Colonial Impact On The Indian Economy Essay, Research Paper

India was a direct colony of the British and the impact of this colonial rule over the economy and society of India has been immense. It must be stated at the outset that direct colonial rule leaves a total impact on the colonized society because every aspect of social life is influenced by colonial policies of the colonizers. A direct colony (as was the case with India) is under the complete control of the colonizers and colonial policies and interests influence every aspect of social life of a colony. Another important fact about India is that the colonial rule lasted for a very long time and this longevity of colonial rule over India affected the vitals of the Indian society.

India in the pre-colonial period had a stable economy. Self-sufficient agriculture, flourishing trade and rich handicraft industries. Subsistence farmers, organized in small village communities carried on agricultural operations in India. Landlords were not landowners; they only had the right or privilege to collect taxes from the peasants (Rothermund, page 1). A village was more or less a self-sufficient economic unit and its business contacts with the outside world were limited to payment of land revenue (generally in kind) and the purchase of a few necessary things from the town nearby. The farmer raised only those crops, which he needed for his own use and shared the same with the village artisan who supplied him with simple manufactures that he needed for his domestic consumption. Means of communication were of a primitive type. Therefore, trade in agricultural produce, was somewhat limited. The farmer usually raised enough produce to feed himself and the non-agricultural members of the village community. If his crop yielded more than the consumption needs, due to favorable climatic conditions, he stored that surplus for use in the lean years. Storage of food grains was a common practice among the pre-colonial agriculturists and constituted, under these conditions, the only remedy against famines.

In spite of the fact that the Indian villages were largely self-sufficient units and the means of communication were primitive, India enjoyed extensive trade both within the country and with other countries of Asia and Europe. A balance of the imports and exports was maintained. The items imported into India were pearls, wool, dates, dried fruits and rosewater from the Persian gulf; coffee, gold, drugs and honey from Arabia; tea, sugar and silk from China; gold, musk and woolen cloth; metals like copper, iron and lead, and paper from Europe. The main items exported from India were cotton textiles. Besides cotton textiles, which were famous throughout the world, India also exported raw silk, indigo, opium, rice, wheat, sugar, pepper and other spices, precious stones and drugs. The lucrative and risky long-distance trade and maritime trade were well financed. Rich merchants as well as high officers and princes participated in these ventures. (Rothermund, page 5). The major features of Indian trade in pre-colonial times were (i) a favorable balance of trade and (ii) a foreign trade most suitable to the level of manufacturing in India. A favorable balance of trade meant an excess of exports over imports, i.e. India exported more than it needed to import. Since the economy was on the whole self-sufficient in handicrafts and agricultural products, India did not need foreign imports on a large scale and continued to enjoy a healthy trade. Secondly, India’s foreign trade suited its requirements very well. In other words, the commodity pattern, so important to any country’s foreign trade, was in India’s favor. India exported the items it specialized in and imported the ones it needed.

As discussed above India was a land of extensive manufactures. Indian artisans were famous for their skills the world over. In fact the reason for India’s favorable foreign trade was its excellence in indigenous production. India indulged in a large-scale manufacture of cotton and silk fabrics, sugar, jute, dyestuffs, mineral and metallic products like arms, metal wares and oil.

India, towards the end of the 18th century was undoubtedly one of the main centers of world trade and industry. This status of India was completely destroyed under colonial times. Its beginnings can be traced to the after-math of the industrial Revolution in England. The machine made cloth of England began to replace the indigenous manufactures. India’s artisans were forced out of production. The number of weavers also declined. It was this pressure from the British goods that led to the decline of the traditional India’s centers of economic activity listed above.

The British East India Company got a legal charter for trade from the Mughal ruler in 1600, and soon this trading company started conquering India. The conquests began in 1757 with the defeat of the Nawab of Bengal by Robert Clive. The East India Company ruled India for a century, i.e., from the decisive Battle of Plassey in 1757 to 1857 when Indians fought a war of independence. The British defeated the Indians in this war and in 1858 Queen Victoria assumed the responsibility of direct rule over India. The rule of East India Company ended and the British Parliament became directly responsible for the governance of India and this continued till 1947. The essence of British colonial policies in India was determined by the dynamics of society, which witnessed many changes in Britain. The modern British society progressed through stages like mercantile capitalism to industrial capitalism and from competitive industrial capitalism to monopoly industrial capitalism. (Rothermund, page 31). The interests of mercantile British capitalism lay in trade with India. The interests of industrial capitalism were, on the other hand, market oriented, in which the Indian colony was to provide raw maternal and buy manufactured goods from Britain. Thus social and economic changes in Britain directly influenced British colonial policies in India.

Two important aspects of British colonial rule over India are explained by two theories, the ‘drain theory’ and the theory of ‘de-industrialization’. The drain theory, as formulated by the Indian nationalists, referred to the process by which, a significant part of India’s national wealth was being exported to England for which India got no economic returns. In other words, India was made to pay an indirect tribute to the English nation. Needless to say, this drain of India’s wealth to England, in the form of salaries to British officers posted in India, home-charges and the profits made on the British capital invested in India, benefited England and diminished the sources for investment in India. Since after acquiring dominion over India, the East India Company and private traders could appropriate Indian goods or tribute or profits without really paying for them. Britain did not any longer have to send bullion to India to balance her accounts. Instead bullion was now sent out from India either to China or to Britain. (Bagchi, Page 89). Bagchi’s estimate is that ‘external drain’ from Bengal constituted about 3 to 4 per cent of the gross domestic material product. If expenditure on wars of the East India Company is added in this period, Bagchi maintains that “at least 5 to 6 per cent of resources of the ruled land were siphoned off from any possibility of investment.” (Page 91). An elementary principle of economic development is that fiscal surplus is generated for investment but if the fiscal surplus is siphoned out from a colony to the colonizers, the colony gets underdeveloped. This was the impact of external drain on the economy of India under British colonial rule starting with Bengal after the battle of Plassey in 1757. External drain, however, was only one element of British exploitation of India, linked, with other sources of exploitation like heavy taxation and an unfavorable trade. The British benefited immensely from the plunder and exploitation of India. The Company obtained Dewani or civil administration rights of Bengal, Bihar and Orissa in 1765 and this opened new opportunities for plunder by the Company. The land revenue because of Dewani rights was remitted by the Company to England. (Bagchi, Page 185) This monopoly plunder and exploitation by the Company continued till the end of eighteenth century when England moved from mercantile capitalism to industrial revolution and the emerging industrial capitalists in Britain started demanding the end of Company rule in India.

Besides the external drain theory, the Indian nationalists argued that British rule led to the de-industrialization of India. India was an exporter of cotton manufacture and this was how the Company started its trade but gradually India became an importer of cotton manufacture and thus Indian artisans, craftsmen and important trading centers collapsed and whatever manufacturing activity existed was destroyed under the impact of imports of cotton manufacture almost exclusively from Britain. “For more than seventy-five years up to 1913, India remained the major importer of cotton goods from Britain, often taking more than forty per cent of the British exports.” (Bagchi, Page 189) Thus the industrialization of England was accompanied by the decline and destruction of Indian cotton manufacturer. As a result, India witnessed, from the early 19th century onwards, a steady decline in population dependent on indigenous industries and a consequent over-burdening of agriculture. This proved injurious to both. The sufferings of artisans have to be kept in mind as a significant factor in the understanding of many movements of our period: both in the way in which de-industrialization stimulated patriotic sentiments among intellectuals alike in the Moderate, Extremist and Gandhian eras, as well as more directly, in occasional urban and rural explosions of various types. (Bagchi, Page 48).

The twin processes of the drain and the de-industrialization were carried out extensively through the various stages of colonial rule. The process itself started in 1757 when with the battle of Plassey, when the East India Company, representing the British mercantile class, took over the Indian control. During the same period a fundamental change was taking place in Britain by a series of inventions leading to the industrial Revolution: for example, the spinning-Jenny of Hargreaves in 1764, Watt’s steam engine in 1765, water frame of Arkwright in 1769, Crompton’s mule in 1779, and Cartweight’s power-loom in 1785. Before these inventions, the Bank of England was established in 1694 and plunder of India helped capital accumulation and inventions helped in generating the industrial Revolution. The transformation in England created new interests and East India Company became the target of attacks in England and finally its fate was sealed by the War of Indian independence in 1857. The effects of this whole destruction of the Indian manufacturing industries on the economy of the country can be imagined. In England the ruin of the old handloom weavers was accompanied by the growth of the new machine industry. But in India, the ruin of the millions of artisans and craftsmen was not accompanied by any alternative growth of new forms of industry.

The agrarian system as evolved by the British, had a built-in system of destruction of agriculture. The famines of the 1870s and late 1890s, epidemics and slow growth of population prove this. Agriculture could have developed if investments were made in public works either by the government or by the efforts of the peasants. Naturally, poor peasantry could not do it. The British did it in a very limited manner. The government took initiative in public works and the results were encouraging, as in the case of the canal system in Punjab. Since the government and the landlords showed very little interest in public works, agriculture remained backward. The impoverishment of the peasantry was a glaring fact during the British rule over India. The agrarian policies pursued by the British increased the number of landless laborers and the pressure of population on backward village economy. Thus the profitable plantation economy filled the pockets of the British. The magnitude of rural poverty was graphically described by the saying that the Indian is born in debt, he lives in debt, and he dies in debt. The vast majority of peasants live to debt to the moneylender. (Baig, page 297). The agrarian system and policies pursued by the British created stagnant agriculture, indebted peasantry, galloping landless laboring class, and deaths through malnutrition, famines, and epidemics. The basic policy of the British was to extract land revenue whether or not the peasantry could pay it. The distress sale of land to pay land revenue was not discouraged, as it was a direct consequence of British land revenue policies. “The land revenue under the preceding Indian regimes was fixed as a share of the crop, and varied according to the crop cultivated. The land revenue under the British, whether directly imposed on the farmers or assessed on the landlords, was a true tax on land.” (Bagchi, Page 43). Thus revenue collections went up, the prices of food grains declined, rural indebtedness increased, and the rural economy was depressed. The direct appropriation of the agricultural surplus was the sole goal of the British rule and its direct consequences was impoverishment of the peasantry and stagnation of the rural economy. After 1857 when the British Government directly became responsible for the governance of India, the foundation of Colonial State was firmly established. The British colonial state has been characterized as ‘benevolent despotism’ or a liberal laissez faire state, which performed the role of night watchman with minimal interference in Indian affairs. This is, infact, historical falsehood spread by western historians. The powerful colonial state was pro-landlord, pro-moneylender, pro-princess and pro-British economic interests in India. Behind a facade of laissez faire, government policies often actively promoted European enterprise (railways under the guarantee system, and the allotment of vast tracts of land to Assam tea planters at nominal prices, would be two obvious examples) while discriminating against Indians. The railway network and freight-rates encouraged traffic with ports as against that between inland centers. The organized money market was largely under white control……. Most significant of all perhaps was the fact that nineteenth century Indian economic growth was largely geared to export needs, and the British controlled the bulk of the external trade of the country through Exchange Banks, export-import firms and shipping concerns. (Bagchi, Page 225).

The main features of colonial state and its economic policies were geared towards ruthless exploitation of India. The mechanisms of this exploitation were clear. India was structurally integrated with the world capitalist economy. India was made an export oriented economy. India was to supply raw material to the British industry. The British in India worked under the protective umbrella of the colonial state which protected and safeguarded the interests of British investors. Indian capitalists were obstructed by discriminatory policies of the British colonial bureaucracy. This colonial state was racial and exploitative and India as a colony was sucked for British interests. The beginning of the twentieth century and specially two the World Wars saw a change in this trend and provided an opportunity for the development of the Indian capitalist class in the fields of textile, sugar, jute, some chemical factories, and steel plants. The World Wars had an impact on the British economy and the pre-war situation, in which India was profitable for export of British manufactures and a secure market for profitable investment, was changing. The economy and requirements of Second World War compelled the British to induce development of indigenous industries under the indigenous capitalists in India. The pressures of the two World Wars and the situations created by them helped the development of the Indian capitalist class and industries in the fields of sugar, jute, textile, iron, steel and chemicals.

When the British left India, they left a stagnant economy. The development of industries as mentioned above does not mean that India was an industrial nation on the eve of independence in 1947. An industrial nation can develop if proper infrastructure is developed along with the establishment of basic industries like heavy machine tools, steel and capital goods that support industrialization. The result of British economic policies was that India had industries without industrialization, because the colonial state was not interested in this aspect of economy. Further, Indian agriculture was stagnant. In terms of raw material for industry, the situation was pretty bad. The direct consequence of British rule over India was low per capita income, low agricultural output, low level of savings, underdeveloped infrastructure, and low level of human skills.

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