SESSION 2

MARKET

• According to Adam Smith, “The division of labour is limited by the extent

of the market.” The market is the key to specialization.
• Firms cannot specialize in particular product lines, or particular stages of
production, if they cannot sell a sufficient quantity of their output
• It is the growth of the market that facilitates both the emergence of new
production and distribution methods - the growth of the firms and
industries that exploit these methods.
• The market does not just allocate resources—it stimulates innovation too.
• The market is an arena of competition. In a market where entry is easy,
monopoly power is eroded by the entry of competitors
• Trade can be personal as well as impersonal: within a supply chain, for
example, transactions between firms may be mediated by personal relations
and shared affiliations between the owners and managers involved.
• While entrepreneurs may determine the strategies of their businesses,
market competition selects the businesses that pursue the most efficient
strategies, thereby determining the pattern of business success and failure.
 THE STATE OF THE MARKET

• Vast Size and Population

• Scattered Markets
• Facility for moving goods and services – Ignored by All
• Intricate Web of “Chowkis”
• Plethora of Currencies spread across the nation
 MERCHANTS AND THEIR
OPERATIONS

• Set Hira Nand Sahu – ManekChand – Fateh Chand or the famous “Jagat
Seth”
• Hari bhakti
• Abdul Ghafur – 20 sailing ships
• Virji Vora
• Ahmedabad – known for cotton silk and wool & Indigo
• Third Battle of Panipat(1761)
• Types of Merchants
• Dalals – Hundis
• Shroffs or Sarafs
• Banjaras
• Nature of business was commercial and not industrial
• Competition from Westeners
• From British in Surat, Mumbai, Madras and Calcutta
• From French in Surat Pondicherry and Hoogli
• From Dutch and Portuguese in Masulitpatnam, Cochin etc.
1835 – Company’s silver rupee was declared to be a legal tender.

Postal System – Reduced dependence on Hundis

Crippled the business of Sahukars

Industrial Revolution & policy of tariff protection

Manufactures became distributors

 THE RISE OF AGENCY HOUSES

• New class of entrepreneurs in England

• Britain lost its colonies of North America in 1776
• Liberal licensing to British citizens
• 1813 the companies monopoly over trade ended
• Led to the “Agency House”
• These agency houses were mostly British, though a couple of were
European. They were confined to Bombay, Madras and Calcutta. They
started their business because there were no exchange facilities between
India and Britain then. The people that were staying here, from the British
bureaucracy, had to send money home to their families. Most of these
agency houses were adjunct to the big business groups, operating from
London. This business clearly wasn't paying enough, so they began to add
other things like trading and banking.
Agency Houses were – Bankers, brokers, agent of a firm in london, ship owners,
importers and exporters

First agency house in India – Forbes and company 1767 (bombay) – funded the
east india company during maratha wars
1820 regular coal mining – started by Alexander and company – Raniganj
Dhanbad

Parry and Company – Madras – traded in wine, hides agents for ship, lotteries,
insurance firms

Palmer and Company – “Opium King”- major exporters to china,

 BIRTH PANGS OF MODERN
INDUSTRIES

• Calcutta
• Mumbai