The Culture of Business: A Study of the Finance Business

in the Vijayawada Region of Andhra Pradesh

A Synopsis submitted to the University of Hyderabad

for the Award of the Degree of

Doctor of Philosophy

In

History

By

S.Ananth

Department of History
School of Social Sciences
University of Hyderabad
Hyderabad – 500 046
2007
 DECLARATION

I hereby declare that the work presented in this thesis entitled ‘The Culture of
Business: A Study of the Finance Business in the Vijayawada Region of Andhra
Pradesh’ has been carried out by me under the supervision of Prof. Atlury Murali,
Department of History, University of Hyderabad. The thesis or a part thereof has
not been submitted for any other degree at this university or any other University.

Date: (S.Ananth)
Hyderabad
 CERTIFICATE

Prof. Atlury Murali

Department of History
School of Social Sciences
University of Hyderabad
Hyderabad – 500 046

This is to certify that the thesis entitled ‘The Culture of Business: A Study of the
Finance Business in the Vijayawada Region of Andhra Pradesh’ submitted by
Mr. S.Ananth for the award of the Degree of Doctor of Philosophy in History, is a
record of bonafide work carried out by him under my supervision and guidance.

This dissertation has not been submitted either in part or in full to any other
university or institution of learning for the award of any other degree.

(Prof. Atlury Murali)

Supervisor,
Department of History,
University of Hyderabad,
Hyderabad – 500 046.

Head, Dean,
Department of History, School of Social Sciences,
University of Hyderabad, University of Hyderabad,
Hyderabad – 500 046. Hyderabad – 500 046.
 The Culture of Business: A Study of the Finance Business
in the Vijayawada Region of Andhra Pradesh
Dr.S.Ananth

This study on the culture of finance business looks at important issues that affect
contemporary non-metropolitan Indian society and economy in its day-to-day
functioning. It is a study of the nature and dynamics of finance capital and its impact in
one of the most prosperous regions of Andhra Pradesh – Vijayawada, which is often
considered the finance capital of the state.

In the foregoing chapters, we have analysed the characteristics of finance capital

as it is produced, reproduced and circulates in the region. Detailing the debates
surrounding historical origin of the agrarian surplus enables us to place the subsequent
developments in proper perspective as well as to understand the phenomenon of
financialisation and commoditisation. Our study has traced the historical origins as well
as the cultural and sociological conditions under which finance capital and speculative
behaviour flourished reinforcing each other.

Very often business practices are conditioned both by the economic conditions
and the cultural practices. Karl Polanyi has rightly observed, “man’s economy, as a rule,
is submerged in his social relationships. He does not act so as to safeguard his individual
interest in the possession of material goods; he acts so as to safeguard his social standing,
his social claims, his social assets” 1 . This could largely explain how the local culture
often leads various businesses to react differently based on local conditions. A good
starting point may be by asking a question: what motivates a reputed international finance
company (GE Money) to establish its branch in a petrol station? This study unravels the
intricacies of the consumption and production of finance business along with its day-to-
day mechanics.

While this study may seem region specific, it is imperative to point out that a
number of businesses across the country are similarly founded on socio-cultural norms
and practices By using a region specific analysis, our study attempts to understand the
mechanics of the finance business as it operates at the ground level in the country. It goes
beyond a simple empirical study of the provincial (or local) character of the finance
business and financiers. It would not be far from the truth to claim that approximately
70% of contemporary Andhra Pradesh’s leading business groups have their origins in the
region that has been the focus of this study. Therefore, a study of the business practices of
the region also throws light on the practices of the dominant business groups of Andhra
Pradesh as a whole.

The origin of the prosperity and the surplus deserves greater attention than has
received thus far. Our study disagrees with conventional theories that the surplus of the

1
Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, Beacon Press,
Boston, 2001, p. 48.

1
present is the consequence of the British construction of the anicut across the river
Krishna. However, it would be erroneous to claim that the construction of the anicut had
no impact. A combination of the British land revenue settlements and the anicut
construction did have a substantial impact on the economic and social structure in the
district. The economic growth in the district was definitely greater than the neighbouring
districts, which did not have access to greater irrigation facilities. However, it would be
equally erroneous to claim that the construction of the anicut and the canal system were
solely responsible for the growth of the city and the region. The most obvious impact of
the anicut is the increase in acreage under cultivation. However, a statistical analysis of
the area under irrigation, along with land revenue, trade and other statistical data reveals
that the boom experienced by the city and the region in general is largely a post
independence phenomenon.

Our study, therefore, disagrees with conventional theories that lay primacy on the
building of the anicuts as the sole cause of the origin of the present day surpluses. The
endogenous growth, along with trading in agricultural surplus has been cited as one of the
important reasons for the growth of the region and one cannot narrow the origin of the
surplus to merely to the availability of the agricultural surplus. We have argued, that the
rise of the transport sector, rice-milling (and other agro-based industries) and commodity
trade along with the phenomenal growth in education have largely been responsible for
the economic development of the region. It has been argued that the governmental
developmental strategy has paid off in the region, at least as far as the economic growth
and business opportunities are concerned.

It is clearly discernible that there has been a gradual spread of the markets
(commodity as well as credit and financial) over the past one hundred years. Financial
markets have increased in size as well as in qualitative and quantitative functionality, a
process that we have termed ‘financialisation’. The last five decades have seen the birth
of innovative financial products, all of which are aimed at diversifying and containing
risk to the large institutional players. This growth of the larger, formal financial market
space has led to changes in the nature and profile of financing. This is most clearly
visible in the region that is the focus of this study. This study attempts to understand the
operational dynamics of finance capital in the everyday lives of small towns, which are
often referred to Tier II and Tier III cities in official terminology.

The obvious change in the finance business has been the metamorphosis of
lending that in the pre- and early colonial period was geared to extract the surplus product
to one that aimed to take over land. By the first three decades of the twentieth century,
lending was undertaken with the intention of gaining proprietary rights over the land that
the borrower mortgaged. This changed only with the Great Depression and the
subsequent collapse in the agricultural prices, lease rates as well as land prices, which in
turn led to an increased cost of ownership of land and a crash in the return on investment
on the land holdings. Since then, especially in the post-independence period, lenders have
largely (though not completely) transformed themselves to a lending business that is
more interested in collecting interest, a typical feature of finance capital. This is not to

2
claim that there is no attempt to take over the proprietary rights of the property
mortgaged in contemporary India.

At this juncture, it is important to understand the reasons for diversification from

agriculture to other businesses by the dominant business groups in the region. This
diversification is most visible among the Kammas of the region, but not limited to them.
All the observers (including Gail Omvedt and Carol Upadhya) have pointed out that the
cause for diversification to be either solely or largely based on the economic motivation.
One may read this as evidence that capital generated in agriculture in the pre-
independence period was far in excess of the requirement in agriculture and hence the
tendency to diversify? One aspect of the local region (that holds true even for the present)
that has been overlooked is the fact that the impact of great depression effectively
changed the thinking about investment among the Kamma community. The community’s
predominant investments have been in the purchase of agricultural lands, providing
education to members of the family and then in finance business (money lending), chit
funds and urban real estate among other things. Each family attempts to diversify their
income streams, as they often believe that their business is risky. They would like
‘regular source of income’ (meaning a risk free income) - more like rents. N. G. Ranga
had pointed the phenomenon of a few enterprising Kammas in every village, who have
ten or twenty acres of land and were anxious to start a business. It is this tendency that we
analysed in detail.

An interesting aspect of the post 1970s development is the large-scale investment

in buying agricultural land by any successful professional or businessman. The usual
pattern of investment by those with substantial surplus (especially among the Kammas)
has been to first purchase a house or plot of land in urban area, then proceed to purchase
agricultural land in the district and subsequently purchase further urban real estate in
either Vijayawada, Hyderabad, (and occasionally in Bangalore or Chennai). The past
decade has seen this pattern of investment among other communities in the region. In
fact, this pattern of investment is still followed by the relatives of emigrants to USA or
Europe in the region.

The statistical data we have used in the study clearly indicates that the growth and
prosperity after independence was far greater than the prosperity after the building of the
anicut. This growth is in both qualitative as well as quantitative terms. As already pointed
out, this prosperity has largely been built on the financialisation of the economy. Among
the factors, that led to the exponential growth after independence include governmental
developmental programmes that were introduced after independence, the growth of
banking, the growth of the transport sector, clearly indicates that the agricultural surplus
and trade were predominantly responsible for the development of the region. Moreover,
the view that the one sided movement of capital from agriculture to the urban regions
does not satisfactorily explain the nature of economic development. Since the late
nineteenth century, the movement of capital in the region has been two-way rather merely
from the village to the town – a practice that continued till the late twentieth century, if
not later. N G Ranga’s observation about Kamma landholders wanting to establish
businesses, the combined activity of the rich peasant doubling as a moneylender –

3
‘commission agent’ in trading agricultural surplus all indicate a two way movement of
capital. The substantial shift in the economic (and social dynamics) in the region may
said to have occurred in the 1960s and 1970s largely because there was a shift of
emphasis to financial services and transport business over agriculture. Since then land
ownership has become an insurance, asset diversification and socially desirable feature
that creates an aura of ‘dependability’ or classification as a reliable person for
undertaking business due to their assets rather than their mainstay economic activity. A
good example that may be cited is the common classification of a person with good
quality wet agricultural land as a ‘safe’ borrower.

Thus, it may be pointed out, that a confluence of factors discussed above played a
crucial role in the generation of surplus in the region. The impact of these factors would
be felt in the first three decades after India’s independence when other factors such as
increase in process, abolition of Zamindari system and other developmental works
undertaken by the government combined with the entrepreneurial spirit of the dominant
caste group (the Kammas) led to the economic and political rise of Vijayawada. In fact,
the growth of the region is intricately linked not only to the growth of the Vijayawada
city, but also the rise of the Kammas as a dominant community in the economic and
political sphere of Andhra Pradesh.

We have exhaustively analysed the culture of lending, the nature of capital and
lending during the colonial period to gain insights into the movement of capital, and
patterns of investment in the region. Statements by contemporary observers like
N.G.Ranga and W.R.S. Sathyanathan clearly indicate that lending was largely within the
lenders’ immediate social circle and that diversification was essentially a feature of the
post-depression period. The economic and social developments have been traced in the
study and it has been pointed out that there was a two-way movement of capital from the
villages to the urban regions (especially Vijayawada) and vice versa since the colonial
times. The movement of capital from the urban centre (Vijayawada) to the countryside
has become a marked feature of the post-colonial period, when investment in land is
considered an essential part of the dominant social and economic communities’
diversification process. Thus, we have agricultural surplus that moves into a number of
economic activities in the urban areas of the region, especially Vijayawada. At the same
time, it is common for successful businessmen to invest a substantial portion of their
profits in agriculture.

The centrality of the social networks, their functioning at different levels, and
their impact on different social and economic groups, along with their impact on the
economics of lending occupies a place of pride in this study. The production and
reproduction of these social networks under changing conditions have been exhaustively
dealt with in this study. It is pertinent to note that local social networks have a substantial
impact on circulation of capital and often, economic practices are conditioned by cultural
practices.

Despite its unconventional character, the finance businesses that we have studied,
including lending and the stock exchanges, have great relevance for understanding the

4
larger economic picture at the state as well as national level. The stock exchanges and the
finance companies have been in the forefront of creating and broadening the channels and
networks for the movement of capital. Through these networks, local surplus is integrated
into the national and even international finance capital networks. By paying attention to
finance business of the Vijayawada region, it becomes possible to understand the
complex processes by which locally generated surplus acquires the apparently uncanny
ability to anticipate and fund future booms that require huge capital. It is this ability of
finance businesses which in the longer term laid the ground for the subsequent entry of
institutional players, both Indian and international. With the entry of the national and
international institutions, we have pointed out, the local players move out, diversifying
yet again, to other business to create new markets.

It is therefore incorrect to assume that there is at all times a contest between

smaller finance businesses and corporate entities. We have shown that small businesses
with a highly localised origin and sphere of operation have proved to be agile and simply
moved on rather than attempt to challenge institutions whose economies of scale they
cannot match. This early entry and exit into a business has been the hallmark of
businesses in the region. It is pertinent to note, that there have been instances, when local
players exited even before the government put in place regulatory mechanism related to
some of these businesses.

The examples of innovative businesses that have been the focus of our study
(apart from the stock exchanges) include the cable business as established by Master
Channel (that was later bought over by Zee Telefilms Limited and renamed as Siti
Cable), financing infrastructure in the newly created Chattisgarh state, financing bids
(tenders) for contractors and aqua related businesses among others. It is imperative to
emphasise that business innovation is often a by-product of limited business opportunities
that are available and the tendency to work around the existing legal systems. Innovative
enterprises that have graduated to viable business corporate institutions abound in the
region. The most recent example of a local business that gone on to get listed on the
Bombay Stock Exchange is MIC Electronics Limited. The IPO was completed in April
2007 and the company is the first listed company of its kind in the business of Light
Emitting Diode display boards (commonly known as LED boards). The larger point is the
manner in which business innovation happens outside metropolitan centres but also
beyond the formal bureaucratic and legal apparatus of the state and then willingly
integrates into the more established and legally valid institutional framework.

Indigenous systems in the past and the informal systems of the contemporary
period have always been marked by a level of sophistication that never ceases to baffle
observers. Locally prevalent ‘systems’ (which are in fact informal practices) vary from
area to area and swiftly change according to the needs of their customers. Lenders, to this
day have the ability and resources to arrange lakhs of rupees loans and transfer the money
to different parts of the world using their own networks – something that the formal
banking system is not yet able to do. This study has pointed out that, this agility and
nimbleness is a historical product. The level of sophistication and business acumen can
be gauged from the fact that some financiers were able to exploit the steep fall in the

5
interest rates in the U.S.A to raise low cost funds, using their social networks. These low
cost funds are then deployed in businesses and investments in the Vijayawada region to
increase their profitability. Further, ample evidence of the agility and sophistication of the
businessmen of the region becomes apparent when we note that the city’s elite was
purchasing luxury homes (which also provided a rent) in far away Ooty, a popular hill
station in Tamil Nadu, way back in 2001.

Our study has brought out in detail, the dichotomous but important relationship
between legality and legitimacy. The study analysed the importance of these issues in the
context of everyday business practices in the Vijayawada region. Of late there has been
some discussion on the distinction between the two. The relationship, or rather the gap
between these two, draws attention to interesting areas of social and economic life where
there is a seemingly blatant violation of laws that is widely known but goes without
retributive action from the apparatuses. The obvious question that it raises is that of
conditions in which a society tolerates or even encourages the violation of law. This
study has drawn attention to instance when it is not the helplessness of the public to
challenge a violation of the law or bring it to the notice of authorities but its active
connivance that has ensured the perpetuation of illegal actions. The concept of ‘harmless
fraud’ has been used to try and understand how the relationship between legality and
legitimacy is worked out locally. The relationship between illegality and social
acceptability that exists in the region is studied in the context of mass participation in the
unofficial stock exchanges, pyramid schemes and certain other kinds of finance business.

Conceptualising the term ‘harmless fraud’ to try and understand the dichotomy
between legality and social acceptability has been a challenge for this study, especially in
the realm of business. As such the notion of ‘harmless fraud’ is illustrative of the socio-
cultural foundations of business practices. Drawing on popular usage of the term, we
have used ‘harmless fraud’ to understand a number of every day economic activities.
‘Harmless fraud’ signifies a minor and inconsequential transgression of the law. Though
not legal, activities that are classifiable as harmless frauds are broadly acceptable to
society. Often individuals, believe that the completion of a business transaction to the
satisfaction of both the parties, like exchange of goods and services for money and vice
versa is sufficient proof of their integrity irrespective of the tenets of the law of the land.
In case these business transactions are not in consonance with the law but acceptable to
both the parties, then it is believed that there is no case for intervention by the institutions
of the State. Any violations of laws under such conditions are not only considered to be
minor transgressions of laws, but only measures aimed at overcoming stumbling blocks
to the conduct of business. Such business practices often fall in the liminal zone between
speculation and entrepreneurship where the law is kept in suspended animation. Often
both sides involved are aware of the state of affairs.

Thus, in its most generalised form, the concept of ‘harmless fraud’ (as perceived
in the region and as used in this study) may be said to consist of a set of practices that are
perceived to cause little or minimal harm to individuals and therefore justify the
bypassing rigid/oppressive/restrictive laws. One manifestation of the harmless fraud is in
fact, quite harmful and allows us to understand the increasing instances of economic

6
fraud that affect larger sections of the urban middle class than ever before. We, however,
need to recognise that the middle class is both victim and perpetrator of economic crimes
because the fraudster too is a member of the middle class. Further, we have drawn
attention to instances of the so-called victim being fully aware of the illegality of the
business. The unrecognised stock exchanges of Vijayawada and get-rich-quick pyramid
schemes are best examples of harmless fraud. This willing participation in fraudulent
business is a point to be noted.

The concept of harmless fraud enables us to understand the role and complex
inter-relationships that exist between different players, including businesses, state and
members of the community. The elastic conception of legality, legitimacy of illegal
businesses and social acceptability of such businessmen means that it becomes more
difficult for the state to intervene as all sections (like police, politicians, bureaucrats, etc)
are fully aware of what is happening but are unable or unwilling to act. The history of the
unofficial, unrecognised stock exchanges of Vijayawada clearly shows that institutions of
the state were clearly aware of its illegality but refused to act - at least until a court case
was filed by a person who felt he was cheated. Notably, the person filing the court case
was an ‘insider’ who knew all along the illegality of the stock exchange. Our study
argues that, regulation becomes a difficult task if we are to take a mechanistic of law. We
stress the need to look beyond a mechanistic view of law and underscore the need to take
cognisance of generally acceptable social norms. The evidence offered by the
unrecognised stock exchanges of Vijayawada proves the need for a change in emphasis.

A further point about harmless fraud is that it is often intimately linked to

speculation. In the unofficial stock exchanges as well as pyramid schemes, especially the
latter, participants are aware of that it is in the logic of the business to fail. Stock markets
are known to crash, pyramid schemes can only collapse under their weight. Nevertheless,
intelligent members of the middle class, who have at times received formal training in
law or commerce or banking, participate enthusiastically in activities, which are illegal
and wildly speculative. We have suggested that this is but one sign of the nature of
finance capital but is also context specific insofar as it highlights the huge premium in
this region on ensuring the mobility of capital. Money, according the folk wisdom in
business circles, has to circulate or it becomes unproductive. There is an idiomatic
expression in Telugu about money which captures this notion: ‘inapa pettelo
moolugutondi’ (it is moaning in the safe) - as if money locked up experiences pain!

Speculation is often viewed in simplistic binaries, either necessary or bad.

Speculative financial activity in the region is both a weakness and strength of the region.
The fact that speculative activity abounds in the region means that innovative business
idea will always find a source of capital. The importance of the speculative activity that
thrives in the region is strengthened by the socio-cultural networks and norms. The role
of trust has been highlighted in our study.
The nuances of speculation in the region are best understood when we look at the
finance business to be an ‘idle business’ (as one successful financier put it), meaning that
they have a lot of ‘free time’ or ‘spare time’ at their disposal. This combined with the
surplus, that is produced from a variety of sources such as agriculture, trade and services

7
related economic activity provides them with ample opportunities to speculate. Our study
has pointed out that N.G. Ranga’s observation that the lack of avocation was a cause for
this speculative fervour and this speculative activity needs to be looked at in this
perspective. A financier’s hours of work are flexible and often can be adjusted according
to their convenience. This ‘free time’ is often spent on unproductive activities like banter,
gambling or simply ‘wasted’ (as another financier put it). The more enterprising
financiers use their ‘free time’ on a working day to pursue other speculative activities
such as trading in stocks, commodities, speculating in real estate or participate in pyramid
schemes. Interestingly, nearly all the financiers in the region have interests that are either
spread out over one or more sectors like real estate, agricultural gardens, aquaculture,
stocks or commodities.

Speculation has its own allure in the region. The fact that the contemporary elite
in the city have risen to their present status as grandee bourgeoisie from first generation
entrepreneurs with humble economic origins, means that the common perception that
quick money is not only possible but also easy, provided people put in the right kind of
effort. This is reinforced by the fact that the stock exchanges, pyramid schemes and
various other speculative enterprises have created their share of a tiny category of
successful speculators. While the positive impact of speculation is the ability to raise
capital for new hitherto untested business ventures, the negative repercussions of the
speculative mass mentality is clearly discernible in pyramids schemes and innovative
frauds that are found in abundance in the region.

Capital of all variants and irrespective of its geographic origin (local, national or
international) requires a value system and arbitration mechanism that provides
satisfactory results with minimal cost and minimal damage to business. In case such
systems or processes do not exist, they would be invented by capital. It is in this context
that the institution of peddamanushulu has been conceptualised and analysed. The
institution of peddamanushulu, as the informal arbitration system is referred to in the
region, enables the contending parties to meet in an informal environment, discuss and
often resolve their disputes without any adverse publicity that might be detrimental to
their long-term business interests. Further, publicity might prove to be lethal for illegal
businesses by drawing the attention of agencies of the state. The institution of
peddamanushulu thrives on its ability to draw upon various cultural and social practices
and idioms that are a part of the lived experience of people. While there are no steadfast
rules under which the peddamanushulu operate, the elastic nature of the institution
enables it to survive, thrive and operate under most circumstances. The institution’s
ability to solve problems transcending caste and class is a unique aspect of the business
culture. We have argued that the peddamanishi is not necessarily a member of a
traditional elite (caste elder or zamindar, for example) but often a respectable member of
the business community who rose from rather humble origins. The peddamanishi is an
important sign of how modern institutions fabricate lineage and invent traditions although
they are in fact products of a specific time and place.

We argue that, any company or business that hopes to operate profitably in the
region but does not provide any mechanism for peddamanushulu to arbitrate is bound to

8
be trapped in a myriad of legal problems. An excellent example of the debilitating
consequence of the lack of informal arbitration mechanisms is the micro-finance
business. The micro-finance business, as it operates, has no space for arbitration in case
of dispute or inability of a borrower to pay the lender. In the Vijayawada region, this has
led to coercive attempts to collect the dues and a public outcry and against such coercion.
This public outcry, has forced state intervention leading to a complete halt in the micro-
finance business in the region. Micro-finance Institutions (or MFIs) have been forced to
abandon their business and look at other regions and states to expand their business. In
contrast, due to the existence of various mechanisms to settle disputes informally, the
finance companies, especially of the local genre, have continued their business – mostly
unhindered. The case of Kotak Mahindra, as well as other examples shows that
irrespective of the economic influence, legal grounding of the company or their
‘systems’, participants are expected to conform to teerpu of the peddamanushulu.

We, therefore conclude, that the study of this region and its business practices is
indeed rewarding and offers many insights into the social-cultural foundations of
economic activities. At a time when the nation’s economy is being more and more
closely integrated with the ebbs and flows of global finance capital, the study of the
provincial capital provides vital clues on the manner in which locally generated capital
finds its way to the state, national and international institutions and flows. A study like
this also alerts us to points of resistance—not political, but economic as well as socio-
cultural—to the rampant spread of globalised finance capitalism. It is not in the form of
political movements alone that arrest the growth of mega corporations, both national and
multinational, but also entrenched forms of local capitalism and its customs and folklore.