When did Bombay takeover Calcutta as the prime financial centre of India? Some evidence..

For the current generation of scholars on finance and economics, this question would sound absurd. Competition between Calcutta and Bombay over financial centre? Really?

But Calcutta not just competed but even was much larger financial centre than Bombay. The older textbooks mention both Calcutta and Bombay as financial centres with Calcutta as First centre and Bombay as second financial centre. This is natural as Calcutta was the political and commercial capital of British. The first Presidency bank started in Calcutta in 1806 followed by Bombay nearly 34 years later in 1840 (the one in Madras was found in 1843). Bank of Bengal was much larger than Bank of Bombay for most part of Presidency bank history.

But Calcutta went through a lot of political turmoil in the 20th century which affected the city and its financial ranking. Bombay eventually took over the space of commerce and finance with Delhi taking the role of political centre. The question is when did Bombay eventually take over the financial space?

I came across old clearing house data from Statistical Tables related to banks in India ( I shall write a blogpost about this publication later). This publication started in 1915 and has highly valuable historical data on banking and monetary matters.

These clearing houses were once private in nature till RBI took control. The clearing houses were established by Presidency Banks and local banks to settle intra-bank payments. There is a lot of academic interest in role of clearing houses in other countries, but there is nearly nothing in India which is frustrating.

Coming back to the data. This is a useful data as banking STRB gives clearing data based on different exchanges.

Calcutta Bombay Madras Delhi New Delhi Others All India
1913 51.2 33.7 3.6 0.0 0.0 11.5 100.0
1930 49.2 38.7 2.9 0.2 0.0 9.0 100.0
1935 49.5 39.5 3.3 0.7 0.0 7.0 100.0
1940 47.3 36.8 4.8 1.1 0.0 10.0 100.0
1947 38.8 37.8 5.5 2.0 0.0 15.9 100.0
1948 40.6 40.7 5.7 2.2 0.0 10.8 100.0
1949 38.9 41.3 6.1 2.3 0.0 11.5 100.0
1950 36.2 42.8 6.3 2.3 0.0 12.4 100.0
1955 39.1 38.3 5.3 3.0 1.4 13.0 100.0
1960 33.0 37.0 5.5 0.0 4.5 20.0 100.0
1965 28.5 35.3 5.7 0.0 5.4 25.1 100.0
1970 19.4 36.1 5.9 0.0 7.0 31.6 100.0

In 1913 total clearing house transactions were Rs 65035 lakh. It is interesting how in 1913, Calcutta clearing house settled 51% of these transactions compared to Bombay’s share of 33.7%. Madras was at a pale of 3.6% share. Delhi had an insignificant share.

As we can see the gap between Calcutta and Bombay was narrowing with each subsequent year. By 1930 share of Calcutta had declined to 49% and that of Bombay increased to 38.7%. In 1940, the  shares were 47% and  36.8%.

In 1947, the shares were almost equal. Infact 1947 becomes the inflection point as from hereon, Bombay starts to gain over Calcutta. In 1950 Bombay’s share was nearly 6% higher than Calcutta. By 1965, Calcutta’s share had declined to 28% and Bombay was at 35%. The share of Madras is constant at 5-6% since 1947.

The share of Delhi (New Delhi later) becomes larger overtime as well.

Though major gains are made in Other Clearing houses as efforts were made to open clearing houses in other smaller centres as well. It was no more just a fight between Calcutta and Bombay. Bombay was a clear leader not as much in clearing but other financial services as well.

The payment and settlement system have also evolved significantly over the years. Earlier Clearing houses were the only players in the game. Now they are one of the players. Thus, we get no trends looking at recent data on clearing houses which is highly volatile.

Thus, it was around late 1940s post independence. Why did this happen?

RBI’s first volume of history provides some answers. At the time of RBI’s formation, there were discussions on whether Calcutta or Bombay would be the headquarters of the central bank. In mid 1930s, Calcutta continued to hold the financial fort as above data also shows. Though Bombay was the future. Infact first meeting of RBI Board was in Calcutta. This passage from RBI history shows how RBI Governor was once shuttling between two centres but then eventually moved to Bombay in 1949:

Calcutta and Bombay being the most important commercial and financial centres in the country, it became the practice of the Governors to divide their time approximately equally between these two places (apart from brief visits to other centres) in conformity with the spirit of these recommendations. The Bank also acquired residential accommodation for the Governor in the two cities.

A departure from this practice became necessary in the winter of 1942. Owing to the virtual closure of the Calcutta port as a result of war developments in the Far East and its proximity to one of the possible theatres of war, business in Calcutta had declined considerably and the pulse of its money and other markets was well below the norm. From the point of view of contacts with important banks and other commercial interests, therefore, a prolonged sojourn in  Calcutta did not appear to have any commensurate public advantage.

The Governor’s house in Calcutta had also been requisitioned by the Army authorities in May 1942, but this was not an important reason for the Governor’s keeping off Calcutta. It should be added that even after the practical necessity for spending most of the time in Bombay disappeared after the war, the subsequent Governors made Bombay their permanent headquarters and paid only periodical visits to the other centres.

Soon after Sir B. Rama Rau became Governor, he considered that it was no longernecessary or economical for the Bank to retain the Governor’s house in Calcutta; he, therefore, obtained the Board’s approval for its sale in December 1949.

Though, an appeal to move to Bombay was made in 1937 itself (ByJames Taylor, 2nd Governor):

While the Central Office of the Bank was initially located in Calcutta, it was the practice for the Governor to spend his time about equally between Calcutta and Bombay, a portion of the Central Office moving with him to Bombay. Commenting on this practice, the Governor observed in August 1937 that:

the experience of the last two years has shown that the present practice of migrating from one centre to another throws an impossible burden on the administration of the Bank and involves great waste of time and duplication of work.

He suggested that the Central Office should be stationed permanently in Bombay and that the touring portion should be confined to the Governor’s staff who would be responsible merely for keeping his personal correspondence and the records of the Committee and the Central Board. Accordingly, in December 1937, the Central Office was permanently transferred to Bombay.

Hmm. Despite the move of Central Office to Bombay, the Governor was required to spend time equally in Calcutta and Bombay till 1949.

All this is fascinating. Geography of Indian finance…

4 Responses to “When did Bombay takeover Calcutta as the prime financial centre of India? Some evidence..”

  1. Pratik Datta Says:

    Fantastic article! My impression was that the decline must have started post CPM coming to power. But its evident from your piece that the CPM may very well have been one of the many factors. If you find any other interesting material on this subject please do share. Even better if you could write a piece explaining the post-1977 dynamics. It could be an interesting lesson for policymakers – what not to do to screw up a perfectly functioning market ecosystem!

  2. Suresh Chhatre Says:

    Article is not complete

  3. Vedant Vichare Says:

    Hello Amol Sir. I found your article very useful for my research work. Please continue with your research work. I agree with you that our Financial History needs to be explored more.. Thanks

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