Land Reclamation

By Ramesh Akkineni

Land Reclamation

from an article in DNA Money

But, all so-called good things come to an end. The prudent lot of investors started to realise that this cannot go on forever. They felt that prices could not keep going up indefinitely and somebody would lose in the end. Over time, as this belief spread, tulip prices crashed, never to rise again.

Dwijendra Tripathi in his The Oxford History of Indian Business mentions a stock market scam in Mumbai in the 1860s. The story is of the first land reclamation company in Mumbai, the Backbay Reclamation Company, was formed in 1864, promoted by Premchand Royachand. The company was formed on the logic that reclaiming land from the sea was the only way to tackle growing congestion in the city.

The shares of this company were subscribed at a premium of Rs 21,500 on a face value of Rs 5,000. City traders were flush with the money they had made through the unprecedented rise in the price of cotton. This money went into speculating with shares of Backbay and other companies that were floated after the success of Backbay. At its peak, the share price of Backbay was quoted at Rs 55,000 - a record that probably still stands. Investors saw this as an opportunity to get rich quick and bought these highly overvalued shares. Essentially, those who bought the stocks later, were helping pay off those who had got into them earlier. 

Cotton prices had been rising as Britain was sourcing cotton from India for its Lancashire mills due to the civil war in America. The civil war ended and the news reached Mumbai on May 1, 1865. Britain would go back to sourcing cotton from America. This created a panic in the market and investors rushed to sell off the shares of reclamation companies, only to find that there were no buyers. Different story, same ending.

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