Economic Modernization in Late British India: Hindu-Muslim Differences

Abstract

The Muslims of South Asia made the transition to modern economic life more slowly than the region’s Hindus. In the first half of the twentieth century, they were relatively less likely to use large-scale and long-living economic organizations, and less likely to serve on corporate boards. Providing evidence, this paper also explores the institutional roots of the difference in communal trajectories. Whereas Hindu inheritance practices favored capital accumulation within families and the preservation of family fortunes across generations, the Islamic inheritance system, which the British helped to enforce, tended to fragment family wealth. The family trusts (waqfs) that Muslims used to preserve assets across generations hindered capital pooling among families, and they were ill-suited to profit-seeking business. Whereas Hindus generally pooled capital within durable joint family enterprises, Muslims tended to use ephemeral Islamic partnerships. Hindu family businesses facilitated the transition to modern corporate life by imparting skills useful in large and durable organizations.

Keywords: India, Islam, Hinduism, capital accumulation, inheritance, partnership, corporation, waqf, economic development

JEL Classification: N25, N85, K22, O53, P48