Indian Political and Economic History

Stages of British Rule
1. What are the characteristics of the “First Stage “ of colonial rule in India?
2. How did East India gain by capturing political power in India?
. !escribe about early settle"ent #cts?
$. If one carefully studies the period of Indian history between 1%&% and 1'$( one finds
clearly identifiable stages of )ritish coloni*ation each with its specific and distinguishable
characteristics. +an you identify the "ain features of each stage with corresponding
i"pacts on the Indian econo"y?
&. “,he e"ergence of Industrial )ritain resulted in !e-industriali*ation and
co""erciali*ation of Indian #griculture in the early part of .ineteenth century/. !o you
agree? E0plain your conclusions.
1. !iscuss the i"pact of the "ilitary and industrial re2olutions upon India up to 13&3. Which
of these would you regard as "ore i"portant?
Industrial Revolution
1. ,he industrial re2olution in the 45 changed the nature of )ritish interest in India.
2. How was the Indian econo"y affected by the change?
. What role did opiu" play in that regard?
$. Would you attribute the origins of the industrial re2olution to the in2enti2e genius of the
English people? 6ro2ide reasons for your answer.
&. #naly*e the cause and conditions of the e"ergence of the factory syste" of production in
Western Europe. What are the chief characteristics?
Indian Business
1. E0plain the difference in the process of industriali*ation of 7ute and cotton te0tile industries
in India?
2. How do you e0plain the Indian )usiness +o""unity8s increasing interest in the Indian
national "o2e"ent beginning with the post First World War period?
. How do you e0plain the duality in the attitude of the Indian business co""unity towards
Indian nationalis"?
$. How did colonial rule affect Indian business? How did business"en respond to the new
conditions they faced?
1. 9ist the "ain proble"s faced by lord +ornwallis when he arri2ed as :o2ernor ; :eneral in
1%31. How would you ha2e tac<led the situation in his place?
I-Stage in British rule:
“Colonization of India by Pre-Industrial Britain”
1. EI+ gi2en "onopoly status by =ueen to trade with India
2. EI+ paying in gold and sil2er for Indian e0ports.
. :aining control o2er )engal by defeating .awab
$. 4nilateral flow of goods
&. !estroying old traders >6un7abis? "arwaris and #fghanistan@
1. +reation of )engali )abus
%. 6er"anent Settle"ent- Aa0i"i*ation of profit by "a0i"i*ation of re2enue
Incetion of Per!anent Settle!ent
• +o"pany reali*ed that to "a0i"i*e the profits it "ust "a0i"i*e re2enue fro" land.
• EI+ auctioned Ba"indaris to those who would pay the" "a0i"u" ta0.
• Ba"indars in turn hea2ily ta0ed peasants who had no incenti2e to produce "ore.
• ,his o2er-e0ploitation led to nu"ber of fa"ines greatest being 1%%1 in )engal. ,here was o2erall
decrease in production and efficiency of agriculture.
• ,o boost the production and to generate constant strea" of re2enue EI+ decided to create gentry of
landlords who had a sta<e in land. #ccording to this syste" landlords would pay EI+ a fi0ed
a"ount of "oney and hence they would ha2e greater incenti2e to increase production? as additional
"oney would go to landlords.
"ailure of Per!anent Settle!ent
Proxy Zamindari:
• )engali )abus bought Ba"indaris for estee" reasons rather than co""ercial reasons.
• ,his led to creation of “pro0y Ba"indari/ of .aibs who controlled the acti2ities for +alcutta-based
)engali babus.
• ,his led to se2ere corruption and large no of hierarchies between who" profits needed to be shared.
• 6easants were ta0ed as hea2ily as before and they had no interest in greater production.
Price fall:
• ,here was a steep fall in price in period i""ediately after per"anent settle"ent in 1%'& and prices
re"ained low.#s per bri7 narain fell by &C
• For ne0t 1& years at this ti"e "ost of Ba"indars could not fulfill their co""it"ent to EI+ and sold
their ownership.
II-Stage in British rule:
1. Industrial De2olution
2. 9aisse* faire replacing EI+8s "onopoly
. 9ancashire captures Indian "ar<ets.
$. Dee"ergence of Aarwaris traders as agents of 9ancashire goods
&. !e-industriali*ation.
1. Funda"ental +hange. India beco"ing “e0porter of agricultural raw "aterials fro" e0porter
of industrial finished goods/
%. 6roble"s of ,ribute Deali*ationE Fpiu" ,rade
Industrial revolution
• ,oo< place in 1%%( in )ritain and changed the way production was done in )ritain.
)uying sil<? indigo?
spices? "uslin calico
fro" India
Deaching as wealth in
)ullion :oldGSil2er
)uying sil<? indigo?
spices? "uslin calico
fro" India
Deaching as wealth
in Europe
• ,here was great increase in production and producti2ity.
• #nd it decreased the price of handloo" cloth and a great in2est"ent too< place in this sector.
#aissez "aire:
• .ew class of entrepreneurs >goods-producers@ e"erged in )ritain.
• ,hey could enhance profits by e0panding "ar<ets. ,hey thri2ed on lower prices.
• ,hey were not worried of co"petition and wanted re"o2al of "onopoly to gain access to new
"ar<ets. ,hey wanted “9aisse* Faire/ to replace "ercantile "onopoly. 45 was a s"all "ar<et and
9ancashire wanted to e0port its goods to India.
• ,here was conflict of interest with EI+ who thri2ed on handloo"s produced in India.
$e industrialization:
• 9ancashire got Aonopoly charter re"o2ed in 131 by parlia"ent. EI+ "onopoly in India ended.
• Fb7ecti2e changed fro" “sei*ing Indian co""odities/ to “sei*ing Indian "ar<ets/.
• 9ancashire did not pay any i"port duty on goods whereas Indian cotton wea2ers had to pay an
e0cise duty ,hus they had a great price ad2antage.
• 9ancashire wiped out e0ports of Indian cotton goods. ,hey also challenged the" in their ho"e
• ,his led to de-industriali*ation - "assi2e shutdown of Indian industries.
• ,he i"pact of this de-industriali*ation was >a@ Indian "iddle class beca"e poorer due to
une"ploy"ent >b@ decline of other industries li<e cutlery? guns? "achinery? etc.
Proble! in Realization of tribute
• India8s de-industriali*ation seriously affected transfer-of-wealth "echanis".
• ,ill now the reali*ation of tribute had ta<en the for" of e0port fro" India.
• Dationally this could ha2e been co"pensated by di2ersion of raw cotton to English factories. )ut
this was not possible because Indian cotton was too short-stapled for English factories.
• Si"ilarly Indian raw sil< could not co"pete with +hinese and Italian sil< for English factories. Its
e0port re"ained li"ited.
• ,he proble" beca"e 2ery acute by 13(.
• ,he solution was found in opiu" trade.
Oiu! trade
• )ritish found a "a7or "ar<et for opiu" in +hina.
• +hinese aristocracy consu"ed opiu" for centuries.
• )ritish slashed opiu" prices and s"uggled it into +hina through Shanghai and Hong 5ong ports.
• +hinese <ing tried to stop this trade and fought two “Fpiu" Wars/ >13$(-$2 H 13&1-&3@ with
• #fter losing the war opiu" trade was legali*ed in +hina.
4se of stea" in
cotton industry
Increase in 6roduction H
9arger In2est"ents in
these industries
:reater de"and for coal
and greater production
:reater de"and for
stea" engines and
:reater de"and for
hea2y e=pt
!e"and for Iron H
Steel industry
• )ritish sold Indian opiu" to +hina and i"ported ,ea and Sil< to England. # large a"ount of
)o"bay and )engal capital can be traced to illegal opiu" trade.
,he following figure showing i"ports and e0ports of )ritain to #sia shows the gain to )ritain by this
triangular relationship.
Iear I"ports E0ports E0cess I"ports o2er e0ports
13&$ 2 12 11
13&& 2$. 1.1 11.2
13&1 2'.1 1&.$ 1$.$
J #ll 2alues in "illions pounds
1. Flow of capital to )ritain.
2. !e2elop"ent of Dailways as an agent of deindustriali*ation.
. +o""erciali*ation of #griculture.
$. Ba"indars to 9andlords.
&. E"ergence of Kute and +otton Industry.
"lo% of caital
#t about 13&(8s the capital in2est"ent had reached a saturation point with construction of basic networ<s of
railways? the greatest absorbent of capital. ,he "a7or characteristic of this stage was e0port of capital and
intensified race for Indian "ar<ets. Fro" 13&% to 131& saw "a7or "o2e"ent of )ritish capital to India.
$evelo!ent of rail%ays
.o body was interested in in2esting in railways as no one could see econo"ic 2iability in it. 9ord
!alhousie wanted railways in India because of proble" in ad"inistering such a large country. ,hus
railways were de2eloped "ore in need for ar"y personnel "o2e"ent than "o2e"ent of goods. East India
+o. beca"e the underwriter and assured &C DFD in railways in2est"ent in India. Aa7or in2est"ent was
carried out in +alcutta region although first line was introduced in )o"bay.
Complete Colonization:
Fnly E0ports
India +hina
+otton goods
,eaG Sil<
Dailways ser2ed as a catalyst of co"plete coloni*ation of India. Dailways led to "assi2e increase in i"ports
by the country.
• I"ports of cotton doubled between 13&' and 13%%.
• I"ports of sil< beca"e $ ti"es between 13&' and 13%%.
,he railways also led to increased e0ports fro" India. ,he entire co"position changed as bul< no longer
re"ained a barrier to transport. In 13%1 Fpiu" was still principal ite" but Filseeds and cotton ca"e close
second. ,hus there was a real shift in Indian agriculture to production of raw "aterial for England? a shift
fro" food grains to non-food crops.
Co!!ercialization of &griculture
,he railways also led to change in co"position of Indian e0ports? as bul< no longer re"ained a barrier to
transport. In 13%1 Fpiu" was still principal ite" but Filseeds and cotton ca"e close second. ,hus there
was a real shift in Indian agriculture to production of raw "aterial for England? a shift fro" food grains to
non-food crops. ,his 2ast change in Indian agriculture fro" food grains to non-food crops >7ute? indigo@ is
so"eti"es <nown as “co""erciali*ation of agriculture/.
,he co""erciali*ation had a "a7or i"pact as =uantity of food a2ailable for ho"e "ar<et declined
and it led to great fa"ines >fa"ines of 13'1-'% H 13''-1'((@ were "illions perished. ,he
co""erciali*ation "ade condition of poor peasant worse and only few rich landlords were the gainers.
Zamindars to Landlords
#t this period due to “Sundown 9aws/ lot of absentee landlords lost their Ba"indaris to their naMf. So there
de2eloped a new class of people who are the owners of land? peasants and who are also the traders.
A NW N 9
,his syste" of “pay interest and principal later/ created a debt trap for the far"ers. #nd they gradually lost
their land and beca"e bonded laborers.
3. Debt Trap
+onsider a far"er D who is able to produce 7ust enough for sustenance of his fa"ily under nor"al
It O +t N St N :t
Iield O N Sa2ings N
I tN1 O St
In2est"ent for the ne0t period O sa2ings for this year.
I tN1 O It
Iield constant >no growth@
For a typical "ono crop cycle fro" Kune !ec the price of the crop is as follows
Aoney 9ender
Hoarder >,rader8s
9and Fwner >Dent
fro" peasant@
>Show sine cur2e with "in at !ec and "a0 at Kune@
• So"eti"es? due to so"e unforeseen circu"stances? >for eg daughters "arriage? death@ the
far"er "ay ha2e to resort to borrowings.
• In case of non-"onetised econo"y? borrowing is <ind >seeds fro" the trader@ but in
"onetised it is the 2alue of seeds.
• He borrows when the price of seeds is the highest.
• Depay"ent ti"e is the har2est ti"e when the price is the lowest in !ec.
• Aoreo2er with the e0orbitant rate of interest charged by these "oneylenders? it beco"es
2irtually i"possible for the far"er to erase the debt.
• He "ight be able to pay 7ust the accrued interest and hence this process continues e2ery
year and gets trapped in the debt trap.
• Further the inability of the far"er to pay the debt >or the interest accrued on debt@ led to
sei*ure of the land by the "oneylender and this also ga2e birth to a new class of bonded
o ,hus top landowners a"ounting to 1(C of the population own %(C of the land.
%(C of the agricultural people own 1(C of the land. #nd re"aining 2(C of the
people own 2(C.
o ,hus it led to collusi2e oligopoly. )ecause the far"ers were not in a position to ta<e
shoc<s? it led the" to fall into the debt trap.
o ,he landlords started beco"ing rich.
o #s the producti2ity increased they hoarded the goods at lower price and sold the"
when it was dear.
Post 19!"#$C%&PL'T'(
#fter independence the trap itself perpetuates. It was identified that to sol2e this proble"? three
ways were possible
1. Land reforms "')P*$D(
2. Co+operation in ter"s of "ar<eting to increase producti2ity to buy inputsE +ooperati2e
far"ing failed because big *a"indars refused to be part of it.
. Loanable f,nds access to ban< fundsE .ationalisation of ban<s only helped in
strengthening the "oneylender. ,hey are the ones who get the loans based on collaterals.
#lso only those who ser2ed the )ritish #r"y were allowed to buy the land or 2ery rich landowners
>eg 6un7ab@. ,his led to large clusters. Si<hs were the spearheads of the )ritish ar"y.
,he producti2ity 7ust shot up in these regions. E2en today in the non-irrigated parts? we ha2e
bonded labour with its socio-political after"aths.
#lso atte"pts to sei*e the land of landowners failed as they hid the lands under benaami
transactions "')P*$D(.
Howe2er it did play so"e positi2e role also? in the for" of interest-free ad2ances especially in
Fpiu" culti2ation. So"e peasants e2en "anaged to e2ade the go2ern"ent and sell opiu" to the
pri2ate traders.
'!ergence of (ute and Cotton industries
)ute Industries
Kute industry was de2eloped in Scotland >around !undee@ but based on DA supplied fro" +alcutta.
T-e c-aracteristics of .,te ind,stry /ere:
1. 9abor intensi2e. ,he 7ute industry is highly labor intensi2e and does not re=uire "uch s<illed labor.
2. !ependant de"and. ,he "ar<et of 7ute goods were other industries and hence de"and for 7ute
depended on de"and or well being of other industries. Aar<et was not local but world "ar<et.
T-e factors t-at led to 0ro/t- of .,te ind,stries in Calc,tta are:
1. Lo/ /a0es in +alcutta as co"pared to !undee and hence lower cost of production
2. $at,re of R&. ,he 2olu"eG2alue ratio was high and that was not the case with cotton >7ute could
not be bent@. ,he "arginal cost of transportation was "uch higher in 7ute than in cotton.
. Prod,ction process ,he raw 7ute had a high wastage in production process? which "eant you
would be i"porting e0tra 7ute and hence would be paying e0tra for that
$. 1la2e trade. ,he sla2e trade was declining and those in sla2e trade were loo<ing for so"e other
in2est"ent. ,hey found good opportunity in 7ute "ills in India. ,hat is the reason we find all 7ute
"ills in India? were owned by Europeans till 2
#mpact of .,te ind,stry
,he 7ute "ills did not e"ploy local laborers? as wage differential was the <ey to their success. So they
brought people fro" different places? Sardars were appointed? sent to )ihar? Frrisa etcP . ,hese Sardars
would pay ad2ance to 2illagers and brought people to town? they not <nowing where they were heading
>,he operation was 2ery si"ilar to sla2e trade@. ,hese people would be settled in co"pound of the "ills and
that is the reason 7ute "ills had huge co"pounds.
,he people in +alcutta saw 7ute "ills as a sy"bol of foreign oppression. Whereas the people of
)o"bay saw cotton "ills as sy"bol of national pride? owned and wor<ed by Indians.
Cotton Industries
+a"e to India for reasons different than 7ute.
• )o"bay ca"e under )ritish 1( years after +alcutta. )y then the "onopoly of EI+ was withdrawn
and "ercantile attitude was replaced by 4tilitarian capitalistic attitude. ,here was an attitude
difference in )ritish )o"bay and )ritish +alcutta.
• For 1( years of difference )o"bay "erchants en7oyed free trade in local "ar<et and they had a lot
of capital accu"ulation. !eccan handloo" had sur2i2ed and it was a "a7or cotton belt controlled
by )o"bay 6arsis.
• 9ancashire and European te0tile producers had "o2ed fro" short Indian staple to long #"erican
staple causing obsolescence of pre2ious spinning "ills. ,he capital goods sector in cotton was
loo<ing for e0ternal buyer.
• ,he )o"bay "ills were dealing with short staple and producing coarser 2ariety of cotton cloth.
,here was a s"all "ar<et of this cloth in #frica and Indian te0tile owners were co"peting with
+hinese and Kapanese te0tile "anufacturers. ,he de"and for yarn was increasing and hand
spinning was not sufficient to "eet the de"and. ,he 9ancashire did not enter into this "ar<et? as
profit "argins were lower.
• ,he 6arsi traders bought the old spinning "ills fro" the te0tile "anufacturers against wishes of
9ancashire and thus cotton-spinning "ills ca"e up in 13$(-1(8s.
• ,his is the reason why )o"bay te0tile "ills were not integrated whereas #h"edabad had
integrated spinning "ills.
Other Industries in India
1,0ar: Rail/ays helped de2elop other industries li<e sugar. 6re2iously sugar "ills couldn8t be set
up co* of transportation delays of sugarcane to the "ills location. .ow railways ca"e to their
Leat-er: &adras was the only port to e0port leather to Europe till the end of the 1'
E"ergence of nation states led to building up of ar"ies OL "ore de"and for leather >boots belts@.
9eather was tanned by 2egetable >inefficient@. 9ater? c-emical tanned leat-er >chro"e-tanned@
e"erged and 4S too< ad2antage of this. ,his led to the deat- of &adras leat-er tanneries.
#ndi0o faced a si"ilar fate as leather. #ndi0o /as replaced by synt-etic bl,e in2ented by a
:er"an scientist.
1pices were e0ported fro" Aadras? +ochin. ,his was till the end of 1'
century after which
Indonesia too< that lead fro" India.
E0cept +hina and 4S? the whole world was either colonies or coloni*ers8 property. #"ong the
colonies? India was the "ost industriali*ed? which had indigenous industrial capitalists
Dise of Indian nationalis" ; “)ritish rule and 9aisse* faire reason for Indian po2erty/
Danade? ,elang? !adabai .aro7i branding laisse* faire as reason for po2erty.
)engal partition and )oycott "o2e"ent
E"ergence of :andhi as a .ational leader.
I WW and its i"pact on Indian industry
.eed for planned econo"y
1'2' depression
FI++I 1'$? )irla Speech
1'% 6ro2incial Election
II World War and 6ost war Deconstruction +o""ittee
)o"bay 6lan
Indian nationalis" de2eloped in two "a7or categoriesE
+ilitant grous, Political e-tre!is!:
• E"phasi*ed on glorious Hindu past.
• )elie2ed in self-reliance and fell bac< on traditional handicrafts as "eans of prosperity.
• Fpposed )ritish rule as it destroyed traditional Indian society with destruction of local
• )oycott of foreign goods? and re7ection of western "ode of life.
1. 9oo<ed forward to industrial de2eloped India
2. ,elang? .aoro7i? Danade? Koshi? D+ !utt belong to this school of thought.
. 6rotectionis" was <ey for re"edy of econo"ic distress of country.
$. For both the reason for po2erty was poor policies of )ritish which led to econo"ic ruin of the
country >“ 4nbritish rule of India/@
&. Identified lac< of large-scale industriali*ation was identified as "a7or reason for po2erty and
"eans to eli"inate po2erty. It was a shift in thin<ing fro" past swadeshi "o2e"ent which
considered de2elop"ent of traditional handicrafts as panacea for econo"ic ills

Role of state
Early criticis" of )ritish laisse* faire de2eloped into an idea of positi2e state participation in
econo"ic acti2ities.
Dole of state was defined as not only protecting nascent Indian industry against foreign co"petition
but also to carry out social and agricultural refor"s.
3orld 3ar
9aisse* faire policy bro<e down and go2t of India placing orders with Indian fir"s.
6ositi2e change in attitude of go2t as regard to e0cise duty on cotton.
#ccu"ulation of large capital but e0pansion constrained by capital goods
+o"plete brea<down of trade with )ritain? and first e0perience with protectionis".
P%1T+1st 3*R
Industries again facing foreign co"petition and de"and for protection rising
#fter 1
WW we see e"ergence of new generation of econo"ists 5, Shah? Sar<ar? :adgil all were
staunch supporter of protection and encourage"ent to industriali*ation.
Qis2es2araiya “Deconstructing Indian Econo"y/ identified following proble" of Indian po2ertyE
• 9ow standard of li2ing of people
• 9ow le2el of education
• !ependence on agriculture
• 9ac< of industriali*ation and destruction of indigenous industries due to )ritish tariff and
fiscal policies.
For"ation of FI++I in 1'2% by :! )irla and 6urshota"das ,ha<urdas
1949 Depression
!eathblow to laisse* faire? and planning ta<ing up fir" roots in India.
Sir :eorge Schuster >finance "inister@ tried to setup Econo"ic #d2isory council in India.
5#CC# in 193 6irla and 1ar7ar spo7e on necessity of planned economy in #ndia.
1. +apitali*ation of west was based on e0ploitation of colonies? this was large capital accu"ulated that
was loo<ing for in2est"ent but in India there is no surplus and hence capitali*ation can de2elop
only through protection and e0pansion of "ar<et.
2. Increasing the purchasing power of people is essential for growth of capitalis". Since %(C of
people are in agriculture hence there is need to de2elop agriculture to raise 666. ,his de2elop"ent
re=uires new in2est"ents in power? irrigation. ,hese in2est"ents cannot be "ade by pri2ate sector
so state "ust de2elop the".
. !ependence on i"ports of "achine "ust be stopped. ,his "eans de2elop"ent of <ey industriesG
+apital goods industries. ,hese <ey industries re=uire large in2est"ent and has larger gestation
period? slower rate of profitability and hence "ust be de2eloped by state
6o2erty Industriali*ation #nti 9F 6rotection State Initiati2e
+onference of "inisters of industries? for 2arious pro2inces in 1'3. For"ation of .ational planning
Identified types of industries
1econd 3orld 3ar
6ost War Deconstruction co""ittee was setup in 1'$1 to prepare “de2elop"ent plan for India/.
)o"bay plan released in Kanuary 1'$$
Industrial policy of :FI in 1'$&.
)oth the plans supported license ra7 to ensure spread of industries in all parts of country to get true
!efense and 6ublic
4tilities. Aust be
de2eloped by state
5ey Industries? there
was difference of
+onsu"er Industries
"ust be left for
pri2ate sector.
#nd,strial de2elopment of 6ombay and Calc,tta
,here were distinct differences between the nature of growth of )o"bay and +alcutta as centers of
"a7or "odern industrial cities in India during nineteenth century.
Timin0 of arri2al of 6ritis-: )ritish first ca"e to +alcutta so the effect of I"perialis" was seen
2ery early there as co"pared to )o"bay and other places in the country.
'xistin0 local b,siness comm,nity: Aarwaris were the "a7or business co""unity in +alcutta.
EI+ established its "onopoly by force so Aarwaris were forced to abandon their business or 7ust
beco"e EI+ agents. ,hese things were not seen in )o"bay where the )ritish reached around $(
yrs later.
#nd,strial Prod,cts: #t this ti"e? +alcutta beca"e the center of tea H 7ute-production whereas
)o"bay beca"e center of cotton-production. )engal was the only 7ute-producing area and +otton
was found in the )o"bay region Aaharashtra? .agpur? etc.
%/ners-ip: In +alcutta? )ritish-owned industries ca"e up. )o"bay "ost of the industries were
started and owned by Indians the"sel2es. So due to i"perial do"ination the traders in +alcutta did
not flourish whereas the traders in )o"bay flourished since they had their own industries.
Labo,r demo0rap-y: In +alcutta region? all bonded-labour was brought fro" A6? )ihar and
Frissa. In )o"bay the labor was fro" the region itself. ,hey wor<ed during he day and went bac<
to their ho"es in the e2ening.
1pecial problems for Calc,tta: !ue to linguistic differences in +alcutta? this labor could not "i0
and contribute to society. Effect of this was that the responsibility of labor in +alcutta was that of
the owners. ,his also pro2ed to an e0tra e0penditure in +al? crucial to the industry8s sur2i2al later.
It was not so in )o"bay.
'xim str,ct,re: )eing short staple? )o"bay cotton generated indigenous de"and and supply
whereas as the industry in +alcutta was predo"inantly "eant for e0port purposes.
L*#11'Z 5*#R'
,he Indian business co""unity played a crucial role in de2eloping the concept of planned
econo"ic growth through state inter2ention.
6ritis- preference: ,he preferred econo"ic policy in )ritain and other western countries was
9aisse* faire - free trade between countries.
Problem /it- L5: ,he policy see"s to be perfect on paper - both the in2ol2ed countries should
benefit fro" this. Howe2er this policy results in discri"ination against the wea<er or late-co"ing
partner and always benefits the "ore industriali*ed country.
L5 in #ndia:
In the na"e of laisse* faire the Indian indigenous "anufacturing was destroyed >particularly the
Indian handloo" industry@.
In order to pro"ote the )ritish te0tile industry? India was reduced to only a raw "aterial supplier
by the )ritish go2ern"ent.
It led to the large disproportion between the production of raw agricultural products and the
production G distribution of industrial produce.
T-in7in0 in #ndia:
Aoderates and the Swadeshi schools identified )ritish-go2ern"ent policies causing the econo"ic
drain H hence abys"al po2erty in India.
9arge-scale organi*ation of industry was recogni*ed as being 2itally necessary.
,his thin<ing was also different fro" the other trends of the swadeshi "o2e"ent that recogni*ed
indigenous traditional handicrafts through indi2idual and co""unity efforts as the panacea of the
econo"ic ills.
6rotectionE Fne of the chief proponents of industriali*ation Danade also obser2ed that there was a
decided reaction against 9aisse* Faire in western countries also where State was recogni*ed as the
national organ for ta<ing care of national needs in all "atters. E2en in England ,he Factory
9egislation and Irish 9and Settle"ent indicated this change of "ind.
6lanningE Fnce industriali*ation on a large scale was identified as the "eans to de2elop Indian
econo"y? the role of state also beca"e 2ital in such a progra". ,he country was already bereft of
capital and there was a se2ere lac< of capital for"ation in the econo"y. Aoreo2er the pri2ate
capitalists also could not afford to set up large industries the"sel2es in the face of stiff co"petition
fro" )ritish industries. It beca"e essential for the State to contribute to the growth of large-scale
,he role of the state to these thin<ers was also not confined to industrial growth but also included
the responsibility of bringing about the agricultural and social refor"s. ,he early criticis" of
9aisse* faire policy in India? thus? gradually de2eloped into the idea of positi2e state participation
in the econo"ic acti2ities of the nation.
C-an0e in t-in7in0 on L5: 9ater on another reason for this de"and was the success of the first
plan in Dussia in sharp contrast to the pre2ailing crisis of the :reat !epression. ,his also fueled
the de"and in India to in2ol2e state participation.
Development of firms in modern economic activities finds its roots in the firms of pre modern times.These
pre modern firms also help in understanding the aspects of present day Indian economy.
The Family Firms
1. They take deposits, make loans, transfer govt funds, engage in wholesale and retail trade.
2. They took up the role of a managing agency for newly founded industries.
3. So they could e ankers or consultants, selling!purchasing agents.
Three types of marwari firms : 1" The great firms ,
2" The anians and the rokers,
3" The speculators.
1. #ossesed large resources disposed off through large numer of ranches scattered throughout India.
2. Involved in various lines of trade $commission agents, ankers, employers".
3. They were a conglomerate of interacting firms elonging to closely related memers of one family.
%g. Daddas created a merchants city state in #halodi.
&. They otained autoomy over harassment of employees and control over firms' personnel.
(. )ellow community memers were employed in these firms to ensure loyalty.
*. +ll ranches of the firms were separate units.
These firms e,emplified the steps y which marwari usinessmen progressed.They had estalished the
network on which the marwari emigrants spread themselves throughout the country.They provided initial
employment to marwari emigrants.
1. -ulk of marwaris were initially intermediaries etween domestic producers and consumers and freign
e,porters and importers.
2. .ocal retailers purchased in ulk from wholesalers on * month credit of limited amount.
3. /arket town stores purchased!sold through their commission agents in port cities.
&. These commission agents had to deal with %uropean importers.So, they appointed a guaranteed roker
called 'anian'.
(. These anians received around 10 of commission.
*. Their 1o was to guarantee the trustworthiness of Inidan usinessmen who dealt with these %uropean
2. Their approval was necessary for any transaction.
3. They were responsile for 4uality!4uantity of goods,merchandi5e, shipments etc.
6. They had to good any deficiencies in weight or 4uality.
17. They had to dispose off the goods at highest possile rates.
11. They were employed mainly in cloth, opium and raw cotton trade.
12. 8ute firms did not use them mainly ecause it did not need their connections.
13. %uropena firms in omay employed anians$mostly parsees and hatias".
E%amples& Saraf and /usuddi , 9oenka , 8hun1hunwala , 8atia.
The anian relationship with %uropean firms and their large network formed the foundation for speculative
1. The futures markets of :alcutta in opium,raw 1ute were started y marwaris as early as 1261.
2. ;apid oscillations in opium prices, compounded y the unstale conditions of e,change etwee India
and :hina rendered opium market unstale and hence gave speculators a chance of making
3. 8 < -irla along with =irmal .ohia and others was known as the king of speculative markets.
&. Share market was a second ma1or speculative market.
(. :alcutta Stock %,change was formed in 13(7.
*. 8ute %,change dominated y Indians was formed in 167*.
2. -omay Stock %,change was founded in 132(.
3. + common speculative transactio was ;ain -argain, wagers on when would the first rain would arrive.
6. :alcutta speculative markets were closed during >> I.
17. Slowly, with increase in 1ute shares, these markets gained momentum.
Fr(its of Spe)(latio*
It was the speculative gains made y marwari usinessmen that enaled some of them to start usiness
right after >> I.
9D -irla started 1ute mills in 1613?16.@ther commercial innovations were enaled y the speculative gains.
In 1612, -irla -ros. ecame the first Indian owned :alcutta firm with its own e,port office for 1ute in .ondon.
Speculative firms were successful as entreprenuers in the modern period.
9reat firms, e,cept 8atias and Singhanias, have receded relatively.
-anian firms, again e,cept 8atias and 9oenkas, have receded asolutely.