The European interest in Indian goods began on a serious scale after Vasco Da Gama discovered the sea route to India around the Cape of Good Hope (1498), thereby bypassing the Arab and Mediterranean merchants who controlled the Indo-European trade via west Asia. The interest was at first an indirect one. Cotton textiles were procured from India in order to pay for Indonesian spices. Textiles were also a handy medium of exchange in the African trades in slaves and ivory. In turn, warhorses from west Asia were a convenient means of payment for Indian textiles. Horses for textiles and textiles for spices were ancient forms of exchange in the Indian Ocean world. The Portuguese interest was to take a share of the maritime exchange so as to divert a part of the spice trade between Europe and Asia to the sea route from the overland or Mediterranean route. From the mid-seventeenth century, however, India became a more central piece in the operation. The demand for Indian cotton cloth in European markets increased, whereas silver procured from Spanish America replaced all other articles as the most important medium of exchange in India, thus delinking Indo-European trade from Asian trade.
In the sixteenth century, the Portuguese mariners could still conceive of an empire on the sea, in defiance of Arab merchants and indigenous merchants on the western coast of India, because the inland empire had little naval capacity to control the coast. In the seventeenth century, however, both Surat and Masulipatnam were seats of provincial administration. When the Dutch and the English East India Companies entered the trading world in search of Indian textiles (c. 1615), they were militarily not strong enough to contemplate a struggle with the inland states. Conquest being out of the question, they needed to establish footholds in the existing imperial ports by negotiating trade treaties with Agra or Golkonda, or one of the smaller states that were usually keen to invite foreign merchants both for the income from trade and for reasons of security against opportunistic neighbors. Indeed, this sanction from the inland states gave the northern Europeans an upper hand with respect to the Portuguese, and equally, served the inland states to create a deterrent against the Portuguese.
In the Indian Ocean world, the Europeans represented two organizational principles that were not indigenous to the region. The hardware and the knowledge to carry out intercontinental trading voyages was one of these. Ship sizes were on average smaller in the seventeenth and eighteenth century than in the era of peak Portuguese power (mid to late 1500s), but they were still larger than those operating in coast to coast trade in India, sufficiently large to carry many guns. More than the potential for causing violence, shipping technology brought the knowledge of markets beyond Asia into contact with Asian goods. It also had a deep impact upon technological change along the coast. It spread the knowledge of cast-iron founding, and led Indian ship construction and navigation technology toward European standards. A second distinctive feature of Indo-European trade, more relevant with the English and the Dutch traders, was the institution of the joint-stock company, which was unknown in this world. Thanks to joint-stock organization, these were firms much larger in scale and better able to weather risks than the family firms that ruled the Indian business world. They were also more specialized in specific goods, not necessarily luxuries. And being specialized, they needed to make use of long-period contractual transactions. The fairground style of trading on the Indian
coasts, therefore, was not compatible with the European mode of doing transoceanic business.
While these were their strengths, the chartered companies suffered from weaknesses too. The English company had formed out of a Crown-delivered monopoly. But it had few effective means available to impose that monopoly. Indeed, it needed to share its monopoly trading rights with its own employees stationed abroad in order to supply them with enough incentive to work for the company and deal with the huge risks that trading overseas entailed in early modern times. But this factor created a fundamental conflict of interest between principals and agents. The agents could abuse the privilege, or be seen to do so. The agents in their turn felt that they needed to fend for themselves in a hostile world that the principals did not understand. Along an undefined fringe of the company’s business, therefore, there existed a vast network of private traders and company employees doing private trade. Some were punished, but most survived with little effective check on them.
Historians of Indo-European trade remind us how deeply the Europeans depended on Indian partners and agents in carrying out their business. Building networks of collaboration was indeed an important feature of the trade. In the records of European business, we hear about several kinds of indigenous business firms. The wealthiest and politically the most powerful class were the bankers. Those who ruled Surat and Masulipatnam were the group Ashin Das Gupta called ship-owning merchants (Das Gupta 2001). People like Mullah Abdul Ghafoor, who owned a large number of ships plying the west Asia route, were, not unlike the owners of the chartered companies, stationary heads of trading firm who did not take a direct interest in the navigational and technological side of the business. They hired ship captains and gave away a part of the trading rights as an incentive in order to carry out their own business deals effectively. These groups the Europeans did not collaborate with much, but had to remain friendly with, for the former commanded much political power.
On the other hand, the Europeans had regular dealings with bankers. The Indian banking firms at this time had close links with the regional, and sometimes the imperial, courts, for many of them lent money to the rulers and supplied war finance. Considerable money circulated among the nobility or among the city merchants in Mughal India. Deposit bankers of Agra in the seventeenth century, for example, had as their main clients the military-political elite of the same cities (Habib 1964). Individual firm histories remain scarce. But we do know quite a lot about one entity, the Jagatseth of Bengal, thanks to the company’s complex relationship with it. The firm of Jagatseths held the license to carry on a variety of monetary functions that should ordinarily be done by the state. They were as big and powerful as the Bengal Nawab’s hold on the monetary system was precarious, and money was valuable in Bengal because of Indo-European trade. As Spanish silver entered India in larger quantities, the business of licensed money-changing grew in scale. For remittance, currency, and short-term loans, the Europeans relied mainly on reputable Indian family firms. The dependence increased during warfare and led to a ranking of these firms on a scale of loyalty and friendliness.
Indian textile merchants entered the companies’ books as “brokers” or contractors who monitored the long-period advances of money. For local transportation of goods and materials, the companies relied entirely on Indian caravan operators and on the coast-to-coast shipping largely owned by Indians. Skilled artisans, such as weavers and textile processors, were again in close contact with the companies.
Two general features of these Indo-European partnerships deserve special notice. First, almost always the Europeans contracted with those individuals who they thought were leaders of their communities. Social leadership had to be harnessed for business purposes, for there was hardly any
other way that contracts could be enforced. The Europeans did not have enough policing powers, nor could they take recourse in indigenous law for the purpose. Surat and Masulipatnam had strong governments, but they did not possess a well-defined framework of commercial law. No mercantile community was strong enough to impose its law upon others. Law, such as it was, had been endogenous to community norms and enforced by community leaders and elders. Indo-European business, therefore, created, utilized, and sometimes strengthened hierarchies. Second, the wide network of contracts weakened, if not ended, the pronounced seasonality of much littoral trade of an earlier era. The textile contracts were year-round contracts, and kept the business side of the trade busy throughout the year, even though the transportation side continued to be ruled by the monsoon wind pattern.
There was yet another distinctive tendency of Indo-European trade: its need to concentrate over space. Although the weavers were spread far and wide, it made sense to invite some of the commercial and processing services to settle near the warehouses, called factories. The sheer scale of the business, and the physical concentration of the final market in the seaport, made a concentrated settlement economical for all parties. The options in this regard were limited in Surat and Masulipatnam, as the risk that the facilities the English created would be poached upon by the Dutch was very great. This was one of the drivers behind the push for whole new settlements of trade on the part of the European traders.
The three port cities that the English Company set up in India (c. 1630–1690) were much more than new urban centers. Bombay, Madras, and Calcutta were not fairgrounds and emporia in the way the Indian ports still were. Instead, they represented occupationally specialized sites with an overwhelming interest in commissioning textile production, a precursor to a nineteenth-century model of urbanization. They were set apart from Mughal cities in the interior. These three ports redefined the relationship between geography and commerce. With the exception of Calcutta, and perhaps Portuguese Goa, the ports were located on sites that did not rely on river-borne trade in order to access the interior. They were not even located on rivers of any significance. Even Calcutta, which was situated on a river, did not rely on the river a great deal to conduct its main businesses. Instead, these ports looked towards the Indian Ocean, and being a set of three, could consider achieving coast- to-coast integration in trade and naval capability (see Map 7.3 on the regional and coastal trade networks). They were, therefore, secured by means of a superior naval force compared with the indigenous coastal states, and could serve as a haven for those indigenous capitalists who wished to leave the quarrelsome states in the interior.
Map 7.3 Maritime routes and ports in India with European presence, c. 1700
In their origin, Bombay, Madras, and Calcutta were small port sites acquired partly by accident, exposed to attacks by enemies, and without a secure future. Still, as the Mughal empire began to crumble in the early eighteenth century, the well-defended company towns rose as safer destinations for Indian merchants and artisans. For the first time in Indian history, capital, artisanal skills, and enterprise fled from the inland to the seaboard. What was a trickle in the second half of the eighteenth century became a flood in the early nineteenth. Perhaps the best illustration of this trend comes from the rather rough data we have on town size. Between 1680 and 1800, the combined population of Delhi, Agra, and Lahore dropped from 1.2 million to 300,000, whereas that of Madras, Bombay, and Calcutta increased from about 100,000–200,000 to more than a million.
Trade historians see in the emergence and meteoric rise of Bombay, Madras, and Calcutta a diversion of trade from the established centers, Surat, Masulipatnam, or Hooghly. In fact, the new cities also gained by drawing capital away from the Gangetic plains, and represented a different business culture in coastal India. For one thing, Madras and Bombay broke the geographically conditioned dependence of port cities upon internal navigation and interior roads. These were, even more than Surat, ocean-bound ports. For another, Surat and Masulipatnam were cities that did not belong to merchants; in these cities the merchants did not make laws, in Bombay, Madras, and Calcutta, they did.
By 1800, then, the significance of Indo-European trade had changed. It now represented a shift in the balance of political power between the land and the sea. The seaborne trading world triumphed over overland trade. Until that moment of transition, there had been a clear disjuncture between foreign trade and political power. Strong states did not form on the coasts. The company’s territories broke that pattern. The fortunes of businesses were still tied to the fortunes of the state. That factor did not change in the port cities. But then, in these cities, the state belonged to the merchants and this was a new element.
From the viewpoint of the costs of carrying out trade, the rise of the British colonial empire in the nineteenth century made little difference directly. It did, however, free up European private trade from the shackles, however ineffective, that they were subject to in the era when the company was still a monopoly. In the first half of the nineteenth century, a whole gamut of new businesses sprang up in the three port cities. All of these entailed a larger scale of and sustained transactions between the coastal merchants and resources or commodities that came from inland. All of these also entailed partnerships between European private merchants and Indian capitalists. Some of the businesses then begun failed to sustain themselves. Iron-smelting in charcoal furnaces was one example. On the other hand, some trades, such as indigo manufacture and export, made many fortunes before dying out. Opium trade brought Indian and European private traders and Chinese coastal traders into a relation of deep mutual dependence, giving rise to such hybrid Anglo-Sino-Indian towns as Hong Kong and Singapore. Parsi shipwrights of Bombay profited from Indo-China and Indo-Burma trades forged in the early nineteenth century. Cotton export and tea manufacture and export survived to become major fields of investment. Overall, this new era in Indo-European partnership created a foundation of capitalistic enterprise that was pan-Asian, straddling the land and the sea, and ready to take on bigger challenges in the industrial era. Without the cosmopolitan foundation of Bombay and Calcutta, the subsequent industrialization of the two cities, wholly exceptional in the poor tropics, cannot be explained.
Much of this entrepreneurial drive was confined to the port cities established by the company. How estranged that world had grown from the political economy of the Gangetic plains was starkly exposed during the great Indian mutiny of 1857. At one level, the mutiny was a revolt of a loose alliance of disgruntled Indian soldiers and the landed aristocrats, both hailing mainly from the upper Gangetic plains, against the rule by the company. These groups had quite different reasons for opposing the company, which was one reason why the rebellion eventually failed. But at another level, the mutiny demonstrated the support that the regime commanded from Indian capitalists. In none of the three ports was there a threat to the military effort. Indeed, the ports were the locus of the counter-resistance, thanks largely to the Indian bankers and merchants based there, who demonstrated their support to the company regime by making sure that the supply lines worked smoothly. There were not many examples of merchants allying with the ancient regime even in the interior. In line with my reading of Indian history, the mutiny represented the last stand taken by the regimes of the interior, and their eventual retreat demonstrated how decisively capitalist loyalties had shifted over to the cosmopolitan trading regime on the seaboard.
Having finished with the narrative, let me now move on to the qualitative dimensions of the change. Did the convergence of the two capitalist orders lead to an institutional convergence? Were