To understand the growth of Mumbai as a financial hub, we must look back into its history. So let us hop onto the time machine and get a glimpse of ‘What’ makes present-day Mumbai.
A Journey Across the Ages
Palaeolithic Age
We are into the Paleolithic Period (also known as Stone Age) but astonishingly not much far from the place we were a few hours ago. It’s Kandivali (an urban setup in the western suburbs of Mumbai).
Inside those caves, we could see our ancestors straight out of the history books.
To back up my claim, in 2018, as part of the Salsette Archeological Exploration Project, archaeologists discovered stone tools dating back to the middle stone age in north Mumbai.
This means humans had been calling Mumbai their sweet home for time eternity, to be precise, for at least 10,000 to 15,000 years. Time to move ahead!
600 BC – Arrival of Kolis
We smell something fishy!
Here arrives ‘the Kolis’ – a community of fishermen, who were among the first inhabitants of the city of dreams. We can still see them doing their work in areas like Mahim, Worli, Dharavi, Dongri and Juhu. Like us, they too love the seashores of Mumbai.
We might face a shortage of power! And since we don’t want to stay stuck in the past, we now travel fast and furious.
300 BC – Mauryan Empire
Under the leadership of great Emperor Ashoka, the seven islands of Mumbai were incorporated into the Mauryan empire.
To your left, see the monks and artists working on the timeless artwork of the Kanheri and Mahakali Caves. Today, we see and wonder about these ancient caves when we drive through the western express highway to work.
Let’s now travel straight to the 19th Century. But before we bid adieu, we look back once and move ahead in search of the glorious eras from the city’s history.
19th Century – Bombay Rising, Ambitions Soaring, and Climate is Just Right
Chapter 1: Opium trade export to China
With the end of the Second Opium War in 1842, legal barriers to the opium trade to China were removed.
The East India Company encouraged opium production although not for domestic consumption but exports to China. The Company brought in their own policies. They aimed to reduce the trade deficit with China, and manage the cost of imperialism.
But, why was opium not for Indians? Well, a rationale is stating the ill-effects of drugs and then existing anti-drug policy of Great Britain, which of course contradicts the policies of boosting opium trade with China.
So how did Bombay get a whiff of Opium?
Yesteryear’s Malwa – comprising districts of Madhya Pradesh and Rajasthan – was an opium-producing hub. British officials kept their distance from the operations and production of opium in Malwa. Thus the only cost associated with revenue from Malwa opium was in the form of administrative tax. With increased production, Malwa became the second-largest source of opium revenue collected through pass fees for the Company.
Bombay served as the city where Malwa opium auctions took place, starting in 1821. From 1831 onwards, the Company allowed private players, both British and Indian, to export opium via Bombay on a reasonable tax.
On the other hand, the Indo-Portuguese traders had made Bombay their headquarters rather than Goa, since the capital of the Estado da Índia was quite far from the main Malwa supply networks.
From 1842-1859, opium made up 31.5% of all Indian exports, making Bombay richer.
Chapter 2: Cotton and textile
Many Indian business communities tried their luck at the opium trade, but few succeeded, none like the Parsis.
As China was cracking down on opium addicts, many of Bombay’s opium traders had moved to textile manufacturing in the 1830s.
“The move into manufacturing wasn’t a natural progression for the Parsis of Bombay. Rather, it was a solution to the problem of not being able to repatriate profits from the China trade,” said historian Amar Farooqui, author of Opium City: The Making of Early Victorian Bombay to The Economic Times.
The move into cotton textiles paid well. The American Civil War of the 1860s saw demand for cotton soar.
In 1854, Cowaszee Nanabhoy Dava, a Parsi capitalist, sowed the seed by starting the first cotton mill named “The Bombay Spinning Mills” at Tardeo near South Bombay. He made an initial investment of Rs. 5 lakhs. Following his footsteps, soon more Parsi entrepreneurs like Wadias and Tatas started investing in the textile industry.
Another well-known Parsi merchant, Maneckji Nusserwanji set up the Oriental Spinning and Weaving Company on August 10, 1854.
With the work of great pioneers like Cowasjee, Maneckjee, and James Landon, the industrial horizon started looking bright with the rising chimneys of cotton mills.
The volume of raw cotton exported from India increased from 20 million lb. in 1795 to 80 million lb, of which 60 million lb. were shipped from Bombay alone.
Speaking of the period from 1860 to 1875, Sir Dinshaw Edulji Wacha, the President of the Indian Merchants’ Chamber in 1915, remarked:
“It is indeed a striking fact that, all through the history of the Chamber of Commerce, the one subject of trade above all others which has continuously occupied the attention of that body is cotton. There is nothing surprising in it, seeing that King Cotton has reigned supreme in the sea-borne trade of Bombay.”
Quick facts on why Bombay became the perfect hub for Cotton trade:
- The geographical setting of the city promoted the lucrative sea-borne trade
- Favourable cotton tracts – the harbour of Bombay opens directly on the sea and therefore is more advantageous than compared to cities like Calcutta
- Post 1820, with the rapid increase in imports of Lancashire-made cotton goods and exports of raw cotton to England, Bombay’s shipping began to grow and it became a crucial hub for cotton imports and exports.
- The American Civil War led to the blockade of the Confederate ports and Indian cotton prices rose. By 1865, when General Lee’s army surrendered, Bombay had earned 70 million pounds sterling in the cotton trade.
- The government provided incentives to the textile industry in the form of long term leases. This spurt economic growth and employment in Bombay.
The Bombay Mills and Its Million Dreams
- By 1895, there were 70 mills, growing to 136 mills by 1900. At one point, Girangaon – now part of Central Mumbai, had almost 130 textile mills, with the majority being cotton mills.
- By 1980, Mumbai’s textile mills employed close to 300,000 people. These mills played a huge role in the prosperity and growth of Mumbai during the later nineteenth century, transforming the city into a major industrial metropolis.
Trivia: Find out how this shoreline place of Mumbai got named ‘Bori Bunder’. Let me know in the comments.
Chapter 3: Banking and financial sectors
In 1806, when the East India Company decided to establish joint-stock banking in their Indian colony, they chose Calcutta as the destination. Bombay followed the ‘City of Joy’ nearly 34 years later in 1840 (and Madras in 1843).
The Bank of Bengal was the premier bank of the country, much larger than the Bank of Bombay. Its dominance continued till 1913 when Bombay started closing the gap.
Comparing the three Presidency Banks
| Presidency | Area (sq. miles) | Population (Census 1901, in millions) | Regions accorded to the Presidency Bank |
| Bengal | 190,000 | 78 | Bengal, Burma, Bihar & Orissa, Central Provinces, United Provinces, Punjab, Delhi, NWFP and Hyderabad State |
| Bombay | 188,745 | 25.5 | Bombay Presidency, including Sind, Berar and Indore |
| Madras | 143,221 | 38.8 | Madras Presidency and Mysore State |
Source: Census (1901), Ghose (1943)
The decline of Bengal’s banking saw the rise of its counterpart – Bombay!
How Bombay Gained from the Fall of Bengal’s Banking
Noted historian and author Bimal C. Ghose in his book ‘ A Study of Indian Money Market’ points out several factors:
-Maritime trade: The world wars brought the Calcutta port to a standstill, affecting businesses, and the local financial sector. Consequently, Bombay (in Portuguese means “good bay”) became the port of choice for traders.
Unlike Calcutta, which was 80 miles up the river from the sea, Bombay was nearer to the Suez Canal. The proximity to the sea made it the hub of European imports. Lower shipping rates as compared to Calcutta led to increased sea-borne trade in Bombay, flourishing the finance sector in the process.
-Mismanagement of Calcutta banks: Since Calcutta was near the undivided border of India, its major banks used to handle banking for many adjoining countries like Bangladesh, Burma, Nepal, apart from India. But the partition of Bengal saw mismanagement in financial operations, resulting in more losses. This further saw Bombay’s toward spearheading financial services.
-Railway connectivity: Bombay was linked to Punjab in the north and Deccan in south India through Railway projects. It even beat the port of Karachi, which was closer to Punjab, as the preferred port for trading due to the additional advantage of railway connectivity.
-Work ethic: Bombay’s homegrown bankers offered top-notch facilities and services in the formal banking sector.
In an article titled ‘Trading Firms in Colonial India’, published in Harvard Business School, Tirthankar Roy points out:
“Indigenous merchants in Bombay tended to be bigger firms than their counterparts in Calcutta, more prominent in Asian maritime trade. The difference stemmed from the particular trajectory that Parsi entrepreneurs had charted in the former city. The key to their success was shipping.”
-Home to three important markets: Stock exchange, cotton trade and bullion flourished due to Bombay’s proximity to financial centres to the west of the country. More trade saw more growth in the financial sector.
In 1949, after the closure of the Calcutta branch, Bombay became the sole location of the Indian central bank – The Reserve Bank of India.
From shareholders trading under a Banyan Tree in the 1840s to the blooming of the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to Zaveri Bazar becoming the biggest bullion market (65% of all gold trading and dealing) in India, Bombay was minting money and serving fresh ‘usachya ras’ for the ambitious and growth-thirsty businesses.
Trivia: Who founded the oldest stock exchange in Asia
Chapter 4: Flexible Investment Policies
To support the growth of industries, on 1st August 1962, Maharashtra Industrial Development Act (MIDC) was created as a separate corporation.
The key policies of MIDC changed the socio-economic fabric of the state. Setting up an “independent filtered, potable water supply system of adequate capacity” was one of them.
MIDC developed specialized parks for different industrial sectors, including IT, gems and jewellery, textiles, leather, chemical industry, electronics, food processing, etc. The planned and systematic development led to increased exports, superior productivity, economic performance, business efficiency, government efficiency, infrastructures and overall competitiveness in the state.
Mumbai, being the beloved son of the state, benefitted the most from such flexible policies.
Summarizing the Growth Story:
Initially, Bombay’s commerce was mainly dependent on its trading in the Red sea and other ports of India.
Post ‘Commercial Revolution’, it figured as a key city for India’s trading equation with Asian and European countries. It started with the raw cotton trade with China and by 1807-08, Bombay exported the largest amount of cotton in its history. Parallelly, the opium trade picked up and consequently led to Bombay’s position as one of the leading port cities of the British empire. The financial sector’s boom attracted many business communities to this city, leading to further economic development.
THE PRESENT-DAY MUMBAI
So that was a whirlwind ride. We are back to where we were a few minutes ago. Let us take stock of today’s Mumbai’s.
The island city is presently witnessing a shrink in its contribution to India’s GDP. Some of the reasons are/were:
The strikes stroke the cotton trade
In the Great Bombay textile strike of 1982, more than 250,000 workers went on strike. More than 80 mills were shut down, leaving 150,000 workers employed.
The cotton trade story concluded and the industry made its way toward Gujarat.
Losing share of BFSI
Over the years, Mumbai served as the powerhouse of India’s financial sector. However, with the advent of fintech, Bengaluru has become the preferred destination for major private fintech companies. From Zerodha to PhonPe, to ClearTax to RazorPay, you name it, you find their headquarters in the southern city of India.
There, factors like a startup-friendly ecosystem, exceptional human resources and better real estate prices are supporting the fintech growth.
Gujarat International Finance Tec-City (GIFT): The proposed International Financial Services Centre in Gujarat International Fin-Tec City (GIFT City) has invited tenders from various financial & IT/ITeS institutions to be a part of one of the most ambitious infrastructure and technological Smart City project in India today. This promising proposal further lures Mumbai’s BFSI institutions to settle outside the city.
Mumbai is also one of the worst affected cities from COVID-19 and the impact was felt in the BFSI sector as well.
Diamond businesses moving to Surat
Around 70% of diamond business have moved from Mumbai to Surat. The newly incorporated Surat Special Economic Zone favours businesses where local laws and taxes do not apply. Besides, labour cost and cost of leasing land is cheaper as compared to Mumbai. The Surat diamond bourse will be ready by 2022 which might see most diamond companies shifted to Surat from Mumbai.
Today, the city is becoming infamous for labour exploitation, poor quality housing, sky-rocketed real estate prices, and environmental degradation, among others roadblocks—plaguing the development of Mumbai.
The rise of other sectors
Presently, the key sectors contributing to the city’s economy are finance, gems & jewellery, leather processing, IT and ITES, textiles, petrochemical, electronics manufacturing, automobiles, and entertainment.
Mumbai offers excellent facilities to IT businesses. The Santacruz Electronic Export Processing Zone (SEEPZ) and the International Infotech Park (Navi Mumbai) are testaments to it.
So, What Makes Mumbai the Financial Capital of India
- 6.16% of the country’s total GDP
- Contributes 10% of factory employment
- 25% of industrial output
- 33% of income tax collections
- 60% of customs duty collections
- 20% of central excise tax collections
- 40% of India’s foreign trade and ₹4,000 crores (US$530 million) in corporate taxes
Source: Wikipedia
We saw how Bombay became Mumbai, the financial capital of India. But like all good things must come to an end, any other city can soon overtake Mumbai in the next 50 years. This also means the development of the country. But the show must go on…because “Jeena toh Bambai mein … marna toh Bambai mein”.