Rise and Fall of
Kolkata’s Financial Supremacy

FROM BOOM TO BUST : KOLKATA’S ECONOMIC DOWNTURN

 

Introduction-

 

Once hailed as India’s economic crown jewel, Kolkata’s journey from the nation’s proud political and financial capital to grappling with the struggle to reclaim its former stature is a tale etched with historical events, government policies, and industrial fortunes. In the zenith of its glory during the Mughal era, Kolkata commanded an astounding 12% of the world GDP. Its strategic significance and economic progress under British rule positioned it as the pride of India, akin to New York or Paris in stature. Despite its illustrious past, Kolkata now faces an arduous path in vying with other Indian cities.

 

Dawn of Suez Canal-

Kolkata, likened to New York or Paris, once stood as the pivot of British India’s economy and industrial surge. However, the dawn of the Suez Canal in 1869 rerouted India’s trade dynamics, dimming Kolkata’s prominence. Bombay, closer to the canal, thrived as a shipping and trade hub. The canal’s accessibility fueled rapid growth, drawing people and investments, bolstering its economic and industrial prowess.

In contrast, Calcutta, once India’s primary port, faced a decline. The canal’s convenience made the longer Cape of Good Hope route less favourable, resulting in reduced maritime trade and an economic setback for the city.

Bombay’s Rising Dominance-

The trade volumes from Bengal were higher than Bombay for most part of the time period between 1871 and 1939. 

                                                        

The volume of government deposits was much larger in Bengal . The dominance continued till 1913 but Bombay was  bridging the gap, as we saw in the trade data.

                                                        

In per capita assessments, Bombay had a more favourable position than Calcutta, highlighting the relative prosperity of Bombay over Calcutta. For example, the Bank of Bombay gathered deposits per person at a rate four times higher than that of Calcutta.

                                                       

In 1913, total clearing house transactions(intra-bank payments) were Rs 65,035 lakh with Calcutta settling 51% of these transactions compared to Bombay’s share of 33.7%. Madras had a meagre share of 3.6%. Delhi was insignificant.

However, the divide between Calcutta and Bombay closed with each subsequent year. In 1947, the shares became almost equal. In fact, 1947 becomes the inflection point as from that point onwards, 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%

 

Bengal Famine-

The Bengal Famine of 1943 dealt a severe blow to Kolkata’s economy, exacerbating the challenges already posed by World War II. With agricultural productivity plummeting in the Bengal region, the city’s economy suffered a sharp decline. The influx of famine refugees strained resources and infrastructure, leading to overcrowding and increased poverty. The economic impact was felt across various sectors, including trade and commerce, as the city struggled to cope with the crisis. Despite relief efforts, the famine left a lasting scar on Kolkata’s economy, with repercussions felt for years after the famine ended in 1944.

                                        

Source: reddit.com

 

Second World War-

 

Calcutta port was established by the British East India Company in 1870 and served as a vital gateway for trade and commerce in the eastern region of India. During the colonial period, Kolkata Port was the most important port in India, handling goods such as jute, tea, coal, and raw cotton. It also served as a major centre for shipbuilding and repair, with the port’s dry docks being among the largest in the world at the time.

 In 1942 after the capture of Burma the next target for the Japanese Army was Kolkata. Eventually  the city was bombed several times and that adversely affected the Kolkata Port. Consequently the regular lucrative trade happening through the port suffered a blow for sometime. But imports and exports picked momentum within 2 years and maintained a substantial record till independence.

 

Percentage share of Calcutta Port in all-India export and import, 1870-71 to 1946-47 (exports and imports are represented by rupees in crores) [Source: Basic Port Statistics (several years)]

 

Post Independence Economic scenario-

 

Economic blows due to Partition

The 1947 partition of Bengal, resulting in East Pakistan’s creation, had significant economic impacts, especially on the jute industry, which generated around 37 billion INR annually. Bengal, particularly Kolkata, was a hub for jute cultivation and processing, relying on a steady supply of raw jute. However, the partition divided jute-producing areas, reducing raw material availability for Kolkata mills. This led to decreased production capacity and economic viability in West Bengal. Trade routes and agreements had to be renegotiated. Worker strikes and attacks on management increased, affecting business stability, while industrialists felt let down by the lack of government support.

Mass migration strained Kolkata’s economy post-Bengal Famine. In 2006, Tata Motors proposed a plant in Singur, West Bengal, but the government’s protest led to its relocation to Gujarat in 2008. This hindered industrial growth, leaving Bengal reliant on agriculture, susceptible to economic fluctuations.

The slower rate of urbanisation in the state can be partly attributed to the relative industrial stagnation of West Bengal since early 1960s.

                                     

The share of West Bengal in the all-India industrial output 

Source:Urbanisation in West Bengal 1951-1991

Revival of the city of Joy-

Despite challenges, Kolkata undergoes positive transformations with urbanisation and infrastructure improvements, fostering new areas like Rajarhat, New Town, and EM Bypass. Metro extensions enhance connectivity, reduce congestion, and unlock economic prospects. Renowned for its educational institutions like University of Calcutta and Jadavpur University, Kolkata emerges as a premier educational hub, attracting students with esteemed universities and research institutes.Its array of distinguished schools, colleges, and research institutes cements Kolkata’s status as a preferred destination for quality education seekers.