The lessons we can learn from Baniyas - Akar Patel - Mint 27 Oct 12

The lessons we can learn from Baniyas

Aakar Patel, Mint – 27^th October 2012

What makes the Baniya special? I am an admirer of this community that consistently produces India’s only world-class industrialists.

What are their secrets?

We are fortunate that the Birla family have been written about and have themselves written enough material for us to get a glimpse into the working of a successful, conservative Marwari Baniya family. The word Marwari being used as a generic name for Baniyas from Rajasthan. The Birlas are, of course, from Shekhawati.

There is a biography of patriarch Ghanshyam Das Birla and an autobiography of his son Krishna Kumar (KK) Birla, both in English. Then there is Swantah Sukhay (For My Own Pleasure), the autobiography in Hindi of Basant Kumar (BK) Birla, father of Aditya and grandfather of Kumar Mangalam. Published in 1991, it is a remarkable document and much can be learnt from it if it’s read carefully.

Often its descriptions are generic and uninteresting. For example BK’s account of his long-standing partnership with the Dutch, in textile firm Century-Enka, is childish in its simplicity. Dr X was a nice man, Mr Y was a good man and so on.

It is when BK tells us about himself and his family that he is interesting. The first thing he says to describe his style is: “Arthik niyantran mera achha hai (My control over finance is sound)” (chapter 10, page 67).

His main instruction is that “hisaab kitaab” be kept up to date with clean entries and every detail. This tight control over numbers is the reason that “meri companiyon mein lambi-chaudi gadbad nahin hui (this is why there’s been no major trouble in my companies).” He says he learnt accounts as a boy under a man called Shantimal Mehta, a Baniya. Birla had a natural talent for picking it up.

Father Ghanshyam Das (GD) Birla made a one-year programme for him to learn it, and BK says he needed the full year under Mehta’s training. He learnt: cash, copying, accounting, raising bills, understanding bank statements, daily reports, daily and annual profit and loss accounts, savings and expenses, and sales.

Employees said later that where they sought to hide or pad up numbers, inevitably Babu’s (BK’s) eye would prise open those grey columns.

Through his working life, before the 12th of each month, he examined the books of the previous month. This is staggering devotion to numbers. Anticipating the reader’s astonishment, he says it is absolutely essential and he never delayed this practice: “Vilambh karne se nuksan hota hai (Delay results in loss).” He focused on the hisaab kitaab of some of his firms every month, some every second month.

Lesson I:

The Marwari Baniya’s company is controlled through the balance sheet. Management through accountancy, not through business administration. Basant Kumar says he knew which of his companies were well managed purely through this exercise. After this, he met the managers to listen to what was going on. The debrief of larger firms took one or two full days each month. These meetings served three purposes: They gave the managers confidence, gave him a window to their views, and the opportunity to assess their capacity, and their character. After learning accounts, Basant Kumar learnt how to manage a mill under Murlidhar Dalmia and Sitaram Khemka (again, both Baniyas).

He learnt how to operate the machines. However, at 70, he admits his weakness is in technical matters. He lists the following reasons: Not enough primary knowledge of engineering, diversified businesses, technicians worked on the site where he couldn’t meet them often. It wasn’t that he was uninterested, but his “contribution was mainly economic and financial”.

At the age of 13, the family announced it would stop giving BK money. He had to manage his expenses, and contribute to the house’s, by making money on the stock market, which he had to figure out himself with the family broker’s help. He made Rs.4,000 the first year, 1935, and paid income tax at 14.

Born in 1921, BK began working in 1936 on turning 15. He recorded in his diary (in English): “I began my business career. Went to the office at three O’ clock, learning account in jute mill and cotton mill. Worked up to 5:45. Felt ‘battle bliss’. I ask God to spread His blessings upon me as a businessman.”

In mid-1939, at 18, he was given India’s largest mill, Kesoram, which was making losses. A couple of months later, Neville Chamberlain declared war on Hitler. The British government began buying hosiery aggressively for its troops, and the profits of Indian mills jumped.

By 19, BK was independent. GD need be consulted only when issuing fresh capital. Else the patriarch stopped meeting managers and stayed away, making only the occasional inquiry: “Basanta, Kesoram theek chal rahi hai na? Kay faydo hai (Everything going well? What’s the profit)?”

GD’s advice, when he gave it, was generic: “Be cautious, keep your finances strong, ijjat par koi batta nahin aave (our honour should be unstained).”

It is incredible that a 19-year-old should have managed India’s largest mill successfully .

Lesson II:

Business is learnt by doing business.

Along with the mill, BK was handed a new assignment. GD introduced him to a pharmaceuticals expert, Hungarian Dr Perks, and after a 10-minute discussion dismissed them. BK and Perks had to begin a medicine firm. Which medicine? They were not told and had to find out themselves. Dr Perks scanned the market and decided it had to be a hormonal drug. This required cow organs, which he secured from an abattoir.

GD had no problem with this but when the older men in the family, BK’s grandfather and uncles, found out “bawander mach gaya (all hell broke loose)”. Animal organs? A cow’s!? They were furious at BK and showed it. After this the project was suspended for a couple of months while BK tried to explain to an irritated Dr Perks why they had to find another route.

Soon after the World War began and Dr Perks fled back to Hungary. The project ended. The Birlas audited their loss. It came to Rs.2.5 lakh, and auditor Kishandutt Goenka said the hisaab-kitaab was not in order (avyavasthit). BK was summoned and given a shouting. The loss was fine, but it was unacceptable that he had been lax with the accounts.

Lesson III:

Having no control over the business is worse than losing the business.

The Birlas were fiscal conservatives and G.D. Birla was terrified of debt. He usually set 25% of a firm’s start-up value aside as a support fund, an unthinkable waste of capital today. His response to Basant Kumar’s proposal that they raise money by issuing convertible debentures was: “Main aisi jokhim lene ke viruddh hoon (I am against such risks).”

“This was a sound policy for its time,” writes Basant Kumar, “it gave us slow and solid growth.” After 1975, it became easier to raise money and issue capital. Government-owned funds were hungry for good shares. Banks also were keen to loan money. A new generation of businessmen, at their head Dhirubhai Ambani, began building large enterprises.

In 1981, Aditya Birla, then 37, told his father BK he wanted to expand Indian Rayon by issuing convertible debentures. BK agreed. When GD found out, he was aghast and confronted his son. BK did not back down and Aditya had his way.

Lesson IV:

Conservatism does not stand still. Know your environment and where you stand in it.

BK writes in detail how pragmatically the Birlas split their empire after GD died. There is much material here and I will return to it in a future piece.

My friend Shashank Jain, also a Baniya, says the accounts-based approach of management is from another era.

Today, more skill is needed, including modern ideas. How remarkable then that the Baniya has adapted to this also better than others. One of India’s smallest castes, he occupies numbers 1. Mukesh Ambani 2. Lakshmi Mittal 4. Savitri Jindal 5. Sunil Mittal 6. Kumar Mangalam Birla 7. Anil Ambani 8. Dilip Shanghvi and 9. Shashi and Ravi Ruia in the list of India’s 10 richest people.

We can all learn from Baniyas, and take from them what it is our culture and our caste misses.

Aakar Patel is a writer and a columnist.

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