the Chanda district"" and the need for ore suitable to build into Iron and steel but for mining purposes.
• Tata approached the chief commissioner of the Central Provinces for mining concessions, but achieved nothing waiting for roughly twenty years!.
• Tata saw that chanda deposit was unsuitable as coal due to the smelting.
• Passed down to His son, Dorabji to create hydroelectric power and J NTata and the two Englishman to a translate the idea into reality.

Tata's steel endeavors:

• In 1911 TISCO production 100k for tons was registered and In 1910 the Sakchi and in 1907 formally established.
• Launched with Andhra valley for power supplies and with India Power to cement cement.
• In 1919 TISCO produced 73%, In 1934 in the 1940 and 73 for cement sector assembly.
• TELCO was launched to produce wagons and other components for the in 1945 railways, 1954 to collaborated was with motor vehicle TELCO to produce a large amount.
• Daimler Rata
• R d passed away in 1993 with the suggestion to nationalize for the chairman