From Swally and Hormuz to Sir Josiah Child’s Disastrous 1686–1690 Mughal War

Throughout the seventeenth century, the English East India Company (EIC) wrestled with a fundamental strategic dilemma of pre-modern war finance: how to protect long-distance Asian trade routes and fortified coastal enclaves without allowing military and naval overhead to consume its commercial capital. In its early decades, the Company used heavily armed merchantmen to break the Portuguese maritime monopoly off Surat at the Battle of Swally (1612), allied with Safavid Persia to capture Hormuz (1622) in exchange for a 50 percent share of Bandar Abbas customs, and established fortified coastal presidencies at Fort St. George in Madras (1639) and Bombay (transferred by King Charles II in 1668 for an annual quit-rent of £10 in gold). Yet when Governor Sir Josiah Child abandoned peaceful diplomacy in 1686 to wage an aggressive war of revenue conquest against Mughal Emperor Aurangzeb, the EIC suffered a humiliating military and financial rout—culminating in the 1689–1690 Siege of Bombay and a 150,000-rupee (£17,000) imperial indemnity. ^[1]

Deptford and Blackwall Shipyards, the 1612 Battle of Swally, and the 1622 Capture of Hormuz#

Because English voyages into the Indian Ocean immediately encountered hostile Portuguese carracks and Dutch squadrons, the East India Company could not rely on lightly armed European coastal vessels. Beginning in 1607–1614, the Company established its own massive industrial shipyards on the River Thames at Deptford and Blackwall, employing hundreds of shipwrights, blacksmiths, sailmakers, and rope-makers to construct purpose-built armed East Indiamen such as the 1,100-ton Trades Increase. Mounted with twenty-four to thirty-eight heavy iron and brass cannon, these dual-purpose vessels carried bullion outward and pepper and textiles homeward while functioning as private men-of-war. When maintenance overhead at Blackwall proved burdensome after the 1650s, the EIC shifted to a specialized long-term chartering system—leasing custom-built armed East Indiamen from a powerful syndicate of London managing owners (the “shipping interest”) for four to six voyages at guaranteed freight rates. ^[2]

This naval firepower paid immediate diplomatic and fiscal dividends on the western coast of Mughal India. For a century, Portugal’s Estado da Índia had enforced a protection racket across the Arabian Sea through its cartaz (naval pass) system, taxing Indian merchant vessels and barring rival Europeans from the premier Mughal port of Surat in Gujarat. On November 29–30, 1612, Captain Thomas Best’s squadron of four EIC ships—led by the Red Dragon and the Hosiander—routed four large Portuguese galleons and more than twenty frigate-oar craft in the shallow roadstead of Suvali (Swally) north of the Tapti River mouth, repeating the feat under Nicholas Downton in 1615. Impressed by English gunnery against the Portuguese fleet that had long harassed Mecca-bound Mughal pilgrim ships, Emperor Jahangir granted an imperial farman authorizing a permanent English factory at Surat and welcoming King James I’s ambassador, Sir Thomas Roe (1615–1618), who famously counseled the Company to seek profit in “quiet trade” at sea rather than ruinous land garrisons. ^[3]

Ten years after Swally, the EIC monetized its naval power in the Persian Gulf. Seeking to export English woolen broadcloth and import raw Iranian silk without paying Portuguese tolls, the Company forged a military alliance in 1621–1622 with Shah Abbas I of Safavid Persia. Although the EIC’s naval captains balked at fighting an offensive campaign not explicitly authorized by London, Persian governors threatened to confiscate the Company’s onshore silk stocks unless the English ships transported Persian troops and bombarded the strategic island fortress of Hormuz, held by Portugal since 1515. On April 22, 1622, after a ten-week Anglo-Persian siege that cost the life of English navigator William Baffin, the Portuguese garrison surrendered. Under the treaty with Shah Abbas, the EIC received half the rich movable plunder of Hormuz, complete exemption from Persian customs duties, and a perpetual covenant for 50 percent of all customs revenues collected at the mainland entrepôt of Bandar Abbas (Gombroon)—though both King James I and his Lord High Admiral, the Duke of Buckingham, promptly extorted £10,000 each from the Company in 1624 as their royal share of the Hormuz prize money. ^[4]

Fortified Enclaves and Fiscal Sovereignty: Fort St. George (1639) and Bombay (1668)#

While Surat remained under the direct jurisdiction of a Mughal governor and customs collector, the EIC gradually acquired autonomous coastal enclaves where it could levy its own municipal taxes, mint coinage, and shelter its weavers from regional wars. In August 1639, Company factor Francis Day negotiated a grant (cowle) from Damarla Venkatadri Nayaka, ruler under the declining Vijayanagara Empire, leasing a narrow three-mile coastal strip at Madraspatnam on the Coromandel Coast. Completed around St. George’s Day in April 1640, Fort St. George rapidly attracted tens of thousands of South Indian cotton weavers, dyers, and Chettiar merchants, generating rising customs, land-rent, and mint revenues that offset the garrison’s upkeep and elevated Madras to a Presidency in 1652. ^[5]

An even more consequential territorial transfer occurred on the western coast in 1668. Under the May 1661 marriage treaty between King Charles II of England and the Portuguese princess Catherine of Braganza, Portugal ceded the seven islands of Bom Bahia (Bombay)—alongside Tangier and £300,000 in sugar and cash—as part of the royal dowry. After taking physical possession of the malarial islands in 1665, however, Charles II discovered that maintaining a royal garrison at Bombay cost the Crown thousands of pounds more each year than the settlement yielded in rents. ^[6]

By a Royal Charter dated March 27, 1668, Charles II transferred the islands, harbor, and fortifications of Bombay to the East India Company in “free and common socage” (as of the Manor of East Greenwich) in exchange for a purely symbolic quit-rent of £10 in gold payable each year on September 30 at the Custom House in London—concurrently accepting a £50,000 loan at 6 percent interest from the Company. Under President Gerald Aungier (1669–1677), the EIC drained the tidal swamps, built Bombay Castle, established English courts of judicature, opened a silver and copper rupee mint, and offered religious toleration and tax incentives to Gujarati Bania, Parsi, Armenian, and Hindu merchants. Between 1668 and 1685, Bombay’s population quintupled from roughly 10,000 to more than 50,000 inhabitants, and in 1687 the Company officially transferred its Western Presidency headquarters from Mughal-ruled Surat to the fortified island of Bombay. ^[7]

Sir Josiah Child’s Fiscal Envy and the Anglo-Mughal War of 1686–1690#

Throughout the 1660s and 1670s, the EIC’s commercial expansion in Bengal—where Shah Shuja had granted a 1651 nishan exempting the Company from inland transit tolls (rahdari) and customs in return for a nominal annual tribute (peshkash) of just 3,000 rupees—drove a spectacular boom in raw silk, saltpeter, and fine cotton muslin exports. By the early 1680s, however, Emperor Aurangzeb’s costly Deccan campaigns against the Marathas and the sultanates of Bijapur and Golconda led Mughal treasury officials, including Bengal governor Shaista Khan, to cancel the 3,000-rupee exemption and demand the standard 3.5 percent zakat customs duty on English goods. ^[8]

In London, EIC Governor Sir Josiah Child viewed these customs disputes through the lens of Dutch colonial finance. After the Dutch VOC expelled the English from Bantam in Java in 1682, Child became convinced that the VOC’s true financial secret lay not in commercial markups alone, but in sovereign taxation—forcing Asian populations inside fortified Dutch territories to pay municipal rents, customs, and poll taxes that funded the company’s military machine. Rejecting Sir Thomas Roe’s maxim of unarmed trade, Child instructed his factors in Madras, Bombay, and Bengal to assume the posture of “a sovereign state in India” and construct a chain of self-financing fortified revenue enclaves.

In 1686, without consulting Parliament, Child persuaded King James II to approve an unprecedented military expedition—known to historians as the Anglo-Mughal War or “Child’s War” (1686–1690). The Company outfitted a fleet of nineteen warships and transports carrying nearly 1,000 regular European troops and two hundred brass cannon, financed by heavy short-term borrowing in London and a steep increase in shipping charges on private goods. Child’s strategic plan had two prongs: in the west, Sir John Child (General and Director-in-Chief at Bombay and Surat, no relation to Josiah) was ordered to withdraw English factors from Surat to Bombay and seize Mughal merchantmen and Red Sea pilgrim vessels as hostages; in the east, Bengal agent Job Charnock was instructed to abandon the Hooghly River factories and capture and fortify the strategic Mughal port of Chittagong on the Bay of Bengal.

The 1689–1690 Siege of Bombay and Aurangzeb’s 150,000-Rupee Indemnity#

Child’s War proved an unmitigated operational and fiscal catastrophe from its opening salvos. In Bengal, fighting broke out prematurely at Hooghly in October 1686 after a street brawl between English soldiers and Mughal troops; Charnock burned the local salthouses and retreated downriver to the malarial swamp of Sutanuti (future Calcutta) and Hijili Island, where tropical fever killed two-thirds of his European soldiers before Admiral William Heath’s naval reinforcement arrived in 1688 and sailed away from Chittagong without firing a shot upon seeing the strength of the Mughal coastal fortifications.

On the western coast, when Sir John Child presented a list of thirty-five grievances to Surat governor Mukhtar Khan in late 1688 and began seizing Mughal grain and merchant ships at sea, Emperor Aurangzeb responded with overwhelming force. Imperial troopers occupied the English factory at Surat, arrested factors Benjamin Harris and Samuel Annesley in irons, confiscated Company silver and goods across Gujarat, and halted trade at Masulipatnam and Vizagapatam. Worse still, on February 14, 1689, Aurangzeb’s fearsome naval ally—Siddi Yakut Khan, the Habshi admiral of Janjira—landed 20,000 soldiers on Bombay Island, capturing the out-forts at Mahim, Mazagon, and Sion and driving Sir John Child and his garrison behind the walls of Bombay Castle.

For more than a year (February 1689 to June 1690), Siddi Yakut Khan’s batteries pounded Bombay Castle while pestilence, desertion, and starvation reduced the English garrison from over 2,500 men to fewer than a few hundred fit defenders. Facing total annihilation of the Company’s Indian investments, Sir John Child dispatched two envoys, George Weldon and Abraham Navarro, to Emperor Aurangzeb’s military court at Zebabad (near Bijapur) to beg for imperial clemency—appearing before the Mughal throne with their hands bound across their chests in the traditional posture of supplicants seeking pardon for a crime. In February 1690 (shortly after Sir John Child died inside besieged Bombay), Aurangzeb issued an imperial farman granting pardon on humiliating fiscal terms: the East India Company had to restore all captured Mughal vessels and goods, expel “that dishonorable” Child from India, promise to conduct itself strictly as peaceful merchants, and pay an immediate war indemnity of 150,000 rupees (approximately £17,000 sterling) into the Mughal treasury before Siddi Yakut Khan evacuated Bombay in June 1690—a costly lesson in imperial overreach that bankrupted the Company’s reputation in Westminster and paved the way for the loss of its monopoly in 1698.

Theoretical & Balance-Sheet Transmission Mechanism#

In the Kindleberger–Minsky taxonomy of financial instability (Kindleberger, 1978; Minsky, 1986) and Irving Fisher’s (1933) debt-deflation framework, speculative asset booms become systemic crises when credit expansion shifts balance sheets from hedge finance (cash flows covering principal and interest) to speculative and Ponzi finance (relying on rising asset prices and short-term margin roll-overs).

Once monetary tightening or an exogenous shock halts price appreciation, forced margin liquidations trigger Fisherian debt-deflation: fire-sale asset discounts erode bank collateral values, contracting credit supply across the real economy.

Sources and Further Reading

1. K. N. Chaudhuri, “ The Trading World of Asia and the English East India Company, 1660–1760,” Cambridge University Press, 1978. Peer-Reviewed / Academic Research
2. T. Raychaudhuri, “ The Trading World of Asia and the English East India Company, 1660–1760 (” The Economic Journal, 1980),” The Economic Journal, 1980. Peer-Reviewed / Academic Research
3. Frank Spooner, “ The Trading World of Asia and the English East India Company, 1660–1760 (” The Economic History Review, 1979),” The Economic History Review, 1979. Peer-Reviewed / Academic Research
4. Philip J. Stern, “ The 1689 Siege of Bombay in Global Historical Perspective,” Brill, 2019. Peer-Reviewed / Academic Research
5. Barbara D. Metcalf and Thomas R. Metcalf, “ Mughal Twilight: The Emergence of Regional States and the East India Company,” Cambridge University Press, 2006. Peer-Reviewed / Academic Research
6. Anthony Webster, “ War, Politics and India: The Battle for the East India Company Trade Monopoly, 1793–1813,” Boydell & Brewer, 2009. Peer-Reviewed / Academic Research
7. Irving Fisher — "The Debt-Deflation Theory of Great Depressions," Econometrica 1, no. 4 (FRASER Federal Reserve Archive, 1933): 337–357 Central Bank / Monetary Authority
8. Charles P. Kindleberger & Robert Z. Aliber — Manias, Panics, and Crashes: A History of Financial Crises (Palgrave Macmillan) Peer-Reviewed / Academic Research

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