The Indian corporate governance system shows some features of the Anglo- American system and at the same time, it shares some important characteristics of the German-Japanese system. The share of small investors in corporate equity is about 40 percent — comparable with that in the USA. Inter-corporate holdings, directors', promoters' share in equity are also significant. Business groups or networks continue to control much of the private sector. The capital market has started developing only in the last two decades. These characteristics bring Indian corporate governance closer to the German – Japanese system. (See Appendix for a comparison of the break-up of equity holding in different countries.) The Indian system is now veering towards the Anglo-American system. To understand the Indian system, we have to trace its evolution since 1850 ad.

Historical Heritage: The Beginning

The first Indian companies came into existence around 1650 ad in South India. Plenty of trade in cotton textiles existed between India and Europe in the seventeenth century. European companies encouraged Indian merchants who used to procure supplies from weavers to form joint stock companies so that they could avoid dealing with a large number of small merchants. This idea caught on and between 1660 and 1720, many such companies were established. By 1800 however, they had all but disappeared from the scene.

Both trading and manufacturing existed in India of course, much before this time. The factory system of production was introduced around 1850 in cotton textiles and jute industries. Large scale extraction of coal, iron ore etc. also started in mines around this time.