ECONOMIC IMPACT OF COLONIALISM

The major difference between the British colonists in India and earlier invaders was that
none of the earlier invaders made any structural changes in Indian economy or drained away
India’s wealth as tribute. British rule in India caused a transformation of India’s economy into
a colonial economy, i.e., the structure and operation of Indian economy were determined by
the interests of the British economy.
From 1757 the British had used their control over India to promote their own interests. But it
would be wrong to think that the basic character of their rule remained the same throughout.
It passed through several stages in its long history of nearly 200 years. The nature of British
rule and colonialism, as also its policies and impact, changed with the changing pattern of
Britain's own social, eco- nomic and political development. Marxist Historians, especially
Rajni Palme Dutt, identified three overlapping stages in the history of imperialist
rule in India. He points out that each stage developed out of the conditions of the previous
stage and the different modes of colonial exploitation overlapped—old forms of
colonial exploitation never entirely ceased but got integrated into new patterns of
exploitation. These stages are, however,marked by distinct dominant features i.e., qualitative
changes from one stage to another.
First Stage
The Period of Merchant Capital (Mercantilism), often described as the Period of Monopoly
Trade and Direct Appropriation (or the Period of East India Company’s Domination,
1757–1813)
In this phase there was large-scale drain of wealth from India which constituted 2–3 per cent
of Britain’s national income at the time. It was this wealth that played an important
role in financing Britain’s industrial revolution. In this stage, there was no large-scale import
of British manufactures into India, rather, the reverse occurred—there was an increase in
export of Indian textiles, etc. The weavers were, however, ruined at this stage by the
Company’s monopoly and exploitation. They were forced to produce for the Company under
uneconomic compulsions.

Second Stage
Owing to its mode of exploitation being trade, this stage is also termed as Colonialism of
Free Trade. It started with the Charter Act of 1813 and continued till 1860s. In this stage,
India was to serve as a market for the ever-increasing output of British-manufactured goods
especially textiles. Moreover, India could buy more British goods only if it earned foreign
exchange by Enhancing its exports. The export of raw materials was increased sharply to
meet the dividends of the Company and profits of British merchants. Besides, there was a
need of money to pay for pensions of British officials who would go to Britain after
retirement.
Third Stage
The third stage is often described as the Era of Foreign Investments and International
Competition for Colonies. It began around the 1860s in India owing to several changes
in the world economy. During this stage, the notion of training the Indian people for
self-government vanished (revived only after 1918 because of the pressure exerted by the
Indian national movement). Now, the aim of British rule was declared as permanent
‘trusteeship’ over the Indians. The Indians were declared to be permanently immature—a
‘child’ people—needing British control and trusteeship. Geography, climate, race, history,
religion, culture, and social organisation were all cited as factors in making the Indians unfit
for self-government or democracy. The British thus tried to justify their rule over Indians for
centuries to come—all in the name of civilising a barbaric people—“the White Man’s burden”.

Above all, Indian economy and social development were completely subordinated to British
economy and social development. Indian economy was integrated into the world capitalist
economy in a subordinate position and with a peculiar international division of labour. During
the very years after 1760 when Britain was devel- oping into the leading developed, capitalist
country of the world, India was being underdeveloped into becoming the 'leading' backward,
colonial country of the world. In fact, the two processes were interdependent in terms of
cause and effect. The entire structure of economic relations between India and Britain
involving trade, finance and technology continuously developed India's colonial dependence
and underdevelopment.
According to historians, at the beginning of the 18th century, India had some 23 per
cent of the world economy. This share came down to some 3 per cent when India got
independence. A detailed survey of the economic impact of British
rule follows.

Deindustrialisation—Ruin of Artisans and Handicraftsmen

● One-Way Free Trade Cheap and machine-made imports flooded the Indian market
after the Charter Act of 1813 allowing one-way free trade for the British citizens.
● On the other hand, Indian products found it more and more difficult to penetrate the
European markets. Tariffs of nearly 80 per cent were imposed on Indian textiles so
that Indian cloth could no longer be cheap. Cheap British-made cloth flooded the
Indian market.
● The newly introduced rail network helped the European products to reach the
remotest corners of the country. From being a net exporter, India became a net
importer.

No Steps towards Modern Industrialisation

● The loss of traditional livelihood was not accompanied by a process of

industrialisation in India, as had happened in other rapidly industrialising countries of
the time. This resulted in deindustrialisation of India at a time when Europe was
witnessing a reintensified Industrial Revolution.
● This happened at a time when Indian artisans and handicrafts men were already
feeling the crunch due to loss of patronage by princes and the nobility, who were now
under the influence of new western tastes and values.

Ruralisation
● Many artisans, faced with diminishing returns and repressive policies (in Bengal,
during the Company’s rule, artisans were paid low wages and forced to sell their
products at low prices), abandoned their professions, moved to villages, and took to
agriculture. This resulted in increased pressure on land.
● An overburdened agriculture sector was a major cause of poverty during British rule
and this upset the village economic set-up.
Impoverishment of Peasantry
● The government, only interested in maximisation of rents and in securing its share of
revenue, had enforced the Permanent Settlement system in large parts.
Transferability of land was one feature of the new settlement which caused great
insecurity to the tenants who lost all their traditional rights in land.
● There was little spending by the government on improvement of land productivity.
● The zamindars, with increased powers, resorted to summary evictions, demanded
illegal dues and ‘begar’ to maximise their share in the produce and, as such, had no
incentive to invest for the improvement of agriculture.
● The overburdened peasants had to approach the moneylenders to be able to pay
their dues to the zamindars. The moneylender, who was often also the village
grain-merchant, forced the farmer to sell the produce at low prices to clear his dues.
The powerful moneylender was also able to manipulate the judiciary and law in his
favour.
● The peasant turned out to be the ultimate sufferer under the triple burden of the
government, zamindar, and moneylender. His hardship increased at the time of
famine and scarcity.

Emergence of Intermediaries, Absentee Landlordism, Ruin of Old Zamindars

● By 1815, half of the total land in Bengal had passed into new hands—merchants,
moneylenders, and other moneyed classes living in towns.
● The new zamindars, with increased powers but with little or no avenues for new
investments, resorted to land grabbing and sub-infeudation.
● Increase in number of intermediaries to be paid gave rise to absentee landlordism
and increased the burden on the peasant. Since the demand for land was high,
prices went up and so did the liabilities of the peasant.
● With no traditional or benevolent ties with the tenants, the zamindar had no incentive
to invest in the improvement of agriculture. The interests of the zamindars lay only in
the perpetuation of British rule and in opposing the national movement.

Stagnation and Deterioration of Agriculture

The cultivator had neither the means nor any incentive to invest in agriculture. The zamindar
had no roots in the villages, while the government spent little on agricultural, technical, or
mass education. All this, together with fragmentation of land due to sub-infeudation, made it
difficult to introduce modern technology, which caused a perpetually low level of productivity.

Famine and Poverty

Regular recurrence of famines became a common feature of daily existence in India. These
famines were not just because of foodgrain scarcity, but were a direct result of poverty
unleashed by colonial forces in India. Between 1850 and 1900, about 2.8 crore people died
in famines.

Commercialisation of Indian Agriculture

● So far, agriculture had been a way of life rather than a business enterprise. Now
agriculture began to be influenced by commercial considerations. Certain specialised
 crops began to be grown not for consumption in the village but for sale in the national
and even international markets.
● Commercial crops like cotton, jute, groundnut, oilseeds, sugarcane, tobacco, etc.,
were more remunerative than foodgrains. Perhaps, the commercialisation trend
reached the highest level of development in the plantation sector, i.e., in tea, coffee,
rubber, indigo, etc., which was mostly owned by Europeans and the produce was for
sale in a wider market.
● The new market trend of commercialisation and specialisation was encouraged by
many factors—spread of money economy, replacement of custom and tradition by
competition and contract, emergence of a unified national market, growth of internal
trade, improvement in communications through rail and roads, and boost to
international trade given by entry of British finance capital, etc.
● For the Indian peasant, commercialisation seemed a forced process. There was
hardly any surplus for him to invest in commercial crops, given the subsistence level
at which he lived, while commercialisation linked Indian agriculture with international
market trends and their fluctuations.

Destruction of Industry and Late Development of Modern Industry

● The destruction of textile competition of India is a glaring example of the

de-industrialisation of India.
● The British stopped paying for Indian textiles in pounds, choosing instead to pay from
the revenue gained from Bengal and at very low rates, thus impoverishing the
peasants further.
● A thriving ship-building industry was crushed. Surat and Malabar on the western
coast and Bengal and Masulipatnam on the eastern coast were known for their
ship-building industries. The British ships contracted by the Company were given a
monopoly over trade routes, while even the Indian merchant ships plying along the
coast were made to face heavy duties.
● The British did not allow the Indian steel industry to grow. Industries like the Tatas,
which began to produce steel after a lot of trouble getting the required permissions,
were restricted by being forced to produce a higher standard of steel for British use.
The firms were not able to produce the lower standard of steel at the same time, so
they were, left out of the larger market that demanded the lower quality of steel. As
restrictions were placed by Britain on Indian steel imports, this steel could only be
used in India. It was only in the second half of the 19th century that modern
machine-based industries started coming up in India.
● The first cotton textile mill was set up in 1853 in Bombay by Cowasjee Nanabhoy and
the first jute mill came up in 1855 in Rishra (Bengal). But most of the modern
industries were foreign-owned and controlled by British managing agencies.
● There was a rush of foreign capital in India at this time due to prospects of high
profits, availability of cheap labour, cheap and readily available raw material, ready
market in India and the neighbours, diminishing avenues for investments at home,
willingness of the administration to provide all help, and ready markets abroad for
some Indian exports such as tea, jute, and manganese.
● Indian-owned industries suffered from many handicaps—credit problems, no tariff
protection by government, unequal competition from foreign companies, and stiff
 opposition from British capitalist interests who were backed by sound financial and
technical infrastructure at home.
● The colonial factor also caused certain structural and institutional changes. The
industrial development was characterised by a lopsided pattern—core and heavy
industries and power generation were neglected and some regions were favoured
more than the others—causing regional disparities. These regional disparities
hampered the process of nation- building.

Nationalist Critique of Colonial Economy

● The early intellectuals of the first half of the 19th century supported British rule under
the impression that it would modernise the country based on latest technology and
capitalist economic organisation.
● After the 1860s, disillusionment started to set in among the politically conscious and
they began to probe into the reality of British rule in India.
● The foremost among these economic analysts was Dadabhai Naoroji, the ‘Grand Old
Man of India’, who after a brilliant analysis of the colonial economy put forward the
theory of economic drain in Poverty and UnBritish Rule in India. Other economic
analysts included Justice Mahadev Govind Ranade, Romesh Chandra Dutt (The
Economic History of India), Gopal Krishna Gokhale, G. Subramania Iyer, and
Prithwishchandra Ray. The essence of 19th century colonialism, they said, lay in the
transformation of India into a supplier of foodstuffs and raw materials to the
metropolis, a market for metropolitan manufacturers and a field for investment of
British capital.
● These early nationalist analysts organised intellectual agitations and advocated a
complete severance of India’s economic subservience to Britain and the
development of an independent economy based on modern industries.

(Economic Drain (I don't think isko alag se point ki need h, nationalist critique, me hi
add kar den)

The term ‘economic drain’ refers to a portion of national product

of India which was not available for consumption of its peoples, but was being drained away
to Britain for political reasons and India was not getting adequate economic or material
returns for it. The drain theory was put forward by Dadabhai Naoroji in his book Poverty
and UnBritish Rule in India. The major components of this drain were salaries and pensions
of civil and military officials, interests on loans taken by the Indian Government from abroad,
profits on foreign investment in India, stores purchased in Britain for civil and military
departments, payments to be made for shipping, banking, and insurance services which
stunted the growth of Indian enterprise in these services. The drain of wealth checked and
retarded capital formation in India while the same portion of wealth accelerated the growth of
British economy. The surplus from British economy re-entered India as finance capital,
further draining India of its wealth. This had immense effect on income and employment
potential within India. )

British Policies Making India Poor

 ● The basic assertion of these early intellectuals was that India was poor and growing
poorer due to British imperialism, and since the causes of India’s economic
backwardness were man-made, they were explainable and removable.
● This helped in rallying all sections of society around common economic issues.
● Also, development was equated with industrialisation. This industrialisation was to
be based on Indian and not foreign capital because, according to the early
nationalists, foreign capital replaced and suppressed instead of augmenting and
encouraging Indian capital. This suppression caused economic drain, further
strengthening British hold over India.
● The political consequences of foreign capital investments were equally harmful as
they caused political subjugation and created vested interests which sought security
for investors, thus perpetuating the foreign rule.

Growth of Trade and Railways to Help Britain

● These analysts exposed the force of British arguments that the growth of foreign
trade and railways implied development for India. They pointed out that the pattern of
foreign trade was unfavourable to India.
● It relegated India to a position of importer of finished goods and exporter of raw
materials and foodstuffs.
● The development of railways, they argued, was not coordinated with India’s industrial
needs and it ushered in a commercial rather than an industrial revolution. The net
effect of the railways was to enable foreign goods to outsell indigenous products.
● Further, the benefits from impetus to steel, machinery, and capital investment in
railways accrued to the British. G.V. Joshi remarked, “Expenditure on railways should
be seen as an Indian subsidy to British industries.”

One-Way Free Trade and Tariff Policy

● The nationalists claimed that one-way free trade was ruining the Indian handicrafts
industry, exposing it to premature, unequal, and unfair competition, while tariff policy
was guided by British capitalist interests.
● On the finance front, taxes were levied to overburden the poor, sparing British
capitalists and the bureaucrats. They demanded reduction of land revenue, abolition
of salt tax, imposition of income tax, and excise duties on consumer goods
consumed by the rich middle classes.
● The government expenditure, it was argued, was meant to serve colonial needs only,
while development and welfare were ignored.

Effect of Economic Drain

The drain theory incorporated all threads of the nationalist critique that it denuded India of its
productive capital. According to nationalist estimates, the economic drain at that time was:
● more than the total land revenue, or
● half the total government revenue, or
● one-third of the total savings (in today’s terms, it amounted to 8 per cent of the national
product).
The concept of drain—one country taking away wealth from another country—was easily
grasped by a nation of peasants for whom exploitation was a matter of daily experience.
CONCLUSION

This economic Issue became a Stimulant to National Unrest

● The nationalist agitation on economic issues served to undermine the ideological
hegemony of alien rulers over Indian minds that the foreign rule was in the interest of
Indians, thus exposing the myth of its moral foundations.
● It was also shown clearly that India was poor because it was being ruled for British
interests. This agitation was one of the stimulants for intellectual unrest and spread of
national consciousness during the moderate phase of freedom struggle
(1875–1905)—the seed-time of national movement.
● Till the end of the 19th century, the nationalists had been demanding some share in
political power and control over the purse. During the first decade of the 20th century,
they started demanding self-rule, like the United Kingdom or the colonies, and
prominent among such nationalists was Dadabhai Naoroji.