Community Networks and Capital Flows in Colonial India: A Tale of Two Cities

This paper seeks to explain the pattern of industrial investment in India under British rule. While the export oriented industries, such as tea and jute relied largely on British investment, the major import substituting activity, the cotton textile industry, was dominated by Indian owned firms. While the existing literature has explained the dominant role of British investment mainly using political and social advantages arising from the imperial domination of policy and its access to economic and social networks, this paper argues that informational factors play an important role in determining this industrial divide. British entrepreneurs had good knowledge of the export market, in the mother country, that Indians did not have. On the other hand, Indian industrial entrepreneurs had extensive knowledge of the local market, coming from their background in trade. Thus the divergent flow of entrepreneurship can be explained by the comparative advantage that each type of had, Indians for the import substituting industry, and British for the export industries.The paper emphasizes the role of community networks in determining entry into industry. 1 Thanks to V. Bhaskar for valuable discussions. I am grateful to the Economic and Social Research Council, UK, for its support under research grant R000239492. I thank the staff of the following archives and libraries: Bodleian Library (Oxford), University of Dundee Business Archives, South Asian Studies Library (Cambridge), British Library, Bombay Millowners Association Library, London Guildhall Library and the National Library (Kolkata).