Indigenous banking system
Long before modern banks, India had its own bankers: seths, shroffs and mahajans. They kept deposits, gave loans and changed coins.
- Hundi: a written order to pay money. It worked like a bill of exchange. A trader paid money in one town and collected it in another town. This was safer than carrying gold on the road.
- Chitthi: a letter of credit or trust note, used by traders who knew each other.
- Types of hundi: Dhani-jog (pay to any holder), Shah-jog (pay only to a known, respectable person), Firman-jog (pay to a named person on order), Jokhami (a hundi linked to goods sent, paid only if the goods arrived safely, a bit like insurance).
Intermediaries
An intermediary is a person who stands between the maker and the buyer. In old India these were agents, brokers, commission agents and wholesale traders. They found buyers, gave credit, stored goods and bore some risk. For this they earned a commission. They made long-distance trade possible for small makers.
Transport
Land routes joined the north and the south: the northern road (Uttarapatha) and the southern road (Dakshinapatha). Carts, pack animals and caravans used them. Rivers carried boats inland. On the sea, sailors learned to use the monsoon winds to cross to West Asia, East Africa and South-East Asia and back each year. Good transport made markets bigger.
Trading communities and merchant corporations
Many communities were known for trade, such as the Chettiars of the south, the Banias and Marwaris of the west and north, and Gujarati sea traders. Merchants and craftsmen formed guilds (shreni). A guild:
- fixed rules for price, weight and quality,
- settled quarrels among members,
- gave loans and kept deposits,
- helped members in trouble and gave money to temples, schools and wells.
Rulers respected guild rules. Big groups of traders worked together like early merchant corporations.
Major trade centres
Trade centres were of two kinds: inland towns (for example Pataliputra, Ujjain, Varanasi, Mathura) and ports (for example Tamralipti in the east, Bharuch in the west, Muziris and Kaveripattinam in the south, and later Surat and Calicut). Markets, fairs and warehouses grew around them.
Imports and exports
Exports (sent out): cotton and silk cloth, spices like pepper, indigo, sugar, precious stones, ivory and handicrafts. Imports (brought in): gold and silver, horses, wine, some metals and luxury goods. Since India sold more than it bought, gold and silver kept flowing in. This is called a favourable balance of trade.
Place of the Indian subcontinent in the world economy
Economic historians estimate that for most of the years from 1 CE to about 1700 CE the subcontinent produced roughly a quarter to a third of the world's output. It was called a "golden bird". Under colonial rule, cheap machine cloth from Britain replaced Indian handloom, raw materials were taken out and profits went abroad. By 1950 the share had fallen to about 4%. After independence India rebuilt its industry, and with the reforms of 1991 it opened up again to world trade.
Try it
In the 3D, move the year slider in the last step. Note the year when the bar is tallest and the year when it is shortest. Say one reason for the fall.
Key formulas and definitions
- Hundi = written order to pay money in another place (like a bill of exchange)
- Shreni (guild) = association of traders or craftsmen that sets rules and helps members
- Favourable balance of trade = exports > imports
Worked examples
1. A cloth trader of Surat must pay โน10,000 to a supplier in Varanasi. How would he do it with a hundi, and why is it better than sending coins?
He pays โน10,000 to a Surat banker, who writes a hundi on his partner banker in Varanasi. The trader posts the hundi to the supplier, who shows it in Varanasi and gets cash. No coins travel, so there is no fear of theft on the road.
2. A hundi says "pay only to Shah Ramdas, a known merchant". Which type is it?
Shah-jog hundi: it is paid only to a respectable, known person.
3. In a year, a port exports goods worth 900 gold coins and imports goods worth 600. What is the balance of trade?
Balance = exports โ imports = 900 โ 600 = +300 coins. It is favourable, so 300 coins' worth of gold or silver flows in.
4. A weaver's guild finds a member selling short-length cloth. What can the guild do?
It can warn or fine him under its quality rules, make him repay buyers, and protect the good name of all members.
Common mistakes
- Thinking a hundi is money itself. It is a written order to pay money; the banker pays against it.
- Mixing up Shah-jog and Dhani-jog: Shah-jog pays only a known respectable person; Dhani-jog pays whoever holds it.
- Listing gold as an Indian export. Gold and silver mostly came IN as payment for Indian goods.
- Saying India was always poor. For centuries it had one of the largest shares of world output; the big fall came in colonial times.