Question

Directions for questions 15 to 20: Read the passage below and answer the question that follows.

A major problem of Indian industrial and commercial development was the supply of capital. Until 1850, British capital was shy of Indian adventure. The risks and unknown factors were too great, and prospects in other directions too bright. The working capital of the agency houses after 1813 at first consisted mainly of the savings of the Company's servants. Their cries of woe when these houses fell as in the crisis of 1831 were loud and poignant. Indian capital was also shy for different reasons. It needed to acquire confidence in the new regime, and outside the presidency towns, to acquire the habit of investment. Investment for large-scale production for 'enabling' works like railways was an unfamiliar and suspected practice. Thus the first big developments came when European capital was coaxed into the country by government guarantees or went of its own free will to develop industries with which it was already familiar as in the case of jute or coal. Indian capital followed where it was in touch with European practice as in Bombay and dealing with familiar products like cotton. These considerations throw into all the greater relief the achievement of the Tatas in developing iron and steel. Thus the major part of the capital provided was British with a steadily increasing Indian proportion from 1900. As late as 1931-32 the capital of companies registered abroad was nearly four times that of companies registered in India. But this is not an exact guide because it leaves out of account the stock in British companies held by Indians, as well as government stocks. Speaking generally it may be said that the capital of the cotton industry was mainly Indian, that of the iron and steel industry entirely so, that of the jute industry about half and half, while the coal and plantation industries were mainly British, together with that used for the building of railways, irrigation, and other public works. Management in the cotton and steel industries was mainly Indian though European technicians were freely employed, that of the jute, coal, and the plantation industries being European, the jute men in particular being Scotch. Their capital, apart of course from government enterprise, operated through joint-stock companies and managing agencies. The latter arose through the convenience found by bodies of capitalists seeking to develop some new activity and lacking any Indian experience, of operating through local agents. It arose in the period after 1813 when private merchants took over the trade formerly monopolized by the Company. The money would be found in Britain to promote a tea garden, a coal mine, or a jute mill, but the management would be confided to a firm already on the spot. The managing agency was the hyphen connecting capital with experience and local knowledge.

Until 1914 the policy of the government continued in the main to be one of 'enabling' private capital and enterprise to develop the country. Direct promotion was confined to public utilities like canals and railways. The line between enabling and interfering action became distinctly blurred, however, in the case of the cotton industry and there was a tendency for enabling action to pass over into the positive promotion of particular projects. This was most noticeable in the time of Lord Curzon with his establishment of an imperial department of agriculture with a research station at Pusa and a department of commerce and industry presided over by a sixth member of the Viceroy's Council. The first World War began the transition to a new period of active promotion and positive support. As the conflict lengthened there arose a demand for Indian manufactured goods. India failed to take full advantage of this opportunity, partly because of uncertainty as to the future and partly because the means for sudden expansion were lacking. The outcome of this situation was the appointment of an industrial commission in 1916 under pressure from London. The commission criticized the unequal development of Indian industry which had led to the missing of her war opportunity. A much closer co-operation with industry was planned through provincial departments of industry. Increased technical training and technical assistance to industry was proposed while it was suggested that the Central government should set up a stores department which should aim at making India self-sufficing in this respect. The commission's report was only partially implemented, but a stores department and provincial industrial departments were created and something was done towards promoting technical assistance. The importance of the report and its aftermath was that it marked the transition from the conception of Indian economy in broadly colonial terms with freedom for private enterprise to the conception of India as an autonomous economic unit.

The first capitalists investing in Indian economy were:

• A. the Indians
• B. predominantly the British
• C. the Europeans except the British
• D. both A and B

Hint:

Look at which two sources of capital the passage places in the same earliest time period, before European (non-British) capital is drawn in by government guarantees.

Answer 1

The Correct Option is D

This question asks who put money into the Indian economy first, before other capital arrived. Let's check the options against what the passage actually describes as the earliest stage.

1. the Indians: The passage says "Indian capital was also shy" in the early period, which tells us Indian money was present, if cautious, from the start; it did not appear only after everyone else. So Indians were among the earliest, if hesitant, capitalists.
2. predominantly the British: The passage says the working capital of the agency houses "after 1813 at first consisted mainly of the savings of the Company's servants," meaning British individuals working in India. This was the earliest organised source of capital described in the passage.
3. the Europeans except the British: Continental European capital is mentioned later, in the context of jute and coal ventures being "coaxed into the country by government guarantees." This came after the earliest agency-house and hesitant Indian capital, not before it.
4. both A and B: Putting the first two points together, the earliest capital came from two sources at once: the personal savings of British Company servants funding the agency houses, and cautious but present Indian capital. Both were on the scene from the start, before organised European (non-British) capital joined in.
5. both A and C: This pairs Indian capital with non-British European capital, but the passage places non-British European capital later than the agency-house stage, so this pairing does not match the earliest phase.

Since both British individuals (through the agency houses) and Indians were the earliest, even if timid, sources of capital, the correct option is 4, both A and B.

Let's summarize:

• The agency houses ran on British Company servants' savings from the very start (after 1813).
• Indian capital was shy but already present in this same early period, not a later entrant.
• Continental European (non-British) capital is described as arriving afterward, tied to specific guarantees for jute and coal.

So the first capitalists were both the Indians and the British, which is option 4.