8. The 1930s: Failure in Export-Oriented Development and Conservative Attitudes Towards Further Expansion

The facts presented in 8.1, 8.2, and 8.3 was originally published in Nomura 2012.

The urban population grew to 31 million, 37 million, and 49 million in 1921, 1931, and 1941, respectively, from the 27 to 28 million during the three previous decades (Visaria and Visaria 1983, p. 519), as “large cities with a population of 500,000 or more (in 1891) had grown much faster than other centres” (ibid., p 521). Since per capita consumption of steel in larger cities is considered to have been much larger than that of smaller cities, steel demand for construction purposes may have increased much faster than the rate of urbanization from the 1910s on.

Almost 100% of rail, fishplate and sleepers were for the railway industry. Boom, billet and slabs, all of which are intermediate products, were destined for further working into bars, sheet, tubes, forgings, and other products.

The high rate of self-sufficiency in the second half of the 1910s was a result of the temporary suspension of steel imports during the First World War.

Dalal to Saklatvala, 14 May 1934 A. Dalal Papers, File C-48, Tata Steel Archives, Jamshedpur, India (TSA). In his reply, Saklatvala shared Dalal’s view (Saklatvala to Dalal, 18 May 1934, A. Dalal Papers, File C-48, TSA).

Minutes of the meeting of the board of directors on 4 May 1931, Ginwala Papers, Box 22, File Minutes of Board Meetings, p. 2, TSA.

Ibid., p. 3.

Padshah to TISCO, 9 July 1931, Ginwala Papers, Box 22, File regarding export of sheet bar and billet mill products, TSA.

J. R. D. Tata to Mather, 22 March 1932, ibid.

Mather to J. R. D. Tata, 9 April 1932, ibid.

Supply of iron and steel material to the Afghanistan government by TISCO, 1939, Department of External Affairs (Frontier), pro. 418- f/39, p. 2, National Archives of India, Delhi, India (NAI).

Supply of iron and steel material to the Netherlands East India government and purchase of iron and steel materials by Borneo from TISCO, 1939, Department of External Affairs (External), pro.1-8, file no. 667-x/39, NAI.

Circular on production programme 1931–1932 by N. B. Saklatwala, 20 July 1931, Ginwala Papers, Box 22, File paragraphs in report of action taken by the Board on 1931–1932, pp. 3–4, TSA.

This does not mean that TISCO completely lost all incentive to grow. As we have shown in the first half of this chapter, TISCO continued to make improvements in productivity even under tariff protection. The remaining part of this chapter will show that while the Tatas maintained hopes of improving day-to-day operations, they abandoned the kind of entrepreneurship geared to long-term sustainable expansion throughout the 1930s.

For more details on attempts to launch iron and steel works jointly by the Tatas and others, see Tomlinson (1981, pp. 455–86).

Extract from Commerce, 21 September 1935, Benthall Papers, Box 6, File iron and steel 1935, p. 163, Cambridge South Asian Archive, Cambridge, UK (CSAA).

Extract from Commerce, 7 September 1935, Benthall Papers, Box 6, File iron and steel 1935, p. 223, CSAA.

E. C. Benthall to McKerrow, 23 September 1935, Benthall Papers, Box 6, File iron and steel 1935, p. 154, CSAA.

E. Benthall to Morton, 15 December 1937, Benthall Papers, Box 13, File general correspondence 1937/38, p. 99, CSAA.

E. C. Benthall to McKerrow, 31 August 1935, Benthall Papers, Box 6, File iron and steel 1935, p. 238, CSAA.

Saklatvala to E. C. Benthall, 1 September 1935, Benthall Papers, Box 6, File iron and steel 1935, pp. 211–20, CSAA.

Memorandum of conversations with Sir Andrew Duncan at the Caledonian Club on 1 November 1935, Benthall Papers, Box 6, File iron and steel 1935, pp. 75–9, CSAA.

Mookerjee to Saklatvala, 16 October 1935, Benthall Papers, Box 6, File iron and steel 1935, p. 97, CSAA.

E. C. Benthall to Saklatvala, 29 October 1935, Benthall Papers, Box 6, File iron and steel 1935, pp. 91–2, CSAA.

Speech delivered by Sir Nowroji Saklatvala at the annual general meeting of shareholders of the Company on 25 May 1937, p. 2, Chairman’s Speech, TSA.

Confidential circular on extension, 4 December 1937, Visvesvaraya, Papers, File 9 tube production 1937, TSA. A similar view is expressed in a letter from Saklatvala to A. Dalal (22 August 1935, A. Dalal Papers, Box 48 File C 48, TSA).

Such persistence in holding dominant controlling power over newly established companies based on shareholding was evident in the attitudes of leading British managing agents, such as Bird, toward the major jute mill companies (Nomura 2014, pp. 95–132). According to Chandler, a similar attitude was often seen among British industrialists, writing, “British industrialists appear in general to have had a distrust or dislike of losing personal control over enterprises they had either created or inherited” (Chandler 1990, p. 286). The Tatas during the 1930s seemed of like mind.

Capital Works Programme by A. R. Dalal, 8 October 1934, General Managers’ Correspondence Papers, File 163 part 2, pp. 173–4, TSA.

“…as a new investment opportunity in the shape of possibilities of substitution of imports by domestic production opens up because of, say, tariff protection, there is at first a rush for investment in the industry…Whether, in fact, investment in all the industries follows paths… depends partly on the ‘animal spirits’ of the entrepreneurs [quoted from J. M. Keynes, The General Theory of Employment, Interest and Money]” (Bagchi 1972, pp. 14–5).

Simmons (1987, pp. 621–2) has positively assessed the influence of tariff protection over manufacturing sector growth from the end of the 1920s, while Bagchi notes tariff protection’s tendency to tame entrepreneurship. To wit, “[after introduction of tariff protection] the experience of the iron and steel, and cement and paper industries shows how established producers can try to use price-fixing and market-sharing agreements to keep up their own profits and make it more difficult for new firms to encroach on their preserves. The increase in the degree of tariff protection for the cotton-mill industry and later the restriction of Japanese exports of cotton goods to India under a quota system may have led to a slowing down of technical change in the cotton-mill industry in the form of adoption of automatic looms…But in all cases considered the computation of the cost of tariff protection by taking the cost condition in the Indian industry at the beginning of effective tariff protection and comparing them with world price would almost certainly lead to an over-estimation of the ultimate cost of tariff protection to the consumer, granting that such comparisons do have a bearing on the right policy to adopt” (Bagchi 1972, p. 33). Here we have considered the latter half of Bagchi’s understanding of the influence of tariff protection on the manufacturing industry in colonial India not being applicable to the case of TISCO during the 1930s when it was enjoying huge profits.

Roy (2017) also pointed out that the tariff policy indifference to efficiency appeared in the 1930s. He wrote that ‘a colonial efficiency-constrained protectionist industrialization policy’ gave way in the decade to ‘an entitlement for indigenous capitalists and an instrument to serve the ‘national interest’’, which formed the foundation of the import substituting industrial policy of independent India. Roy attributed this change to ‘the aspirations of nationalistic businesses’. Such aspirations were cherished in other countries such as imperial Japan, where this aspiration harmed industries’ efficiency to a lesser extent. More studies are needed to clarify background of why India’s aspirations for nationalistic business demanded tariff protections ‘excessively’ after the 1930s despite India having a business person like B. J. Padshah, who, as we have seen in Chap. 6, Sect. 6.​7, believed that ‘Protection is poison’. One of the reasons for the ‘excessive’ aspiration for tariff protection might be nationalistic business persons’ strong understanding that tariff protection was the only way to protect an indigenous industry under the ‘imperial commitment’.