It was at the British Conservative Party’s conference in early October that Prime Minister Theresa May stated that the Brexit vote “should make us think of a Global Britain…to look beyond Europe and at the economic and diplomatic opportunities of the wider world”.
India was one among eight countries she mentioned with whom the possibility of a free trade agreement with the UK was being explored, given that diplomatic ties between the two were upgraded to a “strategic partnership” in 2004. The broad contours of this bilateral relationship are largely determined by financial transactions through robust bilateral trade ($14.33 billion in 2014-15) , investments and foreign direct investments (FDI).
The Indian government plans to raise funds for its infrastructure projects in the City of London. The ‘City’ refers to a county, the financial district, or as is well known in local parlance, ‘the Square Mile’. This is a name that also evokes a grey area where wheeling-and-dealing of all kinds takes place. It houses the world’s oldest markets for international banking (money), equity, and foreign exchange.
These very same markets were accessed 150 years ago when the Great Indian Peninsula Railway (renamed Central Railway and headquartered in Mumbai), a corporation initially based in London, sold its bonds on the London Stock Exchange. Except this time around the Indian Railway Finance Corporation is slated to sell its masala (rupee) denominated bonds for the very same purpose, namely, railway infrastructure.
Although Bombay leveraged the global markets in London – past and present – the relationship between the two has been an interdependent one. By the late 19th century, Bombay itself possessed the largest international market in rupee paper (securities issued by government), and in bonds, issued not only by local institutions, like the Bombay Port Trust, but even French municipal bonds.
However, it would not be wrong to say that the City reached its position of pre-eminence in the global financial world, beginning in the 18th century, largely because of the India trade. To facilitate the creation of credit and remittance of funds by the English East India Company, the English agency houses, and later the British overseas banks in India, a cluster of financial intermediaries, banks, and markets, became concentrated in the City. This made it the centre and the axis for money and credit requirements of world trade even if such trade did not touch England’s shores.
The world’s first corporation
When the English East India Company (EEIC) was founded by a royal charter signed by Queen Elizabeth I on 31 December 1600, it marked the birth of the world’s first limited joint stock company. The royal charter itself, in the absence of a company’s act, effectively limited the liability of the Company’s stock holders only to the extent of their investment. European companies and traders did business at entrepots, like Surat, during the 17th century, using the bullion they had brought with them, in the absence of financial instruments, like bills of exchange.
This system existed at a time when products manufactured in the subcontinent, such as silk and cotton piece goods (cloth), were in demand, and when banking in England was at a nascent stage.
What is interesting though, is that what was termed as native banking (in colonial literature) seemed more advanced at this stage, and the Company made extensive use of local bankers and their hundis (promissory notes) to raise funds to purchase Indian merchandise, and later, even to fund its wars on the subcontinent.
In Bombay, by the early 18th century, the EEIC and Forbes & Co., a multi-purpose trading house, were both functioning on a system of bills payable on the court of directors of the EEIC at London or on the supreme government at Calcutta. Forbes was the first British agency house on the subcontinent to be founded by private traders and expatriates in 1767, and to also offer banking services to its clients.
These bills of exchange were extremely popular before the advent of the telegraph in the 1870s as they facilitated the triangular trade between Bombay-Canton-London by providing a safe means of remitting funds to the subcontinent and London. They contributed greatly to the growth of the London inter-bank money market: the London correspondent bank or EEIC would endorse them upon receipt whereupon they were traded in the money market at a discount through the London bill (discount) brokers till maturity.
The purchase and sale of these bills–the bulk were document bills issued on ships’ bills of lading–in the money market had the effect of matching surplus to deficits between participating banks and correspondents of foreign banks. European, Japanese, and American banks, with the exception of the Indian presidency banks, established a branch or agency in London to access funds on this market.
A good example of this was the financing of Japanese raw cotton purchases from Bombay and the sale of Japanese silk in France and the United States, the bulk of which were facilitated by the Yokohoma Specie Bank (YSB) by the 19th century. The YSB had a branch office in Bombay, London, and New York, with the one in London acting as an axis for this trade by either raising funds at competitive rates or lending the surplus on the London market.
The first British overseas bank
When the EEIC lost its charter of monopoly over the India trade in 1813, it brought in a number of British (later European) private traders to the subcontinent. In Bombay, as elsewhere in British India, the Company and the established British agency houses jealously guarded this monopoly over the foreign exchange business that facilitated India’s valuable external trade.
At first, when the presidency Bank of Bombay (a quasi government chartered bank) was founded in 1840, by a mix of British and native merchants, its charter (as also those of the presidency banks of Bengal and Madras) excluded the business of foreign exchange.
This propelled a group of merchants in the city, like the Pathare Prabhu banker Sir Jagannath Shankersett, to form a joint stock bank – Bank of Western India – in 1842. Its portfolio included the business of foreign exchange. However, without a charter from the EEIC or a royal one, it could not participate in the exchange business.
In its desperation to acquire a charter, it first bifurcated its head office between Bombay and London in 1845, and renamed itself the Oriental Bank. Eventually, it shifted its head office to London and later transformed itself into the Oriental Bank Corporation in 1851, on the acquisition of a charter.
The irony of the Bank of Western India’s long legal battle in London is that it became the first British overseas (exchange) bank: this meant that it was a unique specialised bank that was headquartered in London, but whose branches conducted the bulk of its business on the subcontinent. The only British overseas bank existing today is the Standard Chartered Bank, which was originally established in Bombay as the Chartered Bank of India, Australia and China in 1858.
By the 1870s, foreign trade in Bombay was largely facilitated through British overseas banks and foreign banks that specialised in trade between Bombay and their country. The Bank of Bombay, which merged with the other two presidency banks to form the Imperial Bank of India in 1921 (it was renamed the State Bank of India in 1955), was permitted direct access to the London money markets only in 1934.
Given that these deep financial networks between the two cities survived three centuries, its buoyancy in a 21st century globalised economy should come as no surprise. Today, India is the second largest source of foreign direct investment in the City of London, and the third largest in the UK. In 2014-15, Indian companies undertook 122 FDI projects in the UK, creating 9,000 jobs. With the presence of large Mumbai headquartered companies, like the Tatas, in the UK, the Mumbai-London relationship, in spite of its colonial beginnings, assumes great significance.
Sifra Lentin is the Mumbai History Fellow at Gateway House.
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 Text of British PM Theresa May’s speech to the Conservative Party conference October 1, 2016, http://www.independent.co.uk/news/uk/politics/theresa-may-conference-speech-article-50-brexit-eu-a7341926.html (Accessed on 2 November 2016)
 UK’s cumulative investment in India is $ 22.56 billion (April 2000 to September 2015), making it the 3rd largest investor after Mauritius and Singapore, while India continues to be UK’s largest source of foreign direct investments in projects with investments of £ 1.9 billion in 2013 from just £ 164 million in 2004.
 Betts, Frank C, Railways and railway securities; a study of all the railway companies whose securities are quoted on the Stock exchange, London, with details concerning capital and resources (London, Mortimer, Harley & Co., 1922), p 145.
 Edwardes, S.M., The Gazetteer of Bombay City And Island, Volume 1 (Bombay, The Times Press, 1909),pp 295-97
 The grant of licenses to private British businessmen by the English East India Company, in order to shield itself from criticism for its monopoly of the India trade, resulted in the formation of agency houses. Agency houses acted as business agents for others (for which it charged a fee) and it had its head office in London, for which it acted as agent.
 Nishimura, Shizuya, Toshio Suzuki, and Ranald Michie, eds, The Origins Of International Banking In Asia: The Nineteenth and Twentieth Centuries (United Kingdom, Oxford University Press, 2012), p 25.
 Ibid, pp 89-91.