Regional ecology of South India in the Sangam age was divided into five economic types (tinai). These types are: the mountains, forests and pastures, dry, barren, the valleys of the great rivers and the coast. These different eco-types were not only characterized by the particular plants and animals found there but also by different modes of economic activity and social structure. Sangam literature reflects the transition from tribal society to settled agriculture. Inter-regional trade along with northern immigrants further led to the development of a high degree of urbanization.
It has been reported that in the late 4th century B.C. the wealth of the Pandya rulers of the South was derived from the trade of pearls. The Arthashastra lists shells, diamonds and other precious stones, pearls and articles made of gold as South Indian products. Initially, this kind of trade may have been of marginal importance only but in due course it contributed to economic growth.
An important aspect of early South Indian history was the flourishing trade with Rome. The most important port of the Malabar Coast was Muziris (Cranganore near Cochin) in the kingdom of Cerobothra (Cheraputra), which abounded in ships sent there with cargos from Arabia and Greece. The very ports served as entry ports for silk from China, oil from the Gangetic plains and precious stones from South East Asia. Arikamedu two miles south of modern Pondicherry highlights the strong linkages of south India economy with international trade.
In the area around Coimbatore through which the trade route from the Malabar Coast passed eleven rich hoards of gold and silver Roman coins of the 1st Century A.D. were found by explorers. y the early medieval period a series of invasions challenged the prosperity of North India while South India remained free for another 3-4 centuries from the depredations the North had fallen victim to. This was the time for the consolidation as well as the emergence of the economic institutions and the heritage of the South. By now developments such as agrarian expansion and integrative institutions like the bmhmadeya and the temples (as the depositories of resources and as nucle of urban activity), urban institutions like the nagrams (market centre) started developing under the Imperial Cholas. Institutionalized commercial practices, monetization with money lending on interest, designated market areas (angadi, perangadi in nagram and mahanagaram),maritime trade after the 10th century A.D. merchant corporations, wide ranging guild activities (Ayyavole, being the most prominent one) links are some important features from 7th-13th centuries in the South Indian economy.
Certainly, the emergence of regional kingdoms after the decline of the Cholas exposed South India to the northern Muslim invaders. But by this time the maritime trade nexus established by the great Cholas had already established the economic path. Moreover, the reluctance of the northern invaders to establish direct political over South India always gave a scope for economic autonomy as well. From 14th century A.D. onwards in the Vijayanagar and post Vijayanagar period the trading nexus became even stronger. But now economic growth had been subject to the constraints imposed by effective lordly cohesion. This job was done by the nadu (the medieval local assemblies of the South Indian lords). If we observe the agrarian structure, the basic unit of production was the peasant family settled in villages clustering around the fertile tract in the deltas and enjoying customary rights. Above the peasants were the nattars, irrigation and mobilization of labour was in the hands of the nadu. Kinship ties further strengthened the mobilization of resources.
The Vijayanagar era is marked by an expansion of commercial and artisanal-artistic activities, seasonal big markets (pettai and sandai) and attempts to enhance the economic influence and social position of craftsmen such as kaikkolas and kamnialas, balijas and berichettis in southern Coromandel. Segmentation within Asian trade was taking place in which southern Coromandel was one of the intermediate points. The advent of European companies was a major exogenous factor (in particular the Portuguese) in the Coromandel and Gujarat which effected the pattern of shipping and trading in Mellaca (south east Asia) a major trading emporium in which the Tamil merchants called the kalings had substantial settlements with position of power and authority and acted as taragaror brokers. Moorish ships and Coromandel merchant ships vied with the Europeans in carrying commodities from diverse parts of Asia and Europe.
As far as the agrarian structure under Vijaya-nagar is concerned the nayankara system by which the king assigned his taxations to the nayakas in the particular areas was the kingpin of the system. (T.V. Mahalingam and N. Karashima deducted a heavy increase in taxation of the land). Construction of immense irrigation reservoirs shows the Vijayanagar emperors' interest in extending agriculture. Peasants were pressed to shift to money payment, a natural tendency during a period of extending market relations. The expansion of the agrarian frontier was part of this process. The state made grants of uncultivated land to temples which in turn leased this land to nayakas or sometimes even to nattars. The second element in increasing the state revenue was the promotion of artisanal and commodity production in forms of granting concessional rates of taxation.
By the late 17th century emergence of merchant capitalist and structurally fragmented markets played a major role in the construction of economic heritage. Careers of merchants like Kasi Virrana, the Venkatadri brothers, Chikka Seerapa, Kelavi Chetti, Sunkurama Chetti are the examples of tremendous political and social upsurge of merchant capitalists. These careers were basically based on the textile trade which was marked by structural fragmentation i.e. two different markets-one primary producers negotiating with the merchants and second European and local merchants as negotiating parties.
In fact, the commercial superiority and nexus with the local merchants only provided the means for European intervention into local politics. Ultimately, the establishment of the English rule through the commercial nexus filtered down to the south Indian rural society in form of land settlements. While the Northern sirkars areas were being governed by a settlement, the rest of the Presidency came under ryotwari. But this system only identified the influential ones as ryots (peasants) for the purpose of the revenue settlements. New settlements eroded the customary rights of the actual cultivators leading to landlessness, long distances and lesser density of population keeping the commercial influence of the colonial rule at minimal. The commercialization of agriculture changed the nature of agricultural production, brought in new forces of production, money economy and landless labour. The money earned by the Chettiars in the early modern era now used for investment in manufacturing, in 1848, Great Indian Peninsular Company was given the task of construction of railways in south India.
To conclude, in a given geographical condition south Indian economy could easily afford to have international linkages. Since the beginning, exploitation of resources through hierarchical networks and kinship ties easily gave a chance to the superiors to ritualize the economy though the penetration of colonial economy hampered the indigenous nexus. Even then the urge to grow ensured that even in post-colonial times south India will remain the hub of Indian economy through information technology and Pharmaceuticals.