The Economic Decline of the Mughal Empire

The economic decline of the Mughal Empire was not a single event but a long, drawn-out process that unfolded over more than a century and a half, from the late reign of Aurangzeb through the formal extinction of the dynasty in 1857. It involved a fiscal crisis rooted in the structural unsustainability of the mansabdari-jagirdari system, a series of agrarian crises precipitated by war, invasion, and famine, a progressive disruption of long-distance trade, and the gradual reorientation of the Indian economy toward the European trading companies. The economic history of the late Mughal period is debated, and the picture that emerges from the surviving evidence is more complex than the simple narrative of a contracting economy in terminal decline.

The Jagirdari Crisis

The most fundamental economic problem of the late Mughal empire was the crisis of the jagirdari system. Mansabdars, the ranked officers of the imperial service, were paid through the assignment of jagirs, land-revenue assignments that entitled them to collect the revenue of a specified area. The system, in its mature form under Akbar and Jahangir, was based on a careful balance between the size of the mansabdari establishment and the supply of revenue-producing jagirs. The genius of the arrangement was the deliberate separation of a mansabdar’s home province from his assigned jagir, combined with the periodic rotation of assignments, both of which were designed to prevent any single officer from acquiring a durable local power base.

By the end of Aurangzeb’s reign, this balance had broken down. The conquest of the Deccan sultanates of Bijapur and Golconda between 1686 and 1687 added territory but did not add revenue. The new provinces were absorbed on a system of military occupation rather than systematic revenue assessment, and the revenues they produced were rarely sufficient to support the jagirs assigned to them. The phenomenon of bejagir, or unpaid mansabdars whose jagirs produced less revenue than the value of their rank, became increasingly common. The state’s response was a series of half-measures, including the transfer of mansabdars from one province to another, the periodic reassessment of jagir productivity, and the resort to cash payments (naqd) in lieu of revenue assignments, none of which addressed the fundamental problem.

The eighteenth century saw the crisis deepen. As the empire’s territorial control contracted, the number of mansabdars entitled to jagirs did not contract proportionally, producing an ever-larger pool of bejagir nobles competing for a shrinking supply of revenue assignments. The governors of the major provinces used their positions to accumulate personal power bases, often in alliance with local landed elites whose interests diverged from those of the imperial centre. The phenomenon of the iqta, in which a province’s revenue was assigned to a single officer, became increasingly common and contributed to the de facto autonomy of the regional successor states, including Hyderabad, Awadh, and Bengal. The deeper issue was that the revenue demands of the state exceeded the revenue capacity of the agrarian economy in the absence of new conquests, and the conquests that were made did not produce the surpluses required to sustain the imperial establishment.

Inflation and the Currency

The Mughal economy of the seventeenth century was heavily monetised, and the silver rupee, minted according to the system inherited from Sher Shah Suri, was the basis of the imperial fiscal system. The silver for Mughal coinage came principally from the New World trade, which had, since the late sixteenth century, brought large quantities of American silver through European trading companies to the Indian Ocean. The availability of this silver supported a substantial expansion of the money supply in the early seventeenth century, and the price level rose substantially between Akbar’s reign and Aurangzeb’s.

A particular form of currency debasement became significant in the late seventeenth and early eighteenth centuries. The rupee in circulation contained progressively less silver as the imperial mints, under fiscal pressure, reduced the silver content of the coins. The phenomenon is well documented for the reigns of Aurangzeb’s successors, particularly Muhammad Shah and Ahmad Shah, when the silver content of the rupee fell by as much as a quarter from its classical standard. The debasement was a symptom of fiscal crisis rather than a cause: the state was resorting to the mint as a source of revenue at precisely the moment when its other revenue sources were contracting. The cumulative effect of debasement, combined with the disruption of the silver supply caused by the European reorientation of the bullion trade, was a serious distortion of the monetary system and a contribution to the broader price inflation of the period.

The Deccan Wars and the Imperial Treasury

The twenty-five years of Aurangzeb’s Deccan campaigns, from 1681 to 1707, placed an enormous strain on the imperial treasury. The conquest of the sultanates of Bijapur and Golconda required the maintenance of large armies in the Deccan for extended periods, far from the revenue-producing centres of north India. The cost of these campaigns has been estimated at a substantial fraction of the total imperial revenue over the relevant period, and the campaigns were funded in part through extraordinary measures, including the imposition of special taxes, the borrowing from the major banking houses of the empire, and the diversion of revenue from the northern provinces.

The longer-term consequence of the Deccan wars was the disruption of the agricultural economy of the Deccan plateau, the displacement of substantial populations, and the destruction of urban centres that had been the basis of the regional economy. The Maratha campaigns of the late seventeenth and early eighteenth centuries produced a similar pattern of disruption in the western Deccan, the Khandesh, and the upper Doab. The combination of war, displacement, and disrupted agriculture contributed to a series of famines in the late seventeenth and early eighteenth centuries, the most serious of which was the Chalisa famine of 1630–1632, which is estimated to have killed several million people in the Gujarat and the Deccan.

Famines and Agrarian Crisis

The late Mughal period was marked by a series of major famines that imposed heavy costs on the agrarian economy and on the state’s revenue base. The Chalisa famine of 1630–1632, which preceded the period of crisis but established the pattern, was a catastrophic failure of the monsoon combined with the disruption of agricultural production in Gujarat and the Deccan. The famine is remembered in popular memory as the sati famine because of the large number of widows who immolated themselves on their husbands’ funeral pyres, a vivid illustration of the social consequences of agrarian catastrophe.

The Durga Devi famine of the 1680s and 1690s was a more drawn-out crisis associated with the Deccan wars and the disruption of agriculture in the Deccan and the upper Doab. The famines of the 1730s and 1740s, associated with the invasion of Nadir Shah and the disruptions of the Maratha and Afghan incursions, imposed further strain on the agrarian economy. The Bengal famine of 1770, the Chiyattorer Manvantar, occurred in the period of British control and is estimated to have killed as many as ten million people, perhaps a third of the population of Bengal, in one of the deadliest famines in recorded history.

The agrarian crisis had multiple causes. The most immediate was the failure of the monsoon, but the underlying causes included the disruption of agricultural production by war, the displacement of cultivators, the decline of irrigation infrastructure, and the increase in revenue demand imposed by the state. The state’s response to the famines was generally inadequate: the imperial authorities lacked the administrative capacity to mount a systematic famine relief effort, and the local officials were often more concerned with extracting revenue than with relieving distress.

Disruption of Long-Distance Trade

The long-distance trade of the Indian Ocean had been a major component of the Mughal economy since the sixteenth century. Indian textiles, particularly the fine muslins of Bengal, the calicoes of Gujarat, and the silks of the upper Doab, were exported in substantial quantities to Southeast Asia, the Middle East, and Europe. The Indian Ocean trade brought substantial revenues to the Mughal treasury through customs duties, and the trading cities of Surat, Cambay, Ahmadabad, and Hooghly were major centres of commercial activity.

The eighteenth century saw a progressive disruption of the Indian Ocean trade. The European trading companies, particularly the English and the Dutch East India Companies, captured an increasing share of the maritime trade, and the indigenous merchant communities of Gujarat, the Coromandel coast, and Bengal were progressively subordinated to European commercial capital. The British conquest of Bengal after 1757 effectively placed the wealth of the province at the disposal of the East India Company, and the subsequent British expansion across India progressively excluded the indigenous trading communities from the most lucrative sectors of the long-distance trade. The disruption of the overland trade with Central Asia, occasioned by the political fragmentation of the eighteenth century and the rise of the Sikh and Afghan powers on the northwestern frontier, contributed further to the decline of the indigenous trading networks.

The Rise of Regional Economic Centres

The political fragmentation of the eighteenth century was accompanied by a major redistribution of the Indian economy. The great Mughal centres of north India, including Delhi, Agra, and Lahore, lost population and economic importance as the political order that had sustained them disintegrated. The regional successor states, which now controlled substantial portions of the former imperial revenue, became the new centres of economic activity. Hyderabad, founded by Asaf Jah I in 1724, developed a substantial urban economy based on the diamond trade, the textile industry, and the agricultural surplus of the Deccan. Awadh, under the nawabs of Lucknow, developed a distinctive economy based on the cooperation of the imperial nobility, the Shia clerical establishment, and the Hindu landed elites. Bengal, the wealthiest of the imperial provinces, was progressively taken over by a combination of Mughal officials, local landed elites, and European commercial interests, with Murshid Quli Khan, the early eighteenth-century governor, conducting a major reorganisation of the revenue system that produced substantial surpluses for the state.

The eighteenth century also saw the rise of new commercial centres outside the Mughal heartland. The Maratha Confederacy developed substantial commercial networks based on the port cities of the Konkan coast, the textile production of western India, and the agricultural surplus of the Deccan. The Sikh state that emerged in the Punjab in the early nineteenth century controlled the overland trade with Central Asia and the textile industry of the upper Punjab. The British port cities of Calcutta, Bombay, and Madras became major centres of international trade, although most of the benefits accrued to the European trading companies rather than to the indigenous economy.

The Integration of India into the Global Economy

The most profound economic transformation of the late Mughal period was the integration of India into the global economy dominated by the European trading companies. The arrival of the Portuguese in the Indian Ocean in the late fifteenth century had begun a process of European commercial expansion that accelerated substantially in the seventeenth and eighteenth centuries. The English East India Company, founded in 1600, established its first factory at Surat in 1612 and gradually expanded its commercial operations across the Indian Ocean. The Dutch East India Company, the French East India Company, and the Danish East India Company established similar operations. By the mid-eighteenth century, the European companies controlled a substantial share of the maritime trade of the Indian Ocean, and the indigenous merchant communities were progressively subordinated to European commercial capital.

The grant of the diwani of Bengal, Bihar, and Orissa to the East India Company in 1765 was a turning point in the economic history of India. The diwani gave the Company the right to collect the land revenue of the three provinces, providing it with the fiscal resources to expand its territorial control and to fund the industrial development of Britain. The subsequent British expansion, the subsidiary alliance system, and the doctrine of lapse progressively reduced the Indian economy to a producer of raw materials and a market for British manufactured goods. The deindustrialisation of the Indian textile industry in the nineteenth century, which has been documented extensively by Indian economic historians, was consequences of the integration of India into the British-dominated global economy.

The Fiscal Crisis of the Late Empire

The fiscal crisis of the late Mughal empire was both a cause and a consequence of the broader political crisis. The state’s revenue declined steadily from the late seventeenth century as the empire lost control of its richest provinces and as the agrarian economy was disrupted by war, invasion, and famine. The state’s response was a series of fiscal expedients, including the farming of revenue to local intermediaries, the alienation of crown lands, the resort to credit financing through the sarrafa bankers, and the debasement of the currency. None of these measures addressed the fundamental problem, and the fiscal crisis deepened throughout the eighteenth century.

By the reign of Muhammad Shah (1719–1748), the fiscal crisis had become acute. The emperor’s attempts to reorganise the revenue system, including the reforms of Itimad-ud-Daulah and Qamar-ud-Din Khan, had only limited success. The invasion of Nadir Shah in 1739 and the subsequent Afghan invasions of the 1750s and 1760s further weakened the imperial fisc, and the British conquest of Bengal in 1757 deprived the empire of its richest province. By the late eighteenth century, the Mughal emperor presided over a kingdom shrunken to the doab between Delhi and Agra, supported by a pension paid by the British and unable to meet even the basic expenses of the imperial household.

Conclusion

The economic decline of the Mughal Empire was a complex, long-term process that involved the structural crisis of the mansabdari-jagirdari system, the fiscal crisis of the imperial state, the disruption of the agrarian economy, the decline of the indigenous trading networks, and the integration of India into the global economy dominated by the European trading companies. The economic history of the late Mughal period cannot be reduced to a single narrative of decline, but the cumulative effect of these various crises was to undermine the fiscal basis of the imperial state and to prepare the ground for the British conquest. The rise of the Marathas, the rise of the Sikh power, and the British East India Company’s expansion all had major economic dimensions that complemented their political and military significance, and the rebellion of 1857 can only be understood in the context of the long economic crisis of the late Mughal period. For the broader context, the Mughal decline overview, the Mughal administration overview, and the Mughal history overview offer comprehensive treatments of the empire’s later centuries.

Sources

• Irfan Habib, The Agrarian System of Mughal India (1963; rev. 1999).
• Muzaffar Alam, The Crisis of Empire in Mughal North India (1986), ch. 4.