Why did Bombay takeover Calcutta as the leading financial centre? Some probable reasons…(Part -II)

This post written in jiffy has become one of the most popular posts of this blog. The post looked at a timeline when Bombay probably replaced Calcutta as the leading financial centre. The post drew data from Clearing house data which shows how by late 1940s more cheques were cleared in Bombay over Delhi. This data was supported by RBI history which showed how overtime RBI moved from a twin office of Calcutta and Bombay to just Bombay. This transiton also happened towards late 1940s.

However, the question still remains why did Bombay eventually take over? I came across a wonderful book written in 1943 – A study of Indian Money Market by Bimal C Ghose (1943). The book particularly studies Calcutta Money Market but compares Bombay and Calcutta financial centres.

Before why Bombay, let us look at some more data which shows how Calcutta was more prominent compared to Bombay. All data is drawn from the Ghose book.

Bank of Bengal catered to a much larger area and population in mostly poor areas. Thus it had higher deposits. However, Bombay clearly collected more deposits per person than Calcutta. Thus. prosperity was more widely spread across Bombay compared to Calcutta.  This was obvious given reach of Bombay bank was limited to mostly prosperous areas.

Population (Census 1911 in thousands) Bank Deposits (1916) (in Rs thousands) Deposit per hundred population
Bank of Bengal Bengal, Burma, Bihar and Orissa, Central Provinces, United Provinces, Punjab, Delhi, NWFP and Hyderabad State 206288 214361 1.04
Bank of Bombay Bombay Presidency, inclusing Sind, Berar and Indore 33136 136709 4.13
Bank of Madras Madras Presidency and Mysore State 52023 96017 1.85

If we look at other financials, Bank of Bengal clearly dominated. See especially the Governmetn Deposits which were much larger in Bengal given it was the political capital as well.

1895 (in lakhs of Rupees)
Capital Reserves Govt Deposits Other Deposits
Bank of Bengal 200 68 184 677
Bank of Bombay 100 51 76 358
Bank of Madras 50 16 45 278

The dominance continued in 1913 as well. Though, we can see Bombay was  slowly closing the gap.

1913(in lakhs of Rupees)
Capital Reserves Govt Deposits Other Deposits
Bank of Bengal 200 191 301 1824
Bank of Bombay 100 106 200 1015
Bank of Madras 75 73 86 805

Moving from banking, we also see largest number of companies being floated in Bengal compared to Bombay.

No of Companies on 31 March
All India Bengal Bombay
1920-21 4708 2148 872
1925-26 5305 2451 804
1930-31 7328 3835 1051
1933-34 9434 4680 1182

They also had highest number of companies. Nearly 45-50% of All India companies in Bengal compared to Bombay’s share of 13-15%:

Bengal Bombay
1920-21 46% 19%
1925-26 46% 15%
1930-31 52% 14%
1933-34 50% 13%

However, in terms of capital Bombay had almost equal share:

Bengal Bombay
1920-21 44% 36%
1925-26 38% 37%
1930-31 39% 35%
1933-34 44% 32%

Thus, in terms of capital per company, Bombay was much higher. This again has to do with prosperity being higher than Bombay.

All India Bengal Bombay
1920-21 3.5 3.4 6.7
1925-26 5.2 4.3 12.7
1930-31 3.9 2.9 9.3
1933-34 3.2 2.8 8.2

Infact, number of banks were much larger in Bengal compared to Bombay. Bengal had large number of small banks called loan offices (thousands in number) whereas Bombay had few large banks.

So, this data clearly shows the eminence of Calcutta in terms of values but per capita terms were higher in Bombay.

The next q is why Bombay eventually took over Calcutta?

Ghose points to several factors:

  • The World Wars were major factors as gradually position of Calcutta weakened. This was shown in the previous post as well.
  • Bombay port’s importance grew. It was used as a major military base for Mesopotamia and East Africa. Bombay was naturally a much better port anyways compared to Cal. Cal port was 80 miles up the river from the sea making it difficult for cargo ships. Rates were higher too. Bombay was near to Suex Canal and received the bulk of imports from European countries and Cape.
  • Development of Railways linked Bombay to not just Deccan (which was the original purpose) but to Punjab areas as well. Karachi was closer to Punjab but Bombay was preferred given railways.
  • Indigenous bankers in Bombay offered exceptional facilities.
  • Bombay had three more markets: Stock exchange, cotton and bullion. Calcutta just had jute which was mainly exported. There was Calcutta stock exchange but the one in Bombay was much older and significant perhaps due to its proximity to Western financial centres.
  • Principal office of RBI eventually moved to Bombay. The location of central bank plays a major role as suggested by Kindleberger (1974). This is important as Keynes and Sir E. Cable made a memo on establishing Central bank in India (1914). The location of central office was thought as Calcutta and can you imagine Delhi. Bombay was not even considered. Delhi was preferred then as it was independent of the three Presidency bank offices!

Apart from these, one major factor was distribution of ownership of assets/deposits in the two regions. Historically, Indians were more present in economic activity in Bombay than Calcutta (Bagchi 1987).  For instance, in Bank of Bengal (and Madras) there were no Indians in management for a long time. Whereas in Bombay, we always had Indians in Bank of Bombay. Similar things were seen in Chambers of Commerce where in Calcutta it was mostly British whereas in Bombay it was Indians/

We see this in deposit ownership as well. In Bank of Bengal, British/Europeans held twice the share of deposits compared to Bank of Bombay. This data is of 1925 and thus Bengal sees more representation. Earlier data would show Europeans holding majority of deposits in the bank.

 Current and Fixed Accounts (1925) Europeans Indians Banks
Bengal 23.2 62.5 14.3
Bombay 10.0 70.3 19.7
Madras 31.3 59.9 8.8

Thus, as India moved towards independence and Indians took control of things, Bombay was but the natural choice. Indians in Bombay were at helm of affairs for a long time and could immediately take control. Whereas there were very few industries/banks run by local people.

Overall, there were multiple factors behind this transition from Calcutta to Bombay.

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One Response to “Why did Bombay takeover Calcutta as the leading financial centre? Some probable reasons…(Part -II)”

  1. justguessing Says:

    Maybe the earlier post became popular because Alpha Ideas linked to it in it’s linkfest

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