It has been hard to get away from Reliance for the last few months. To quickly recap the company's wholly owned digital services subsidiary, Jio Platforms, has raised nearly $16B in four months. That's an insane amount of money, especially in the middle of Covid. So, it's really no surprise that Jio is generating the kind of investor FOMO that could put teenagers to shame. And, of course, everyone wants to talk about what Reliance and Jio mean for India's future. But to understand Reliance, one has to understand where it comes from and how it was shaped. There is value, I think, in starting by taking a step back and trying to understand the Jio phenomenon in the context of the longer arc of Reliance's history and India's post-independence economic trajectory.

Aden

To understand Reliance you really have to start with Dhirubhai Ambani. Born in British India in 1932 in the state that is now Gujarat, Ambani's story is also the story of an India in transition - from colonialism through License Raj to free(ish) enterprise. Dhirubhai Ambani's story has now become something of a legend. The young Dhirubhai got his professional start in 1948, when he left for the Port of Aden to work for French trading house A. Besse and Co. along with his brother Ramnikbhai. Yemen might seem like a random place for a young man from Gujarat to end up at, but then, perhaps even more than now, Indian labour was crucial for the economy of the Persian Gulf. Much of the Middle East was administered from India till the late 1930s and the Indian rupee actually circulated as the official currency of Aden till 1951.

(An aside: I always like to remind people that the Muscat is actually closer to Gujarat than Calcutta, just to reiterate how deeply tied Gujarat has historically been to Indian Ocean trade. I also realized I had somewhat of a tangential connection to this Aden story: In 1950 Antonin Besse endowed St. Antony's College, Oxford, which is where I studied for my Master's degree. Aptly, I researched links between South Asia and the Middle East).

With the discovery of oil, Aden had become a massively important shipping center, and an important hub for merchants, traders and managerial talent, especially from Gujarat. Dhirubhai Ambani worked for the Shell products division of Besse, which gave him an understanding of the production linkages of the petroleum industry. The Aden souk is also where he first started making commodity trades. After close to a decade of experience in a trading entrepot under his belt, Ambani moved back to India determined to build a business empire of his own.

Ambani's beginnings in Aden, I think, are important to stress. Here was a man whose foundational years were marked by an exposure to free trade that Empire fostered. The rise of socialist nationalisms and autarkic policies in many post-colonial countries, India foremost amongst them, from the 1950s till the collapse of the Soviet Union meant that young entrepreneurs were cut off from experiences like his for decades. It is also important because I think it points to something in Reliance's DNA that has always been outward looking and expansionary.

Polyester

Ambani's story once he came back to India is relatively well known. With an initial capital of Rs. 100,000, he started a business trading spices and textiles, Reliance Commercial, with his second cousin. Though the two soon parted ways, Ambani continued to push forward with Reliance focusing on trading synthetic yarns. India's textile industry was hard hit by partition, with most of the major cotton producing regions going to Pakistan with the mills remaining in India. There was a dearth of fabric and cotton was now very expensive. Synthetic fibers like nylon, viscose and polyester were cheaper and hard-wearing, and there was no dearth of demand. The challenge was getting supplies and the smuggling of synthetic cloth was rampant. India had no industrial capacity to produce these textiles - the country had only one viscose factory owned by the Birlas, and one government-owned nylon plant till about 1970. Import licenses were strictly controlled and only given to registered exporters of textiles, who could import raw materials worth a certain percentage of their export earnings. Acquiring these "Replenishment Licenses" or REPs at high prices is how Ambani initially started controlling the supply of yarn and turning profits. To gain more control of the supplies, Ambani decided to set up a textile manufacturing unit - this was his first step towards becoming a true industrialist.

To do this though he needed a license. It's very common now to talk about Reliance's political connections and proximity to the government. This too has a deep seated history. Quite simply, you couldn't be an industrialist or entrepreneur in India in the 1970s without currying favour with the government or having the right friends. Ambani became adept at this, forging ties with close aides of Prime Minister Indira Gandhi, like R.K Dhawan and T.A. Pai.

Business and politics always mix in India - Pai's family had owned the Syndicate Bank and it financed Reliance's plans for a textile mill, a state-of-the art facility which was set up in Naroda, Gujarat in 1966. Later in 1971, Pai also authorized the High Unit Value Scheme, which allowed the import of polyester filament yarn - a hugely profitable activity because the yarn was almost six times more expensive in India than anywhere else in the world thanks to the ridiculous License Raj - against export of nylons. Ambani once said in an interview that Reliance accounted for 60% of the country's imports and exports under the scheme.

The scheme, which became hugely controversial much to Ambani's chagrin as he argued that his competitors were only too slow to take advantage of it, was scrapped by the Janata government in 1977 when the Congress lost power following The Emergency. Reliance, which till then had focused on exports, had to pivot to cater to the domestic market, and it was this move that led to one of the country's most recognizable consumer brand names: Vimal. We look at Jio today and marvel at the expansive ambition of catering to the mass market of India, but that too is a very Reliance approach to the Indian market. To bypass hostile wholesalers and reach consumers directly, Reliance set up exclusive Vimal showrooms and then franchised them to create a network of Vimals across the country.

It was also in the face of a somewhat less amenable government and strapped access to capital that Reliance decided to go public. The company takes huge pride in its role in popularizing equity ownership in the country and there's a lot of truth to this statement. The company's stocks were listed on the Bombay and Ahmedabad Stock Exchanges in November 1977. It issued 2.82 million shares and some 58,000 small investors from across country acquired equity in the company. It really isn't a stretch to say that Reliance's IPO marked a deepening and democratization of India’s public equity markets. Gurcharan Das in India Unbound writes: " Indian shareholders increased from one to four million between 1980 and 1985. Of these, one in four as a Reliance shareholder." We have all heard the stories of the Reliance AGMs that were held in cricket stadiums. Why was there such a craze for Reliance? Returns, obviously. By 1983, the stock price of the company increased by 75%.

Backward Integration

Not satisfied with simply selling textiles, Reliance now focused on securing its supply chain and looked to integrate backward - first by making its own polyester fiber. This was not permitted by the Indian state at the time. But it was the early 1980s and Ambani had the benefit of an Indira Gandhi back in power. While 1991 is associated with India's liberalization, the economists Dani Rodrik and Arvin Subramanian in their famous paper From “Hindu Growth”to Productivity Surge: The Mystery of the Indian Growth Transition have showed that India's transition to high growth really started in the 1980s. They argue that that this growth was triggered by an attitudinal shift on the part of the national government towards a pro-business approach (they distinguish this from pro-liberalization bent). When Indira Gandhi returned to power in 1980, she re-aligned herself politically with the organized private sector and dropped her socialist rhetoric. Ambani, by this point an incumbent with connections, was well placed to benefit. By 1988, Reliance Petrochemicals had been floated.

This, of course didn't happen overnight or without opposition. The notion of Reliance's rise thanks to rule-bending and corruption was probably cemented in the mid-80's when the Indian Express published a number of exposes on the dealings of the company. The articles, authored primarily by S Gurumurthy and, often co-authored with Arun Shourie, accused Reliance, among other things, of "cornering Rs 100 crore in bank loans to speculate in its own debentures, of hiding foreign exchange away in tax havens abroad , including the purchase of its own shares, of "smuggling" in polyester filament yarn plants, and last but not least of corrupting virtually the country's entire bureaucracy and intelligentsia." These criticisms read today seem, more than anything, to reflect the ethos - not yet dead in the country - that outsized ambition, and especially the ambition of amassing great wealth, was a crime. Market-wallahs like the economist Prem Shankar Jha asked at the time "What purpose are laws serving that aim to restrict production, and make those who raise output in the face of these laws vulnerable to prosecution?" It was a fair point, but the mood was so against Reliance that India Today reported, "In sharp contrast with earlier accusations that the Government was bent on dispensing all manner of favours to Reliance, New Delhi now seemed almost eager to delve into Reliance's cupboards in search of old and new skeletons." In the midst of the saga, Dhirubhai suffered a stroke which left him partially paralyzed and set the stage for his slow withdrawal from the day to day operations of the company.

When I was reading up on this episode I had to shake my head at the whole saga and the entire cast of characters. Reliance at the time was seen as such a creature of the Congress that Rajiv Gandhi, who had become Prime Minister in 1984 after his mother's assassination, wanted to keep a distance from Ambani. S Gurumurthy and Shourie both have ties to the BJP, the ruling administration now. Gurumurthy is co-convener of the Swadeshi Jagaran Manch (affiliated with RSS) and currently on the Board of the Reserve Bank of India. There is a whole sub story here about the contradictory and deeply conflicted economic ideologies that feed into the BJP. The RSS has always been nationalist when it comes to economics, and is suspicious of big capital to boot (and FWIW Gurumurthy recently praised the Modi government for standing up to Reliance), but that's for another day.

Reliance emerged from the controversy bruised and weakened, it’s stock at one point dropping 80%. The company received a welcome break when India finally liberalized in 1991. It now had more freedom to move deeper with backward integration. The company raised money from the stock markets for Reliance Petroleum, with the aim of building a petroleum refinery. When Reliance's Jamnagar complex was completed in 2000, it was the largest refinery and petrochemicals complex ever built from the ground up.

Dhirubhai Ambani died in 2002 following a second stroke. When I was researching this piece, I was slightly shocked to realize that he was only sixty-nine when he died. What a a full life he lived. Dirubhai's life was, writes Gurcharan Das, "an Indian morality play. Does one give up one’s dream of an outstanding, world-class enterprise defeated by retrograde laws or does one match wits against the system?" Ambani succeeded, but thinking about the odds against him today is depressing more than anything, because it highlights how the Indian state utterly stifled (and sadly still continues to) the entrepreneurial spirit of the country.

The Reliance story, as we all know, doesn't end with Dhirubhai. But this origin story is important, because it has so deeply shaped the company that we all talk about today.