Wealth Generation in everyday life

One of the questions that I often asked myself is: How did Indian households accumulate wealth through literally centuries of Muslim rule. During this rule, Hindus were taxed at insane rates, and at many more instances than the non Hindus. The historical texts I read recently had stories of how the rulers prided themselves on systematically stripping the Hindus of all wealth, forcing them into penury and then incentivising conversion to Islam by giving monetary benefits.

Important Disclaimers
1. Please do not judge these rulers by the standards of today. Secularism, which is a given today in most modern civilisations, was a luxury in almost every part of the world until just 200 years ago. Remember the Protestant British crown and the impact on the Catholic church? These rulers were not being barbaric. The instruction of the time started by dehumanising all non-followers of a religion. In their minds, the missionaries of Christianity and the Muslim rulers were both converting these people back to humans. We have no right,  therefore, to judge them by our standards. Please refrain. All hate content will summarily deleted. My focus is on understanding financial and trade practices of India. We will stick to that mandate, using these conditions as the context within which these practices were used and how they managed to do some very important wealth generation and preservation.

2. This piece is a result of my research. Most of my sources are family practices, folk lore, and things head from practitioners. Indians have not, to my knowledge, documented their wealth generation and preservation practices. But, thankfully, they have kept their family traditions alive over hundreds of years. The belief system is still very well preserved. I observe and learn from that.

3. Every system has its pluses and minuses - if we judge. If we learn, they are just actions and consequences. My submission is - learn. Do not judge. How you apply these lessons, or whether they  can be made relevant today, is something we can decide for ourselves.


After much searching, am sharing some findings here:

• The family as one unit. 

The unity of the family is so inherent in the culture that even in Independent India, the Karta system is recognised as a type of economic entity - the wealth of the entire family is grouped together, and the expenses are done from the same core. As everyone lives together, expenses are pooled. Clothes are passed from one child to another. Ditto for toys. Skills are distributed, minimising people's dependence on external factors.

• Order of investment

In most Indian families, the first asset that is acquired, if not inherited, is land and real estate. A house, farming land, a shop - the type of real estate depends on the lifestyle and varna of the family. But the uniformity of the preference for this asset type is remarkable. After this, one invests in gold and keeps enough for impending weddings of the next generation. Then, other assets are acquired, if any. 

Do you know why that is important? The rate of inflation on these 2 assets is the highest. If they are secured, they give the highest returns, and one is able to invest at lower values. 

• Consistent small value purchases

At all festivals, a little gold or silver is bought according to the means of the family. Even if a family is very poor, at least once a year, they have to invest in metal as a form of religious ceremony. These small value but consistent purchases slowly build up the corpus of the family. In many trading families, there is a custom of adding one gold coin every Diwali. Imagine the value of that gold within 3 generations - 50 years. 

• The Hundi system and trade practices of pooling 

The Hundi system is well known. This system entails everyone contributing a small sum of money every month. The entire pool is handed over to one member of the group every month by turns. This way, everyone invests a small amount every month but gets a lumpsum perhaps once a year. This was not the only practice of pooling. Several trading communities, in particular, have a parallel system of pooling in parts and harvesting in bulk. 

• Temples as the custodians of wealth 

Almost all religions have the practice of making a small offering to God when we go to a religious place. This makes our religious places incredibly rich. In some South Indian states, the king, through assumed divine birth, is also the owner of the temple treasury. 

This serves many objectives: 

One, in the absence of state sponsorship , the temples could run religious events and ensure cultural continuity. 

Two, temples cannot be raided and looted as easily by rulers as individual homes. A single seth becoming too rich can be forced to part with his wealth by the ruler. But not a temple. 

 

If there are any other lessons, please do share. This is a very important area for us to learn from. 

The Padta System of Accounting

This absolute gem was narrated by my father in law.
Once, he was sitting at a lecture being delivered by a senior person at Tata Steel. The lecture spoke a lot about the Padta system of accounting.

After the lecture was over, the floor was open for questions. My father in law raised a hand. He said, "Sir, you have spoken a lot about the Padta system of accounting. But I do not know what it is. Can you please tell us what is the Padta system of accounting?"

The speaker was stunned. "You have heard me speak for so long, but you didnt know what the Padta system of accounting was for all that time?"

"No sir", my father in law confessed.

The speaker looked across the room and asked, "Who else does not know what is the Padta system of accounting?"

Most of the hands in the room went up.

The speaker then asked them to site and explained, "Every morning, when we open the factory, we look at the order book and the production schedule, and decide, 'पड़ता है, के नहीं पड़ता है?" The room burst into loud laughter.

पड़ता है, के नहीं पड़ता है? is trade jargon in West India for "Is it profitable for me to do this, or not?"

But the lesson is deep. A factory, esp of capital goods like steel, can afford to look at cyclical demand and also suffer losses for a while. But if the general manager is asking, on a daily basis, Am I profitable today? That completely flips the perspective. To be profitable, even a little bit, everyday, is the key to being a sustainable, profitable business.

I have used this lesson in all my business advisories - Padta hai, ke nahi paDta hai.

The startup ecosystem now calls it positive unit economics.