From the beginning of their trading venture in India, the Europeans realized that they could succeed only with the help and collaboration of the leading Indian merchants. The merchants, on their part, saw in the Europeans a great new business opportunity for expansion, and worked with them. In Surat, the merchants were functioning with the security of the Mughal government to support them in case of any problems. But in Pulicat, and later in Chennai under the English and Pondicherry under the French, the merchants also saw in these early colonial enclaves a place of security from where they could carry on business safely, free from the continuing political turmoil in the Tamil region. The Indian merchants were not at a disadvantage in their dealings with the Europeans till about 1700. In Surat, the situation changed because of the threat posed by the Maratha incursions and the inability of the Mughal state to provide security. In Chennai the English had stabilized and they could put pressure on merchants to accept unviable terms in order to increase their exports of cloth to Europe. Gradually, the power relations between the English and the local merchants began to change. The great merchant princes who were the dominant players on the trading scene in the previous century virtually disappeared. The expansion of demand from Europe for Indian textiles also had an impact on the indigenous economy. Initially, this increased demand was beneficial to the local economy. The productive resources (labour, raw materials and capital) could respond positively. However, as the demand from Europe continued to grow, the pressure to increase production exponentially began to strain the productive resources. The frequent famines in the south and the shortage of food grains and raw materials, for instance, were additional burdens which the weaver had to bear. Thus, though the increased trade opportunities were beneficial in the short run, the long term effects were not necessarily positive.
Over these one hundred and fifty years, the English in India were gradually undergoing a metamorphosis from being traders to builders of a trading empire, eventually emerging as the virtual rulers of large parts of the country. II