7 Orient BlackSwan Bipan Chandra+ ESSAYS ON COLONIALISM - . 1980. Karl Marx, his theories of Asian societies and colonial rule. In Sociological Theories: Race and Colonialism, UNESCO. Paris, Also in Review, vol. 5, no. 1, summer 1981, Desai, A. R. 1959. Social Background of Indian Nationalism. 3d ed. Bombay. Dutt, R. Palme. 1949. India Today. Bombay. Emmanuel, Arghiri. 1972, Unequal Exchange: A Study of the Imperialism of Trade. London, Frank, A. Gunder. 1967. Capitalism and Underdevelopment in Latin America. New York. Furnivall, J. S. 1956. Reprint. Colonial Policy and Practice. New York. Ganguli, B, N. 1958, India: A colonial economy (1757-1947). Enquiry, 1. Gold, D. A., C. Y. H. Lo, and E. O. Wright. 1975. Recent developments in Marxist theories of the capitalist state, Monthly Review, vol. 27, nos. 5 and 6, October, November. Gramsci, A. 1971. Selections from the Prison Notebooks. Edited by Q. Hoare and G.N. Smith, London, Magdoff, Harry. 1974. Imperialism: A historical survey. In Imperialism in the Medern Phase, vol. 1, ed. B, Chattopadhyaya. New Delhi. Martin, Jay. 1973. The Dialectical Imagination. Boston. Marx, Karl, n.d. The Eighteenth Brunaire of Louis Bonaparte, New York. Miliband, Ralph. 1969. The State in Capitalist Society. 2d impression. London. . 1970. The capitalist state: Reply to Nicolas Poulantzas. New Left Review, 59. 1973, Poulantzas and the capitalist state. New Left Review, 82. Myrdal, Gunnar. 1968, Asian Drama, 3 vols. Penguin ed. London. Poulantzas, N. 1969. The problem of the capitalist state. New Left Review, 58. 1973. Political Power and Social Classes. London. 78 + FOUR The Colonial Legacy: The Case of India India’s development aftcr 1947 as also its economic policies have de- pended on and been conditioned by the constraints of the colonial legacy and the inherited structure and pattern of underdevelopment. At the same time, the strategic désign and thrust of India’s devel- opment and its policies were deeply influenced by the hegemonic ideology of the national movement, which overthrew colonial rule, and by the framework of development that it had evolved since the last quarter of the nineteenth century. India’s underdevelopment was not traditional or inherited from the precolonial past. India of the eighteenth century was undeveloped and not underdeveloped. On a world scale it was not less but perhaps more developed than many other national economies, as most of the world development has occurred after the eighteenth century and basically after 1850. In fact, there was not much of a gap between the economic condition of Mughal India and that of pre-industrial Europe and Japan. It was under colonial rule, and as a consequence of it, that the Indian economy became underdeveloped in the contemporary context. The basic feature of colonialism in India in its long history since the 1750s was the appropriation by Britain of the social surplus produced in India. Also while the forms of surplus appropriation underwent changes through the different stages of colonialism—direct appropriation of surplus, employment of ‘our boys’, unequal exchange, profits of industrial capitalism and interest on public debt—the fact of surplus appropriation remained constant and basic. There were, of course, many changes and some of them were positive—for example, the development of the railways—when seen in isolation. But these changes came within and as part of the colonial framework and became, therefore, part of the process of underdevelopment. Colonialism is best seen as a totality or a unified structure. The newly developed institutions and evolving structures formed an inter- connected and mutually reinforcing network which subserved and “ATO «+ ESSAYS ON COLONIALISM + brought into being the colonial structure. To see colonialism as a structure is also to realize that it would have continued to reproduce itself until it was shattered. The four basic features of the colonial structure in India are discussed in the following section. I. Structural Features of Colonialism First, colonialism was the complete but complex integration of the colony with the world capitalist system in a subordinate or subservient position. We must note that the subordination of the colony's economy and society, not its mere linkage or integration with world capitalism or the world market, was the crucial or determining aspect of colo- nialism, The latter, i.c., linkage or integration with the world market, is true also of independent capitalist or socialist economies and is what makes capitalism a world system. Second, colonialism in India can be viewed as being informed by the twin processes of unequal exchange and internal disarticulation of the economy, and the articulation of its different disarticulated parts—through the world market and imperialist hegemony—with the metropolitan economy. This feature took the form of a structure of production whereby India specialized in the production of raw mate- rials and foodstuffs and Britain in manufactured goods, with India exporting the former and importing the latter. Thus, India was in- creasingly reduced to the status of a mere agrarian appendage and a subordinate trading partner of Britain. It became a classic colony. This feature of colonialism continued even when India developed a few labour-intensive industries, such as jute, and exported their products and started purchasing, though on a paltry scale, machinery and machine tools. For, the heart of the colonial relationship and unequal exchange was the particular international division of labour by which Britain and other metropolitan countries produced high- technology, high-productivity, high-wage and capital-intensive goods, while India produced low-technology, low-productivity, low-wage and labour-intensive goods. Thus international trade became an instrument of exploitation and underdevelopment. The pattern of India’s foreign trade indicates the extent of the colonialization of the Indian economy. Table 1 which gives the composition of India’s foreign trade during the early twentieth century brings out the heavy bias of exports towards foodstuffs and raw materials and of imports towards manufactures. + 80. + The Colonial Legacy + Table 1 Percentage Composition of Exports and Imports, 1913-1939 Year Exports Imports Food, drink, tobacco, Manufactured Food, drink, tobacco, Manufactured raw materials goods raw materials goods 1913 76.6 2.4 19.2 79.4 1920-4 742 24.8 215 76.7 1925-9 725 26.6 25.4 72.6 1930-4 72.0 26.9 275 703 1935-9 68.5 30.0 33.8 64.4 Source: Kumar (1984, 2: 856) and Varshney (1965: 457). Most of the manufactured goods exported were products of low technology. For example, in 1938-9, jute and cotton textiles formed 68.3 per cent of all manufactured exports (Varshney 1965: 474). Simi- larly, machinery’s share of imports was only 2.9 per cent in 1900-1, 3:7 per cent in 1910-1, 8.7 per cent in 1930-1 and 11.1 per cent in 1933-4 (Kumar 1984, 2: 858). This feature of colonialism in India is also brought out by the low level and stunted character of industrialization, the preponderant share of technologically backward, stagnant and low-productivity agriculture in national product, and the pattern of industrial devel- opment, which are discussed in section II below. Third, the heart of the process of economic development is the utilization of the economic surplus generated in the economy for extended reproduction. Development depends upon the patterns of control over and utilization of surplus. The third feature of the colonial structure in India was the small size of the actual social surplus or of internal savings available for investment in the economy, as is brought out by table 2, even while India’s potential surplus was quite large. Table 2 Capital Formation and Savings, 1901-1946 Gross Total Capital Net Total Capital Net Saving Year Formation Formation (% of GNP) (% of GNP) (% of CNP) 1901-3 6.92 4.00 3.79 1914-46 6.75 2.27 2.75 Source: Goldsmith (1983: 20, 80). 4 Shs+ ESSAYS ON COLONIALISM + The share of industry in this low level of capital formation was abysmally low, non-agricultural machinery forming only 1.92 per cent of the gross national product during 1901-13 and 1.78 per cent during 1914-46 (Goldsmith 1983: 20, 80).! The small amount of actual social surplus available for investment in the economy was in turn the result of several factors. First, was the ‘drain’—that is the unilateral transfer of social surplus or potential investible capital to Britain by the colonial state, its officials, foreign merchants and other capitalists through unrequited exports. India re- ceived no equivalent economic, commercial or material returns in any form, The result was that a substantial part of the surplus generated in India served as capital and entered into extended reproduction not in India but in Britain and its white colonies. While till 1858 the ‘drain’ mainly took the open form of tribute or direct transfer of resources, after 1858 it consisted of the expenditure in Britain under home charges (representing interest on public debt, pensions and the civil and military expenditure of the Government of India in Britain); the remittances to Britain, of a part of their income, by British officials, professionals and businessmen in India; the export of the profits of private foreign capital invested in trade or industry in India; and the invisible charges on account of shipping, banking and insurance. Estimates of the ‘drain’ over the long period from 1757 to 1947 differ widely, though the fact of ‘drain’ is denied by very few. For the end of the nineteenth century, the estimates varied from £20 to £30 million a year. According to R. C. Dutt, the drain constituted nearly one-half of India’s net revenue. G. V. Joshi’s view was that it formed 6 per cent of India’s national income and, what is more significant, nearly one-third of its net social surplus (Chandra 1966: chap. 13). According to V. V. Bhatt, on a very conservative estimate, * In contrast, the figures for 1956-60 and 1971-5 are as follows: Year Gross Capital Net Capital Total Savings Share of Machinery Formation Formation and Equipment (%GNP) (%GNP) — (%GNP) (% GNP) 1956-60 18.80 12.50 795 5.40 1971-5 20.14 14.45 12.35 635 Source: Goldsmith (1983: 156, 159) According to V. K. R. V. Rao, net savings were 6.82 per cent of net domestic pro- duct (NDP) in 1950-1 and 19.54 per cent of NDP in 1979-80 (Rao 1983: 135). 82. « + The Colonial Legacy the ‘drain’ constituted 2 to 3 per cent of India’s national income from 1757 to 1939. On the other hand, according to Angus Maddison it was only 1.5 per cent of the national income from 1921 to 1938 (Maddison 1971: 65). Irfan Habib’s view is that it amounted to 9 per cent of the national income during 1783 to 1792 and 4.14 per cent of the national income in 1880 (Habib 1988: 5, 11). According to Ramakrishna Mukherjee, the average annual ‘drain’ from 1834 to 1857 was £63 million, that is about half the annual land revenue collection for the period (Mukherjee 1955: 224-5). According to the detailed calculations of Shah and Khambata, the drain came to nearly Rs 2,200 million (£146 million) in the year 1921-2 (Bose 1965: 503-4). The easiest as also a quite scientific way of conceptualizing the ‘drain’ has been to see it as India’s positive balance of foreign trade in commodities and bullion.* Between 1921 and 1938, this balance averaged Rs 829 million per year (Banerji 1963: 147). Interestingly, India’s export surplus enabled Britain to meet a large part of its trade deficit with the rest of the world. There is more agreement on the extent of the home charges which are easier to calculate. They came to £13.5 million in 1873 and £15.8 million in 1893 (Rothermund 1986: 43), £20.3 million in 1913, $31.9 million in 1924 and £28.5 million in 1934 (Ray 1979: 13). There were two other sources of the transfer of India’s social surplus to Britain which are usually ignored by historians and economists. A large part of India’s military expenditure, which formed 30 to 50 per cent of its total expenditure, represented a diversion of Indian revenues for imperial purposes. It enabled Britain to expand, and then maintain its imperialist position, in Africa and Asia. It was therefore a form of colonial surplus appropriation. Similarly, India provided highly lucrative employment to a significant number of upper-class Britons. Along with British capitalists and managers in India, they appropriated nearly 5 per cent of India’s national income (Maddison 1971: 69). According to a parliamentary return of 1892, Europeans getting salaries of Rs 1,000 or more per year appropriated as salaries and pensions nearly 30 per cent of the total net revenue of the Indian government (Chandra 1966: 606). A very large part of India’s social surplus was appropriated by the colonial state which, as we have seen, exported a large part of it or spent it on the army and civil administration, spending very little ® Cf. Sunanda Sen: “The export surplus from the country [indicated] rough mag- nitude of the real transfers in colonial India” (Sen 1992: 98). a8.+ ESSAYS ON COLONIALISM + on the development of agriculture and industry or on social infra- structure or nation-building activities such as education and health services. In fact, the colonial state’s system of financial management bore little relation to the needs of the Indian economy and was a major negative feature of colonial policy as well as a causative factor in India’s underdevelopment. Land revenue or land tax formed a very large share of state revenues for most of the colonial period. For example, the land revenue at constant prices increased in the Ceded and Conquered Provinces (or Agra province) by nearly 70 per cent during the first half of the nine- teenth century (Habib 1975). The incidence of land revenue varied in different parts of the country, but there is no doubt that it pressed hard upon the cultivator till the end of the nineteenth century. The rates of land revenue were high in relation to the value of net output per acre. It was only from the beginning of the twentieth century— because of rising population and stagnation in agricultural production and the consequent inability of the peasantry to bear the high tax burden, the rise of the anti-imperialist movement, and the fear of peasant protest—that the state reversed its policy and began to relax its pressure on land. It now followed the policy of not increasing land revenue in proportion to rising prices. But it was only the inflation on account of the Second World War which led to a substantial light- ening of the burden of land tax, as is brought out in table 3. Table 3 Land Tax in India, 1867-1949 (Rs million) Year Land Revenwe ‘Total Tax Revenue (1) as % of (2) @) (2) 1867-8 203 337 60.2 1895 262 565 46.4 1925-6 355 1411 25.2 1931-2 329 1340 24.6 1948-9 260 5130 5A Source: Bhatt (1963: 41). Moreover, the decline in the burden of land tax was accompanied by an increase in the burden of other taxes, such as the salt tax borne mainly by the rural poor. The Indian taxstructure was highly inequitable and regressive, with the main burden falling on the poor. There was no tax on landlords except the land revenue which they passed on gas + The Colonial Legacy + to the actual cultivators. The level of direct taxes was extremely low till 1914 and substantially low after 1914 until the Second World War. The number of income-tax payers was only 360,000 in 1946-7 (Kumar 1984, 2: 926). The distribution of central and provincial tax revenues for selected years from 1900-1 to 1946-7 is shown in table 4. Table 4 Composition of Total Tax Revenue, 1900-1947 Total Tax As % of Total Tax Revenue Revenue Land Tax on Year (Rs million) Revenue Customs Excise Salt Income Others 1900-1 575 53 9. 10 3 16 9 1917-8 914 36 18 17 10 2: 10 1921-2 1,269 27 30 14 15, 5 10 1930-1 1,310 23 36 13 12 5 11 1940-1 1,424 19 28 16 19 7 13 1946-7 4,420 7 22 22 37 2 2 Source: Kumar (1984, 2: 929). The patter of public expenditure was almost wholly non- productive, the bulk of the public revenues being absorbed by two heads: military expenditure and civil administration which was mainly geared to maintaining law and order and collection of taxes. After 1890, military expenditure absorbed nearly 50 per cent of the central budget and one-third of the combined central and provincial budgets. On the other hand, the expenditure under nation-building heads was abysmally low. For examplo, in 1920-1, total central expenditure (minus expenditure on railway account) was Rs 2,128 million; of this Rs 883.3 million were spent on military services. Civil administration at both central and provincial levels absorbed Rs 383.9 million. On the other hand, the expenditure on education, health and sanitation, agriculture, and scientific and miscellaneous departments was Rs 37.6, Rs 77.5, Rs 16.9 and Rs 14.9 million respectively, totalling Rs 146.9 million. The expenditure on irrigation was Rs 70.2 million, but then income ander this head was Rs 88 million (compiled from Vakil 1924: 545). Indian revenues had to also finance the home charges. As Sunanda ~ In 1908, while India spent over a third of its revenues on defence, Great Britain spent 22 per cent, the dominions 3 per cent and the colonies 4 per cent (Kumar 1984, 2: 932). 2985.5+ ESSAYS ON COLONIALISM + Sen has put it: “Thus the nation not only transferred the sterling proceeds of her net export earnings to England (to settle the home charges) but was also forced to go through a simultaneous contraction in official expenditure in the domestic economy which was of an equivalent amount in Indian rupees” (Sen 1992: 196, 49-73). During the twentieth century, a large part of India’s social surplus began to be controlled by the landlords and moneylenders. According to Angus Maddison (1971: 69), princes, big zamindars, landlords and other intermediaries, including tenants-in-chief, appropriated nearly 20 per cent of the national income. Surendra J. Patel (1956: 7) has calculated that by the end of the colonial period the rent and interest appropriated from the peasantry amounted to Rs 1,400 million per year.* Only a very small part of this huge surplus was invested in the development of agriculture or industry. It was squandered in con- spicuous consumption or used for further intensifying landlordism and usury. The fourth basic feature of colonialism in India was the crucial role played by the colonial state in the subordination of India to Britain and in constructing, determining and maintaining other features of the colonial structure. India’s policies were determined in Britain and in the interests of the British economy and the British capitalist class. The development of India as a market for British manufactured goods and as a supplier to Britain of food and raw materials was brought about by active state policies in the fields of finance, tariffs, transport, communication, trade, foreign capital, currency, education, technology, banking and agriculture, and through the ‘drain’ or export of capital. A major explanation for the economic stagnation in colonial India is the denial of state support to industry and agriculture, perhaps the most powerful instrument of development in the early stages in almost all countries, including Britain. On the contrary, the colonial state adopted policies inimical to the process of development. Right up to the end of British rule, the economic vision of the colonial state was largely confined to increasing India’s capacity to export primary products, to purchase British manufactured goods, and to raise revenues to meet the ‘drain’ as well as the needs of imperial ‘defence’. * In 1939, agricultural debt was estimated to be Rs 18,000 million (Wadia and Merchant 1948: 190). Te was only in the 1930s that some of the capital with the moneylenders, princes and zamindars was diverted to industry. 2B + The Colonial Legacy + In the nineteenth century, the colonial state refused to take any steps to check or slow down the ruin of handicraft industries and the process of deindustrialization. Up to the end, it refused to give any financial or other help to the newly founded Indian industries, as was done in the early stages of industrialization by the governments of Europe and Japan.$ The colonial state imposed free trade on India and failed to give any tariff protection to its infant industries, as the governments of Britain, Western Europe and the United States of America had donc, with the result that during the last quarter of the nineteenth century, Indian ports were freer than those of Britain or of any other country.’ After 1918, political expediency led the Government of India to grant tariff protection to a few industries, especially those where, in any case, British exports were fighting a losing battle against exports from Japan, Germany and other European countries, But this tariff Protection was rigidly controlled and was narrow and ineffective. For example, it could be granted only to existing industries; new industries could not be started under a tariff umbrella. Tariff protection was granted more readily to British-owned than Indian-owned industries. Moreover, it was further attenuated in the 1930s with the introduc- tion of Imperial Preferences, i.c., the reduction of tariff rates on British manufactures. From the end of the nineteenth century, and in particular during the 1920s, the colonial state manipulated India’s currency policy to the detriment of Indian industry. It artificially raised the rupee’s exchange rate in terms of the sterling, leading to the cheapening of British imports and making Indian exports more expensive—thus blunting the competitive edge of Indian industries and Indian exports. A high exchange rate was maintained even during the depression. This, along with a deflationary monetary policy and relative absence of protection, enhanced and prolonged the adverse impact of the depression, especially on the peasants. F Under the guise of philanthrophy and constant pressure of British imdustrialists, the colonial state followed a labour policy that tried © Aslate as the 1930s and 1940s, many Indian industrial projects—for example, those for the production of locomotives, cars, acroplanes and ships—could not get started because of the government's refusal to give any help, as they would have competed with their counterparts in Britain. According to Maddison (1971: 56), “In 1880s, Indian custom revenues were only 2.2 per cent of trade turnover, ie., the lowest ratio in any country”. 8a+ ESSAYS ON COLONIALISM - to neutralize the advantage that Indian industrialists enjoyed, of access to cheap labour. The railway network and freight-rate policy made it cheaper for imports and exports (as compared to the inland traffic of Indian industries) to be carried by the railways. Until the late 1930s, Indian industries lacked banking support since the banking system was under British control; the government did nothing to support or encourage development banking or give any other help to Indian entrepreneurs in mobilizing capital. The government could have helped Indian industry by favouring it in its purchase of stores, as was being done by the governments the world over. For most of the colonial period, however, the Government of India purchased most of its stores, including railway stores, in Britain. And later, when it was compelled by Indian opinion to reverse this policy, it still did not give preferential treatment to Indian supplies, it merely allowed them to compete with British suppliers. Il. Impact of Colonialism Agriculture Colonialism became a fetter on India’s agricultural and industrial de- velopment. Agriculture stagnated and even deteriorated over the years, especially during the first half of the twentieth century when the full impact of colonialism was experienced. Per capita agricultural production declined at 0.72 per cent per year during 1911-41 (Blyn 1966: 122, 148). The situation was worse insofar as per capita food- grain output was concerned—during the same period, it declined by 29 per cent, i.c., at a rate of 1.14 per cent per year. Even though the per capita non-foodgrain output grew by 14 per cent, it failed to make up for the decline in foodgrain output (: 244). Whatever the absolute growth in agricultural output, it occurred mainly because of the increase in crop acreage. The rate of increase in all-crop yield per acre was near zero during 1911-1941. While all-crop and foodgrain yields declined by 0.02 and 0.44 per cent per year, non-foodgrain yield went up by 1.15 per cent per year (Blyn 1966: 154; Bagchi 1972: 96). The increase in the yield of non-foodgrains was basically at the cost of foodgrain yields, as cultivators shifted better and irrigated lands and capital resources to commercial crops in order to carn better returns. The stagnation in agriculture is basically explained by the fact that colonialism transformed the agrarian structure in India and made it + 88+ + The Colonial Legacy + extremely regressive. As is well known, the zamindars in zamindari areas failed to invest in land and relied on rack-renting, while the peasant proprietors fell into the clutches of the moncylenders and lost control over their lands. Subinfeudation, tenancy and sharecropping increasingly dominated both the zamindari and ryotwari areas. The heart of the matter was that agricultural surplus went into wrong hands. Resources were siphoned off from agriculture without any quid pro quo, thereby subjecting it to an internal drain of capital. Throughout the eighteenth and nineteenth centuries, high land- revenue demand ate into the peasant’s surplus and even his subsistence. But the government spent very little on improving agriculture as was, for instance, done in Japan. The landlords, old or new, took no interest in agriculture beyond collecting rent. They found rack- rent and usury far more profitable, safe and congenial than making productive investment in land. THe moneylenders and merchants used their increasing share of agricultural surplus to intensify usury or to take possession of land to become landlords. In many areas, a rich peasantry developed as a result of commer- cialization and tenancy legislation but it, too, quickly used its savings to buy land and become landlords or to turn to usury as moneylenders. One result was that no capitalist farming developed except in a few pockets. On the other hand, the vast mass of small peasants, tenants and sharecroppers had no resources nor incentive to invest in the improvement of agriculture. Moreover, whatever savings some sections of peasants were able to accumulate over time were usually knocked off by famine, scarcity and economic depression. Another reason for the stagnation of productivity in agriculture was the near absence of change in its technological base or its productive techniques and inputs. As Blyn (1966: 203) points out, the type of equipment used changed very little till 1941 and “as of the late 1930s about 32 million ploughs were being used in India and agricultural epartment agencies were selling about 7 or 8 thousand [iron ploughs} per year.” Furthermore, modern machinery was conspicuous by its absence. Improved seeds covered about 1.9 per cent of all crop acreage * By 1947, nearly 70 per cent of the total cultivated land in British India was owned by zamindars and landlords, In ryotwari areas, between 30 to 50 per cent of the land was in the hands of landlords and a large part of the rest was heavily under debt (Nanavati 1945: 374). In 1951, 27.8 per cent of rural agricultural families consisted of peasant proprictors, while tenants, sharecroppers and labourers made up the remaining proportion of families (Chandra 1979: 333). - 9. aia+ ESSAYS ON COLONIALISM + in 1922-3 and 11.1 per cent in 1938-9 (: 200); improved seeds being largely confined to non-food cash crops. The amount of chemical fertilizer used was insignificantand confined to imports which averaged less than 2,000 tons per year during 1898-1923, 17,400 tons per year during 1919-24 and which amounted to 99,452 tons in 1939. On the other hand, because of the decline in the proportion of cattle to acreage there was, after 1930, considerable decline in the availability of dung for fertilizer (Blyn 1966: 194-5; Wadia and Merchant 1948: 154-5). As far as agricultural education was concerned, there were only nine agricultural colleges with 3,110 students in 1946 (Blyn 1966: 202). There was hardly any investment in terracing, flood control, drainage and desalination of soil. Irrigation was the only field in which some progress was made, so that during the early 1940s, 26.7 per cent of the total cultivated area was irrigated, with government works irrigating about 15.5 per cent of the total cultivated area (Sharma 1965: 177). A very negative factor was the increase in subdivision of landholdings into smaller sizes, and the fragmentation and scattering of these holdings into non-contiguous parcels. It is also to be noted that com- mercialization did not change the unit or organization of productive activity (i.e, it did not lead to capitalist farming) nor lead to improved technology—what merely happened was that better soil areas and avail- able water and other resources were diverted from food crops to commercial crops. Industry Another aspect of India’s economic backwardness was the state of its industry. During the first half of the nineteenth century there was the sudden and quick collapse of its urban handicrafts. The ruin of Indian artisanal industries proceeded even more rapidly once the i re built. porieieecautacree began to develop during the second half of the nineteenth century but their progress was exceedingly slow and stunted. Up to the very end of the colonial period, the level of industry and technology remained low. During the nineteenth century, industrial development was confined to cotton and jute textiles. The iron and steel industry developed after 1907, while the sugar, cement and paper industries and a few engineering firms came up in the 1930s. Indian entrepreneurs took advantage of the limited opportunities for import substitution provided by the (depression-induced) weakening of the = 9. + The Colonial Legacy + linkages with the metropolitan countries.” Moreover, political diffi- culties of the government vis-a-vis the resurgent national movement compelled it to give the Indian industrialists more tariff concessions. Still, as late as 1946, cotton and jute textiles accounted for nearly 30 per cent of all workers employed in factories (Kumar 1984, 2: 643). According to the Census of Manufacturing in 1951, which covered the larger enterprises, of the total value added in manufacturing, 56.8 per cent originated in cotton and jute textiles, 6.6 per cent in sugar, 8.4 per cent in engineering, 7.6 per cent in steel, 4.1 per cent in chemicals and 2.1 per cent in cement (Chaudhuri 1979: 34). Consequently, even though modern industry developed quite fast after 1918—its rate of growth being 3.8 per cent per year (Goldsmith 1983: 68)—it had little impact on the overall economic situation; its share in national income at the end of British rule at 7.5 per cent Was quite insignificant (Maddison 1971: 68). In 1913, industry’s share was 3.8 per cent (Kumar 1984, 2; 592). Modern industry perhaps barely compensated for the displacement of the traditional handicrafts (Maddison 1971: 63). The paltriness of India’s industrialization is brought out by many indices. For example, in 1939, out ofa population of nearly 389 million (1914 census), only about 2 million were employed in modern in- dustries—the figure of those employed in factories working all the year round was 1.528 million (Bagchi 1972: 441; Kumar 1984, 2: 643). In 1951, only about 2.3 per cent of the labour force was employed in modern industries (Chandra 1979: 61). According to the Planning Commission, the number of persons engaged in processing and manu- facturing (including artisanal industries) fell from 10.3 million in 1901 to 8.8 million in 1951, even though the population increased by nearly 40 per cent during this period (Chandra 1979: 78 fn. 52).' Moreover, in 1951, of the total industrial output, at least 60 per cent if not 70 per cent was provided by the small enterprises in the unorganized sector (Chaudhuri 1979: 33; Shrimali 1965: 301). The underdevelopment of the Indian economy and the stunted character of its industrialization is also brought out by the fact that the composition or structure of India’s national product, the occupational Structure of its labour force and its level of urbanization remained unchanged or changed very little during the first half of the twentieth century. The first two aspects are brought out in table 5. * For details, see Chandra (1979: 7 ff). For a difterent estimate, sec Maddison (1971: 62). pu otis.+ ESSAYS ON COLONIALISM - Table 5 ‘Sectoral Distribution of National Income and Workforce, 1900-1951 Sectors % workforce % national income 1911 1951 1900-4 1942-6 Agriculture 74.8 75.7 66.6 57.6 Manufacturing? 12.2 11.9 20.9 25.3, Commerce? 13.0 12.4 12.4 17.1 Source: Kumar (1984, 2: 536). + Also includes mining, transport, storage and communication, © Includes trade and all other services. It is to be noted that the share of agriculture in national income came down largely because of its near stagnation after 1911. Moreover, modern industry contributed only 6 to 8 per cent of the national income in independent India in 1950, with small-scale enterprises and mining contributing 12 to 14 per cent (Chaudhuri 1979: 33; Shri- mali 1965: 301; Maddison 1971: 68). The share of manufacturing in national income was 3.8 per cent in 1913 (Kumar 1984, 2: 592). The urban population’s share in total population was 10 per cent in 1901, 11.1 per cent in 1931 and 12.8 per cent in 1941 (Davis 1951: 127). A very important feature of India’s industrial structure was the virtual absence of the capital- or producer-goods industry. Indian in- dustries had to rely almost wholly on imported machinery and machine tools. In 1950, India met 89.8 per cent of her need for machine tools through imports, producing internally only Rs 3 million worth of machine tools and portable tools (Chaudhuri 1979: 70; Basic Statistics 1981: 56).'! Similarly, modern banking and insurance were grossly under- developed. In 1914, class A and class B banks had fewer than 200 offices or only one office for every 1.7 million inhabitants; in 1940, they had 1,318 offices or one office per 315,000 inhabitants; and in 1946, the number rose to 4,644 offices or one office per 90,000 inhabitants (Goldsmith 1983: 92). Underdeveloped banking and insurance meant that the Indian entrepreneurs could not adequately mobilize the available capital. Also, British-controlled banks starved the Indian industry of funds and favoured British-owned and controlled en- terprises. Another factor hampering industrial development was '' Of course, machinery imports, too, were meagre, being worth less than Rs 50. million per year from 1930 to 1938 (calculated from Rothermund 1986: 116~7). +R. + The Colonial Legacy + agriculturalstagnation and the general poverty of the people, which limited the market for industrial products. Above all, as we have seen earlier, the government policy of not giving support to Indian industries and even disfavouring them proved to be a major obstacle. Two positive factors could have been the growth of foreign trade and the rapid construction of railways. But both became instruments for the underdevelopment of the Indian economy. India’s pattern of foreign trade was an index of its underdevelopment. Rising imports did not supplement and aid indigenous industry or help create ‘a new and effective demand’ and consequently new industries. Under conditions of free trade, imports displaced indigenous handicrafts and artisanal industries and prevented the rise of new industries. Inter- national exchange did not supplement domestic exchange; it substituted for it. Moreover, foreign trade served as the main channel for the ‘drain’ or export of India’s social surplus. In the absence of a simultaneous Industrial Revolution, railways in colonial India only introduced a commercial revolution and further colonialized the Indian economy. The layout of railway lines and the railway freight-rate policy promoted the export of raw materials and the distribution of imported goods, as they encouraged traffic to and fiom ports as against traffic between inland centres. The railways also did not have any forward or backward linkages in the domestic economy. They encouraged the steel and machine industry not in India but in Britain. They served as a social overhead not for Indian but British industry, and their external economies were exported back to Britain. Until the late 1930s, foreign capital dominated the industrial and financial fields and controlled the foreign-trade network as also part of the internal trade that fed into exports. British firms dominated coal mining, jute, shipping, banking and insurance industries, and tea and coffee plantations. Moreover, through their managing agen- cies, the British capitalists controlled many of the Indian-owned companies. Another important feature was the entry, after 1918, of giant multinational corporations such as Unilever, Imperial Chemical Industries, Dunlop and General Motors through their branches or subsidiary companies. It is important to note, in this respect, that foreign investment rarely marked a transfer of capital to India from abroad. It was far less than the unilateral transfer of capital or the ‘drain’ from India. Three other characteristics of foreign investment in colonial India need to 5e noted. First, it contributed to “the guided underdevelopment” of aoge 5+ ESSAYS ON COLONIALISM - India by concentrating on the production and export of raw materials and foodstuffs. Second, it went into sectors which catered to foreign markets and not to India’s home market. Third, “the multiplier effects in terms of income, employment, capital, technical knowledge, and growth of external economies of these investments were largely ex- ported back to the developed countries” (Bose 1965: 504). Other indicators of economic backwardness One of the criteria of economic growth is the growth of per capita national income. Colonial India witnessed a very slow growth in India’s total national income, and stagnation, if not decline, in per capita income. Even the most optimistic estimates argue for only a marginal increase in the latter. The data for the period before 1913 is very scanty. According to the most recent estimate by R. W. Goldsmith (1983), per capita income was more or less constant between 1881 and 1908. It went up by 10 per cent between 1908 and 1913 (: 5-6). In thirty-three years, from 1913 to 1946, it went up by 9 per cent according to S. Sivasubramanian (cited in Ibid.: 15) and by 4 per cent according to A. Heston (Kumar 1984, 2: pt. 1, chap. 4); and it fell by 7 per cent according to Angus Maddison (1971: 167-8). Table 6 gives the decadal picture. Table 6 Estimates of National and Per Capita Product, 1913-46 {at constant prices) Year Total National Product Per Capita National Product se hat iS He Me Indices 1913 100 100 100 100 100 100 1920 100 96 94 100 % 94 1929 127 126 110 116 115 100 1939 138 134 119 110 107 =} 1946 149 142 127 109 104 B % Rate of Growth 1914-1946 1.22 1,08 0.73 0.26 0.13 -0.22 Source: Goldsmith (88 4). ? Sivasubramian. > Heston. ° Maddison, +946 + The Colonial Legacy + These figures do not, however, bring out the full extent of the prevalence of extreme poverty among the Indian people. There is no disagreement among historians that throughout the colonial period most Indians lived on the verge of starvation. In the second half of the nineteenth century, the poverty of the people found expression in a series of famines which ravaged all parts of India and carried away nearly 30 million people. Nor can the stagnation in per capita income be explained by a high rate of population growth. Between 1871 and 1921, the Indian population grew at a rate of 0.4 per cent per year. The rate picked up after 1921 but was still only about 1.4 per cent between 1921 and 1951 (Sinha 1965: 104). We may also deal very briefly with certain other indicators of eco- nomic backwardness and underdevelopment, In 1950, the per capita availability of cereals and pulses was 394.9 grams per day and of cloth 10 metres a year. The death rate was 27.4 per 1,000 persons and the infant mortality rate was between 175-190 per 1,000 live births. An average Indian could expect to have a life span of barely 32 years. Epidemics like smallpox, plague and cholera, and diseases like dysentry and diarrhoea, and malaria and other fevers carried away millions. Malaria affected nearly one-fourth of the population. The condition of health services was highly unsatisfactory. In 1943, there were ten medical colleges turning out about 700 graduates and twenty-seven medical schools turning out nearly 1,000 licentiates (Gujral 1965: 719). In 1951, there were only 18,000 graduate doctors in independent India. The vast majority of towns had no sanitation, and large parts of those cities which had were kept out of the modern system, sanitation being confined to the civil lines and other areas where Europeans and rich Indians lived. For example, the vast area of old Delhi from Chandni Chowk to Sadar Bazar was not covered by the modern system of sanitation. A modern water supply system was unknown in villages and absent in a large number of towns. A vast majority of towns were without electricity, and electricity for rural areas was unthinkable. Already by the end of the nineteenth century it was fully recognized that education was a crucial input into economic development, but the vast majority of Indians had no access to education. In 1947, nearly 88 per cent Indians were illiterate (Maddison 1971: 43). We may sum up the colonial legacy by pointing to India’s eco- nomic profile in the 1940s: stagnating per capita national income, abysmal standard of living, stunted industrial development and the bulk of the population dependent on stagnant, low-productivity, semi- feudal agriculture. 405.+ ESSAYS ON COLONIALISM - Ill. Some Positive Features Some major developments occurred in the Indian economy, especially during the 1930s and 1940s, which imparted it a certain strength and provided a base for post-Independence economic development, diffe- rent from that of most other post-colonial societies.'? These positive features related to the development of a small but independent (Indian-owned-and-controlled) industrial base and the rise of a sub- stantial indigenous industrial capitalist class with an independent economic and financial base. During and after the First World War, several consumer. industries, such as textiles, sugar, soap, matches and paper underwent a process of rapid import substitution, so that by 1939, India was more or less self-sufficient in her major consumer good requirements. There also occurred a certain diversification and sophistication in industrial pro- duction. Some intermediate capital-goods industries such as iron and steel, cement, basic chemicals, metallurgy and enginecring also began to develop. In the 1930s, there was also a significant shift of capital from usury, trade and landlordism to industry. In other words, surplus was increasingly going into the hands of those who would invest it. Also significant in this respect was the size, composition and control of the small-scale sector. Despite a much faster rate of growth of the large-scale manufacturing sector, the proportion of national income generated in the small sector continued to outweigh that of the large sector as late as 1941 (Sivasubramanian 1977: 491-2). Reversing the nineteenth-century trend, small-scale and handicraft industries un- derwent a certain development on the basis of modern technology and capitalist enterprise.'* In terms of fixed investment and total capital and labour employed, certain areas in the small sector were very sig- nificant, ¢.g., cotton gins and presses, rice, oil and flour mills, jute presses, khandsari (sugar made by an indigenous small-scale process) and handloom factories. Interestingly, these small capitalist entrepre- neurs often emerged from old craftsmen, merchant-usurers, rich '2 This section relies heavily on Aditya Mukherjec and Mridula Mukherjee (1988) and other published and unpublished work of Aditya Mukherjee, referred to in the bibliography and in my Nationalism and Colonialism in Modern India 1979) Ghee foe cxample, by the early 1940s, modernized powerlooms formed 35 per cent of all looms in the handloom weaving sector, The percentage of modern looms was especially high in South India, for instance, forming 81 per cent of all looms in Madras Presidency (Levkovsky 1966: 209-10). =) 06 _ er middlemen between Bri + The Colonial Legacy + peasants and even landlords and zamindars. The process of capitalist development from below was on. The fact that this entire small sector yas almost totally based on indigenous capital was of considerable economic and ‘political significance. Furthermore, in contrast to the nineteenth century, industrial de- velopment in the post-1918 period increasingly became oriented towards the internal or home market and this too on the basis of indigenous raw materials. Thus the link between indigenous industry and agriculture became stronger; and a manifold increase ternal wade occurred after 1914.atthe same time as the volume of international trade began to show a general decline. By 1947, India also possessed a core of scientific and technical manpower. Unlike the nineteeth- or early-twentieth-century situation when managerial as well as technical personnel were mostly foreign, even in Indian-owned industries, most of them at the time of Inde- pendence were now Indian, exceptions being provided by a small umber of highly specialized experts. India also had a small but quite well-developed skilled labour force both in the consumer goods imdustries such as textiles and sugar, and in the more sophisticated steel, metallurgical and engineering sectors. There was one other area of economic strength. India was no longer a debtor country. By the end of the Second World War, it was able t© liquidate its foreign public debt of nearly Rs 4,500 million and replace it with sterling assets of over Rs 17,000 million because of Britain's wartime purchases in India, which imposed a regime of forced savings on India (Maddison 1971: 66 n. 2). Another feature which facilitated the process of independent eco- nomic development in post-colonial India was the rise after 1914 of 2 strong indigenous capitalist class with an independent economic and financial base. The considerable industrial development beginning im the second decade of the twentieth century was led by an indigenous bourgeoisie that was basically independent or national, and not com- pradore. The Indian capitalists were not, in the main, intermediaries h capital in Britain, or in India, and the Indian market. Nor were they junior partners of foreign capital and enterprise in India, nor subordinated to foreign capital—industrial or financial. The Indian capitalist class was not, asa class, integrated with foreign capital in a subordinate position even when the Indian economy as a whole was. It developed on the basis of its own finan- eal and industrial resources and in keen competition with British 02s+ ESSAYS ON COLONIALISM - industrial and finance capital. Its dependence on world capitalism was mainly limited to the purchase of machinery and technology from the metropolis. Consequently, taking advantage of the two world wars and the Great Depression, and the consequent loosening of links with the metropolis, Indian capital was gradually able to significantly increase its weight in the Indian economy (Chandra 1979: 7 ££). Investment under Indian control grew considerably faster than European invest- ment. Even though multinational corporations made their entry into India after 1918, the growth of foreign capital was far slower than that of Indian capital. Moreover, Indian industry succeeded in attract- ing some of the social surplus appropriated by usurers, traders, rich peasants, landlords and the rulers of princely states. It was Indian capital, rather than foreign capital, that pioneered new industries and thus accounted for the overwhelming proportion of the new investments after 1920 in sugar, paper, iron and steel, glass, heavy chemicals, shipbuilding, sewing machines and textile machinery, It also gradually encroached on the traditional areas of European dominance, such as banking, insurance, jute, shipping, foreign trade, tea and coal. By 1944, Indian capital controlled over 60 per cent of the large industrial units employing 1,000 or more workers (Mukherjee and Mukherjee 1988: 532; Levkovsky 1966: 365-6; Shirkoy 1973: 48). In the smaller units it was more or less in absolute command. The smaller industrial units, including those processing agricultural products, i.e.. engaged in activities such as cotton ginning and processing, flour mill- ing, and rice husking, represented 95.3 per cent of total industrial units and employed 43 per cent of the labour force (Levkovsky 1966: 366; Mukherjee and Mukherjee 1988: 532). It has been estimated that on the eve of Independence, the share of foreign enterprises in total industrial output was only 25 per cent, of which more than half was destined for export. The combined share in India’s domestic market, of imports and of products of the foreign enterprises located in India was less than 30 per cent. This left more than 70 per cent of the Indian market for industrial products produced by Indian- owned enterprises (Shirkov 1973: 48-9). After 1918, Indian capital also overcame the earlier—during the nineteenth century—handicap of inadequate financial infrastructure. By 1947 it had made a great deal of headway in banking. While in 1913, Indian joint-stock banks held 25 per cent of all bank deposits, + 98 - + The Colonia’ Legacy + by 1939 they held 44 per cent and by 1946 nearly 64 per cent (Goldsmith 1983: 95). According to Kidron (1965: 42), the last figure was 87 per cent. Similarly, by the mid-1940s, Indian-owned life insurance companies controlled nearly 75 per cent of life insurance business (Goldsmith 1983: 102). It is also significant that Indian capital controlled the bulk of the internal trade and part of the external trade. Moreover, whatever the extent of growth of capitalism in agricul- ture, foreign finance or enterprise had no role to play in it, except in the tea and coffee plantations. Indian industrial and finance capital was also highly concentrated. Moreover, its development during the 1930s and 1940s was multisided and agglomerate in character, spread over vast regions and a variety of industrial, trading and financial activities. Whatever its other negative aspects, this feature of Indian capital enabled it to stand up against and compete with the much stronger British capital in general and multinational corporations in particular. The independent and ‘national’ character of the Indian capitalist class was further strengthened by its political and ideological con- sciousness and practice. It rapidly constituted itself as a class after 1918 and developed in the Federation of Indian Chambers of Com- merce and Industry (FICCI) a strong class organization on an all-India basis. It also evolved a far-sighted leadership which was able to sub- qrdinate its short-term class interests and inter-class and intra-class conflicts to its long-term interests, and project the latter vis-a-vis the rest of Indian society, foreign capital and the colonial state. It gave active support to the national movement and evolved both a critique of colonialism as also a clear vision of the larger process of independent capitalist development."* A few caveats have, however, to be introduced at this stage. First, the development of Indian industry and capitalism was still stunted and severely limited. This was because it occurred within the parameters ef a colonial economy. As brought out earlier, India was still the classic model of an underdeveloped colony. It was still basically an egricultural colony with a stagnant, if not declining, agriculture and 2 very small secondary sector, both in terms of output and employ- ment. There was industrial growth without an industrial revolution. Colonialism still fettered industrialization. © For a detailed treatment of this aspect, see Mukherjee (1986) and Chandra (1979). De+ ESSAYS ON COLONIALISM + Similarly, though the Indian capitalist class was not, as a class, in- tegrated with British capital in a subordinate position, the economy of which it was a part was fully integrated with the world capitalist economy ina subordinate position. This class therefore had to function under serious economic and political constraints. Colonialism ruled out any free development of the capitalist class or of the economy. Gon- sequently, whatever industrial base and independent capitalism that evolved was not “because of but in spite of and in opposition to colonialism”. They were the result of the economic and political struggle against colonialism and the colonial state, the inner contradictions of colonialism, changes in Britain’s position in the world economy, the two world wars and the Great Depression, and inter-imperialist rivalry. Therefore, for the potential of positive economic development to be fully realized, a break with and destructuring of colonialism were necessary. At the same time, enough independent development had occurred for realizing the possibilities of independent capitalism in post-colonial India. There was also available at the time of Indepen- dence an indigenous entrepreneurial class which could be a major agency for carrying out the development plan perspective of the newly independent state. This was unlike several African countries, which on becoming independent adopted grandiose plan schemes, often borrowing from the Indian blueprint, but without an indigenous agency to carry them through. IV. Nationalist Economic Framework A very important aspect of the colonial situation in India was the political and ideological character of the national movement and its leadership.'® Beginning in the 1870s, the movement over time de- veloped both an economic critique of colonialism and colonialization of the Indian economy and a broad economic strategy to overcome India’s economic backwardness and underdevelopment, which were to have a powerful resonance in the economic strategy adopted by the independent Indian state. As early as the end of the nineteenth century, Indian nationalists had acquired a deep understanding of the basic features of India’s colonial economy and their relationship to its underdevelopment '8 ‘This section is based on Chandra (1966, 1979, 1989b, 1991) and Mukherjee (1976, 1978, 1986). + The Colonial Legacy + and stagnation. They did not accept the colonial view that India’s underdevelopment was a carry-over of the precblonial past. Rather, they believed that it was as a result of colonial rule and the subordination to the needs of British trade, industry and capital that the Indian economy had become backward and underdeveloped in the contem- porary context. They evolved a comprehensive analysis of the nature, economic mechanism and the basic features of colonialism in India, and of the modes of surplus appropriation by the metropolis. There was, first, the direct appropriation of surplus through taxation, plunder and tribute, large-scale employment of Englishmen and the use of the Indian army as the gendarmerie of the Empire in Africa and Asia. Second, there was the disguised, indirect and complex mechanism of free trade and unequal exchange which had made India Britain’s agrarian appendage and subordinate trading partner through the sale of Britain’s high-technology, high-productivity, less labour-consuming manufactured goods and through the purchase of India’s low-technology, low-productivity, more labour-consuming taw materials. In the third phase, there was exploitation through the investment of foreign capital in modern plantations, means of transport, mines, industries, banking-and through the public debt. Criticizing the neglect of economic development by the colonial state, Indian nationalist economists, led by Justice Ranade, launched 2 powerful attack on the validity of laissez-faire as a doctrine of state functions, parucularly as applied to an economically backward country Tike India.'® Similarly, they criticized the policy of free trade and “demanded tariff protection for Indian industries. They denied that fee trade led, through the working of comparative costs, to the most efficient geographical division of labour. The existing pattern of the snternational division of labour, they argued, was not based on the natural endowment of resources but was a product of colonialism “which had shifted India from a higher to a lower form of economic “activity. In the context of India, therefore, free trade represented an "gnequal economic relationship. ™ In this respect, Ranade pointed out that the colonial state had not in practice, as ‘opposed to its theoretical posture, followed a laissez-faire policy. The government had taken a direct and active part in pioneering and promoting industrial and commercial enterprises and granting special privileges to British capitalists in India. Examples of this were cinchona, ta and coftce plantations, coal mining, the iron industry and, above all, railway construction (Chandra 1966, 1991; Ranade 1990). + 101 ++ ESSAYS ON COLONIALISM + The epitome of the colonial exploitative relationship and of the underdevelopment-inducing character of colonial rule was put forward by the nationalists in the theory of economic drain which was used by them to lay bare, before the mass of people, the overall mechanism of colonial surplus appropriation. The export of a part of India’s national income, they said, had an adverse effect on employment and income. And, above all, the ‘drain’ represented a loss of productive capital. This critique of colonialism was further advanced—though more or less along the previous lines—after 1918 under the impact of the mass struggle initiated by Gandhiji, the growth of a powerful left wing and the spread of Marxist ideas. Moreover what is equally important, this anticolonial critique and world-view were fully internalized by the grass-roots level cadres of the movement and carried widely to large segments of the Indian people. This had major implications for post-colonial Indian development. In the course of their anlaysis of colonialism, the nationalist econo- mists made full use of contemporary economic theories—from those of John Stuart Mill, List and Carey to those of Marshall, Keynes and Marx. Though, they argued that the same propositions of eco- nomics could not be applied to countries at different stages of economic development, and that these propositions should be formulated in the context of the general economic needs of the country concerned. Though the nationalist economists did not generate new economic theories, they did give a consistent, integrated and interrelated picture of India’s colonial economy and its underdevelopment, Morcover, they were convinced that economic development constituted the heart of a society’s development and the chief measure of its progress. They also developed an integrated approach towards economic development and refused to treat advances in isolated sectors, such as finance, trans- port, foreign trade and an increase in area under cultivation, or even national income, as in themselves constituting development. All these were to be seen in their relationship to the economy as a whole. As opposed to colonial underdevelopment and the dependent character of the Indian economy, the Indian nationalists put forward a distinct and radically different Perspective of self-reliant and inde- pendent economic development.’ 17 Sclf-reliance was defined not as autarchy but as avoidance of a subordinate position in the world economy. Jawaharlal Nehru, for example, asserted that self-reliance “does not exclude international trade, which should be encouraged but with a view to avoid economic imperialism” (Shah 1949: 47; Nehru 1946: 347).. 103s + The Colonial Legacy + Nationalist economic perspective and policies started evolving dur- ing the last quarter of the nineteenth century and came to be crystallized in the reports of the National Planning Committee (NPC)—set up in 1938 by the Indian National Congress under the chairmanship of Jawaharlal Nehru—and the Bombay Plan published in 1944-5 by a cross-section of India’s leading capitalists—Purshotamdas Thakurdas, J. R. D. Tata, G. D. Birla, Shri Ram, Kasturbhai Lalbhai, A. D. Shroff, Ardeshir Dalal and John Mathai.'® Within this integrated economic framework, the nationalists maintained that the core of economic development lay in rapid in- dustrialization on the basis of modern science and technology. India, they held, had to industrialize or go under. For example, their definition of economic backwardness was that it characterized a society in which industry played a minor role in the total economic life and most of whose labour force was devoted to agriculture. They also, therefore, insisted on examining all policies relating to other fields—foreign trade, transport, currency and exchange, tariff, finance, foreign capital, labour, and even agriculture—in their relationship to this paramount aspect of industrialization (as also to the process of colonialization of the Indian economy). This commitment was reiterated many years later by Jawaharlal Nehru, who wrote in his Discovery of India: “No country can be Politically and economically independent, even within the framework of international interdependence, unless it is highly industrialized and has developed its power resources to the utmost. Nor can it achieve or maintain high standards of living and liquidate poverty without the aid of modern technology in almost every sphere of life” (1946: 356). The nationalists did not agree with the counterposing of agricultural ‘© industrial development. Instead, they emphasized the close link between the two. Moreover, industrial development was seen as essen- ‘al for rural uplift. Industry was urgently needed to ease the pressure of population on land, to reduce rural unemployment and under- employment and thus to improve the peasants’ condition. ® The membership of the NPC and its subcommittees consisted of political leaders and other public persons, academics, scientists and professionals, provincial civil servants, capitalists, trade unionists, socialists and communists. The Bombay Plan was the popular title of A Plan of Economic Development for India. Gandhi was an exception in this respect. But then his was a lone voice. Moreover, over the years, even he tended to inch nearer to the mainstream nationalist position. 103 -+ ESSAYS ON COLONIALISM + Within industrialization, the nationalist emphasis was on the heavy, capital goods scctor. The absence of capital goods industry was seen as a cause of both economic dependence and underdevelopment. Both the NPC and the Bombay Plan emphasized that rapid indus- trialization and all-round, self-reliant economic development required the development on a high-priority basis of the power and basic capital goods industries. The Bombay Plan, for example, allocated nearly 35 per cent of its total plan outlay for basic industries (Thakurdas et al. 1945: 31, 59). At the same time, learning from the Soviet experience, both the NPC and the Bombay Plan advocated simultancous development, though in a lower key, of essential consumer goods industries. Here they advocated reliance on medium-scale, small-scale and cottage in- dustries. In fact, cottage industries were to be protected and encouraged as a part of the development strategy of “coordinated growth in both directions” (Shah 1949: 5, 35, 37, 41, 46, 63, 101-2, 143, 227). The Bombay Plan too accepted this dual strategy and argued that small-scale and cottage industries would not only provide greater employment but would also reduce the use of expensive plant and machinery and therefore of scarce capital, thereby bringing down the capital- output ratio in industry to the manageable size of 2.4 (Thakurdas et al. 1945: 10, 33-5, 60-1). The agrarian outlook of the early nationalists—especially their failure to examine critically the relations between the tenantand the landlord— was the weakest link in the chain of their economic thinking. They criticized the official land revenue policy based on a high rate of assessment. This policy interfered with the full emergence of private property in land and private investment in agriculture. They there- fore demanded fixity of a low land tax so that the peasant, inspired by ‘the magic of property’, would have the incentive as well as the means to develop agriculture. But most of them failed to give importance to the increasing feudalization or landlordization of agrarian relations. Ranade was an exception. He opposed the existing semi-feudal agrarian relations and advocated their complete restructuring on capi- talist lines as had just been done by the Prussian land legislation. His model of capitalist agriculture was two-tiered: the majority of cultivators must be independent, small peasant proprictors who would be free of all encumbrances, whether of the state or landlords, and who would be bolstered by a low and permanent land tax and the + 104+ + The Colonial Legacy + provision of cheap credit through agricultural banks; at the top there should be a large class of capitalist farmers who would be, unlike the zamindars, complete owners of their land on the model of British landlords or the German junkers, and would therefore be in a position to invest capital and utilize the advanced and latest techniques of agriculture. This last class was to be brought into being by the trans- formation of the existing zamindars into capitalist farmers and by enabling the upper strata of the peasantry to acquire land and thereby attain a new status (Ranade 1990: chaps. 4, 13). After 1930, the agrarian policy of the national movement took a radical anti-landlord turn, finding its fruition in the NPC. The NPC accepted the objective of a basic restructuring of agrarian relations. All intermediary rent receivers such as the zamindars were to be abo- lished. The practice of subinfeudation or subletting of land on rent was also to be banned. Agriculture was thus to be based on peasant Proprietors. The government was also to guarantee minimum prices or fair prices to agricultural producers.” Interestingly, Indian capitalists, too, strongly argued for the ending of landlordism, though with com- Pensation, cooperativization in production, credit and marketing, minimum wages and so on. This was again to have major implications for the post-Independence economic strategy and class alliances (Mukherjee 1986: 258-9). It may be pointed out, parenthetically, that the agrarian structure in post-1947 India has not changed beyond NPC’s recommendations and has, perhaps unwittingly, conformed t> Ranade’s design. The Indian nationalists had, from the end of the nineteenth century, opposed the entry of foreign capital rather vehemently, pointing to the dangers of further economic dependence and domination. They worked outa sophisticated understanding of the role of foreign capital. In particular, they attacked it for replacing and suppressing Indian sspital, pre-empting its future growth. Forcign capital was seen not = developing India but despoiling it through the drain of money, skill and talent, and through the exploitation of its resources. Indians also argued that it was because of forcign cconomic and political > Earlier, in 1937, the Indian National Congress had committed itsclf to a substan- tial reduction in rent and revenue, abolition of feudal dues and forced labour, fixity of tenure and a living wage for agricultural labourers. In 1945, the Congress Working Committee accepted the policy of land to the tiller when it declared: “The reform of the land system involves the removal of intermediaries between the peasantand the state” (Chandra 1979; 349-50; 1988: 527). 105 -+ ESSAYS ON COLONIALISM - domination that foreign capital had become unacceptable. If India was politically free and if it was free of the drain of wealth and free to evolve its own economic policies, it might be able to use foreign capital to supplement indigenous efforts, as other countries such as the United States were doing at the time. But they also held that real economic development could occur only when reliance was placed mainly on indigenous capital. The opposition to foreign capital was even more strident after 1918. The new feature of this opposition was the strong and consistent attack on foreign capital by Indian capitalists who were very chary of being dominated by the larger foreign capital. They were against any fresh entry of foreign capital and demanded the loosening of its existing stranglehold. Thus G. D. Birla demanded that “all British investments in India be repatriated”, and M. A. Master, president of the Indian Merchants Chamber, warned in 1945: “India would prefer to go without industrial development rather than allow the creation of new East India Companies in this country, which would . . . militate against her economic independence” (Chandra 1979: 15-6). The Bombay Plan, for example, did not provide for any foreign capital investment and only 7 per cent of its total plan outlay was to be met through foreign loans (Thakurdas et al. 1945: 53-4). The nationalists recognized that some amount of foreign capital would be necessary because of India’s vast capital requirements and the need to import machinery, advanced technology and technical personnel. Foreign capital was, however, to be brought in only if “not accompanied by political influence or interference of foreign vested interests” (Ibid.). How was this to be ensured? First of all, by making a clear distinction between loan capital and direct foreign investment or entrepreneurial capital. In case of need, India should rely on the former and not the latter. Second, and above all, the independent state was to interpose between the Indian economy and foreign capital. The state was to be used to absorb foreign capital without foreign domination or dependent development. This was to be done through several mechanisms. Direct foreign investment was to be under the strict control of the state. Moreover, the state was to prohibit by law, foreign ownership, management and control over key arcas of the economy such as banking, insurance and aviation, and industries such as machinery and machine tools, locomotives, automobiles, aircraft, shipping, heavy chemicals, ferti- lizers, minerals and petroleum. (Indian capital already controlled iron + 106 - + The Colonial Legacy + and steel, cotton textiles, sugar, cement and paper.) The state was to develop, on its own, basic industries and infrastructure, such as power and other utilities where large resources were needed which were beyond the capacity of Indian capital and which would otherwise have to be developed by foreign capital. Where foreign companies already occupied high ground in key industries they were to be na- tionalized. Even in the case of foreign capital in the form of loans and credit, the state was to act as an intermediary and as a protective wall between foreign capital and Indian enterprise. Foreign loans were to be raised by or through the state. The latter would then use them on its account or lend it to the Indian industrialists through its own financial institutions. The Indian capitalists also wanted to limit the working of foreign finance capital by nationalization of the Reserve Bank, licensing of all banking business and laying down of the conditions that all the directors of banks registered in India had to be Indian and banks not registered in India would be pro- hibited from receiving any bank deposits or raising loans (Mukherjee 1976, 1979; Shah 1949: 58-9, 158, 236-7; Thakurdas et al. 1945: 51, 53). Above all, the Indian nationalists were more or less unanimous in advocating an active and central role for the state in the process of economic development. In particular, they were convinced that rapid industrialization was not possible without a comprehensive policy of direct and systematic state intervention in and support to the process, While the carly nationalists had urged state aid to compensate for the weaknesses of Indian capital, the later nationalists and Indian capi- talists—especially represented by the NPC and the Bombay Plan— wanted the state to play an active role through planning and general overseeing of or control over different sectors of the economy. They wanted state participation in trade, industry and banking—cither directly, through ownership or the public sector, or indirectly, through the exercise of direct and extensive control over them. State role and functions could take a varicty of forms. The early nationalists were of the view that the state should make up for the lack of adequate capital in the hands of Indian entrepreneurs by helping mobilize scattered indigenous capital through the devel- opment of state-aided, guaranteed, directed or controlled joint-stock banks and other similar credit institutions and by advancing low-interest foans to Indian capitalists. The government might also create special Snancial corporations for the purpose. The state should help Indian + 107 +« ESSAYS ON COLONIALISM - enterprise overcome initial difficulties and the resulting insecurity by extending subsidies, bountics, grants-in-aid and guarantees of mini mum profit similar to those given to British railway companies in India. It could also help the capitalists borrowing in foreign markets by providing government guarantees. Where indigenous capital was not in a position to venture into a field because of its large capital requirements, and yet advanced technology had to be absorbed or economies of scale realized, the state should take the lead, act as the pioneer, set up industries and overcome the initial difficulties till private enterprise developed the capacity to take up the task. The state should also undertake the manufacture of its own defence equipment and other stores wherever they were not available in India. The government should help Indian industries by purchasing from them, and not from abroad, materials, equipment and other stores needed by the army, police, railways, public works, telegraph and telephone departments, water, gas and sewage systems, hospitals and its administrative departments. The government should promote tech- nical education within India and finance higher technical education of Indians abroad. It should also collect and disseminate widely indus- trial and commercial information. To promote agriculture, the state should undertake greater expenditure on irrigation and should run and finance agricultural credit banks. The nationalists emphasized the need for protecting India’s nascent industries and in gencral demanded changes in the financial, labour and railway policies in favour of Indian industries. For example, they argued for a falling rupee or lower rupee-sterling ratio so that imports would become costlier and Indian industries would get indirect protection. The national movement took even more advanced positions on the question of the state’s role in the production process from 1930 onward, when state control and development of the public sector were increasingly seen as essential features of the strategy of economic development. The initial thrust came in 1931 at the Karachi session of the National Congress, presided over by Sardar Patel. In a reso- lution on Fundamental Rights and Economic Programme—drafted by Jawaharlal Nehru and moved in the open session by Gandhiji— it was declared that in independent India “the state shall own or control key industries and services, mineral resources, railways, waterways, shipping and other means of public transport” (quoted in Shah 1949: 27). + 108 + + The Colonial Legacy + The NPC, too, favoured state ownership or state control of public utilities, defence industries as also key industries. Some degree of state ownership or regulation and control was seen as an anti-monopoly measure. It was to be applied to all large-scale industries, especially those which tended to be monopolistic in character. In particular, a system of licencing was to be used to control investment in new or even old industries. Rigid control was also to be exercised over any large-scale industry which might come into conflict with any cottage industry supported by the state. Apart from the Reserve Bank which was to be nationalized, all other banking and insurance companies were to be subjected to licen- cing, regulation, supervision and control by the Central Banking Authority. The state was also to control all import and export trade through a system of licences. The entire foreign-exchange business was to be conducted under the complete control of the nationalized Reserve Bank. Gandhiji endorsed the general line of nationalist thinking in this respect. Despite his general anti-statism, he too favoured state owner- ship of all large-scale industries (Gandhi 1974, 58: 258-9). The Indian capitalists also accepted that unrestricted and unregu- lated free enterprise was undesirable and that a certain degree of state ownership and control was necessary. Favouring state control rather than state ownership, except in special cases and within quite narrow limits, the capitalists were willing to accept “important limitations on the freedom of private enterprise as it is understood at present” and also that “the rights attached to private property would naturally be circumscribed” (Thakurdas et al. 1945: 94-5). While advocatinga highly restricted role for state ownership, the Bombay Plan accepted a very large role for state control which could take varied forms: the fixation of prices; the limitation of dividends; the prescription of conditions of work and wages for labour; the nomination of government directors on the boards of management, the control of production through licencing of new enterprises and expansion of existing ones; the control of allocation and distribution of consumer goods, raw materials, semi- finished and capital goods; the control of new capital issues; and the control of trade and foreign exchange. There were two special aspects of Indian economic thinking during the 1930s and 1940s. One we have already discussed—the use of the state to keep the much stronger international capital under control and as a protective wall against it. The other was the wide acceptance 109+ ESSAYS ON COLONIALISM + both among the nationalists and the capitalists of the concept of planning as an instrument for rapid economic development and as part of the widely shared conviction that piecemeal growth relying entirely on the market forces would not lead to or constitute economic development which required integrated and all-sided development.” Active economic role of the state, planning and public sector did not, however, amount to a commitment to socialism by the national movement as a whole. The early nationalists and the later right-wing nationalists did their entire thinking within the framework of a capitalist mode of production. Similarly, the capitalists actively espoused the cause of private enterprise even while being willing to correct and compensate for its weaknesses through active state role and social intervention in general. But even those committed to socialism, being aware that the anti-imperialist movement required the unity of diverse social classes and ideological trends, did not insist on the adoption of socialism by the national movement as an immediate objective. Nehru (1946: 349) was also keenly aware that planning in a democratic framework involved the cooperation of a wide section including, at times, those who were normally opposed to socialism. The NPC, for example, accepted that while private ownership was to be res- tricted and regualted and the state was to actively intervene in economic processes through planning, the public sector, and other means, capitalist entrepreneurs were to remain the major agents of economic development. Jawaharlal Nehru, the major ideologue of socialism in pre-1947 India, readily conceded that the Congress had not in any way accepted socialism. In his memorandum of June 1939 to the NPC, he laid down that the ideal of the Congress and the “foundation of our Plan” was not socialism but the creation of an egalitarian society in which all citizens had equal opportunities and “a civilized standard of life . .. $0 as to make the attainment of this equal opportunity a reality” (Shah 1949: 40, 47-8). Laying down the basis of a mixed economy, he wrote in August 1940: “Private enterprise has certainly not been 2 In his guidelines to the NPC in 1939, Jawaharlal Nehru detined a plan as “2 comprehensive programme of national development, cach part fitting into the other”, and planningas “an advance on all fronts” and, therefore, as “the technical coordination, by disinterested experts, of consumption, production, investment trade, and income distribution in accordance with social objectives set by bodies representative of the nation”, Planning, morcover, must include “cultural and spiritual values and the human side of life” (Shah 1949: 42, 45).. + 110 + + The Colonial Legacy ruled out but it has to be strictly controlled and co-ordinated to the general plan” (Nehru 1978: 313). But Nehru also hoped that the practice of planning would gradually turn the face of the people and the economy towards socialist principles of economic organization. As he put it in his Discovery of India: “So long as a big step in the right direction was taken, I felt that the very dynamics involved in the process of change would facilitate further adaptation and practice”. He also hoped that democracy based on adult franchise would push the government in a socialist direction (1946: 346, 349).” Though the national movement did not as a whole accept socialism as a societal objective, from the beginning it had a pro-poor orientation and a reformist programme which was further strengthened after 1918 with the advent of Gandhiji and the growth of the Left. Moreover, it continued to define itself in a more and more radical direction. Increasingly, freedom was defined in radical socio-economic terms based on growing social justice and greater social and economic equality, and a refusal to accept economic privileges. As we have scen, the agrarian programme of the movement was continuously radicalized. Even the Congress right wing adopted a basically reformist outlook. Within the NPC, for example, while there were differences on the question of degree of state ownership of and control over industries and banking, there was broad agreement that the state must follow @ policy of social welfare and institutional reforms. The NPC, as also the Bombay Plan, favoured large-scale measures of social welfare such as an employment policy based on the right to work and full employment, the guarantee of a minimum wage, greater state expenditure on housing, water and sanitation, free edu- cation, social insurance to cover unemployment and sickness, and the provision of utility services such as clectricity and transport at 2 low cost through state subsidies. Above all, state planning was to be based on the objective of removal of gross inequalities in income and productive assets, among classes and individuals, through mea- sures such as progressive taxation, death duties and prevention of concentration of wealth and means of production. Inequality was also undesirable because it tended to restrict the domestic market, As the Bombay Plan put it, “the large increase in production which = Ic may be pointed out parenthetically that Nehru could not have imagined the extent to which the socialist vision would be blurredand darkened by bureaucratic inefliciency, trade-union corporatism, political corruption and populism. Ald s