Though it is not exceptional, the Murugappa story sheds light on the interesting way the firm responded to the crisis in Burma at that time. The firm’s diversification and entry into entirely new lines of business in Burma was markedly different from the others. This was facilitated partly because of the general standing and reputation of the firm and partly on account of the useful contacts the family had developed over time in the business and political circles of Burma. AMM Vellayan Chettiar’s command over the Burmese language would have also contributed to further consolidating these contacts. A scion of the founder of the firm, Vellayan Chettiar, was entrusted with the responsibility of overseeing its vital business interests in Burma and Malaya during the critical decade of the 1930s, and beyond.
Vellayan’s trip to the US and China in the early 1930s, probably the first by a Chettiar, was a game-changer for the family’s business fortunes. It exposed them to the new opportunities of investment outside and beyond banking. It was largely Vellayan’s decision to explore new lines of business. These initially included a “tender bidding” commission agency in certain lines of import-export trade and “local bulk sales”. Subsequently, the firm appears to have developed a niche in the hardware business.
Vellayan Chettiar’s personal and business contacts with the Burmese also helped him to secure more than a toehold in the lucrative Burma–China trade between 1938 and 1941. The firm is reported to have made handsome profits from this trade. The Japanese invasion and occupation of large parts of North and Central China in 1937, and the disruption of normal trade channels, opened up opportunities for trade through the circuitous land route from northern Burma to south China.The link road from Lashio in Burma to Kunming in south China, passing through mountainous terrain, was laid between 1937 and 1938. The lone petrol station at Lashio came into the hands of Vellayan Chettiar through his Burmese contacts. The establishment of a service station with sufficient stocks of automobile spares rendered this venture very profitable. The outbreak of the war in 1939 and the special rates charged during this period for fuel spares and repairs yielded windfall profits for the Murugappa firm. The Lashio investment triggered an expansion into general trading of various commodities to meet the ever-growing demand from the Chinese market. The “substantial profits” from the “Lashio Business” were reportedly “repatriated to India”, contributing considerably to strengthening the overall financial position of the AMM group and enabling them to make the transition to industrial investment in post-Independence India.
In so far as its investments in south India were concerned, they were marked by caution and were not very different from that of the other Chettiars. From the early 1930s, seeing the writing on the wall, the firm systematically scaled down its traditional banking business in Burma and elsewhere and chose to channelize its investments into newer areas of investment, primarily in the tertiary sector in south India.
Taking a cue from the MCT group’s successful experience in the insurance business, the Murugappa group or the AMM Chettiar firm followed suit when, in 1931, they promoted the Indo-Union Assurance Company. This investment was perceived as “an attractive proposition” as it would give the firm access to a large pool of investible capital. By 1937, they also acquired the chief agency for the Madras Presidency of the French insurance company L’Union Fire, Accident and General Insurance Company of Paris. This tie-up may well have come about through their French Indo–China connection.
This was followed soon after by the promotion of Swastik and Company, a firm dealing with shares and stocks. While the insurance business allowed them to mobilise scarce financial resources, the stockbroking business enabled them to access critical information on investment possibilities in the region, apart from establishing the firm’s contacts with fellow businessmen.
Around this time, in the 1930s, the AMM firm chose to move into the lucrative yarn trade in Coimbatore. We find a clear and discernible shift from the traditional banking business to the more modern form of business. This is best reflected in their increasing use of the joint stock route of investment. Most of the new companies they floated during this period were managed by the two firms of Murugappa and Sons Ltd and Murugappa Agencies Ltd. This was also the time when the firm chose to invest in real estate in Madras. By the 1930s, the family firm owned large tracts of land in Madras.
Stories of Indian business have generally focused on successful firms. There were, however, other firms that were temporarily successful but then slipped and faded out. The firm of KVAL RM Alagappa Chettiar is a case of the latter. It was one of the front-ranking Chettiar firms in south India in the 1930s and 1940s, but inexplicably, there is no mention anywhere of the firm later, the sole exception being P Ramamurthi’s The Freedom Struggle and the Dravidian Movement. Owing to over-trading and over-speculation, the firm of Alagappa Chettiar incurred heavy losses in the late 1940s and subsequently sank into oblivion. The now-reputed technology institute named after him is perhaps the only remaining legacy of this once-renowned firm of south India. Alagappa Chettiar was, among the Chettiars, one of the earliest vocal advocates of diversification into modern industry and other modern incorporated commercial enterprises.
Between the mid-1930s and almost the end of the 1940s, Alagappa Chettiar made systematic attempts to channel his investment partly into industry and partly into the tertiary or service sector in south India. Alagappa Chettiar, like many of the other larger Chettiar firms, never came anywhere close to representing the archetypal industrial entrepreneur who, having realized the commercial possibilities of factory production, relentlessly chose to concentrate their investment in industry. On the contrary, investment in industry was primarily conditioned by the need to develop a more diversified investment portfolio than was hitherto the case, with a view to minimising risks and maintaining a high rate of accumulation.
The early history of the Alagappa Chettiar firm remains sketchy. We do, however, know that the young Alagappa Chettiar charted a course which was rather unconventional and considered out of the ordinary by then Chettiar social norms. Thus, much against the wishes of his family, who were keen that after his schooling in Karaikudi he should take up the traditional banking business overseas, he chose to pursue the English Honours course at the renowned Presidency College, Madras University. Following this, he proceeded to London in 1930 and completed the three-year LLB course for being called to the Bar-at-Law. While in London, he managed to find time to work as an apprentice trainee in Chartered Bank. This would have enabled him to gain valuable experience in modern banking methods. It was only after 1933 that we find him getting involved in his family business overseas.
From what we know, the family firm of KVAL RM, with its base in Kottaiyur in the then Ramanathapuram district, moved overseas, much like the other Chetty firms. Over time, it built up a flourishing banking business and was counted among those with significant investments in Malaya. Thus, in the 1920s, in addition to banking, the firm was also investing in rubber plantations. The Ayer Manis Estates, promoted in the 1920s, was the outcome of such investment and had close to 1200 acres under rubber. The firm also had interests in Burma, but this business, it would seem, was not quite as important as their Malayan interests. While the firm of Alagappa Chettiar in Malaya had begun diversifying as early as the 1920s, as is evident in their investments in plantations in south India, its first business venture along modern lines was in the field of shares and stockbroking.
Thus came into being Ramal and Company Ltd, a joint stock company registered in Madras in 1936 with a paid-up capital of Rs 50,000. As it was a privately owned firm, not much is known about the overall activities of this firm, including the volume, turnover and profits of its business. However, given the general boom in shares and stock trading in the 1930s in south India, it should be reasonable to assume that the firm did good business. More crucially, through this firm, Alagappa Chettiar would have gained firsthand knowledge of investment conditions and potential in the region. It would also have brought him in contact with a wide circle of businessmen and investors and helped him to mobilise scarce capital for investment. Ramal and Company Ltd also served as a managing agency firm for some of the early industrial and non-industrial enterprises floated by Alagappa Chettiar.
Alagappa Chettiar’s entry into modern industry also came about in 1936 with the promotion of Cochin Textiles Ltd in Pudukad, in the princely state of Cochin. A purely spinning unit, the mill started production with a paid-up capital of Rs 6 lakh and an installed capacity of 12,300 spindles. Alagappa Chettiar’s decision to opt for Cochin instead of Coimbatore, the more popular and preferred destination, reveals a keen awareness of the market conditions and of the greater potential advantages of investment in princely states. In contrast to the near over-saturation of investment in Coimbatore, what seemed to have swung things in favour of Travancore-Cochin for Alagappa Chettiar were lower taxes, lower wages, lax labour regulations, lower production costs and, above all, generous state financial aid.
Alagappa Chettiar also enjoyed a fortuitous additional advantage, namely his long-standing business association and personal friendship with the Dewan of Cochin, RK Shanmukham Chetty. Alagappa Chettiar, through his share-broking firm, had periodically assisted Shanmukham Chetty in mobilising scarce share and debenture capital for Vasanta Mills. While it may or may not have been a case of reciprocity, yet we know that Shanmukham Chetty took a personal interest in extending the necessary help and assistance to Alagappa Chettiar in his efforts to promote Cochin Textiles Ltd.
Soon after promoting Cochin Textiles, Alagappa Chettiar proceeded to formally register the Ayer Manis Rubber Estate Ltd in 1936 in Madras under the Indian Companies Act. As indicated earlier, the rubber estate, located in the Muar region of Jahore state in Malaya, comprising 1260 acres under rubber, was acquired by the RM Alagappa Chettiar family firm in 1920. By registering it in Madras, he was able to mobilize share capital to the tune of Rs 8.25 lakh. Furthermore, as a director in two of the largest Chettiar-controlled scheduled banks in south India, namely the Indian Bank and the Indian Overseas Bank, Alagappa Chettiar was able to access cheap credit both in India and overseas. Since both these banks had overseas branches in Burma, Malaya and Singapore, it would have facilitated the flow of Chettiar capital from south India to Southeast Asia and vice versa.
Excerpted with permission from Fortune Seekers: A Business History of Nattukottai Chettiars, Raman Mahadevan, Penguin Business.
