Exporting commodities can be a precarious source of riches. From the 20th century to today, oil has been a blessing and a curse to nations that rely on it to sustain their standards of living. In the 17th and 18th centuries, colonialism added an extra dimension to the commodities curse, shaping raw materials booms and busts from the West Indies to India. In the latter, indigo was particularly valuable and important to the historic economy. Its cultivation may have come from the plots of minor tenant farmers in the subcontinent’s interior, but financing the boom were firms often far away in India’s cities. These firms were driven to collapse when India’s indigo boom crashed and small farmers continued to experience its effects for decades thereafter.

Indigo and India

           In the days before synthetic dyes, natural sources of pigments were valuable commodities. Such resources, perhaps indigo especially, have gone on to shape the history of their producing countries. Natural indigo comes from indigofera tinctorial, a shrub-like plant found in warm climates in Asia. In the early-modern era, the plant was cultivated on plantations in the far-away Americas, especially in the Caribbean, yet was increasingly ignored in India. That changed though when cultivation in Bengal and Bihar in Northern India grew sharply from the late 18th century on. It was among the valuable commodities exported by the British East India Company to markets in Britain and elsewhere. The seemingly innocent dye went on to enrich and ruin many.

           In the early 19th century, demand for indigo was rising and the organization of its production in India was changing. Whereas the East India Company had been closely involved in the cultivation of indigo for decades prior, by the early 1820s, it was leaving the business in the hands of independent planters. This change followed a larger shift in the organization of Indian trade, with the control of the company over the economy increasingly weakened following the abolition of the East India Company’s monopoly over Indian trade in 1814.

           This liberalization only went so far though. In India, the Tinkathia System, a notorious law requiring tenant farmers to grow indigo on 15% of their land, was enforced by Indian landowners and British planters. Tenant farmers (raiyats) essentially subletting the land from the planters were forced to cultivate indigo regardless of the suitability of their land and the price their product would fetch. Indeed, these tenant farmers were required to sell their indigo production at low fixed rates to the planter to whom they were usually indebted having been advanced money in advance of harvests.

           Under this system, indigo production in India grew as did demand for indigo dye from the British textile industry. Besides its productive value, indigo also served as something of a portable store of value, used to remit money to Britain from India by trade even when prices were unfavorable. Prices were rising quickly though, growing from 1.5 rupees per pound in 1813 to over 3.5 rupees in 1824. By now, India’s market share had risen dramatically from thirty or forty years earlier. Indigo cultivation was steadily abandoned in the Americas, having been substituted for other cash crops. Britain had been seeking to wean itself off dyes imported from French and Spanish colonies there.


           At the center of the financial angle to this story were the agency houses. These ‘agency houses’ were a form of financial firm popping up in a handful of Indian cities, like Calcutta and Hyderabad, in the early 19th century. These companies financed international trade and marketed and shipped goods from India to international markets. Agency houses were particularly exposed to the indigo trade of which they were particularly bullish. Some even owned indigo dye factories directly. However, their exposure to the commodity was mostly financial in nature. The agency houses made loans at attractive yields, often 10%, to planters so that they may acquire or lease land from the subcontinents land-owning elite (zamindars). Often, planters also made higher interest loans to their tenant farmers.

           One such agency house was that of Palmer & Company, founded in Hyderabad by John Palmer. Along with Alexander & Company, the firm dominated the indigo trade. In 1829, for example, it alone financed and shipped 16% of Northern India’s production. Despite their size, the agency houses were not the only financiers behind the indigo boom underway in India. Many indigo planters relied on borrowings from Indian lenders as well; this was a commodity boom built on credit, whatever its source.


           The end for the indigo boom had something to do with credit too. In the mid-1820s, Britain experienced a financial crisis caused in part by soured investment in speculative sovereign bonds. The economic slowdown in Britain and weakening continental European demand for the commodity was combined with strong production growth in India. As a result, prices had begun to fall in 1826. By 1832, they had reached just 1.75 rupees per pound, not far from where they were before the indigo boom began.

           The indigo crash had severe effects on those who financed the industry and there were some agency house failures. Many had weak loan collection practices, but even if these had been stronger the result was inevitable. Some financiers were later bailed out with government loans lent at 6% interest but it did not save everyone. Firms like Palmer & Company had to write off many loans to indigo planters as uncollectable. This caused Palmer & Company to close in 1830, and the even larger agency house Alexander & Company failed two years later. The economic legacy was scarring too; the volume of British exports to India stagnated for the subsequent two decades.


           The indigo trade never did recover fully. Perhaps more problematic still, the Tinkathia System continued to remain in place long after the indigo bust. This helped spawn an ‘indigo revolt’ in Bengal in 1860. It was caused in part by the persistent loss to tenant farmers caused by requirements to cultivate indigo. These farmers had been indebted to their planters since the crash more than thirty years earlier and to be relieved of the indigo quota, farmers usually had to compensate their planter. Following the revolt, the Indigo Commission in 1860 exposed to a larger public the connection between the repression of tenant farmers and the indigo trade.

           Nonetheless, the end was near for natural indigo anyway; it would barely survive the century. First, synthetic indigo, made of coal tar, was invented in Germany in 1865 by the Nobel Prize winning chemist Adolf von Baeyer. Then, synthetic indigo became commercially successful in the 1890s, marketed globally by the chemical firm BASF. In India, indigo plantations shrank and slowly disappeared. Global natural indigo production fell from 19,000 tons in 1897 to just 1,000 tons in 1914 and India felt the contraction most severely.

           Still, the Tinkathia System somehow survived into the 20th century. In the 1910s, Mohandas Ghandi was drawn into the movement to have it abolished, one of his first projects in Indian self-assertion after his return from South Africa. In two years, the indigo quotas, a century old by that point, were abolished.


            Indigo played a small but intriguing role in India’s 19th century history. The indigo boom and bust was also a peculiar one, thanks largely to the uneven liberalization of India’s economy at the time, one both easing into a capitalist system of production but also a counterintuitively unfree one. As a result, unlike in mania-driven speculative booms, the indigo boom did not see mass participation by the common man, at least not willingly. Rather it was other classes, the planters and financiers, that brought about the excess and the associated events that helped shape the next century of the country’s history.

More from the Tontine Coffee-House

Read about the 1820s financial panic that helped kill India’s indigo boom. Also discover other financial bubbles in agricultural commodities, from Egyptian cotton to Dutch tulips.

Further Reading

1.      Asiaticus. “The Rise and Fall of the Indigo Industry in India.” The Economic Journal, vol. 22, no. 86, 1912, pp. 237–247.

2.      Bhattacharya, Subbhas. “Indigo Planters, Ram Mohan Roy and the 1833 Charter Act.” Social Scientist, vol. 4, no. 3, Oct. 1975, p. 56.

3.      Husain, Tehreem. “Agency House Crises in India: What Role Did Indigo Play?” The Long Run, Economic History Society, 14 Mar. 2017.

4.      Lentin, Sifra. “Indian Banking’s Chequered History.” Gateway House, Indian Council on Global Relations, 23 Nov. 2018.

5.      Nadri, Ghulam A. The Political Economy of Indigo in India, 1580-1930: a Global Perspective. Brill., 2016.

6.      Tuteja, K. L., and Prabhat Kumar Shukla. “An Analysis of the Bihar Peasant Movement.” Social Scientist, vol. 21, no. 3/4, 1993, p. 102.

7.      Webster, Anthony. The Richest East India Merchant the Life and Business of John Palmer of Calcutta, 1767-1836. Cambridge University Press, 2012.

Comments (1)

  1. Paul Ochman


    Interesting read Daniel, as always.

    Coincidentally I have a friend who just returned home to Bengal. He lives in Kolkata. And like your second citation, his last name is Bhattacharya. I think that may be a very common name in the region. Perhaps the Smith of the Bengal region?

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