The emerging contours of a borderless wold are becoming visible in the last decade of the 20th century. The domain of the state is being redefined in the economic life of nations, and in the relations between them. In this context, it is observed that a broad sweep of nearly 2,000 years of South Asian history reveals a fascinating correlation between periods of flourishing long distance international trade and large scale state formation processes over the Indian subcontinent. There appear to be historical long waves of state formation activity. The model presented in this essay situates the political economy of large scale state formation in south Asia within a geographical context. The narrative is taken up from the decline of empire in the ancient phase of Indian history. South Asian civilisation has essentially been nurtured in “nuclear core areas” of economic and cultural activity around the major riverine plains their delta regions. Land revenue appropriation by itself could not form a sufficient basis to support a State structure from the originating core on a sub-continental scale. This required an expanding frontier in the shape of cash revenue earned from flourishing long distance trade and/or plunder. The explanatory power of the model is revealed in an analysis of the political vicissitudes of attempts at large scale state formation in the three centuries prior to the advent of the Mughal Empire. The advent of this large scale state system coincided, not surprisingly, with the revival of trade. The crisis and breakdown of the Mughal State, C.1700 and after, occurred in a period of increasingly strong presence of the European East India Companies in the foreign trade sector of the South Asian Economy. Even the earliest of these trading companies, the Portugese East India Company, began operating as a “redistributive mechanism”, instead of as a purely trading concern alone creating models of mini-states. The European companies first captured the Intra-Asian trade. The subsequent struggle over trade revenue between the smaller successor states of the Mughals and the European East India Companies illustrates well, at the micro-level, the hypothesis under view. Large scale state formation through the agency of the British Colonial Empire in India is not unconnected with the presence of the East India Company, from the outset and primarily, in the foreign trade sector of the South Asian economy. By the second half of the 19th century, the foreign trade sector of India's economy was well integrated with the world economy. The sustenance for empire derived from India's commodity exports. By virtue of India's balance of trade surplus, in fact, the British Colonial Empire could be sustained, despite Britain's adverse balance of trade with the rest of the world. Pushing the logic of the model to the current scene, the paper points out that the crisis of the Union Government of India at present, is in fact that the State is unable to meet its developmental expenditure through the revenue generated by the administrative apparatus. The interest cost of the Indian state is high by any reckoning. In fact, revenue deficit is the primary cause of anxiety with regard to macro-economic stability. The political economy of large-scale state formation in India and its sustenance continues to depend on an “expanding frontier” as it were, of external revenue for the state, in the form of export earnings or external borrowings/investments. Historical researchers, as well as analysts of India's “growing crisis of governability” would do well to keep in view the model suggested here.
