India’s forgotten capitalist past and why it still shapes our economy

For centuries, perhaps even millennia, the Indian subcontinent occupied a central place in global trade. Its vast 5,000-mile coastline and geographic proximity to West Asia, Africa, and East Asia made it exceptionally well-positioned for maritime trade. Such an advantage was reinforced by a long tradition of seafaring, a highly skilled artisan base, and political systems that often recognised the importance of commerce.

Rulers not only protected merchants but also frequently collaborated with them, embedding trade deeply within the fabric of Indian society. Literary, classical texts, and intellectual traditions reflect this prominence: classical texts celebrate the daring exploits of merchant sailors. At the same time, Sanskrit and Persian treatises on governance outline the duties of kings toward facilitating commerce.

Despite this commercial history, many conventional accounts of Indian business begin only with the arrival of European trading companies in the sixteenth century, as though this moment alone marked the birth of capitalism in India. Such a view obscures a much longer and more complex trajectory. In reality, two distinct but interconnected capitalist traditions had already evolved over centuries before European intervention.

One of these traditions emerged along the coasts. It was outward-looking, driven by maritime trade, and typically rooted in relatively small, autonomous port polities. These coastal economies thrived
on long-distance exchange and were integrated into wider Indian Ocean commercial circuits.

The second tradition developed in the inland regions. It was oriented towards overland trade and deeply intertwined with the fiscal machinery of large empires. Merchants in these regions played a crucial role in transporting and managing the revenues, primarily land taxes that sustained powerful imperial states across the fertile plains of the Ganges and the Indus.

While inland empires understood the strategic importance of coastal trade, they often struggled to exert sustained control over maritime zones. Geographic and infrastructural constraints, such as forests, rivers, uplands, and the high cost of road-building, limited connectivity
between the interior and the coast. As a result, a persistent divide emerged between the agrarian heartlands and the cosmopolitan seaboard.

Transformation occurred with the rise of Indo-Islamic empires, which extended political authority beyond the northern plains into regions such as the Deccan, Bengal, and Gujarat. By the sixteenth century, these land-based powers had begun to establish a presence in key port cities, including Surat, Masulipatnam, and Hooghly. These centres evolved into vibrant hubs of commerce, attracting merchants from across India as well as European trading companies
such as the Dutch and the English East India Company.

Initially, the European presence remained marginal. The English East India Company’s early footholds in Bombay, Madras, and Calcutta were modest trading outposts, lacking the scale and significance of established Indian ports like Surat and Hooghly. Yet this balance would shift dramatically in the eighteenth century.

The decline of the Mughal Empire marked a second major turning point in India’s economic history. As imperial authority weakened, merchant capital began to flow out of the interior and into the relatively secure and commercially dynamic Company-controlled port cities. This migration drained inland regions of financial resources and entrepreneurial talent while fostering new Indo-European commercial partnerships along the coast.

It led to the emergence of a new kind of political entity: a seaboard state governed by a merchant corporation, the East India Company, which operated with the tacit support of segments of the Indian mercantile community. For the first time in Indian history, the coastal economy became the dominant centre of both political and economic power.

This shift initiated a gradual reorientation of the economy. Coastal-based capital began to penetrate and reshape the agricultural interior. During the nineteenth century, firms based in Bombay, Calcutta, and Madras organised the export of commodities such as cotton, wheat, indigo, rice, and opium from the hinterland to global markets.  These trading profits were reinvested in industrial ventures, particularly textile manufacturing, marking the transition from mercantile to industrial capitalism.

In the early twentieth century, Indian capitalists had become not merely economic actors but political ones. As the economic foundations of British rule began to weaken in the 1920s, many among the emerging business elite lent financial and institutional support to the nationalist movement. Their aspirations for economic autonomy and national development found expression after independence in 1947 through the Nehruvian model of “self-reliance”. This strategy curtailed the role of foreign trade and significantly expanded the influence of domestic business groups that had matured during the colonial period.

By the late twentieth century, India liberalised its economy and re-engaged with global markets, in many ways returning to patterns that had characterised its earlier commercial history. The success of this renewed openness rested on a combination of enduring and newly acquired strengths.  It drew upon India’s longstanding cosmopolitan trading traditions.  It was supported by post-independence transformations such as the Green Revolution and the consolidation of democratic political institutions.

(The author writes about politics,
material culture, and economic history)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.