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Indrajeet Kumar, M Phil 2014, CDS.

A Review
The Economic History of India, 1857 to 1947; by- Tirthankar Roy
Right through this write up my immediate objective is to briefly summarise the major
events of Indias economic history before independence. Under this endeavour, I will present
glimpses of two hundred years old British imperialism in India and its consequences in economic
history of India. Period from 1757 to 1857 under the Company rule and later from 1858 to 1947
as Crown rule of Britain over India1 will be the major focus. Thereafter, I will summarise the events
in statements under different thesis of economic history of British India.
In first section, I will mainly concentrate on present rhetoric of Indias economic history
followed by Indias economic history before independence in literature. It is further imperative
enough to know that, what was the economic activities century before the British rule in India,
which played as a launching pad for Indias colonisation under Britain. As agriculture has been the
legacy of Indias economic history, that has struggled to transform the same into industrialisation
based on agricultural inputs such as-cotton textile. Therefore, agriculture and industry are the
major areas to be looked into. Capital flows and trade are the economic indicators of integration
of home economy with the rest of the wold, which will be taken as an indicator of globalisation of
British India. Finally, it is growth that maters, so growth during British India will be the gauging
tool of success and failure of British India policies at economic front.
A brief review of economic policies of British rule in India
Economic historians concern of Indias economic history primarily revolves around the
three major questions, that is- how large, of what nature and how lasting was, the impact of British
rule in India was! The two competing view that has empirical and theoretical foundations areorientalists and Indian nationalist view. Orientalists2 claim of bringing modernity in India by
British Empire has equally been contested by Indian nationalist view of development of under
development through exploitative laissez fair policy by imperialist regime and thus a continuum of
persistence poverty3. Results of this colonial hangover can well be felt after independence as a
strong sentiment against foreign trade and investment and statism. Statism, the role of a welfare
state, was a colonial retreat lasted until mid-eighties, and there after a paradigm shift in early

India before independence including India, Pakistan, and Bangladesh.

People from western countries who are interested and studies Southeast Asia, and Asian subcontinent.
Dadabhai Narojis drain theory has been major theory propagated by Indian nationalist under this.

nineties. As Kuhn has categorically said, it is not the paradigms, which lives or dies down but it is
the followers. This is very much true for Indian case too, by the end of eighties there has been a
complete change in economic think tank in Indias economic policy forums and thus, a new set of
economists who had experience of independent India more than the colonial ones.
When East India Company established its foothold in Bengal presidency in 1757 after the
battle of Palasi, and company rule started to spread other parts of India gradually, by the end of
half of the 19th century the current shape of India had been taken as administrative boundaries.
After the Sipoy mutiny of 1857, British Crown directly ruled India. Soon after, there emerged a
distinguishing feature in British India, which was new in many of the aspects. Three distinguishing
feature of British India can be categorised as- structural features, global features and colonial
Structure of the economic activity was mainly based on availability of natural resources;
agrarian in particular, which was mainly a labour intensive economic system was the structural
feature. Secondly, openness of the economy was the major outcome of global features, this was
realised by- railways, telegraph and opening of the Suez Canal. Railways was the major global
feature, which affected the British India the most, it facilitated integration of major presidencies
of British India namely- Bombay, Calcutta and Madras. Which acted a major change in economic
and administrative outlook of British India until 1947. Thirdly, colonial feature in the form of large
remittances4 paid to Britain, creating balance of payment features (BOP).
Another defining and administrative reform was introduced in the form of establishment
of legal and property right institutions. This gave a way for restructuring of society and new class
formation- working class, purely economic bases of classification, rather than social as caste. At
later stages, import of manufacturing goods - cotton textiles form Britain and export of
nonmanufacturing goods- indigo and opium from India, were the major economic policy under
British India. Largely it was proto-commercialisation of agriculture, which ultimately led to less
land availability for food grain production, which became an eminent danger for famines and
poverty during and after last quarter of 18th century. All these events acted as the sources of
economic regression for Indian economy. The predominant forces of regression were- import of
cotton textiles from Britain and exploitative tax structure of British India as land revenue collection
as taxation.

Latter studies revealed that remittances accounted just between .5-1 of total GDP of British India.

There has been a continuous decline in employment5 in traditional industry and

construction from 1901 to 1931 and even after forty years of independence in 1991, the situation
has been more or less same for this sector. As far as agriculture is concerned, the employment
share from 1901 to 1931 and after years of independence, the proportion of people employed has
remained almost same. Agriculture being the most risky occupation in India both before and after
independence, shows peoples vulnerable for poverty has been persistence after years of planning
and policy formulations. This is very much evident from table-1.
Table-1: Employment (percentage share of main occupational classes)




Agriculture and allied occupation




Modern industry



Traditional industry and construction











Source: Roy (2002).

Agriculture was mainly subsistence and rice used to be the major staple food in rain fed
regions. This was the reason for deadly combination of rice, rainfall, and famines. In the absence
of canal irrigation in eastern region, rice cultivation was mainly dependent on mercy of the god
that is rain. If rain is less the cultivation of rice used to be substantially reduce the rice yield and an
eminent situation of famine. Frequent famines in Bengal presidency from 1875 to 1910 was the
major cause for frequent disequilibrium in land labour ratio. From 1900 onwards, production of
commercial crops aggravated the problems further. This commercialisation was supported by
grading in society which was ensured by early division of labour (who will do what) producing rent
rearing class and tiller class. Eastern region which was abundant in water, fertile land, dense
population, well developed foreign trade, and a rigid hierarchic in society were the defining forces
of agricultural practices. Fertility of land created classes in genetic plains.
Different revenue arrangements for different parts of India, based on land characteristics
was predominantly found in the periods of 1857 t0 1947. Raitwari was revenue arrangement for
Bengal presidency, which had concentrated fertile land. Major impediments of agricultural growth

Percentage of people share of main occupational classes.

were- multiplicity of weight measures, risky transportation system, and barter system. Rich
peasants gained more after commercialisation of agriculture than the small peasants. For growing
commercial crops inputs costs were high, so to finance these input cost at showing time by small
farmers were a risky business hence if the crop fails they were not able to repay their debts and a
severe poverty trap and indebtedness. A new group of social class emerged during this period,
called capitalist class, credit practices started. This can be empirically substantiated by the widening
difference of real wage and income per worker. That is there is an evidence of non-wage income
class, an income from capital and capitalist class. In later periods of 20th century British India, it
was found that low investment in agricultural sector turn out to be major impediment of agriculture
There has been deindustrialisation of Indian economy during British and after
independence. At the beginning of the 20th century, there was a complete dichotomy of
traditional and modern industry, which is an outcome of Britains contact. Major large-scale
industries were- cotton and jute mills, which was labour intensive, a situation of
protoindustrialization. Traditional industries consisted of- handlooms textiles, leather
manufactures, metal utensils, pottery, food processing, woodwork etc. Lack of capital institutions
fuelled high cost of capital, which ultimately led to the emergence of a business class who invested
their own money.
There have been many theories of limited modern industry in British India, out of this
most prominent are- Morris (1983) and Bagchi (1970). According to Morris, market constraint of
demand was the major impediments of limited industrial growth in British India. Which mainly
consists of self-sufficient villages, which had not much demand for industrial goods and thus there
was no economies of scale incentive for industrialisation. The second theory propagated by Bagchi
is that, it is not that the market constraint of demand that was responsible for limited
industrialisation of British India but it was Buy British approach, which ruined Indian industries.
According to Bagchi, dumping of British industrial goods, most importantly cotton textiles from
British mills were the reasons of not growing up of Indian textile based industrialisation. On the
contrary, the same happened in Britain, even though there was huge market for cotton textiles in
India. To Roy, it was high cost of capital and scarcity of skilled labour was the main reasons of
limited industrialisation in British India. High cost of capital due to low saving rate and there were
no established credit market institutions other than local moneylenders. Which used to charge
interest high enough to loan for a venture capital. Major reasons for low skilled labour were very

low literacy. At the beginning of the 20th century, only 4-5 % of Indian population was literate.
Leather and handlooms industry faced a steep decline to the early of the last century, which never
came up.
Agriculture and industries
Production and wages in agriculture and industry can be analysed by formulating an index
for two times from 1900-01 to 1904-05 and 1934-35 to 1939-40. From table-2, it is quite evident
that index of production for food grains have been stagnant. That is, no substantial changes in the
production of food grains in first four decades of twentieth century British India.
Table-2: Production and wages
1900-01 to 1904-05


Index of production
a. Food crops
b. Non-food crops
Modern industry
Index of real income in
Traditional industries
Index of real wages
a. Modern industry
b. Non-agricultural
i. Skilled
ii. Unskilled

1934-35 to 1939-40









Source: Roy (2002)
As far as non-food, crops production is concerned it increased by almost fifty percentage.
Modern industry increased production by three times, even if it accounted minimal share in GDP
(table-1). Traditional industries did not had as much improvement as modern industries. This
differential can be attributed to low base for modern industries, which had just started to be felt
in peoples lives. That is, a base effect phenomenon.
For the index of real wages, the highest increased has been accounted for modern
industries, followed by skilled non-agriculture and then unskilled non-agriculture. Over all, there
has been a neglect of agriculture sector, reflecting in the form of low production and dismal
increase in wages.

Global flows of trade and capital

There has been continuous increase in trade to GDP ratio from 1800 to 1947. It was 12% in 1800, 10% in 1860s and 20% in 1914. But the basic differential which cannot be easily
understood by figures is that, was this trade to GDP ratio was increasing due to sell of raw materials
to Britain and buying manufacturing goods from Britain, and thus a substantial continuous increase
in trade to GDP ratio. Which was due to colonial compulsion and structural advantage. This is
why until great depression there has been a merchandise trade surplus. In colonial India, money
supply was mainly influenced by balance of payment (BOP), and primary objective of money
supply was to stabilise the exchange rate. Stabilisation of prices and output were assumed to
happen automatically.
Low rate of investment, 2-4% of national income was said to be the main cause of
deceleration and stagnation. Under drain theory (Dadabhai Naroji), high remittance payment to
Britain led to low capacity to import and ultimately low investment. However, empirically it has
been measured that remittances accounted just about 0.5 to 1% of national income. From Indian
front hunger for gold and silver acted as restricted productive investment during 1800 to 1900.
Indias economic growth during the colonial period
According to Roy, living condition declined after 1914, from 1868-1914 there has been
accounted an increasing economic growth and rising standard of living (table-3). During this
period, though income growth has been lesser than NDP. This can be attributed to increasing
population growth during British India. From 1868 to 1914, India accounted positive per capita
growth rate but during 1914-1946 it had negative growth rate for per capita NDP.
Table-3: Growth rates of net domestic products (NDP) and population, 1868- 1869 to 1946-1947.
(Year to year growth rates, percentage annual)



per capita NDP

















Source: Roy (2002)

To come to a single conclusive statement for British Indias economic history will be quite
judgemental and objective. There has been five thesis under which Indias economic history cab
be understood.
According to leftist nationalist view, totality of colonialism, which worked as a reason for
unequal exchange and thus a drain of capital from India to Britain, was the major cause for dismal
economic performance of India during British rule. Second, force commercialisation of Indian
agriculture, which was more or less working under subsistence, did not withstand with costly inputs
and fluctuating losses, and led peasants to fell into moneylenders trap, a regression to economic
activity. Third, perilous commercialisation, from food to non-food, resulting shortage of food and
thus frequent famines (during 1875 to 1910 there were three major famines in Bengal presidency
region). Fourth, deindustrialisation as a cost for India for industrialisation in Britain. This led to
decline in traditional industries. Fifth, position of public goods, railways and telegraph, as a symbol
of aid to imperil defence or foreign capital, a suppressive toll for Indian masses and economic
activity. Summarily, would not be it ripe enough to say colonialism is first a matter of consciousness
(Ashish Nandi).

The Economic History of India, 1857 to 1947; by- Tirthankar Roy, Oxford University

Roy, Tirthankar (2002), Economic History and Modern India: Redefining the Link, Journal
of Economic Perspective, Vol.16, No. 3, pp. 109-130.