The feudal order was based on more or less self-sufficient units of economy; which were working in different parts of the India. This is mentioned by the few coins, the influence of local weights and measures and the transfer by kings and chiefs of income in cash and kind from trade and industries to the temples.
In this period we witness the formations of new economic states or units. Each units of king, officials, big or small paramount or feudatory or beneficiary or grantee needed its own army, taxation system, administrative machinery and a good number of supporters.
The decline of trade began from 6th century A.D., and is strikingly demonstrated by the practical absence of gold coins in country for about 300 years. This, decline of trade led to the decay of towns. This period witnessed the ruin of many old commercial cities in North India.
Archaeological evidences clearly show that the Kushana layers belonging to the first century A.D. to third century A.D. are flourishing. The Gupta layers belonging to the fourth century A.D. to sixth century A.D. are in a state of decline and in many cases Kushana bricks are used in Gupta structures.
Excavations show that several towns in Haryana and Eastern Punjab, Purana Qila, (Delhi), Mathura, Hastinapur (Meerut District), Sravasti (Uttar Pradesh), Kausambi (near Allahabad), Rajghat (Varanasi), Chirand (Saran district), Vaisali and Pataliputra began to decline in the Gupta period and mostly disappeared in Post-Gupta times.
The Chinese pilgrim Huein- Tsang visited several towns considered sacred on account of their association with the Buddha but found them almost deserted or dilapidated.
The same position obtained in Maharashtra, Karnataka and Andhra. It is important that “nigama” which earlier meant a town came to mean a village in early medieval times.
If we consider all these factors it would appear that marketisation had reached a low ebb and local needs had to be satisfied on a local scale such as in the late fifth century a group of silk weavers from the Western coast migrated to Mandsor in Malwa or Malava, gave up silk weaving and adopted other profession of their choice.
Therefore, there developed the “Jajmani” system in this period. On account of the decay of trade and towns, artisans did not have much scope for the sale of their products. They had to move to the villages where they catered to the needs of the peasants or the inhabitants who paid them at harvest time in kind.
The “Jajmani” system was reinforced by the charters which insisted on peasants and artisans sticking to their villages. Villagers had to meet their needs in respect of oil, salt, spices, cloth etc. all by themselves.
Apparently some villages supplied grain, other cloth and still other labour for the repair of building; or else every village furnished part of these articles.