Caste-based markets and trading networks in precolonial and colonial India

The old view of Indian economic history painted a picture of a static, unchanging society. In this view, India was made up of self-sufficient village communities that barely engaged in trade, and economic transformation supposedly began only with colonialism. The arrival of the British, along with the demand that land revenue be paid in cash, was thought to have forced a commercial money economy onto a previously non-monetised rural world, dragging it into wider networks of exchange and radically changing both rural and urban life.

Recent historical research has overturned this picture. It turns out that much of India's economy was already extensively monetised — trade was routinely carried out using money — in the late pre-colonial period. While non-market exchange systems like the jajmani system did exist in many villages, even in precolonial times those villages were already linked into wider networks through which agricultural products and other goods circulated. The sharp line once drawn between 'traditional' and 'modern' (or pre-capitalist and capitalist) economies is now understood to be rather fuzzy.

Pre-colonial India had extensive and sophisticated trading networks. For centuries, India was a major manufacturer and exporter of handloom cloth — both ordinary cotton and luxury silks — as well as spices and other goods in high demand in the global market, especially in Europe. It is therefore not surprising that pre-colonial India had well-organised manufacturing centres, indigenous merchant groups, trading networks, and banking systems that enabled trade within India and between India and the rest of the world.

These traditional trading communities — which were organised as castes — had their own systems of banking and credit. A key instrument was the hundi, a bill of exchange (like a credit note) that allowed merchants to engage in long-distance trade. Because trade took place primarily within caste and kinship networks, a merchant in one part of the country could issue a hundi that would be honoured by a merchant in another part, without needing a central bank or government guarantee.