This research has been supported, in part, by a project grant from the U.K. Social Science Research Council. Earlier versions of this article were given as seminar papers at Oxford in April 1976 and at the Institute of Commonwealth Studies, London, in October 1976. I am grateful to all members of these seminars and especially to Prof. L. S. Pressnell for help and encourgement.

¹ The standard works on the subject, both of which concentrate on the years after 1947, are Kidron, M., Foreign Investments in India (Oxford, 1965),Google Scholar and Kurian, K. M., The Impact of Foreign Capital on the Indian Economy (New Delhi, 1966).Google Scholar See also Patnaik, P., ‘Imperialism and the growth of Indian capitalism’, in Owen, R. and Sutcliffe, B. (eds), Studies in the Theory of Imperialism (London, 1972), pp. 210–29.Google Scholar

² ‘Multinational’ is used in this article to describe firms which have risen to prominence in the international economy since 1945 and which are made up of subsidiaries operating in several different countries, irrespective of the nationality of the owners of the parent firm or of any aspects of corporate policy. The usual definitions of ‘direct’ and ‘portfolio’ investment stress the presence of control over the recipient of its investment by the investing firm or institution in the former case, and the absence of it in the latter (see Dunning, J. H., Studies in International Investment (London, 1970), pp. 2–6). The problem with using this definition is that most analysists look for evidence of control simply in the formal organizational structure and ownership of the subsidiary firm, without asking whether and how such control is exercised in practice. This seems an insufficient basis for classification, just as a study of the formal constitutional structure of a state can give only a poor idea of the real bases of political power within it. However, for the want of anything better, these standard definitions are used in this article.Google Scholar

³ For summaries and critiques of these estimates, see Banerji, A. K., India's Balance of Payments 1921–2 to 1938–9 (London, 1963), pp. 149–68,Google Scholar and Reserve Bank of India, Census of India's Foreign Liabilities and Assets as on 30th June 1948 (Bombay, 1950), Appendix I.Google Scholar

⁴ One crore=ten million, usually written 1,00,00,000: one lakh=one hundred thousand, usually written 1,00,000.

⁵ Banerji, , India's Balance of Payments, pp. 171, 175 and 183. All public debt and municipal and port trust borrowings have been excluded.Google Scholar

⁶ Their assets were dealt with separately and calculated to be a total of Rs 15.86 crores (Rs 9.08 crores of which was in business). See R. B. I., Census…1948, pp. 141–2.Google Scholar

⁷ R. B. I., Census…1948, p. 86.Google Scholar

⁸ R. B. I., Bulletin (April 1960), p. 477; (October 1962), p. 1542.Google Scholar

⁹ Banerji, , India's Balance of Payments, pp. 147, 188, 192 and 195.Google Scholar

¹⁰ Economic Journal (June 1933), p. 201.Google Scholar

¹¹ Board of Trade Journal, 15.11.56, pp. 1080 and 1086.Google Scholar

¹² In this article the term ‘managing agencies’ is used to cover both actual managing agencies and the large Anglo-Indian trading, shipping and banking firms of which agency houses often formed a small part. For more details on the structure and operations of British and expatriate enterprise in India in the nineteenth century, see Lokanathan, P. S., Industrial Organization in India (London, 1935),Google ScholarAnstey, Vera, The Economic Development of India (London, 1929),Google Scholar and Bagchi, A. K., Private Investment in India 1900–1939 (Cambridge, 1972).CrossRefGoogle Scholar

¹³ However, some nineteenth-century foreign investment in India looks more like what is usually called direct than what is usually called portfolio, as the managing agencies themselves usually had control over the companies they managed. Therefore investment in those companies by the agency houses, or by the groups of which they formed a part, was investment with control, even if it was not large enough to give a controlling interest of the share capital.

¹⁴ See R. B. I., Census…1948, and Bulletin (April 1960), (October 1962) and (August 1970).Google Scholar

¹⁵ R. B. I., Census…1948, pp. 35–7.Google Scholar

¹⁶ But a number of the nineteenth-century groups, Inchcape for example, also had subsidiary companies registered in India.

¹⁷ Department of Law and Company Administration, Progress of Joint-Stock Companies in India (Delhi, 1955), pp. 45–6.Google Scholar

¹⁸ See Bagchi, A. K., ‘Foreign Capital and Economic Development in India: A Schematic View’, in Gough, Kathleen and Sharma, Hari P., Imperialism and Revolution in South Asia (New York, 1973), pp. 43–76.Google Scholar

¹⁹ The formal control exercised by multinational companies was probably stronger than that of the managing agencies. The authority of a managing agency rested, in most cases, on an agreement with the directors and the consent of the shareholders of a managed enterprise. Often this gave the agency house solid control but, although some boards of directors were simply packed with the holders of multiple directorships who were also partners in the managing agencies, other boards were not just cyphers. Further, during and after the Second World War many British agency houses discovered that changes in the composition of the shareholders could lead to a vote to terminate their agreements. See Kurian, , Impact of Foreign Capital on the Indian Economy, p. 71Google Scholar and Hazari, R. K., The Corporate Private Sector (New Delhi, 1966), pp. 11–13.Google Scholar

²⁰ Here multinational companies were probably a stronger force, for the activities of most managing agencies were limited to India and Britain.

²¹ Kidron, , Foreign Investments in India, p. 6.Google Scholar

²² R. B. I., Census…1948, p. 73.Google Scholar

²³ Hazari, , The Corporate Private Sector, pp. 116–25.Google Scholar

²⁴ R. B. I., Census…1948, p. 73.Google Scholar

²⁵ Nigam, R. K., Managing Agencies in India: First Round, Basic Facts (New Delhi, 1957), pp. 56–9. Two qualifications must be made to this picture. Firstly, these statistics deal only with the companies managed by the agencies themselves and not with those which were a part of the larger groups of which the agencies were also a part. Secondly, as Appendix II to this article makes clear, some managing enterprises had moved into new industrial sectors in partnership with British manufacturers.Google Scholar

²⁶ R. B. I., Foreign Collaboration in Indian Industry—Survey Report (Bombay, 1968), p. 14.Google Scholar

²⁷ R. B. I., India's Foreign Liabilities and Assets 1961—Survey Report (Bombay, 1964), pp. 80–2.Google Scholar

²⁸ R. B. I., Census…1948, p. 77.Google Scholar

²⁹ Using the Reserve Bank of India classification.

³⁰ These totals have been calculated from R. B. I., Census…1948, pp. 57–8, 59, 66, 68–9, 71–2, 73–4 and 75–6. The terms ‘old’ and ‘new’ sector need to be refined further, but, for the present, cotton textiles, jute, sugar, railway stores and millwork have been included under the ‘old’ sector and chemicals, paints and varnish, electrical goods and food products under the ‘new’ sector. Ambiguous categories, such as iron and steel, have been omitted from the calculation.Google Scholar

³¹ R. B. I., Foreign Collaboration…Survey Report, p. 14.Google Scholar

³² For a tabular statement of the results of this survey and a discussion of the sources used in it see Appendix II at the end of this article.

³³ Registrar of Joint-Stock Companies, West Bengal file 2030 and file 1798.

³⁴ Ibid., file 2030 and file 1985.

³⁵ Even the marketing companies sometimes dealt in unlikely products. A major part of the business of I.C.I. (India) Ltd in the early 1930s was the buying and selling of old newspapers. See Reader, W. J., Imperial Chemical Industries, A History: Volume II 1926–1952 (London, 1975), p. 200.Google Scholar

³⁶ Mansergh, N. (ed.), Constitutional Relations between Britain and India: The Transfer of Power 1942–7, Vol. V, No. 232 enclosure.Google Scholar

³⁷ It is also interesting that multinational companies do not seem to have moved into the most profitable sectors of the inter-war Indian economy, at least as reckoned in terms of average dividends as a percentage of ordinary capital. The highest average dividends for this period come from the ‘old’ foreign sector—Jute 41% (this figure is distorted by the phenomenal profits of the years from 1918 to 1921), Coal 10%, Tea 15%; and industries dominated by Indian capital—Cotton 21%, Sugar 12%, Flour Mills 19%, Cement 23%, Paper 20%. Chemical industries averaged only 8%. See Gopal, M., The Theory of Excess Profits Taxation (Mysore, 1947), pp. 96–7,Google Scholar quoted in Spencer, D. L., India: Mixed Enterprise and Western Business (The Hague, 1959), pp. 216–17.CrossRefGoogle Scholar

³⁸ Registrar of Joint-Stock Companies, West Bengal file 8539.

³⁹ See Government of India Department of Industries and Labour, Stores Branch, File S-217(98) of 1931, Appendix to Notes (National Archives of India, New Delhi), and Department of Overseas Trade, Conditions and Prospects of United Kingdom Trade in India 1937–8 (London, 1939), pp. 23–4, 138–40.Google Scholar

⁴⁰ See SirTownend, Harry, A History of Shaw Wallace and Co. (Calcutta, 1965, private), pp. 173–4, and Registrar of Joint-Stock Companies, West Bengal file 7026.Google Scholar

⁴¹ Hazari, , The Corporate Private Sector, p. 60.Google Scholar

⁴² Kidron, , Foreign Investments in India, p. 10.Google Scholar

⁴³ Of enterprises listed in the Indian Investor's Year-Book in 1925–1926, 4 cotton mills had British boards, 22 Indian and 40 mixed (with 2 unknown); 21 jute firms had British board and 25 mixed (with 2 unknown); 71 other firms had British boards, 14 Indian and 50 mixed (with 6 unknown). In 1938–9 no cotton mills had British boards, 21 had Indian and 36 mixed; 18 jute firms had British boards, 10 had Indian and 32 mixed; 2 sugar factories had British boards, 13 had Indian and 12 mixed; 159 other firms had British boards, 35 had Indian and 192 mixed.Google Scholar

⁴⁴ Quoted in R. B. I., Census…1948, p. 15.Google Scholar

⁴⁵ Shirakov, G. K., Industrialisation of India (Moscow, 1973), p. 49.Google Scholar

⁴⁶ Hazari, , The Corporate Private Sector, pp. 124–5.Google Scholar

⁴⁷ See, for example, Hopkins, A. G., An Economic History of West Africa (London, 1975), pp. 237–92.Google Scholar

⁴⁸ For a description of the atmosphere in one such company on the eve of the Second World War see Tandon, Prakash, Beyond Punjab (Berkeley, 1971).Google Scholar

⁴⁹ However, this was not universally recognized in Britain at the time. The Conservative caretaker government of 1945 held fast to outdated ideas of the statutory protection of British expatriate business interests in India and wrecked the Government of India's first tentative plans to encourage industrial development for that reason. See Transfer of Power, Vol. V, Nos. 418, 432, 438, 447, 456 and 469. On the other hand, the pages of Capital make clear that, by 1947, the expatriates themselves had realized that their best chance of survival was to try to make friends with the Indian Government, not to look to London for help. See Capital, 21.3.46, 11.4.46, 18.4.46, 23.5.46, 20.6.46, 2.11.46, 27.2.47 and 17.7.47.Google Scholar

⁵⁰ Transfer of Power, Vol. III, No. 5.Google Scholar

⁵¹ As the India Office and Board of Trade memorandum already quoted pointed out: ‘Such developments [the establishment of manufacturing subsidiaries in new sectors of the economy] are generally in the interest of the United Kingdom as well as of India and conducive, in the long run, to the maintenance and strengthening of our position in the Indian market.’ Transfer of Power, Vol. V, No. 232 enclosure.Google Scholar

⁵² See Central Office of Information, Economic Co-operation between India and the United Kingdom (London, 1961), pp. 6–7,Google Scholar and Saul, S. B., Studies in British Overseas Trade 1870–1913 (Liverpool, 1960), Ch. VIII.Google Scholar

⁵³ See Lipton, Michael and Firn, John, The Erosion of a Relationship: India and Britain since 1960 (London, 1975), pp. 36–7 and 115–18.Google Scholar