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4 The Colonial Expansion
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The Colonial Expansion


The present chapter describes the range and scope of Nakarattar commerce in the nineteenth and twentieth centuries. Special attention is paid to the Nakarattar response to changes in their economic and political environment, particularly their aggressive uses of finance capital and their skillful manipulation of the emerging colonial institutions of commerce and government. The resulting model of Nakarattar colonial adaptation provides a macrocontext for the detailed structural studies of Nakarattar commercial, political, religious, and kinship institutions presented in Chapters 6 through 10. Those chapters, in turn, describe the mechanisms by which Nakarattars achieved the dramatic expansion described immediately below.

Nakarattar commercial evolution during this period can be broken down into three overlapping phases. The first begins in the precolonial and undocumented past and extends to the middle of the nineteenth century. This period marks their expansion from a localized salt-trading caste to a broad-ranging merchant-banking caste. Their commercial activities may have continued to involve the salt trade during this time (although documentation of this involvement is rather circumstantial), but they were also clearly and massively involved in the rice, cotton, and credit markets within the Madras Presidency and between Madras, Ceylon, and Bengal.

The second phase of Nakarattar expansion has its roots in the first half of the nineteenth century, but cannot truly be said to have started until the 1860s and 1870s. In the early nineteenth-century prelude to this phase, Nakarattars seem to have followed the footsteps of the British army as it conquered and pacified Burma and Malaya. Published caste histories (e.g.,


Ramanathan Chettiar 1953: 27) place Nakarattars at various ports of Southeast Asia by the following dates: Singapore and Penang, 1825; Moulmein, 1852; Rangoon, 1854; Mandalay, 1855. The Nakarattar firms established in these outposts were branches of agencies already established in Calcutta (Lakshmanan Chettiar 1954) and had probably positioned themselves so as to oversee the provisioning and financing of British military operations. Although it is unlikely that trade to these Southeast Asian outposts played any significant role in the overall scheme of Nakarattar commerce, it did set the stage for their rapid expansion from that point.

In the second half of the nineteenth century, four historical trends coincided and opened up new commercial opportunities ideally suited for Nakarattar banking operations:



The British completed their conquest of Burma and Malaya in the 1850s and 1860s, opening up the interiors of these countries for colonial development and exploitation.


The volume of trade between Asia and Europe increased with the opening of the Suez Canal in 1869, when the possibility for large-scale export of agricultural and other bulky commodities presented itself for the first time.


British exchange banks established themselves firmly throughout South and Southeast Asia, foreclosing old Nakarattar investments in money lending and exchange banking for European firms, but at the same time offering Nakarattars a new source of venture capital to carry out alternative investments.


Finally, unlike the situation in post-1850s Madras, the provincial governments of Southeast Asia adopted policies that encouraged rather than restricted Nakarattar investments in indigenous agricultural industries.

Nakarattars responded to all of these changes in their commercial environment by loaning a greater proportion of their investment capital directly to agriculturalists, plantation owners, and mine operators throughout Southeast Asia. In this capacity they made a unique and central contribution to the growth of the plantation economy in Ceylon, the emergence of the Burmese rice market, and the development of Malaya's rubber and tin industries.

The third phase of Nakarattar commercial evolution was one of contraction rather than expansion. Starting in the 1920s and increasingly through the first half of the twentieth century, the business environment of British India was altered in crucial ways by the development of nation-


alistic movements in Southeast Asian countries, by the general growth of legislation restricting indigenous forms of banking, and by increased industrial opportunities within India for non-British businessmen. The consequences were significant for the Nakarattars. Their caste organization began to unravel in the face of multigovernmental interference with traditional banking practice. Elite members of the Nakarattar caste began a gradual transfer and freezing of investment capital by shifting from mercantile to industrial ventures. Nonelite Nakarattars—perhaps 80 to 90 percent of the caste—were forced to scramble for new employment opportunities and often began working as employees in government and business offices, although many of these were owned or managed by Nakarattars. The present study, however, stops short of examining this third phase, focusing its attention instead on processes leading up to and culminating in the unfolding of the Nakarattar commercial system at its peak, during the colonial period from 1870 to 1930.

Seventeenth-Century South India

In the sixteenth and seventeenth centuries, the Vijayanagar empire disintegrated after four centuries of rule. In the far south, conflict over the spoils between Bijapur and the Marathas, complicated by the most southward efforts at Mughal expansion, stimulated conflict between the kingdoms of Madurai and Tanjavur. The European trading companies arrived, and governmental centralization declined in the face of widespread civil wars (Arasaratnam 1986; Ludden 1985; Rajayyan 1974; Sathyanatha Aiyar 1924; Stein 1969, 1980). Yet the fortunes of South Indian trade apparently followed an independent course.[1] For some mercantile groups and especially for the Nakarattars, trade flourished during this period. In fact, growth in key sectors of South India's commercial activities may have contributed to the Vijayanagar empire's decline. European guns and artillery made war less expensive. Local chiefs, called palaiyakkarars (or, in British usage, "poligars") could more easily afford relatively small but effective armies. The resulting declarations of independence created numerous "little kingdoms" ruled over by a varied assortment of chiefs, rajas, palaiyakkarars, setupatis, tondaimans , and others. Many of these local "warrior chiefs" demanded recognition as rulers on a par with their nominal suzerain, the Nayak of Madurai, who was the Vijayanagar deputy in charge of the entire southern region.[2]

Military escalation continued into the eighteenth century and increased the overall demand for money and credit in order to pay for armies and guns (Rajayan 1964–65; Raman Rao 1958; Sundaram 1944–45). A large part of this demand was met by revenues from an expanding


export trade with Europe and the East, coupled with significant increases in New World bullion supplied by European trading companies (Habib and Raychaudhuri 1982). But cash by itself was not sufficient. Seasonal fluctuations in production and sales, variable weather, unpredictable foreign markets, and a generally complex and uncertain economic climate all conspired to generate an enormously credit-hungry society. The myriad chiefs and "little kings" as well as the European trading companies, agriculturalists, and artisans all depended on forward advances of credit from Indian merchants and moneylenders.

The Nakarattar caste adapted to their political and economic environment in a modest fashion, at least during the seventeenth century. Their own oral traditions suggest that they were primarily employed as salt traders within a small area of ninety-six villages in the northern part of present-day Ramanathapuram. District (see Map 4). Unfortunately, European records do not provide a full description of South India's salt industry during this time and do not, in fact, mention Nakarattars as salt traders either in the seventeenth or the eighteenth century. In the eighteenth century, the records suggest that salt in various forms was produced in coastal regions of southern India and traded for inland consumption in exchange for items such as wheat, cotton, rice, dry grain, tamarind, cumin seeds, and long peppers.[3] They identify castes other than Nakarattars (especially Telugu Komati and Baliga Chettis) as being involved in the coastal and international trade. Typically, kings and European companies rented coastal salt "farms" under their control to important merchants and dubashes , who then had salt transported by Muslim traders on cattle back to inland customers.[4]

It seems reasonable to assume that a similar state of affairs existed during the seventeenth century, and that during this earlier period Muslim traders were the source of salt for small-scale Nakarattar traders.[5] It is also possible, however, that Nakarattar trading activities extended east from their home villages as far as the Palk salt swamps and that they obtained their salt directly from salt producers or salt-bed renters. Whatever the case, it is impossible to say in what commodities besides salt Nakarattar trade was carried out or to identify the full range of Nakarattar trading territory. It does seem clear that the total scope of Nakarattar trade was only a shadow of what it was to become. Certainly, their subsequent history proves that their itinerant salt-trading activities and the social organization that supported these activities had prepared the Nakarattars to take advantage of the changing commercial environment of South India.

In the eighteenth century, the primary Nakarattar occupation—inland salt trading—became dramatically less profitable. In 1792, a widespread drought and famine reduced or halted trade between inland salt-


consuming and coastal salt-producing regions of the Madras Presidency. According to Krishna Rao (1964), this interruption in normal salt-trading activities marked a watershed in the history of the Madras salt industry. According to Rao's interpretation, the drought so weakened the power of major salt renters that, in 1805, the East India Company was able to eliminate them as middlemen in the salt trade and assume monopolistic control over salt production (see below). This may be something of an exaggeration, since the East India Company promptly turned around and rented out salt beds to the highest bidder. But the ultimate effect of these various events was that the price of salt to salt traders more than doubled from that before 1805.[6]

Cotton, Pearls, Rice, and Salt, 1800–1850

The Nakarattar caste responded to the hostile "push" of salt trade disruption and East India Company pricing policies as well as to the lucrative "pull" of opportunities for money lending. In a process that is still unclear, Nakarattars developed a sophisticated financial apparatus which included provisions for making forward loans to agrarian producers, for extending short-term and long-term loans to political and military leaders, and for transmitting hundis or teeps (bills of exchange) among themselves and their clients. Along the way, Nakarattars evolved from a geographically restricted community of salt traders to a powerful, long-distance merchant-banking caste. Details of this process are hard to come by. Historical records of Nakarattar business activities only really begin in the later part of the nineteenth century. But such information as is available provides a marked contrast with the picture of localized salt trading portrayed in traditional written and oral accounts of pre-European Nakarattar history (see Chapter 7).

Nakarattar oral traditions, chronicled in a caste history written by A. V. Ramanathan Chettiar (1953), provide some indication of the territory and the commodities in which Nakarattars were chiefly involved. According to Ramanathan Chettiar, Nakarattars were important actors in the grain and cotton trade in towns that, judging from their geographic distribution, were strategically located in the central productive regions of both these commodities. One set of towns formed a north-south string in Tirunelveli that still comprises major trading towns of the region today, providing markets for cotton and other cash crops produced in their hinterlands. Another set formed a double string of towns in Tanjavur—one strand located along the coast, the other roughly thirty miles inland. This double string served a similar function for rice produced in Tanjavur as the single string of cotton trading towns in Tirunelveli. Note that fifteen miles is the approximate median distance between coastal and inland Nakarattar


trading towns in Tanjavur and that this distance constitutes about one day's round trip journey carrying goods by bullock.

Besides information about the location and commodities in which Nakarattars were trading, Ramanathan Chettiar (1953) also provides information suggesting that religious and other forms of gifting provided a continuing mechanism by which cooperating groups of Nakarattar traders gained entrance into local communities (see Chapter 7 for description of the role of religious gifting and entrance to the seventeenth-century temple town of Palani).

Until 1815, all those who were engaged in cotton business left their homes and met at the house of Arjuna Perumal Ambalakarar at Narasingampatti (5 miles west of Melur and 13 miles east of Madurai) and from there they started as a group to various cotton centres. At the end of the trading season, they returned to the said Narasingampatti from where they branched off to return home. Deeds of Palmayrah leaves have been found in the said Ambalakar's residence. According to one of those deeds, the profit of 743 and 1/2 varahans accrued in one partnership was spent to dig a drinking water tank in Narasingampatti. From revenue records kept in Melur Taluk office, it is known that the tank is called Nagarattar Orani or Panchuppotti Orani ["the tank built out of profits in cotton bale transactions "].[7]

Nakarattar commercial activities extended even beyond the Tamil mainland. By the end of the eighteenth century, they had gained control of pearl fisheries in the Ceylon Straits and the Gulf of Mannar, usurping this position from Muslim Maryakarar merchants who had previously been granted control of the fisheries by the Setupati (Raja) of Ramnad in the seventeenth century (Arasaratnam 1971a; Samaraweera 1972). Various factors seem to have been in play. For one thing, the setupati's influence in granting fishery rights had become considerably eroded. As early as the eighteenth century, administrative rights over the fishery were being strongly contested by the Dutch, by the Raja of Tanjavur, and by the Nawab of the Carnatic. The different claims of these parties were apparently withdrawn only in return for a financial settlement from the Nakarattars (Arasaratnam 1979; Samaraweera 1972). In addition, the Nakarattar takeover may reflect a close financial relationship that Nakarattars built with the setupati who was, perhaps, their largest client zamindar (see below). That is, Nakarattar merchants may have been in a position to influence the setupati to exercise whatever powers he still retained over the straits. In any case, the Nakarattars were ultimately able to exercise monopoly control over the fisheries until 1836, renting them out to Maravar and Paravar boating crews from Tuticorin.[8]


Figure 1.
Simple hundi exchange system

From at least 1820,[9] Nakarattars also dominated the major coastal trade in arrack and other coconut products from Ceylon to Madras, in rice and cloth from Madras to Ceylon and, arguably, in salt from Madras to Calcutta and rice from Calcutta to Madras and Ceylon. It is difficult to gauge the degree of their domination, but according to contemporary observers, they had cornered the Ceylon rice market, controlling all imports not only of Tanjavur rice but of Bengal rice as well.[10]

The Nakarattars' position in the Ceylonese rice market allowed them to take advantage of a marked imbalance of trade strongly tilted in favor of rice exports from Madras to Ceylon. Ceylonese importers made up differences in the trade balance with British sterling, which was earned by trading in the European market for Ceylon cinnamon, spices, coconut products, and increasingly—until the coffee blight appeared in 1868—coffee (MacKenzie 1954: 90). But Nakarattar agents in Colombo—holding a monopoly on the import of rice—were unwilling to accept sterling as payment unless there were exceptional sterling shortages in India. Accordingly, Ceylonese rice traders appointed their own agents in Madras to whom they sent their sterling bills for sale. They then sold rupee drafts on those agents to the Nakarattar bankers in Ceylon, who discounted (i.e., cashed) the hundi in rupees or rupee credit at a standardized discount rate. The Nakarattar bankers, in turn, sent the hundis to Madras where they could be redeemed at face value (see Figure 1). British merchants and plantation owners in Ceylon met their rupee needs in a similar fashion. The Nakarattars "were thus in a position practically to hold the Colombo merchants [Ceylonese and British] to ransom, while the latter were at the same time dependent on the sterling exchange in India."[11]


Reports of Nakarattars trading Bengali rice in Ceylon are also interesting in that they lend support to present-day oral traditions describing the northward expansion of Nakarattar trade and the establishment of Nakarattar firms in Calcutta as early as 1820 (Lakshmanan Chettiar 1954: 41). They are intriguing in view of family histories that describe the involvement of early nineteenth-century Nakarattars in salt farming for trade to Ceylon and other places.[12] I also note the existence of considerable documentation of the trade in grains from Bengal for salt from Madras, attested in East India Company records for the eighteenth and nineteenth centuries.[13] All of these scattered reports bear further research. But they are consistent both with traditions of Nakarattar salt trading and with a general Nakarattar shift away from small-scale trading activities and into the large-scale financing or ownership of productive resources throughout the Madras Presidency.

There remains scope for considerable research into the precise nature of Nakarattar credit networks and of the various commodities markets with which they were involved. Whatever findings eventually result from such research, it is clear that late eighteenth-and early nineteenth-century Nakarattar commodities trading was tied to some kind of exchange banking system. That is, Nakarattars combined their trade transactions with purely financial transactions such as money lending, the remittance of funds between geographically distant locations, and even quasi-governmental treasury functions to the extent that governing authorities made use of Nakarattar financial facilities. Like any other system of credit extension and financial intermediation, the system worked ultimately because of the mutual confidence (strongly qualified by the lack of any viable alternative) between Nakarattars and their clients. During the colonial period, for reasons that will be explored in subsequent chapters, the Nakarattar system worked more successfully than did most of its competitors. Overall, the record of Nakarattar enterprise remains extremely sketchy throughout the early nineteenth century, both in Ceylon and in Madras (and even more so in Calcutta). Yet, such as it is, the evidence suggests that by 1850 the Nakarattar had already enlarged their economic niche from domestic trade to international trade and had become a major force in the commercial world of Southeast Asia.

Peshkash, Money Lending, and Repayment, 1800–1850

Nakarattar commodities trading was inextricably linked to money lending and banking. East India Company documents indicate that before the end of the eighteenth century, Indian soukars (moneylenders) within the


Madras Presidency—including soukars in Madura district, which encompassed the Nakarattar homeland—acted as brokers and renters for palaiyakkarars (poligars) with superior land rights, transferring funds between different palaiyakkarars as well as between the palaiyakkarars and anyone else with whom the palaiyakkarars transacted: army troops, merchants, agrarian producers, and European trading companies.[14] According to a British revenue officer in 1793, "Most of the Soukars of the Southern Provinces have open accounts with the Poligars and are in the habit of frequent dealings with them. For management of their concerns they have Gomastas [clerk-accountants], etc. established in the Pallams ["army camps"] to wait on the spot to receive the produce of the different crops that are assigned to liquidation of their demands."[15]

After the "Poligar Wars" of 1799–1800 and the establishment of British rule in 1801, the surviving palaiyakkarars were largely converted into British renters and—following the Bengali practice—were called zamindars . But the change of name and the cessation of violence did little to alter the revenue needs of these palaiyakkarars -turned-zamindars . On the contrary, the period from 1800 to 1850 is widely regarded as one of British overassessment and overcollection of land rents or taxes, called peshkash (Saruda Raju 1941; Stein 1969), and zamindars continued to look to local soukars as financial intermediaries, subrenters, and brokers for agrarian commodities produced on their lands.[16] In 1828, the Madura District subcollector reported, "It was formerly the custom to deliver over the ... grain to a few rich merchants who of course made a considerable profit by the assistance they afforded the Zamindars in relieving them from the burden of disposing it on the market."[17] These practices did not die out, the subcollector's allusion to "former custom" notwithstanding. The Miscellaneous Correspondence volumes for Madura District during the 1850s list drafts drawn by Nakarattar grain contractors in Ramnad and Sivagangai—names that are identical with zamindari creditors.[18]

Faced by ever-mounting expenses and tributary obligations to the East India Company, zamindars relied as never before on large-scale loans from any available source of financial credit.[19] To secure these loans, they frequently leased their income-earning villages to Nakarattar creditors, assigning the revenue of villages or sometimes entire districts as security against a loan.[20] Pleading inability to pay out of their own resources, zamindars would then have their Nakarattar and other creditors pay their peshkash dues to the appropriate authority in the form of hundis or teeps (bills of exchange). Company officials often had little choice but to accept this payment and hope for the eventual cashing of these bills—


often netting as little as one-fifth of the amount listed in their books as their rightful revenue tribute (Sundaram 1944–45: 13–14).

Such procedures solved the zamindars ' immediate cash-flow problems. But at the same time it increased their difficulties in subsequent years since, whatever original understanding had been reached with their creditors—and, needless to say, the system was rife with opportunities for fraud—the leased land never seemed to produce an income sufficient to pay off the principal plus the interest on the original loan. In addition, the zamindar was still faced with peshkash demands on his entire estate, but much of the estate's produce now went to its moneylender lessees. Perhaps the most insidious effect, however, at least from the zamindars ' point of view, was the consequences of this technique for the East India Company's policies regarding revenue collection. Ultimately, the Company—and, after 1856, the colonial government—erected a British-based legal system as the basis for deciding and enforcing decisions on all revenue and most civil disputes. In the process, zamindars lost their independent jural, administrative, and military-police powers, while moneylenders, including Nakarattar moneylenders, gained considerable leverage through the exercise of legal suits in the court system.

In a study of the traditional kings and zamindars of South India, Pamela Price (1979) describes the banker-client relationships between some of the most prominent Nakarattars and zamindars in nineteenth-century Madras. She argues that, during the early decades of this period, Nakarattar loans generally were not repaid directly; rather, "payment could come in the form of lightened taxes, of trading and minting rights, and in the intimidation of robbers" (1979: 192). In other words, money lending to zamindars was an integral part of other commercial operations. It was the price one had to pay in order to play a successful, large-scale role in agrarian trade.

Despite this well-taken argument about the indirect benefits of zamindar financing, there has been only one systematic study (unavailable to me) of the financial relationships between zamindars and bankers during this period (actually a study of the Nawab of Arcot: Gurney 1968). Accordingly, I make the cautionary observation that the sums of money involved could be quite substantial. It seems unlikely that Nakarattars would forgo repayment—even for significant indirect benefits—if there was some way to avoid the loss, and there are good reasons to believe that they did not. One finds references, for example, to direct techniques of moneylender repayment by zamindars in the practice of land leasing described above. In other ways, too, Nakarattar moneylenders demonstrated their unabated appetite for direct repayment of loans. For example,


a letter from the Madurai Collector, R. Peter, to the Accountant General in Fort St. George mentions the involvement of one Veerappa Chetty and another unnamed Nakarattar with the Zamindar of Sivaganga. The details of the transactions—especially the rights of the different parties in the case—are ambiguous. But the interest of the Nakarattars in recovering their money is plain.

To: Accountant General,
Fort St. George.


In reply to your letter of the 3rd—Ultimo ... I have the honor to state that on 28th May the late Zamindar of Shevaganga with Veerapah Chetty came in my presence. The latter stated that he would pay me 40,000 thousand [sic ] rupees of the Sheevaganga balance, of which he said he would pay 9,000 rupees in Hoondies [hundis ] of the Accountant General. I desired him to do so and the next day he proceeded to Ramnad. A Takeed [administrative order, memorandum] was prepared in the Cutcherry [district headquarters] dated 3rd June directing the Hoondies to be received and on the 2nd July I received a note from the cash keeper stating that the Chettiyar had not yet come to the Hoozoor to affix their signature to the bills. I therefore ordered him to carry the Bills to the account of the Shevagunga balance as they were—The Chetties came to me at Sovarencourchi on the [?] of July and signed a paper corroborating the Will in favor of the present Zamindar and then made no opposition to the Bills in the Zamindar's favor. They also advanced no claim to the Bills on the 11th September when other Chetties came forward to adjust the remaining balance, but on the 29th September when the Zamindar closed with the other Chetties they gave an arzee [petition] claiming the 9,000 rupees as they had not receipted the bills—On the 30th, this was referred to the Zamindar who on the 21st November objected to the payment of the 90,000 [sic ] rupees which they claimed as the said Chetties were in debt to the Zemindary and he insisted first of all that their accounts should be adjusted.

The payment of the Bills was entered in the names of the persons in whose favor they were drawn [the names of Veerapah and Sateeapah Chetty are noted in the margin]—and the amount has been credited to the permanent Peshcash of fusly 1230 in the accounts of July 1020 under the land revenue.

Madura 2d, June 1830 .[21]


In fairness to Price, her characterization of the rewards of zamindar financing is applied explicitly to the early parts of the nineteenth century, before a progressive weakening of zamindars and the erection of a British-based legal system made litigation an attractive course of action for Nakarattar creditors. Price is quite aware of these shifts and discusses them in her dissertation. My concern here is simply to point out that the contrast between early and late nineteenth-century relationships between moneylenders and zamindars lies less in the difference between indirect and direct rewards for zamindar financing than in the legal powers available to Nakarattars to enforce the terms of loan agreements. There remains considerable research to be done on the remedies and sanctions available to moneylenders in their pre-European and early nineteenth-century dealings with zamindars .

Litigation and the Emergence of Nakarattar Zamindars , 1850–1900

As the world economy changed and Crown government replaced Company rule, Nakarattar investments typical of late eighteenth-and early nineteenth-century Madras became increasingly risky or unprofitable. The East India Company restricted and, in the end, all but abolished a system of government loans to agriculturalists (takkavi loans) that had secured many credit transactions during the first half of the century (Sarada Raju 1941: 142–145). Simultaneously, land also became more risky as collateral (albeit potentially more profitable; see below). It was seldom alienable in an unrestricted fashion, and "landowning" peasants generally did not own any land outright. Instead, they possessed a legally ambiguous and hence conflict-generating share in their joint-family estate. Under changes in the evolving legal system, the time required to settle legal disputes over ownership and enforce a mortgage foreclosure lengthened. Thus, only local residents, who had extralegal sanctions available to them, could safely accept land as security.[22] In Tirunelveli, the cotton trade was becoming increasingly competitive as Nadar traders developed an edge through their connection with Nadar cotton cultivators (Hardgrave 1969)—an edge not duplicable by the more highly specialized Nakarattars. Meanwhile, for reasons that are not clear, Marwaris came to dominate the credit needs of cotton traders in Coimbatore.[23] All opportunities for Indian participation in shipping were outlawed by the colonial government; at the same time, Europeans were moving to develop and monopolize new arenas of investment: notably, railroads, military supplies, and sugar (Bagchi 1972; Habib and Raychaudhuri 1982; Mahadevan 1976; Ray 1979). Finally, beginning in 1843 with the founding of the Presidency Bank of Madras, Europeans


established their own exchange banks, thereby excluding Nakarattars and other indigenous moneylenders from the market in mercantile finance and currency exchange for private European firms and the market for quasi-governmental treasury functions for the East India Company.[24]

These dramatic changes in opportunities for investment had major ramifications for Nakarattar business practice. In the Madras Presidency itself, they ruled out virtually every area of investment. As a consequence, almost the only possibility for profitable investment remaining was, ironically, to invest in or convert bad debts into land ownership. The irony lies in a reversal of the agricultural commodities market in Madras. The agricultural depression that had contributed to the credit hunger of the first half of the nineteenth century at last began to relinquish its hold on the South Indian economy. Between 1823 and 1853 the value of good, wet land in Tanjavur District had risen from Rs. 12 to Rs. 39 per acre. Then between 1853 and 1868 it rose dramatically, to Rs. 151 per acre (Raghavaiyangar 1892, cited in Mahadevan 1976: 44). Between 1878 and 1903 the value of land throughout Madras rose from Rs. 245 per acre to Rs. 458 per acre (Kumar 1965: 142). Moreover, this rise in land value was fueled and surpassed by rises in the prices of grain. According to David Washbrook, for example, prices of dry grains between 1880–87 and 1918–20 rose between 50 percent and 70 percent, and went even higher during the shortages of 1918–20.[25] Meanwhile, Fort St. George raised its tax assessments on dry land only from 7 percent to 12 percent (Washbrook 1973: 158).

It is not clear that these rising prices increased the profitability of investment in land and agriculture to the extent that they compensated for investment opportunities foreclosed by British interests. Moreover, as noted above, serious legal obstacles often lay in the path of anyone seeking to wrest a clear title away from members of a landowning joint family. Nevertheless, land was sufficiently attractive so that wealthy Nakarattar families, with sufficient economic leverage over their zamindar clients, used this leverage, along with extensive litigation, to acquire considerable lands.

One of the most notable cases is described by Pamela Price (1979). In her account, the story begins with a transaction in which the Setupati of Ramnad leased twenty-four villages in the vicinity of Devakottai to a Devakottai Nakarattar named Al. Arunachalam. The date on which this lease occurred is not clear. But from at least the 1860s on, these villages were not to escape control of Arunachalam's family until the Zamindari Abolition Act of 1947.[26]

The loans that secured these leases for Arunachalam—or, more accurately, the loans for which these leases stood as security—were not suffi-


cient to solve the setupati 's long-term financial problems. During the 1860s and 1870s, he found it necessary to mortgage additional villages, almost on a wholesale basis, to Arunachalam's family and to two other Nakarattar families as well.[27] Other, unspecified portions of Ramnad were leased to Arunachalam's son, Ramasami, and to his nephew, Pethuperumal. Two additional villages went to two brothers from a separate lineage, Chidambaram and Subramaniam. The villages from an entire two and a quarter "divisions" (taluks ?) were leased to their father's brother Ramanadhan. And another three divisions went to two cousins from a third lineage, Me. Ar. Narayan and Me. Ct. Vairavan.[28]

In the 1870s the setupati was unable to meet the interest payments on loans obtained from these three families, even after the income from their leased lands was taken into account, and the entire gang of Nakarattar creditors took him to court. According to Price, only his early death saved the zamin from being completely divided. Instead, it was placed in the hands of a court-appointed manager until his son Baskara reached his majority in 1889. It is not clear how the Court of Wards satisfied the Nakarattars. But whatever solution was reached, it was only temporary. In the 1880s, Baskara's mother borrowed Rs. 80,000 from Ramasami to arrange a second and secret wedding for Baskara.[29] In 1889, Baskara assumed the title of setupati . His estate was solvent, with a revenue of Rs. 900,000 and a cash balance, at that time, of Rs. 300,000. Three days after his "rendition," Baskara gave or leased two additional "mahanams " (divisions of land: mahanadus ) containing twenty-four villages to Ramasami. It is not clear what he received in return. Ten weeks later, L. Ar. Rm. Ramanadhan (by his initials, a different Ramanadhan Chettiar than the previously mentioned Nakarattar) induced Baskara's younger brother to sue for partition of the zamin and extended Rs. 127,000 to cover legal costs. Ultimately, the court ruled that Ramnad, as a traditional kingdom, had a special status and was not subject to division under laws concerning the Hindu joint family. However, Baskara was forced to pay his younger brother an allowance of Rs. 2,000 per month plus a lump sum payment of Rs. 250,000 to cover back allowance.

Price describes many different kinds of expenses incurred by the young setupati . But for our purposes, it is perhaps enough to note that by 1890 Baskara had borrowed Rs. 486,000 from Ramasami. In 1891, in return for a lease on most of Hanamanthagudy Taluk, he borrowed Rs. 800,000 from V.A.R.V. Arunachalam and S. Rm. M. Rm. Muthia (grandfather of Raja Sir Annamalai Chettiar). In the same year, he also borrowed an additional Rs. 750,000 from the British-owned Commercial and Land Bank of Madurai. By 1892, Ramasami, still Baskara's chief


creditor, had permanent or term leases on 255 villages (at one time he had held title to 500, and his relatives to another 80). In 1893 Baskara's total deficits were Rs. 763,000. By 1894, he owed Ramasami alone Rs. 837,035, against which Ramasami secured a mortgage deed on the entire zamin of Ramnad. In that same year, Ramasami's lease to 24 villages near Devakottai was made permanent. By July of 1895, Baskara had given his various creditors 306 villages on permanent leases and 294 villages on term leases. The villages still paying revenues to Baskara's estate had diminished from 1,011 to 439. His total debt was estimated at Rs. 2 million. In 1896 Al. Ar. Ramasami was officially installed as the Zamindar of Devakottai with a domain fissioned out of Ramnad consisting of the 24 Devakottai villages and containing forty thousand acres of wet land and sixty thousand acres of dry land.[30] In 1901, Baskara was removed from the managership of Ramnad and replaced by Ramasami. In 1903, Baskara died at the age of thirty-five.

The case of the Setupati of Ramnad and the Zamindar of Devakottai illustrates events that occurred many times and with many different zamindars and Nakarattar creditors. It was unusual in its scale and in that only one other Nakarattar besides Al. Ar. Ramasami ever had the title zamindar conferred on him by the British, namely, S. Rm. M. Chidambaram, Zamindar of Andipatti.[31] But several other Nakarattars acquired permanent leases or foreclosed on mortgages secured by zamins and assumed the title (see Table 1). In addition, other Nakarattars acquired similar, but generally smaller, inam holdings. My informants estimate that perhaps two hundred Nakarattars in all were able to obtain such minor titles.

Nakarattar Commercial Expansion in Southeast Asia, 1870–1930

In spite of such elite Nakarattar land acquisition, the number of Nakarattar families attaining land titles remained a very small proportion of their total numbers. Taking an 1890s estimate of the population as approximately ten thousand people,[32] these two hundred relatively large-scale, landholding Nakarattars could have represented at most one-fifth and more likely represented one-tenth or even one-twentieth of the joint-family units (valavus ) whose heads might have sought to receive title.[33] Moreover, many of the zamins were actually quite unproductive and, according to a Nakarattar caste historian, were acquired as speculative investments in the hope that the government would eventually irrigate the land or build an adjacent rail line.[34] For the majority of Nakarattars, then, and for elite Nakarattars who were not satisfied with the acquisition


Table 1. Nakarattar Acquisition of Zamins in Nineteenth-Century Madras

Name of Proprietor


Taluk (revenue zone)

Village(s) or Zamindari(s)

1. V. A. R. Arunachalam Chettiar


Okkur and Peravali

2. Al. Ar. Rm. Arunachalam Chettiar



Devakottai Zamindari

3. P. Chidambaram Chettiar




4. P. L. S. A. Annamalai Chettiar




5. S. Rm. M. Chidambaram Chettiar




6. S. A. Nagappa Chettiar



Velavadipatti and Verayadipatti (portion)

7. Rm. Ar. Rm.














8. Ramanathan Chettiar



Padirankottai Tenpatti

Arunachalam Chettiar


Anandagopalapuram Tenpatti

Palaniappa Chettiar


Alivalam Palattali Vathatikottai

9. Muttukkaruppan Chettiar




Olagappa Chettiar



Ramaswamy Chettiar


Anandagopalapuram Vadapadi

Lakshmana Chettiar


Kollukkadu Yenadi

Source : Mahadevan (1976: 47); based on Asylum Press Almanack and Directory of Madras and Southern India (1909: 1693, 1699, 1706); and Raghavaiynagar (1892: cxiv).


of land and titles in Madras, the constricting climate for financial investment in India must have been a considerable stimulus to search for new ways of putting their money to use.

Their opportunity came with the growth of the plantation economy in Ceylon, the emergence of the Burmese rice market, and the development of Malaya's rubber and tin industries. From the mid-nineteenth century onward, British banks largely monopolized the servicing of British credit needs in these countries, and with a few notable exceptions they remained aloof from servicing the credit needs of the non-British. Unlike in Madras, however, the provincial governments of Southeast Asia adopted policies that initially encouraged rather than restricted investment by Nakarattar moneylenders. Displaced from the credit markets of Madras, and displaced from British investment and exchange markets throughout greater British India, the Nakarattars found a new niche in servicing the credit needs of the indigenous Southeast Asians and migrant Indians who fought with each other and with the British in a race to produce agrarian commodities for the European export market. Nakarattars were not the sole source of credit. Particularly in mainland Southeast Asia, they faced competition from the Chinese, who also maintained a formidable network of money-lenders. But the Nakarattars were in a particularly advantageous position. In addition to their own financial and organizational resources, Nakarattars—especially elite Nakarattars—retained ties to British banks and firms and used these ties as a further and substantial source of investment capital. In many ways, this practice merely represented a continuation of practices established during the eighteenth and early nineteenth centuries in Madras and Ceylon. In expanding this general role of financial intermediary, however, they effectively excluded any competing group from the specific niche of intermediary between the British and indigenous Southeast Asians within the overall financial system of British India.

It is difficult to arrive at a reliable quantitative estimate for the scale of Nakarattar commerce during the late colonial period. The earliest figure offered by a knowledgeable source suggests that, in 1896, their total assets amounted to Rs. 100 million (Sundara Iyer 1906, cited in Pillai 1930: 1174), but it is not clear how this estimate was formed. The difficulties in ascertaining any accurate estimate of Nakarattar finances are reflected by the multiple and inconsistent estimates of their assets, ranging from Rs. 536 million to Rs. 1.3 billion, contained in the 1930 reports of the Provincial Banking Enquiry Committees of Madras and Burma and the 1934 report of the Ceylon Banking Enquiry Committee. In the depressed economic environment of that time and in the atmosphere of emergent nationalism and populist politics that characterized public debate in the


1930s, most of the evidence obtained in a public "enquiry" on any topic was highly biased and prejudicial. Enquiries into money lending and banking, agricultural indebtedness, and commercial or industrial finance were no exception. On one hand, the vast majority of relevant testimony was collected from Nakarattar debtors, who painted a predictably black picture of their creditors. On the other hand, testimony by Nakarattar bankers can hardly be accepted as an unbiased alternative. Such as it is, however, Nakarattar evidence provides the only picture we have of the extent of Nakarattar business operations. I present sample estimates of Nakarattar working capital and assets in Tables 2 and 3.

Of the various estimates of Chettiar capital, those provided by A. Savaranatha Pillai (1930) are particularly interesting in view of the qualifications that he attaches to them. Pillai was the Assistant Commissioner for Income Tax for Madras. His figures were prepared from tax returns compiled by tax officers for "circles" in which Nakarattars had their principal place of business.[35] As a consequence, they are unlikely to reflect any additional bias beyond the distortions built into procedures for recording Nakarattar income.

Pillai describes the kinds of distortions these figures are likely to represent. First, the information they contain is derived from faulty self-reporting of Nakarattar assets in Madras. Pillai notes that Nakarattars frequently underreported their earnings, showing accounts for selected branches of their firms rather than total earnings. Moreover, many Nakarattar firms (including all of the largest firms, according to one informant) maintained their legal headquarters in the principality of Pudukottai—a tax-exempt, "princely state"—and did not report their assets and earnings at all. Secondly, Nakarattars did not report all of their business capital, even inaccurately. By Pillai's estimate, they left out the capital of at least 1,600 Nakarattars whose principal business was located in Burma, and of 193 Nakarattars whose business lay in Madras but outside the areas reported in those tax returns on which his account was based (Pillai 1930: 1172). Consequently, Pillai's subordinates were able to provide only undocumented estimates of these assets. Finally—and this is a major point of misinterpretation that Pillai does not mention but which will concern us in Chapter 5—the division between the Nakarattars' "own capital" and "borrowed capital" refers to aggregate measures of all Nakarattar capital in each specific locale, not individual loans and deposits between the Nakarattar firms within locales. Such interfirm transactions would cancel each other out in any aggregate analysis—a point that is frequently overlooked. As a result, many analysts apparently take Pillai's characterization of the ratio of "own to borrowed capital" and similar characterizations of


Table 2. Three Estimates of Nakarattar Working Capital, 1930 (one crore equals Rs. 10 million)


Location of Working Capital

Amount (crores)



Federated Malay States




Cochin China


Madras Presidency




Source : Krishnan (1954: 36).


Type of Investment

Amount (crores)

Money lending employed in business (own capital)


Investment in houses and jewels


Chettiars in Pudukottah State, many of whom do business in British India (own capital)


Their houses and jewels


Investments in land, estates, etc. in India, Federated Malay States, etc.




Source : Madras Provincial Banking Enquiry Committee (1930 IV: 252).


Type of Investment

Amount (crores)



Houses and other property




Non-Chettiar capital (borrowed)




Source : Madras Provincial Banking Enquiry Committee (1930 1: 186).


Table 3. Total Working Capital of Nakarattar Agencies by Principal Business Location or "Circle," 1930 (one lakh equals Rs. 100,000)


Name of Circle

Number of

Amount of


Volume of




Karaikudi I






Karaikudi II






Karaikudi III


















Beyond Chettinad


Trichinopoly I






Trichinopoly II












Madurai, North






Madurai, South






























Grand Total






Source : Pillai (1930:1188).

a Distribution: Local money-lending Rs. 217.54, Burma Rs. 313.64, Federated Malay States, Rs. 265.19, Ceylon Rs. 61.95.


Table 3—Continued


Name of Circle

of Assessees

Own Capital


1. Karaikudi I




2. Karaikudi II




3. Karaikudi III




4. Sivaganga








Source : Pillai (1930: 1188).

their own business by Nakarattars as applying to individual firms or agencies in a locale, rather than as applying to their aggregation.

With these considerations in mind, the properties that stand out most prominently in the various estimates of Nakarattar business are the Nakarattar investments outside of India and especially in Burma. The following discussion summarizes well-documented conclusions from half a dozen studies of the processes by which the Nakarattar caste expanded its role in colonial Southeast Asia.

Ceylon, 1870–1930

Throughout the nineteenth century and into the 1920s, Nakarattars continued to dominate the rice market in Ceylon (Bastianpillai 1964; Pillai 1930: 1179; Mahadevan 1976: 103). From the mid-nineteenth century onwards, however, their commercial activities were strongly affected by two changes in the Ceylonese economy. One of these changes was the arrival of British exchange banks to fund the Ceylon coffee boom of 1840 to 1870.[36] The second change was the overall growth in Ceylon's export market, triggered by the opening of the Suez Canal in 1869 and further altered by the destruction of Ceylon's coffee industry in the 1870s and the growth of its tea and rubber industries. The Suez Canal provided the means for much swifter transit time in Asian-European trade generally and, consequently, reduced transportation costs and increased profits in the shipment of all kinds of commodities. Initially, this change provided little scope for Nakarattar investment, for the most profitable investment and the one which dominated the Ceylonese


Figure 2.
Areas under selected export crops, Ceylon, 1870–87. Figures for cinchona
are five-yearly. Source : Rajaratnam (1961); based on Ceylon Blue Book
Statistics, Colonial Office, Ceylon (1870–81); Ferguson's Handbook &
Directory and Compendium of Useful Information (1870–81); Owen (1881).

economy between 1840 and 1880 was coffee, and most coffee plantations were in the hands of the British planters and were financed by British banks.[37] In the late 1870s, however, a coffee-leaf fungus (hemeleia vastatrix ) destroyed the coffee industry. In the five years between 1881 and 1886, production of coffee dropped from its peak, when the area under cultivation was approximately 322,000 acres, to virtually no acreage under cultivation at all.[38]

In the aftermath of the blight, Ceylon plantation owners looked for alternatives to coffee. In the process, native Ceylonese found opportunities to increase their share as producers in the (slightly) more diversified economy of Ceylon. The new export crops included cinchona (from which quinine is produced), coconut, cocoa, and the two crops that were to become Ceylon's major exports: tea and, after 1900, rubber (Bastianpillai 1964; Rajaratnam 1961). (See Figures 2 and 3 and Table 4). By the end of British rule, the Ceylonese controlled perhaps 20 percent of the production of tea and 35 percent of the production of rubber, which together accounted for 90 percent of Ceylon's export. In addition, the Ceylonese controlled 100 percent of the production of coconut (Arasaratnam 1964: 161), which continued as the major Ceylonese export product even during the coffee boom.

Ceylonese growers and planters entering the growing plantation industries faced one serious problem, however: no British bank would


Figure 3.
Areas under selected export crops, Ceylon, 1913–21. Source : Rajaratnam
(1961); based on Ceylon Blue Book Statistics, Colonial Office, Ceylon (1913–21).


Table 4. Ceylon Export Commodities as Percentage of Total Export Trade, 1921–29











Areca nut 1.3










Desiccated Coconut






































































Source : Rajaratnam (1961: 17); based on Ceylon Blue Book Statistics, Colonial Office, Ceylon (1921–29).


lend them the funds necessary to purchase land, seed, or fertilizer. Similarly, Ceylonese importers and exporters, coconut millers, arrack renters, and "country boutiques" (rural moneylenders who provided credit to small-scale farmers and farm laborers) were faced with the same problem: where to get credit. The Nakarattars were happy to offer a solution and, according to the Ceylon Banking Commission, provided almost all of the investment capital employed to finance indigenous Ceylonese ventures.

Among the private credit agencies, the Nattukottai Chettiars play the most important part.... It must be said to their credit that in moving surplus capital from places, both internal and external to the point of requirements, they have contributed in no small measure to the development of the island. European enterprises relied upon English funds to acquire lands and develop them into flourishing estates. The Ceylonese had no such external support or own savings to help them. They turned to the Chettiar and found a ready response. (CBC 1934 I: paras. 159–162)

It is difficult to gauge exactly how much capital Nakarattars channeled into the production of different crops in Ceylon for the same reasons it is difficult to gauge overall Nakarattar investment. But their involvement was substantial. Between 1870 and 1916, the number of Nakarattar firms in Ceylon increased from 150 to 700.[39] By 1929, at the peak of their business, the total volume of business conducted by Nakarattar businessmen was estimated at Rs. 150 million (CBC 1934 I: 42). For reasons touched on shortly below, this volume dropped to Rs. 100 million by 1934, the major difference being a decline in loans available to Nakarattars from British banks. With this decline accounted for, however, it is possible to accept figures prepared by the Colombo Nattukottai Chettiar Association in 1934 (CBC 1934 I: 42; see Table 5) as providing an indication of their business activity. These figures indicate that Nakarattar loans to Ceylonese that were secured by mortgages totaled approximately Rs. 20 million and that loans secured by their pawnbroking operations came to another Rs. 4 million. Nakarattars loaned out slightly more than the amount of these combined categories—Rs. 25 million—in unsecured loans on promissory notes. Finally Nakarattars also deposited about Rs. 5 million with British banks. Besides these assets, totaling Rs. 54 million, the caste association figures also indicate that Nakarattars invested about Rs. 46 million in their own business and properties. That is, their assets were almost evenly distributed between money lending and non-money lending business ventures, with a slight preference for money lending.


Table 5. Nakarattar Assets in Ceylon, 1934



Business and properties


Agricultural land and estates (about 50,000 acres): 70% coconut, 15% rubber, 15% tea, cocoa, etc.


Residential property in principal towns


Business capital in retail shops, estate suppliers, rice trade, import business, etc.




Loans and deposits


Pawnbroking advances


Loans against mortgages


Other advances: against promissory notes, etc.


Deposits in British banks




Grand Total


Source: Ceylon Banking Commission (19341: 42).

Although no confirming evidence was available to me during my research, it seems likely that the proportion of Nakarattar investment in money lending expanded relative to their investment in trade and other business ventures after the 1850s. The major difference in Nakarattar business operations after this time lay in additional sources of short-term funds available to them with the establishment of the British exchange banks. These banks were faced with the problem of investing the considerable funds deposited with them by their British clients. Although the British would not extend credit to Ceylonese, they would make short-term loans to reputable Nakarattar bankers (adathis ) secured only by the cosignature of a second Nakarattar. Nakarattars, in turn, loaned these funds to Ceylonese at a higher rate (Weersooria 1973).

This is not to say that the British banks provided unlimited credit to every Nakarattar. On the contrary, they attempted to build safeguards into their Nakarattar loan operations by excluding small Nakarattar firms from consideration. Loans would be made only if the recipient or cosignatory was on an approved adathi list (see Chapter 6) prepared by the head office of the Imperial Bank of India, which was supposed to keep track of credit worthiness and indicate the maximum amount of loans for which each


firm was eligible.[40] But the safeguards never really worked. As one expert witness testified before the Ceylon Banking Commission,

As the due dates of the loans vary in the different banks, the Chettiars used to borrow from one bank to pay off their dues to others so that a Chettiar firm which is financially embarrassed can easily tide over its difficulties and if it is actually insolvent the heaviest loss is entailed upon the bank to which the loan is repayable last in order of time.

... The system of inter-Chetty lending was the chief support of the successful working of Chettiar Banking. When in need of liquid funds they lent freely among themselves, at the usual inter-Chetty rate (6 percent or under) or at the rate charged by the banks, whichever was higher, if, in order to accommodate a brother in the trade, a Chettiar had to borrow from a bank. Thus so long as some among the Chettiars had untapped margins of credit at the banks, none of them, whose position was otherwise sound and could prove it to be such to his prospective Chetty creditor, had to fear, in all normal times, any inability to meet his short term obligation to his bank.

Thus the Chettiars through the age-old practice of being their own mutual lenders of last resort, were able to use loans from banks, sometimes from the same bank, to meet the maturing bank loans. To the extent this happened, it was the banks' own money which enabled the Chettiars to keep their loan contracts with the banks with striking promptness.[41]

The implication is that Nakarattars financed not only short-term loans from their own short-term borrowings, but also risky short-term loans and even long-term loans. If their clients could not repay or if their own short-term borrowings came due before the repayment by a client, Nakarattars could simply repay the British banks, in the manner described in the testimony above, by borrowing from a fellow Nakarattar. The second Nakarattar, in turn, might have borrowed from the very bank being repaid! Since no security was required on the short-term loans that Nakarattars borrowed from British banks, and since Nakarattars found it easy to circumvent the kinds of limits that British banks placed on loans to them, virtually the only constraint on Nakarattar borrowing was their own sense of caution. In the face of a highly expansive export economy, however, there was little need to exercise caution.

The bubble burst in the "Chetty Crisis" of 1925 with the failure of the A. R. A. R. S. M. firm.[42] In the ensuing bankruptcy hearings, the High Court of Madras estimated the firm's Indian assets at Rs. 800 thousand and Indian liabilities at Rs. 3.7 million; its Ceylon assets at Rs. 150 thou


sand and its Ceylon liabilities at Rs. 1.7 million. According to the Ceylon Banking Commission,

The discovery of the questionable practices of the firm of A. R. A. R. S. M. led [British] banks to look upon those practices as not particular to that individual firm but as possible types which could be and might be adopted by other firms of Chettiars in the island. Accordingly, the banks decided to revise the securities on which they had been doing business with the Chettiars until then and they found to their dismay that many of the securities offered to them by the Chettiars were not safe and others were neither sufficient or adequate. (CBC 1934 II: 253)

The disingenuous British statement of "sudden discovery" served them as a rationale for suspending further credit and calling in all outstanding loans to Nakarattar bankers. No evidence is available to me that suggests any alternative explanation for this change in British bank lending policy. But it is hardly credible that the British banks would loan out Rs. 25 million without some idea about the security of the loans. In any case, their abrupt cessation of all loans to Nakarattars required the Nakarattars, in turn, to call in their loans to Ceylonese clients. The result, as reported by the Colombo Nakarattar association, was a decline in their business volume from Rs. 150 million to Rs. 100 million between 1929 and 1934 (CBC 1934 I: 42).

This was only the start of a series of events that rendered Ceylon inhospitable for continued Nakarattar investment. In addition, and dramatically amplifying every event, the worldwide depression sent prices for agricultural commodities plummeting—including those for tea, rubber, and coconut. What had once seemed safe and profitable loans to Ceylonese made on the basis of projections about expanding markets rapidly became losses. As these loans came due, Nakarattars (faced with their own credit difficulties) refused to grant extensions. Where no other solution was possible, Nakarattars took possession of lands or moveable property securing roughly half the outstanding debts. These actions, in turn, stimulated Ceylonese resentment of the Tamil moneylenders and led to a series of legislative acts and legal proceedings that ultimately drove the Nakarattars out of Ceylon.[43]

Burma, 1870–1930

Nakarattar commercial activities in Burma followed a very similar pattern to those in Ceylon. They were different in that Burma's economic environment provided even greater incentives for money-lending activities (in


contrast to investment in trade or fixed capital) than did the environment of Ceylon. They were also different in that, in place of Ceylon's plantation crops, Nakarattars directed their Burmese investments primarily toward what Furnivall (1956) has called the development of the Burmese "rice frontier."[44]

Nakarattars arrived in Burma with the British conquest of Arakan and part of Tenasserim in 1826. The rest of Lower Burma fell in 1852. Upper Burma was not taken until 1886. But by then the Nakarattar-financed development of Lower Burma was already well underway. Nakarattars began to move into Burma in greater numbers following the conquest of Lower Burma. The first major agency houses are reported in Moulmein by 1852 and in Rangoon in 1854. But it was not until the opening of the Suez Canal in 1869 that Nakarattars were really attracted to Burma in a major way.

The canal dramatically reduced the transit time of trade with Europe and, in one fell swoop, opened up the European market for Burmese rice. Lower Burma had been troubled by decades of war and was extremely underdeveloped and underpopulated. In what has become the standard interpretation, Burma was a frontier waiting to be developed. Hoping to encourage that development (and the attendant increase in revenue), colonial authorities enacted the Lower Burma Land and Revenue Act of 1876, which established important changes in Burma's land tenure laws (Adas 1974a; Furnivall 1956; Siegelman 1962). The intended purpose of the act was to provide settlers with a clear title of ownership to land that they occupied and on which they paid taxes for a period of twelve years. An additional, unintended (but, from the colonial point of view, beneficial) consequence of the act was that it provided settlers with land to mortgage as security for loans to buy seed and fertilizer, and to meet other expenses.

As in Ceylon, a major reason for the Nakarattars' success in Burma is that they incurred relatively low costs in acquiring loanable funds from each other, from the British banks, or from the Imperial Bank of India; low costs, that is, relative to the cost of credit faced by Burmese or Chinese lenders who lacked access to these institutions.[45] Consequently, Nakarattars could charge lower rates of interest than their competitors did and still make a healthy profit. No figures are available to me that allow for a precise reconstruction of the Burmese credit market between 1870 and 1930. But figures are available for the years immediately after this time. They provide a good indication of Burmese interest rates from various sources (Table 6), and, although there may have been fluctuations in rate averages over the sixty-year period, there is no reason to believe that the overall structure of the credit market would have altered.


Table 6. Interest Rates on Burmese Credit Market, 1935–42

Loan Source

(% per annum)

Sources offering restricted or no services to agriculturalists


Exchange banks and leading commercial banks


Coop societies and government loans


Dawson's Bank


West Coast Burmese bankers and moneylenders


Sources offering loans to agriculturalists


Burmese moneylenders


Chinese and other moneylenders offering sapabe, sekywe, sa-pe , and similar loans


Nakarattar bankers


Source: Tun Wai (1962:136).

This is not to say that Nakarattars thereby endeared themselves to their clients. On the contrary, they were the objects of considerable resentment (Adas 1974a). Moreover, as Siegelman (1962: 240) points out, although Nakarattar interest charges were relatively low, their rates (and the concomitant profits) exceeded the profits that could be obtained by rice cultivation. This was particularly the case when, as a condition of his loan, a cultivator was required to sell his crop or repay the loan by giving the moneylender title to his crop at a predetermined, submarket price. The issue raises the interesting question of whether the Land and Revenue Act of 1876 had any consequences other than providing security for Nakarattar agricultural investment and enticing agricultural labor from Upper Burma and Madras with misleading promises of land ownership. In other words, the Act of 1876 seems to have accomplished little more than to provide new clothing for precolonial forms of agricultural tenancy and landless labor.

In any case, the situation was ideal for Nakarattar operations. The rice-frontier economy of Lower Burma was even more expansive than Ceylon's, and a broader spectrum of agriculturalists could offer good security for loans. The consequences are not surprising. Figures on Nakarattar investment provided by the Burma Provincial Banking Enquiry Committee in 1930 (BPBEC I: 211; see below) indicate a preference for money lending over other forms of investment of roughly two to one. Tun Wai believes the ratio to have been far higher than this.


The bulk of Nakarattar investment went directly to loans for agriculturalists. Reports for 1929 indicate that in Lower Burma (where Nakarattars invested the bulk of their money) about Rs. 110–120 million was advanced in short-term loans to agriculturalists. Another Rs. 32–33 million was advanced in intermediate and long-term loans (BPBEC 1930 I: 2). In addition, Nakarattar investment in rice trading was also substantial. Nakarattars provided roughly two-thirds of all agricultural credit, and in many of Burma's provinces Nakarattars provided nearly 100 percent of loans to rice cultivators (BPBEC 1930 I: 67–68). These loans frequently took the form of forward contracts which entitled the moneylender to receive the crop in repayment. It is not clear whether taking possession of such crops should be regarded as a return of interest on Nakarattar money-lending activities rather than as a profit from their investments in rice trading. But in any case, according to A. Savaranatha Pillai (1930: 1177), Nakarattars used their advantageous position as both moneylenders and rice traders to control as much as 50 percent of Burma's rice crop. From this point, their choices broadened. They could sell the rice to British traders, or they could compete with the British, either sending it directly to Madras and Ceylon or, from at least 1916 on, by first milling it in Nakarattar-owned mills in Burma (Indian Industrial Commission 1919 V: 543, cited in Mahadevan 1976: 191). Besides these investments, a few elite Nakarattars were also involved in Burma timber and oil (Krishnan 1959: 31).

Available estimates of Nakarattar sources and investments of capital share all the problems already encountered in grappling with data collected by the Madras and Ceylon banking enquiry committees. In addition, new problems creep into the task of interpreting available Burmese data. Tun Wai (1962: 42), a Burmese banking authority, presents consolidated balance sheets for Nakarattar liabilities and assets in 1929 and 1934, respectively, prepared for him by the Rangoon Nattukottai Chettiar Association (see Figures 4 and 5). Examination of the assets and liabilities for 1929 immediately indicates the highly liquid quality of Nakarattar assets prior to the depression: Tun Wai estimates that 100 percent of Nakarattar assets were in cash, hundis , or loans. After the depression, slightly less than 17 percent of Nakarattar assets were liquid; the balance was tied up in land and houses.

However, Tun Wai's classification is problematic on at least two counts. For one thing, he employs categories entitled "Deposits in Madras" and




Cash in hand, hundis discounted, and advances made

Rs. 652 million


Rs. 652 million



Proprietors' and relatives' capital

Rs. 5.50 million

Deposits in Madras


Deposits in Burma


Advances from Madras banks (British?)


Advances from Burmese banks (British?)



652 million

Figure 4. Consolidated balance sheet for estimated Nakarattar business operations in Burma, 1929.
Source: Rangoon Nattukottai Chettiar Association in Tun Wai (1962: 42).




Cash in hand, hundis discounted, and advances made

Rs. 100 million

Land and houses

650 million


750 million



Proprietors' and relatives' capital

Rs. 450 million

Deposits in Madras


Deposits in Burma


Advances from Madras banks


Advances from Burmese banks (British?)



750 million

Figure 5. Consolidated balance sheet for estimated Nakarattar business operations in Burma, 1935–42.
Source: Rangoon Nattukottai Chettiar Association in Tun Wai (1962:42).

"Deposits in Burma" as liabilities. This is somewhat mysterious. Since the amounts under these categories appear as liabilities rather than assets, they cannot actually refer to deposits (i.e., assets) held in Madras and Burma. One wonders, therefore, whether they refer to advances from Nakarattars in Madras and Burma (probably in the form of two- or three-month term deposits, in the form of thavanai hundi —see Chapter 5). If so, the figures should recur under the heading "Assets" since one Nakarattar firm's deposit in another's Burmese agency was simultaneously an


asset of the first and a liability of the second. They do not, in fact, recur in this fashion. Nevertheless, disregarding one or the other side of ledger entries for interfirm deposits is entirely consistent with the kinds of practices in which Nakarattars were caught out in Ceylon. So the question is left open.

A second problem arises in the category of liabilities that Tun Wai lists as "Proprietor's and Relatives' Capital." He is careful to acknowledge the difference between these two categories in his text, identifying them correctly by their Nakarattar terms as mudal panam and sontha thavanai panam , respectively. He also notes that the proprietor's capital generally made up only 5–10 percent of a Nakarattar banker's capital, while the proprietor's relatives' share made up 60–70 percent. But he never explores the implications of this Nakarattar distinction. Indeed, it never arises again in his analysis and was dismissed in the construction of his chart.

I explore the varieties of Nakarattar deposits in more detail in Chapter 5. For the present, suffice it to say that the significance of the distinction between the proprietor's capital and Nakarattar deposits of various kinds, still to be explored, cannot be overemphasized. Keeping it firmly in mind, the lesson from Tun Wai's balance sheets and his additional comments in the text is, once again, that Nakarattars provided a considerable amount of their working capital from interfirm loans, including their sontha thavanai panam deposits from relatives. These were further complemented by loans from British exchange banks and the Imperial bank. They used very little of their own capital in carrying out their banking business. To place the issue in comparative perspective, the Nakarattars used what is known in Western financial circles as "leverage."

Driven by the world demand for rice and financed by Nakarattar banking operations, Burmese agriculture proved itself the most lucrative Nakarattar investment in British India. By 1929, the number of Nakarattar firms operating in Burma had reached 1,498 (BPBEC 1930 I: 195–196). By 1930, they had channeled from 60 to 80 percent of their total assets into Burmese business: by some estimates, Rs. 750 million (see above). Their role was perhaps even greater than in Ceylon. As they were the primary financiers of Burma's rice industry, their impact is directly visible in statistical measures of the growth of paddy acreage, of expanding rice and paddy exports, and of the wholesale price of paddy in Rangoon markets (see Figures 6–9). The consequences of the world depression were no less remarkable. As commodities dropped and Nakarattar clients were no longer able to meet their interest payments on loans, Nakarattars foreclosed on mortgages and wound up owning over three million acres, roughly 30 percent of all Burmese rice-producing land.


Figure 6.
Acreage under paddy cultivation in Lower Burma, selected years, 1852–1933.
Source: Furnivall (1956: 56–57).

Figure 7.
Wholesale price of paddy in Rangoon markets, 1865–1931.
Source: Cheng (1968: 73); reproduced in Mahadevan (1978a: 341).

Malaya in the Late Nineteenth and Early Twentieth Centuries

A similar process of British pacification and integration into the world economy occurred in Malaya. Again, Nakarattar capital followed the British flag. Arriving at the newly opened British ports of Malacca, Penang, and Singapore in the first third of the nineteenth century, Nakarattars quickly moved to dominate the Asian opium market by extending credit to Chinese traders. By the 1870s and 1880s, they financed most of the opium trade in Singapore and Penang and monopolized a position as intermediaries between British exchange banks and Chinese traders. According to Compton Mackenzie's study of the Chartered Bank of India, Australia, and China, most of that British bank's business


Figure 8.
Exports of rice from Lower Burma, by destination, 1878–86 and
1889–99. Actual figures are available for only eleven months; one month is estimated.
Source: Siegelman (1962: 105). Figures for 1878–86 based on Report on the
Administration of Upper Burma during 1886 (1887: 27). Figures for 1889–99
based on Nisbet (1901: 431).

Figure 9.
Decennial export of rice and paddy from Burma, 1901–31.
Source: Cheng (1968: 201); reproduced in Mahadevan (1978a: 241).

with local non-Europeans consisted in the discount of Chinese promissory notes made over to Nakarattar bankers (MacKenzie 1954: 108–112; see also Allen and Donnithorne 1957: 204–405; Mahadevan 1978b: 147). In fact, Nakarattars obtained most of their Malayan revenue in this way: discounting (i.e., cashing) Chinese promissory notes and bills of exchange and rediscounting them at European banks (Allen and Don-


nithorne 1957: 205). The European banks were not willing to extend discounting services directly to Chinese traders themselves, but they were quite happy to deal with agents for the largest Nakarattar firms. Nakarattar profits were generated by the difference between their discount rate and the British discount rate.

When, beginning in 1914, the British moved in a major way to dig mines and build plantations in Malaya, the Nakarattars were positioned to provide their customary financial services. The opening up of the Malayan interior to commodity production for international trade followed the same "developing frontier" pattern as in Burma (Allen and Donnithorne 1957; MacKenzie 1954; Mahadevan 1978b; Sandhu 1969). In 1900, in Malayan territory there were perhaps 5,000 acres devoted to rubber cultivation; in 1911, there were 543,000 acres; in 1938, there were 3,272,000 acres (Mahadevan 1978b: 147). Malayan production of rubber to meet the growing world demand is also measured by her exports of rubber (see Figure 10).

The biggest beneficiaries were undoubtedly European firms such as Dunlop or Guthries (Allen and Donnithorne 1957: 112–114). But Nakarattars, who secured loans with mortgages to rubber gardens and plantations and who—at least in the case of the largest firms—invested money directly in the purchase of rubber estates, wound up in 1938 with most of the 87,795 acres owned by Indians in Malaya (Arasaratnam 1970: 96; Mahadevan 1978b: 150; Sandhu 1969: 288). Malaya's tin industry developed simultaneously with her rubber industry. As recently as 1910, the Chinese controlled more than three-quarters of the tin industry. But shortly after this, the Europeans moved in and, by 1930, controlled more than three-fifths of Malaya's tin export (Allen and Donnithorne 1957: 42; Mahadevan 1978b: 149; Sandhu 1969: 279). Meanwhile, tin exports rose from 40,000 tons in 1895 to 67,000 tons in 1929 (Mahadevan 1978b: 149; Sandhu 1969: 279). Like the owners of rubber gardens and plantations, tin mine owners (especially Chinese and Malayan owners) found difficulty in obtaining credit from European bankers and frequently turned to Nakarattars. This situation, in turn, introduced the Nakarattars to direct investment in mining, both through foreclosure on defaulted loans and through direct purchase.

The depression of the 1930s hit Malaya's export-oriented colonial economy just as it had Burma's. Prices on tin and rubber plummeted. The immediate effects were witnessed in widespread default and foreclosure on loans and the consequent transfer of property to Nakarattar banking firms. The government attempted to stop this transfer in 1931 by introducing the "Small Holding (Restriction of Sale) Bill" under which no sale of land in


Figure 10.
Exports of crude rubber from Malaya, selected years, 1900–1929.
Source: Mahadevan (1978b: 147), based on Allen and Donnithorne (1957: 295).

excess of twenty-five acres could be sold without the consent of the State. Many small Nakarattar firms went bankrupt, as did some medium- and large-size firms. But in general the effects were not catastrophic to the degree that they were in Burma, and many Nakarattars remained and continued to invest and profit in various sectors of Malaya's economy.

A Final Comment on Nakarattar Commercial Expansion

Nakarattar businessmen boasted a remarkably successful commercial record during the colonial period. They outcompeted other groups for an important slot in the Southeast Asian credit market. They doubled their assets every ten years for the thirty-year period for which figures are available (1900–1939; Pillai 1930 I: 186). Even the brief overview of their investment activities given above reveals their impact in financing much of Burma's rice industry, much of Malaya's tin and rubber trade, the Southeast Asian opium trade, and an important part of Ceylon's plantation economy. I have not described the similar role they played in Indochina.[46] But for the period from 1870 to 1930, the pattern of their specialization as a merchant-banking caste with a uniquely important role in Southeast Asian society is beyond question.

Nakarattar success was clearly linked to their ability to master the changing institutional framework of British colonial government and to act as middlemen between the colonial government and colonial society at large. The dramatic economic expansion of the caste as a whole can only be understood as a consequence of the effectiveness of the system of Nakarattar social organization for carrying out activities of financial intermediation, capital accumulation, and investment.


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