Economic Modernization in Late British India: Hindu-Muslim Differences

I. The Question of Why India’s Muslims Are Poorer than Its Hindus India’s Muslim minority—as of the early twenty-first century, around 12% of its ethnically and religiously diverse population—lags behind the country’s Hindu majority economically. The average household income for Muslims is 76.6%, and per capita income 72.4%, of the corresponding figure for Hindus. In rural areas, the typical Muslim-owned farm is only 41.1% as large as the typical Hindu-owned farm. Muslims have relatively lower labor participation rates and higher unemployment rates in both cities and the countryside ðShariff and Azam 2004, vii; figs. 12, 15, 16, 18; tables 6, 7Þ. The 2011 Forbes list of the 100 richest Indians includes just three Muslims.1 The underperformance of Muslims is particularly striking in the management of its private companies. Shortly after India gained independence from Britain in 1947, only one of India’s 80 largest publicly traded companies had a Muslim at its helm ðGovernment of India 1955Þ. A half century later, in 1997, just one of India’s 50 largest business groups was headed by a Muslim ðTripathi and Mehta 1990, 340–42Þ. 2 In describing the economic performance of Muslims in independent India, Omar Khalidi ð2006, 88Þ infers from such statistics that Muslims “lack the ability to organize and plan enterprises on modern lines.”

My reading of the paper is that Muslim inheritance law (which divides the estates more or less equally) prevented capital accumulation to the same extent as Hindu family law. Essentially the Hindu joint family concept was very similar (structurally) to the joint-stock corporation; allowing mercantile Hindu families (especially in Western India) to rapidly accumulate capital and also move on to professional management sectors (as Sereno mentions in the previous post; privilege encompasses both financial, educational and social capital).

Furthermore Islam’s prohibition on credit made the waqf’s (essentially Islamic family trusts) less liquid and unable to allow Muslim families to fully take advantage of the assets that they controlled.

After the jump I’ve excerpted two paragraphs from the paper that touch on both the above points.

The four non-conforming Muslim castes (Khojas, Memons, Bohras and Ghiarasis – the last I had never heard of) were the only ones who maintained their pre-conversion Hindu family practises (Dina Wadia argued that the Quaid’s family estate should be divided as per Hindu law owing to his Khoja origins).

As for Hindus accustomed to the joint-family enterprise, the joint-stock company offered opportunities to pool resources across family lines. It thus enabled them to enter sectors exhibiting substantial economies of scale and scope. Through the joint-family enterprise, Hindus could already invest for the long term without locking resources into a particular sector. However, the scale of their operations was no longer limited by their own family’s resources. A complementary advantage of shifting resources to joint-stock companies was access to the professional management of a managing agency. 

One might wonder why the waqf was not used to finance industrial enterprises. First of all, the waqf was not conducive to supplying the liquid capital needs of such enterprises. The rules, as widely understood, required the waqf endowment to consist exclusively of real estate. Second, the capital of a waqf was not sufficiently fungible. If a waqf ’s capital consisted of five stores, by tradition those stores could be swapped for similar stores with the permission of a judge; converting the stores into a factory would have required legal reinterpretations. For both these reasons, as the British exodus opened up new opportunities, preexisting Indian waqfs could not be adapted to new needs.

17 thoughts on “Economic Modernization in Late British India: Hindu-Muslim Differences”

  1. Timur Kuran, one of the world’s leading Political Scientist (Turkish Origin) is expert on Islamic law and Economic Development.
    “In the year 1000, the economy of the Middle East was at least as advanced as that of Europe. But by 1800, the region had fallen dramatically behind–in living standards, technology, and economic institutions. In short, the Middle East had failed to modernize economically as the West surged ahead. What caused this long divergence? And why does the Middle East remain drastically underdeveloped compared to the West? In The Long Divergence, one of the world’s leading experts on Islamic economic institutions and the economy of the Middle East provides a new answer to these long-debated questions.

    Timur Kuran argues that what slowed the economic development of the Middle East was not colonialism or geography, still less Muslim attitudes or some incompatibility between Islam and capitalism. Rather, starting around the tenth century, Islamic legal institutions, which had benefitted the Middle Eastern economy in the early centuries of Islam, began to act as a drag on development by slowing or blocking the emergence of central features of modern economic life–including private capital accumulation, corporations, large-scale production, and impersonal exchange. By the nineteenth century, modern economic institutions began to be transplanted to the Middle East, but its economy has not caught up. And there is no quick fix today. Low trust, rampant corruption, and weak civil societies–all characteristic of the region’s economies today and all legacies of its economic history–will take generations to overcome.”

  2. A very different picture emerges if we first disaggregate by language/caste and then religion.

    Bengali Hindus have been as bad at wealth creation as Bengali Muslims.

    Some with North Indian dwija Hindus (apart from Khatris/Agarwals/Sudans) and Ashraf Muslims.

    The differentiator clearly is caste, not religion.

    Now why most of the Indian trading and mercantile castes did not convert to Islam is an interesting question. The example of Khojas in Gujarat, Khwaja Sheikhs in Punjab and Wanis/Wains in Kashmir shows that retaining old inheritance rules was not a problem even after conversion to Islam.

    Why then did this particular sector retain such preponderance of Hindus ? After all, Muhammad himself was a merchant by profession.

      1. This topic was discussed quite a bit in a recent BP post.

        IMO, as far as sheer numbers go, the major factor in conversion was land settlement. In eastern Bengal, this has been clear since Eaton’s book came out. I think the same dynamic was present in Western Punjab, with the British Raj (instead of Mughal administration) being the driver.

        The distinguishing factor in these regions is that the peasantry converted to Islam, which is not the case in any other major region of the subcontinent. Havent heard of a single Muslim Yadav, Kunbi, Maratha or Reddy till today.

        On the other hand, the conversion of large numbers of Jats and Gujjars to Islam contradicts the ‘caste inhibited conversion’ theory.

    1. Yes, the story changes by region as well. In Bangalore and Chennai, muslims are prominent in real estate, transportation/logistics as well as other sectors that are not petty trades by any means. I’ve seen prosperity in the Malabar-Konkan muslim communities as well. In other regions there seems to be an educated elite and then a steep drop off, where you could say the muslim community clusters socially with depressed classes/castes of Hindus and Christians.

      1. Muslims in South India seem well educated and well integrated. Undoubtedly Muslims in UP, Bihar, Bengal, Maharashtra vastly outnumber Southern Muslims. I know that in West Bengal Muslims are far behind the Hindus in education and wealth from different stats published time to time. Are there comparable stats from Southern states?

  3. Generally I don’t like the focus on ‘differences ‘ with the subtext being why one is not as good as the other. Or why one is better than the other. Any modern nation/ country has to offer equal opportunities to all.

  4. Zack,
    Simple politeness and courtesy would require referring to The Prophet of God as Prophet Muhammad (whether or not one believes he is a prophet). Similarly, one should refer to Sri Ram and Sri Krishan.
    Sorry for the off topic comment. But as long as we are aspiring towards civilized dialogue, the same standards should apply to all.

      1. Actually, it is not an excellent article. He doesn’t understand Pakistan at all. None of Pakistan’s problems are to be blamed on “caste”. Caste is not something that Pakistanis think about at all.

        Punjabi Muslims are part of the Pakistani nation (in fact more than 50% of the Pakistani nation). So are Sindhis, Muhajirs, Kashmiris, Pathans, etc. In 70 years, surely a Pakistani nation has formed.

        Note: Please don’t delete this comment. What can you possibly find offensive in it? Someone referred to Aakar Patel and I am merely saying his article is analytically weak.

  5. One of my friends who reads BP e-mailed me this article:

    It is very long and tries to compare economic development of Shiites versus Sunnis versus India versus China versus Latin America over centuries. And much else besides. I don’t feel like discussing it in a stand alone post.

    I think Turkey and Malaysia are developed OECD Asian Tiger countries. Indian muslims and Indonesians Inshallah will soon have a similar outcome. Parts of the UAE are evolving into a product development, process innovation post hydrocarbon economy. Northern Iraq (Kurdistan), Najaf province, Jordan, Tunisia, Algeria and Morocco have hints of possibility but aren’t there yet. My hope is that a few examples of excellence will inspire a tidal wave of blooming prosperity.

    The nonmuslim world should focus on what W. E. B. Du Bois called the “talented tenth” of the Islamic world. And then the rest will mostly take care of itself.

    V.C.Vijayaraghavan, it is easier to develop the talented tenth than develop the rest. India’s talented tenth still have a lot more to progress. Do you think India is yet in a position to focus on the rest? It gets progressively harder to facilitate excellence in people with less physical health, mental health and intelligence. The return on investment progressively drops.

    The bottom 20% of the world do not currently have the combination of physical health, mental health and intelligence (closely related to the first two) to be self reliant and are deeply dependent on external assistance. For this reason the bottom 20% greatly benefits from increased income inequality. The more the lower middle class benefits the more they gentrify and crowd out the global poor, increasing the cost of living for the global poor. By contrast the global poor benefit from the success of the global upper middle class (the talented tenth) who pay most of the taxes and fund most of the global charities and lead the vast majority of global product development and process innovation.

    In some countries (Hong Kong and Singapore for example) the talented tenth can expand to a quarter or more of the population. The development of the talented tenth and the expansion of the percentage of the population in the talented tenth explains most differences in development between different countries.

  6. AnAn
    “V.C.Vijayaraghavan, it is easier to develop the talented tenth than develop the rest. India’s talented tenth still have a lot more to progress. Do you think India is yet in a position to focus on the rest? ”
    The political party system and democracy assure that all sections of the society are represented and their interests taken into account. The so-called ‘talent’ of the 10% is highly questionable . Is the criminal talent to evade justice ? is it the criminal talent to avoid tax and accumulate black money . It is the “monied classes” who have made mockery of the justice and administration in India. Political parties have come to power by promising to ‘develop the rest’ . A vigilant citizenry would hold them to their promises.

    1. VC, PM Modi is trying to address this by encouraging Yoga, sports and exercise. These improve physical health, mental health and intelligence. These are strongly correlated with career and business outcomes.

      IITs and elite global universities only accept the top 0.1% of the world’s people by academic accomplishment, the top 1% by IQ and the top 5% or so by physical health (only very healthy people can study very intellectually subtle subjects for very long hours without getting sick) and very high levels of mental health.

      The only way to expand the talented tenth (to use W. E. B. Du Bois terminology) is to dramatically improve physical health, mental health and intelligence in the general population. Breathing, stretching, exercise, meditation, diet, drugs, brain therapy, genetic therapy, bio-engineered body parts, linked the brain and nervous system with AI are among the ways this can be done.

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