I've missed reading John Keay's much recommended India: A History, but on a recent trip with Vinay to Penguin's new bookshop on MG's, picked up something called The Rediscovery of India by Lord Meghnad Desai - who is a long time econ prof at LSE, but has also edited Cambridge's An Economic History of India (which I wish I had). When at Oxford last year I made sure to buy 2 volumes of their History of the British Empire so I'll cross-refer it where I can. Also I thought of making notes as I go along (which I have never tried before). So here I go, hoping that I actually finish the book...
Chapter 1 - The Vasco Da Gama Moment
Overall state of India at this time
In 1500, the population of (composite) India was just 100 million (1/10th of current)..there was no need to reclaim land or clear forests. There was a luxury market for manufactured items due to royalty and nobility. These products attracted invaders (though elsewhere he mentions that India was actually a poor country going by per capita income and tales of an extremely rich India are myths).
South India was linked to South East Asia, Gulf and Bengal via maritime trade (Did they oppress S.E.Asian countries? Need to check). North India was economically and politically linked to Central Asia and the trade routes leading to China.
Spain and Portugal set out to find sea route to India for spices and textiles. A sea route would mean they could avoid the Central Asian route which was logistically inefficient and involved paying middlemen. First they found South America and over there destroyed urban civilizations, mining horrors etc (read up).
The idea of India as a country did not exist. Trade within India was also not cheap because of bad roads, taxes to be paid to many local chieftains, threat of robbery etc (wonder if it was different elsewhere. Also, I'd guess under such circumstances no entrepreneur would get into long distance trade?).
If you got an exemption from these local taxes, say under the rule of a bigger empire like the Moghuls, your profitability would be much higher. The British East India Company made great efforts to get that privilege. It's a cool story. He cites John Keay's The Honourable Company. Found another very interesting link to the same, which says their efforts began in mid 1600s and finallly succeeded in 1717. Slightly polemical link though.(Need to read up full details of these firman fights - the Company correspondence and also what local merchants must be feeling when a bunch of foreigners were given this privilege.).
Spain and Portual in the South
The Portuguese reached Cochin in 1498 and started buying pepper, cinnamon, indigo. (What were they paying? Silver from the New World?). They soon blocked native merchants from the sea route using their superior naval power and became a monopsony. And soon they stopped trading themselves and collected taxes for other merchants to use the sea route (Meh, government). The navies of Indian kings were too weak to resist this. He cites Om Prakash's book as very good for this era.
Spain & Portugal stopped being a force because their governments became weak in their own country. They focussed only on S.America and Africa. The Dutch got more into Indonesia than India - mainly spices.
Impact of all this trade
Ok, now he mentions that silver from the New World did indeed play a big role in being able to pay for spices and textiles. He cites Keynes (nice!) who called the period 1550-1650 as "the century of inflation". He gives tonnage of silver being shipped. Elsewhere in the book he says people have systematically studied how silver from Americas ended up in India.
All this money (bullion to be precise I guess) coming in stimulated the Indian economy. Textile and spice industries got a boost. By 1700, European producers were agitating for protective tariffs against Indian products and banning Indian textiles but these bans were circumvented in the usual sneaky ways. (Again, he cites and I need to read Om Prakash's book for all this).
So Indian money supply (the silver rupiyah) tripled between 1591 and 1639. By Bernanke! Silver bullion quickly got minted into coins. Gold went into hoard. By Gresham! (not really :P).
Cites an essay by Irfan Habib (who is one of India's foremost historians) regarding the inflation rate of 2% during that time. Found it. The part there about free coinage is cool (Had read elsewhere about the smart monetary aspects of Moghul mints until Aurangzeb messed with them). Page 364 there is pure gold!.
Early 18th Century
During this time England and France were constantly fighting each other (The Hundred Years War it is called. I know nothing of this). Some of this spilled over to their trading outposts in India, and in one of the skirmishes the French under Dupleix defeated the Nawab of Carnatic.
But overall the period of 1500-1750 was largely peaceful trade between India and Europe, and this is often forgotten by us due to the colonization which followed. India (not as a nation but a geographical entity) exported spices, textiles and even food grains (wow!). The collapse of Mughal empire, and the emergence of England over France (not to mention the Dutch) as a dominant force in the European power struggles set the stage for English rule throughout India.