Sunday 1 September 2013

OCCUPATIONS - Commodities Trading & Speculation - Opium

Commodities Trading & Speculation - Opium

English East India company increased purchases of Chinese Tea following Pitt’s commutation Act of 1784 which lowered the duty on tea. Export of raw cotton from India to China which until then was used to finance purchase of Chinese tea was unable to keep pace with its increasing imports in Britain. The solution was eventually provided by opium.
Malwa was well known for its opium since the 16th Century. The massive expansion of opium expansion of opium exports from Bengal to china in the closing decades of the 19th Century drew Indo-Portuguese and Indian traders to this alternative source of supply.  Peasants in Malwa received prices 3 times as high as in Bengal where opium trade was a state monopoly.

Between 1805 and 1821, Daman was the main outlet for Malwa opium however the big opium dealers conducted the trade from Bombay. The British government made strenuous efforts to limit the Malwa trade which it could not monopolize like that in Bengal, but was un-successful.
From 1830, the government stopped its restrictive efforts and turned instead to encouraging Bengal’s production and imposed a high duty on Malwa’s production. Rapidly Malwa opium became the major exported, and Bengal moved to the second place.

The expansion of poppy cultivation and opium trade brought into being other powerful groups of vested interests having an enormous stake in this given economic system. Of these the most important were the class of money lenders cum small traders (sahookars), the native agents connected with the native firms and the wholesale merchants. These were classes heavily composed of immigrant merchants from Rajasthan and Gujarat. 

In early 19th Century several tens and thousands of Marwari merchants settled in the Opium tracts of MalwaIt contained a fair proportion of Shekhavati Aggarwals connected to prominent merchants in Calcutta. Opium soon became a major commodity for the local Marwari firms. The books of “Sevaram Ramrikhdas”, a Marwari firm based our of Mirzapur in 1830’s show Opium to have been their major commodity. Another prominent Marwari firm “Tarachand Ghanshyamdas” had branches all through the opium tracts of Malwa.

The rapid oscillation in opium prices, compounded by the unstable conditions of exchange between India and China, where the opium was sold, rendered the opium market particularly unstable. The fact that their fellow Marwari’s were already doing considerable business in Opium in the Malwa area, made the futures operations a natural extension for Marwari’s. Regular opium futures trading by Marwari’s in Bombay and Calcutta seems to have started in the 1830’s. It was in opium futures trade that several of the first Marwari fortunes were made

By 1872 telegraph services reached Jaipur. Calcutta Marwari merchants wired the current rates for opium to Jaipur.  Agents in Jaipur used a system of mirrors to flash the rates from hilltop to hilltop.
From the final hill outside of Jhunjhunu a runner would come to the city and inform the merchants of the rates. At night, If the information needed to be supplied, gunpowder explosions were deployed along the same route. By 1896 telegraph had come to Churu and Sikar. The trans-regional speculation networks worked very well and profitably for several decades. 

Opium sales were Legalized in Hong Kong in 1845 after the British defeated China in the 1st Opium War. Having gone through a period of lull during the years of the Opium War the opium trade was in full blast after the 2nd Opium War from 1860 onwards. Calcutta became an important market for opium speculation after its auctions in Bombay were discontinued in 1830.

Shivnarain Birla, grandfather of Ghanshyamdas Birla began his career was an independent opium speculator and for 10 years perfected the art of opium speculation in which he made large gains. In 1896 four marwari firms, “Devibaksh Jivanram’, ‘Ramnarain Bhojraj’, ‘Daulatram Lakshminarain’ and ‘Shivnarain Baldeodas’ came together in a room at Kaligodam Number 18, Mullick Street in Bara Bazaar to form ‘Bare Chaurastiya’ (the Gang of Four) who speculates in Opium. Afeem Chaurasta Ki Panchayat enjoyed complete Juristicion over the Marwaris engaged in the Opium trade.

This later took form of a Cartel led by Sarupchand Hukumchand and Harduttrai Chamaria which enjoyed complete monopoly on Opium trade. So fervent was bidding that at one such sale in Calcutta in 1845 two speculators took the price to a phenomenol Rs.1,30,995 per chest compared to the average price which ranged between Rs.400 to Rs.450 per chest. Swarupchand Hukumchand conducted Rs.50 lakhs business on the day he opeaned his calcutta office in 1915 and by the end of the year he was worth Rs.1 Crore.

Widespread Marwari speculation on the exchanges helped raise the price of opium to levels that were highly profitable to the colonial state. By 1925, the export of Opium had greatly diminished, and the speculative market in Opium figures had come to a hald because there was no longer enough fluctuation in the price for bookmakers to profit from taking bets on the daily market price.
As a substitute for Opium, the bookmakers took bets on the average of several prices of cotton in the American market. 

OCCUPATIONS - Money Lending

Money Lending

In 18th century, land revenue was the only definite source of funds for the rulers. The rulers assigned revenue rights of a village or a group of village to rent collector in lieu of the latter’s guarantee to pay a fixed sum of money to the royal treasury. This enabled the ruler to dispense with elaborate revenue-collection machinery and gave free hand to the rent collector to collect maximum possible revenue.

The rulers however didn’t deal with the rent collectors directly and positioned a group of merchant money lenders (potedars) between themselves and the collectors.

The rulers used to borrow money from potedars and issue them money warrant along with the letter of credit. This letter used to be an order to the rent-collector to reimburse the money to the potedar.

Potedari was the earliest form of banking and finance wherein the money-lenders and rent-collectors used to collect money from people and also extend loans.
Rich merchants who used to lend money to the kings were known as potedars.
The word potedar was used by the Peshwa rulers and later picked up by the gaekwads who collectively ruled over Saurashtra, Malwa, Khandesh, Marathwada etc in present day Gujarat and Maharashtra.

Poddar” a popular last named used by prominent Mawari families suggest that they once used to function as potedars to such rulers.

During the same period at the other end of the country the erstwhile princly state of “Cooh Behar” a part of modern day West Bengal followed a similar system of land revenue which facilitated Marwari merchants in the region.

A “jote” was a revenue paying estate and the owner of it was caled a “jotedar”. Jotes could be had in the estate of Cooch Behar on payment of a fixed revenue to the maharaja who was the owner of the soil. The state had always recognized the right of ownership, subject to the payment of revenue at the prevailing rates, although there was no written code extant from which such a right could be proved.

Apart from jotedars, “chukhanidars” were immediate tenatns to the raja.  The chukhanidar was an immediate sub-tenant or an under-tenant of a jotedar, a holder of certain portion of the jote or farm.

This kind of holding was known as a “chukhani” which was saleable under tenure, subject to the persmission of jotedar for transfer.  A chukhanidar had the right to occupancy and he paid to the jotedar as rent, a sum not exceeding 25% over the rates that the jotedar paid to the state.

Chokhani” again a popular last name in Marwari’s indicate their use of land-revenue as an instrument for money-lending activity.
Crop-Financing or money-lending for cash crops like Opium, Jute and Cotton against land as a collateral gained popularity in British controlled territories. Same would be discussed in my next posts. 

Here is an excerpt from a Book titled "Govind Narayan's Mumbai: An Urban Biography from 1863" which gives a vivid description of the Marwari Moneylenders operating in the city. 

There are many Marwari sawakars who number over 1500. They road door to door with their books. These Marwaris lend amount ranging from eight annas (equivalent to 1/2 Rupee) to over 10,000-15,000 rupees to people. They seem to have a facility and the courage to lend money. However poor or bankrupt one may be, they are willing to lend some amount of money. In return they expect 10 for 1 or maybe 25 for 5. There have been instances where as sum of 4 rupees has been lent, made up to 5 ruppes using their sawai practice of adding a 1/4 to the principle, and 4 different bonds are issued. 

Given below is a chart of the money which is to be returned to a principal amount of Rs.4

Number of Days
Principal + Interest

       According to the above calculations the rate of interest charged by these lenders was an astronomical 7100%