Until the early 19th century, much of India’s financial and economic history revolved around European trading companies, most notably the British East India Company. However, there were other organizers of Indian trade besides these companies. Among them were the ‘agency houses’, financial and trading firms that got their start during the period of Company rule in India but which were also successors to the East India Company. Individually, they were not the most stable organizations. Two waves of financial crises wiped out virtually all of them on each occurrence. As a concept though, they remained a common form of business organization in India through the 19th century.
East India Company
The British East India Company, founded in 1600, held a monopoly on British trade with India until 1813. During this long period, the Company employed civil servants and soldiers in India, a country which it began to govern large parts of starting from the mid-18th century. It was at this point that the Company also attempted to limit the private trading activities of its many employees, prompting some to start their own trading firms which came to be called ‘agency houses’. These firms were able to conduct intra-Asia trade, trade between ports in Asia which fell outside the East India Company monopoly. A notable example of the era would be the export of opium from India to China.
Despite these opportunities, manufacturers and merchants, especially those outside London, called for the end to the East India Company’s monopoly. They achieved precisely this at the start of the 19th century. The Charter Act of 1813 permitted private trade in India, effectively ending the Company’s monopoly there. At this point, the agency houses took off.
Perhaps the first agency house was Forbes & Co., founded in 1767. Houses were founded largely by Englishmen and Scots acting as local agents in India to British firms. Whereas European merchants usually sought to make a quick profit and return home, the agency houses provided a more permanent presence in the country. This was something rare and valuable.
Agency houses might know, for example, what fabric patterns were most popular in India and so were valuable intermediaries in the textile trade, increasing the Indian sales of British textile manufacturers. Should that manufacturer send its own agents to India, they may lack the local knowledge accumulated by the agency houses.
The firms stood to benefit when the East India Company monopoly was abolished since they could now trade for their own account. The agency houses usually had London-based sister firms, often founded by retired partners of the agency houses in India. The London firms secured local goods for export to India and handled the sale of imported cargos in Britain. In a transaction common at the time, the Indian agencies would buy cotton textiles ‘on consignment’. As such, full payment wouldn’t be due immediately. Instead, the London firm might advance two-thirds of the value of the merchandise to the manufacturer, who would be paid the balance only after the Indian agency houses had sold the product.
The houses frequently bought fabrics in Britain, where competition reduced prices to very low levels, and shipped this product to India to sell at a higher price. It wasn’t just textiles in which the firms traded. They also arranged the export of tobacco, spices, ivory, and indigo from India to Europe. Jardine, Skinner & Co., which launched in 1825, was one such agency house and was representative of the others. It began operations by importing cotton piece goods into India from Glasgow and Manchester and exporting indigo in return.
The firms expanded beyond trade as well. They lent money in India and invested in a myriad of industries. These extensive operations were funded with deposits. East India Company employees were among the largest group of depositors. They frequently left money with the agency houses as there were no European banks with operations in India at the time. With these deposits, the agency houses succeeded in combining access to capital, business experience, local knowledge, and a permanent presence in India all under one roof.
One of the industries in which these houses became most involved was the indigo trade. The agency houses advanced money to indigo planters and then received their product on consignment before proceeding to market the dye to buyers in Europe. These operations were funded by borrowing money. The business model was thus challenged during the First Anglo-Burmese War of 1824-26 when the East India Company was forced to borrow money in India, raising local borrowing costs. However, real trouble came in the late-1820s, when the market for indigo began to turn. Production exceeded demand and prices fell.
Palmer and Company, perhaps the most notable agency house of the era, failed in 1830. The company was indebted to its London sister firm, Cockerell & Trail, owing the latter £600,000. It was merely a milestone in a larger crisis and all of the agency houses of any note founded before 1834 had failed by the end of that year. Depositors in the houses faced substantial losses from 1830 to 1835, leaving behind destitute widows and wiping out the savings of the civil servants and soldiers who had left their money with the houses.
Nonetheless, the crisis of the 1820s and 1830s did not bring about the end of the agency house concept. They would live on and, during a subsequent revival, Indian businessmen played a larger role. Indian merchants subscribed £200,000 to form a new Palmer and Company and an entirely new generation of agency houses were founded on the ruins of the old ones. These included the likes of Carr Tagore & Co., Cockerill, Larpent & Co., and Reid Irving & Co.
The new houses conducted very similar business to the old firms but borrowed against the goods they imported from Britain, rather than using deposits, for most of their capital. The new firms also seeded and managed companies in an equally diverse array of industries as the old houses but brought in outside shareholders once the capital need grew beyond their capacity.
The revival did not last long though and a new crisis afflicted the agency houses in 1847-48. Carr, Tagore & Co., which had been co-founded by an Indian merchant, Dwarkanath Tagore, failed in 1847. This had been a relatively rare example of a partnership between an English and an Indian merchant, and after 1836 it was essentially led by Tagore alone. After the crisis of 1847-48, the firm became just one of twenty that closed.
The previously mentioned Cockerell, Larpent & Co. and Reid Irving & Co. also met their end. They had invested heavily in sugar estates in Mauritius which were losing money and now stood to lose preferential tariff treatment in Britain under the Sugar Duties Act of 1846. They too failed amidst the crisis.
Nonetheless, it was Carr, Tagore & Co. which was perhaps the most notable firm active during this second generation of agency houses. The company participated in industries ranging from coal to steamships, managing joint-stock companies in these businesses, nominally on behalf of their shareholders but with an eye to increasing their own profits as well. The firm had established six different joint-stock companies by the time of its 1847 failure and managed these firms on behalf of their investors. Even here, the agency house concept survived the crisis, as did many of the firms they managed on behalf of their outside shareholders.
The end of the British East India Company monopoly helped increase the volume of trade between India and Britain. With the role of the Company reduced, agency houses filled the void. Though many of the houses were founded by veterans of the East India Company and though they initially sourced funding from Company employees, the agency houses were among the inheritors of the Company’s trade in India. As the East India Company had in its day, the agency houses did encounter trouble. However, they did not benefit from the state support the Company received when it was in distress. As a result, the houses frequently failed. Nonetheless, the concept survived the routine panics of the 19th century.
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Read about the indigo crash that destroyed the first generation of agency houses. Employees of the East India Company may have saved their money in India but they usually returned home with their riches at some point, inviting the resentment of many. Also, consider subscribing to this blog’s newsletter here.
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