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I-Stage in British rule: “Colonization of India by Pre-Industrial

1. EIC given monopoly status by queen to trade with India
2. EIC paying in gold and silver for Indian exports.
3. Gaining control over Bengal by defeating Nawab
4. Unilateral flow of goods
5. Destroying old traders (Punjabis, marwaris and Afghanistan)
6. Creation of Bengali Babus
7. Permanent Settlement- Maximization of profit by maximization of revenue

Inception of Permanent Settlement
 Company realized that to maximize the profits it must maximize revenue from land.
 EIC auctioned Zamindaris to those who would pay them maximum tax.
 Zamindars in turn heavily taxed peasants who had no incentive to produce more.
 This over-exploitation led to number of famines greatest being 1776 in Bengal. There
was overall decrease in production and efficiency of agriculture.
 To boost the production and to generate constant stream of revenue EIC decided to create
gentry of landlords who had a stake in land. According to this system landlords would
pay EIC a fixed amount of money and hence they would have greater incentive to
increase production, as additional money would go to landlords.
Failure of Permanent Settlement
Proxy Zamindari:
 Bengali Babus bought Zamindaris for esteem reasons rather than commercial reasons.
 This led to creation of “proxy Zamindari” of Naibs who controlled the activities for
Calcutta-based Bengali babus.
 This led to severe corruption and large no of hierarchies between whom profits needed to
be shared.
 Peasants were taxed as heavily as before and they had no interest in greater production.
Price fall:
 There was a steep fall in price in period immediately after permanent settlement in 1795
and prices remained low.
 For next 15 years at this time most of Zamindars could not fulfill their commitment to
EIC and sold their ownership.

Buying silk, indigo,
spices, muslin calico
from India
Reaching as wealth
in Europe
Bullion Gold/Silver
Buying silk, indigo,
spices, muslin calico
from India
Reaching as
wealth in Europe
II-Stage of British rule:

1. Industrial Revolution
2. Laissez faire replacing EIC’s monopoly
3. Lancashire captures Indian markets.
4. Reemergence of Marwaris traders as agents of Lancashire goods
5. De-industrialization.
6. Fundamental Change. India becoming “exporter of agricultural raw materials from exporter
of industrial finished goods”
7. Problems of Tribute Realization: Opium Trade

Industrial revolution in Britain
 Took place in 1770 in Britain and changed the way production was done in Britain.
 There was great increase in production and productivity.
 And it decreased the price of handloom cloth and a great investment took place in this

Laissez Faire:
 New class of entrepreneurs (goods-producers) emerged in Britain.
 They could enhance profits by expanding markets. They thrived on lower prices.
 They were not worried of competition and wanted removal of monopoly to gain access to
new markets. They wanted “Laissez Faire” to replace mercantile monopoly. UK was a
small market and Lancashire wanted to export its goods to India.
 There was conflict of interest with EIC who thrived on handlooms produced in India.

De industrialization of India:
 Lancashire got Monopoly charter removed in 1813 by parliament. EIC monopoly in India
 Objective changed from “seizing Indian commodities” to “seizing Indian markets”.
 Lancashire did not pay any import duty on goods whereas Indian cotton weavers had to
pay an excise duty Thus they had a great price advantage.
 Lancashire wiped out exports of Indian cotton goods. They also challenged them in their
home market.
 This led to de-industrialization - massive shutdown of Indian industries.
 The impact of this de-industrialization was (a) Indian middle class became poorer due to
unemployment (b) decline of other industries like cutlery, guns, machinery, etc.

Problem in Realization of tribute for EIC
 India’s de-industrialization seriously affected transfer-of-wealth mechanism.
 Till now the realization of tribute had taken the form of export from India.
Use of steam in
cotton industry
Increase in Production
& productivity
Larger Investments
in these industries
Greater demand for
coal and greater
Greater demand
for steam engines
and handlooms
Greater demand
for heavy eqpt
Demand for Iron
& Steel industry
 Rationally this could have been compensated by diversion of raw cotton to English
factories. But this was not possible because Indian cotton was too short-stapled for
English factories.
 Similarly Indian raw silk could not compete with Chinese and Italian silk for English
factories. Its export remained limited.
 The problem became very acute by 1830.
 The solution was found in opium trade.

Opium trade with China
 British found a major market for opium in China.
 Chinese aristocracy consumed opium for centuries.
 British slashed opium prices and smuggled it into China through Shanghai and Hong
Kong ports.
 Chinese king tried to stop this trade and fought two “Opium Wars” (1840-42 & 1856-58)
with Britain.
 After losing the war opium trade was legalized in China.
 British sold Indian opium to China and imported Tea and Silk to England. A large
amount of Bombay and Bengal capital can be traced to illegal opium trade.

The following figure showing imports and exports of Britain to Asia shows the gain to Britain by
this triangular relationship.

Year Imports Exports Excess Imports over exports
1854 23 12 11
1855 24.3 13.1 11.2
1856 29.6 15.4 14.4
* All values in millions pounds

Only Exports
India China
Cotton goods
Tea/ Silk

III-Stage of British Rule

1. Flow of capital to Britain.
2. Development of Railways as an agent of deindustrialization.
3. Commercialization of Agriculture.
4. Zamindars to Landlords.
5. Emergence of Jute and Cotton Industry.

Flow of capital from India
At about 1850’s the capital investment had reached a saturation point with construction of basic
networks of railways, the greatest absorbent of capital. The major characteristic of this stage was
export of capital and intensified race for Indian markets. From 1857 to 1865 saw major
movement of British capital to India. [Confusing!!!]

Development of railways
 No body was interested in investing in railways as no one could see economic viability in
 Lord Dalhousie wanted railways in India because of problem in administering such a
large country.
 Thus railways were developed more in need for army personnel movement than
movement of goods.
 East India Co. became the underwriter and assured 5% ROR in railways investment in
India. Major investment was carried out in Calcutta region although first line was
introduced in Bombay.

Complete Colonization:
Railways served as a catalyst of complete colonization of India. Railways led to massive increase
in imports by the country.
 Imports of cotton (????) doubled between 1859 and 1877.
 Imports of silk became 4 times between 1859 and 1877.
The railways also led to increased exports from India. The entire composition changed as bulk no
longer remained a barrier to transport. In 1871 Opium was still principal item but Oilseeds and
cotton came close second. Thus there was a real shift in Indian agriculture to production of raw
material for England, a shift from food grains to non-food crops.

Commercialization of Agriculture
The railways also led to change in composition of Indian exports, as bulk no longer remained a
barrier to transport. In 1871 Opium was still principal item but Oilseeds and cotton came close
second. Thus there was a real shift in Indian agriculture to production of raw material for
England, a shift from food grains to non-food crops. This vast change in Indian agriculture from
food grains to non-food crops (jute, indigo) is sometimes known as “commercialization of
The commercialization had a major impact as quantity of food available for home market
declined and it led to great famines (famines of 1896-97 & 1899-1900) were millions perished.
The commercialization made condition of poor peasant worse and only few rich landlords were
the gainers.

Zamindars to Landlords
At this period due to “Sundown Laws” lot of absentee landlords lost their Zamindaris to their
naibs. So there developed a new class of people who are the owners of land, peasants and who are
also the traders.

M +W + L

This system of “pay interest and principal later” created a debt trap for the farmers. And they
gradually lost their land and became bonded laborers.

Emergence of jute and Cotton industries
Money Lender
(Trader’s profit)
Land Owner (Rent
from peasant)

IV-Stage of British Rule
Rise of Indian nationalism – “British rule and Laissez faire reason for Indian poverty”
Ranade, Telang, Dadabai Naroji branding laissez faire as reason for poverty.
Bengal partition and Boycott movement
Emergence of Gandhi as a National leader.
I WW and its impact on Indian industry
Need for planned economy
1929 depression
FICCI 1934, Birla Speech
1937 Provincial Election
II World War and Post war Reconstruction Committee
Bombay Plan

Indian nationalism developed in two major categories:
Militant groups / Political extremism:
 Emphasized on glorious Hindu past.
 Believed in self-reliance and fell back on traditional handicrafts as means of prosperity.
 Opposed British rule as it destroyed traditional Indian society with destruction of local
 Boycott of foreign goods, and rejection of western mode of life.

1. Looked forward to industrial developed India
2. Telang, Naoroji, Ranade, Joshi, RC Dutt belong to this school of thought.
3. Protectionism was key for remedy of economic distress of country.
4. For both the reason for poverty was poor policies of British which led to economic ruin
of the country (“ Unbritish rule of India”)
5. Identified lack of large-scale industrialization was identified as major reason for
poverty and means to eliminate poverty. It was a shift in thinking from past swadeshi
movement which considered development of traditional handicrafts as panacea for
economic ills


Poverty Industrialization Anti LF Protection State