The house of tata meets the second industrial revolution

Studies in Economic History

Chikayoshi Nomura

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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Chikayoshi Nomura

The House of Tata Meets
the Second Industrial
Revolution
An Institutional Analysis of Tata Iron
and Steel Co. in Colonial India

123


Chikayoshi Nomura
Graduate School of Literature
and Human Sciences
Osaka City University
Osaka, Osaka
Japan

ISSN 2364-1797
ISSN 2364-1800 (electronic)
Studies in Economic History
ISBN 978-981-10-8677-9
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Preface

This monograph is one result of research done over the past seventeen years, during
which I have accumulated many debts of gratitude in Japan, India and the UK.
Among all these “creditors” who have, over the years, lent their expertise and
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
Nariaki Nakazato at the University of Tokyo’s Institute of Oriental Studies, both of
whom have been to me much more than just teachers and supervisors as mentors
and colleagues. Professor Hara is a scholar who has always tried, mainly through
personal example, to impart to his students the basic values of deep curiosity,
creativity and the courage to take positions fearlessly and firmly against mainstream
ideas and standard narratives. Moreover, the advice he lent from the perspective of
development economics was instrumental in helping me organize my arguments
about the development of modern business enterprises. It was Prof. Nakazato who
beginning in the late 1990s led me intrepidly into the genuine study of Indian
history, taking time out from his own brilliant research to impart constant advice to

what he probably considered just another floundering student of colonial India.
Both his intelligence and tolerance have constantly lighted the way for this long and
winding journey on a quest to write something original and informative about the
business 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, Takashi
Kurosaki and Keijiro Otsuka, who were always ready with constructive and perceptive comments concerning my ideas.
During my fulfilling life abroad studying in India for two years beginning in
February 2000, Dr. Sugata Mukherjee, my local academic advisor and former professor at the Centre for Study in Social Science, Calcutta, gave this rather lost and
confused Japanese student, with no one else to turn to, such unselfish help and conscientious care, not only in the classroom, but more importantly in the rigours of
surviving daily life in Calcutta, making my stay both a productive enterprise and a
pleasant life experience. My deep appreciation also goes out to Emeritus Professor
Rajat K. Ray of Presidency College and Emeritus Professor Benoy Chaudhuri of
v


vi

Preface

Calcutta University, who graciously shared their precious time with me, giving me
both invaluable instruction and informative comments about my work. I would like to
thank 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
and Professor Lawrence Sáez at University of London’s School of Oriental and
African Studies for allowing me the affiliation and credentials necessary at their
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

work is contained in the Tata Steel Archives located at Tata Steel’s Russi Mody
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,
then director of Tata Steel’s Corporate Communications Department, and Messrs.
Viraf M. Mehta and Rajiv Soni, divisional managers of the department, all of whom
patiently 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
Centre’s faculty and library staff, who assisted in my daily work there, including
Messrs. H. Raghunath, Farzan. R. Heerjee, Purnendu Bose, Manoj Kumar, Ahmad,
Hossain, Bappa Mandal and Binoj Kumar. While in Pune, I was extremely fortunate to have met the kind acquaintance of Messrs. Rejendra Prasad Narla and Rajiv
Adangale, without whose knowledge I could not have figured out the House of
Tata’s capitalization strategy during the 1910s.
Besides the two Tata Archives, I had the opportunity to consult valuable archival
materials at the British Library, the National Archives of India, the Maharashtra
State Archives, the Centre of South Asian Studies Archives of University of
Cambridge and University of Dundee Archive Service, all of whose staff I owe my
deepest appreciation for their professionalism and consideration.
Parts of the present monograph have been previously published in academic
journals 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
understanding in allowing me to reprint portions of articles I published there.1
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 specification 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.


Preface

vii

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, who
have supported me with limitless love and encouragement throughout the research
and writing stages.
Osaka, Japan

Chikayoshi Nomura


Contents

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1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1 The Research to Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.2 A Different Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3 A Review of the Research to Date on TISCO During the British
Colonial Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 The Development of the Modern Business Corporation
in 19th Century India: Building the Foundations
for the Emergence of TISCO in the 20th Century . . . . . . . . . . .
2.1 Developments in the Modern Business Corporation During
the 19th Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Economic Policy, Transportation Facilities, Energy Sources
and Improvements in Market Integration . . . . . . . . . . . . . . . .
2.3 Capital Transactions: Company Legislation, Stock Exchanges,
and Managing Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Labour Transactions and the Management Subcontracting

System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.5 Limited Growth of the Iron and Steel Industry Under
Contradictory Government Policies . . . . . . . . . . . . . . . . . . . .
2.5.1 The Development of the Iron and Steel Industry
in India in the Second Half of the 19th Century . . . . .
2.5.2 Changes in Government Economic Policy . . . . . . . . . .
2.5.3 BISCO’s Failure to Produce Competitive Steel . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Contents

3 TISCO During the Decade of the 1900s: The Formation Period . .
3.1 The Formation of TISCO Under 19th Century Settings . . . . . . .
3.1.1 The House of Tata During the 19th Century . . . . . . . . .
3.1.2 The Dream of an Iron and Steel Venture and Evolving

Government Policy . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1.3 The Search for Minerals . . . . . . . . . . . . . . . . . . . . . . . .
3.1.4 Three Blueprints in the Formative Stages of the Tata Iron
and Steel Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1.5 Capital Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 TISCO’s Corporate Structure and Managerial Hierarchy . . . . . .
3.2.1 The First Tier: The Shareholders (Board of Directors) . .
3.2.2 The Second Tier: Managing Agents . . . . . . . . . . . . . . .
3.2.3 Tier Three: General Manager and Staff . . . . . . . . . . . . .
3.2.4 Tiers Four and Five: Foremen and Millhands . . . . . . . .
3.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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4 Initial Failure to Produce Competitive Steel, Capitalization
Problems and the Institution of an Internal Financing System . .
4.1 Quality and Cost Challenges Facing TISCO During
the 1910s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1.1 Producing the World’s Cheapest Pig Iron . . . . . . . . . .

4.1.2 Setbacks in Steel Production and Market Segmentation
Regarding Quality . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1.3 India’s Strong Preference for BSSS and TISCO’s
Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2 The High Cost of Steel Conversion . . . . . . . . . . . . . . . . . . . .
4.2.1 Low Labour Productivity . . . . . . . . . . . . . . . . . . . . . .
4.2.2 Fixed Capital Problems . . . . . . . . . . . . . . . . . . . . . . .
4.3 World War I, GES and Internal Financing . . . . . . . . . . . . . . .
4.3.1 The Outbreak of the War and Its Impact on the Iron
and Steel Market . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3.2 GES and Its Realization . . . . . . . . . . . . . . . . . . . . . . .
4.3.3 Preparations for Internal Financing . . . . . . . . . . . . . . .
4.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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146

5 Labour Unrest and the Introduction of a Direct Labour
Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.1 The Outbreak of Labour Unrest at TISCO in the Early 1920s .
5.2 The Impact of Wartime Inflation on Real Wages . . . . . . . . . .
5.3 Post-GES Industrial Accidents on the Rise . . . . . . . . . . . . . . .

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. . . 104
. . . 104
. . . 108


Contents

5.4 First Attempts at Direct Labour Management . .
5.4.1 The Labour Employment Bureau . . . . .
5.4.2 The Tata Technical Institute . . . . . . . . .
5.5 Labour Union Membership and Its Limitations .
5.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xi

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6 The Financial Crisis of the 1920s, the Introduction of Tariff
Protection and “Imperial Commitment” . . . . . . . . . . . . . . . .
6.1 The Rapid Drop in Steel Prices . . . . . . . . . . . . . . . . . . . .
6.2 The Impact of Rupee Appreciation on TISCO . . . . . . . . .
6.3 TISCO’s Financial Condition During the First Half
of the 1920s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.4 Changes in Government Economic Policy After the First
World War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.4.1 Protective Tariffs on Steel in Colonial India . . . . .
6.4.2 The Characteristics of Protective Tariffs on Steel . .
6.5 The Positive Effects of Protective Tariffs on TISCO’s
Financial Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.6 Avoiding Excessive Protection . . . . . . . . . . . . . . . . . . . .
6.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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7 Continuing Labour Unrest, Efficiency Enhancing Schemes
and Improvements in Labour Productivity During
the Late 1920s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1 A Brief History of the Labour Movement at TISCO:
1927–1929 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1.1 Phase 1: From the Indian Tariff Board Report Through
the Outbreak of Sporadic Strikes, 1926–1928 . . . . . . . .
7.1.2 Phase 2: The Lockout of June and July 1928 . . . . . . . .
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 . . . . .
7.1.4 Phase 4: Schism Within the Labour Movement
and the Formation of the Jamshedpur Labour Federation,
October 1928 to March 1929 . . . . . . . . . . . . . . . . . . . .
7.1.5 Phase 5: An Abrupt End to the “Honeymoon” Period
and the 1930s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.2 The Positions of Striking Workers Within TISCO’s Corporate
Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3 Striker Grievances and the Role of Labour-Management
Reorganization? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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xii

Contents

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 . . .
8.1 Full Self-sufficiency TISCO Steel Products of the 1930s . .
8.2 Self-sufficiency and Tariff Protection . . . . . . . . . . . . . . . .
8.3 The Real Reason Behind TISCO’s Reluctance to Venture
into Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.4 Why TISCO Did Not Produce Non-BSSS Products
for the World Market . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.5 Some Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.6 Squabbling Between TISCO and IISCO Over Shares
of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.7 Dashed Hopes of Jointly Established Steel Plants in India
During the 1930s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
Bibliography (Unpublished Primary Sources Only) . . . . . . . . . . . . . . . . . 273
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275


Abbreviations

AITUC
ART
BISCO
BISF
BIW
BSE
BSSS
CF
CID
CSAA
DIP
DSP
EES
GES

GMC
GOI
GoUK
GSI
IISCO
IR
ITB
JLA
JLF
MSA
NAI
NBSSS
OIOC
PWR
TCA

All India Trade Union Congress
Annual report of TISCO, stored at Tata Steel Archives
Bengal Iron and Steel Company
British Iron and Steel Federation
Bengal Iron Works
Bombay Stock Exchange
British Standard Specification Steel
Company’s Formation
Criminal investigation department
Cambridge South Asian Archive
Deputy Inspector General
District Superintendent of Police
Efficiency enhancement system
Great Extension Scheme

General Managers’ Correspondence
Government of India
Government of UK
Geological Survey of India
India Iron and Steel Company
Industrial Relations
Indian Tariff Board
Jamshedpur Labour Association
Jamshedpur Labour Federation
Maharashtra State Archives
National Archives of India
Non-British Standard Specification Steel
Oriental and Indian Office Collections
Perin and Weld Report, stored at Tata Steel Archives
Tata Central Archives

xiii


xiv

TFP
TISCO
TSA
TTI

Abbreviations

Total factor productivity
The Tata Iron and Steel Company

Tata Steel Archives
Tata Technical Institute


List of Figures

Fig. 1.1

Fig. 1.2

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. 2TISCO 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 . . . . . . . . . . . . . . . . . . . . . . .
Net demand1 for pig iron and steel: 1909–1937 (1,000 tons).
Sources Import and export figures2 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. 2Annual statement contains
three different types of data (quantity and value): imported

16

xv


xvi

Fig. 1.3
Fig. 2.1

Fig. 2.2

Fig. 4.1

Fig. 4.2
Fig. 4.3

List of Figures

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 . . . . . . . . . . . . . . . . . . . . .
Pig iron and steel self-sufficiency ratios (%). Sources Same
as Figs. 1.1 and 1.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rates in India and in Japan (%) Sources Data on India,
except bazaar rates after 1935, from Reserve Bank of India
(1954), Banking and monetary statistics of India. Data on Indian
bazaar rates after 1935 from Reserve Bank of India. Report on
currency and finance. Data on Japan from Toyo Keizai, Keizai
nenkan, Tokyo: Toyo Keizai Shinposha. 1India’s bank rates
from Jan. to June were generally higher than those from July
to Dec. 2India’s hundi rates in June were generally equivalent
to the average annual rates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominal average daily wages in India and Japan: 1900–1937
(in Rs.) Sources Japanese data from Fujino et al. (1979). Indian
data from Sivasubramonian S 2000. Rs./Yen exchange rate data
from Government of Japan, Statistical abstract of imperial
Japan. 1The sharp drop in wages in Japan during the 1930s was
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

and 0.79 in 1933) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
British standard steel and non-British standard steel:
1919–1938 (1,000 tons). Sources Data on imports from
Government of India, Annual Statement of Sea-Borne Trade
of British India. Delhi: Department of Commercial Intelligence
and Statistic. Data on domestic supply from TISCO, Annual
reports of TISCO, Tata Steel Archives, Jamshedpur, India . . . .
Ratio of British standard specification steel to total BSSS
and non-BSSS: 1919–1938 (%). Sources Same as Fig. 4.1 . . . .
Changes in steel price indexes: 1919–1938 (in 1914/15
prices; %). Sources Steel price index data from Government of
India. 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
was calculated by dividing value by quantity). NDP deflator
data from Sivasubramonian, S. 2000 . . . . . . . . . . . . . . . . . . . . .

..

17

..

17

..

34

..

35

. . 113
. . 113

. . 131


List of Figures

Fig. 4.4

Fig. 4.5

Fig. 4.6

Fig. 5.1

Fig. 5.2

Fig. 5.3

Fig. 5.4

Fig. 5.5

Fig. 5.6

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

Source TISCO, Annual reports of TISCO, Tata Steel Archives,
Jamshedpur, India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of each long-term capital source to total gross block
capital: 1914–1944 (%) Sources TISCO, Annual reports of
TISCO, Tata Steel Archives, Jamshedpur, India . . . . . . . . . . . .
TISCO’s financial condition: 1912–1939 (%). Sources TISCO,
Annual reports of TISCO, Tata Steel Archives (The sharp drop
in the ratios of gross profit to capital and to revenue in 1928/29
were due to the worker strikes during that year) . . . . . . . . . . . .
Price indexes in Singhbhum district: 1910–1929 (in 1910
prices). Sources Price data from Government of India, Index
numbers of Indian price. Calcutta: Central Publication Branch.
Primary product deflator from Sivasuburamonian (2000) . . . . .
Indexes of average nominal wages at TISCO and deflators:
1912–1923 (in 1912/13 prices). Sources Nominal wage data
from Government of India (1924a, pp. 109–11). Prices index
and NDP deflator data from sources in Fig. 5.1. 1Calculated
based on data for employees working in the main productive
departments, such as the coke ovens, blast furnaces, the open
hearth, blooming mill, 28’ mill, and bar mills. Average wages
includes total wage payments plus bonuses. 2Wage and bonus
figures for 1918/19 based on nine months of available data,
adjusted to 12 months. 3The almost 15% reduction in nominal
wages between 1918/19 and 1919/20 was probably due to the
suspension of wage payments during the strike lasting more than
one month in 1919/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average nominal wage indexes of TISCO production
departments: 1912–1923 (in 1912/13 prices). Sources Same
with Fig. 5.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average real wage indexes1 of TISCO production departments:

1912–1923 (in 1912/13 prices). Sources Same with Fig. 5.2.
1
The nominal wages adjusted by the NDP deflator
(primary sector). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TISCO’s organization in the early 1920s. Sources Organization
chart attached to a letter of Keenan to directors of TISCO, 20
March 1930, Industrial Relations Papers, Files 70, p. 130, Tata
Steel Archives and other sources. 1Positions newly created with
the introduction of a direct labour management system
in the early 1920s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle and low level management staff from the blast furnace
in 1933 (bold indicates covenanted employee; underline
indicates TTI graduate). Sources Keenan to Tata Sons on 15

xvii

. . 141

. . 142

. . 143

. . 164

. . 165

. . 166

. . 166

. . 172


xviii

Fig. 5.7

Fig. 6.1

Fig. 6.2

Fig. 6.3

Fig. 7.1

Fig. 7.2

List of Figures

August 1933, Indianization Programme Papers, Tata Steel
Archives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Middle and low level management staff of the open hearth
furnace in 1933 (bold indicates covenanted employee; underline
indicates TTI graduate). Source Keenan to Tata Sons on 15
August 1933, Indianization Programme Papers, Tata Steel
Archives 1Mentioned in the source as “Indian staff on a salary
of more than Rs. 250/- per month… not ex-technical institute
graduates” nor covenanted labour, for that matter.
Incidentally, Superintendent Mathur also was not categorized
as covenanted labour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Steel production input price indexes in India: 1916–1929
(base year 1916/17). Sources Data on iron ore, limestone,
dolomite, and coal for 1916/17–1921/22 from Government of
India (1924b, p. 192). Data on iron ore, limestone, dolomite, and
coal for 1925/26–1929/30 from “the statement showing the
prices of raw materials charged in the cost sheets,” 28 October
1930, Tariff Board Papers, Files 24, Tata Steel Archives. Data
on wages for 1916/17–1922/23 from Government of India
(1924b, pp. 109–11). Data on wages for 1924/25–1929/30 from
Industrial Relations Papers, File 105, p. 39, Tata Steel Achieves.
1
Figures for 1916/17–1922/23 are average wages paid for
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)
workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Price and exchange rate indexes in India: 1923–1933 (base year
1923/24). Sources NDP deflators from Sivasubramonian (2000).
Exchange rate indexes from Government of India. Statistical
abstract for British India. Delhi: Department of Commercial
Intelligence and Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average import tariff rates (Estimated by custom revenue
divided by total imports) in India: 1871–1991 (%). Source
Mitchell (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Price indexes: 1925–1939 (base year 1930/31, %). Sources Data
on iron and steel, cotton, and jute price indexes from
Government of India. Statistical abstract of British India. Data
on NDP deflator from Sivasubramonian (2000). 1The prices of
iron and steel products are calculated as the total value of each
imported item divided by the total quantity of those items . . . .

TISCO’s cost of labour and profits: 1924–1937(%). Sources
Data on payments to labour for 1924/25 to 1937/38 from
Industrial Relations Papers, Files 105, p. 39, Tata Steel
Archives. Data on total expenditure, gross profit, and capital

. . 176

. . 176

. . 186

. . 188

. . 193

. . 239


List of Figures

Fig. 8.1

Fig. 8.2

xix

from TISCO, Annual reports of TISCO, Tata Steel Archives.
1
Includes wages and bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Net domestic demand (Estimated using the equation, net

domestic demand = imports + domestic production – exports)
for specific steel items in India: 1909–1937 (1,000 tons).
Sources Data on the import and export of each steel material
from Government of India, Annual Statement of the Sea-Borne
Trade of British India (Contains three different sets of data: one
for 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
the third category. Individual figures for such articles were
therefore estimated from the third set, assuming that the data in
that set can be divided into a specific steel item data in the same
proportion as total imported/exported iron and total
imported/exported steel. Thus, estimated imports of specific
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 item
categories here have been determined in the following manner:)
Tata Steel Archives. (Abbreviated ART below) . . . . . . . . . . . . . . . 253
Self-sufficiency (Self-sufficiency = domestic supply of each
item/total net demand for that item) of each specific steel item
in India: 1909–1936 (%). Sources Same with Fig. 8.1 . . . . . . . . . 254


List of Tables

Table 1.1
Table 3.1
Table 3.2
Table 3.3
Table 4.1
Table 4.2
Table 4.3
Table 4.4
Table 4.5
Table 4.6

Table 4.7

Table 4.8
Table 4.9
Table 4.10
Table 4.11

Results of TISCO growth accounting analysis (%):
1913/14–1939/40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TISCO underwriters as of 1906 . . . . . . . . . . . . . . . . . . . . . .
List of TISCO shareholders and voting rights
distribution: 1926 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Categorized listings of subjects discussed between general
managers and Tata Sons: 1920, 1926, 1932 . . . . . . . . . . . . .
International comparison of unit costs, input prices,
and input coefficients of pig iron for selected years . . . . . . .
Share of TISCO’s sales to leading customers (%) . . . . . . . .
Standard specification for steel rails . . . . . . . . . . . . . . . . . . .
Difference in price between BSS Steel and non-BSS steel:

bars and plates (Rs./ton) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
World production of steel (national shares and yearly
output): 1914–1937 (%; million tons) . . . . . . . . . . . . . . . . .
Non-BSS steel imported from Belgium, Germany,
and France as percentage of total steel imports:
1913–1937 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of British steel imports among steel imports
from the four leading steel exporters (Belgium, Germany,
Britain, and the United States): 1913–1938 (%) . . . . . . . . . .
Share of rails and heavy structural steel dispatched from
TISCO according to quality type: 1924–1930 (%) . . . . . . . .
Pre-world War I cost comparison between TISCO
and a US maker (Rs./ton) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steel ingot variable cost comparison between TISCO
and a US maker (Rs./ton) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparison of average weekly wages and coefficients
of labour in open hearth departments at TISCO
and in the United States (Rs.) . . . . . . . . . . . . . . . . . . . . . . .

..
..

18
77

..

79

..

89

. . 106
. . 109
. . 110
. . 112
. . 116

. . 116

. . 117
. . 118
. . 121
. . 122

. . 123

xxi


xxii

Table 4.12
Table 4.13
Table 5.1
Table 5.2
Table 5.3
Table 5.4
Table 6.1

Table 6.2
Table 6.3
Table 6.4
Table 6.5
Table 6.6
Table 6.7
Table 7.1
Table 7.2
Table 7.3
Table 7.4
Table 7.5

Table 7.6
Table 8.1
Table 8.2
Table 8.3

List of Tables

Paid-up capital of the top five business enterprises in India’s
top private sector industries in 1910 (in lakhs Rs.) . . . . . . .
Average ratio of dividends to face value in India’s
private sector: 1914–1919 (%) . . . . . . . . . . . . . . . . . . . . . . .
Nominal monthly wages for low level management staff
and skilled railway and mill workers in India . . . . . . . . . . .
Nominal average monthly wages plus bonuses at TISCO
according to production department: 1912–1923 . . . . . . . . .
Tata Technical Institute student body . . . . . . . . . . . . . . . . . .
List of the 1920 Strike “ringleaders” . . . . . . . . . . . . . . . . . .
Average domestic selling price per ton of finished TISCO

steel: 1919–1933 (Rs.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TISCO’s long-term capital to fixed assets ratios:
1920–1923 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated tariff rates on major British steel
categories (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Differences in TISCO and British steel prices:
1925–1932 (Rs. per ton). . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional revenue provided to TISCO by protective
tariffs: 1925–1932 (in lakhs Rs.) . . . . . . . . . . . . . . . . . . . . .
TISCO’s estimated profit and loss account without
tariff protection: 1923–1932 (in Rs. lakhs) . . . . . . . . . . . . . .
Possible impacts of tariff protection on TISCO’s fiscal
composition/stability: 1924–1932 (%) . . . . . . . . . . . . . . . . .
Officers of the Jamshedpur Labour Federation: 1930 . . . . . .
Officers of the Jamshedpur Labour Association: 1927 . . . . .
Summary of statement of the number and subjects
of TISCO worker complaints: August 1929 . . . . . . . . . . . . .
Workforce size and labour productivity at
TISCO: 1925–1938 (tons, tons per capita) . . . . . . . . . . . . . .
Percentage of bonus payments in monthly remuneration
at TISCO for three selected months in 1927, 1932
and 1937 (Rs., %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Labour productivity of main productive departments at
TISCO: 1932–1937 (base year 1932/33, %) . . . . . . . . . . . . .
Prices of British steel rail in the UK and India
and TISCO steel rail: 1924–1932 (Rs.) . . . . . . . . . . . . . . . .
Differences between prices TISCO steel and British steel
at Indian ports before tariff: 1925–1932 (%) . . . . . . . . . . . .
UK steel exports: 1913–1938 (1,000 metric tons; %) . . . . . .

. . 128
. . 135
. . 167
. . 169
. . 175
. . 180
. . 184
. . 191
. . 196
. . 197
. . 199
. . 200
. . 201
. . 230
. . 231
. . 235
. . 241

. . 244
. . 248
. . 255
. . 256
. . 258


Chapter 1

Introduction

The determining factors and process of the growth of modern business corporations

are two of the most salient topics for historians studying the development of modern
economies. Corporate growth requires that transformations occur in such areas as
technology, production equipment and facilities, human resource skills and
knowledge, managerial capacity, marketing networks, as well as, relationships
among upstream and downstream industries; and the overall success of these
transformations leads to impressive rises in the productivity of individual firms,
which forms the backbone of the development of modern economies.
The research done to date on the growth and development of modern business
corporations in Western Europe, the United States and East Asia have clearly
shown that a plethora of tightly interconnected factors have influenced corporate
development. They include the level of market integration in pre-modern/modern
economies, the relationship between the state and the market, the extent of
demographic change, factor endowment of a specific country at a specific time,
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
colonial regime,1 a topic that has received substantial scholarly attention from
various perspectives. Two of those perspectives have been particularly emphasized:
one focusing on the role of government economic policies in limiting growth; the
other considering factor endowment as the essential determining factors.
Despite the accumulation of research done from these two perspectives, they
have proved insufficient to fully account for why and how corporate growth was
limited, for two different reasons. First, both perspectives tend to assume somewhat
extraordinary state or market conditions working in the background; and secondly,

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.

1

© Springer Nature Singapore Pte Ltd. 2018
C. Nomura, The House of Tata Meets the Second Industrial Revolution,
Studies in Economic History, />
1


2

1

Introduction

both have been hampered by limited access to primary sources related to business
firms of the colonial period. The present monograph will address these insufficiencies by offering a new perspective developed by such scholars as Douglass
North and Alfred Chandler since the 1960s and in the process delving into the large
collection 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
influence of macro- and micro-economic factors, such as government economic
policy and factor endowment, on the growth of modern business corporations in
colonial India. Then, based on the extensive use of the primary sources preserved in
the Tata archives, we will conduct an in-depth analysis of the influence of economic
institutions and corporate organization on the efficiency of input and output
transactions during TISCO’s development.
Based on this two-level analysis, we will attempt to show that colonial government economic policies, such as tariff, exchange rate and store2 purchase
measures had an overall negative effect on the further development of TISCO
during the colonial period. Moreover, factor endowment in colonial India cannot
sufficiently explain TISCO’s development pattern. On the contrary, we will suggest

that the pattern is better explained by the development/underdevelopment of
institutional measures, such as the internal financing and direct labour management
systems that the company developed from the mid-1910s on. The analysis will
proceed chronologically, rather than thematically, in order to clarify the interconnected roles of various factors in the development of TISCO at specific points in
time, while taking up a specific theme in each chapter.
The remaining sections of the present chapter will first present a review of what
we see as problems plaguing the research to date on modern business corporation
growth in colonial India, before proceeding to a more in-depth explanation of the
perspective 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 by
chapter summary of the monograph.

1.1

The Research to Date

Just before the Great Depression, India was ranked as the twelfth largest industrialized country in the world in terms of the value of its manufactured goods, placing
between Australia and the Netherlands (League of Nations 1945, p. 84). But this
comparatively high level of national production of industrial goods was not
accompanied by an overall transformation of India’s economic structure. Kuznets

2

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


1.1 The Research to Date

3

has cited characteristics of modern economic growth to include “a decline in the
share of agriculture and related industries; rises in the shares of manufacturing and
public utilities; shifts within manufacturing from less to more durable products, and
to a limited extent from consumer to producer goods; increases in the shares of
some service groups (personal, professional, government) and declines in the shares
of others (domestic service)” (Kuznets 1966, p. 492). In the United States, for
example the share occupied by manufacturing in national production, which was
almost equal to the shares of mining, manufacturing, and public utilities, increased
from 31% of the national product in 1839 to 51% in 1879, and in the United
Kingdom from 34% in 1841 to 40% in 1901 (ibid., pp. 88–91). In India, however,
the share of the manufacturing sector in NDP barely reached 7% by the end of the
colonial period in 1946/47,3 while the share of factory employment was as small as
0.4% of the total population in 1900/01 and 1.4% in 1941 (Sivasubramonian 2000,
p. 24, pp. 256–8).4 In sum, the colonial Indian economy did not go through the kind
of general transformation described by Kuznets as modern economic growth. The
development of modern business corporations, which is another marked feature of
modern economic growth in most industrialized countries, was significantly less
visible in colonial India.5
The slow character of industrial and corporate development in colonial India has
been analysed by numerous scholars, whose diverse views may be broadly categorized into two types, both of which assume, as mentioned above, the extraordinary 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
definition of a “factory” under the Indian Factory Acts. For example, in the case of the Act of
1922, a factory was defined 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 significant 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
refining, 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).


4

1

Introduction

The first view, expressed by such scholars as A. K. Bagchi, R. K. Ray, Partha
Sarathi Gupta and D. Banerjee, shares the general understanding that a public
entity, such as a government, has the considerable capacity to lead modern economic development through broad interventions in economic activities (Bagchi
1972; Banerjee 1999; Gupta 1987; Ray 1992),6 while emphasizing that modern

business corporations would have made greater advances if the fiscal, monetary,
commercial and industrial policies of the colonial government had been friendlier to
India’s industrial growth. India’s market, this view argues, was intentionally kept
open under colonial non-interventionist commercial and industrial policies to
facilitate the participation of British manufactures in it. Such a British-centric attitude of the colonial state deprived Indian industry of the opportunity to grow
under such interventionist policies as tariff protection or priority grants for Indian
industrial producers to supply government stores. Even when the government did
levy tariffs temporarily on goods, such as steel or sugar, particularly after the
mid-1920s, such measures were not coordinated sufficiently to boost overall industrial development, because that was not the government’s intent.7 Appropriate
fiscal and monetary policies for the development of Indian industries were not
implemented by the colonial state, because it deemed such measures counter to the
interests of British investors. An appreciation of “real” exchange rates for the rupee
due to the enactment of positive fiscal and monetary measures and the deterioration
in its global trade balances would have resulted in greater credit default risk in the
Indian economy, which had been heavily endowed with British investment capital
(Bagchi 1972). Some scholars also claim that Indian entrepreneurs were barred
from various profitable and otherwise advantageous fields by formal and informal
restrictions imposed under colonial rule, amounting to de facto “racial discrimination” (Bagchi 1972, Chap. 6).
The second view asserts that the slow development of the Indian colonial
economy can be explained mostly by market mechanisms with minimal reference to
the effects of economic policy (Morris 1983, 1987; Roy 2005, 2006).8 The proponents of this view, such as M. D. Morris, emphasize that the role of the state in
the colonial Indian economy, which they measure in terms of the share of government expenditure in NDP, was not very important.9 They also suggest that
India’s modest industrial growth can mostly be explained by such features peculiar
to an Indian economy characterized by a labour affluent, capital scarce factor
endowment (Gupta 2016; Morris 1983; Roy 2005, 2006). Some proponents assume
that colonial India could not overcome “a substantial element of uncertainty” and
6

This view is also shared by Chandra (1966, 1979) and Mukherjee (2002).
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).
7