Credit dries up

The cotton boom that began with the American Civil War gave Indian merchants a brief, heady vision of permanently replacing the American South as the world’s supplier of raw cotton. In 1861, the editor of the Bombay Gazette had asked, “What can prevent India from supplanting the Slave States (of U.S.A.) as the feeder of Lancashire?” That dream collapsed by 1865. When the Civil War ended, American cotton production revived, and Indian cotton exports to Britain steadily declined.

As demand fell and cotton prices slid downwards, export merchants and sahukars (moneylenders) in Maharashtra lost their enthusiasm for extending long-term credit. They saw the writing on the wall and decided to close down their operations. They restricted the advances they gave to peasants and began demanding repayment of all outstanding debts.

At the very moment credit dried up, the revenue demand increased. The first revenue settlement in the region had been made in the 1820s and 1830s. Now it was time for the next settlement, and the demand was raised dramatically — by 50 to 100 percent. How could a ryot pay this inflated demand when prices were falling and cotton fields were disappearing? …