Combination Movement in India | Reason for Slow Growth | Present Position

Combination Movement in India

The combination movement in India has not been so wide as it has been in some Western countries. In fact, the movement in Indian industry was altogether absent before 1921. However, the movement gained some ground afterwards. But its progress was very slow when compared to the advance countries like U.S.A., Canada, Germany and Japan.

Business Combination in India

Business Combination in India – Reason for Slow Growth, Present Status

Causes for the Slow Growth of the Movement

There are several reasons for the slow growth of the movement. Some of them are outlined below:

1. Slow Industrial Progress

Combination is the natural offshoot of an advanced industrial development. But our country was not industrially developed in the pre-independence period due to the deliberate attempt of the British Rulers.

2. Foreign Competition

Discriminatory protection was given to Indian enterprises only in the year 1921. Prior to this year, industries have to face stiff competition from foreign countries.

3. Size of the Units

The size of the industrial units was another factor, which hampered the progress of the movement. The business units were too small in their size and scattered over a wide area.

4. Managing Agency System

The existence of the managing agency system can also be cited as a cause for the slow progress of the movement. But it is not wholly true because the managing agency system itself is a form of combination.

5. Attitude of the Industrialists

The individualistic and sectional outlook of our industrialists had also arrested the growth of the combination movement in India. They were highly reluctant to form any sort of combination on the assumption that it could upset their independence.

6. The Government’s Policy

The Government always looked upon this movement indifferently. It has taken all kinds of measures to prevent the growth of combinations because it considered the combination as a social evil.

In spite of these limitations, the Business combinations in Indian industries are developing, particularly for the last forty years. The hardships, experienced by the industrialists during these periods made them to realise the need for some sort of unity between them.

Present Position of Combination Movement in India

The present position of the combinations in the industries of the nation may be studied under two heads namely,

  1. Industry-wise Combination, and
  2. Form-wise Combination.

1. Industry-wise Combination

A few horizontal combinations in the form of pools and cartels have emerged in some of the following Indian industries:

1. Jute Industry

The Indian Jute Mills Association (I.J.M.A.) was formed in 1886, with a view to control the productive capacity of the industry and to check the uneconomic fall in prices. Jute mill owners representing more than 95% of the trade are the members of the combination. It works as an output cartel. It has also established an institute of technology to promote research and technical development in the jute industry.

2. Cement Industry

The first attempt to form a combination was made in 1920 in the cement industry. It reputed in the formation of Indian Cement Manufacturers Association. In 1930 the Cement Marketing Company was formed with a view to control the price and avoid competition. It also undertook the distribution function on a collective basis.

This cartel, however, did not succeed in its attempt and so the Associated Cement Companies Limited (A.C.C.) was organized in 1937. To make this combination more effective, 11 cement companies went into liquidation. “Sahu Jain and Dalmia groups of cement factories”, however, left out this combination. The A.C.C. controls more than 70% of the total production.

3. Sugar Industry

The sugar industry is mainly concentrated in U.P. and Bihar. Prior to 1930, there were only a few sugar mills in these states. But the grant of protection in 1931, resulted in a phenomenal rise in the number of mills. Apart from the competition like Java, the internal competition also became more tense. Therefore, the Sugar Syndicate was formed in 1937 and roughly two thirds of the sugar factories participated in the combination. But the syndicate was dissolved in 1950 owing to the heavy pressure from the Government and partial control on sugar was imposed.

4. Paper Industry

The paper industry offers another excellent example of voluntary pooling agreements. Till recently only three mills, the Titaghur Paper. Mills, the Bengal Paper Mills and the Indian Paper Pulp Co. Ltd. Were in the field and enjoyed a virtual monopoly. They formed the Indian Paper Markets Association and worked in conjunction. The new mills, which came late into existence, also joined in it. This system still works more effectively.

5. Iron and Steel Industry

The steel Corporation of Bengal was formally consolidated by merger into the Indian Iron and Steel Company Ltd. in 1953, under the directive of the Government. Its management was taken over by the Government with effect from July 1973. The Steel Authority of India was set up in 1973 as a holding company to control the steel units in the public sector.

Besides these, pooling agreement is also found in match industry, shipping industry and petroleum refining industry.

2. Form-wise Combination

All combinations, irrespective of their forms, have been established in India either by mediate or immediate influence of the Managing Agency System. Combinations found in the Indian industries can be briefly discussed below:

1. Trade Associations

The Indigo factory owners made the earliest attempt in this direction. They have formed the Association of Indigo Planters in 1801. Most of the pioneers were European traders and merchants. During the early days, its progress was slow and only two associations, namely, The Calcutta Traders Association (1830) and The Madras Traders Association (1856) were formed in this period. There was a phenomenal growth of such associations after 1860.

The most important associations formed after this period were-

  1. Indian Tea Association,
  2. Indian Jute Mills Association (1884),
  3. Indian Mining Association (1892), and
  4. United Planters Association of Southern India (1898).

All these associations were formed by the Europeans to promote their interest and welfare. Indian businessmen also took keen interest in the formation of trade associations. Bombay Mill Owners Association was formed in 1875 due to the combined effort of the Indian and European businessmen.

At present, there are a number of trade associations at least one for each trade. According to the Directory compiled by the Indian Merchants Chamber, there are 836 associations throughout the country. Of which, 170 are general and 666 are sectional.

2. Chambers of Commerce

As in the case of trade associations, initiative in the formation of Chambers of Commerce had also been taken by the European. However, the India businessmen also joined with them later. The first Chamber of Commerce established by Europeans was the Bengal Chamber of Commerce (1834). Che first Chamber of Commerce of Indian businessmen was found in Kakinada in 1885.

At first, these Chambers were organized on a regional basis to serve the business people of their regions. Later, they were also organized on provincial or national basis. At present, besides the local chambers, there are 15 all India Chambers and 2 Federation of Chambers such as:

  1. The Associated Chamber of Commerce, Calcutta, and
  2. The Federation of Indian Chamber of Commerce, New Delhi.

3. Pools and Cartels

There are only a few examples of pools and cartels in the Indian business scene. Most of the pooling or cartel agreements are found in some of the industries like jute, cement, sugar, paper, petroleum, refining etc. They were all discussed in the beginning of this chapter.

4. Vertical Combination

Vertical combinations are found in iron and steel and sugar industries in India. The Tata groups have their own collieries and are mines. In the sugar industry, some of the concerns like Raza Sugar Mills of Rampur own sugar cane field and run their own breweries and confectioneries in addition to the manufacturing of sugar.

5. Community off Interest

The managing agency system is solely responsible for the development of community of interest in the Indian industry. According to a survey undertaken in 1955, it was brought to light that eleven leading managing agents were controlling 283 undertakings.

The British Managing Agency Houses like Andrew Yule, Martin Burn, Duncan Bros. and Indian Managing Agency Houses like Tatas, Birlas, and Dalmias were the most important of them. However, this system was completely abolished in 1970 by the Central movement in our country.

6. Holding Companies

This type of combination is not very popular in our country. Some of the examples of Holding Companies found in our country are

  1. Barrackpur Coal Company Ltd.,
  2. The Equitable Coal Company Ltd.
  3. The Shaw Wallace and Co, Ltd., and
  4. The Tea Estates Ltd.

7. Amalgamations and Mergers

This type of complete consolidation is also unfamiliar in our country. This is due to the dominance of the Managing Agents in the Indian business field. In the pre-independence period, amalgamations and mergers occurred in many industries like sugar, electricity, coal mining, jute, banking and textile industry. But its progress in the post-independence period was very slow.