Economy of India under the British Raj

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The role and scale of British imperial policy during the

William Digby estimated that from 1870 to 1900, £900 million was transferred from India.^[3] In the 17th century, India was a relatively urbanized and commercialized nation with a large export trade, devoted largely to cotton textiles, but also silk, spices, and rice. India was the world's main producer of cotton textiles and had substantial export trade to Britain as well as many other European countries, via the East India Company. According to some commentators, after the British victory over the Mughal Empire (Battle of Buxar), India was deindustrialized by the East India Company, and then the British.^[1]

In contrast, historian Niall Ferguson argues that India benefited from the British investment of £270 million in Indian infrastructure, irrigation, and industry by the 1880s (representing nearly one-fifth of all British investment overseas). That amount reached £400 million by 1914. He also writes that the British increased the area of irrigated land eight-fold, to 25% of all land.^[4] The village economy's share of total after-tax income rose under British rule from 45% to 54%. Ferguson argues that since the sector represented three quarters of the entire population, their rising share reduced income inequality in India.^[5]

Impact on trade

The British

The damage to the textile industry went beyond just a decrease in production and export. As industrial production was severely disrupted, Indian workers were forced into agriculture at levels unsustainable by the land. Rural wages were then driven down by the newly crowded market of agricultural workers. Additionally, these workers used cloth making as a backup source of income if weather affected their crops. This was no longer a viable option for them. Ultimately, poverty in rural India was catalyzed by the policies deployed by the British.[6]

Taxation

Taxation by the British, up to 50% of income in parts of India, was so burdensome on the population that they were forced to flee their lands. This form of revenue generation was a departure from the practices deployed by Indian rulers in the past, who primarily raised funds through global and regional trade networks rather than through taxing farmers. Under the zamindari revenue system deployed by the British, farmers were no longer taxed a percentage of their crops produced. Rather, they were taxed a percentage of the land rent payments, regardless of the success or failure of the crops. According to estimates by the British, agricultural taxes were two to three times higher than before British rule, and the highest in the world.^[6]

However, P. J. Marshall argues that the British regime did not make any sharp breaks with the traditional economy, and that control was largely left in the hands of regional rulers. The economy was sustained by general conditions of prosperity through the latter part of the 18th century, excepting the frequent famines with high fatality rates. Marshall notes the British raised revenue through local tax administrators and kept the old Mughal rates of taxation. Marshall wrote that the British managed this primarily indigenous-controlled economy through cooperation with Indian elites.^[10]

Impact to GDP

From 1850 to 1947, India's

From the 1st century CE to the start of British colonization in India in the 17th century, India's GDP varied between 25% and 35% of the world's total GDP,^[13] more than all of Europe combined.^[6] It dropped to 2% by the time Britain departed India in 1947.^[14] At the same time, the United Kingdom's share of the world economy rose from 2.9% in 1700 to 9% in 1870 alone.^[8] Politician and historian Shashi Tharoor claims "The reason is simple: India was governed for the benefit of Britain. Britain's rise for 200 years was financed by its depredation of India."^[6] It should be noted, however, that Britain had the world's most industrialized economy and had many sources of income outside of India.

Under British rule, India's share of the world economy declined from 23% at the beginning of the 18th century down to just over 3% when India gained independence. In 1700, that figure had been 27%.

According to British economist

A number of modern economic historians have blamed the colonial rule for the state of India's economy, with investment in Indian industries limited since it was a colony.^[21] Under British rule, India experienced deindustrialization.^[7][8][22] The yarn output of the handloom industry declined from 419 million pounds in 1850 to 240 million pounds in 1900.^[14] Due to the colonial policies of the British, a significant transfer of capital from India to England occurred, leading to a massive drain of revenue rather than a systematic effort at modernisation of the domestic economy.^[23]

Absence of industrialisation

The views of historians and economists

In the 17th century, India was a relatively urbanised and commercialised nation with a buoyant export trade devoted largely to cotton textiles, but also included silk, spices, and rice. India was the world's main producer of cotton textiles and had a substantial export trade to Britain, as well as many other European countries via the East India Company (EIC).

India's share of global industrial output also declined from 25% in 1750 down to 2% in 1900. At the same time, the United Kingdom's share of the world economy rose from 2.9% in 1700 up to 9% in 1870, and Britain replaced India as the world's largest textile manufacturer in the 19th century.

After the British victory over the Mughal Empire (Battle of Buxar, 1764), India was deindustrialized by the EIC, British and colonial policies.^[14]

As the British cotton industry underwent a technological revolution during the late 18th to early 19th centuries, the Indian industry stagnated and was deindustrialized.^[7]

As late as 1772, Henry Pattullo, writing about the economic resources of Bengal, commented that their textiles were of such unrivaled quality that demand for them could never wane.^[24] However, by the early 19th century, textile exports began to decline;^[25] in 1840, the chairman of the East India and China Association told the English parliament: "This company has succeeded in converting India from a manufacturing country into a country exporting raw produce".^[26]

An oft repeated legend is that the EIC cut off the thumbs of weavers in Bengal to destroy the indigenous weaving industry in favour of British textile imports. However, this is generally considered to be a myth originating from William Bolts' 1772 account, in which he alleges that a number of silk spinners had cut off their own thumbs in protest of poor working conditions.^[27][28]

Economic historian Prasannan Parthasarathi pointed to earnings data that show

British control of trade and exports of cheap Manchester cotton are cited as significant factors for why Britain industrialized first before France, Germany, India and China,[32] though Indian textiles had maintained a competitive price advantage over British textiles until the 19th century.^[8] Several historians point to the colonization of India as a major factor in both India's deindustrialization and Britain's Industrial Revolution.^[33][34][35]

Indian Ordnance Factories

The history and development of the

In 1787, a gunpowder factory was established at Ichapore. Production began in 1791, and the site was later used as a rifle factory beginning in 1904. In 1801, Gun Carriage Agency (now known as Gun & Shell Factory), was established at Cossipore, Calcutta, and production began on 18 March 1802. This is the oldest ordnance factory in India still in existence. There were eighteen ordnance factories before India became independent in 1947.^[36]

Agriculture and industry

Between 1860 and 1914, agriculture grew by expanding the land frontier which became more difficult after 1914.^[37]

The entrepreneur Jamsetji Tata began his industrial career in 1877 with the Central India Spinning, Weaving, and Manufacturing Company in Bombay. While other Indian mills produced cheap coarse yarn (and later cloth) using local short-staple cotton and cheap machinery imported from Britain, Tata did much better by importing expensive longer-stapled cotton from Egypt and buying more complex ring-spindle machinery from the United States to spin finer yarn that could compete with imports from Britain.^[38] The effect on industry was a combination of two distinct processes: a robust growth of modern factories and a slow growth in artisanal industry, which achieved higher growth by changing from traditional household-based production to wage-based production.^[39]

In the 1890s, Tata launched plans to expand into heavy industry using Indian funding after being denied permission by the British since 1883.^[6] The Raj did not provide capital, but it was aware of Britain's declining position against the U.S. and Germany in the steel industry, and it wanted steel mills in India so it promised to purchase any surplus steel Tata could not sell.^[40] However, the British controlled government and railways, the largest consumers of steel in the country, mandated the use of steel with a BSSS (British Standard Specification Steel) rating, while the rest of the world used a NBSSS (Non-British Standard Specification Steel) rating. This obstructed Indian steelmakers' ability to produce cheaper NBSSS rated steel, making Indian steel uncompetitive in the global market. Britain also placed restrictions on steel imports, making Indian produced BSSS rated steel difficult to export for profits.^[6] The Tata Iron and Steel Company (TISCO), opened its plant at Jamshedpur in Bihar in 1908. It became the leading iron and steel producer in India, with 120,000 employees in 1945.^[41] According to The Oxford Dictionary of National Biography, TISCO "became a symbol of Indian technical skill, managerial competence, and entrepreneurial flair".^[38]

Irrigation

The British Raj invested in infrastructure including canals and irrigation systems.

British investors built a modern railway system in the late 19th century, which became the fourth largest in the world at the time.^[44] The government was supportive of the railways, realizing their value for military use and economic growth, and they were designed to improve defense and foreign trade.^[12] While private British companies invested in the railways, they invested very little outside of this project. From 1890, the year main stage construction was completed, to 1914, the proportion of overseas British capital invested in India declined from 19% to 10%.^[12] At first, the railways were privately owned and operated by British administrators, engineers, and craftsmen, and the only unskilled workers were Indians.^[45]

A plan for a rail system in India was first put forward in 1832. The first train in India ran from

During World War I, railways were used to transport troops and grain to the ports of Bombay and Karachi en route to Britain, Mesopotamia, and East Africa.^{[citation needed]} With shipments of equipment and parts from Britain curtailed, maintenance became much more difficult. Critical workers entered the army, workshops were converted to make munitions, and the locomotives, rolling stock, and track of some entire lines were shipped to the Middle East. The railways could barely keep up with the increased demand.^[51] By the end of the war, the railways had deteriorated badly.^[52][50]

Headrick argues that both the Raj lines and the private companies hired only European supervisors, civil engineers, and even operating personnel such as locomotive engineers. The government's Stores Policy required that bids on railway contracts be made to the India Office in London, shutting out most Indian firms.^{[citation needed]} The railway companies purchased most of their hardware and parts in Britain. There were railway maintenance workshops in India, but they were rarely allowed to manufacture or repair locomotives.^[53]

Christensen looks at colonial purpose, local needs, capital, service, and private-versus-public interests. He concludes that making the railways a creature of the state hindered success because railway expenses had to go through the same time-consuming and political budgeting process as did all other state expenses. Railway costs could therefore not be tailored to the timely needs of the railways or their passengers.^[54]

Great Depression

The worldwide Great Depression of 1929 had little direct impact on India, with only slight impact on the modern secondary sector. The government did little to alleviate distress, and was focused mostly on shipping gold to Britain.^[55] The worst consequences involved deflation, which increased the burden of debt on villagers, while lowering the cost of living.^[56] In terms of volume of total economic output, there was no decline between 1929 and 1934. Falling prices for jute and wheat hurt larger growers. The hardest hit sector was jute, based in Bengal, which was an important element in overseas trade. It had prospered in the 1920s, but was hard hit in the 1930s.^[57] In terms of employment, there was some decline, while agriculture and small-scale industry exhibited gains.^[58] The most successful new industry was sugar, which experienced growth in the 1930s.^[59][60]

Aftermath

The newly independent, but weak Union government's treasury reported annual revenue of £334 million in 1950. In contrast,

In 1947, the year India gained Independence over the British Raj, 90% of India's population was rural and 55% lived below the international poverty line.[12]

See also

• GDP of India (1-1947 CE)
• Exploitation colonialism
• Economy of India under Company rule
• Economic history of India
• Economy of India during British era (1793–1947)

Notes