Indian Capitalist Class and Freedom Movement

This article deals with ‘ Indian Capitalist Class and Freedom Movement– UPSC.’ This is part of our series on ‘Modern History’ which is important pillar of GS-1 syllabus . For more articles , you can click here

Growth of Indian Industry

Till end of World War I (WW I) , sizable industrial enterprises came up in India & during interwar years, due to various reasons,  it further strengthened .

Reasons of Formation of Indian capitalist class

• Growing tendency towards  import substitution in consumer goods
• Growth in internal trade
• Shifting of internally accumulated capital through trade , moneylending & landowning to industrial investment
• Outflow of foreign capital creating space for indigenous entrepreneurs
• This development happened when Indian capital moved to industries hitherto not developed by foreign capital eg sugar,cement , iron & steel etc 

Note – Till 1944, 62% of larger industrial units controlling 58% of labour force were controlled by Indian capital & smaller industrial units accounted 95% control of Indian capital.

Important points to note about Indian Capitalist class & Nationalism

Economic development of Indian capitalist class in colonial period was substantial & different from usual experience in other colonial countries

• Modest growth in Indian industrialization took place not because of colonial rule but inspite of it . They were in no way junior partners of the Colonists and grew independently.
• They were not junior partners & came up with Indian capital

Attitude of Indian Capitalists towards National Movement

To consolidate their position, they started to organise themselves . Hence, Bengal National Chamber of Commerce came in 1887 & Indian Merchants Chamber in 1907 in Bombay.

1. Before World War I (WWI)

• Historians are divided about their attitude during this period
  • Bipin Chandra : Indian Capitalist Class had developed a long term contradiction with imperialism while retaining a relationship of short term dependence on & accommodation with it . In long run the capitalists desired the end of imperial exploitation and the coming of a nation state. They preferred a nationalist movement within the safe and acceptable limits not guided by left wing radicals but in reliable hand of right wing moderates
  • Aditya Mukherjee : He spoke of multi pronged capitalist strategy to overthrow the Imperialism & maintain Capitalism . They were afraid of organised labour , left wing radicalism and mass movement but as safeguard against these , they didn’t surrendered to Imperialism. Hence, they evolved a strategy to guide nationalist movement into path of constitutionalism & patronised right wingers in Congress
  • Marxist View : They viewed capitalists as matured class with well defined anti imperialist ideology in a way which suits them to maximise their profits
  • Gordon : He makes distinction between the merchants and the industrialists. While the merchants were nationalists but industrialists were the traditional allies of the Raj

Best Explanation : Indian Business men  were guided by pragmatic approach to issues as they arose maintaining the policy of equidistance or avoiding a tilt either in favour of Congress or Government for fear of antagonising or alienating either of them . At this time, they were not constituted as a class and didn’t pull together , had divided interests , clash of ideas and contradiction of strategies. Hence, we cant speak about this period in generalised term and this is reason why different historians gave different views.

• As far as the Colonial Authorities were concerned , the Indian businessmen were both co-operating and opposing at the same time and thus their attitude preclude any clear cut generalisation .

2. During World War

Attitude of the British Capitalists in India insisted on their racial exclusivism & autonomy  as they were averse to granting any concessions either to Indian politicians or businessmen. But these things didn’t brought Congress and business men on same platform rapidly .

• World War and the period immediately after it brought mixed fortunes for Indian business communities.
  • While the industrialists prospered due to wartime developments, the merchants suffered due to currency fluctuations . The rupee collapsed in December 1920, threatening the Indian importers with a possible loss of nearly 30 per cent on their previous contracts; but this helped the Indian exporters and mill owners.
  • The high wartime taxation affected everybody, but the particular changes in the income tax law hurt the indigenous joint family businesses, as their accounting system did not fit in well with the requirements of filling tax returns under the new law.

Marwari and Gujarati traders were aggrieved with the government’s taxation and currency policies but industrialists and big businessmen were less concerned, as the government was also trying hard to buy their support.

• The Montagu-Chelmsford Reforms in 1919 introduced the system of “interest representation”, thus giving Indian business-along with labour-representation in the central and provincial legislatures. 
• Fiscal Autonomy Convention in 1919 and the promise of a policy of “discriminatory protection” after 1922 brought the hope of protective tariffs.

Therefore, when mass nationalism started with the advent of Gandhi, it evoked mixed responses from India’s business communities.

3. Non Cooperation Movement

• Marwari and Gujarati merchants
  • They were deeply religious, were drawn irresistibly towards Gandhi as they could find common ground in his Jain and Vaishnava philosophy. His emphasis on non-violence was reassurance against any kind of political radicalism; and his “trusteeship” theory legitimised wealth. Hence, they happily contributed for Gandhi’s constructive program. 
  • When the Non-cooperation movement started, the cotton merchants again supported the boycott movement and donated generously to the Tilak Swaraj Fund.
• But industrialists on the other hand remained silent, or opposed mass agitation outright. An Anti-Non-cooperation Society was started in Bombay with the blessings of Purushottamdas Thakurdas and funds from R.D. Tata. Small section of the capitalists, including Purshottamdas, openly declared themselves enemies of the Non- Cooperation Movement.

4. During Swarajist Times

• After 1922 due to the deteriorating economic conditions all sections of the Indian business community were drawn more closely to the side of nationalism, the industrialists included.
  • Wartime boom collapsed in 1921-22 and was followed by a slump in the industry throughout the 1920s.
  • Non-saleability of goods and large unsold stocks were accompanied by rising labour costs.
  • Situation for the Bombay cotton mill owners was further worsened by their dependence on imported yarn and the growing competition from cheap Japanese goods that started inundating Indian markets from around this time.

Their major grievance at this stage was against the 3.5% excise duty on cotton, for the abolition of which they now joined hands with the swarajists in the legislative assembly

5. Between Non Cooperation Movement (NCM) & Civil Disobedience Movement (CDM)

• In 1921, the European Trading Organisations formed an apex body called Associated Chambers of Commerce (ASSOCHAM) . In response in 1927, the Indian capitalists despite their differences and clash of interests formed their own organisation , the FICCI with Purshottamdas Thakurdas at its helm.
• The battle-lines were further drawn as depression touched India with all its fury in 1929. The government was in desperate need of additional source of revenue & looked towards cotton duties. Cotton duties  were increased from 11% to 15% but nothing was done wrt increasing import duties from textile coming from Lancashire. This irked Indian Industrialists & drew widespread protest from the nationalists with Birla and Thakurdas resigning from Legislative Assembly in protest
• Other source of irritant was artificially fixed high Rupee-Sterling Ratio (1 ₹ =1.06 £ as prescribed by Hilton -Young Commission). The government tried to maintain this high exchange value of ₹ in order to ensure flow of remittances from India & maintain India’s creditworthiness. This was also favourable for British exporters to India but disadvantageous for Indian Exporters . Agricultural exports also suffered because of this . Businessmen wanted lower rate of 1.04 £ as best suited to Indian economic recovery and Currency League was formed  in 1926 with blessings of Gandhi. This currency debate was drawing Congress and Businessmen closer together on a common platform
• But traditionally business groups don’t favour agitational politics. They favour constitutionalism and pressure group politics and since after NCM ended, there wasn’t any agitational program going on, all was well between Congress and Business groups. They were jointly raising voice on raising duties on cotton piece goods against Japanese Competition, currency policy etc . Businessgroups were donating money for Gandhi’s constructive program and Swarajist’s campaign funds but dilemma of supporting Gandhi again came on scene when question of Civil Disobedience came to forefront. Many were still of the view that agitational politics was risky proposition but others believed that this was the only way of getting some concessions from the government. They were happy to hear the news of call of 1st Round Table Conference but their hopes dashed away when Congress passed Lahore Resolution of Complete Independence which sounded too radical. Yet they remained with Congress because of the fear of Communism and threat of continued Labour Strikes if they opposed Congress.
• Large scale labour strikes were going on under Girni Kamgar Union and due to red scare , Dorabji Tata offered proposal to form Indo-European political organisation of the Capitalists to contain communism. Birla and Thakurdas intervened against it and thus open rift with nationalists was averted.

6. During Civil Disobedience Movement

• Thus for various reasons , all sections of Indian Business class started to come near Congress from 1930 & Congress too was sensitive to their interests . When Gandhi announced 11 Points ultimatum to Irwin , it contained 3 specific capitalist demands ie ₹-£ exchange rate , protection of Cotton industry and reservation of coastal shipping for Indian companies (for Walchand Hirachand  and Lalji Naranji’s Scindia Merchant Shipping).
• But when CDM started their response was mixed .
  • Cloth merchants particularly importers supported it by refusing to use foreign goods for specific period
  • Mill owners were nervous and offered little support
  • Bombay industrialists like Tatas (Steel) who depended on Government orders remained skeptical
  • But complete neutrality would have been suicidal , hence FICCI supported principles of the movement & condemned police brutality
• The growing civil unrest not only hampered day to day business but raised the chances of social revolution . They clearly towards the end of movement wanted to get back to constitutionalism and leaders like Birla and Thakurdas preferred to play the role of honest brokers between Congress and the government. If Gandhi signed Truce with Irwin, business pressure was certainly one of the factor in that   
• Before the 2nd Round Table Conference, Government tried to win over business interests by offering them concessions but Thakurdas and Birla which were presenting business interests in Round Table Conference  strictly adhered to Gandhian line in all negotiations on economic matters.
• But they didn’t want to go back to agitational politics when 2nd Round Table Conference ended without result . When Congress announced second CDM in 1932, Business Community broke to various warring factions.

Note – Clear divide was there in Business interests. Each group wanted to secure their benefits which became clear in Lees-Mody Pact of 1933. In this, under the Leadership of Mody of Bombay Cotton Mill Owners , who produced coarse cotton , were prepared to accept preference to Lancashire. In the new policy, Import Duty was applied on Cotton with exception of Lancashire Cotton. Hence, Japanese Textile which competed with Bombay Cotton (Coarse) was to be charged with Import duty making them uncompetitive but nothing was done wrt Lancashire Textile which competed with Ahmedabad Cotton Mills . 

Side note – Why their attitude changed after Gandhi’s arrival

• His approach was non violent – capitalists always want peace to flourish their business
• Jain & Vaishnav tradition – most marwari & gujarati same
• His trusteeship theory legitimised wealth
• Although his ideology was not based on capitalist interest but since he was against class politics , these concepts were attractive to them & they happily associated with him

7. After Civil Disobedience Movement (CDM)

• After CDM was suspended in 1934 , it was welcomed by all Business groups. But the major alarming signal now came from the strong rise of Socialism under Jawahar Lal Nehru , Subhas Bose and Congress Socialist Party . However, this Red Scare didn’t throw them into the arms of imperial authorities. Their strategy was to patronise the right wingers within Congress ie people like Vallabhbhai, Rajaji , Rajendra Prasad etc and throw lot behind Gandhi. Gandhians too were eager to get capitalist support and their financial backing to get their lost control over Congress back.

• Major interests of the capitalists at this juncture were to keep the Congress within the bounds of constitutional politics and to clip its socialist wings. For this, they were even prepared to meddle in the internal politics of the Congress. The ‘Bombay Manifesto‘, signed in 1936 by twenty-one Bombay businessmen, contained an open indictment of Nehru’s preaching of socialist ideals, which were deemed prejudicial to private property, and to the peace and prosperity of the country. Although it did not evoke support from any other section of the business community, it strengthened the hands of the moderates within the Congress, like Bhulabhai Desai and G.B. Pant, who put pressure on Nehru to tone down his socialist utterances. The Congress decision to participate in the election of 1937 and accept office thereafter brought the capitalists closer to it.

• Indeed, when the Congress formed ministries in eight provinces, it evoked jubilation and expectations from both labour and capital and the party had to continually balance between the two contradictory interests. During the first two years in office, trade union activities and labour unrest increased phenomenally in the Congress- ruled provinces, particularly in Madras and the United Provinces and the Congress ministries had to adopt a number of resolutions implementing the labour welfare programmes, which it had promised during the election. This irritated the capitalists no doubt, but what further added to it were the conservative economic and fiscal policies of the provincial governments. Faced with financial stringency, these governments had very little choice but to increase taxes, like the property tax or sales tax, which the business did not quite like. They now closed ranks and this alarmed the Congress high command. Therefore, by the spring of 1938, there was a remarkable change in Congress policies, as it tried to placate capitalist interests. The most authentic manifestation of this shift was in its labour  policy which resulted in passage of Bombay Trade Disputes Act , 1938 aimed to prevent strikes but tilted heavily in favour of Capitalists.

8. During Quit India Movement (QIM)

• 5 August 1942, four days before the launching of the Quit India Movement, Purshottamdas, J.R.D. Tata and G.D. Birla wrote to the Viceroy that the only solution to the present crisis, the successful execution of the war and the prevention of another civil disobedience movement was ‘granting political freedom to the country even during the mid of war . But when QIM started with this demand, they were reluctant to support and assured Viceroy opposition to that
• However, once the storm was over, they again came on side of Congress.
• Congress too after the defeat of QIM came under the control of conservatives which preferred  collaborating with the capitalists and remain strictly within the path of  constitutionalism.

Economic Planning & Capitalists

• Some business leaders actively participated in economic planning process initiated by socialist thinking of Nehru
• Under President ship of Bose , congress constituted First planning committee in 1938 & it included Thakurdas, AD Shroff, Walchand Hiracahnd & Ambalal Sarabhai
• Idea of planning was further evinced when in 1944 they independently produced what was known as Bombay plan . It anticipated in a real sense 5 year plans & industrial policies of future congress government 

But why they did this?

From Sumit Sarkar – more far-sighted sections of the bourgeoisie in an under-developed country would be quite ready to accept a measure of state regulation, planning, public investments in basic industries to create a favourable infra-structure for their own growth, and even ‘socialist’ rhetoric—so long as socialism did not mean wholesale nationalization along revolutionary lines. Subhas Bose’s initiative in starting a National Planning Committee in October 1938 under Nehru was thus quite eagerly accepted by Indian businessmen.

End words

• Quite significantly, the Indian capitalists never saw the Congress as their class party or even as a party susceptible only to their influence. On the contrary, they saw the Congress as an open-ended organization, heading a popular movement, and in the words of J.K. Mehta, Secretary, Indian Merchants’ Chamber, with ‘space in it for men of all shades of political opinion and economic views,’ and therefore, open to be transformed in either the Left or the Right direction.
• The maturity of the Indian capitalist class in identifying its long term interests, correctly understanding the nature of the Congress and its relationship with the different Classes in Indian society, its refusal to abandon the side of Indian nationalism even when threatened by the Left or tempted by imperialism, its ability to project its own class interests as societal interests, are some of the reasons (apart from the failure of the Left in several of the above directions) which explains why, on the whole, the Indian national movement remained, till independence under bourgeois ideological hegemony, despite strong contending trends within it.
• Thus, throughout the period under review the relationship between the Indian capitalists and the Congress remained strategic, issue-based and even pragmatic. The former’s commitment to nationalism  was not certainly about business interests and support for Congress was strictly conditional. But they were neither loyalists not unpatriotic and they agreed despite reservations with many aspects of Congress program