It could be argued that the low growth rate in India was due to a lack of qualified native

entrepreneurs, capable of introducing nineteenth century technology into India. Thus argument is
not of much weight. It is significant that British investment in India was concentrated in
railways, tea and coffee plantatioas, banks, mercantile establishments, coal, and jute mills. The
notable omiss¬ ionsin the above list are cotton textiles and iron and steel industries, which two
industries were largely instrumental in the indus¬ trialization of Britain. Indians invested in these
two latter-named industries, but not without first overcoming major hurdles placed 28 ,
Economic Growth in China and India by the British Government ofIndia. Why were the British
invest¬ ments confined to these export and export-related activities? Why did the Government of
India resist native initiative in other areas? The conventional wisdom that underliesthe usual
answersto the aoove questions are that the purchasing power ofthe native popu¬ lationis weak,so
foreign investors have to concentrate on low capi¬ tal primary industries[37]. This is the small
size of the market argument. Alternatively, it is sometimes argued that primary industries have a
higher rate of return; consequently profit maxi¬ mization leads rationally to the neglect of the
manufacturing sector[38]. This is the low rate ofreturn argument. Both these arguments fail
under close scrutiny. The size ofthe market argument is superficially dependent on the level of
per capita income. But a country may have a low per capita income and yet a large
marketbecause ofthe population size and unequal distri¬ bution ofincome. These factors made it
possible forIndians, nota¬ bly theParsis, to successfully manage on the cotton textile industry.
TheBritish reluctance to gointo cotton textiles cannot be explained onthe groundsthatthere was
alack ofdemand. In fact,so successful were the Indian investors. Petit and Davar, that there was
alarm in Lancashire[39]. Iron and steel were never plagued by lack of demand either. By 1905
India wasimporting 615,000 tons ofiron and steel. Railways claimed a sizeable portion ofthe iron
and steel availability[40] and was a steady source ofdemand. The size ofthe market cannot expl¬
ain whyBritishinvestmentsshied away from the cotton textiles and iron and steel industries. The
rate ofreturn argument is also unacceptable. Implicit in itis the hypothesis that foreigners chose
fields ofinvestment with high rates ofreturn, leaving to native entrepreneurs the low-yield areas.
This belief is not borne out by available statistical evidence. In cotton textiles the rate of return
was higher than in coffee or tea plantations[41]. In some years the gross return was 38.8 percent
During the 1880’s several cotton textile mills returned the entire invested capital within four
years[42]. In iron and steel the same was true. Tatas made a good deal of profit and became the
lowest The Initial Conditions 29 cost producers ofsteel in the world as Table 2.4 reveals. For
some years the Tatas paid dividends of 300 percent per year[43]. It is not only true that adequate
demand and profitability existed for cotton textiles and iron and steel-more than even
forplantation ventures - but also that the Government of India for many years actively resisted
entry ofIndian capital into these industries[44]. In Table 2.4 Comparison of Works Costs, United
States of American and Canada with TISCO: 1923 Canada USA Jamshedpur (Tons/$) (Ton/$)
(Rs) (Ton/$) Pig Iron Total materials cost Labour cost 24.70 0.85 24.00 1.00 36.13.0 2.11.0
12.27 0.89 Steel Ingots Total materials cost Labour cost 24.75 1.10 30.00 1.50 70.4.0 5.12.0
23.42 1.92 Blooms Materials Labour 29.50 0.65 35.00 1.50 88.3.0 1.11.0 29.40 0.56 Rails
Materials 41.00 123.0.0 41.00 Bars Materials Labour 39.00 4.50 45.00 134.15.0 11.15.0 44.98
3.98 Note: TISCO mentions that “cost of pig iron at the blast furnace does not agree with the
price charged to ingots in United States ofAmerican and Canada as they use an average price
when charging to the open hearth furnaces”. Source: ITB, Evidence by the Tata Iron and Steel
Company, Calcutta 1924, op cit, pp 256-57. Quoted inDatta, S: “Role ofthe Indian Workerin
Early Phase of Industrialization"^Econ£>mtc and Political Weekly, XX, No. 48, Nov. 30, 1985.
30 Economic Growth in China and India cotton textiles the Government of India in 1862 had
imposed a 5 percent duty on piece-goods imports, not to protect domestic industry, but to raise
the state revenue. But this duty evoked strong reaction in Lancashire. In 1871 the Manchester
Chamber of Com¬ merce sent a strong memorandum to the Secretary of State forIndia
demanding immediate total repeal ofthe duty. In 1874 a Committee appointed by the
Government of India did not find that the duty significantly affected trade between India and
Britain, and yet in 1877 the British Parliament unanimously passed the resolution repealing the
duties because they were “protective in their nature.” As a member from Lancashire was to later
explain in Parliament: We do not attack the Hindooconsumers, but we wage a warto the knife
against the protected or bonussed mill-owner, who, in addition to natural advantages, wish to
retain this burden on the shoulders of the people ofIndia, notfor thebenefitofIndia, butto the
detriment ofIndia and for the sake of their own individual gain[45]. It was not asifthe
Government ofIndia wasto be outdone in such sentiments. Sir John Strachey, delivering his
Budget speech on March 28, 1877, said: We are often told thatitis the duty ofthe Government
ofIndia to think ofIndian interests alone, and that ifthe interests of Manchester suffer itis no
affairs of ours. For my part, I utterly repudiate such doctrines. I have not ceased to be an
Englishman because I have passed the greater part of my life in India, and have become a
member of the Indian Government. The interests of Manchester at which foolish people sneer,
are the interests not only of the great and intelligent population engaged directly in the trade in
cotton but of millions of Englishmen[46]. The British thussought to create a “patriotic fervour”
with a view to thwart those acting against “millions ofEnglishmen” and thusto obstruct Indian
native initiative in cotton textiles. In iron and steel as well, similar obstacles were created
forIndian entrepreneurship. Tata who was on the best of terms with the colonial Indian
Government, was nevertheless prevented from embarking on the venture of steel making by the
colonial govern¬ ment till the turn of this century. The Initial Conditions 31 If indeed the
Government of India was hostile to native entrepreneurship, the question arises why the
Government later allowed any investment in these industries at all. The answer liesin the fact that
“British interests” were an amalgam of sub-interests, the finalmanifestation ofwhich was not
predictable in all situations for all times. From earliest timesthe Britishmerchants ran into con¬
flict with the British parliamentarians, especially those with agra¬ rian backgrounds. This
conflict had little to do with British policy toward India but with the fact that the riches from
India made the landed aristocracy in Parliament contemptuous and envious ofthe merchants[47].
Similarly, in anotherillustration, the BritishGover¬ nment ofMadras had helped a Mr. Heatti to
set up ah iron works in Porto Novo in 1830’s, to enable India to compete “on highly favo¬ urable
terms with Swedish iron” in export of bar iron to England. Nowhere was there a consideration
that the needs of domestic industrialization or the imminent expansion of railways, would be
more profitable. The venture failed because the British iron industry itself grew very rapidly to
become an exporter ofthe same item. In 1903, Lord Curzon gave a substantial subsidy to the
British-owned Bengal Iron Woiks to produce steel. This too failed because of lack of interest of
English capitalists., Tata, who had been repeatedly denied permission since 1880, wasthen asked
to go ahead with his plans. His venture was now acceptable because Britain could not export
enough steel to India. Belgium and Germany had become the principal exporters to India[48], In
fact, as Tomlinson states[49], the colonial Indian government softened towards Indian
entrepreneurship in general in proportion to the British decreasing international competitiveness.
But British capital nevertheless remained confined to the extractive industries by choice. It is
interesting to note that Tata who thereafter went to England to raise the capital for the steel
industry project, had to return empty-handed after a yearofunsuccessful negotiations, even
though it was known to the English money market that it was a profitable venture. Tata thereafter
raised the entire capital of £1.63 million within three weeks in India itself, on the platform of
Swadeshi (roughly: national self-reliance), to become the lowest 32 Economic Growth in China
and India cost producer ofiron and steel in the world (Table 2.4). The hypothesisthat has
considerable support in evidence may be expressed as follows: The slow industrialization, or at
least the lack ofrapid industrial growth in India, cannot be attributed to the lack of native
entrepreneurship, insufficient size of the market, or the nonexistence of acceptable rates ofreturn.
It can, on the other hand, be ascribed to the unwillingness of foreign capital to enterinto the basic
industries despite the opportunity, and to the British Indian Government for placing obstacles in
the path of indigenous investment[50]. The goal of economic growth was never formulated by
the Government of India until it was transferred to Indian hands in 1947. On the other hand,
native business groups, such as Tatas, engineers such as Visweswarayya, political leaders such as
Dadabhai Naoroji, Tilak, and later Gandhi were fully seized by the need for industrialization
from their own special perspectives. It wasthe combina