EIB

Module II:
Struggling for
Stability (1950- 1980)

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Post-Independence – The Nehru Era
Jawaharlal Nehru became the PM of a young India. Indian business interests were more
inclined to exploiting the opportunities that freedom had brought. The agenda of the new
government was also to accelerate economic development. In this environment, the old
business houses progressed:

Tata’s – TISCO, TELCO, Tata Chem

Birla’s under the helm of G D Birla

Thapars

Kirloskar

Mafatlals

Lalbhais

Walchand’s (or Doshis)

Some new business houses also entered into the picture.

Here is a list of a few:

Bajaj’s

Mahindra’s

Godrej’s

Singhania’s

Bangur’s

Goenka’s

Kalyani’s

Khaitan’s

Ruia’s

Chowgule’s

Salgaonkar’s

Dempo’s

Dhirubhai Ambani

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 Mammen Mappillai

Brij Mohan Lal Munjal

Ramanbhai Patel

Uttambhai Mehta

Raunaq Singh

Hari P Nanda

Bhai Mohan Singh

Mohan Singh Oberoi Diverse industries were covered and business activities picked up
across the country.

In 1948, the Nehru government came up with the Industrial Policy Resolution. A very
important pronouncement was made that lead to long term repercussions for our nation. This
resolution stressed progressively greater participation of the state in economic activities while
recognizing the role played by private capital in the industrial development of the country.
Under this policy, the state would have exclusive right to establish new undertakings in certain
specified fields (primarily basic industries) but the private sector was left free to operate in the
remaining spheres. This is what we today recognize as mixed economy. The Planning
Commission was established to undertake systematic economic planning and make sure that
all economic activities (in the private and public sector) were undertaken on the basis of
planned projection of the nation’s needs. Banks, Airlines, Insurance companies which were till
then under private ownership, were nationalized. The system of industrial licencing was
introduced to achieve the objectives of industrial policy.

LICENSE RAJ1

In 1947, India was a new country racked by pains of the Partition and the dire poverty of her
people. Nonetheless, the Indian Constitution bestowed the right to vote to every adult, making
her the first democracy to guarantee universal adult franchise at birth. The Constitution
protected basic personal freedoms of movement, assembly, conscience and expression. So in
terms of political and personal freedoms, India was a constitutional republic or a liberal
democracy from her birth. This was a great achievement.
For economic arrangements, the Constitutional Assembly considered the idea of declaring
India a socialist nation. However, it rejected the idea, largely on the argument by Dr Ambedakar
that economic system should be left free to adjust to the changing demands of the people and
the Assembly should not bind the people to any one type economic system forever.
However, socialism was not just in the air but also in the hearts and minds of most intellectuals
and political leaders. Unlike in the Soviet Union and China that abolished private property and

1
http://indiabefore91.in/license-
raj#:~:text=Rajaji%2C%20the%20founder%20of%20the,the%20Indian%20model%20of%20socialism. Accessed
on July 14, 2023 at 7.45 pm

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put the government directly in charge of all economic affairs, India followed a middle path.
The Indian state implemented central planning with myriad controls over prices and quantities
to achieve a “socialist pattern of society.”
Rajaji, the founder of the first market friendly political party, the Swatantra Party, in late 1950s
coined the term “Quota-Permit-License Raj” to describe the Indian model of socialism.
Development of the License Raj:

 Industrial Policy Resolution, 1948: government monopoly was established in

armaments, atomic energy, railroads, minerals, iron & steel industries, aircraft,
manufacturing, ship building and telephone and telegraph equipment
 Industrial Policy Resolution, 1956: extended the preserve of the government from 17
industries to a further 12 industries.
 1956: Life Insurance business nationalized
 1969: Large commercial banks nationalized
 Monopolies and Restrictive Trade Practices Act, 1970: designed to provide the
government with additional information on the structure and investments of all firms
with assets of more than Rs 200 million, to strengthen the licensing system. This was
done in order to decrease the concentration of private economic power, and to place
restraints on business practices considered contrary to public interest.
 1973: General Insurance business nationalized

Over the years, the central and state governments formed agencies and companies engaged in
finance, trading, mineral exploitation, manufacturing, utilities and transportation like
Hindustan Insecticides, Ashoka Hotel Corporation, Tyre Corporation of India, Air India,
GAIL, SAIL, ONGC, etc.

14 commercial banks nationalized in 1969

Key features of the License Raj:

 Licenses were required for starting new companies, for producing new products or
expanding production capacities.
 Businesses had to have government approval for laying off workers and for shutting
down
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  Virtually shut off imports with high tariffs, low import quotas and outright banning of
import of certain products. For example, the import tariff for cars was around 125% in
1960.
 India in 1985 had the highest level of tariffs in the world. Nominal tariff rates as
percentage of values in 1985 were: 146.4 percent for intermediate goods; 107.3 percent
for capital goods; 140.9 percent for consumer goods and 137.7 percent on
manufacturing goods.
 In addition to over-regulating the private sector the Government of India nationalized
heavy industry (the commanding heights of the economy) and built new state-owned
enterprises (SOEs) in areas as diverse as jute mills to hotels to steel plants.

Impact of the License Raj:

The following table shows the difference in growth rate of the Indian economy as compared to
that of other countries in Asia:
Comparative Growth Rates of Developing Economies
Average Annual Rates 1960-1988

Country Growth Rate of GDP

Industrial Production

1960-1980 1980-1988 1960-1980 1980-1988

India 4.6 7.6 3.5 5.4

South Korea 15.2 12.6 8.8 10.1

Taiwan 12.8 7.2 9.6 7.4

Singapore 12.1 4.5 9.2 6.9

Pakistan 8.0 7.2 4.4 6.3

Thailand 10.3 6.6 7.4 6.5

Hong Kong 10.3 7.5 9.9 7.4

Indonesia 8.9 5.1 5.9 5.7

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Era of Emergency and business houses
Emergency is a failure of social system to deliver reasonable conditions of life. Circumstances
arising suddenly that calls for immediate action by the public authorities under the powers
especially granted to them. There are three types of Emergencies under the Indian Constitution,

(1) National Emergency,

(2) Failure of constitutional machinery in states and

(3) Financial Emergency

The emergency of 1975 falls under the purview of National Emergency. Article 352 of the
Indian Constitution talks about the national emergency. National emergency is imposed
whereby there is a grave threat to the security of India or any of its territory due to war, external
aggression or armed rebellion. Such emergency shall be imposed by the president on the basis
of written request by the council of ministers headed by the Prime Minister. National
emergency has been imposed thrice in India: in 1962 at time of Chinese aggression, in 1971
during the India - Pakistan war and in 1975 on the grounds of internal disturbances.

National Emergency in India -1975

Just before midnight on 25 June 1975, the then Indira Gandhi-led government declared a state
of emergency in India. Issued by then president Fakhruddin Ali Ahmed, the Emergency lasted
21 months and has come to be known as one of the darkest periods in modern Indian history.
The backdrop of the emergency of 1975 was the political unrest against the government began
brewing in 1973 because the opposition saw Indira Gandhi as too powerful, even as corruption
allegations began to mount. In 1974, leaders like Jayaprakash Narayan and George Fernandez
organized widespread protests against the government. Student protests intensified too. The
unrest called for Indira Gandhi to step down as prime minister, eventually culminating in the
Emergency. The event that triggered the Emergency took place on 12 June when the Allahabad
high court found Indira Gandhi guilty of electoral malpractice. Raj Narain, rival in the Rae
Bareilly constituency for the 1971 general elections, had filed a case against her – alleging
bribery and the use of government machinery to manipulate the election. Found guilty, she
was disqualified, and barred from holding an elected office for six years. On 22nd June
opposition leaders addressed a public rally, after calling for daily anti-government protests after
the high court judgment. On the 24th of June the Supreme Court granted a conditional stay on
the high court ruling. It allowed Indira Gandhi to remain as prime minister until her appeal was
reviewed. Let us look at the timeline of the events:

25 June: Led by Jayaprakash Narayan, a large protest took place in Delhi. A few minutes before
midnight, a state of emergency was declared by President Fakhruddin Ali Ahmed. The supply
of electricity to major newspaper offices was cut and opposition leaders were arrested.

26 June: The Union Cabinet ratified the decision to impose the Emergency.

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28 June: The Times of India published an obituary for democracy, The Indian Express carried
a blank editorial while The Financial Express printed the Tagore poem ‘Where the mind is
without fear’.

30 June: The Maintenance of Internal Security Act (MISA) was amended through an ordinance
to allow the detention of any person who may pose a political threat by voicing opposition,
without a trial.

5 July: 26 political organisations, including the Rashtriya Swayamsevak Sangh (RSS) and
Jamaat-e-Islami, were banned.

23 July: The Rajya Sabha approved the Emergency.

24 July: The Lok Sabha also passed the Emergency.

5 August: The Maintenance of Internal Security Act was imposed Over the course of the year,
the Constitution was amended to protect 64 laws from any judicial scrutiny, and thousands of
people were arrested for opposing the government.

1976, 4 May: As a result of fallout with Sanjay Gandhi, Kishore Kumar’s songs were banned
from playing on the All India Radio and Doordarshan. Artists like Kumar and Dev Anand, who
were vocally critical of the Emergency, later faced unofficial bans from government and state
broadcasters.

1977, 18 January: Indira Gandhi called for fresh Lok Sabha elections. Political prisoners were
released.

20 January: The Lok Sabha was dissolved.

24 January: Several members of the opposition united against the Indira Gandhi government
to form the Janata Party, with Morarji Desai as its leader.

11 February: President Fakhruddin Ali Ahmed died, while still in office.

16 March: Both Indira Gandhi and Sanjay Gandhi lost their seats in the elections. The Janata
Party and its alliance partners won 345 seats and came to power.

21 March: The Emergency was officially withdrawn.

24 March: Morarji Desai was sworn in as the Prime Minister of India. In 1978, Indira Gandhi
insinuated that she imposed the Emergency because external forces posed a threat to India’s
stability. She said her government would have won “hands-down” had elections been held in
1976, but they were avoided because of the state of the economy. She also justified the arrest
of leaders like Desai saying they were “destroying democracy”. Indira Gandhi eventually
returned to power in 1980. The 21 months of the Emergency had a lasting impact on India. For
the first time, a non-Congress government came to power at the Centre, and it was during this
period that several contemporary leaders became politically active.

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The Indian Economy during the Era
In the 1960s, the Congress in India had succeeded in creating a state-controlled and regulated
economy. It was centrally planned. Industry was dominated by over two hundred state-owned
enterprises. The private sector - which had, on the eve of independence, strongly endorsed
Congress economic plans - was held down by a complex system of regulation, which the state
could either rigidly enforce or relax at will. Ostensibly, this was designed to check the rise of
monopolies. In fact, it gave the state control over business expansion. Eventually, the state
would attempt to bar large business groups from key sectors of the economy.4 As a leader of
the Federation of Indian Chambers of Commerce and Industry (FICCI) wrote later, 'The private
sector had been encircled not only by a wide range of legislation but by a variety of
countervailing power.' The state-run economy was stagnating by the late 1960s. The Indian
state's refusal to open up to the world market and the bureaucratic obstacles to the expansion
of private industry it had erected indicated that the Indian economy was a standard-bearer of
the national economies.

In the February 1967 elections, Congress sustained serious losses at both Union and State
levels. Its seats in the Lok Sabha were reduced from 361 to 283. Business was confident that
electoral setbacks would make Congress more amenable to its demands. But their expectations
were to be disappointed. Mrs Gandhi's wing of the Congress leadership decided that what was
needed was a return to Nehruvian economic principles. In May 1967 the Congress Working
Committee was presented with a 'Ten-Point Programme' from Indira Gandhi which included
'social control' of the major banks, nationalisation of the general insurance industry, curbs on
business monopolies and the concentration of economic power, rapid implementation of land
reform and abolition of the princes' remaining privileges. Despite opposition, the Working
Committee adopted the Ten Points. Following the AICC meeting, the government decided to
nationalise fourteen major banks - 83% of the total banking system. To achieve this, Mrs
Gandhi dismissed Moraiji Desai, as Finance Minister3.Later in the year, the government moved
to block further expansion of big business houses in many areas of industry through the
Monopolies and Restricted Trade Practices Act.

By 1974, India was once again in economic difficulties. The war for Bangladesh in 1971 had
ended in victory -but it pushed ten million refugees onto the Indian economy and produced a
substantial budget deficit. In 1972 and again in 1973 the monsoon failed, producing not only
drought but a shortage of food and an increase in its price. Power generation declined, as did
agricultural production and the demand for manufactured goods. Unemployment followed.
Finally, the decision of the Arab oil producers to raise prices in 1973 drained India's foreign
reserves and deepened what was now a serious recession. Once again, as in the mid-1960s, the
siren voices of the world market were heard - the World Bank and the IMF - serenading India
with promises of aid, but simultaneously demanding changes in Indian economic policy.

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Officially, the cost of the 1971 war for Indira Gandhi's government was around 200 crore a
week. It was a huge cost given the scale of economies of the day. It impacted the GDP growth
rate for 1971-72 as economy grew by 0.9 per cent only. There was additional cost of feeding
over 1 crore Bangladeshi immigrants. Budgetary deficit has climbed up.

How did Indian business respond to these events?

India's leading business houses were strong supporters of the general thrust of Congress
economic policy. Business support for Congress was not however a oneway affair. From 1966
to 1975, 'the total assets of the twenty largest industrial houses increased by 150 percent'. Thus
the approach of big business in 1975 to the twin economic and political crises was very similar
to that of the Congress leadership: strengthening the political power of the state while pursuing
opportunities thereby unleashed for the internal liberalisation of the economy. Big business
declared immediate support for the Emergency. FICCI welcomed both the Emergency and the
20-Point Programme.

Consider the economic dimensions of the Emergency. Few now recall the economic backdrop
to the story. In the run up to the Emergency, the Indian economy was buckling under a set of
cumulative strains caused by the Bangladesh refugee crisis and war with Pakistan, the ensuing
termination of aid by the United States, the recurrent failure of monsoons, and the international
oil crisis following the Arab Israeli war of 1973. The oil shock made a deep dent on the Indian
economy. There was a rapid slide in balance of payments and rampant inflation from mid-1973
to September 1974. At its peak during this period, inflation touched 33 percent. This spiralling
inflation played a significant role in triggering popular protests against the government -
protests that widened into the JP movement and subsequently led to the imposition of the
Emergency.

This period also witnessed the beginnings of important changes in Indira Gandhi's economic
policy. Following the Congress party's poor performance in the elections of1967, Mrs. Gandhi
had sought to move further to the Left in her politics. This was aimed at cementing both her
personal appeal over that of the party's bosses and at securing the parliamentary support of the
Left parties once she moved to split the Congress. These political considerations had led to her
to adopt more "radical" economic policies such as nationalizing banks, insurance companies
and the coal industry, passing the Monopolies and Restrictive Trade Practices Act to closely
regulate businesses, and the Foreign Exchange Regulation Act to comprehensively control
foreign investment in India. This "socialist" phase in economic policy continued until 1973,
when the mounting economic crisis forced Mrs. Gandhi to adopt a more pragmatic stance.
From mid-1973, the government began pruning its expenditure and tightening monetary policy.
In July 1974, Mrs. Gandhi introduced a rather tough package of anti-inflationary policies -
fiscal, monetary and income policy measures - by means of a supplementary budget and
ordinances. Many of her senior colleagues and Left-leaning advisors warned her that these
measures would prove politically costly for her. Yet she chose to back her team of liberal

9
economic advisors and officials, including a certain Dr. Manmohan Singh. By the end of 1974,
inflation was reined in.

To stabilize the current account of balance of payments, Mrs. Gandhi also sought assistance
from the IMF. Perhaps the clearest indication of the end of "socialist" phase was the brutal
crackdown on the Railway strike of May 1974. In the road leading to the Emergency, then,
Mrs. Gandhi was turning to the Right in economics as well as politics. She now lent her ear to
advisors like BK Nehru, who urged her to abandon " garibihatao " for " utpadhanbarhao " or
increased production, and called for more business-friendly policies.

After the Emergency was imposed, Mrs. Gandhi announced a Twenty Point Programme of
economic and social change. The components of this programme relating to industry slotted in
smoothly with the ideas suggested by the likes of BK Nehru. Facilitating and accelerating
private sector activity was a key part of the government's economic agenda during the
Emergency. Big businesses were naturally pleased with this turn in policy. Only weeks before
the Emergency was revoked, JRD Tata lauded the "refreshingly pragmatic and result-oriented
approach" that had led to "conditions of discipline, productivity, industrial peace, price stability
and widespread involvement necessary to achieve rapid economic growth."

Economic data bears this out. If we bracket the year 1979, when Indian GDP fell by 5percent
owing to the second oil shock following the Iranian revolution, India's economic growth in
second half of the 1970s averaged a healthy 6 percent - a figure that is comparable to the
"boom" of the 1980s. The increase in per capita GDP was accompanied by an increase in
productivity owing to higher capital investment. In particular, there was a spectacular rise in
private equipment investment since the mid-1970s. Clearly the "animal spirits" of Indian
capital were rising from around this time. It is also not surprising that Big Business welcomed
Indira Gandhi's return to office in1980. Indeed, the Janata government's mismanagement of the
economy tends to be forgotten now. The pro-business tilt inaugurated in the mid-1970s was
continued and intensified during Mrs. Gandhi's last term in office. This was symbolized by an
unprecedented dinner held in her honour in a well-known Delhi hotel in 1980. Her host was
India's largest producer of polyester: Dhirubhai Ambani.

So, the Emergency was an important inflection point in the long transformation of the Indian
economy and a harbinger of a new pattern of relations between the state and big business.
Whether or not we approve of these developments, the fact remains that Indian economy did
move to a higher growth trajectory during these years.

Case studies of that period

Reforms initiated in public-sector management during the closing years of the Nehru era were
not seriously pursued in later years. The Public Sector Enterprises continued to make losses
year after year and practically all sick units taken over by the government continued to be
sick. Main problems plaguing the PSEs were mismanagement, lack of requisite autonomy with
constant interference from ministries in matters of pricing, expansion, modernization.
Vacancies remaining unfilled in some units, while some units were saddled with excess

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manpower. Most of the PSEs were run in an unbusiness-like manner. Because of this, most
PSEs achieved limited success or failed. A few notable exceptions were BHEL, IOC,
Hindustan Petroleum Corporation, Bharat Petroleum Corporation, ONGC, and NTPC.

The Case of Maruti Udyog Limited

Maruti Udyog was originally conceived in the mid-1970s as a private concern by Sanjay
Gandhi. The company planned to make small cars within easy reach of the Indian middle class.
But in its’ private form, the company was not too successful. In the 1982, GOI decided to
acquire it. But it was not exactly a public sector company as GOI provided 50% (and not 51%)
of the capital. The other 50% was subscribed by Suzuki Motor Company from Japan. This
became a joint venture functioning under the joint management of the collaborating parties –
Maruti Suzuki India Ltd. Suzuki agreed to supply the technology. Manufacturing facilities set
up near Gurgaon. Suzuki not only supplied technology but also inspired adoption of the
Japanese managerial practices (eg Kanban system of inventory management).

Their first model the Maruti 800 became immensely popular with Indian users. How did Maruti
Suzuki achieve this? What did Maruti Suzuki offer? This car was by no means not inexpensive
or cheap. In the same price range, the indigenously manufactured cars (Ambassador, Premier
Padmini) were of inferior quality and lacked aesthetic appeal. Maruti Suzuki also developed
an extensive network of aftersales service centres which also appealed to the customers

The popularity of the first model boosted the confidence of the management and they brought
new models targeting relatively more affluent segments of consumers.

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Premier Padmini from Premier Automobiles

Hindustan Motors (C K Birla group, Calcutta) was the largest car manufacturer known for their
sturdy but unattractive ambassador cars. Premier Automobiles (Walchand group, Bombay)
were making Padmini, Renault and Peugot. What Maruti did for the automotive sector in India
was that it forced other car producers in India to bring about improvement within the range of
technology available to them.

They undertook manufacturing of MPV, SUVs and commercial vehicles as well. Maruti Suzuki
today is a listed company and Suzuki holds 56.37% stake now2. This is a good example of what
a public-sector project, if properly executed, can achieve. It is also an example of a public
sector firm waking up the private sector to its responsibility towards consumers.

In 2020, Maruti held about 53% market share, which further dropped to 42% in September
2022. They lagged behind Tata Motors. But in late 2022, they launched their Brezza model3.
In April 2023, they upgraded all their models to comply with the with the new Bharat Stage

2
https://www.capitalmarket.com/Company-Information/Overview/Maruti-
Suzuki/5496#:~:text=The%20company%20is%20a%20subsidiary,56.37%25%20of%20its%20equity%20stake.
Accessed on August 4, 2023, 11.35 am
3
https://www.moneycontrol.com/news/business/markets/maruti-suzuki-chases-market-share-but-losing-
mind-share-to-tata-motors-9572511.html accessed on August 4, 2023, 11.49 am

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Emission Standards VI Phase-II real driving emissions (RDE) regulations, alongside being
compatible with E20 fuel as well4.
The new RDE compliant Maruti Suzuki cars feature an enhanced on-board diagnostics (OBD)
system to monitor emission control systems of the car in real-time and will notify drivers in
case of any malfunction, it added. The products now also come equipped with an electronic
stability control (ESC) system. They are taking the fight to their competitors and have inched
back to 50% of the market share.

The Rise of White Revolution and AMUL

Kaira District (in Bombay Presidency, later in Gujarat State) produced a large quantity of milk.
Since 1915, Pestonji Edulji Polson ran a flourishing business in dairy products. This was the
only outlet for the huge quantity of milk produced by the farmers. It was easy for Polson to
exploit them in many ways. Shree Tribhuvandas K Patel, a freedom fighter, could not tolerate
the state of affairs and approached fellow freedom fighters Sardar Vallbhbhai Patel and

Morarji Desai. Sardar Patel had been an advocate of farmers’ cooperatives since 1942.

What is a Co-operative?
A co-operative is a member-owned business structure with at least five members, all of whom
have equal voting rights regardless of their level of involvement or investment. All members
are expected to help run the cooperative.

A co-operative is a separate legal entity and members, directors, managers and employees are
not liable for any debts incurred unless they are the result of recklessness, negligence or fraud.

A co-operative usually only allows a limited distribution of profits to members (some don’t
allow any). This business structure encourages a democratic style of management and promotes
the concepts of sharing resources and delegation to increase competitiveness.

Producer as well as consumers can set up their co-operatives.

The Kaira District Cooperative Milk Producers’ Union Limited (KDCMPUL) was founded in
Anand in 1946.

In the first 10 years, this milk producers’ cooperative would only collect milk from the farmers,
pasteurise it and supply it to dairies in Bombay and Gujarat. But this was not a bad beginning
as they succeeded in eliminating the milk contractors and middlemen at whose hands they were
being exploited.

4
https://economictimes.indiatimes.com/industry/auto/auto-news/maruti-suzuki-upgrades-its-entire-model-range-
to-conform-to-stricter-emission-
norms/articleshow/99758938.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
accessed on August 4, 2023

13
Soon, more and more farmers started becoming members of the cooperative. This pushed the
milk supply much in excess to the demand in Bombay and Gujarat. The management took a
decision to set up a plant to process all the excess milk into butter and milk powder. This plant
became operational in 1955.

Role of Dr Verghese Kurien

As the true architect of Amul, he is rightly called the Milkman of India. An engineer, he came
to India in 1949 to manage the dairy as government employee. He went on from helping
farmers repair their machinery to bringing about the White Revolution in India (Operation
Flood). His vision and initiatives helped India become self-reliant as far as its’ dairy needs
were concerned. As per Dr Kurian’s vision, Amul dairy gave small-scale dairy farmers quality
control units and centralized marketing. They were taught to take better care of their cattle,
veterinary doctors were available. In short, they were taught some of the science of dairy
farming.

Brand Amul
Amul was decided as the brand name. It is the acronym for Anand Milk producers’ Union Ltd.
It is also a derivation from the Sanskrit word amulya which means priceless. GCMMF was
founded in 1973 to market milk and milk products produced by 6 district cooperative unions
in Gujarat.

Over the years, Amul dairy went on adding new items: cheese, ghee, baby food, and now
chocolates, buttermilk, lassi, flavoured yogurt and many more. Today, the cooperative model
of Amul has placed Anand on the dairy map of the world. How was this feat achieved? The
answer lies in imaginative product development programme, research and development, and
aggressive marketing – the Amul girl as the logo and Taste of India as the slogan, are stories
by themselves.

What lesson can be learnt from AMUL? This story teaches us how multi-product, highly
diversified enterprises can be efficiently managed under systems other than the private sector.

14
The Dhirubhai Legend: The Bond With
The Markets Still Endures
It was, perhaps, way back in 1982, that Dhirajlal H Ambanis relationship with the country’s
stock markets began in the true sense. A relationship unbroken till this day.

As author Gita Piramal records in her book Business Maharajas, the tussle between a Calcutta-
based Marwari bear cartel and Reliance was the first clear instance which made Dhirubhai, as
he is now fondly known in market circles, the uncrowned king of the bourses and a legend in
his lifetime in Indian industry.

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Ms Piramals book chronicles how brokers loyal to Dhirubhai created, virtually overnight, the
Friends of Reliance Association to pick up the large chunk of shares which the Marwari cartel
was dumping in the market. They reportedly bought up 8.57 lakh shares of the 11 lakh shares
which the cartel had short-sold, thereby saving the stock from certain collapse. To break the
cartels back, they even insisted on delivery and charged an unprecedented backwardation, or
undha badla, of Rs 50 per share. And thus was born the legend of Dhirubhai. A man who, it is
now said, not only created India’s largest corporate house, but shared his wealth with
shareholders creating unparalleled loyalty among investors. His basic principle: if his
shareholders and suppliers and everyone connected to Reliance earned money, Reliance would
also generate wealth that way.

As Dhirubhai Ambani battles for his life at the Intensive Care Unit of Mumbai’s upmarket
Breach Candy Hospital, the markets which have so often chanted his name in awe are waiting
for every bit of information, every statement emanating from the Ambani family. In Mumbai’s
streets, trains and the crowded lanes surrounding Dalal Street, the predominant topic of
discussion on a monsoon-washed day is Dhirubhais health condition.

So what is it that keeps the Dhirubhai mystique alive at the markets?

Says a frontline investment banker: The legend of Dhirubhai is an enduring one in the markets.
There have been many stories of his successes which the market has heard over the years.
Broking sources say signs of Dhirubhais vision were clear when, after his first stroke 16 years
ago, he clearly groomed his two sons Mukesh and Anil to take over the reins of his empire.
Thereafter, he became a kind of philosopher and guide for his sons, while the two of them grew
in stature, says a broker who tracks Reliance closely. Another factor which they cite as a key
one is that despite hitting success himself, he did not choose merely to let his sons join him as
they were, but insisted on quality educational qualifications for both of them. The sons, in turn,
have invested in the industry and in people.

But as concern over Dhirubhais health grows, the stock markets are showing signs of concern.
All Reliance group stocks were down on Tuesday, and the same trend continued on
Wednesday. Flagship Reliance Industries fell Rs 6.55 to Rs 267.10 on The Stock Exchange,
Mumbai (BSE), while Reliance Petroleum was down 40 paise to Rs 23.75. Volumes continued

16
to be high, with BSE seeing a volume of 14.19 lakh shares in Reliance Industries, while on the
National Stock Exchange, the volume was 31.40 lakh shares. On Tuesday, the combined
volume on both bourses was 1.5 crore shares.

However, Dhirubhais battle with bears had been continuing over the years and, despite the
advent of the foreign institutional investors (FIIs) these days, signs of that old tug-of-war still
show up sometimes. Agrees a leading broker, somewhat emotionally: The punter community
knows no emotion. They would want to make short term gains at every opportunity. The same
case happens when they press sales in a war-like situation, instead of being patriotic and buying
stocks to support the market. And a bear cartel would want to take advantage of such situations
whenever they arise.

But the goodwill which Dhirubhai enjoys is clear. Recalls former BSE old-timer and former
board member Shirish Dave: His vision is tremendous. Even those who enjoyed the benefits of
license raj have had to bow to competition now. But Dhirubhais foresight has made Reliance
grow into a world-class organisation.

Brokers say some old-time shareholders had invested in Reliance in awe of the legend of
Dhirubhai. Some of them may be selling some small parts of their holdings as they hear of his
illness, something which punters may be taking advantage of, they add. The old-timers among
the investors may be slightly worried about the future, though most investors know the two
sons are equal to five directors each and comprise a very strong layer of future institutional
leadership, says a broker.

Because of Dhirubhai’s natural instinct for trading even during times of crises, his fan
following in the markets increased year after year, Mr Dave points out. Says another broker,
Pradip C Doshi: He cultivated the culture of putting money in initial public offerings and
debentures. He is the pioneer of the concept of convertible debentures, something other
corporates are following now. He adds that Dhirubhai showed other corporates how to borrow
from international markets at lower costs and repay local high-cost loans. The 30-year, 100-
year Yankee bonds were unimaginable before he made them fashionable, brokers say.

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There is much talk of how Reliance stocks helped many a father marries off his daughter, or
buy a house when the family needed it most. Those are among the many investors who have
remained loyal to the Reliance group over the years. A debt which they say they still owe to
Dhirubhai. And that’s the goodwill which the Reliance group patriarch and the Ambani family
is depending on the most as Dhirubhai puts up his bravest fight yet.

Source: https://www.financialexpress.com/archive/the-dhirubhai-legend-the-bond-with-
the-markets-still-endures/51351/

G D BIRLA
Another architect of Indian industrialisation in India was the late GD Birla. He was a largely
self-educated and self-made man. He had a vision of an industrial India from the very begin-
ning and was fired by the imagination and determination to put India on the industrial map of
the world. Starting in the early years of the twentieth century, as a jute/gunny broker in Cal-
cutta, he made his debut in industry during and after the First World War, when he set up a
textile mill at Subzi Mandi in Delhi in the closing years of the World War I. He later acquired
the Keshoram Cotton Mills through Andrew Yule in 1920 and set up Birla Jute around that
time. Birla Brothers Limited was incorporated in 1919 with an authorised capital of Rs 5 mil-
lion. Then with the financial assistance of late Maharaja Jiyajeerao of Gwalior, the Birla's set
up a textile unit in Gwalior in the 1920s. In the 1930s, sugar and paper mills were set up when
protection was accorded to them. Birla soon realised that India's efforts to industrialise would
succeed only after the country attained political freedom from British rule. He came under the
influence of Gandhiji in the 1920s and established close links with the leaders of the nationalist
movement. During the war time stock-exchange boom of 1943-46, the Birla’s floated a large
number of companies to manufacture cars, textile machinery, and man-made fibres and set up
the United Commercial Bank. Earlier Birla had started the Ruby and New Asiatic Insurance
companies, and a domestic airline. After Independence, the Birla’s expanded and diversified
their operations on a large Scale and in record time GD Birla was able to set up an aluminium
plant, Hindalco, near zapur with the collaboration of the US company, Kaiser. Birla’s acquired
the Century Mill Iron the late Sir Chunnilal V Mehta, a cousin brother of the late Sir
Purshottamdas Thakurdas and modernised it to make it one of the leading textile units in the
country A number of Cement and fertiliser plants also came up subsequently, apart from tea
plantations. GD Birla developed his own style of indigenous management and practised the
PERTA system, whereby daily stock is taken of a unit’s production, sales, and profitability, in
terms of both pre. determined targets as well in relation to its past performance. Birla also set
up a number of educational institutions at his native place, Pilani, and at other centres, besides
temples in various parts of India, Planetariums and hospitals in recent years. During the late
1970s and 1980s, the Birla’s rose to the top position among the industrial giants, before GD
Birla passed away in London in mid-1983. Till the very end, Birla, a teetotaller and vegetarian,

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remained agile and active, despite his 89 years of age. The house split into six after his death
and his grandson, Aditya Vikram who was a graduate of MIT, USA, took charge of Hindalco,
Century, Grasim and Indian Rayon, and also set up a number of joint ventures abroad. Aditya
Vikram Birla died in his early 50s and his son Kumarmangalam is now leading the AV Birla
Group. BM's grandson, CK Birla is managing, Hindustan Motors and Orient Paper. KK Birla
heads The Hindustan Times and was associated with Texmaco, Goa fertilisers, Indo-Gulf and
Cement. LN's son is in-charge of Cimmco and units in Bharatpur. BK heads Keshoram Cotton,
Birla Jute and tea interest in Calcutta. Late MP Birla was earlier the head of Birla Jute.
Kumarmangalam has inducted a top manager from an MNC and has bought up brand names
of Madura Coates like Van Heusen, Louis Philippe, Allen Solly and Peter England. The textile
mills of the group have not been faring well in recent years and the cement units might be hived
off. Hindalco has taken over Indian Aluminium and emerged as the largest producer. The
author had several meetings with Messrs GD, BM, MP and Aditya Vikram Birla over the years.

Till the 1960s the Birla family possessed five managing agencies, the most important of which
were the Birla Brothers Pvt. Ltd. (Rs 18,640,000); Birla Gwalior Pvt. Ltd. (Rs 8,870,000); and
Cotton Agents Pvt. Ltd. (RS 13,730,000). Both Birla Gwalior Pvt. Ltd., and Cotton Agents and
Put. Ltd. are also investment companies. Besides, the family also operates a total of 26
investment companies. Of the 151 companies managed by the Birla’s, 47 companies are
controlled through members and relations of the family. The number of companies owned by
the Birla family is 77. Some of them are controlled by holding companies which have taken
the form of trusts. After the death of GD Birla in 1983 the group split into six. The largest is
headed by BK and his grandson Kumarmangalam. BK's Son Aditya passed away when barely
50. BM Birla's group is managed by his grandson CK who manages Hindustan Motors and
Orient Paper. KK Birla manages Chambal fertilisers and "Hindustan Times'. LN Birla's son SK
is engrossed in managing units in Bharatpur and Gwalior CIMMCO. It has been a common
practice for the trusts of religious groups to provide funds to the companies controlled by the
combines connected with them at low interest rates from the money donated by their followers.
In the case of the Tata’s, the funds are gathered by a trust, a non-profit making organisation,
from the religious followers of the Parsi community and loaned to the different companies of
the family. Tata Sons Pvt. Ltd. had derived about 81 per cent of its capital from the Temple
Trust. The Marwari combine, Temple Trusts and private financiers provided the Marwaris with
the funds needed by them to carry out the activities of their enterprises. The trusts grant loans
to the business establishment of the family from the money which they have gathered from the
religious followers of the community. As beneficiary organisations, the non-profit trusts are
largely exempted from the company law, thus making it possible for them to make loans to
companies controlled by the leading members of the families without much restriction.

Before the nationalisation of banks, the combines also had easy access to bank loans from the
banking organisations set up by them. The Tata’s were closely linked with the Central Bank
after the Tata Industrial Bank merged with the former in 1923. The Birla’s started the United
Commercial (UCO) Bank in 1943. Dalmia had set up the Bharat Bank which later merged with
the Punjab National Bank. Singhania started the Hindustan Commercial Bank, which remained
relatively a small bank. The Jaipurias and others had banking links, too. Cowasjee Jahangir

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was associated with the Bank of India and the Gujarati groups with the Bank of Baroda. Before
the nationalisation of life insurance companies, most of the combines control- led the life fund
investments. In the boom years they had an easy access to the stock market. A borrower could
obtain a loan amounting to several million rupees upon presentation of the signatures of two
guarantors. In view of the conveniences relating to matters of taxation, this type of loan was
more advantageous than loans obtained from the banks, in spite of the fact at the interest rate
was somewhat higher. Since it has been possible for the companies of a combine to secure
funds from religious trusts or private financiers of the same capital raising operations. They
also had easy access to Financial institutions set after Independence at low rates of interest on
a long-term basis. The combines have tended to procure increasing loans for their community,
they did not have to depend heavily upon the public financial institution increasing proportion
of their initial capital or working capital through the capital market in recent years. Both the
Tatas and the Birlas have already displayed increasing dependence in the domestic and foreign
capital markets in establishing joint enterprises or in consummating technical collaboration
agreements with foreign enterprises.

In the last 25 years, the groups have amassed large amounts through liberal depreciatinn
allowances, tax holidays and incentives and reserves in a completely sheltered market with
rising population and growing public expenditure through the successive Five-Year Plans. The
various financial institutions set up by the Government in the last four decades have also made
large loans and investments in these groups enterprises to meet their medium-and long-term
needs. The groups have also been accepting public deposits through flotations and the booming
stock market in 1981-82, 1983 and in the 1990s. They have also raised funds abroad through
GDRS and ADRs. As management and ownership have been closely related within the
companies controlled by the groups, it has become a common practice for members of the
families to participate in the management of their enterprises as chairmen or managing
directors, ever since the 1970s. Some of the companies are manned by their relations and
trusted personnel. Even after the abolition of the managing agencies in 1970, the groups
continued to make the key decisions in regard to expansion, diversification, modernisation,
large investments, and in terms of pricing and the making of key appointments through their
chain of family directorships and trusted personnel.

The Tata combine had already taken steps to promote professionalization of management and
to introduce reporting and control systems that are conducive to the development of mod- ern
organisations. Most of the companies in the Birla group have been controlled by members of
the family, or their relatives and employees, who have grown with the companies and are loyal
and trustworthy. High posts have been offered to persons who are either related to the Birla
family or are connected with the Marwari group. The late GD Birla, as the patriarch of the
family, was heading the Group, though there were signs of the late Brij Mohan (younger brother
of GD Birla) Group operating autonomously in the automotive and paper fields. On the other
hand, Kumarmangalam have had exposure to management education abroad and have lately in
ducted some professionals as competition is growing in domestic and foreign markets.

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