Fall of Kolkata – Why Kolkata fall as India’s financial capital?

Fall of Kolkata - Why Kolkata fall as India's financial capital?

Fall of Kolkata – Why Kolkata fall as India’s financial capital?

Kolkata was given different titles like the City of palaces, City of joy and cultural capital of India and was once known as the financial capital of India. Yes, we might be giving Mumbai the title of financial capital of India but once Kolkata was known as the financial capital of India and it is said that Mumbai got this position because of the fall of Kolkata.

Why and how did Kolkata decline financially?

Story of decline of Kolkata

But to understand fall of Kolkata it is necessary to know when Kolkata started rising financially in India. So let’s begin with the origin of Kolkata city.

Archaeologists believe that Kolkata was situated and inhabited more than 2000 years ago but its documented history starts from 1690 that is after the British East India Company came to India.  Ancient evidence proves that Kolkata was a trading hub even before the arrival of Delhi sultanate Mughals, Portuguese, French and British. The origin of this city is traced back to the Mauryan and the Gupta Empire and it is even mentioned in the ancient Epic Mahabharata that it is believed that the ancient name of the city was Kalikata which is derived from Kalikshetra, the place of goddess Kali.

There is one more belief which says that this name was given to the place because of its geographical location and settlement which is at the bank of Kanal or Khal Britishers named this place Calcutta which is an anglicised version of kalikata.

But how did Britishers reach Kolkata?

On 24th August 1960 Job Charnock and agent of East India Company came to sutanuti near the Hooghly River in 1960. This place is at present in North Kolkata. Job charnock wanted to establish a factory of East India Company and for this, Kolkata sutanuti and govindpur were the three villages which were taken under lease by Job charnock. These three villages today form the present Kolkata city.

In 1699 East India Company started developing this place as Presidency City and named it Calcutta. Calcutta was declared as the capital of British India in 1772 after which Britishers started to have an even stronger hold on it and during the period of industrialization started to grow in this city. Calcutta’s governor general Richard Wellesley started working on the architecture of this city and started developing the city as a city of palaces. This was the era of high influence of Britishers over Kolkata along with westernisation and education. Bengal and Kolkata faced an era of Renaissance. Many social reform movements were initialised and an increasing intellectual population started understanding the importance of independence.

Kolkata is also known as one of the most important centres responsible for the independence of India. These are the important points of origin of Kolkata but at the same time Kolkata flourished as financial capital of India let’s understand how

Rise of Kolkata as India’s financial capital

As previously mentioned, In 1772 Kolkata became the political capital of the British East India Company and the same path moved down to the financial capital. Even before Britishers came this region of Bengal used to be the trading hub.

Britishers later started establishing the factory which further developed this region as a trading centre. After making Kolkata the capital city, British governor general Warren Hastings shifted all important offices from Murshidabad to Kolkata. Later when the joint stock Bank was to be established in India, Kolkata was the first city to be chosen to establish it and the first joint stock Bank was formed in Kolkata in 1806, while it was formed in Bombay in 1804 which was 34 years after it was established in Kolkata.

Besides, even the Bank of Bengal was established in Kolkata and this bank was quite huge when compared to other presidency banks. One of the major reasons for this was that the Bank of Bengal used to cover a huge region due to which the amount of deposits was quite huge.

 Remember that Bengal at that time constituted present day West Bengal, Bangladesh, Odisha, Bihar and some parts of Assam. So this was all the region that was covered by the Bank of Bengal and as Kolkata was a political capital even the government deposits used to be in the bank of Bengal.

 According to the data of 1895 the value was 184 lakh rupees, while in the Bank of Bombay it was only 76 lakh rupees. Even when compared with the number of Banks, Kolkata was at the lead. There were thousands and thousands of small banks present in Bengal which were known as loan offices while in Bombay there were only a few big banks that describe that during that time in the field of banking Kolkata was dominating Bombay. Except for banking we see that when compared with Bombay, there were more companies that were started in Bengal. 45 to 50% of all India companies were located in Bengal while it was just 13 to 15% in Bombay.

During the 20th century, Kolkata city went through a political turmoil era which affected this city and its financial ranking and eventually Kolkata could not keep up its position as a financial capital and Bombay took its position.

How did Bombay take Kolkata’s position as financial capital?

How did Bombay take Kolkata’s position as financial capital?

There are many reasons behind the fall of Kolkata. It started in the year 1912 when the capital of British India was shifted from Calcutta to Delhi. After this the importance of Kolkata began to decline. Kolkata was deprived of the title of political capital and the time was not far when the title of financial capital was also going to be taken away from the city.

One of the major roles for this was played by World wars. The first world war began in 1914 and during this Era Kolkata’s position of trading started to decline because the importance of Bombay’s port started to increase as Bombay Port was used as a major military base by Mesopotamia and East Africa and as compared to Kolkata, Bombay is a major port. Kolkata port is 80 miles from river to sea causing discomfort to cargo ships and even the shipping rates were high. While the position of Bombay port was closer to Suez Canal which facilitated European countries to receive the bulk imports.

Even the development of railways linked Bombay with the Deccan region and Punjab. Even though Karachi port was closer to Punjab, Bombay was yet preferred. The indigenous bankers in Bombay provided exceptional facilities while in Kolkata there was still dominance of British bankers. Bombay had three markets namely Stock exchange, Cotton and Bullion Market while Kolkata had just a jute market which mainly used to be exported. The Calcutta stock exchange existed but the Bombay stock exchange was older and significant. One major reason for this was its proximity with the western financial centre.

Also RBI’s principal office was also shifted to Bombay from Calcutta in 1937. Central banks’ location play a very important role for the title of financial capital of a country. Except for all these factors, a major factor was ownership of the assets and deposits of both of these regions. Historically the presence of economic activity was more in Bombay rather than in the city of Kolkata.

For example in the management of Bank of Bengal for a long time there were no Indians but in Bombay there was always presence of Indians.

Similar things can be seen in Chambers of Commerce. Chambers of Commerce in Kolkata work filled mostly with Britishers, while in Bombay it was mostly Indians and the similar phenomena is seen in deposit ownership. The Bank of Bengal had more deposits of Britishers as compared to that of bank of Bombay. Hence when India proceeded towards independence and everything started falling in the hands of Indians, Bombay was a natural choice as Indians had been dominating in Bombay and hence could control it quickly. At the time of independence very few industries and banks were run by Indians in Kolkata even after all these factors Kolkata was still doing great financially till 1940.

Second World War immensely affected Kolkata

One of the major reasons behind the fall of Kolkata. In 1939 when the second world war begin the conditions started getting adverse In 1942 after the capture of Burma the next target for the Japanese Army was Kolkata and this effects Kolkata port and the trade that takes place at Kolkata port threat of Japanese attack on Kolkata during World war 2 had an adverse impact on trade through Kolkata port.

The great Bengal famine was faced by Kolkata

The great Bengal famine was faced by Kolkata

One of the key causes of Kolkata’s fall. In 1943 due to this famine for many years the rural areas of Kolkata were facing difficulties. During British rule there were many famines in India, but the great Bengal famine was known as the worst famine ever faced by India during that time.

People of Bengal were affected by the famine and were starving. The great Bengal famine killed around 40 lakh Indians and at the same time the British Prime Minister Winston Churchill exported food grains from India to Britain and stocked it for Britain Army. This was also the major reason of the famine and affected the financial health of Kolkata as well.

How did India’s Independence affect Kolkata’s financial position?

In 1947 when India got its independence and the partition of Bengal caused the separation of East Pakistan, the situation became diverse because many jute producing regions went to East Pakistan which led to reduced supply of raw jute to mills located in Kolkata.

And this caused a major shock to the industrial economy of Kolkata. Except for this in 1947 because of the communal rights even the business environment suffered a lot along with which the influx of refugees increased due to which slums increased which means that once the city which was known as the city of palace was now facing an increase in slums.

Even after independence the hardships of Kolkata did not decrease

The Government of independent India brings forward freight equalisation policy in 1952 whose Motto is to increase the industrialisation equally in the whole country. But this cost a negative impact on the industries of Bengal and Bihar because according to this policy industry can be setup anywhere in this country and the Central Government was subsidizing the mineral transport. According to this policy the mineral rich region of Bengal and Bihar loses its comparative advantage and industries around Kolkata and its region start shutting down.

How did Kolkata loose its identity of being financially strong?

After this comes the era of 1960s and 1970s which caused power shortages strikes by workers and increase in labour conflicts.

At the same time a militant Marxist Maoist movement developed in Kolkata and this movement caused property destruction and the violence damaged the major part of the city. This violence had an adverse impact on the economic stability of Kolkata.

 In 1971 the war of Pakistan brought forward new challenge which was refugees coming to Kolkata because of formation of new country Bangladesh and the pressure on the already damaged infrastructure increased. And in this manner Kolkata lost its identity of being financially strong.

All of these factors contributed to the fall of Kolkata.

Now Kolkata might be developed and may have a metro, tall buildings, malls etc. But it still lacks as a financially strong City and can’t go ahead of cities like Mumbai, Delhi, and Bangalore.

Yet Kolkata still stands ahead as a cultural city of India and hence is known as the cultural capital of India.

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