Chairperson : Prof.

Neeru
Coordinator : Prof. Sheena Pall

Course Leader : Prof. Sheena Pall

M.A. HISTORY SEMESTER III

PAPER-II (Opt. IV): RISE AND GROWTH OF COLONIALISM IN INDIA
CONTENT
 Introductory Letter
 Syllabus
L. No. Title Author/ Editor Page No.
1 Colonial Structure And Colonial State Mr. Mritunjay Kumar 1
/Prof. Sheena Pall
2 Stages Of Colonialism -do- 8
3 Economics Of Colonialism; Historiography -do- 15
Of Colonialism
4 Patterns Of Colonialism In Asia, Africa And -do- 22
Latin America
5 Colonialism In India: East India Company -do- 38
And Mercantilist Colonialism 1751-1813;
Free Trade Imperialism 1813-1858
6 Free Trade- Impact On Agriculture, Trade -do- 48
And Industry; Labour Colonialism
7 Theory Of Imperialism; The Nationalist -do- 59
Economic Agitation
8 Finance Imperialism 1858-1947 -do- 72
9 The Indian Capitalist Class -do- 83
10 Debates On Impact Of Colonialism On -do- 93
Indian Economy; Colonialism And Ethnic
Identities In India
11 British And Indian Ideas On Indian -do- 102
Economic Development,1858-1905
12 Dangers Of Neo-Colonialism After 1947 -do- 113

Vetter: Prof. Sheena Pall

E-Mail from Department - coordhist@pu.ac.in
Phone number of Department - 0172-2534329
 128

INTRODUCTION

Dear Students this paper deals with the rise and growth of colonialism in modern
India. The need for such a study is to introduce the students to the broad trends in the rise
and growth of colonialism and its specific form in India in modern times.
The objective of this course is to delve into the relationship between the colonial
structure and the state. Different stages of colonialism in India are examined in detail to form
an understanding of the changing nature of colonialism. Historiography of colonialism has
also been touched upon. For a holistic picture, patterns of colonialism in Africa, Asia and
Latin America have been traced in this paper. Impact of colonialism on agriculture, trade and
industry has been highlighted. Relationship between labour and colonialism has been
defined. The role of the Indian capitalist class during this period has been dealt with. The role
of Indian economists in the National Economic Agitation is also the focus of this paper. To
present a rounded view, the debates on the impact of colonialism on India have been
enumerated. The interaction between the ethnic communities and colonialism has been
underlined to form a better understanding of this period. This paper also emphasises the
dangers of neo-colonialism in India after 1947.'
This paper is divided into twelve lessons. Reference readings for each lesson have been
provided. Model questions to have been appended with each lesson to help students prepare
for examinations. Self-assessment short type questions are given in each lesson for the
students to test themselves. The lessons are interactive in nature and aid in general
understanding.'
We wish you success in your studies,
Department of History,
University School of Open Learning,
Panjab University, Chandigarh
 128

Syllabus
PAPER-II OPT. (IV) RISE AND GROWTH OF COLONIALISM IN INDIA

COURSE CODE: HIS 412

Objective: This course aims to introduce the student to the broad trends in the rise and
growth of colonialism and its specific form in India in modern times.
Pedagogy: The course is based on classroom lectures and tutorial discussions. '
Note: The candidate will be evaluated based on a written examination (80 marks) and
Internal Continuous Assessment (20 marks). In the written examination, the question paper
will have the following format: '
The maximum marks in this paper/option will be 80 and duration of written examination will be
3 hours... '
(i) There will be 9 questions in all. The candidate will be required to attempt 5 questions.
(ii) Question No.1 will be compulsory and carry 20 marks. It will consist of 15 short
questions from the list of concepts and terms. given below. The candidate is required
to attempt any 10 short questions in 25-30 words each... Each short question carries
2 marks. '
(iii) Remaining part of the question paper will be divided into four units, corresponding to
the four units of the syllabus for each option. The paper setter will set 2 essay type
questions from each unit. The candidate will attempt 4 essay type questions, selecting one
from each unit. Each essay type question will carry 15 marks.
(iv) The paper setter is expected to follow the Essential Readings and set questions on the
sub-themes or parts of a theme, rather than the topic as a whole.
Concepts and Terms:
Colonialism; Colonial Structure; Imperialism; Colonial state; Imperial historiography;
Nationalist historiography; subaltern historiography; economics of colonialism; mercantilist;
commercialization of agriculture; de-industrialization; labour; Balance of trade; Charter Act
of 1813; Finance imperialism; economic drain; old guarantee system; new guarantee system;
rural indebtedness; ethnic identities; neo-colonialism; unequal development; capitalist class;
National Planning Committee; political economy; '
Unit I
Introduction to Colonialism: Colonial Structure & State; Stages of Colonialism; Economics of
Colonialism; Historiography of Colonialism; Patterns of Colonialism in Africa, Asia, Latin America.
'
Unit II
Colonialism in India: East-India Company and Mercantilist Colonialism 1751-1813; ‘Free
Trade’ 1813-1858, Impact on Agriculture; Trade and Industry; Labour Colonialism.
Unit II I
Modern India and Imperialism: Theory of Imperialism; Finance Imperialism 1858-1947; The
Indian Capitalist Class; The Nationalist Economic Agitation. '
Unit IV
130

Colonialism and Modernization in India; Debates on the impact of Colonialism on India;

Colonialism and Ethnic Identities in India; British and Indian Ideas on Indian Economic
development, 1858-1905; Danger of Neo-Colonialism after 1947. '
Essential Readings 128
1. Alavi Manzoor, India and the Colonial Mode of Production in The Socialist
Register, 1975.
2. Amin, Samir, Accumulation on a World Scale, New York, 1974.
3. Amin, Samir, Unequal Development, New York, 1976.
4. Cell, John W., British Colonial Administration in the Mid Nineteenth Century. The
Policy-Making Process, London, 1970. '
5. Chandra, Bipan, Essays on Colonialism, New Delhi: Orient Longman, 2000.
6. Chandra, Bipan, Nationalism and Colonialism in Modern India, Delhi, 1987.
7. Chandra Bipin, The Rise and Growth of Economic Nationalism in India, New Delhi,
1978.
8. Cohen Benjamin J., The Question of Imperialism, The Political Economy of
Dominance and Dependence, Macmillan, 1973
9. Fieldhouse, D.K., Colonialism 1870-1945: An introduction, Weidenfeld and Nicolson,
London, 1981.
10. Habib, Irfan, Colonialization of the Indian Economy, 1757-1900, Social Scientists,
Vol.3, No.8 (March 1975)
11. Kaisar, A.J. & Verma, S.P.(ed.), Art and Culture, British Colonialism & Ethnic
Identities in India, Kamlesh Mo0han, New Delhi, 1996.
12. Muriel & Chamberlain, The Formation of the European Empires 1488-1920, Great
Britain, 2000.
13. Owen, Roger and Bob Suttcliffe (eds.), Studies in the Theory of Imperialism, London:
Longman, 1972.
14. Tomlinson, B.R., The New Cambridge History of India, The Economy of Modern India
1860-1970, Cambridge University Press, New Delhi, 1993.
Reference Readings
1. Bagchi, A.K., The Political Economy of Under Development, Cambridge, 1982.
2. Barrat, Brown, M., The economics of Imperialism, London, 1974.
3. Bose, Arun, Modes of Production and Civil Societies in Colonial India, Delhi (n.d.)
4. Chandra, Bipan, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol. 10, No. 3, 1980.
5. Frank, A. Gunder, Latin America under development Revolution, New York, 1967.
 1

128 Lesson 1

COLONIAL STRUCTURE AND COLONIAL STATE

Structure
1.0 Objectives
1.1 Introduction
1.2 Colonial Structure
1.3 Colonial State
1.4 Classes and Class Structure under Colonial Conditions
1.5 Summary
1.6 References
1.7 Further Readings
1.8 Model Questions

1.0 OBJECTIVES
After reading this lesson you will be able to:
 learn about how colonialism was structured
 critically analyze the working of a colonial state
 analyse classes and class struggle during the colonial rule
1.1 INTRODUCTION
Students this lesson will focus on the colonial structure and state. Colonialism is a
distinct historical stage or period in the modern historical development of the colony that
intervenes between the traditional economy and the modern capitalist system. It is a well-
structured whole, a distinct social formation in which the basic control of the economy and
society is in the hands of a foreign capitalist class. It functions in the colony through a
dependent and subservient economic, social, political and intellectual structure whose forms
can vary with the changing conditions of the historical development of capitalism as a
worldwide system.
The famous historian Bipan Chandra suggests that Colonialism is a social formation in
which different modes of production coexists such as feudalism, slavery, bondage, petty
commodity production, merchant and usury exploitation and agrarian, industrial and finance
capitalism. The social surplus is appropriated under colonialism by varied modes of production.
The appropriation of the surplus from the colony is not linked with the ownership of means of
production by the metropolitan bourgeoisie but with control over state power.
1.2 COLONIAL STRUCTURE
Under the colonial structure, we need to discuss what were the basic features around
which the logic of colonialism resides, which in other words entails us to throw light on its
basic features.
The followings are the four basic features of Colonialism:
 2

1. Integration of the colony with the world capitalist system in a subordinate or

subservient position. In this, the basic needs of the metropolitan economy and its
capitalist class determine the basic issues of the colony's economy and society. In a
way, this subordination is a vital and crucial factor than linkage with the world market.
After all, even independent capitalist and socialist economies are linked with the
world market.
2. Few noted economists and historians like Arghiri Emmanuel and Samir Amin have
encompassed colonialism in the twin notions of unequal exchange and internal
disarticulation of the colonial economy and the articulation of its different
disarticulated parts through the world market and imperial hegemony with the
metropolitan economy. The colony's agricultural sector does not relate to its industrial
sector but the world capitalist market and the market of the metropolis. Marks and
Engels referred to a similar process in their focus on the exploitative international
division of labour. The metropolis produced high technology, high productivity, and
low wage goods. International trade thus became an instrument of exploitation.
Similarly, the colony specialized in the production of raw materials while the
metropolis produced manufactured goods. Railways were developed in India in the
nineteenth century to serve the interests of the British industry, rather than the Indian
industry.
3. The third feature of colonialism is the drain of wealth or unilateral transfer of surplus
to the metropolis through unrequited exports. The early Indian nationalist laid stress on
this in their writings. A large part of colonial expenditure on the army and civil services
represented a similar external drain of surplus. Thus the production of the surplus though
takes place in the colonies but got accumulated abroad. This process has been referred to
as deformed extended reproduction by Hamza Alavi.
4. The fourth basic feature of colonialism is foreign political domination or the existence and
role of the colonial state.
1.3 COLONIAL STATE
The colonial state is an integral and intrusive element in the structuring and
functioning of the colonial economy. The state is the instrument in the hands of the capitalist
class in the home country to control and exploit the colony. The colonial state serves the
long-term interests of the capitalist class of the mother country as a whole. It does not
represent the sectional interests of groups within the bourgeoisie, who are competing with
each other. In capitalism, in contrast, the capitalist state is the instrument for one class
dominating another.
Colonialism is a relationship between the foreign ruling class and the colonial people as a
whole. Under colonialism, the ruling coalition of forces does not include any of the indigenous
social classes. All the indigenous classes of the colony are dominated-even the propertied classes
are not junior partners of colonialism or its subordinated allies. They have no share in the
state power though they may have some share in the social surplus. Their interests can be
sacrificed for those of the metropolitan bourgeoisie at any point. For example, reforms that would
be looked upon with disfavour by the indigenous bourgeoisie, such as factory legislation, would
be introduced by the state, as it would make the imports more competitive. Thus even the
uppermost classes in the colony could begin to oppose the colonialism as it went against their
interests. It is important to know here that big landlords led the anti-colonial movements in
Poland and Egypt. This is a major difference between
 3

colonies and semi-colonies. The latter have compradors-native classes that are part of the
ruling class. The upper classes in the semi-colonies are part of the ruling class.
The role of the colonial state was greater than the capitalist one. It was merely a
superstructure but a part of the economic base. It not only enables the ruling classes to
extract surplus, it is a major channel for surplus appropriation. Under capitalism, it was the
ownership of the means of production that gave the ruling class the power to use the state as
its instrument of domination. Under colonialism, it is because of its control over the colonial
state that the metropolitan ruling class can control and exploit colonial society. It is itscontrol
over state power that gives it control over social surplus rather than its ownership of the
means of production. For example, in India, the state did not own the means of production to
any significant extent and yet it wielded great power.
The colonial state-guaranteed law and order and its security from internal and
external dangers. Indigenous economic forces and processes hostile to colonial interests were
suppressed. It was a channel for surplus appropriation. It prevents unity among the people
of the colony, by fostering identities of caste against class, community against community, etc.
The state was actively involved in reproducing conditions for the appropriation of capital,
including producing goods and services. Another important task is the transformation of the
social, economic, cultural, political and legal frameworks of the colony to make it
reproductive on an extended scale. The problem is that there is a contradiction between the
policing functions of the state and its developmental functions. There is competition for
existing scarce resources and development is clear and a casualty. It is easy for the
imperialist forces to expose the exploitative character of colonialism, as there is an explicit
and direct link between the colonial structure and the state. Thus it is easy to politicize the
struggle, unlike in advanced countries where the link between the state and the economy is
not so evident. The mechanism of the colonial control lies on the surface, hence it is easy to
expose and reveal the links with the industrial bourgeoisie of the home country. The state is
visibly controlled from abroad and the isolation of the colonial people from policy and
decision making is evident. Compared to the capitalist state, the colonial state relied on
domination and coercion rather than on leadership and consent. Hence there is very little
space for manoeuvre and the vacant space is rapidly occupied by the anti-imperialist forces.
The state soon enters into crisis. However, the other side of the coin is that as the colonial
state is bourgeois, it introduces the rule of law, property relations, bureaucracy, and even
develops into a semi-authoritarian and semi-democratic state. Thus there is constitutional
space in the colony.
1.4 CLASSES AND CLASS STRUGGLE UNDER COLONIAL CONDITIONS
The concept of varied modes of production helps us to analyze how the class
antagonisms between different strata are shaped by colonialism. It also helps us to identify
the roles of the major classes in society and also the primary contradiction at any stage.
When we see colonialism as a social formation rather than a mode of production we can see
the primary contradiction as a societal one, rather than in class terms. Thus, we have a
national liberation struggle rather than a class struggle against the colonial power. The
struggle from the beginning is thus political rather than economic. Classes do not join the
anti-colonial struggle as a class organization but as part of the people. Here, it is important
to understand as to whether the colonies ruled by the British or others had class as a
category or not? To understand the same, it is imperative to know Marxist and other views on
colonialism and in particular relation to class and class struggle.
The famous historian Bipan Chandra argues that seeing colonialism as a structure,
which includes the colonial state, alone enables us to fully understand the class structure,
 4

class alignments, class contradictions and class struggles in the colony and their relation to
colonialism. It also enables us to define as also to study politics and political roles of different
classes and strata in the colonial situation.
Herein also comes the importance of not seeing colonialism itself as a distinct mode of
production. For if it were so, the principal contradiction would lie among the classes involved
in the mode of production. This would mean that the principle contradiction would lie among
the indigenous classes with the colonial state being opposed only because it supported the
indigenous exploiting classes. Or, if the metropolitan bourgeoisie were present as capitalists
or owners and controllers of means of production in the colony, the primary contradiction
would lie only between the indigenous working class and the metropolitan bourgeoisie,
unless the latter also functioned as capitalists and landlords in the villages. On the other
hand, the concept of coexistence of several modes of production in the colony would enable
us to identify and analyze the indigenous classes and strata and their mutual relations and
class antagonisms. It would also enable us to see the manner and extent to which their
mutual relations are over determined by colonialism. The concept of the colonial mode of
production would enable us to do neither. After all, a major significance of the concept of the
mode of production is that it enables us to identify the roles of important classes in society as
also its primary contradiction at a given stage.
Further, the notion of colonial mode of production, or dominant mode of production
under colonialism, would pose the problem of the principal contradiction in the form of some
type of class struggle and politics based on it. On the other hand, our manner of viewing the
colonial structure makes the primary contradiction societal one. If colonialism subordinates
the entire colonial society to an alien ruling in the state, then struggle against colonialism
assumes not the form of a class struggle but that of a national liberation struggle, that is, a
struggle of the entire nation – a people's struggle. Its paradigm is very different from any of
the paradigm of class struggle. Moreover, the struggle assumes a political form from the
beginning. It is from its very inception a struggle against the colonial state, which is the core,
the base of the colonial social formation and in which none of the indigenous classes
participates, the political struggle at no stage mediated by economic class struggles. Often,
econometric class struggle against the ruling class, for example, the British capitalist class in
the case of colonial India, is not possible. Except in the case a few modern industries and
plantations, class wise Indian workers and peasants were exploited by Indian landlords,
moneylenders, merchants and capitalists. The workers and peasant, therefore, had to fight
the British ruling class not as a class enemy, but as a societal enemy.
Internal class struggles are waged in a colony to settle issues and contradictions
arising out of the multiple modes of production. These struggles are not and do not become
basic building blocks or initiators of the anti-colonial struggle. That is why classes do not join
the national movement through class organizations but as part of the “people”. The national
liberation movement is a people’s struggle and not a coalition or united front of classes or
class organizations. Internal class struggles are thus simultaneously waged and adjusted and
not “raised” to the level of, or transformed into, an anti-colonial struggle. Bipan Chandra
argues that the same is not true just of India, Indonesia or Egypt, but even of Vietnam, and
China during the phase of the anti-Japanese struggle. For example, the Chinese Communist
Party was not a coalition of classes-workers, peasants, the petty bourgeoisie and national
bourgeoisie. Nor did it enter into a coalition with class organizations of the peasants, petty
bourgeoisie and national bourgeoisie. It was a proletarian party leading the Chinese people
and acting on behalf of all of them against imperialism. The national, anti-colonial struggle
from the beginning is waged as a political struggle which incorporates economic and social
demands of different sections of society – not as elements of class struggle but as issues
 5

through which the people come to understand the basis of their participation in the anti-
colonial struggle and vision of their future independent society.
The primary contradiction vis-à-vis colonialism also then helps situate the status of
the internal class struggles within the colonial formation. Such an analysis not only makes the
contradiction between workers and capitalists secondary, but it also goes against the notion
that the anti-feudal struggle is an expression of a primary contradiction in colonial society
and enjoys the same status as the anti-colonial struggle. Herein lies a major difference
between the political struggle in a colony and a semi-colony.
In a semi-colony, the feudal or semi-feudal mode of production and contradiction
arising thereof may be primary. In a semi-colony, indigenous exploiting classes wield state
power, sometimes as senior partners to colonial powers. Here, even a struggle against
colonialism, if it is to take a political form, must come up against the state and, therefore, the
ruling classes, who are often feudal landlords and compradors. Moreover, class struggle
arising out of the dominant mode of production – often feudalism or semi-feudalism – may
have a primacy except when colonialism threatens to transform a semi-colony into a colony.
This not only explains the differences like political struggle and class alignments between a
colony and a semi-colony (for example, between India and China) but also explains
differences like the political struggle within a semi-colony at different times. Thus, in China,
the anti-feudal struggle assumed primacy, even while colonialism was attacked, during 1927-
33 and 1946-49 when the chief target was the semi-feudal class which dominated it. But the
anti-feudal struggle was put in a secondary position subordinated to the primary
contradiction and struggle against colonialism – put in cold storage for the period of anti-
Japanese war. Different sections of the feudal class were allied with or neutralized, with only
collaborators being attacked. Thus when it appeared that colonialism would overwhelm semi-
feudalism and semi-colonialism – and the struggle was against the intruding colonial state –
the Chinese Communist Party refused to give equal place or even much of a place to the anti-
feudal struggle. But after 1946, when the colonial state was no longer the main enemy and
arms had to be turned against the internal semi-feudal, semi-colonial state, the semi-feudal
landlords were once again made the target of peasant mobilization.
Marxism views colonialism as a form of capitalism, enforcing exploitation and social
change. Marx thought that working within the global capitalist system, colonialism is closely
associated with uneven development. It is an instrument of wholesale destruction,
dependency and systematic exploitation producing distorted economies, socio-psychological
disorientation, massive poverty and neocolonial dependency. Left-wing historians maintained
that in all the colonies ruled by Western European countries the natives were robbed of more
than their natural span of life by undernourishment. Colonies are constructed into modes of
production. The search for raw materials and the current search for new investment
opportunities is a result of inter-capitalist rivalry for capital accumulation. Lenin regarded
capitalism as the root cause of imperialism, as imperialism was distinguished by monopoly
capitalism via colonialism. Thus, if it is concerning class and class structure inside the colony,
it was colonial business classes who used these colonies for their business and in this, even
the upper classes of so-called colonies were ignored. Thus, the class and class structure
within colonies may not be equated in the true sense as that of Western Europe as Karl Marx
had analyzed for European society in his Das Capital. Here he talks of class and class
structure in terms of Have and Have-nots. He has used the term 'Have' for those categories
that had appropriated maximum surplus for their economic gains at the cost Have-not' who
participated as labour in the production process. R.P. Dutt in his book 'India Today' has given
a detailed analysis of the Marxist version of history in India.
 6

Antonio Gramsci, a Revisionist Marxist historian later defined Marxism for colonial
countries like India and African countries in his famous prison diary. In his diary, he writes
that the class and class struggle in colonies and colonial country may not be equated on the
same plank as that of a European country. He goes on to argue that here the freedom
movement or national struggle for independence had taken the place of class struggle or fight
between classes. He categorically stated that in India, Gandhi was more popular than any
other tribal, caste or group leaders. Hence, a movement for independence by Gandhi was an
actual and motivating factor to get rid of foreign rule. Gramsci argues that Gandhi had more
followers than any trade union movement around the globe.
The analysis of Ranade, R.C. Dutt, and Dadabhai Naoroji though centred on a
nationalist critique of colonial policy in India reaffirmed economic drain of India by
colonialists. These scholars and economic historians made a brilliant analysis of systematic
drain of Indian resources through the extraction of raw-material, liberal trade policy for their
traders and harsh terms and conditions for the Indians operating in this field. They always
talked of a foreign ruling class and establishment for the debacle of India and hardly mention
any internal contradiction. Hence, in a sense reaffirmed the role of the colonial state as a
primary agency, not any internal class and class struggle.
Self-Assessment Questions
1) Define Colonialism?
Answer. -

2) Write the basic features of Colonialism?

Answer.

3) Who is the author of India Today and what is the content of this work?
Answer. -

1.5 SUMMARY
Students, to sum up, colonialism was a distinct phase of history in which the
traditional model of a colony is pitted against a well-structured model of capitalism controlled
by the foreign capitalist class. The structure of the colonial society starts with the capture of
the native land, replace them with the own administrative structure, building infrastructure
to support their trade and trading network and finally forcing them to the part of the global
capitalist order. As regards class and class struggle in the colonies, the argument of Marxists
and even the leading nationalists revolve around the fact that in colonies the national
liberation movement was the actual movement as they fought with the foreign business class
together in which there was hardly any scope for the internal class fight for any economic
gains.
 7

1.6 REFERENCES
Bipan Chandra, Nationalism and Colonialism in Modern India, Orient Longman, Delhi, 1979.
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10,no.03, 1980.
1.7 FURTHER READINGS
Rajani Palme Dutt, India to-day, Peoples Publishing House, Bombay, 1947.
R.C. Dutt, Economic History of India (2nd Edition), Routledge & Kegan Paul, London, 2006.
1.8 MODEL QUESTIONS
1. Examine class and class struggle under colonial rule.
2. What are the features of a colonial state?
3. What do you understand by colonial structure?
 8

Lesson- 2

STAGES OF COLONIALISM
Structure
2.0 Objective
2.1 Introduction
2.2 Stage I: Monopoly of Trade (1600-1813)
2.3 Stage II: Free Trade (1813-1857)
2.4 Stage III: Finance Imperialism (1858-1947)
2.5 Summary
2.6 References
2.7 Further Readings
2.8 Model Questions
2.0 OBJECTIVES
After reading this lesson you will be able to:
 learn how the colonial powers monopolized the trade in the colonies.
 understand how free trade made them obligatory to improve the infrastructure as well
as law and order in the colonies.
 analyse how foreign investment and internal competition increased in the colonies.
2.1 INTRODUCTION
Colonialism was the complete but complex integration and at times forced entry of the
colony's economy with the world capitalism based upon the metropolis interest which was
carried out in stages over a period lasting nearly two centuries. Marx, in his writings, had referred
to two stages of colonialism-monopoly trade and free trade. R.P. Dutt, in his book, India Today,
added a third stage, that of finance imperialism, basing himself primarily on Lenin, Samir Amin
and others theorize as if only the third stage constituted colonialism. Stages do not exist in a
pure form nor is there a sharp hiatus between stages. The time frame of the stage can vary
from colony to colony. Some countries went through one or two stages; others were atrophied.
For example, the third stage could be seen overlapping the second stage in India. While the first
and second stages were atrophied in Egypt and the second stage in Indonesia. The forms of
subordination changed over time but the subordination of the colony remained a constant
feature. As the forms of surplus appropriation or subordination change, so did colonial policy,
state and its institutions, culture, ideas and ideologies. The stages were the result of the historical
development of capitalism as a world system. They were also the result of changing patterns of
metropolis' own social, economic, and political development and partly due to changing position
in the world economy and polity. The colony's historical development also played a role in
determining the stage.
2.2 STAGE I
The first stage of colonialism is characterized by the Monopoly of trade. Under this, there
were two basic objectives; the first is to have a monopoly of the trade. In India, for
 9

example, the monopoly of trade was necessary to enable the East India Company to buy Indian
goods cheaply. European competitors were kept out by waging war against them. Political
conquest was undertaken to prevent Indian traders from taking part in the lucrative trade. A
charter from the British Crown was the typical device used to restrict other merchant companies
in Britain from trading with India. As far as Indian merchants were concerned, the company used
its superior naval power to ensure that their rivals were eliminated from the lucrative coastal
and foreign trade. Political power was used to compel the craftsmen to sell at very cheap prices
to drive Indian merchants out.
The stage witnessed direct appropriation of revenue or surplus through the use of
state power. The money for the wars in India and maintenance of the naval and military
establishments could only come from India. The search ended with control over Indian
resources. Expansion of territory was a mechanism for raising large amounts of money
through taxes. Money was also needed to finance the industrialization of Britain. With the
conquest of Bengal and South India, both these objectives, of controlling financial resources
and wielding a monopoly trade, were fulfilled. The Company was able to accumulate vast
sums of money through taxes and direct plunder from Bengal. Thirty-three per cent of Bengal
revenues were sent out by the Company in the form of exports. This did not include the illegal
exactions of the Company's officials. The drain of wealth from India amounted to two to three
per cent of Britain's national income at the time.
On the administrative front, no basic changes were introduced in the administration,
the judicial system, the means of transport and communication, methods of agricultural and
industrial production, forms of business management or economic organization, education or
intellectual fields, culture and social organization. The only visible changes that took place
were in military organization and top-level revenue administration. The reason for this lack of
intervention was that colonialism in the first stage could be superimposed over the
traditional systems of economy and polity. There was no need to penetrate the villages deeper
than earlier rulers had done, as long as their economic surplus was extracted. It was not
necessary to carry out any basic transformation of the colony's economic or political
structure. Hence the ideology was not one of development and there was no criticism or
understanding of traditional values, religion, customs, etc. The traditional systems of learning
were encouraged and administration was carried on in the vernacular.
Scenario in India
In India, this phase saw the replacement of Mughal Rule with the East India Company
taking administrative control of the territories. The war and diplomacy helped the British to
achieve this. Battle of Plassey, Buxar and signing of the treaty of Allahabad marked the end
of the Mughal rule and then the East India Company under Robert Clive was in the driving seat.
Through different revenue policies like Permanent settlement, Ryotwari and Mahalwari
respectively, the whole of India was slowly and gradually made part of the British financial
system. It continued till 1813 when free traders associations in England made a hue and cry
against the total monopoly of the Indian trade by the East India Company and argued for their
involvement in the trade and related matters.
As a result of the revenue policies of the British, agriculture stagnated and peasants almost
became tenants at will. They also increased the number of landed intermediaries, and
strongly entrenched the figure of money lender in the countryside. Landlords and Zamindars
became an important class and collaborators of British Colonial rule. The acquisition of
Diwani rights meant that the Company could now trap the wealth of local rulers, zamindars
and merchants in the rich province of Bengal and use them to buy the goods that would be
shipped to Britain for sale. Large quantities of wealth, including illegal incomes of company
 10

officials, made its way to Britain from Bengal. Company officials amassed huge fortunes before
they returned home, and they were referred to as ‘nabobs’ in Britain, on account of their flashy
lifestyles. A lot of this money was used to fuel the Industrial Revolution in Britain. The greed for
income from land revenue also led the Company to pursue an aggressive policy of territorial
expansion in India.
On social customs and tradition, the company in this phase tried to be indifferent and non-
interfering in the affairs of Indian people but indirectly they made attempts to introduce changes
in the fields of religion, education and broadly to influence the culture of India.
2.3 STAGE II
The second stage of colonialism is known as that of free trade. The industrial bourgeoisie,
which had replaced the trading companies as the foremost class, opposed plunder as a form of
appropriation of surplus on the ground that it would destroy the goose that laid the golden eggs.
The interest of the industrial bourgeoisie of the metropolis in the colony was in the markets
available for their manufactured goods. For this, it was necessary to increase exports from the
colony to pay for their purchase of imported manufacture goods. The metropolitan bourgeoisie
also wanted to develop the colony as a producer of raw materials to lessen dependence on non-
empire sources. Increase of exports from the colony would also enable it to pay for the high
salaries and profits of merchants. Trade was to be the mechanism by which the social surplus
was to be appropriated.
Along with the monopoly of the trade in the colonies as it was achieved in the first
stage, it was necessary to transform the economic, political, administrative, social, cultural
and ideological structure to enable exploitation in a new way. Hence they came out with a
new slogan of development and modernization to justify their actions in this phase. The
colony was to be integrated with the world capitalist economy and the mother country.
Foreign trade was to be freed of all restrictions and tariffs capitalists were allowed to develop
plantations, trade, transport, mining and industries. There was an urgent need to introduce
capitalist farming. The system of transport and communication was developed to facilitate
the movement of massive quantities of raw materials to the ports for exports. Railway
expansion was undertaken and a modern post and telegraph system was setup. In the field
of administration, unlike in the first phase where it was not touched except revenue
administration, it was deemed necessary to make it more detailed and comprehensive so that
imports could penetrate the villages and raw materials could be taken out easily. Capitalist
commercial relations were to be enforced. The need was also felt to improve the legal system
to ensure upholding the sanctity of contract. However, no change was made in the sphere of
personal law. Modern education was introduced to produce men who would man the new
administration. It was also expected that westernization would increase the demand for
imported goods.
In the field of political ideology liberal imperialism was the watchword. The perspective was to
train the people of the colony towards self-government. There was confidence that the economic
relationship would continue even if political control ended. A corollary to the perspective of
modernization was the critical view of existing modes of living. The ideology was development.
The intention was not to deliberately under develop the country. Underdevelopment was not the
desired but the inevitable consequence of the inexorable working of colonialism of trade and its
inner contradictions. Hence there was no imperialist theory of underdevelopment-only of
development.
 11

Indian Position
Free Trade changed the nature of the Indian colony completely, through a dual
strategy. Firstly it threw open Indian markets for the entry of cheap, mass-produced,
machine-made British goods, which enjoyed little or no tariff restrictions. The passage of
expensive, hand-crafted Indian textiles to Britain, which had been very popular there, was
obstructed by prohibitive tariff rates. They also developed India as a source of foodstuff and
raw material for Britain, which fuelled rapid growth in its manufacturing sector, crucial to the
emergence of a powerful capitalist economy within India through the complex processes of
commercialization of agriculture and deindustrialization.
Commercialization of agriculture had been a forced artificial process that led to very
limited growth in the agricultural sector. It led to differentiation within the agricultural sector
but did not create the figure of the capitalist landowner as in Britain. The lack of any
simultaneous large scale industrial development meant that accumulated agrarian capital
had no viable channels of investment, for it to be converted into industrial capital. Initiatives
to expand the productive capacity and organization of agriculture was also a risky
proposition, as the sector catered to a distant foreign market with wildly fluctuating prices,
while the colonial state did not protect agriculturists. Commercialization thus increased the
level of sub-infeudation in the countryside and money was channelized into trade and usury.
In trade, the larger part of the profits generated by the export trade went to British
business houses, which controlled shipping and insurance industries, besides commission agents,
traders and bankers. Those who benefitted in the colony were big farmers, some Indian traders
and moneylenders. Commercialization further intensified the feudal structure of landlord-
moneylender exploitation in rural areas.
Thus, in this phase of colonialism, the British under the pretext of 'Free Trade' practiced
everything beneficial to their trade and related practices. The commercialization of agriculture,
developments of roads, the introduction of telephone and communication was primarily done for
the fulfillment of their own characterized goals. Means of transport and communication would
connect different ports and therefore aid in the rapid movement of raw materials. All this in one
way helped the British trades but also helped later to channelize public opinion and Indian unity,
which first caused the 1857 episode and later the National Movement.
2.4 STAGE III
It was the phase of foreign investment and international competition for colonies. It is
important to know here that by the middle of the nineteenth century certain significant
changes had taken place like world capitalism. We may examine this phase on three counts.
First, as industrialization spread to the rest of the developed world the supremacy of Britain
ended and there was an intense struggle for markets and sources of raw materials as well as
foodstuffs. Countries of Europe, USA, Russia and Japan became competitors for markets and
sources of supply of raw materials. The second important factor of this phase was that of
major technological developments which increased the need for raw materials and foodstuffs.
Third and the most important one was a larger accumulation of capital necessitated the need
for an outlet of investment. In this, the proposed colonial expansion by different powers could
provide a channel along which the discontent of the workers and peasants could be deflected.
The dream of national greatness was always a heady one and jingoistic patriotism rallied the
country around the state.
The third stage of colonialism led to more intensive control over the colony. In the sphere
of ideology, the mood was one of reaction. The administration became more
 12

bureaucratic, detailed and efficient as the need for intensive control increased. There was no
more talk of self-government; instead, benevolent despotism was the new ideology, according
to which the colonial people were seen as a child people who would need guardians forever.
Modernization and western education, which were the watchwords of the second stage, were no
more heard of.
There are two kinds of contradictions within colonialism-one is the external one, between
colonial people and the system, which is expressed in the form of the anti- imperialist movement.
The other is the internal one—in which the colony can no longer serve the interests of the
metropolitan capitalist class. In the third stage, it is not able to absorb metropolitan capital or
increase in its exports of raw materials. It was to prevent this that a strategy of limited
modernization was implemented but the logic of colonialism revealed itself and
underdevelopment became a constraint on further exploitation of the colony.
The third stage did not take off in several colonies. It was precisely for the reason that
older colonies continued to export capital. One major reason behind this was that colonialism
had so wrecked the economies of the colonies that they could not absorb capital investment
to any appreciable extent. After all, where would the demand for the goods produced by the
newly set up industries come from when colonialism had exhausted their potential? Hence
the capital was invested in those products that had a ready market abroad or infrastructure
for such exports. In many colonies, the older forms of exploitation continued. In India, for
example, the earlier two forms remained more important and practically possible than the
third stage.
International Scenario
The third phase of colonialism in India was merely a consolidation of the trends that
were witnessed in the second phase. It was more subtle forms of exploitation that existed
alongside older, cruder forms. However, the new development that marked out the third
phase was an intensification of the rivalry between developed and industrialized countries,
for colonies in Asia, Africa and Latin America. In the 19th century, countries like France,
Belgium, Germany, the United States, and even Japan witnessed rapid industrialization. In the
face of competition in the world market, Britain's lead in this regard dwindled. In the search
for newer markets and sources of raw material, these countries stepped up their drive for
colonies and strengthened their control over existing ones. Industrial development also led to
capital accumulation, which was concentrated in a small number of banks and corporations.
This capital was invested in the colonies to sustain the rapid inflow of raw materials to fuel
further expansion of industrial production.
Indian Scenario
India proved crucial in solving the problem of Britain's deficits. Britain's control over
India ensured that there would always be a captive market for Lancashire textiles. Moreover,
India's export surplus in raw material with countries other than Britain, counter-balanced
her deficits elsewhere. While on the one hand indigenous handicrafts faced impoverishment,
on the other hand, there were few attempts at developing modern industries in the colony.
Although the colonial government spoke about free trade, indigenous enterprise faced many
obstructions perpetuated by the state's discriminatory policies. British capital was initially
invested in railways, jute industry, tea plantations and mining. The Indian money market was
dominated by European banking houses. While British entrepreneurs have easy access to
capital made available by this banking network, Indian traders had to depend on family or
caste organizations for their capital needs.
 13

Despite the above odds, Indian entrepreneurs found opportunities to expand and
grow, whenever Britain underwent periods of economic hardship. It was during the First
World War that some Marwari businessmen from Calcutta, like G.D. Birla and Swarupch and
Hukumchand invested in the jute industry. Gradually their control started expanding into
other areas like coal mines, sugar mills and paper industry, and they could even buy some
European companies. The greatest success of Indian capital was seen in the cotton industry
in western India, which took advantage of high demands during the war years (1914-18) to
consolidate its success, and was eventually competed with Lancashire. Certain traditional
communities like Gujarati Banias, Parsis, Bohras and Bhatia's became important in this
sector. The Tata Iron and Steel Company under the government's patronage provided
leadership to the fledgeling iron and steel industry of India.
After the First World War, links with the foreign market was re-established, but again
in the Depression years (1929-1933), the domestic market became relatively free to be
exploited by indigenous industry, as foreign trade declined. The colonial government also
provided some protection to the sugar and cotton industries, in the face of falling prices in
the agricultural sector. Low prices forced capital from land into the manufacturing sector.
Indians also ventured into the field of insurance and banking. Again, during the Second World
War (1939-45), as foreign economic influence declined, Indian entrepreneurs managed to
make huge profits. Strengthened by its limited success, the Indian capitalist class
strengthened their links with the nationalist movement. They soon started demanding the
establishment of heavy industries under state ownership and started organizing themselves
to resist the entry of foreign capital.
Thus, the third phase of colonialism in India had a mixed response to Indian problems.
While the economic condition of the peasants continued to deteriorate, foreign capitalists under
the protection of foreign bankers prospered, but during wars and slump years, Indian capitalists
used the opportunity to promote their industries.
Self-Assessment Questions
1) What was the outlook of the colonialist as regards Indian social customs and tradition
in the first phase of colonialism?
Answer. -

-
2) How did the commercialization of agriculture ruin the lives of the peasants?
Answer. -

3) How did the first World War help the Indian industrialists?
Answer. -

-
2.5 SUMMARY
 14

Students in a nutshell one may contend that three phases of colonialism as discussed
above progressed from one to another and made the metropolis, as well as colonies, define its
path of capitalism. Started from the monopoly of trade to finance capitalism, the colonies had
a mixed reaction. In the first place, it destroyed the colonial order and led to the betterment
of the metropolis. But, in the long run, though, forced the flow of capitalism reached to the
colonies as well. The development of modern industries in the colonies had a lot to receive
from this forced capitalism.
2.6 REFERENCES
Samir Amir, Unequal Development, New York, 1976.
Samir Amin, Accumulation on World Scale, New York, 1974.
A.K. Bagchi, The Political economy of Under-development, Cambridge, 1982.
Bipan Chandra, Nationalism and Colonialism in Modern India, Orient Longman, Delhi 1979.
2.7 FURTHER READINGS
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10,no.03, 1980.
2.8 MODEL QUESTIONS
1. Critically examine the stages of colonialism in India.
2. What was the impact of free trade and finance imperialism on India
 15

Lesson 3
ECONOMICS OF COLONIALISM; HISTORIOGRAPHY OF
COLONIALISM
Structure
3.0 Objectives
3.1 Introduction
3.2 Historiography of Colonialism
3.3 Economics of Colonialism
3.4 Summary
3.5 References
3.6 Further Readings
3.7 Model Questions
3.0 OBJECTIVES
After reading this chapter you will be able to:
 analyse different schools of the historiography of colonialism.
 understand the economics of colonialism
3.1 INTRODUCTION
Students in this lesson we will examine different schools of the historiography of
colonialism. We have taken up the elitist, the nationalist and the Marxist school to understand the
different strands that have appeared from time to time in the thinking of historians. To
understand the nature of colonialism, it is first necessary to have an in-depth knowledge of the
economics of colonialism.
3.2 HISTORIOGRAPHY OF COLONIALISM
Historiography refers either to the study of the methodology and development of history
(as a discipline) or to a body of historical work on a specialized topic. It is in the narrower sense
of "intentional attempts to recover knowledge of and represent in writing true descriptions or
narratives of past events".
Furay and Salevouris (1988) define historiography as "the study of the way history has
been and is written — the history of historical writing... When you study 'historiography' you
do not study the events of the past directly, but the changing interpretations of those events in
the works of individual historians."
Like any other historical event, rise and growth of colonialism in India have produced
historical writings by different schools. In this regard, the Elitist/Cambridge/Official school
produced literature in defence of colonialism and colonial policies as pursued by different
administrators in India. Some of the leading writers of this school include Mill, Benjamin
Disraeli, Morris D Morris, Daniel Thorner and others. They were either British officials or
Policymakers but hardly any economist. However, leading economic nationalists like Dada
Bhai Naoroji, R.C. Dutt, Mahadev Ranade opposed these officials by citing reasons and
arguments opposing the above view. They argued that the colonial policies in India were
British centric, suited to the growth and development of British industries and neglected the
 16

interests of native industries and their growth in India. This caused impoverishment in India. The
third strand of historiography is Marxist which talks about the impoverishment of India. This
was because of the bourgeoisie and their control of the Indian economy. Irrespective of the
fact, whether it was British bourgeoisie or Indian bourgeoisie in a changed situation,
impoverishment of lower-class i.e. industrial working class or peasants in the field remains true.
However, Antonio Gramsci, a revisionist Marxist historian talked of Marxism in a changed
scenario and had talked of the efficacy of Gandhian movement, a true movement in India. He
argued that Marxism and its condition may not be utilized in colonial and third world countries
where people like Gandhi was a Mass icon and hence, they led a true movement.
Cambridge/Elitist/Official Historiography
The leading historians of this school were colonial administrators and the people who
defended the policy of Metropolitan Britain on the question of colonialism and its growth in
India. Some of the important may include J.S. Mill, Benjamin Disraeli, Daniel Thorner,
Morris D Morris and others. The writings of the Cambridge school have been in total defence
of colonialism and colonial policies in all the three phases in India. The main argument of this
school had been around the fact that India had been thrust upon the British Empire for
civilizing them. They claim that India was sort of a white man’s burden and that the British
had an acclaimed task to civilize them which had hardly any sign of civilization. They argued
and talked of last days of the Mughal Empire and referred to as 'Dark Age'. They go on and
argue that the 18th century was a dark age and devoid of any technical change which pushed
India into medievalism. It was during this phase that the industrial revolution and phase of
capitalism changed the fabric of Europe and now their task was to change these colonies.
They maintained that during the British rule, India has shown considerable signs of growth
and progress. However, they also maintain that if India has not utilized this space to improve
radically, it was primarily because of the structural lacunae present with the Indian customs
and traditions.
As regards industrialization and growth of industries in India, Daniel Thornier based
upon the factual figures of the first organized census i.e. 1881, argued that since the working
population of the country has increased manifold signifying growth and development of
industry in India. Morris D Morris later categorically denied the contention of economic
nationalists that there was anything called "De-industrialization of India". He rather termed
the de-industrialization 'a myth in India'. Alongside the census statistics, he also cited the
building of roads, railways and improvements in the communication channel, a pathway
leading to industrialization of India. He goes and argues that even though there was a
problem with India's social fabric, the British has contributed a lot towards its prosperity as
a result of which India is now part of the global economy. They also argued that from the first
day in office, the British wanted to hand over the command of India to the Indians and
probably that occasion was 1947.
Nationalist Historiography
Nationalist like Dadabhai Naoroji, R.C. Dutt, and Mahadev Govind Ranade
highlighted the plight of India and Indian economy as had been done by the British in its
different phases of colonialism in India. As against the role of colonial state as civilizing
mission and an agent of progress and development, Dadabhai Naoroji and others criticized
the colonial administrators and policymakers for making India impoverished and pushing the
country into a deep crisis.
 17

Economic nationalists argue that British colonialism never acted as a civilizing mission
in India; rather, it was the trade and market which drove them to India. After the second
industrial revolution in England and later on in Europe, their market got saturated which
forced them to look for colonies and India and Indian political order provided them with a
background to operate and acquire larger gains. In the first place, cheap raw-material
inspired them to connect different regions of India with the famous port cities of India. They
developed rail, road and communication system to take the best of our resources in which
they were largely successful. Dadabhai Naoroji wrote that they first intoxicated Indian mind
to favour cheap factory oriented products as against hand-woven Indian products. They
followed the same route to dump their factory oriented cheap products into the Indian
markets. Hence, in this process, they destroyed the basic handloom industries of India.
R.C. Dutt in his book, “History of India, Vol. I & Vol. II highlighted the basic motives of
the British behind building rail, roads and communication instead of establishing irrigation
projects and dams and fulfilling other agricultural needs of India. He argued that the British
policies significantly neglected the agriculture and related growth in India. Had they been
conscious of basic needs of India they would never have neglected the core sector i.e.
agriculture as the majority of Indians survived on that. The British later forced Indians to
grow cash crops particularly Cotton which became necessary for the survival of British
cotton industries as a result of the slump created due to American Civil-War.
Scholars of the Nationalist school criticized Daniel Thorner and Morris D Morris on the
questions about the industrialization of India. To prove industrialization, Thorner and Morris
clubbed forced migration of workers into the agrarian sector as an increase in working size of
Indian population which otherwise was due to unavailability of jobs in the industrial sector
and disguised unemployment. They divided the share of peasants which was already facing
the heat of over-taxation and impoverishment. Hence, the economic nationalists termed the
industrialization a myth created by the British policymakers to justify their actions in India.
Thus, the economic nationalists, in general, were very critical of British policies in
India. They felt that the British created a structure which was meant to secure their needs
and benefits which had very negative effects on Indian industries and agriculture. They
pointed out that the national movement was the only choice left for the Indians to achieve a
just order in India.
Marxist Historiography
The third strand of argument was carried out by the Marxists and their argument was
based upon the true classical Marxist line propagated by Karl Marx, Rosa Luxemburg, and
Lenin. R.P. Dutt, M.N. Roy and later Jawaharlal Nehru carried forward their legacy in India.
They argued that peasantry and the working class bore the brunt of the colonial policies.
They pointed out that India was not an exception to that. They believed that whether it was
the British or Indian National Congress, both organizations and their leadership came from
the bourgeoisie. The peasants and the working class during the British rule were exploited by
them. Later, it was the turn of Congress to take maximum benefits at the cost of peasants and
workers. R.P. Dutt in his book, ‘India Today” has explained this antagonism in detail.
Interestingly, ha had never visited or seen India before writing this great work.
However, Antonio Gramsci, a revisionist Marxist later argued in his "Prison Diary"
that India and the third world and their experience may not be equated with the West due to
difference like society and social formation. He writes that these countries followed a different
course in capitalism which sometimes was quite contrary to the West European situation.
 18

Here, people like Gandhi knew the structure of society better than any other. Hence, he was
largely successful in exploiting the situation and countering the threat of colonialism better.
Thus, to conclude one may say that historiography is the ethos of a group based on
certain considerations. The colonial historians were largely successful in championing the
official version of the British policies through their writings. As against, this economic
nationalists presented a view which based upon the real groundwork in India. Hence, the
version though started in India but is considered a dominant version on colonialism around
the globe in an intellectual circle. Marxists though tried to present their global outlook and
tried to equate it to the Indian condition and Antonio Gramsci too presented his view.
3.3 ECONOMICS OF COLONIALISM
Colonialism is the establishment, maintenance, acquisition and expansion of colonies
in one territory by people from another territory. It is a process whereby the metropole claims
sovereignty over the colony; the social structure, government, and economics of the colony
are changed by the colonizers to suit them. Colonialism also involves a set of unequal
relationships between the metro pole and the colony and between the metro pole and the
indigenous people. However, under the economics of colonialism as contended by Douglas
Rimer, “The economic content and character of colonialism are commonly stressed. Imperial
ambitions are supposed to have been fired by needs to find new markets, secure sources of
raw-materials, or discharge of superfluous savings. The record of the colonial power is judged
by how far living standards in dependency were raised, the structure of livelihood changed,
the possibilities of future economic growth enhanced”.
Based on the above argument, this section would attempt to understand the real motives
of colonialism. In doing so, first, an attempt would be made to understand the political process
they choose for different setups like Asia, Africa and Latin America. It may also throw some light
on as to how it was centered on trade or profit-making of the colonists. It is also important to
know how it brought about a shift in the policies in the colony i.e. how it affected the native
policies with regards to agriculture, trade and industry. Finally, as the subject involves rise and
growth of colonialism in India, therefore, an attempt would be made to understand as to how it
affected India and also the claim of the British that whatever it did was to modernize and
develop India. We shall see if this statement has any truth in it or it is just a statement to
justify the process of capitalism.
Initially, the colonists just after the industrial revolution tried to capture different
colonies based on considerations like racial affinity or trade. This means at few places they
travelled to settle permanently but other places they developed as profit extension only.
Based on the above considerations, the settler colonies involved large-scale migration, often
motivated by religious, political, or economic reasons like Latin America. However, in the
case of colonialism where profit was the sole motive, the metropole involved fewer colonists
and focused on access to resources for export. This category includes trading posts as well as
larger colonies where colonists would control and manage much of the political and economic
administration, but rely on indigenous resources for labour and material. India may be taken
as a classical example of this as British used India for their market and raw material.
Another kind of colonialism may be broadly understood under the larger ambit of
exploitative colonialism i.e. plantation colonies. The British in particular started this version
of colonialism based on Indian indentured labour and developed few colonies like Mauritius,
Ghana, South Africa, Guyana etc. Moreover, the kind colonialism propagated by the British in
Africa with special reference to the construction of the Suez Canal was discussed under
exploitative factor but was different from the Indian case.
 19

As regards the economic motives of colonialism, the European nations entered their
imperial projects intending to enrich the European metropole. The exploitation of non-
Europeans to support imperial goals was acceptable to the colonizers. Here it is pertinent to
mention that the Europeans put the concept of democracy and liberalism at the back foot to
achieve the best economic gains and results in colonialism. Two outgrowths of this imperial
agenda were slavery and indentured servitude. African slavery had existed long before
Europeans discovered it as an exploitative means of creating an inexpensive labour force for
the colonies. Europeans brought transportation technology to the practice, bringing large
numbers of African slaves to the Americas by sail. Spain and Portugal had brought African
slaves to work at African colonies such as Cape Verde and the Azores, and Latin America, by
the 16th century. The British, French and Dutch joined in the slave trade in subsequent
centuries. Ultimately, around 11 million Africans were taken to the Caribbean and North and
South America as a slave by European colonizers.
Abolitionists in Europe and America protested the inhumane treatment of African slaves,
which led to the elimination of the slave trade by the late 19th century. The labour shortage that
resulted inspired European colonizers to develop a new source of labour, using a system of
indentured servitude. Indentured servants consented to a contract with the European colonizers.
Under this contract, the servant would work for an employer for a term of at least a year,
while the employer agreed to pay for the servant’s voyage to the colony, possibly pay for the
return to the country of origin, and maybe pay the employee a wage as well. The employee was
‘indentured’ to the employer because they owed a debt to the employer for their travel expense
to the colony, which they were expected to pay through their wages. In practice, indentured
servants were exploited through terrible working conditions and burdensome debts created by
the employers, with whom the servants had no means of negotiating.
India and China were the largest sources of indentured servants during the colonial
era. Indentured servants from India travelled to British colonies in Asia, Africa and the
Caribbean, and also to French and Portuguese colonies, while Chinese Servants travelled to
British and Dutch colonies. Between 1830 and 1930, around 30 million indentured servants
migrated from India, and 24 million returned to India. China sent more indentured servants
to European colonies, and around the same proportion returned to China. However, the
worst form of exploitation came to an end when Mahatma Gandhi launched a crusade against
this in South Africa, which was later supported by a British, C.F. Andrews. Nonetheless, it is
ironical that the British and other Europeans started this heinous practise just to take their
economic logic of colonialism to next level. It is hard to notice any civilizing mission in this
worst form of exploitation.
Coming back to India, it is important here to discuss in short how the colonial
economic policies were injurious to trade, industry and agriculture. Much has already been
discussed under the impact on agriculture, industry and trade. The economics of colonialism
was centred on the basic motive of colonialism to capture raw material and market of the
colonies. To achieve the same, they first captured the political power of India, initiated
various land-revenue settlements to have a permanent source of income. Later under one
pretext or the other, they somehow manage to capture the political power in totality making
princely and other powers subservient to them.
Once they occupied the political space, they went to develop road, railways and
communication network to channelize the raw material through port cities to the leading
industrial centres of England and later through utilizing these routes to capture vast markets
of India. They were largely successful in their first two stages and then embarked upon
 20

finance imperialism to make Indian and Indian market subservient to the British capital and
were again successful due to strict administrative control. The economic nationalists had
criticized these policies of the British which destroyed the Indian agriculture, trade and
industry.
Based on various facts narrated above, one may conclude that the economics of
colonialism compelled European nations to search for colonies to get control of raw material
and market of these under-developed states. They followed an organized policy to
systematically upgrade their trade and industry as the European market was already
saturated. Whatever they followed in these colonies was based upon their demand and
growth and they certainly did not have the welfare of the colonies in mind. Thus, political
control, slave labour/indentured labour, deindustrialization, agriculture backwardness and
the decline in trade was the logical conclusion in the process.
Self-Assessment Questions
1. Write a brief note on elitist historiography.

2. What do you know about nationalist historiography?

3. What do you mean by exploitative colonialism?

4. Who was Antonio Gramsci?

3.4 SUMMARY
Various aspects which are the economics of colonialism are taken into account by the
colonists. Economics of colonialism leads to different forms of exploitation of the colony. In the
historiography of colonialism, we have noted that the elitist historians have justified the rule of
the British in India. They have argued in support of their policies that they regarded as essential
for India to develop and modernize. On the other hand, the Nationalist approach has been the
opposite. The Nationalist have rejected the notion of the British as the benefactors of India.
Rather they held the British responsible for the destruction of India's agriculture and industries
and this has been explained in detail in this lesson.
3.5 REFERENCES
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10, no. 03, 1980.
 21

Bipan Chandra, The Rise and Growth of Economic Nationalism in India: Economic Policies of
Indian National Leadership, 1880-1905, New Delhi, 1966.
3.6 FURTHER READINGS
Rajani Palme Dutt, India to-day, Peoples Publishing House, Bombay, 1947.
R.C. Dutt, Economic History of India (2nd Edition), Rutledge & Kegan Paul, London, 2006.
3.7 Model Questions
1. Write a note on Nationalist Historiography of colonialism.
2. Critically examine Marxist Historiography.
3. What do you understand by the economics of colonialism?
 22

Lesson 4

PATTERNS OF COLONIALISM IN ASIA, AFRICA

AND LATIN AMERICA
Structure
4.0 Objectives
4.1 Introduction
4.2 Colonialism in Asia
4.3 Colonialism in Africa
4.4 Colonialism in Latin America
4.5 Summary
4.6 References
4.7 Further Readings
Model Questions
4.0 OBJECTIVES
After reading this chapter you will be able to:
 learn about the patterns of colonialism in Asia, Africa and Latin America
 critically analyze the role of the colonists.
4.1 INTRODUCTION
Students in this lesson we will focus on colonialism in Asia, Africa and Latin America.
Colonialism and development of colonies was a by-product of the Industrial Revolution which
necessitated the mother country to search for a place where they may get the raw-material and
market for their finished product. However, this colonialism and its nature were different in
different colonies. For instance, the colonies in Latin America were developed keeping in mind
their plan to use them as extended home. However, in Asia though they followed all the three
stages but the objective was to take maximum benefit for their business and their growth and at
no stage, plans were made for settlement. But, the African colonies were used more in the finance
phase for the extension of their trade and related matters.
In this chapter, an effort would be made to examine colonialism and colonial policies
in India, Indonesia in Asia, Egypt in Africa and Brazil in Latin America to have a broad
understanding of their patterns around the globe which may in the ultimate sense enrich the
know-how of its growth and development in India.
4.2 COLONIALISM IN ASIA
Colonialism in India
Britain’s relationship with her Indian colony was one of political subordination, but
economic exploitation formed the core of this relationship. This process of colonization was
geared clearly to benefit the mother country, even at the cost of the colony. The process of British
colonialism may be studied in three phases.
Phases of British Colonialism in India
 23

Colonial exploitation was carried broadly through three phases. The first phase (1757-
1813) of 'mercantilism' was one of the direct plunder in which surplus Indian revenues were
used to buy Indian finished goods to be exported to England. In the second phase (1813-1858)
of free trade, India was converted into a source of raw material and a market for British
manufactured goods. The third phase (1858-1947) was of finance imperialism in which British
capital controlled banks, foreign trading firms and managing agencies in India. This phased
exploitation was carried out through a range of economic policies, primarily in the industrial
and agricultural sectors of the colonial economy.
The first phase of British Colonialism in India (Monopoly in Trade)
The phase may be dated back from 1757, when for the first time British East India
Company acquired the rights to collect revenue from its territories in the eastern and
southern parts of the subcontinent, to 1813, when finally the Company's monopoly over
trade with India came to an end. The primary function of the British East India Company in
this period was to buy spices, cotton and silk from India and sell them at huge profits to the
large market these goods enjoyed in Britain. This meant that large quantities of bullion would
flow out of Britain into India to pay for these commodities. Despite these strong and cunning
business tactics, it seemed difficult to find British goods that could be sold in India in
exchange, to stem this outflow of bullion. Besides the expenditure on buying commodities,
the Company also spent large amounts on the wars that it had to fight with other European
powers, all in search of the same goods to trade-in. These included the Portuguese, the Dutch
and the French. Thus the acquisition of Diwani (right to collect revenue) in Bengal, after the
Battle of Buxar, which followed the Battle of Plassey, opened the way for the Company to
raise money for its expenditure in India.
Land Revenue Policies
After the Diwani of Bengal, Bihar and Orissa were granted to the East India Company
in 1765, the maximization of revenue from the colony became the primary objective of the
British Administration. Agriculture taxation was the main source of income for the company,
which had to pay dividends to its investors in Britain. Therefore, the British administrators
tried various land revenue experiments to this aim. These experiments also partly determined
the relationship that the colonial state would share with the people it governed.
With much debate, Cornwallis introduced the system of Permanent Settlement in
1793. Under this system, zamindars were established as the proprietors or owners of the
land. The state's demand for land revenue was permanently fixed but if the zamindars were
unable to pay the full tax on time, their lands would be taken away and auctioned by the
state. Through this system, the state tried to create an enterprising class of landowners, who
would try to improve crop production in their fields to earn profits. Besides, it would be
simpler for the state to deal with a limited number of zamindars than with every peasant,
and a powerful section of society would become loyal to the British administration. But this
system led to greater impoverishment of the tenant-cultivator because of the burden of high
revenue assessment. It also caused greater difficulty for zamindars, many of whom were
unable to pay the revenue on time and lost their lands. Moreover, the system also encouraged
subinfeudation i.e. many layers of intermediaries between the zamindars and cultivators,
adding to the woes of the peasantry.
Taking the clues from the Permanent Settlement, it was decided by the company
authorities not to start the same in other areas. It was also done precisely to acquire more for
the sate and hence, Ryotwari System was first initiated in Madras Presidency and later
extended to the Presidency of Bombay. Under this system, revenue was initially collected
 24

from each village separately, but later each cultivator or ‘ryot’ was assessed individually. Thus,
peasants not zamindars were established as property owners. Although this system increased the
revenue collection of the state, the assessments were faulty and the peasants overburdened by
the taxes. The landed intermediaries continued to flourish. Thus, in North- west India the
Mahalwari Settlement was followed where the state made settlements either with the village
community or in some cases traditional taluqdar. Each fiscal unit was called mahal. Under this
system, some recognition was given to collective proprietary rights.
As a result of the revenue policies of the British, agriculture stagnated and peasants
almost became tenants at will. They also increased the number of landed intermediaries, and
strongly entrenched the figure of moneylender in the countryside. Landlords and zamindars
became an important class and collaborators of British Colonial rule. As regards other social
customs and traditions, the British East India Company remained neutral. But directly or
indirectly they influenced those too, in the long run, causing worries and anxiety among
peaceful Indian communities and other business communities of Britain.
The Second Phase of British Colonialism in India (Free Trade)
The 'Second Phase' started with the Charter Act of 1813 when the East India Company
lost its monopoly trading rights in India and ended in 1858 when the British crown finally
took over the reins of administration of all British territories in India.
Free Trade changed the nature of the Indian colony completely, through a dual
strategy. Firstly it threw open Indian markets for the entry of cheap, mass-produced,
machine-made British goods, which enjoyed little or no tariff restrictions. The passage of
expensive, hand-crafted Indian textiles to Britain, which had been very popular there, was
obstructed by prohibitive tariff rates. They also developed India as a source of foodstuff and
raw material for Britain, which fuelled rapid growth in its manufacturing sector, crucial to the
emergence of a powerful capitalist economy within India through the complex processes of
commercialization of agriculture and deindustrialization.
Thus, in this phase of colonialism, the British under the pretext of 'Free Trade' practised
everything beneficial to their trade and related practices. The commercialization of agriculture,
developments of roads, telephone and communication was primarily done to profess their own
characterized goals, by connecting different ports and to have speedy public opinion, modes of
transport and communication were built. All this in one way helped the British trades but also
helped later to channelize public opinion and Indian unity, which first caused 1857 episode and
later the National Movement.
Third Phase of British Colonialism in India (Finance Capitalism)
The third stage of colonialism led to more intensive control over the colony. In the sphere
of ideology, the mood was one of reaction. The administration became more bureaucratic,
detailed and efficient as the need for intensive control increased. There was no more talk of self-
government; instead, benevolent despotism was the new ideology, according to which the
colonial people were seen as a child people who would need guardians forever. Modernization
and western education, which were the watchwords of the second stage, were no more heard
of.
India proved crucial in solving the problem of Britain's deficits. Britain's control over
India ensured that there would always be a captive market for Lancashire textiles. Moreover,
India's export surplus in raw material with countries other than Britain, counter-balanced
her deficits elsewhere. While on the one hand indigenous handicrafts face impoverishment,
on the other hand, there were few attempts at developing modern industries in the colony.
 25

Although the colonial government spoke about free trade, indigenous enterprise faced many
obstructions perpetuated by the state's discriminatory policies. British capital was initially
invested in railways, jute industry, tea plantations and mining. The Indian money market was
dominated by European banking houses. While British entrepreneurs have easy access to
capital made available by this banking network, Indian traders had to depend on family or
caste organizations for their capital needs.
Despite the above odds, Indian entrepreneurs found opportunities to expand and
grow, whenever Britain underwent periods of economic hardship. It was during the First
World War that some Marwari businessmen from Calcutta, like G.D. Birla and Swarupchand
Hukumchand invested in the jute industry. Gradually their control started expanding into
other areas like coal mines, sugar mills and paper industry, and they could even buy some
European companies. The greatest success of Indian capital was seen in the cotton industry
in western India, which took advantage of high demands during the war years (1914-18) to
consolidate its success, and was eventually in competition with Lancashire. Certain
traditional communities like Gujarati Banias, Parsis, Bohras and Bhatias became important
in this sector. The Tata Iron and Steel Company under government patronage provided
leadership to the fledgeling iron and steel company of India.
After the First World War, links with the foreign market was re-established, but again
in the Depression years (1929-1933), the domestic market became relatively free to be
exploited by indigenous industry, as foreign trade declined. The colonial government also
provided some protection to the sugar and cotton industries, in the face of falling prices in
the agricultural sector. Low prices forced capital from land into the manufacturing sector.
Indians also ventured into the field of insurance and banking. Again, during the Second World
War (1939-45), as foreign economic influence declined, Indian entrepreneurs managed to
make huge profits. Strengthened by its limited success, the Indian capitalist class
strengthened their links with the nationalist movement. They soon started demanding the
establishment of heavy industries under state ownership and started organizing themselves
to resist the entry of foreign capital.
Thus, the third phase of colonialism in India had a mixed response to Indian problems.
While the condition of the peasants continued to deteriorate, foreign capitalists under the
protection of foreign bankers prospered but during wars and slump periods, Indian capitalists
promoted their industries.
Colonialism in Indonesia
The use of the term South East Asia goes back to the Pacific war of 1941-45. The countries
in South East Asia comprises of Burma, Thailand, North and South Vietnam, Cambodia, Laos,
Federation of Malaysia, Brunei, Indonesia and Philippines. The history of colonialism in South
Asia suggests that it lasted from the late fifteenth to the mid-twentieth century. Europe's military
and naval superiority enabled her to dominate the rest of the world. The cannon and the steam-
powered gunboat outmatched the weapons of the Asian countries. Motives were wealth, prestige
and converts to Christianity. Other than spice trade, South East Asia remained significant for
Europe for she supplied raw materials for European industry like oil, rubber, metals, rice, coffee,
tea and sugar. After 1870 the interior of the colonies was opened up at great momentum. Even
Thailand was affected, though it was not a colony.
According to Victor Purcell, “trade, treaties, persuasion and legality were the usual
instruments of European expansion – not fire and the sword.” Ancient states were
 26

dismantled, patterns of commerce were transformed and the cultural and intellectual
assumptions of Asian Civilizations were challenged.
Portuguese
It was the trade of spice which attracted the major European powers to concentrate on
Indonesia. The Portuguese came to Malacca in the early sixteenth century but their power
was broken by 1600. They were the first to introduce maize, tobacco, sweet potato, and
cocoa. Their quest to dominate the source of the lucrative spice trade in the early 16th century
and their simultaneous Roman Catholic missionary efforts saw the establishment of trading
posts and forts, and strong Portuguese cultural element that remains substantial in
Indonesia. Europeans were making technological advances in the early sixteenth century;
newfound Portuguese expertise in navigation, shipbuilding and weaponry allowed them to
make daring expeditions of explorations and expansion. Starting with the first exploratory
expeditions sent from newly conquered Malacca in 1512, the Portuguese were the first
Europeans to arrive in Indonesia and sought to dominate the sources of valuable spices and
to extend their Roman Catholic missionary efforts. However, the initial Portuguese attempts
to establish a coalition and peace treaty in 1522 with the West Javan Sundra Kingdom failed
due to hostilities amongst indigenous kingdoms on Java. The Portuguese turned east to
Maluku, which comprised a varied collection of principalities and kingdoms that were
occasionally at war with each other but maintained significant inter-island and international
trade. Through both military conquest and alliance with local rulers, they established trading
posts, forts, and missions in Eastern Indonesia including the islands of Ternate, ambon, and
Solar. The height of Portuguese missionary activities, however, came at the latter half of the
sixteenth century, after the pace of their military conquest in the archipelago had stopped
and their East Asian interests were shifting to Japan, Macau; and sugar in Brazil and the
Atlantic slave trade in turn further distracted their Indonesian efforts. Besides, the first
European people that arrived in Northern Sulawesi were Portuguese.
Francisco Xavier supported and visited the Portuguese mission at Tolo on Halmahera.
This was the first Catholic mission in the Moluccas. The mission began in 1534 when some
chiefs from Morotia came to Ternate asking to be baptized. Simao Vaz, the viscar of ternate,
went to Tolo to found the mission. The mission was the source of conflict between the
Spanish, the Portuguese and Ternate. Simao Vaz was later murdered at Sao.
However, soon they faced stiff resistance from the Dutch because of the latter's aggressive
design of colonialism in Indonesia. The Portuguese presence in Indonesia was reduced to Solor,
Flores and Timor in modern-day Nusa Tenggara, following defeat in 1575 at Ternate at the hands
of indigenous Ternateans, Dutch conquests in Ambon, North Maluku and Banda, and a general
failure for sustained control of trade in the region. In comparison with the original Portuguese
ambition to dominate Asian trade, their influence on Indonesian culture are small: the romantic
keroncong guitar ballads; a large number of Indonesian words which reflect Portuguese’s role as
the ‘lingua franca’ of the archipelago alongside Malay; and many family names in eastern
Indonesia such as da Costa, Dias, de Fretes, Gonsalves, etc. The most significant aspect of the
Portuguese arrival was the disruption and disorganization of the trade network mostly as a result
of their conquest of Malacca, and the first significant plantings of Christianity in Indonesia.
The Dutch
The Dutch merchants formed a company in 1594. The companies were amalgamated
in 1602 and given a common charter. The Dutch Parliament awarded VOC a monopoly on
trade and colonial activities in the region at a time before the company controlled any
 27

territory in Java. In 1619, the VOC conquered the West Javan city of Jayakarta, where they
founded the city of Batavia (present-day Jakarta). The VOC became deeply involved in the
internal politics of Java in this period and fought in several wars involving the leaders of
Mataram and Banten.
The Dutch followed the Portuguese aspirations, courage, brutality and strategies but
brought better organization, weapons, ships, and superior financial backing. Although they
failed to gain complete control of the Indonesian spice trade, they had much more success
than the previous Portuguese efforts. They exploited the factionalism of the small kingdoms
in Java that had replaced Majapahit, establishing a permanent foothold in Java, from which
grew a land-based colonial empire which became one of the world’s richest colonial
possessions.
After the VOC was dissolved in 1800 following bankruptcy, and after a short British rule
under Thomas Stamford Raffles, the Dutch took over the VOC possessions in 1816. A Javanese
uprising was crushed in the Java War of 1825-1830. After 1830 a system of forced cultivations
and indentured labour was introduced on Java. This system brought Dutch and their Indonesian
collaborator's enormous wealth. The cultivation system tied peasants to their land, forcing them
to work in government-owned plantations for 60 days of the year. The system, however, was
abolished in the more liberal period after 1870. In 1901 the Dutch included what they called the
Ethical Policy, which included somewhat increased investment in indigenous education, and
modest political reforms.
The Dutch colonialists formed a privileged upper social class of soldiers,
administrators, managers, teachers and pioneers. They lived together with the "natives" but
at the top of a rigid social and racial caste system. The Dutch East Indies had two legal classes
of citizens; Europeans and indigenous. A third class, Foreign Easterners, was addedin 1920.
Upgrading the infrastructure of ports and roads was a high priority for the Dutch,
intending to modernize the economy, pumping wages into local areas, facilitating commerce,
and speeding up military movements. By 1950 Dutch engineers had built and upgraded a
road network with 12,000 km of asphalted surface, 41,000 km of metalled road area and
16,000 km of gravel surfaces. Besides the Dutch built 7,500 kilometres of railways, bridges,
irrigation systems covering 1.4 million hectares of rice fields, several harbours and 140
public drinking water systems. These Dutch constructed public works became the economic
base of the colonial state; after independence, they became the basis of Indonesian
infrastructure.
For most of the colonial period, Dutch control over its territories in the Indonesian
archipelago was tenuous. In some cases, Dutch police and military actions in parts of
Indonesia were quite cruel. It was only in the early 20 th century, three centuries after the first
Dutch trading post, that the full extent of the colonial territory was established and direct
colonial rule exerted across what would become the boundaries of the modern Indonesian
state. Portuguese Timor, now east Timor, remained under Portuguese rule until 1975 when it
was invaded by Indonesia. The Indonesian government declared the territory an Indonesian
province but relinquished it in 1999 which is not the subject matter of present study.
British in Indonesia
In 1814 the British came to Indonesia and built Fort York in Bengkulu on the west coast of
Sumatra. It was later renamed as Fort Marlborough. During the Napoleonic wars in Europe when
Holland was occupied by France, Indonesia fell under the rule of the British East India Company
(1811-1816). Sir Thomas Stanford Raffles was appointed Lieutenant
 28

Governor-General of Java and dependencies. He was subordinated to the Governor-General in

Bengal, India. Raffles introduced partial self-government and abolished slave-trade. In those
days slaves were captured and traded by foreigners. He also introduced the land- tenure
system, replacing the hated Dutch forced agricultural system, whereby crops were grown and
surrendered to the Government. In the cultural arena, the famous Borobudur and other
temples were restored and research conducted. Raffles in his famous book, “The History of
Java” has written extensively about Java’s high civilization and culture. During the British
stay in Sumatra (1814-1825), William Marsden wrote a similar book on the History of
Sumatra, which was published in 1889, again describes a lot about Sumatra and its historical
and cultural importance. However, the presence of the British was short here in Indonesia.
After the fall of Napoleon, and end of the French occupation in Holland, the British and Dutch
signed a convention in London on August 13, 1814, in which it was agreed that Dutch colonial
possessions dating from 1803 onwards should be returned to the Dutch Administration in
Batavia. Thus, the Indonesian archipelago was recovered from the Britishin 1815.
Assumptions
Looking into the complex nature of Indonesian colonialism, it is apparent that though
Portuguese were the first to arrive in Indonesia and took advantage of native resources, the
credit goes to the Dutch for improving the infrastructure. With renewed infrastructure, the
Dutch made the Indonesia part of world capitalism. The short stay of the British because of
her compulsions in Europe helped only effecting in the arena of Indonesian culture. Though
Indonesia was forced into world capitalism, the real beneficiaries were the Dutch. The native
peasants were forced to cultivate crops and forced to work for a pittance and buy food at
exorbitant prices from the Dutch traders. The peasants were forbidden to grow crops without
permission from the colonial authorities. Dutch patrols destroyed any unlicensed trees of
cloves and nutmeg. There was very little capital investment in the colony. Mineral
development was in its infancy. Railways developed in the 1860s. By 1900 there were
3000km of railways. The telegraph service was started in 1856 and postal service in 1866.
On the whole, Indonesia seems a case of the third stage of colonialism more that of first
and the second because of her forced association with world capitalism largely for the interests
of the colonialists. However, few historians contend that Indonesian colonialism was a
classical case in which we may see overlapping in its second and third stage. Interpretations may
vary but in my opinion, its tilt was more towards the third stage. In a nutshell, one may say that
the colonialists used the native land, agriculture and to great extent market for their gains and
by and large, neglected the natives which forced the natives to oppose the colonialist
particularly the Dutch and side with the national movement.
4.3 COLONIALISM IN AFRICA
A. History and Trend
The conquest of Africa took place in the last decade of the nineteenth century. As late
as 1880, only a small part, 20 per cent of Africa, had come under European rule. The
European powers had been content to trade with Africa and wield informal political influence
where necessary. However, the spread of the industrial revolution in Europe brought to the
fore new political ambitions and rivalries. Direct political control was the watchword of the
era of the new imperialism and rival capitalist monopolies. The conquest of Africa was made
possible by superior European technology, financial and military resources and relative
stability in Europe.
 29

A continent of over 28-million sq. km. was partitioned and occupied by European
powers by a combination of two-pronged strategy i.e. treaties and conquest. A series of
treaties marked out spheres of influence of European powers. The Anglo-German treaties of
1890 and 1893 and the Anglo-Italian treaty of 1891, the Franco-Portuguese treaty of 1886,
the Anglo-Portuguese treaty of 1886, the German-Portuguese treaty of 1886, the Anglo-
Portuguese treaty of 1891 and the Anglo-French convention of 1899 were important
milestones. The French were the most active in pursuing the policy of military conquest.
Britain's military imperialism was as spectacular and bloody. Nigeria, for example, was
conquered in stages by the turn of the century. Sudan was occupied in 1896. Zanzibar
became a protectorate in 1894. The conquest of Zambia, earlier known as Northern Rhodesia,
was completed in 1901. Interestingly, the conquests were in traditional slaving zones-in the
east it was the old ivory trade zones.
Based on growth and development of colonialism, the African colonialism may broadly
be discussed in three phases: the first phase, 1880-1919, was one of conquest and
occupation. The colonial system speeded up and was consolidated after 1910. The second
phase, 1919-1935, was the period of accommodation. The third phase, 1935 onwards, was
that of the independence movements. Within forty-five years from 1935, the colonial system
was uprooted from over 94 per cent of Africa.
B. Chronology and Events
We take up Egypt as a case study as it demonstrates how colonialism functions
effectively even without direct political suzerainty which makes a distinct departure from
what was practised in India under British led colonialism. Going back in history, an abortive
expedition was made by Napoleon to annex Egypt around the turn of the nineteenth century.
The British military intervention repulsed the French and the British occupied Egypt in 1801.
However, this lasted only two years until the treaty of Amiens and the British forces left
Egypt by March 1803. The British again attacked Egypt in 1807 but were forced to retreat. In
1840, a British squadron commanded by Napier threatened Alexandria. A convention was
signed which limited the powers of Mohammad Ali, the ruler of Egypt. Egypt became a British
Colony in effect. Though Egypt remained normally under Turkish rule, the consuls of Britain
and France were the real wielders of power. Egypt came under the joint protection of France
and Britain and it was only their rivalry that gave Egypt a modicum of independence.
In 1842 the terms of the Anglo-Turkish trade treaty were applied to Egypt. British
merchants and industrialists were allowed to buy cotton directly from the producers and
exports in Egypt were required to pay minimal custom duties, if any. By 1845, England was
the predominant partner in Egypt’s trade. A quarter of Egypt’s imports and a third of her
exports were with England. In 1851, the British were given concessions to build a railway
from Alexandria to Cairo and Suez, which would be of vital strategic importance to the British
in the context of their colony in India. The construction of the railway line enhanced Egypt’s
importance as a transhipping base. In 1858, the British used the line to transport troops to
suppress the revolt in India.
British colonialism in Egypt reduced its status as an agrarian and the raw material
appendage of the metropolitan country. The nineteenth-century saw Britain and France
controlling political developments in Egypt by toppling the local governments and setting up
puppet regimes to extract best out of it for the mother country. The history of colonialism
and various interpretations by African historians or beyond suggests the sordid tale of
exploitation by foreign powers and banking companies who enmeshed her in indebtedness.
 30

C. British Economic Policy in Egypt

Unlike India, the first two phases of colonialism were merged in Egypt. In Egypt, the
primary aim of the British industrialists was to develop Egypt as a supplier of cotton for the
industry. The second motivation was that Egypt could be a valuable field for the investment
of finance capital. During the financial boom of 1897-1907, foreign capital investment in
Egypt totalled 73, 500,000 Egyptian pounds. The proportion of industrial investment was
extremely low. In 1883-97, it accounted for 29 per cent of the total and it fell during the
financial boom. Most of the foreign investment was in commerce, banks, mortgage banks, and
companies and public utilities. It has been estimated that 79 per cent of foreign investment
was in non-productive fields, such as public debt mortgage and banks, 12.36 per cent was in
trade and transport and 5 per cent in industry and construction.
As per the convenience and the business interest, the British industrialists converted
Egypt into a primarily cotton-growing country. Several irrigation networks were built to this end.
The area under cotton increased from 495,000 feddans in 1879 to 1, 723, 000 feddans in 1913.
Cotton yielded 43 per cent of the total value of agricultural output between 1910 and 1914.
Cotton exports accounted for 85 per cent of total export in 1913. Cotton exports multiplied five
times from 1860 to 1870 while imports trebled from 1843 to 1872. In thirty years the total
volume of Egyptian overseas trade increased fivefold. However, the consequence of a single crop
economy was that Egypt had to import food grains. Foreigners owned 700, 000 feddans or 13 per
cent of the entire private owned lands. Besides, they controlled the 27 per cent of the land that
was mortgaged to foreign companies. The primary cotton processing and cotton cleaning
industry and the steamship lines that transported the bales of cotton were under British control.
The British controlled the entire cotton trade in Egypt. It is an index of the exploitation of Egypt
that it did not have a single cotton mill.
To achieve their target, the means of transport and communication were developed on
a rapid scale during the second half of the nineteenth century. Railways developed, as did
telegraph line and steamships. However, the biggest loser was the Egyptian industries. They
made developments only to a limited extent. Sugar refineries, small textile and weaving mill,
foundries, repair workshops, etc., were the kind of enterprises set up, which had relatively
low levels of technology. The absence of tariff protection was a major drawback for the
industry.
D. Colonialism and Construction of Suez Canal
In the 1850s, France proposed the building of the Suez Canal which was accepted by
the internal authorizes after some resistance. The construction of the Canal was to hasten the
process of the conversion of Egypt into a colony and expands its parameters further east.
However, if we look at the process of its construction it is noticed that the metropolis
interests superseded all other interests and hence complete destruction of finances of mother
country for the sake of the metropolis. 44 per cent of the share capital came from Egypt,
apart from labour and the land, which was provided free. Egypt was forced to go in for
massive foreign loans to finance this project. 25,000 to 40,000 labourers were employed at
one point of time mostly forced in nature and made compulsory without any conditions
which effected and hampered the development of sectors like agriculture and industry.
The Suez Canal project was very heavy on the financial health of Egypt as a nation. The
total cost to Egypt was 400, 00,000 francs. Of this, she was able to recover only a quarter through
the sale of shares. Millions of pounds were thrust as loans on her for a project from which she
drew little benefit and which was implemented to reduce the time and cost of travel to the East.
The bankers of London advanced millions of pounds to the
 31

Egyptian government, interest payments on these loans alone amounted to the revenues of
the richest provinces. By 1876, Egypt's total foreign debt amounted to 94,000,000 pounds.
The interest in this was a staggering 8,000,000 pounds every year. The government sold its
shares in the project to Britain, which used her clout as the biggest stockholder in the Canal
to oust France from her position as a rival. The roots of this new policy lay in the ushering in
of the stage of monopoly capitalism in Europe. The European powers adopted more
aggressive postures in their colonial policy.
Britain forced a commission of inquiry into Egypt's finances. Dual control of France
and Britain over her finances was enforced. A new cabinet was set up with primarily
European officials in 1878. Egypt now became a colony of the Anglo-French bankers.
Resentment was naturally intense and widespread. The nationalists or wataneun gave
expression to this discontent. A national government replaced the infamous European
cabinet but this was short-lived and the European powers continued to wield power.
E. Colonial Structure of Egypt
Egypt became a colony of Britain in 1882 but was not formally annexed or recognized
as a protectorate. Egypt continued to be part of the Ottoman Empire. Britain described
herself as a temporary occupation power. The British desisted from annexing Egypt as that
may have triggered off a serious international crisis. The excuse of internal anarchy was used
to continue their occupation in the coming decades. France accepted Britain's domination
over Egypt as part of Anglo-French Entente in 1904. The Suez Canal was to be controlled by
an international commission. In 1906, Britain annexed the Sinai Peninsula. Dual control over
Egypt's finances was ended and with it French influence. The British administrator was the
supreme authority in practice though nominally the Khedive ruled and a Legislative Council
and General assembly existed. The consul general of Britain wielded the dictatorship of
British finance capital. Lord Cromer was the longest-serving administrator, followed by Gorst
and General Kitchener.
Egypt paid heavy price under the colonial regime of Britain during World War I.Britain
dragged Egypt into the first World War despite her not being a colony formally. Extensive use
was made of Egypt’s natural resources and manpower for the war. Her entire economy was
martialled for the war effort. The peasants were oppressed by the forcible seizure of their
crops for the armed forces. The gold reserves of the National Bank of Egypt were handed
over to the British Treasury. Egypt was incorporated in the sterling area, which allowed
Britain to pay for her military expenses in paper currency. Inflation rose dramatically during
the war. The rupture in foreign trade brought about by the war stimulated the local Egyptian
industry. Martial law was imposed in 1914, political dissent heavily crushed and thousands
of intellectuals were exiled. The nationalist movement spread rapidly. Finally, on December
18, 1914, Egypt was declared to be a British Protectorate.
4.4 COLONIALISM IN LATIN AMERICA
When the Portuguese arrived in Brazil in 1500, their situation as colonialists was very
different from that of Spain in Mexico and Peru. They did not find an advanced civilisation
with hoards of precious metals for plunder, or a social discipline and organisation geared to
provide steady tribute which they could appropriate. Brazilian Indians were mainly hunter-
gatherers, though some were moving towards agriculture using a slash–and–burn techniques
to cultivate manioc. Their technology and resources meant that they were thin on the ground.
They had no towns, no domestic animals. They were Stone Age men and women, hunting
game and fish, naked, illiterate and innumerate.
 32

In the first century of settlement, it became clear that it was difficult to use Indians as
slave labour. They were not docile, had high mortality when exposed to Western diseases,
could run away and hide rather easily. So Portugal turned to imported African slaves for
manual labour. The ultimate fate of Brazilian Indians was rather like that of North American
Indians. They were pushed beyond the fringe of colonial society. The main difference was
greater miscegenation with the white invaders and with black slaves in Brazil.
A much bigger proportion of Portuguese gains from Brazil came from the development of
commodity exports and commercial profit than those of Spain from its colonies. In the sixteenth
and seventeenth centuries official revenue from Brazil was small — about 3 per cent of
Portuguese public revenue in 1588 and 5 per cent in 1619. In the sixteenth century, economic
activity was concentrated on a small population of settlers engaged in a highly profitable export-
oriented sugar industry in the Northeast. The techniques for this industry, including Negro
slavery, had been previously developed in Madeira and São Tomé. Cattle ranching in the dry
backlands area (the sertão) provided food for those working in sugar production. Brazilian sugar
exports peaked in the 1650s. Earnings fell thereafter because of lower prices and competition
from the rapidly growing output in the Caribbean.
The setback in sugar caused large parts of the Northeast to lapse into a subsistence
economy. In the 1690s, the discovery of gold, and in the 1720s diamonds further south in
Minas Gerais, opened new opportunities. During the eighteenth century, there was
considerable immigration from Europe, and internal migration from the Northeast to Minas,
to engage in gold and diamond development. The eighteenth-century prosperity in Minas is
obvious even today from the number of elaborate buildings and churches in Ouro Preto
which was the centre of mining activity. As Minas Gerais is very barren, the food and
transport needs of the mining area stimulated food production in neighbouring provinces to
the South and the Northeast, and mule–breeding in the Rio Grande do Sul. The gold industry
was at its peak around 1750, with production around 15 tons a year, but as the best deposits
were exhausted, output and exports declined. In the first half of the eighteenth century, profit
remittances from gold averaged 5.23 million milreis (£1.4 million) a year, of which the
identifiable royal revenues were around 18 per cent. Total Brazilian gold shipments over the
whole of the eighteenth century were between 800 and 850 tons.
In the second half of the eighteenth century, Portuguese finances were in desperate
straits. Metropolitan revenues from Brazil were squeezed by the decline in gold production.
Income from Asia had collapsed and Portugal had to bear the costs of reconstructing Lisbon
after the 1755 earthquake. To meet this problem, the Portuguese prime minister, Pombal,
expelled the Jesuits from Brazil (1759), confiscated their vast properties, and sold them to
wealthy landowners and merchants for the benefit of the crown. Most of the property of other
religious orders were taken over a few years later.
When gold production collapsed, Brazil turned back to agricultural exports. At
independence in 1822, the three main exports were cotton, sugar and coffee. Coffee
production started at the beginning of the nineteenth century after the slave revolt cut
output in Haiti. Coffee was grown in the Southeast, whereas sugar and cotton were typical
Northeast products.
At the end of the colonial period, half the population were slaves. They were worked to
death after a few years of service, and fed on a crude diet of beans and jerked beef. A privileged
fraction of the white population enjoyed high incomes but the rest of the population (free blacks,
mulattos, Indians and large numbers of the whites) were poor. Landownership was concentrated
on slave owners, thus a very unequal distribution of property buttressed a highly unequal
distribution of income. There was substantial regional
 33

inequality. The poorest area was the Northeast. Minas Gerais had also passed its peak. The
most prosperous area was around the new capital, Rio de Janeiro.
Independence came to Brazil very smoothly by Latin American standards. In 1808, the
Portuguese Queen and the Regent fled to Rio to escape the French invasion of the
motherland. They brought about 10 000 of the mainland establishment with them — the
aristocracy, bureaucracy, and some of the militaries who set up government and court in Rio
and Petropolis running Brazil and Portugal as a joint kingdom (both parts by then being
about equal in terms of population). After the Napoleonic wars, the two countries split
without too much enmity. Brazil became independent with an Emperor who was the son of
the Portuguese monarch.
With independence, Brazil ceased remitting official tribute to Portugal, but the large
imperial ruling establishment meant a higher internal tax burden. The British, the new
protectors of Brazil, took out their growing commercial profits. However, independence meant
that the country could create its banking system, print paper money, indulge in mild inflation
and borrow on the international capital market.
There was an intermittent inflow of foreign capital from the 1820s onwards, mostly in the
form of direct loans to the government or the proceeds from sales of Brazilian government bonds
abroad. There were 17 foreign loans in the Imperial period. There was no default on this debt,
and Brazil remained in good standing with its British bankers who supplied all the funds. There
were changes in commercial policy which came with independence. Until 1808, Brazilian ports
were open only to British or Portuguese ships, and mercantilist restrictions prevented the
production of manufactured items. These barriers were lifted in 1808, but the United Kingdom
retained special extraterritorial rights and tariff preferences until 1827. The preferences were
then abolished, but Brazil was obliged to limit tariffs to 15 per cent ad valorem until 1844. This
was a serious fiscal constraint on a government with all the trappings of a monarchy to support,
and without the political clout to impose land or income taxation. It encouraged the trend
towards inflationary finance and depreciating paper currency. In 1844, when Brazil regained its
customs autonomy the general tariff level was raised to 30 per cent for manufactured goods, but
duties on raw materials and machinery were lifted.
These measures stimulated the creation of the cotton spinning and weaving industry. In
the Imperial period, tariff revenue provided two-thirds of the government's tax receipts and their
effect in protecting local industry was significant. Tariff receipts were a higher proportion of
imports than those of any other country except Portugal.
In 1833, the United Kingdom abolished slavery in the West Indies and started to
interfere actively with the slave trade. Between 1840 and 1851, the inflow of slaves to Brazil
was 370 000, but thereafter the British Navy brought it to an end. Slavery continued for
almost four more decades, but the economy was modified significantly by the ending of the
trade. The immediate effect was to double the price of slaves and make it less profitable to
work them to an early death. The sex and age structure of the black population began to
change, making for lowered activity rates. In 1888, slavery was abolished without
compensation or any kind of resettlement help for slaves. By that time the slave population
was only 7 per cent of the total compared with 13 per cent in the United States in 1860, on
the eve of the US civil war.
The Emperor was deposed in 1889 by the military which established an oligarchic
republic. Church and state were separated. The franchise was restricted to those with the
property. The Presidency generally alternated between politicians from São Paulo and Minas
 34

Gerais on a prearranged basis. The monarchy had exercised a centralised power, but now the
provinces became states with a good deal of autonomy, including control over customs duties
which could be levied on both foreign and interstate commerce. At the state level, power was
concentrated in the hands of a small political class who favoured their cronies and relatives.
At the local level, "coronelismo” (rule of the colonels) prevailed. This semi–bandit
gentry built up their landholdings by means not always legal, and exercised seigneurial type
power over the less prosperous citizenry.
In the initial years of the Republic, the strains involved in moving from slave to wage
labour were obvious. Coffee was no longer profitable in the region around Rio, which switched to
cattle raising. The competitive position of São Paulo was strengthened. Its climate and soils were
better suited to coffee than the eroded valleys near Rio. It had been building a free labour force of
white immigrants since the 1840s when Senator Vergueiro introduced them to his plantation.
The state government subsidised immigration (mainly of Italians) on a large scale from 1880 to
1928. In the 1920s, many of the immigrants to São Paulo were Japanese. This part of the country
was further helped by the growth of rail transport and the development of the port of Santos. The
average educational level of immigrants was considerably higher than that of native-born
Brazilians. They had twice the literacy rate and three times the level of secondary and higher
education. Their wage level made them more expensive than slaves, but their productivity was
higher, and their number could be quickly expanded by immigration.
The North-eastern economy stagnated in the Republican period. There and elsewhere,
the black and mulatto population generally got little of the benefits of growth in a country
where they had no voting rights, access to land, education or any form of governmental help
in adjusting to a wage economy.
Portuguese rule in Brazil had several lasting consequences:
a) Brazil is characterised by very wide disparities in income, wealth, education and
economic opportunity. These are more extreme than in Asia, Europe or North America.
The social structure still has strong echoes of the colonial period, when there was
great inequality in access to landed property, and the bulk of the labour force were
slaves. The continued neglect of popular education is very marked even by Latin
American standards and has hampered the growth of labour productivity. Another
aspect of inequality is regional. The per capita income disparity between the poorest
state, Piaui, and the federal district is about 7:1. The only other countries with this
degree of regional disparity are Mexico and China.
b) Inequalities of income and opportunity in Brazil are closely associated with ethnicity,
but the heritage of slavery has produced less social tension than in the United States.
Gilberto Freyre (1959) argued that Brazilians are more or less colour blind and that
Brazil is a social continuum from rich to poor with no sharp social antagonisms. Brazil
was different from the United States mainly because Portuguese society and mores at
the time of colonisation were heavily influenced by close contact with the Muslim
world. Florestan Fernandes (1969) took a much more critical view of a Brazilian
society that practises de facto but generally discreet social discrimination.
c) Brazil has been favoured by softer political transitions than other countries in Latin
America. The Treaty of Tordesillas (1494) divided the Americas amicably between
Portugal and Spain. Portugal got a slice extending 48 degrees West of the Greenwich
meridian, but its present borders encompass nearly three times as much land — a
situation peacefully endorsed by the Treaty of Madrid in 1750. Most of the territorial
 35

gains were made by frontiersmen. The only substantial invasion was the Dutch
occupation of the Northeast (1630–54). Conflicts to preserve boundaries against
French or Spanish incursions were insignificant, and the last territorial acquisition, the
Acre territory, was by purchase from Bolivia. The biggest foreign war was with
Paraguay (1865–70). This is in stark contrast with Mexico, which lost half its territory
in wars with the United States, or to European and Asian experience of wars over
boundaries.
d) Another striking feature has been the ease of Brazil’s domestic political transitions.
Independence was gained with no significant struggle, the Portuguese crown prince
becoming Emperor of Brazil in 1822. Slavery was abolished without a civil war in 1888.
The Empire became a republic without a struggle in 1889. The Vargas dictatorship of
1930–45 began and ended with relatively little violence, and this was also true of military
rule from 1964–85.
e) The combination of smooth political transitions, freedom from foreign conflicts and
relative ease of social relations between ethnic groups permitted Brazil to assimilate a
cosmopolitan mix of the original Portuguese settlers, the descendants of African
slaves, later immigrants from Italy, Japan, Germany and Lebanon. It is a frontier
country with a high degree of self–confidence, without a chip–on–the– shoulder feeling
of exploitation by powerful neighbours. It is a looser federation than many big
countries and has an intellectual life which is multipolar.
Assumptions
As compared to Asian and African colonialism, the British in Brazil had no direct
presence. However, the pattern of British colonialism in Latin America had significant
wearing of Brazilian developments. The situation in Latin America was complex as the
developments in different countries in the region were different. But one thing was certain i.e.
slave labour and plantation economy. The British under labour colonialism utilized Asian
manpower particularly Indian for their plantation economy in West Indies, Guyana etc.
However, the base of the British plantation economy was Asian and Indians and not Latin
American. Hence, they never mistook the social segments of this part for their benefit as
against Indian which was just opposite.
Self-Assessment Questions
1. What was the first phase of colonialism in India?

2. Discuss the role of Portuguese in Indonesia?

3. Write a note on the construction of the Suez Canal.

_
 36

4.5 SUMMARY
Students to conclude, one may say that the pattern of colonialism in Asia, Africa and
Latin America as explained above in details was largely based upon the colonial interests and
was significantly based on ethnic and other consideration of these three sub-continents.
Nature of colonialism in Asia, Africa and Latin America has been examined in this lesson.
4.6 REFERENCES
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10, no. 03, 1980.
Muriel and Chamberlaine, The Formation of the European Empires1488-1920, Great Britain,
2000.
Frank A Gunder, Latin America under Development Revolution, New York, 1967.

4.7 FURTHER READINGS

Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
D.K. Fieldhouse, Colonialism 1870-1945: An Introduction, Weidenfield and Nicolson, London,
1981.
4.8 MODEL QUESTIONS
1. Examine Colonialism in Asia (India).
2. What do you know about colonialism in Africa with special reference to Egypt?
3. Critically analyse colonialism in Latin America.
 37

Lesson 5

COLONIALISM IN INDIA: EAST INDIA COMPANY AND

MERCANTILIST COLONIALISM 1751-1813;
FREE TRADE IMPERIALISM 1813-1858
Structure
5.0 Objectives
5.1 Introduction
5.2 Nature Of British Colonialism In India
5.3 Mercantile Phase/Capitalism (1751-1813)
5.4 Free Trade Phase/Capitalism ( 1813-1858)
5.5 Summary
5.6 References
5.7 Further Readings
5.8 Model Questions
5.0 OBJECTIVES
After reading this lesson you will be able to:
 learn and understand the nature of British Colonialism in India.
 critically understand the mercantile phase and free trade phase of Colonialism.
 know how these two phases helped the British in their endeavour and where India
lost.
5.1 INTRODUCTION
Students, development of our constitutional framework and working in India is largely
based upon the legacies of the British Colonial rule and the Indian National Movement. Many
of our economic, social and political problems that we are facing today and possibly want to
resolve were the creation of the colonial rule of over 200 years. The first two phases of British
colonialism in India not only led to the total monopoly of the British in the affairs of India but
also helped impoverish India to an extent that even the British were critical. This led to the
transfer of power into the hands of the Queen. The chapter will highlight these in details.
5.2 NATURE OF BRITISH COLONIALISM IN INDIA
The colonial state is a basic part of the colonial structure. At the same time, the
subordination of the colony to the metropolis and other features of the colonial structure
evolve and are enforced through the colonial state. The parameters of the colonial structure
are constructed through, and determined and maintained by the colonial state.
Bipan Chandra maintains that the colonial state differs from the capitalist state in
important aspects. It does not reflect economic power but creates and enforces it. It is not a
superstructure erected on the economic base. It helps create the economic base; it is a part
of the economic base of colonialism. It not only enables the ruling class to extract surplus, it
is itself a major channel for surplus appropriation. Under capitalism, the ruling class is that
 38

which, to quote Ralph Miliband, "owns and controls the means of production and which is
able, by virtue of the economic power thus conferred upon it, to use the state as its
instrument for the domination of society." The reverse is the case under colonialism. It is
because of its control over the colonial state that the metropolitan ruling classes can control,
subordinate and exploit the colonial society. In other words, the metropolitan ruling class
does not control state power and the social surplus mainly because of its ownership of the
means of production in the colony. Rather, because the ruling class controls state power in
the colony, it controls its social surplus and can subordinate its producers. The metropolitan
capitalist class may not own the means of production in the colony to a significant extent –
for instance, it did not in India to any significant extent till the 1920s and subsequently not
even predominantly.
Further, while the capitalist state is the instrument of enforcing the rule and
domination of one class over another, the colonial state is the organized power of the
metropolitan ruling class for dominating the entire colonial society. Also, while in the
metropolis the state is a relation between classes, in the colony it is a relation between the
foreign ruling class and the colonial people as a whole. This needs to be stressed because
nearly all historians and other social scientists of the imperialist school ignore this aspect and
its implications.
The colonial state, thus, does not represent any of the indigenous social classes of the
colony. It subordinates all of them to the ruling power. It dominates all of them. None of the
indigenous classes shares state power in the colony, none of them is part of the ruling class.
They are not even its subordinated or junior partners. The metropolitan ruling class may
share the social surplus in the colony with the indigenous upper classes, but it does not share
power with them. Not even princes, regents, landlords and compradors have a share in
colonial state power. It is, of course, true that the economic class position of the landlords and
capitalists in the colony is "articulated through, and by, the colonial state." But they are not
part of the ruling class
This also enables the colonial state to introduce certain reforms at the cost of the
indigenous upper classes such as factory legislation, tenancy and anti-usury legislation,
support to minority communities, and so on. The colonial state is thus able, for a certain
period and in certain situations, to play against each other landlords and tenants, capitalists
and workers, and higher and lower castes. This also means that the uppermost classes and
strata of colonial society are capable of turning against colonialism. Thus, there may be a
situation when the anti-colonial struggle can be led by big landlords as in Poland and Egypt.
This also explains the attraction of elite theory of nationalism (the theory that nationalism
was the result of the struggle for power between the indigenous and foreign elites) to
imperialist administrators and ideologues since the end of the nineteenth century and till
today. For, this theory obfuscates the reality of colonialism and imperialist ruling classes –
suggesting that both were oppressors of the colonial people in the same manner or that how
the indigenous elite were oppressors made no political difference to the anticolonial struggle.
It was with this elite theory of nationalism that imperialist administrators and intellectuals
tried to question the legitimacy of the actual anti-imperialist movement – a task which
continues to be undertaken till this day, sometimes with radical stance and terminology. To
avoid or see-through this obfuscation, it is necessary to use the concepts of ruling classes
and exploiting classes, on the one hand, and those of the nature of the colonial state and
colonial ruling classes, on the other hand.
It is important to understand and use the concept as to what difference exists in
colonial and semi-colonial societies. Some of the leading parameters in this regards may be
 39

as follows. First, a large number of ruling classes in semi-colonial societies bears a

determined relationship to the means of production: the appropriate social surplus because
of the position they occupy in the mode of production. Second, the indigenous upper classes
or some of the – landlords, compradors and even sections of the national bourgeoisie – are
part of the class coalition that constitutes the ruling class. That is, they share in state power,
sometimes even as senior partners.
The colonial state differs in class nature with most authoritarian pre-colonial states. In
the latter case, the state, however oppressive, is an organic part of the indigenous society; it
is not an instrument for the enforcement of subordination of the society to a foreign societyor
ruling class, or the social surplus. Interestingly, this was the ground on which Dadabhai
Naoroji and other Indian nationalists differentiated between the British Indian colonial state
and the Mughal state. Lastly, it is noted and few leading historians contend that the colonial
state is bourgeois. Consequently, in several of its stages, it does introduce bourgeois law and
legal institutions as also bourgeois property relations, the rule of law and bureaucratic
administration. It can, therefore, be authoritarian or even fascistic as in many colonies in
Africa and South-East Asia or it can be semi-authoritarian and semi-democratic as in India.
It can also, to a certain extent, create a constitutional space in the colony for itself. It can rule
by the bayonet or can assume a semi-hegemonic character, depending on the character of
the colonial society, its size, history and so forth, as also the character of the colonizing
society and its polity. Yet the bourgeois character of the state and its superiority in certain
aspects to some of the pre-colonial or even some of the post-colonial states does not change
its basically colonial and therefore negative character.
Scenario in India
The British colonialism began in 1600 A.D. when British the East India Company was
formally granted Charter to trade with India and other countries of Asia and Africa. In the
beginning, it aimed to supply the products of India and the East Indies, especially spices,
cotton and silk goods; which already had a ready market in Europe, yielding rich profit. But
soon they embarked upon the policy of economic plunder and territorial expansion to gain
over monopoly over trade.
To study the nature of British Colonialism, one may divide it into three phases. These are:
 Mercantile Phase/Capitalism (since inception to 1813 A.D.);
 Free Trade Phase/Capitalism (from 1813 to 1858)
 Finance Capitalism (from 1858 to 1947)
5.3 MERCANTILE PHASE/CAPITALISM
Philosophy (theoretical frame)
During the first phase of colonialism, the basic objectives of colonialism were: (1) the
monopoly of trade with the colony vis-à-vis other European merchants and the colony's
traders and producers, and (2) the direct appropriation of revenue or surplus through the
use of state power. Whenever craftsmen or other producers were employed on account of the
colonial state, corporation or merchants, their surplus was directly seized, not in the manner
of industrial capitalists but that of merchant-usurers.
The colonial state or corporations required large financial resources to wage wars in the
colony and on the seas and to maintain naval forces, forts, armies and trading posts. Direct
appropriation of the colony's surplus was also needed to finance the purchase of colonial
products since the colonies did not import sufficient quantities of metropolitan
 40

products. Directly appropriated surplus also served as a source of profit to merchants,

corporations and the exchequer of the metropolis. The large number of Europeans employed in
the colony also appropriated a large part of the colony's surplus directly, through extortion,
corruption and high salaries.
It is to be noted that during the first phase of colonialism, (1) the element of plunder
and direct seizure of surplus was strong, and (2) there was no significant import of
metropolitan manufacturers into the colony.
A basic feature of colonial rule during this period was that no basic changes were
introduced in the colony in administration, the judicial system, transport and
communication, methods of agricultural or industrial production, forms of business
management or economic organization (except the putting-out system and plantations in
some colonies), education, culture and social organization. The only changes made were in
military organization and technology – which contemporary independent chieftains and
rulers in the colonies were also trying to introduce – and in the upper tiers of the revenue-
collection structure to make it more efficient.
The colonial mode of surplus appropriation via the purchase of the colony's urban
handicrafts and plantation and other products, through a buyer's monopoly and control over
its revenues, did not require basic socio-economic and administrative changes in the colony.
Such a mode of surplus appropriation could be superimposed over its existing economic,
social, cultural, ideological and political structures. Also, the colonial power did not feel the
need to penetrate the villages in the colony further than their (indigenous) predecessors had
done, so long as their economic surplus was successfully sucked out.
This lack of need for change was also reflected in the ideology of the rulers. There was,
for one, no ideology of development. Nor a changed colonial economy but the existing
economy of the colony was to be the basis of economic exploitation. There was also,
therefore, not much need to criticize the colony's civilization, religions, laws and so on, for
they were not seen as obstacles to the then-current modes of surplus appropriation. The
need was to understand them so that the wheels of administration might move smoothly.
Criticism, however, was confined to the missionaries.
Case of India
The first phase is generally dated from 1757, when the British East India Company
acquired the rights to collect revenue from its territories in the eastern and southern parts of
the subcontinent, to 1813, when the company's monopoly over trade came to an end. The
British had come to India in the seventeenth century, purely as a trading company, backed by
an exclusive royal charter to trade with India, from their queen, Elizabeth I. They set up their
first factory on the banks of the river Hughli in Bengal. The company had managed to acquire
permits or a 'dastak' from Mughal emperor that exempted it from having to pay duties on its
trade. This led to a great deal of corruption among the employees of the company, as the
'Farman was widely misused by them for their private trade. It also meant heavy losses in
revenue for the Bengal governors (later nawabs) in way of customs duties. This became a
contentious issue and one of the chief factors, which led to the Battle of Plassey. Soon they got
engaged in other battles and treaties leading to the total control of Indian affairs.
This phase of merchant capitalism was marked by the presence of British merchants in
India as a part of the East India Company. To increase their margin of profit in the sale and
purchase of commodities, they established a monopoly of trade through territorial
annexations. In the process, they accumulated huge capital, which only helped large scale
 41

production of industrial goods in England. The East India Company, during this period, engaged
itself in buying cheap raw materials from the Indian market to sell the same as finished goods to
the Indian peoples at a very high price. Neither the Company nor the British government was in a
position to invest huge resources in waging wars for the conquest of Indian Territory. The
disintegration of the Mughal Empire provided a golden opportunity to fulfil their wishes. First,
they secured the Diwani Rights of Bengal, Bihar and Orissa in 1865. Besides getting a huge margin
of profit from trade, they resorted to limitless plunder in those areas. The worst kind of
exploitation of Indian People began when East India Company followed an evil design of
depriving the artisans, handicraftsmen and petty merchants of their manufacturing and trade.
They were forced to accept very low wages and prices were below the prevailing market rates.
Economic exploitation of India resulted in the accumulation of wealth in the hands of
the British, which in turn helped the Industrial Revolution in England. During this period,
India, an exporter of cotton to the industrially advanced countries, became the importer of
manufactured cotton textiles. The trading of this kind yielded enormous profit to the
Company. On the other hand, a new bourgeois class, which recently assumed power in the
English society, became envious of wealth and authority that the executives of the Company
enjoyed. They made a hue and cry of Company's misrule in India and accordingly got the
resolutions passed by the British Parliament against the Company's administration. As a
result, certain reform measures were taken up through the Regulating Act of 1773, Pitt's
India Act of 1874 and the Charter Acts of 1793 and 1813. These reforms in agriculture and
industry provided for the investment of capital in Indian economic enterprises so that
economic development of India would commence. Through a new policy, a new class of loyal
supporters of the British rule was created. It was also decided to send English-educated
Indian youth to England to train them in the supervision of administrative work. Above all,
this was needed for establishing a rapport with the new class of Pro-British segment in
Indian society.
During this period of Merchant Capitalism, British officials remained busy in the
enhancement of their economic interests, for which they made some important changes in
education, administration, judiciary, transport and communication besides the methods of
agriculture and industrial production. Besides this, they made certain fundamental changes
which affected the lives of the peasant, particularly in the first phase. One fundamental
change they made was to make revenue calculable on the total land entitled to cultivate
rather than land actually cultivated. For instance, under the Mughal if the peasant was
entitled to cultivate 100 acres of land but actually cultivated only 55 acres, the revenue
collected was only for 55 acres of land. Now imagine the enormous burden it may have put
on the peasants because barring a few nobodies cultivated the entire land they were to
cultivate. In other words, the assessment under the Mughals can be said to be based on the
produce and not on holdings and therefore there was flexibility in-built into the system.
Secondly, it has also been noted by many that the actual rent in full was not always collected
and considerations were given to the difficulties of the peasants. Thirdly, under the Mughals,
the revenue was calculated in cash but more often it was collected in kind so the peasant did
not have to go for distress sale. Finally, and very significantly, the failure to pay in time or
repay other kinds of debt did not lead to the loss of land under the Mughals. However, from
the auction of the land to the collection of revenues and administration the British made
several changes which hit the peasants very hard.
5.4 FREE TRADE PHASE/CAPITALISM
Philosophy
 42

The newly developed industrial and commercial interests in the metropolis, and their
ideologues, began in time to attack the existing mode of exploitation of the colony to make it
serve their interests. Moreover, as it became clear that colonial control was to be a long-term
phenomenon, the metropolitan capitalist class as a whole demanded forms of surplus
appropriation which would not destroy the golden goose. It was realized that the plundering
form of surplus appropriation is less capable of reproducing conditions for its reproduction than
other forms. This is the secret of the critique of the colony's exploitation which is often made
during the first stage by the liberals and 'radical' democrats of the metropolis. In the end, sooner
or later, the administrative policies and economic structure of the colony came to be
determined by the interests of the industrial bourgeoisie of the metropolis.
The industrial bourgeoisie’s interest in the colony lay in finding outlets for their ever-
increasing output of manufactured goods. Linked with this was the need to promote the colony’s
export for several reasons:
1. The colony could buy more imports only if it increased its exports – which could only
be agricultural and mineral products – to pay for them. The colony's export had also to
pay for the drain or in other words, had to earn foreign exchange to provide for the
export of business profits and the savings and pensions of Europeans working there.
2. The metropolis desired to lessen the dependence on non-empire sources of raw
materials in the colony, which the colonial rulers must enable the colony to do so. The
colony had to be developed as a reproductive colony in the agricultural and mineral
spheres.
3. As the subordinated complement of a capitalist economy, the use of the colony both as
a market for goods and as a supplier of raw materials had to occur within the
perspective of extended reproduction.
Thus, in the words, Bipan Chandra, the essence of the second stage of colonialism was
the making of the colony into a subordinate trading partner which would export raw
materials and import manufactures. The colony's social surplus was to be appropriated
through trade based on selling cheap and buying cheap. This stage of colonialism could ever
embrace countries which retained political freedom.

A question that still awaits solution is the mechanism through which the colony’s
surplus is appropriated under conditions of the metropolis buying and selling at competitive
prices. The dominant school of European economists has, for nearly two centuries, denied
that any exploitation is involved in this particular relationship; rather, it has maintained
through the theory of competitive costs and international division of labour that both sides of
economic relationship benefit. Many of the critics of this phase of colonialism have argued
that the exploitation of the colony occurs through the terms of trade which on the whole
move against primary products. This, however, is not always true. Exports prices of the
metropolis may fall faster than import prices, reflecting falling costs due to technological
improvement and greater and better use of machinery, partly made possible by expanding
trade and widening markets. Rising import prices and falling export prices may expand
exports fast enough to lead rising productivity in the industrializing metropolis and related
productivity in the raw material producing colony. Hence, the basic question regarding this
stage of colonialism is what happens to productivity in the metropolis and the colony.
Moreover, the colony could not be exploited to meet the new requirements within its
existing economic, political, administrative, social, cultural and ideological setting; this
 43

setting had to be shattered and transformed all along the line. This transformation was
actively undertaken under the slogan of development and modernization. In the economic
field, this meant the integration of the colonial economy with the world capitalist economy
and, above all, the metropolitan economy. The chief instrument of this integration was the
freeing of foreign trade in the colony of all restrictions and tariffs, especially in so far as its
trade with the metropolis is concerned. For most of this period, the colony was to be far more
of a free-trading country than the metropolis itself. Free entry was now given to the
capitalists of the metropolis to develop plantations, trade, transport, mining and, in some
cases, industries in the colony. The colonial state gave active financial and other help to these
capitalists, even when the doctrine of laissez-faire reigned supreme at home. The agrarian
structure of the colony was sought to be transformed to make it a reproductive colony, by
initiating capitalist agriculture. Similarly, in the last part of this chapter, one may see that a
major effort was made to improve the system of transport and communication obviously for
their benefit.
As regards administration, major changes occurred in the administrative field.
Colonial administration had now become more detailed and comprehensive as well as
permeated deeper if metropolitan products were to penetrate the interior towns and villages
and the agricultural produce was to be drawn out of them. The legal structure in the colony
had to be overhauled, as now the sanctity of contract and its enforcement were essential if
the millions of transactions needed to promote imports and exports were to become viable. It
was precise during this period that the western capitalist legal and judicial system was
introduced in the colonies and semi-colonies. The changes, however, often related only to
criminal law, the law of contract, and civil law procedure; personal law, including that of
marriage and inheritance, was often untouched. Modern education was now introduced,
basically to adequately man the new, vastly expanded administrative machinery. Its aim was
the transformation of the colony's society and culture. In other words, modern education was
promoted both to make the colony reproductive and promote the culture of loyalty among the
colonial people.

This phase of colonialism also generated a liberal imperialist political ideology among
sections of the imperialist statesmen and administrators, who talked of training the colonial
people in the arts of democracy and self-government.it was believed that if the colonial people
‘learnt’ the virtues of law and order, sanctity of business contract, free trade and economic
development, the economic relationship lying at the heart of this stage of colonialism could
be perpetuated even if the metropolitan power was to withdraw direct political and
administrative control.
The effort at the transformation of the colony's socio-economic structure inevitably
required that its existing culture and society be declared inadequate and decadent, and they were
now subjected to sharp criticism. This stage also witnessed the birth and flowering ofthe ideology
of development. Because of the emergence of development economics after the Second World
War, following the success of the national liberation movements, it is often forgotten that the
colonization of the economies of most of the colonies occurred under the banner of the earlier
ideology of development. Moreover, in many ways, the two theories of economic development,
that of the early nineteenth century and that of post-Second World War are similar, even though
separated by entire epochs. However, one very crucial point needs to be stressed and understood
is that the colonial authorities in this phase did not deliberately set out to underdevelop the
colony. On the contrary, their entire effort was to develop it so that it could complement, though
in a subordinate position, the metropolitan
 44

economy and society. Underdevelopment, as Bipan Chandra contends, was not desired but
the inevitable consequence of the inexorable workings of colonialism of free trade, i.e.,
colonialism during its second stage, and of its inner contradictions. Precisely because of the
same reason, there was no imperialist theory of underdevelopment – underdevelopment was
the result of the practice of particular theories of development.
During this phase, the earlier forms of surplus extraction continued and became a drag
on the full working out of this stage. Moreover, since the colony had also to pay the costs of
its transformation, the burden on colonial peasant rose sharply and significantly. In practice,
the transformation effort was limited in many sectors and above all in the agricultural sector
because of the inner contradictions of colonialism. For instance, it was during this stage that
most of the colonies acquired what came to be known as the semi- feudal features of their
agricultural sectors.
Case of India
This phase of free-trade capitalism was quite significant from the point of view of trade
and commerce. Development of indigenous resources and the establishment of an efficient
system of administration for secure and stable trade was the hallmark of this period. During
this period, a sound capital base was created in India to protect the economic interest of the
British Colonial rule. This phase of colonialism was also marked by many constitutional
reforms to strike a workable balance between interests of the British imperialism and the
demands of Indian nationalism. It was realized by the British administrators in India that an
efficient system of governance in India would benefit the British and further the British
interests in India.
Keeping the above facts in mind, the English rulers tried to establish peace and
develop resources in India to fulfil the economic needs of their own country. For the smooth
running of the administration, they started providing training to a section of people to enable
them to help in running the administration. Instead of only exploiting Indian economy, they
wanted to use India as the subordinate partner in their industrial and commercial ventures.
All reform measures, which were taken during this phase of colonial rule, were meant to
protect and promote their interest. Free trade provided free entry to the British traders and
capitalists into India. Agrarian reform introduced a new Zamindari and Ryotwari system.
Thus, came into existence a new intermediary class. This class helped the British not only in
the collection of revenues but also in the procurement of agricultural goods at an
unbelievably low rate. This rich landlord class wielded a tremendous amount of economic
power and political patronage. It provided much-needed legitimacy to the colonial rule by
painting a benevolent picture of it before Indian masses.
Development of Transport and Communication
Export of raw materials from India and the import of manufactured goods into India
needed an efficient system of transport and communication. Apart from a major role in the
development of trade and commerce, it was equally important for extending territories by the
swift movement of troops, in bringing under control, officers and officials carrying on
administrative work in distant part, on sending speedy government instructions, in the
intermingling of cultures above all. So, there started the development of roads, construction
of railway lines, building of steam shipping and installation of posts and telegraphs. The first
step in the development of roads was taken in the construction of the Grand Trunk Road
from Sonargaon near Calcutta to Delhi in 1839, and it was completed in 1850s. It was
extended up to Peshawar and now touches the border of Afghanistan. Efforts were also made
to link the major cities, ports and markets of the country by road. Calcutta had the first
 45

metalled road in 1825. The first motor bus was introduced in Bombay in 1826. As regards
the railway line, the first railway line was opened between Bombay and Thane in 1853. Lord
Dalhousie took a keen interest in the rapid construction of railways. The first post office was
established by the East India Company in Calcutta in 1727, but it was Dalhousie who made
much-needed headway in this direction again during his tenure. Similarly, the first Telegraph
line from Calcutta to Agra was opened in 1853 again during the tenure of Lord Dalhousie. The
English language was introduced to educate Indians to be employed in administration. This
phase of colonial rule was terminated in 1858, just after the episode of 1858 when the British
Crown finally took over the regime directly into their hands.
Self-Assessment Questions
(1) What were the reform measures taken up through the Regulating Act of 1773 and
Charter Acts of 1793 and 1813?
Answer. -

-
(2) Write a note on the development of roads in the mid-nineteenth century.
Answer.

(3) How did the development of Transport and Communication benefit the English? Answer.
-
-
-
5.5 SUMMARY
The first two phases of British Colonialism in India brought the affairs of India totally
into the hands of the British entrepreneurs in India. In the first phase, the East India
Company was interested in loot and plunder to control the Indian affairs, it systematically
brought to an end the Mughal rule in India. In the second phase, through the policy of Free
Trade, the Company tried to improve the infrastructure by introducing reforms in roads,
railways and improved the communication Channel by introducing Postal Services and
Telegraph line. The above two factors helped them to connect Indian cities with the ports and
through postal services and telegraph line government orders reached different places
quickly. Thus, the background was prepared for the systematic drain of Indian resources for
metropolitan Britain and in this, they were very successful and this has been highlighted in
this lesson.
5.6 REFERENCES
Alavi, Manzoor & Others, Capitalism and Colonial Production, London.
Alavi, Manzoor, India and the Colonial Mode of Production, The Socialist Register, 1975.
 46

Bipan Chandra, Nationalism and Colonialism in Modern India, Orient Longman, Delhi 1979.
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
5.7 FURTHER READINGS
Bipan Chandra, ‘Colonialism, Stages of Colonialism and the Colonial State’, Journal of
Contemporary Asia, Vol.10, no. 03, 1980.
Rajani Palme Dutt, India to-day, Peoples Publishing House, Bombay, 1947.
R.C. Dutt, Economic History of India (2nd Edition), Routledge & Kegan Paul, London, 2006.
5.8 MODEL QUESTIONS
1. Critically examine the nature of British colonialism in India.
2. Write a note on Mercantile phase of colonialism in India.
3. Highlight the main features of Free Trade capitalism in India.
 47

Lesson 6
FREE TRADE- IMPACT ON AGRICULTURE,
TRADE AND INDUSTRY; LABOUR COLONIALISM
Structure
6.0 Objectives
6.1 Introduction
6.2 Free Trade- Impact On Agriculture, Trade And Industry
6.3 Labour Colonialism
6.4 Summary
6.5 References
6.6 Further Readings
6.7 Model Questions
6.0 OBJECTIVES
After reading this lesson you will be able to:
 analyse the impact of free trade on agriculture, trade and industry
 Understand the functioning of labour colonialism.
6.1 INTRODUCTION
Students the second phase popularly known as the phase of free trade is generally
seen to have begun with the charter Act of 1813, when the company lost its monopoly
trading rights in India, and ended in 1858, when the British crown took over the direct
control and administration of all British territory in India. Free trade changed the nature of
the Indian colony completely, through a dual strategy. Firstly, it threw open Indian markets
for the entry of cheap, mass-produced, machine-made goods, which enjoyed little or almost
no tariff restrictions. The passage of expensive, hand-crafted Indian textiles to Britain, which
had been very popular there, was however obstructed by prohibitive tariff rates. Secondly,
British-Indian territory was developed as a source of foodstuff and raw material for Britain,
which fuelled rapid growth in the manufacturing sector, crucial to the emergence of a
powerful capitalist economy within India through the complex process of commercialization
of agriculture and deindustrialization. All these aspects will be taken up in this lesson.
6.2 FREE TRADE: IMPACT ON AGRICULTURE; TRADE AND INDUSTRY
Agriculture under Colonialism
Just after signing of the treaty of Allahabad, the English East India Company though
of creating a permanent source of revenue structure to systematize the governance in India.
Lord Cornwallis introduced Permanent settlement in the year 1792 in the provinces of Bihar,
Bengal and Orissa and created a class of zamindar, an intermediary between peasant and the
colonial state. However, due to the shortcomings in this settlement, the same was not
extended to other areas. Hence, based upon the prevailing conditions, they introduced
Mahalwari in the North-West Provinces and Ryotwari in the Southern provinces. These
settlements widened the gap between peasants and the state and pushed them into
impoverishment. We will not take up here the details of various kinds of land-revenue
 48

settlements as discussed above, but an effort would be made to see its effect on agriculture
first and then upon trade and industries in India.
The British revenue system had a disastrous effect on India's agrarian economy. The
landlords, created by the British through these settlements, were mere rent-receiving
absentee businessmen who cared more for their rents than for the improvement of
agriculture and played the role of agents of the foreign political power. Against a guarantee of
regular payment of a fixed amount of land revenue to the government, "they purchased the
right of extracting whatever they could from the politically defenceless and economically weak
peasantry". Under the pressure of these settlements, the old politico-economic-social
framework of village communities broke down. New social classes like the landlord, the
trader, the money-lender, and landed gentry gained importance. On the other hand, the
dispossessed cultivators, the village artisans, and the village menials lost their customary
ties with the agricultural population on the decay of the village communities and the
introduction of competition. Coercion, instead of custom, came to determine the relations
between the classes. These came to constitute the landless wage-earning class. The British
revenue system also promoted "commercialization" of agriculture in the nineteenth century.
Changes in Agrarian life
The condition of peasantry was affected by several factors. First, there was a steady
increase in population “due to the establishment of peaceful conditions amongst a people
used to war, and possessing high natural fertility”. This led to increasing pressure on land,
which was further accelerated by the ruin of cottage industries resulting from the growing
import of British manufactures. The average size of the holdings was reduced. Fragmentation
was promoted by the inheritance laws of the Hindus and the Muslims. Most peasants became
dependent on money-lenders who came to occupy an important position in the rural society.
Secondly, the revenue system pressed heavily on the peasantry. In the areas covered
by Permanent Settlement, the peasants had practically no safeguard against the arbitrary
increase in rent by the Zamindars, for the law was obscure and litigation costly. In the
ryotwari regions, the peasantry suffered on account of other causes. "Much suffering was
caused, both in Madras and Bombay, by the heavy assessments imposed during the first
quarter of the nineteenth century, when the Government was striving to meet war expenses
from revenue and their staff was untrained, and sometimes also corrupt". In Punjab the
British assessments were lower than the previous Sikh demands, but "cash payments and
rigidity of collection largely set off the advantage to the cultivator".
Thirdly, the introduction of sophisticated law, the establishment of regular law courts,
the improvement of communication, the increasing flow of British goods, etc. exposed the
rural areas to steadily increasing interference from outside. The net results were the gradual
disappearance of economic self-sufficiency and the gradual transfer of authority within the
village, from the village elders to the agents of the Government”. The panchayats had for
many centuries been in the words of Metcalfe – “little Republics, having nearly everything
they want within themselves, and almost independent of any foreign relations”. Their
existence was incompatible with the British system of administration and the new economic
forces released by British rule. Their gradual disappearance led to a radical socio-economic
transformation of rural life.
The disintegration of Village Communities and the Emergence of the Indian Middle
Class
 49

The land revenue system, established by the British in India, led to the break-up of that
ancient social framework within which the agricultural population had lived for centuries. “The
social bonds that held different elements of the rural society together were snapped”. The joint
family system and panchayats received shattering blows. Cooperation was replaced by
competition. The collective life of the village gave way to individualism. Agricultural production,
instead of catering to the needs of the village population, came to be adapted to the requirements
of the external markets. The opening of the village to imports gave a deadly blow to the village
crafts and industries. The village artisans lost their customary position and the markets for their
wares and they were transformed from industrial workers into wage labourers. According to Karl
Marx, "the changes in the property relations caused the social revolution".
Backwardness of Agriculture
The heavy assessments held up agricultural progress and reduced the cultivating
classes to a state of abject poverty and resourcelessness. The land revenue policy was
oppressive to the peasantry. Since India's a trade and industry had been ruined by the foreign
conquerors, the burden of taxation had to be borne by the poor agriculturists. The misery of
the masses, increase in the incidence of famine and epidemics, and chronic unemployment
were the inevitable results of the system.
On account of the very high rate of rent or revenue during this phase, capital couldn't
accumulate in agriculture. Nor was there any incentive left with the landowner to make land
improvements. In the permanently settled areas, the Zamindars considered his function to be
limited to the collection of his rent which was unrelated to the produce of the land. The rent
in these areas depended on the bargain that could be struck with the tenants rather than on
the increase in the produce of the land. The entire agricultural surplus went to the landlord,
thereby leaving little or no surplus with the tenants for meeting the vicissitudes of seasons
and fortunes. In the ryotwari areas, the government played the role of rack-renting landlords,
on account of which the cultivators had to fall into the clutches of the money-lenders. The
plight of peasants in the mahalwari areas was also not very different. Consequently,
agricultural progress was held up in India for want of capital in the hands of cultivating
population.
Growth of Rural Indebtedness
On account of the reasons described above, there was a progressive increase in
indebtedness of Indian agriculturists in this phase. It swelled from decade to decade. One of
the most important reasons for the growth of rural indebtedness was that over 75 per cent of
the peasants could not earn even bare minimum from the land.
This increasing indebtedness forced these classes to finally sell their lands to the
money-lenders. The money-lender, in addition to legal methods, employed fraudulent
measures to squeeze out the agriculturist, such as asking him to sign a bond for a sum greater
than what had been advanced to him, keeping false accounts and such other devices. He took
advantage of the ignorance of the peasant who could not detect fraud which made it difficult
or often impossible to resort to court action.
Under the new system, land became a marketable commodity. While giving peasant the
freedom to mortgage or sell his land, it also gave the creditor of the indebted peasant freedom to
seize the latter's land. In the conditions of poverty engendered by the new economic
environment, more and more land came to be transferred to the money-lender in place of the
debt the peasant owed him.
 50

The situation of rural indebtedness was so grim that Sir Daniel Hamilton remarked,
“The whole country was in grip of mahajans. It is the bonds of debt which shackle agriculture.
It is usury – the rankest, most extortionate, most merciless usury – which eats the marrow
out of the bones of the ryots and condemns him to a life of penury and slavery in which not
only is economic production hopeless, but in which also energy and will become paralysed
and man sinks down beaten into a state of resigned fatalism from which hope is shut out and
life drags on wearily and unprofitably as if with no object in view. There is no use in denying
the fact. It is plain to all eyes”.
Under the new legal system, the rich money-lenders had an advantage over the poor
agriculturist since litigation was expensive. While the former could employ lawyers and hold
out even if the suit dragged on, the poor agriculturist, who could hardly maintain himself on his
income, could much less mobilize the costly legal services of lawyers. In enforcing his claims, the
shrewd money-lender generally took full advantage of his situation.
Commercialization of Agriculture
One of the consequences of the introduction of new land relations and the revenue
system in the form of fixed money payment was that the old objective of village agriculture,
namely production for village use, was replaced by production for the market. The production
and the produce were now determined by the new objective, that of sale, and, hence, changed
their character.
Under the new system, the peasant produced mainly for the market, which, with the
steady improvement of means of transport and expanding operations of trading capital under
British Rule, became available to him. He did so intending to realize maximum cash, primarily to
pay land revenue to the state which was fixed fairly high and, in course of time, to meet the
claim of the money-lender in whose hands he progressively fell due to numerous causes.
This led to the phenomenon of what is known as the commercialization of agriculture. This
also led to the practice of growing specialized crops by the peasants. Thus the land in groups of
villages came to be solely used, because of its special suitability, for the cultivation of a single
agricultural crop such as cotton, jute, wheat, sugarcane, oil-seeds, indigo, opium, etc.
The agriculturist now produced for the Indian and the world market. He became thereby
subject to all the vicissitudes of the ever-erratic market. He had to compete with formidable
international rivals like agrarian trusts of America, Europe, and Australia, which produced on a
mass scale and through tractors and other modern agricultural machinery, while he himself
cultivated his strip of land employing the labour-power of bullocks and primitive plough. Further,
the commercialization made the agriculturist dependent, for the sale of his product, on the
middlemen, i.e., the merchant. The merchant, by his superior economic position, took advantage
of the poverty of the peasant. The poor peasant, having no economic reserves and confronted by
the revenue claims of the Government and increasingly also by the claim of the usurer, had to
sell his product to the middleman at the harvest time. This transaction, originating in the sheer
necessity, brought a much less amount to the peasant than he would have had if he had waited.
The middleman thus appropriated a very large share of the profit.
Hence, looking at the several steps taken in the agriculture sector by the British in
this phase, it is aptly clear that though those steps made India and Indian agriculture part of
the world market but benefited few. This brought several changes in property relations in the
 51

countryside, seriously affecting the lives of the peasantry and forced them into poverty and
misery. This brought to an end an age-old agrarian pattern and made India impoverished.
Industries
The village industries were an integral part of the balanced and self-sufficient village
economy of pre-British India. Indian villages were able to meet all their industrial
requirements locally.
A peculiar feature of the village economic relations was that the artisans (except
perhaps the weaver) had more the status of the servants of the village community, which
assigned them a part of village land and a portion of the annual agricultural produce, than
that of free producers exchanging their products and services among themselves or with
cultivators. The external competition was also absent since the village was almost an
independent economic unit. Since agriculture had become unremunerative and there was
little or no agricultural surplus, the peasantry could hardly support the rural artisans. On
account of poverty and flooding of the market with industrially produced goods, the demand
for the products of rural artisans declined. The famine also contributed to the decline of
village artisan industries. During the period of famine, poor artisans, especially weavers,
were constrained to seek relief by taking to other forms of works.
Another aspect of the change in the status of the artisan was that he was increasingly
transformed into wage workers. For instance, in earlier periods, the village weavers supplied the
needs of village people. They did not produce for the market. In this phase, the weaver became
more and more dependent upon the merchants for the sale of his products in the local or distant
markets. Further, competition made more capital necessary than the weaver possessed. This
resulted in the weaver coming steadily into the grip of the merchants. Many of the village artisans
deserted their traditional occupations and migrated to urban areas. These artisans became either
wage-earners in towns and cities or turned into landless labourers on petty wages.
The ruin of Indian Handicrafts
While the village industries declined slowly, the town handicrafts in India had a
“sudden and complete collapse” under the British rule. Till the first half of the 18 th century,
there was a steady flow of Indian goods to England, but the British Government, perturbed
by the inflow, passed laws to make the sale of Indian goods in England difficult.
The victory of Plassey placed the East India Company in a favourable position in India.
It thereby secured the weapon of political power which could be used to create facilities for
pushing its trade, to dictate its terms to artisans and manufacturers, to get commodities at a
cheaper price, to monopolise the craftsmen, to force its imported goods on the people of
India, and also to oust rival traders, both foreign and indigenous, by political measures to
maintain its monopoly position. They were successful to a large extent, but the free traders
were allowed to trade in 1813, hence to take benefits of the situation created by East India
Company in India. The British companies extended their control over more and more
territories in India, eliminated several states and drained enormous wealth from India. It was
during this period of the industrial boom in England that Indian handicrafts received a
powerful blow and rapidly decline. R.C Dutt, Dadabhai Naoroji and other economic
nationalists have explained this process in great detail.
Karl Marx has rightly said: "The British intruder broke up the Indian handloom and
destroyed the spinning loom, and inundated the very mother country of cotton with cottons."
In India, the situation was still more unfortunate because, unlike the European example, the
 52

decline and destruction of indigenous handicrafts in India were without compensating

development of modern machine industry. The destruction of handicrafts produced large-
scale unemployment destroyed the balance between industry and agriculture and created
serious distortions in India's economic situation.
The rule of the East India Company proved disastrous to the handicraft industry for
many reasons. The first was that it destroyed the native states, which were the greatest
customers and patrons of this industry. Secondly, the East India Company, which was the
successor of these states, could have given impetus to the industries, but, being a foreign
company under the control and direction of a foreign power, it adopted measures under the
pressure of British Government, which proved detrimental to the manufacturing interests of
India. Thirdly, being a trading company, it wanted to produce things cheaply and sell them
profitably in other markets. The heavy duties levied on Indian goods in England further
necessitated the lowering of the cost of the goods procured, to maintain the level of profit. To
attain this purpose, it monopolized weavers and other craftsmen and compelled them to
produce things at a stipulated price. Wielding political power, it could bring pressure on
them to submit to its demands. The company prevented craftsmen from selling their
products to Indian and foreign merchants at a higher price, thus reducing them to a position
of virtual slaves. Fourthly, it imposed customs and adopted transit measures in India which
created such unfavourable conditions for the Indian merchants that they could not carry on
international trade effectively.
These measures, designed to destroy Indian industries and everything possible was
done to secure English trade, whether East India Company or Free traders. B.D Basu has
enumerated the following measures taken by the British to bring about the collapse of Indian
industries. He argues that from the time England acquired political power in India, she
destroyed Indian industries principally by means of:
1. The forcing of British Free Trade on India;
2. Imposing heavy duties on Indian manufactures in England;
3. The export of raw products from India;
4. The transit and custom duties;
5. Granting special privileges to the British in India;
6. Building railways in India;
7. Compelling Indian artisans to divulge their trade secrets; and
8. Holdings of exhibitions
It was through these measures the British in one hand secured their industrial
development and on the other, made Indian industries suffer and face extinction and decline.
Trade
Alongside the industrial policies, the British in the one hand tried to systematize their
trade but also affected the Indian trade causing serious problems leading to its decline during
this phase. Some of the points have already been covered under industries, but the leftover
may be discussed here.
The expansion of British trade in India not only proved ruinous to Indian trade and
industry, but also radically changed the very structure of India’s trade. India was forced to
admit British imports either free or at nominal rates of duties, while Indian manufactures or
products continued to be subjected to high import duties in England. India, which was
 53

principle producer and exporter of fabrics in the first half of the eighteenth century, was in the
next century reduced to the position of one of the largest consumers of foreign manufactures –
cotton textiles being the major item of import. Silk and woolen fabrics, machinery and metal
manufactures were some of the other commodities of import into India. Competition with
imported goods destroyed the Indian industry, deprived the artisans of their income and
narrowed down the avenues of employment for labour. On the other hand, the exports which
came to consist of raw cotton, raw silk, food grains, opium, indigo, and jute, denuded the country
of her agricultural surplus, raised the prices of raw materials and “laid the foundation of future
agricultural shortage and famines which held the country in their grip over the next hundred
years”.
Thus, the change in the structure of India's trade became an instrument of exploitation of
India's resources and economic enslavement. Owing to this change, there was such a heavy
recession in the prices of products in the world market that the terms of trade turned heavily
against India. Hence, to conclude, one may say that the mere projection of India and Indian trade
with the world economy or trade was a myth propagated by the British in India.
6.3 LABOUR COLONIALISM
Labour Colonialism was a kind of colonialism propagated and developed around
labour or possession of labour to sustain the plantation economy. The British used Indian
labour as a replacement of African slaves as "indentured labour". There are numerous
instances in history supporting this form of labour particularly by the British to maintain and
upgrade the plantation economy in South Africa, Fiji, Mauritius and so on. However, the very
purpose of including the chapter under colonialism is to understand how this version of
colonialism was linked to India and Indians? How far it was an offshoot and logical
culmination of three phases of colonialism as practised in India?
We know a great deal about European colonialism and its offshoot, the slavery of the
African people transported to the New World. A little is also known about Indian labour
exported to British colonies, about present-day Indian overseas communities especially how
they have been victimized in recent years by African dictators "guided by Allah" and how they
though British passport-holders, were denied entry into Britain and how some were later
admitted while others sought asylum elsewhere.
Hugh Tinker, a historian, argues that these pieces do not complete the jigsaw puzzle,
and few realize the direct connection between the liberation of African slaves in 1834 in the
British colonies and subjugation of the newly conquered people of India and the export of
Indian labourers to the same colonies to take the place of the freed slaves. New slavery of
grossly ill-paid labour called indenture (an agreement binding a person to serve an employer
for a specific period), operated only slightly differently and with a new breed of victims, began
to emerge in overseas colonies. Hugh Tinker has done a commendable job in writing about
this “export of Indian labour overseas” from 1830, when the first systematic recruitment
began, until 1920 when indenture was abolished.
The work of Hugh Tinker highlights and encompasses all British and other European
colonies (particularly Malaya, Burma, Ceylon, Mauritius, Fiji, Guiana, The West Indies, East
and South Africa), naturally covering wider subsequent material since 1871.
He begins by describing how the planters, especially in Mauritius, were already casting
covetous eyes on India to supply slaves now that the African source had dried out. This
continued because of the very nature of the colonial plantation economy, especially the
cultivation of sugar, coffee, tobacco, cotton and rubber. As Tinker shows, the development of
 54

what J.S. Furnivall called industrial agriculture "from a limited, privileged monopoly to a
competitive system of mass production, formed the main reason for the expansion of sugar
and coffee growing in the early and middle years of the nineteenth century, which created the
demand of coolie labour", who else could supply that labour except for India?
Tinker proceeds to show how the system of indenture was set up and how the human
cargo was shipped abroad in sub-human condition to work on plantations under often worse
conditions. He goes on to say that in India even a particular area was targeted to overcome
this huge shortage of labour in a changed situation. In the 1870’s a series of “scandals” led to
the questioning of the system itself, then its subsequent condemnation and finally to its
abolition by 1920.
Hugh Tinker writes that though an overwhelming number of Indian entrants into
various colonies were ill-paid labourers from India's rural and urban areas, a significant, if a
numerically small, group of Indian merchants, traders even capitalists and professionals, also
settled in various colonies and provided a kind of stiffening to the local Indian overseas
communities. However, he added that educated Indians were also there along with these
labouring classes.
Under labour colonialism, a vast majority of Indians went abroad or the situation
forced them to do so. Tinker contends that the nature of colonialism as propagated by the
British in this regard was so exploitative that it came under serious attack and was finally
abolished. However, despite its abolition, we may witness a kind of Indian culture and
tradition still under practice. For instance, labour colonialism as propagated by the British in
Mauritius left a lasting mark on Mauritius's basic culture which is now dominated by
Bhojpuri speaking people of Eastern U.P. and Bihar. However, he writes that it was truly
exploitative and reminded of African slavery.
Tinker does not claim that the Indian labourers, whom he continues to call coolies
even after noting the contemptuous connotation of the term, were of little use to the
plantation economy or that they were a mere burden on the colonial authorities. Rather he
admits that, together with British capital and expertise, it was Indian labour that created
much of the overseas wealth of Britain and further notes that the existence of overseas
Indians, majority of whom are still poor, doing lowly, menial jobs, "is the direct consequence
of western, mainly British economic exploitation of the raw material of the tropics". This is a
curious statement. If the Indian labour was indeed yoked to a new system of slavery, why
does he not say that there was British exploitation of both tropical "natives" and raw
materials? After all, what else is slavery but the exploitation of human beings in extreme
form? Side by side, his analysis also excludes the role of Indian capital and expertise,
provided by Indian traders, merchants and professionals in several British colonies, in
creating colonial wealth. The above fact also reiterates the statement and the contention of
Indian economic nationalists regarding drain and other related issues.
The study of Tinker and several other Europeans also ignores the basic question of the
legitimacy of imperialism that must underlie the study of Indian labour immigration which
largely produced the present Indian overseas communities in Mauritius, Ghana, West Indies
etc. After describing the need for the cheap labour force to work on colonial plantations, he
concludes that "it was India's role, within British Empire, to furnish a supply of cheap and
disposable labour". It was a role imposed by the ruling power on subjugated people. It was in
continuation, having destroyed much of their traditional source of livelihood. Britain was
poised to exploit the impoverished Indians as a labour force for export or as mere "units of
production, not as people". The recurring famines during 1770, 1784, 1804, 1837, 1860-61,
1875-78, 1889 and 1897-1900 also forced hungry Indians into indentured labour abroad.
 55

Indian labourers inherited all the oppressive features of plantation slavery, which had "
produced both a system and an attitude of mind in which the products determined
everything, not the people". It started the systematic degradation of the Indian labourers
compelled to wear convict uniforms, deliberate attempts to destroy their very sense of
identity; their consciousness, their loneliness, cruel methods of punishments, a high rate of
suicides, sexual oppression of Indian women driven into prostitution, abominably low wages.
Sit Thomas Hyslop, a planter expressed the slave owner mentality: "we want Indians as
indentured labourers and but not as free men”.
Several British and Indian authors had expressed the brutality of the indentured
system. Many of them were not only social and political workers but also history-makers
who, under the leadership of Indian National Congress, aroused Indian nationalism. Some
native Britishers also argued on the humanitarian ground regarding the deplorable and
inhuman conditions in which Indian labourers were working under plantation economy. The
descriptive nature of these works, because of the time, the context and sponsorship of their
publication served the purpose of exposing the shameful exploitation of Indians by the
British.
As a historian, Hugh Tinker had the task not only to show the integral connection between
the slavery of Indians and British imperialism which devised and perpetuated it but also to put
the responsibility squarely where it belonged – not so much on planters or even the colonial
authorities but the British government primarily, for the former were mere subordinates to the
latter. If it did not exercise control over them it was because it expediently chose not so and at
times admits that the British authorities in India and England did not make it strenuous attempts
to place the welfare of the Indians above the demand of the planters. However, he refrains from
directly attacking the British government whose partiality for the white settlers was not even
disguised. Yet, it is inconceivable that the imperial government in London could not compel the
white planters, its subject to abide by humane principles of labour employment.
The game-playing between the European planters, the colonial authorities and the
British government in London continued as did the new slavery but in the 1870's the
exposure of several scandals aroused loud protests. They constituted several inquiries which
finally led to the disbandment of indentured immigration. The first concerted attack on
indenture and racial discrimination came from Gandhi's Satyagraha movement in South
Africa in which Indian women of all ranks participated and suffered cruel punishment. Indian
labour in South Africa could never have been galvanized into a united force but for the middle
and upper-class leaders who led the movement in India to oust the British and suffered for it.
In the process, Indian labourers faced the persecution of their jailors with a stoic equanimity
which was beyond the middle-class satyagrahis, who complained while the indenture
labourers stood silent.
Hugh Tinker recognizes the obvious fact that it was Indian, not British, public opinion
that finally ended the indenture emigration. But he then proceeds to highlight and exaggerate
the "humanitarian" role of British officials and individuals, including the Anti- Slavery
Society, and various British governments and obscures the determining role of Indian
nationalist leaders and the Indian nationalist opinion. C.F. Andrews, an outstanding English
friend of Indian labourers, is profusely praised as “that strangely neglected actor in Indian
politics, the gentle, humble but ferocious, seer-activist”. But, except for a passing reference to
his having “worked with Gandhi in South Africa, having been specially sent by Gokhale,"
Tinker would have us believe that Andrews was working mainly "on his own" for the Indians,
whereas he became spiritually Indian and worked closely with, and under the authorization
 56

form, the Indian National Congress which often deputed this "adopted Indian" to investigate
conditions of Indian workers. Mention has also been made of Henry Polak, as someone who
once introduced himself to Gandhi in South Africa and then made contributions towards
ending indenture there “second only to Gandhi”. Polak did not just introduce himself to
Gandhi but became his apostle. No Indian would grudge gracious credit to these two great
Englishmen but Tinker’s failure to recognize the powerful influence of Indian nationalism and
the Congress is a serious defect and shortcoming of his writings. Lord Curzon, though not
vocal, still condemned the cruel practice and warned the English planters of grave
consequences of inhuman trade and practices of labour colonialism as propagated in these
colonies.
Despite all this, one may contend that labour colonialism was one of the tact used by
the British which largely benefited their plantation economy. Despite criticism from lager
quarters, the British never tried to stop this evil practice. The Indians already impoverished
by economic policies of the British had no option but to continue as labourers to survive in
this world. However, Indian opinion led by Gandhi in South Africa challenged this inhuman
practice which finally helped discontinue this system globally.
Self-Assessment Questions
1. What was the impact of free trade on agriculture?
-

2. In which countries did the British send Indian labour to work in plantations?

3. Define commercialization of agriculture.

-
4. In what ways was Indian industry destroyed by the British?

6.4 SUMMARY
Students in this lesson we have discussed the impact of the second phase of colonialism
known as the phase of free trade. It was during this phase that the nature of Indian agriculture,
trade and industry changed dramatically. The policies of the colonists were responsible for the
impoverished condition of the Indian economy. We have also traced the growth of labour
colonialism during the British rule in India.
6.5 REFERENCES
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
 57

Bipan Chandra, Nationalism and Colonialism in Modern India, Orient Longman, New Delhi,
1979.
6.6 FURTHER READINGS
Tinker Hugh, A New System of Slavery: The Export of Indian Labour Overseas, 1830-1920,
Pacific Affairs, Vol.50, No.2 (Summer, 1977), pp.263-271.
G.K. Gokhle, Speeches and Writings of Gopal Krishna Gokhale (Vol-II), Asia Publishing House,
1966, London
6.7 MODEL QUESTIONS
1. What was the impact of free trade on agriculture?
2. Examine critically the impact of free trade on trade and industry in colonial India.
3. Write a note on Labour Colonialism.
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Lesson 7

THEORY OF IMPERIALISM; THE NATIONALIST

ECONOMIC AGITATION
Structure
7.0 Objectives
7.1 Introduction
7.2 Theory of Imperialism
7.3 The Nationalist Economic Agitation
7.4 Economic Critique of Colonialism
7.5 Summary
7.6 References
7.7 Further Readings
7.8 Model Questions
7.0 OBJECTIVES
After reading this chapter you will be able to:
 analyse the theories of imperialism
 understand the nationalist economic agitation.
7.1 INTRODUCTION
Students, colonialism or the colonial state was a serviceable instrument not so much
for the modernization of Indian society or economy as for maintaining the logic of the colonial
state. An attempt would be made to understand nationalist and European view on
colonialism and what impact it had on the Indian economy and society. The nationalist
economists particularly Dadabhai Naoroji, R.C. Dutt and Ranade were very critical of
indiscriminate loot of Indian resources done by the British to achieve their desired goal of
benefiting the mother country. While highlighting this, R.C. Dutt in his book The Economic
History of India, vol. I and vol. II, has supported his arguments by giving statistical figures in
support of his argument. He goes on to argues as to how systematically British drained all the
resources of India and made the people impoverished. His argument touched aspects like De-
industrialization, Commercialization of Agriculture, and Drain of Wealth along with defective
administrative policies suited to the English interest. All these aspects will be taken up in this
lesson.
7.2 THEORY OF IMPERIALISM
The second industrial revolution made the leading European powers vigorously hunt
for the colonies which may help them not only to access cheap raw material but also
prospective markets. Hence, the desired destination was Asia, Africa and parts of Latin
America. Once they got hold of a few colonies, they first tried to systematize their trade and
market so that they may get into the final task of empire building, a logical outcome under
colonialism. This is an attempt to understand different theories around imperialism. In doing
so, an attempt would be made first to understand the same in world perspective and a
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challenge of the same had been developed by the natives, particularly by Indian economic
historians which have been accepted globally.
European View
Hobson, far from being a Marxist, was a conventional British Labour Party intellectual
who propounded a theory of colonial empire-building (his major work Imperialism was
published in 1902). He thought that capitalism was bound to engender such expansionism or
imperialism. The capitalist system, he pointed out, means a very uneven distribution of
income. Large profits accumulate in the hands of the capitalist and the wages of the workers
are low. Thus the low level of income of the large mass of workers under capitalism keeps the
level of consumption low. What is the result? On account of "under-consumption," all the
industrial products that are produced cannot be sold within the country, for there are no
buyers. What can the capitalist do under these circumstances? He can try to sell the excess
produce that cannot be marketed within the country, to foreign markets. If all capitalist
countries follow this policy there will be a struggle to capture markets and secure captive
markets in the form of colonies. Thus colonial expansion and conflict between capitalists of
different countries, according to Hobson were inevitable outcomes of the capitalist system.
Further, due to the above constraint of "under-consumption", the opportunities for
investment for the capitalist become limited in the long run. At the same time profit keeps on
accumulating and savings are waiting to be invested. This is what Hobson called "over-
saving" which again tended to push the capitalists towards colonial expansion: acquisition of
colonies would make an investment of surplus capital possible. To sum it up Hobson's
theories of under-consumption and over-shaving suggested that colonial expansion or
imperialism was a logical corollary of the capitalist system.
Eight years after the publication of Hobson’s work, Rudolf Hilferding published
(1910) another important analysis, focusing attention on Finance Capitalism. A social
Democrat, a brilliant economist, and for a while the Finance Minister of Germany, Hilferding
had to seek refuge in Paris after the rise of Hitler and Nazism in Germany; when Paris was
occupied by the German invading army Hilferding was captured and killed by them. This
heroic leader of the Central European socialist movement is known for his penetrating
analysis of the ultimate phase of capitalism. During this phase, capitalism as Hilferding
pointed out, is dominated by huge banks and financial interests who act in close association
with monopolist industrial business houses. This analysis of finance capitalism was further
extended by V.I. Lenin in his tract on Imperialism, The Last Stage of Capitalism (1916). In
1913, Rosa Luxemburg also published her work on the accumulation of capital and the
stages of imperialist expansionism. She was a socialist leader who emigrated from Poland to
Germany. Intellectually and politically she left a mark on the European socialist movement
and continued to play an important part until she fell victim to the Nazi onslaught. As for
Lenin, all that perhaps needs to be said here that this tract on Imperialism was written to
expose the capitalist machinations leading to World War. His ultimate aim was to dissuade
the Russian people from engaging in a war that was caused by the conflict of interests
between the financial monopolists of Western Europe. It was a very successful piece of
polemical writing which deeply influenced Marxist Historiography. In India, this approach
was developed by M.N. Roy, Jawaharlal Nehru, R.P. Dutt and others.

Indian Nationalists’ View

Eminent Indians like Dadabhai Naoroji, Mahadev Govind Ranade, Romesh Chandra Dutt
and many others pointed out some important features of India’s experience of
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imperialism under British Rule. Some of the important highlights of these nationalist are as
follows:
 Drain of Wealth: concept evolved from the writings of Dadabhai Naoroji and R.C. Dutt
meant the transfer of wealth from the late eighteenth century in the form of loot and
illicit gains by servants of the East India Company and in the form of Home Charges
i.e. the expenses incurred by the Government of India in England out of its income derived
mainly from the taxation of the Indian people and finally, in the form of interests and
profits and capital transfer from India to England on private account. Nationalist critics
pointed out as to how to drain in these different forms impoverished this country
and increased the economic gap between India and England which was the
destination of the drain of wealth.
 They also argued how the British regime brought about the destruction of the small-
scale industries in India, a process that is aptly described as de-industrialization.
 The idea of Free Trade and laissez-faire led to a tariff and industrial policy which
stifled the possibilities of growth of industries in British India. Consequently, India
became "the agricultural farm" of industrial England, i.e. a source of raw materials and
food-grains, dependent totally on industrial supplies from England.
 As regards the rate of taxation of agriculture, R.C. Dutt felt that the burden of land
revenue was excessive in areas which were subjected to periodical temporary
settlements. It was the cause of frequent famines in India. He further says that the
wealth of the countryside was drained through the revenue collection machinery,
making the economic viability of farming so precarious that the farmer could not
withstand the failure of rain and other natural disasters.
 R.C. Dutt, in particular, was very critical of Government expenditure on Army, Police and
other supporting machinery of the government. He along with other nationalist opined
that the expenditure was so excessive that developmental works were neglected. For
instance, the low expenditure on irrigation works contrasted sharply with the generous
expenditure on the British Indian Army and the railways etc.
 The criticism touched all aspects of the Indian economy, society and other related
aspects making lives of general public miserable which was very severe and drove
Indian psyche towards nationalism.
The European Socialists as well as Indian Nationalists, relate to the phases of
colonialism that corresponded to the stage of Industrial Capitalism and Finance Capitalism
in Europe. Further, one may note that the Indian Nationalists critique is naturally directed
towards features characterizing ‘formal imperialism’, i.e. imperialism as witnessed in India
under formal political subjugation of the colony under British Imperial power. The European
Socialists like Hobson, Hilferding, etc. addressed themselves, on the other hand, to study of
imperialism in a more general way, also taking into account 'informal imperialism' where
political subjugation of the colony might not have occurred but economic colonialism
characterized metropolitan colonial relations (e.g. in the case of China or the Latin American
countries). Finally, we may also note that unlike the Indian Nationalists' approach developed
by Naoroji, Ranade, R.C. Dutt etc., the Hobsonian or Leninist approach linked colonialism to
the world system of capitalism. Colonial exploitation, to Hobson and others, was a natural
systemic product of capitalism as it evolved in Europe, not merely an aberration caused by
'wrong policies' in Europe. On the whole, the understanding of imperialism offered by the
Indian Nationalists was one of the most powerful instruments of building national
consciousness among a subject people. The latter-day nationalist spokesman, like
 61

Jawaharlal Nehru, developed and strengthened his understanding of imperialism critique by

incorporating into it some elements derived from the Marxian, Hobsonian and Leninist
approach to imperialism.
7.3 THE NATIONALIST ECONOMIC AGITATION
The last quarter of the nineteenth century saw the ripple effect of drain and related factor
into mainstream politics of India. This theme narrates the story of deteriorating economic
condition of India which incited the nationalist leadership to take up the issues and agitate
against the British who had formulated unjust policies. However, the tone and intensity of the
attack by different sections were not the same: for instance, people like G.K. Gokhale, G.V. Joshi,
Surendranath Banerjee, D.E. Wacha, and R.C. Dutt took up the issue somewhat hesitantly in
the beginning but, Dadabhai Naoroji, B.G. Tilak, G. Subramaniya Iyer were clear- cut as well as
vocal in their approach. This made the official congress leadership rise against the usual line of
pray and petition and question the British policies at least in the economic sphere which was
injurious to India.
It was not as if the nationalists were not aware of the prevalence of poverty and other
economic disabilities. But they believed that the credit side of British rule outweighed the
debt side, and they hoped that over time disabilities would become less and less and the
benefits realized more and more. However, nationalist leaders slowly found that their
expectations remained unrealized and even appeared to recede farther and farther. They were
filled with disappointment and dismay, and their image of British rule began to take on
darker hues. As far as economic life was concerned, progress appeared to be halting and too
slow, and some even felt that, on the contrary, the country was economically regressing. In
course of time, the evidence of India’s dismal poverty began to over-shadow their entire
economic outlook. The one ray of hope was the growth of modern industry and here it
appeared to them that official economic policies were perhaps the most important road-block.
Working on the above premise, in the first stage, these nationalist leaders began to
complain that poverty was stalking the land, the peasant was rack-rented by the revenue
authorities, the indigenous industry had been ruined and modern industry was deliberately
discouraged or at least not sufficiently encouraged, the essential food supply of the country
was being exported, currency policy was manipulated against the interests of Indian industry
and peasantry, Indian labour was being enslaved in foreign-owned plantations, railways were
being extended in neglect of Indian revenues and the needs of agricultural development, the
burden of taxation was crushing and the public revenues were diverted from nation-building
departments to serve non-Indian interests and to wage unnecessary and expansionist wars,
and lastly-the heaviest complaint of all-India was being drained of its wealth and capital. All
these economic evils, the Indian leaders came to feel were the direct or indirect consequences
of British economic policy in India. They held Britain responsible for the decay of the Indian
economy. Thus, in the eyes of the nationalist leaders, all the other advantages of British rule
in the past and the present paled before its economic disadvantages. And, in course of time,
this 'decadence of faith' led to the questioning not only of the results of British rule but also
of its whys and wherefores: Why had India not progressed materially and why had not the
early promise in this respect been realized? Who was responsible for this failure? Was the
injury done to India inadvertent or deliberate? In other words, what was the real purpose of
British rule and, as a corollary, could their faith in its 'Providential' character be reconciled
with their current belief that the rule had been materially injurious to India?
To find an answer to all these questions raised above, the nationalist leaders had to
question the economic policy followed by the British. Thus, in course of time, their agitation
started primarily on economic lines, in particular, those relating to tariff policy and the drain,
 62

tended to convince wider and wider strata of Indian people and leaders that that poverty and
economic backwardness were perhaps not so much the product of the rulers' well-
intentioned mistakes as the concomitants of their rule, that this rule was fundamentally
rooted in a desire to exploit India economically and was therefore harmful to India's economic
growth. Britain's sense of justice and generosity were overcome by the desire to utilize the
economic resources of India for its advantage.
The nature of the remedies the nationalist Indian leaders suggested was anti-
imperialist. They demanded fundamental changes in the existing economic relations between
India and Britain. Even when their political demands were moderate, their economic
demands were radically nationalist. A study of their economic policies suggests they had
gradually acquired a deep understanding of the complex mechanism of the system of British
domination over India. Leadership in India took note of all three forms of contemporary
economic exploitation, viz., through commerce, industry, and finance, and they grasped that
the essence of British economic imperialism lay in the subordination of Indian economy to
Britain's. They vehemently opposed the attempt, on the part of alien rulers, to develop in
India the basic characteristics of a colonial economy, namely, the transformation of India into
a supplier of raw materials, a market for British manufactures, and a field of investment for
foreign capital. They criticized the official tariff, trade, transport, and taxation policies as
obstructing in place of helping the growth of industry and as bringing about the increasing
de-industrialization of the country. Most of them opposed, both on economic and political
grounds, the large scale import of foreign capital in the form of railways, plantations, and
industries, by the government. They attacked expenditure on the army and Civil Services and
condemned the use of the Indian army for the purposes of British expansion in Asia and
Africa.
Two other aspects of the nationalist economic agitation may be specially noted and
mentioned here: firstly, the Indian leaders were concerned primarily with the problem of
economic development as a whole and not with the economic advance in isolated sectors.
They refused to examine different aspects of economic life in isolation from the central
question of economic growth. Developments in transport, foreign trade, etc., must be seen,
they said, in the context of their contribution to the economic development of the country.
Even the problem of poverty was seen to be, in the main, the problem of lack of production
and economic development. Economic development, in turn, they believed, consisted
primarily of rapid and all-out industrial development of the country. The core of economic
growth lay not in the development of foreign trade or means of transport, or in the capacity of
the government to raise increasing revenues or to produce balanced budgets, but in
industrialization. This view led them to give their wholehearted, almost obsessive, devotion to
the aim of rapid industrialization. Industrial growth was the vantage point from which they
looked at, and judged nearly all contemporary economic issues, and they tried to bring into
line with the needs of industrial development of India the official economic policies in the
fields of foreign trade, railways, tariffs, currency and exchange, labour, public finance, and
even agriculture. More so, their attack on the drain was made from the point of view of its
harmful effects on capital accumulation.
Secondly, they adopted a national approach towards economic development; their total
concern was with the general welfare of the community and they, therefore, tried to represent
the interests of all classes of Indian society. They pleaded for an equitable system of taxation
in which the burden of public revenues would be borne by those who could afford to do so; in
particular, they continuously agitated for the reduction of land revenue and the salt tax. They
pressed for rapid industrialization so that the sources of national income might be enlarged.
They pleaded for the expenditure of public revenues in such a manner as to lead to
 63

the greatest good of the greatest number. Rather than taking the class demands, they opted
for national approach since they believed that all classes of Indians suffered economically under
British rule and that all of them stood to gain under the broad programme of national economic
regeneration for which they were agitating. They decided not to carry on any activity which
would tend to divide the people at a time when the need of the hour was to unite them into a
nation. This perspective, essentially correct, made them ignore other aspects of contemporary
reality. The brilliance of their grasp of the essential weaknesses of India’s economy arose from
the fact that they focused all their thought and attention on India’s colonial structure. But, their
silence on class structure and their related problem remained their weakness in this agitation.
However, within the national limits they imposed on themselves they did actively agitate for the
particular welfare of the peasantry and the working class. For example, they carried on a
veritable political campaign to get due protection for plantation labour – no clash with any other
Indian interests being involved since the employers of labour, in this case, were foreigners. They
continued to agitate for the peasantry for lowering of land revenue and for its permanent
settlement.
The accomplishments of the national leaders are many, provided success is not
measured in terms of immediate gains. They made people of India conscious of the bond of
common economic interests and the existence of a common enemy and thus helped to weld
them in a common nationalism. They made the people conscious of their economically
precarious and degraded position and the possibility of improvement. They gave a precise
nationalist form to the incoherent economic aspirations of the people and spread ideas of
economic development. They inculcated among the people desire to increase the economic
wealth of the country, showed them the ways of doing so by putting forward a well-rounded
programme of economic development, and pointed out the obstacles, both economic and
political, that needed to be overcome if the economic objectives were to be realized. In
accomplishing these tasks all the national leaders contributed alike, displaying in the process
a high quality of the power of economic analysis and deep patriotism. We would not be far
wrong in concluding that, despite their many failures, they laid strong and enduring
foundations for the national movement to grow upon, and deserve a high place among the
makers of modern India. Let us now learn about the Indian leaders' economic critique of
colonialism.
7.4 ECONOMIC CRITIQUE OF COLONIALISM
Independent of world criticism of colonialism, people like Mahadev Govind Ranade,
Dadabhai Naoroji, Romesh Chandra Dutt and many others developed a school of Economic
Nationalist analysis which highlighted some important features of India's experience under
British Rule. The economic critique of colonialism would broadly discuss some of the
important themes which these nationalists considered important. These aspects significantly
weakened the financial health of India as a colony. For instance, Drain of Wealth, Pension
issues of British officers in India, destruction of small scale industries, the idea of free trade
and laissez-faire, and excessive burden of land revenue were some of the issues discussed by
these nationalists. In their opinion, if realistic policies had been pursued in India by the
colonial government, India would have developed. They put forward arguments to support
their views.
Justice Mahadev Govind Ranade
Justice Mahadev Govind Ranade was an important member of the group of economists
who subjected British colonialism in India to a basic economic critique and helped evolve an
alternative path of economic development. Because of his deep learning and wide intellectual
reach, extensive writing and speaking, a multisided activity which covered almost all area of
 64

life (from economics and politics to social and religious reform and rewriting of Indian history)
and his high moral authority as a nationalist leader and social reformer, Ranade influenced the
social, economic and political thinking of several generations of Indians. In the economic field,
Ranade covered almost every area, knitting together industry, agriculture, finance, foreign trade,
currency, tariff, the role of the state, and economic theory into a single whole. He thus became the
founding father of what came to be known as "Indian Political Economy".
Ranade’s criticism covered a wide range of issues plaguing the Indian economy in this
period. In the arena of economic problems, he believed that India requires tackling of economic
issues more than the political one to solve grave social issues emerging out of poverty and other
related factors. He believed that India requires industrial development on an urgent basis.
However, he preferred the development of modern industries more than the revival of traditional
cottage industries to compete with the pace of capitalism around the globe. In doing so, he tried
to put into perspective the difference between economic development and economic growth. He
argued, "National well-being does not consists only in the creation of the highest quantity of
wealth measured in exchange values, independent of all variety of quality in that wealth, but in
the full and many-sided development of all productive forces". Thus, he made categorical remarks
on the British economic policies lacking true perspective in India which in his opinion was not
growth-oriented in the true sense of the term.
In agrarian problems, his writings occupied larger portions on issues related to agriculture
and related issues. He dealt at length with the relation between the peasants and the colonial
state, the peasants and landlord, and agriculture and industries. He also put forward the broad
outlines of the capitalist agrarian structure as an alternative to the existing semi-feudal agrarian
structure. In doing so, he touched upon British land revenue policy which was developed in three
different presidencies in a different point of time assessing British gains. Alongside this, he has
also talked about tenancy legislation, rural indebtedness, capitalist agriculture, reversing
dependence on agriculture among other things. Increasingly, noted Ranade, the Indian economy
bore a colonial character. It became a producer of raw materials and consumers of foreign
manufactures. Earlier North America and other British colonies had performed this function for
England. But after the American War of Independence and the granting of political autonomy
to other colonies, India had, in the nineteenth century, taken the place of the old colonies
and had come to be regarded by its rulers "as a plantation, growing raw produce to be shipped
by British agents in British ships, to be worked into fabrics by British skill and capital, and to be
re-exported to the dependency by British merchants to their corresponding British firms in India
and elsewhere".
Ranade criticized English classical economists like Adam Smith, Ricardo, senior,
Bastiat, James Mill, Torren, Mcculloch and Malthus on account of the several positions they
had taken for Indian economy. However, he was influenced by John Stuart Mill and used him
to support several of his positions. To criticize the classical economists, he had shown that
the past practices of British statesmen and the contemporary practise of other nations did
not at all conform to the precepts or assumptions of classical economies. He argued and
maintained that Indian problems and conditions were "widely divergent" from those of Britain
and closer to those in continental Europe and, therefore, the lessons to be derived from the
study of the continental economy have a more practical wearing than the maxims contained
in the usual textbooks of English Political Economy. More so, when the British
administrators in India did not strictly adhere to these precepts in giving guarantees to
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railways and help to plantation industries or in trying to preserve through legislations ‘small-
scale farming by tenants’.
Ranade also rejected the idea of classical economists that the state should confine its
activities to the simple task of maintaining peace and order, and pleaded for the widening of
the horizons of state activity so that it can become "the national organ for taking care of national
needs in all matters in which individual and cooperative efforts are not likely to be so effective
and economic as national effort". He strongly advocated that the state, as representative of the
people, has a right, and a wider corresponding obligation to undertake all functions for the
advantage of the public.
Ranade also questioned the theoretical framework of the Indian officials regarding land
revenue administration under colonial rule. In this respect, his attack was centred on two
issues: the ultimate ownership of agricultural land (and the nature of land revenue) and the
Ricardian basis of the Indian land revenue system. This according to the English
administrator was because since time immemorial, a state in India was the ultimate owner of
the soil, and that the cultivators or the landlords were, in essence, its tenants and that in
consequence, the land revenue was like rent and not a tax. Ranade firmly repudiated the
fallacious supposition that the government was the lord of the soil.
Ranade’s view on free trade and protection were expressed vigorously in 1881 in his
little known “Review of free trade and English commerce”. Ranade along with other leading
nationalists demanded protection for India's nascent industries. He argued that India's best
interests were being "sacrificed at the altar of this idol of English political economists". This
was one of the reasons why he felt it necessary to criticize the classical economists. He
initiated the discussion of free trade in 1881 with the major point (which he was to repeat at
length in 1892) that the economic aspects of the problem should be subordinated to the
higher aspects "if the political economy is to be anything more than schoolmen's
metaphysics". The English economists' failure to do so was one of their "cardinal errors in
this matter", he pointed out.
Critics argue that Ranade was milder and less vociferous on foreign trade, railway,
finance, and currency and exchange than other nationalists, though he was in basic
agreement with them. He tended in later life to ignore the questions of tariffs and the drain
which his counterpart Dadabhai Naoroji had taken up in details. Ranade’s relative neglect of
these subjects is to be explained not by a lack of interest but by several other intervening
factors. For one, because he preoccupied with official duties as a judge and his deep
involvement with social reforms, there was a certain division of labour in research, writing
and propagation between him and his co-worker G.V. Joshi and G.K. Gokhale. Ranade
preferred, especially in the latter part of his life, to take up constructive and not critical
aspects of economic policy and to make what he believed to be concrete and realizable
proposals. However, mild criticism on introduction and expenditure on railway and finance
continued. He left some aggressive aspects for his counterpart like R.C. Dutt and Naoroji who
not only criticized colonial economic policies but wrote extensively on the subject.
Though Justice Ranade shared the same platform as that of other economic
nationalists like Naoroji, R.C. Dutt, G.V. Joshi and others later these three were much more
vocal in their criticism of the colonial policies as compared to Justice Ranade particularly on
the issue of Drain of wealth. Hence, it is important to understand how these three made
scathing attacks on colonial economic policies on different issues.
The Drain Theory (Dadabhai Naoroji and R.C. Dutt)
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The most important cause of poverty in India was the drain of wealth from India to
England. According to one section of Indian leadership, this drain was fundamental and
fountainhead of all economic evil in India. A great deal of nationalist agitation during this
period was based on the 'drain theory' or the belief that a part of India's national wealth or
total annual product was being exported to England for which India got no adequate
economic or material returns. In other words, India was being compelled to pay an indirect
tribute to the English nation. Dadabhai Naoroji first put forward the idea in his paper,
“England’s Debt to India” in May 1867. In his paper cited above, he argued that Britain was
extracting wealth from India ‘as the price of her rule in India’. He also said that out of the
total revenue raised in India, nearly one-fourth goes clean out of the country, and is added to
the resources of England and that India was consequently being bled. R.C. Dutt and others
like G.V. Joshi later talked of other aspects like finances, construction of railways over and
above the neglect of Irrigation, building of Dam and related matters which neglected the core
sector i.e. agriculture. However, it significantly helped the British in connecting interiors with
the port cities.
By 1873, Dadabhai Naoroji prepared the first draft of his famous paper on the ‘Poverty
in India’. Dadabhai’s views on the drain were beginning to be formulated in their more well-
known militant form. By 1876 the drain theory had fully crystallized in his mind and was
presented in its entirety, in a revised draft of the ‘Poverty in India’, before the Bombay branch of
the East India Association. From now on Dadabhai dedicated his life to the propagation of the
drain theory and to launching a roaring and raging campaign against the drain, which was
declared by him to be the fundamental evil of British rule in India. Through innumerable
speeches, letters to British newspapers, articles in journals, correspondence with officials, the
evidence before official commissions and committees, and private correspondence – in fact in
every conceivable manner of public communication – he tried to draw public and official
attention on the single question of the drain. However, after several years of hard work and
persuasion, the Indian National Congress at its Calcutta session in 1896 proclaimed that the
famines in India and the great poverty of the people had been brought on by the drain of the
wealth of the country which has been going on for years.
What Constituted Drain
According to Dadabhai and other nationalists, the most important constituent of the
drain was remittance to England of a part of their salaries, incomes, and savings by English
civil, military and railway employees, lawyers, doctors, etc., and the payment in England by
the Government of India of the pensions and furlough allowances of the English officials. In
other words, the drain was in part the result of the inordinate employment of Europeans in
Indian administration, army, and railways. Dadabhai ascribed the entire evil of the drain to
the excessive employment of Englishmen in Indian administration. Another major
fountainhead of the drain from India, according to Indian leadership was that of home
Charges of the government of India or the expenditure incurred in England by the Secretary
of State on behalf of the Indian Government. The home charges consisted of payment of
interest on the Indian public debt and the guaranteed railways, the cost of military and other
stores supplied to India and the civil and military charges paid in England on account of
India, including the cost of the Secretary of State's establishment at the India Office and the
payment of pensions and allowances to European officials of the Indian Government. Third
and the major source of the drain, in the opinion of the Indian leaders, were the profits of
private foreign capital invested in trade or industry in India.
Calculation of the Drain
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As maintained earlier, basic to the nationalist definition of the drain was the idea of
transfer of wealth or commodities from India to England without the former getting back any
equivalent economic, commercial, or material returns. Hence, the drain of the Indian
conception inevitably took the form of an excess of exports over imports or of unrequited
exports. This understanding of what constituted the drain provided the Indian leaders with a
disarmingly simple and economically impregnable method of calculating the drain. Dadabhai,
however, tried to go a step further and to arrive a more correct approximation of drain by
adding to this excess of exports over imports another large amount which was, in his opinion,
due to India but was not paid. Namely, the profits of its exports. Dadabhai’s calculation of
drain was most intricate for the continuously changed its basis to appease the critics and to
meet all possible objections. In 1867, he computed the amount of the drain to be 8 million
pounds. In 1870, he raised this figure to 12 million ponds which rose considerably in the
years following, making Indian economy miserable. According to G.V. Joshi, India had been
drained of nearly 660 million sterling during the period 1834 to 1888, which in his opinion
was increasing regularly. In his Presidential Address to the Indian National Congress in 1901,
D.E. Wacha put the amount of drain at Rs. 30 to 40 crore a year.
R.C. Dutt’s estimate was more conservative; he found the drain to be about 20 million pounds a
year in the opening years of the 20th century. To make people grasp the real extent of what
they believed to be the very large amount of drain, many of the Indian leaders adopted the
method of calculating it as a proportion of public revenue. Thus, for instance,
R.C. Dutt repeatedly pointed out that nearly one-half of India's net annual revenue flowed out of
the country as the drain.
Economic Effects of Drain
Indian leaders were able to grasp the fact that the transfer of national wealth abroad had an
important and harmful impact on income and employment within the country. They pointed out
that the drain represented not only the spending abroad but also the further loss of
employment and income that would have been generated inside the country if that amount had
been spent within the nation. Thus R.C. Dutt remarked in 1903:
“For when taxes are raised and spent in a country, the money circulates
among the people, fructifies trades, industries, and agriculture, and in one
shape or another reaches the mass of the people. But when the taxes raised
in a country are remitted out of it, the money is lost to the country for ever;
it does not stimulate her trades or industries, or reach the people in any
form”.
The economists among the Indian leaders, however, dreaded the drain more as loss of
capital than as loss of wealth, since they recognized quite distinctly that the drain was
harmful precisely because it denuded India of its productive capital. Dadabhai Naoroji, for
one, kept this aspect uppermost in his analysis from the very beginning of his critique of the
drain. In nearly all his pronouncements on the drain, he brought out very clearly this loss of
capital which, in fact, formed the core of his drain theory. Later G.V. Joshi and D.E. Wacha
expressed a similar opinion and looked upon the drain as a loss of capital. Some of the Indian
leaders maintained that the drain by producing a shortage of capital in the country hindered
industrial development on which depended the economic salvation of India. In fact, they felt,
the chief responsibility for the slow growth of the modern industry in India lay with the
drain of wealth. Dadabhai Naoroji contended that it further facilitated the penetration and
exploitation of India by foreign capital.
Another economic historian R.C. Dutt was a very vocal advocate of both the drain theory
and the theory that heavy land revenue impoverished the country. He attempted to
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establish a direct relationship between these two theories and to show that the drain was mainly
paid out of land revenue and therefore represented the impoverishment of the peasantry. Thus,
in his preface to the second volume of Economic History of India, he stated that in 1900-01 the
Home Charges nearly equalled the total land revenue. Later on, in his book, he brought out the
more complex economic connection between the two. Financially, he remarked, the drain was
met directly from the public revenues, whose largest constituent was land revenue, and,
economically, the drain had to take the form of excess exports. The financial and the economic
aspects of the drain got related in the following manner: cultivators had to sell a large part of
their produce to pay land revenue or rent, this product was exported because the country had
to create the requisite export surplus and also because the agricultural products transported
from the village by harsh revenue system had to be marketed. Thus, through the mechanism of
land revenue, the peasant was forced both to pay for the drain and to provide the agricultural
products through which it was remitted abroad. The result was that the peasant was, on the one
hand, impoverished by the heavy and harsh land revenue and, on the other, starved of food-
grains which he was compelled to sell.
Other than drain, though to a great extent related with drain, R.C. Dutt questioned
British policies on account of preferences given to the development of railway, roads and
other infrastructure against the core sector of Indian economy i.e. agriculture. He goes on and
argues that the British administrators neglected the construction of canals and irrigation
network which was basic to the development of agriculture sector and their growth. Rather,
they preferred investing in the construction of the railway line which was so vital for
connectivity to port cities and finally for taking raw material to support their industries in
England. He made a scathing attack on British policies relating to public finance, free trade,
the ruin of Indian industries and so on. However, Naoroji cautioned him not to divert away
from the drain which in his opinion was the chief cause behind Indian poverty.
Irrespective of mild differences in the point of view, the drain and other related factors
helped arouse consciousness among all sections of Indian society. The economic criticism of
Justice Ranade was mild, that of Dadabhai Naoroji was hard and penetrating and R.C. Dutt
covered widely and so was the case of Joshi and others. Such was the effect of the criticism
that soon Indian opinion was to agitate against these unjust policies of the British.
Self-Assessment Questions
1. Name a few nationalists who wrote about India?
Answer.

2. What do you mean by Drain of Wealth?

Answer.

-
3. Who was Justice Govind Ranade?
Answer.
-
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4. Who was Rosa Luxemburg?

Answer.

7.5 SUMMARY
Students in this lesson we have explained the theories of imperialism. In the process
of the nationalist economic agitation, the leaders have pointed out defects in the economic
policies of the colonial government in India which resulted in its poverty and
impoverishment. They created a sound platform upon which the leadership of the Indian
National Congress made a detailed critique of the colonial policy. This created consciousness
in the minds of Indians about their country and its well-being. This further paved the way for
the national movement.
7.6 REFERENCES
A.K. Bagchi, The Political Economy of Underdevelopment, Cambridge, 1982.
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10, no. 03, 1980.
7.7 FURTHER READINGS
Bipan Chandra, The Rise and Growth of Economic Nationalism in India: Economic Policies of
Indian National Leadership, 1880-1905, New Delhi, 1966.
Rajani Palme Dutt, India to-day, Peoples Publishing House, Bombay, 1947.
R.C. Dutt, Economic History of India (2nd Edition), Rutledge & Kegan Paul, London, 2006.
7.8 MODEL QUESTIONS
1. Critically analyse the theory of Imperialism.
2. Write a note on the Nationalist economic agitation.
3. Examine the economic critique of colonialism.
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Lesson 7

THEORY OF IMPERIALISM; THE NATIONALIST

ECONOMIC AGITATION
Structure
7.0 Objectives
7.1 Introduction
7.2 Theory of Imperialism
7.3 The Nationalist Economic Agitation
7.4 Economic Critique of Colonialism
7.5 Summary
7.6 References
7.7 Further Readings
7.8 Model Questions
7.0 OBJECTIVES
After reading this chapter you will be able to:
 analyse the theories of imperialism
 understand the nationalist economic agitation.
7.1 INTRODUCTION
Students, colonialism or the colonial state was a serviceable instrument not so much
for the modernization of Indian society or economy as for maintaining the logic of the colonial
state. An attempt would be made to understand nationalist and European view on
colonialism and what impact it had on the Indian economy and society. The nationalist
economists particularly Dadabhai Naoroji, R.C. Dutt and Ranade were very critical of
indiscriminate loot of Indian resources done by the British to achieve their desired goal of
benefiting the mother country. While highlighting this, R.C. Dutt in his book The Economic
History of India, vol. I and vol. II, has supported his arguments by giving statistical figures in
support of his argument. He goes on to argues as to how systematically British drained all
the resources of India and made the people impoverished. His argument touched aspects like
De-industrialization, Commercialization of Agriculture, and Drain of Wealth along with
defective administrative policies suited to the English interest. All these aspects will be taken
up in this lesson.
7.2 THEORY OF IMPERIALISM
The second industrial revolution made the leading European powers vigorously hunt
for the colonies which may help them not only to access cheap raw material but also
prospective markets. Hence, the desired destination was Asia, Africa and parts of Latin
America. Once they got hold of a few colonies, they first tried to systematize their trade and
market so that they may get into the final task of empire building, a logical outcome under
colonialism. This is an attempt to understand different theories around imperialism. In doing
so, an attempt would be made first to understand the same in world perspective and a
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challenge of the same had been developed by the natives, particularly by Indian economic
historians which have been accepted globally.
European View
Hobson, far from being a Marxist, was a conventional British Labour Party intellectual
who propounded a theory of colonial empire-building (his major work Imperialism was
published in 1902). He thought that capitalism was bound to engender such expansionism or
imperialism. The capitalist system, he pointed out, means a very uneven distribution of
income. Large profits accumulate in the hands of the capitalist and the wages of the workers
are low. Thus the low level of income of the large mass of workers under capitalism keeps the
level of consumption low. What is the result? On account of "under-consumption," all the
industrial products that are produced cannot be sold within the country, for there are no
buyers. What can the capitalist do under these circumstances? He can try to sell the excess
produce that cannot be marketed within the country, to foreign markets. If all capitalist
countries follow this policy there will be a struggle to capture markets and secure captive
markets in the form of colonies. Thus colonial expansion and conflict between capitalists of
different countries, according to Hobson were inevitable outcomes of the capitalist system.
Further, due to the above constraint of "under-consumption", the opportunities for
investment for the capitalist become limited in the long run. At the same time profit keeps on
accumulating and savings are waiting to be invested. This is what Hobson called "over-
saving" which again tended to push the capitalists towards colonial expansion: acquisition of
colonies would make an investment of surplus capital possible. To sum it up Hobson's
theories of under-consumption and over-shaving suggested that colonial expansion or
imperialism was a logical corollary of the capitalist system.
Eight years after the publication of Hobson’s work, Rudolf Hilferding published
(1910) another important analysis, focusing attention on Finance Capitalism. A social
Democrat, a brilliant economist, and for a while the Finance Minister of Germany, Hilferding
had to seek refuge in Paris after the rise of Hitler and Nazism in Germany; when Paris was
occupied by the German invading army Hilferding was captured and killed by them. This
heroic leader of the Central European socialist movement is known for his penetrating
analysis of the ultimate phase of capitalism. During this phase, capitalism as Hilferding
pointed out, is dominated by huge banks and financial interests who act in close association
with monopolist industrial business houses. This analysis of finance capitalism was further
extended by V.I. Lenin in his tract on Imperialism, The Last Stage of Capitalism (1916). In
1913, Rosa Luxemburg also published her work on the accumulation of capital and the
stages of imperialist expansionism. She was a socialist leader who emigrated from Poland to
Germany. Intellectually and politically she left a mark on the European socialist movement
and continued to play an important part until she fell victim to the Nazi onslaught. As for
Lenin, all that perhaps needs to be said here that this tract on Imperialism was written to
expose the capitalist machinations leading to World War. His ultimate aim was to dissuade
the Russian people from engaging in a war that was caused by the conflict of interests
between the financial monopolists of Western Europe. It was a very successful piece of
polemical writing which deeply influenced Marxist Historiography. In India, this approach
was developed by M.N. Roy, Jawaharlal Nehru, R.P. Dutt and others.

Indian Nationalists’ View

Eminent Indians like Dadabhai Naoroji, Mahadev Govind Ranade, Romesh Chandra Dutt
and many others pointed out some important features of India’s experience of
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imperialism under British Rule. Some of the important highlights of these nationalist are as
follows:
 Drain of Wealth: concept evolved from the writings of Dadabhai Naoroji and R.C. Dutt
meant the transfer of wealth from the late eighteenth century in the form of loot and
illicit gains by servants of the East India Company and in the form of Home Charges
i.e. the expenses incurred by the Government of India in England out of its income derived
mainly from the taxation of the Indian people and finally, in the form of interests and
profits and capital transfer from India to England on private account. Nationalist critics
pointed out as to how to drain in these different forms impoverished this country
and increased the economic gap between India and England which was the
destination of the drain of wealth.
 They also argued how the British regime brought about the destruction of the small-
scale industries in India, a process that is aptly described as de-industrialization.
 The idea of Free Trade and laissez-faire led to a tariff and industrial policy which
stifled the possibilities of growth of industries in British India. Consequently, India
became "the agricultural farm" of industrial England, i.e. a source of raw materials and
food-grains, dependent totally on industrial supplies from England.
 As regards the rate of taxation of agriculture, R.C. Dutt felt that the burden of land
revenue was excessive in areas which were subjected to periodical temporary
settlements. It was the cause of frequent famines in India. He further says that the
wealth of the countryside was drained through the revenue collection machinery,
making the economic viability of farming so precarious that the farmer could not
withstand the failure of rain and other natural disasters.
 R.C. Dutt, in particular, was very critical of Government expenditure on Army, Police and
other supporting machinery of the government. He along with other nationalist opined
that the expenditure was so excessive that developmental works were neglected. For
instance, the low expenditure on irrigation works contrasted sharply with the generous
expenditure on the British Indian Army and the railways etc.
 The criticism touched all aspects of the Indian economy, society and other related
aspects making lives of general public miserable which was very severe and drove
Indian psyche towards nationalism.
The European Socialists as well as Indian Nationalists, relate to the phases of
colonialism that corresponded to the stage of Industrial Capitalism and Finance Capitalism
in Europe. Further, one may note that the Indian Nationalists critique is naturally directed
towards features characterizing ‘formal imperialism’, i.e. imperialism as witnessed in India
under formal political subjugation of the colony under British Imperial power. The European
Socialists like Hobson, Hilferding, etc. addressed themselves, on the other hand, to study of
imperialism in a more general way, also taking into account 'informal imperialism' where
political subjugation of the colony might not have occurred but economic colonialism
characterized metropolitan colonial relations (e.g. in the case of China or the Latin American
countries). Finally, we may also note that unlike the Indian Nationalists' approach developed
by Naoroji, Ranade, R.C. Dutt etc., the Hobsonian or Leninist approach linked colonialism to
the world system of capitalism. Colonial exploitation, to Hobson and others, was a natural
systemic product of capitalism as it evolved in Europe, not merely an aberration caused by
'wrong policies' in Europe. On the whole, the understanding of imperialism offered by the
Indian Nationalists was one of the most powerful instruments of building national
consciousness among a subject people. The latter-day nationalist spokesman, like
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Jawaharlal Nehru, developed and strengthened his understanding of imperialism critique by

incorporating into it some elements derived from the Marxian, Hobsonian and Leninist
approach to imperialism.
7.3 THE NATIONALIST ECONOMIC AGITATION
The last quarter of the nineteenth century saw the ripple effect of drain and related factor
into mainstream politics of India. This theme narrates the story of deteriorating economic
condition of India which incited the nationalist leadership to take up the issues and agitate
against the British who had formulated unjust policies. However, the tone and intensity of the
attack by different sections were not the same: for instance, people like G.K. Gokhale, G.V. Joshi,
Surendranath Banerjee, D.E. Wacha, and R.C. Dutt took up the issue somewhat hesitantly in
the beginning but, Dadabhai Naoroji, B.G. Tilak, G. Subramaniya Iyer were clear- cut as well as
vocal in their approach. This made the official congress leadership rise against the usual line of
pray and petition and question the British policies at least in the economic sphere which was
injurious to India.
It was not as if the nationalists were not aware of the prevalence of poverty and other
economic disabilities. But they believed that the credit side of British rule outweighed the
debt side, and they hoped that over time disabilities would become less and less and the
benefits realized more and more. However, nationalist leaders slowly found that their
expectations remained unrealized and even appeared to recede farther and farther. They were
filled with disappointment and dismay, and their image of British rule began to take on
darker hues. As far as economic life was concerned, progress appeared to be halting and too
slow, and some even felt that, on the contrary, the country was economically regressing. In
course of time, the evidence of India’s dismal poverty began to over-shadow their entire
economic outlook. The one ray of hope was the growth of modern industry and here it
appeared to them that official economic policies were perhaps the most important road-block.
Working on the above premise, in the first stage, these nationalist leaders began to
complain that poverty was stalking the land, the peasant was rack-rented by the revenue
authorities, the indigenous industry had been ruined and modern industry was deliberately
discouraged or at least not sufficiently encouraged, the essential food supply of the country
was being exported, currency policy was manipulated against the interests of Indian industry
and peasantry, Indian labour was being enslaved in foreign-owned plantations, railways were
being extended in neglect of Indian revenues and the needs of agricultural development, the
burden of taxation was crushing and the public revenues were diverted from nation-building
departments to serve non-Indian interests and to wage unnecessary and expansionist wars,
and lastly-the heaviest complaint of all-India was being drained of its wealth and capital. All
these economic evils, the Indian leaders came to feel were the direct or indirect consequences
of British economic policy in India. They held Britain responsible for the decay of the Indian
economy. Thus, in the eyes of the nationalist leaders, all the other advantages of British rule
in the past and the present paled before its economic disadvantages. And, in course of time,
this 'decadence of faith' led to the questioning not only of the results of British rule but also
of its whys and wherefores: Why had India not progressed materially and why had not the
early promise in this respect been realized? Who was responsible for this failure? Was the
injury done to India inadvertent or deliberate? In other words, what was the real purpose of
British rule and, as a corollary, could their faith in its 'Providential' character be reconciled
with their current belief that the rule had been materially injurious to India?
To find an answer to all these questions raised above, the nationalist leaders had to
question the economic policy followed by the British. Thus, in course of time, their agitation
started primarily on economic lines, in particular, those relating to tariff policy and the drain,
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tended to convince wider and wider strata of Indian people and leaders that that poverty and
economic backwardness were perhaps not so much the product of the rulers' well-
intentioned mistakes as the concomitants of their rule, that this rule was fundamentally
rooted in a desire to exploit India economically and was therefore harmful to India's economic
growth. Britain's sense of justice and generosity were overcome by the desire to utilize the
economic resources of India for its advantage.
The nature of the remedies the nationalist Indian leaders suggested was anti-
imperialist. They demanded fundamental changes in the existing economic relations between
India and Britain. Even when their political demands were moderate, their economic
demands were radically nationalist. A study of their economic policies suggests they had
gradually acquired a deep understanding of the complex mechanism of the system of British
domination over India. Leadership in India took note of all three forms of contemporary
economic exploitation, viz., through commerce, industry, and finance, and they grasped that
the essence of British economic imperialism lay in the subordination of Indian economy to
Britain's. They vehemently opposed the attempt, on the part of alien rulers, to develop in
India the basic characteristics of a colonial economy, namely, the transformation of India into
a supplier of raw materials, a market for British manufactures, and a field of investment for
foreign capital. They criticized the official tariff, trade, transport, and taxation policies as
obstructing in place of helping the growth of industry and as bringing about the increasing
de-industrialization of the country. Most of them opposed, both on economic and political
grounds, the large scale import of foreign capital in the form of railways, plantations, and
industries, by the government. They attacked expenditure on the army and Civil Services and
condemned the use of the Indian army for the purposes of British expansion in Asia and
Africa.
Two other aspects of the nationalist economic agitation may be specially noted and
mentioned here: firstly, the Indian leaders were concerned primarily with the problem of
economic development as a whole and not with the economic advance in isolated sectors.
They refused to examine different aspects of economic life in isolation from the central
question of economic growth. Developments in transport, foreign trade, etc., must be seen,
they said, in the context of their contribution to the economic development of the country.
Even the problem of poverty was seen to be, in the main, the problem of lack of production
and economic development. Economic development, in turn, they believed, consisted
primarily of rapid and all-out industrial development of the country. The core of economic
growth lay not in the development of foreign trade or means of transport, or in the capacity of
the government to raise increasing revenues or to produce balanced budgets, but in
industrialization. This view led them to give their wholehearted, almost obsessive, devotion to
the aim of rapid industrialization. Industrial growth was the vantage point from which they
looked at, and judged nearly all contemporary economic issues, and they tried to bring into
line with the needs of industrial development of India the official economic policies in the
fields of foreign trade, railways, tariffs, currency and exchange, labour, public finance, and
even agriculture. More so, their attack on the drain was made from the point of view of its
harmful effects on capital accumulation.
Secondly, they adopted a national approach towards economic development; their total
concern was with the general welfare of the community and they, therefore, tried to represent
the interests of all classes of Indian society. They pleaded for an equitable system of taxation
in which the burden of public revenues would be borne by those who could afford to do so; in
particular, they continuously agitated for the reduction of land revenue and the salt tax. They
pressed for rapid industrialization so that the sources of national income might be enlarged.
They pleaded for the expenditure of public revenues in such a manner as to lead to
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the greatest good of the greatest number. Rather than taking the class demands, they opted
for national approach since they believed that all classes of Indians suffered economically under
British rule and that all of them stood to gain under the broad programme of national economic
regeneration for which they were agitating. They decided not to carry on any activity which
would tend to divide the people at a time when the need of the hour was to unite them into a
nation. This perspective, essentially correct, made them ignore other aspects of contemporary
reality. The brilliance of their grasp of the essential weaknesses of India’s economy arose from
the fact that they focused all their thought and attention on India’s colonial structure. But, their
silence on class structure and their related problem remained their weakness in this agitation.
However, within the national limits they imposed on themselves they did actively agitate for the
particular welfare of the peasantry and the working class. For example, they carried on a
veritable political campaign to get due protection for plantation labour – no clash with any other
Indian interests being involved since the employers of labour, in this case, were foreigners. They
continued to agitate for the peasantry for lowering of land revenue and for its permanent
settlement.
The accomplishments of the national leaders are many, provided success is not
measured in terms of immediate gains. They made people of India conscious of the bond of
common economic interests and the existence of a common enemy and thus helped to weld
them in a common nationalism. They made the people conscious of their economically
precarious and degraded position and the possibility of improvement. They gave a precise
nationalist form to the incoherent economic aspirations of the people and spread ideas of
economic development. They inculcated among the people desire to increase the economic
wealth of the country, showed them the ways of doing so by putting forward a well-rounded
programme of economic development, and pointed out the obstacles, both economic and
political, that needed to be overcome if the economic objectives were to be realized. In
accomplishing these tasks all the national leaders contributed alike, displaying in the process
a high quality of the power of economic analysis and deep patriotism. We would not be far
wrong in concluding that, despite their many failures, they laid strong and enduring
foundations for the national movement to grow upon, and deserve a high place among the
makers of modern India. Let us now learn about the Indian leaders' economic critique of
colonialism.
7.4 ECONOMIC CRITIQUE OF COLONIALISM
Independent of world criticism of colonialism, people like Mahadev Govind Ranade,
Dadabhai Naoroji, Romesh Chandra Dutt and many others developed a school of Economic
Nationalist analysis which highlighted some important features of India's experience under
British Rule. The economic critique of colonialism would broadly discuss some of the
important themes which these nationalists considered important. These aspects significantly
weakened the financial health of India as a colony. For instance, Drain of Wealth, Pension
issues of British officers in India, destruction of small scale industries, the idea of free trade
and laissez-faire, and excessive burden of land revenue were some of the issues discussed by
these nationalists. In their opinion, if realistic policies had been pursued in India by the
colonial government, India would have developed. They put forward arguments to support
their views.
Justice Mahadev Govind Ranade
Justice Mahadev Govind Ranade was an important member of the group of economists
who subjected British colonialism in India to a basic economic critique and helped evolve an
alternative path of economic development. Because of his deep learning and wide intellectual
reach, extensive writing and speaking, a multisided activity which covered almost all area of
 76

life (from economics and politics to social and religious reform and rewriting of Indian history)
and his high moral authority as a nationalist leader and social reformer, Ranade influenced the
social, economic and political thinking of several generations of Indians. In the economic field,
Ranade covered almost every area, knitting together industry, agriculture, finance, foreign trade,
currency, tariff, the role of the state, and economic theory into a single whole. He thus became the
founding father of what came to be known as "Indian Political Economy".
Ranade’s criticism covered a wide range of issues plaguing the Indian economy in this
period. In the arena of economic problems, he believed that India requires tackling of economic
issues more than the political one to solve grave social issues emerging out of poverty and other
related factors. He believed that India requires industrial development on an urgent basis.
However, he preferred the development of modern industries more than the revival of traditional
cottage industries to compete with the pace of capitalism around the globe. In doing so, he tried
to put into perspective the difference between economic development and economic growth. He
argued, "National well-being does not consists only in the creation of the highest quantity of
wealth measured in exchange values, independent of all variety of quality in that wealth, but in
the full and many-sided development of all productive forces". Thus, he made categorical remarks
on the British economic policies lacking true perspective in India which in his opinion was not
growth-oriented in the true sense of the term.
In agrarian problems, his writings occupied larger portions on issues related to agriculture
and related issues. He dealt at length with the relation between the peasants and the colonial
state, the peasants and landlord, and agriculture and industries. He also put forward the broad
outlines of the capitalist agrarian structure as an alternative to the existing semi-feudal agrarian
structure. In doing so, he touched upon British land revenue policy which was developed in three
different presidencies in a different point of time assessing British gains. Alongside this, he has
also talked about tenancy legislation, rural indebtedness, capitalist agriculture, reversing
dependence on agriculture among other things. Increasingly, noted Ranade, the Indian economy
bore a colonial character. It became a producer of raw materials and consumers of foreign
manufactures. Earlier North America and other British colonies had performed this function for
England. But after the American War of Independence and the granting of political autonomy
to other colonies, India had, in the nineteenth century, taken the place of the old colonies
and had come to be regarded by its rulers "as a plantation, growing raw produce to be shipped
by British agents in British ships, to be worked into fabrics by British skill and capital, and to be
re-exported to the dependency by British merchants to their corresponding British firms in India
and elsewhere".
Ranade criticized English classical economists like Adam Smith, Ricardo, senior,
Bastiat, James Mill, Torren, Mcculloch and Malthus on account of the several positions they
had taken for Indian economy. However, he was influenced by John Stuart Mill and used him
to support several of his positions. To criticize the classical economists, he had shown that
the past practices of British statesmen and the contemporary practise of other nations did
not at all conform to the precepts or assumptions of classical economies. He argued and
maintained that Indian problems and conditions were "widely divergent" from those of Britain
and closer to those in continental Europe and, therefore, the lessons to be derived from the
study of the continental economy have a more practical wearing than the maxims contained
in the usual textbooks of English Political Economy. More so, when the British
administrators in India did not strictly adhere to these precepts in giving guarantees to
 77

railways and help to plantation industries or in trying to preserve through legislations ‘small-
scale farming by tenants’.
Ranade also rejected the idea of classical economists that the state should confine its
activities to the simple task of maintaining peace and order, and pleaded for the widening of
the horizons of state activity so that it can become "the national organ for taking care of national
needs in all matters in which individual and cooperative efforts are not likely to be so
effective and economic as national effort". He strongly advocated that the state, as representative
of the people, has a right, and a wider corresponding obligation to undertake all functions for the
advantage of the public.
Ranade also questioned the theoretical framework of the Indian officials regarding land
revenue administration under colonial rule. In this respect, his attack was centred on two
issues: the ultimate ownership of agricultural land (and the nature of land revenue) and the
Ricardian basis of the Indian land revenue system. This according to the English
administrator was because since time immemorial, a state in India was the ultimate owner of
the soil, and that the cultivators or the landlords were, in essence, its tenants and that in
consequence, the land revenue was like rent and not a tax. Ranade firmly repudiated the
fallacious supposition that the government was the lord of the soil.
Ranade’s view on free trade and protection were expressed vigorously in 1881 in his
little known “Review of free trade and English commerce”. Ranade along with other leading
nationalists demanded protection for India's nascent industries. He argued that India's best
interests were being "sacrificed at the altar of this idol of English political economists". This
was one of the reasons why he felt it necessary to criticize the classical economists. He
initiated the discussion of free trade in 1881 with the major point (which he was to repeat at
length in 1892) that the economic aspects of the problem should be subordinated to the
higher aspects "if the political economy is to be anything more than schoolmen's
metaphysics". The English economists' failure to do so was one of their "cardinal errors in
this matter", he pointed out.
Critics argue that Ranade was milder and less vociferous on foreign trade, railway,
finance, and currency and exchange than other nationalists, though he was in basic
agreement with them. He tended in later life to ignore the questions of tariffs and the drain
which his counterpart Dadabhai Naoroji had taken up in details. Ranade’s relative neglect of
these subjects is to be explained not by a lack of interest but by several other intervening
factors. For one, because he preoccupied with official duties as a judge and his deep
involvement with social reforms, there was a certain division of labour in research, writing
and propagation between him and his co-worker G.V. Joshi and G.K. Gokhale. Ranade
preferred, especially in the latter part of his life, to take up constructive and not critical
aspects of economic policy and to make what he believed to be concrete and realizable
proposals. However, mild criticism on introduction and expenditure on railway and finance
continued. He left some aggressive aspects for his counterpart like R.C. Dutt and Naoroji who
not only criticized colonial economic policies but wrote extensively on the subject.
Though Justice Ranade shared the same platform as that of other economic
nationalists like Naoroji, R.C. Dutt, G.V. Joshi and others later these three were much more
vocal in their criticism of the colonial policies as compared to Justice Ranade particularly on
the issue of Drain of wealth. Hence, it is important to understand how these three made
scathing attacks on colonial economic policies on different issues.
The Drain Theory (Dadabhai Naoroji and R.C. Dutt)
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The most important cause of poverty in India was the drain of wealth from India to
England. According to one section of Indian leadership, this drain was fundamental and
fountainhead of all economic evil in India. A great deal of nationalist agitation during this
period was based on the 'drain theory' or the belief that a part of India's national wealth or
total annual product was being exported to England for which India got no adequate
economic or material returns. In other words, India was being compelled to pay an indirect
tribute to the English nation. Dadabhai Naoroji first put forward the idea in his paper,
“England’s Debt to India” in May 1867. In his paper cited above, he argued that Britain was
extracting wealth from India ‘as the price of her rule in India’. He also said that out of the
total revenue raised in India, nearly one-fourth goes clean out of the country, and is added to
the resources of England and that India was consequently being bled. R.C. Dutt and others
like G.V. Joshi later talked of other aspects like finances, construction of railways over and
above the neglect of Irrigation, building of Dam and related matters which neglected the core
sector i.e. agriculture. However, it significantly helped the British in connecting interiors with
the port cities.
By 1873, Dadabhai Naoroji prepared the first draft of his famous paper on the ‘Poverty
in India’. Dadabhai’s views on the drain were beginning to be formulated in their more well-
known militant form. By 1876 the drain theory had fully crystallized in his mind and was
presented in its entirety, in a revised draft of the ‘Poverty in India’, before the Bombay branch of
the East India Association. From now on Dadabhai dedicated his life to the propagation of the
drain theory and to launching a roaring and raging campaign against the drain, which was
declared by him to be the fundamental evil of British rule in India. Through innumerable
speeches, letters to British newspapers, articles in journals, correspondence with officials, the
evidence before official commissions and committees, and private correspondence – in fact in
every conceivable manner of public communication – he tried to draw public and official
attention on the single question of the drain. However, after several years of hard work and
persuasion, the Indian National Congress at its Calcutta session in 1896 proclaimed that the
famines in India and the great poverty of the people had been brought on by the drain of the
wealth of the country which has been going on for years.
What Constituted Drain
According to Dadabhai and other nationalists, the most important constituent of the
drain was remittance to England of a part of their salaries, incomes, and savings by English
civil, military and railway employees, lawyers, doctors, etc., and the payment in England by
the Government of India of the pensions and furlough allowances of the English officials. In
other words, the drain was in part the result of the inordinate employment of Europeans in
Indian administration, army, and railways. Dadabhai ascribed the entire evil of the drain to
the excessive employment of Englishmen in Indian administration. Another major
fountainhead of the drain from India, according to Indian leadership was that of home
Charges of the government of India or the expenditure incurred in England by the Secretary
of State on behalf of the Indian Government. The home charges consisted of payment of
interest on the Indian public debt and the guaranteed railways, the cost of military and other
stores supplied to India and the civil and military charges paid in England on account of
India, including the cost of the Secretary of State's establishment at the India Office and the
payment of pensions and allowances to European officials of the Indian Government. Third
and the major source of the drain, in the opinion of the Indian leaders, were the profits of
private foreign capital invested in trade or industry in India.
Calculation of the Drain
 79

As maintained earlier, basic to the nationalist definition of the drain was the idea of
transfer of wealth or commodities from India to England without the former getting back any
equivalent economic, commercial, or material returns. Hence, the drain of the Indian
conception inevitably took the form of an excess of exports over imports or of unrequited
exports. This understanding of what constituted the drain provided the Indian leaders with a
disarmingly simple and economically impregnable method of calculating the drain. Dadabhai,
however, tried to go a step further and to arrive a more correct approximation of drain by
adding to this excess of exports over imports another large amount which was, in his opinion,
due to India but was not paid. Namely, the profits of its exports. Dadabhai’s calculation of
drain was most intricate for he continuously changed its basis to appease the critics and to
meet all possible objections. In 1867, he computed the amount of the drain to be 8 million
pounds. In 1870, he raised this figure to 12 million ponds which rose considerably in the
years following, making Indian economy miserable. According to G.V. Joshi, India had been
drained of nearly 660 million sterling during the period 1834 to 1888, which in his opinion
was increasing regularly. In his Presidential Address to the Indian National Congress in 1901,
D.E. Wacha put the amount of drain at Rs. 30 to 40 crore a year.
R.C. Dutt’s estimate was more conservative; he found the drain to be about 20 million pounds a
year in the opening years of the 20th century. To make people grasp the real extent of what
they believed to be the very large amount of drain, many of the Indian leaders adopted the
method of calculating it as a proportion of public revenue. Thus, for instance,
R.C. Dutt repeatedly pointed out that nearly one-half of India's net annual revenue flowed out of
the country as the drain.
Economic Effects of Drain
Indian leaders were able to grasp the fact that the transfer of national wealth abroad had an
important and harmful impact on income and employment within the country. They pointed out
that the drain represented not only the spending abroad but also the further loss of
employment and income that would have been generated inside the country if that amount had
been spent within the nation. Thus R.C. Dutt remarked in 1903:
“For when taxes are raised and spent in a country, the money circulates
among the people, fructifies trades, industries, and agriculture, and in one
shape or another reaches the mass of the people. But when the taxes raised
in a country are remitted out of it, the money is lost to the country for ever;
it does not stimulate her trades or industries, or reach the people in any
form”.
The economists among the Indian leaders, however, dreaded the drain more as loss of
capital than as loss of wealth, since they recognized quite distinctly that the drain was
harmful precisely because it denuded India of its productive capital. Dadabhai Naoroji, for
one, kept this aspect uppermost in his analysis from the very beginning of his critique of the
drain. In nearly all his pronouncements on the drain, he brought out very clearly this loss of
capital which, in fact, formed the core of his drain theory. Later G.V. Joshi and D.E. Wacha
expressed a similar opinion and looked upon the drain as a loss of capital. Some of the Indian
leaders maintained that the drain by producing a shortage of capital in the country hindered
industrial development on which depended the economic salvation of India. In fact, they felt,
the chief responsibility for the slow growth of the modern industry in India lay with the drain
of wealth. Dadabhai Naoroji contended that it further facilitated the penetration and
exploitation of India by foreign capital.
Another economic historian R.C. Dutt was a very vocal advocate of both the drain theory
and the theory that heavy land revenue impoverished the country. He attempted to
 80

establish a direct relationship between these two theories and to show that the drain was mainly
paid out of land revenue and therefore represented the impoverishment of the peasantry. Thus,
in his preface to the second volume of Economic History of India, he stated that in 1900-01 the
Home Charges nearly equalled the total land revenue. Later on, in his book, he brought out the
more complex economic connection between the two. Financially, he remarked, the drain was
met directly from the public revenues, whose largest constituent was land revenue, and,
economically, the drain had to take the form of excess exports. The financial and the economic
aspects of the drain got related in the following manner: cultivators had to sell a large part of
their produce to pay land revenue or rent, this product was exported because the country had
to create the requisite export surplus and also because the agricultural products transported
from the village by harsh revenue system had to be marketed. Thus, through the mechanism of
land revenue, the peasant was forced both to pay for the drain and to provide the agricultural
products through which it was remitted abroad. The result was that the peasant was, on the one
hand, impoverished by the heavy and harsh land revenue and, on the other, starved of food-
grains which he was compelled to sell.
Other than drain, though to a great extent related with drain, R.C. Dutt questioned
British policies on account of preferences given to the development of railway, roads and
other infrastructure against the core sector of Indian economy i.e. agriculture. He goes on
and argues that the British administrators neglected the construction of canals and irrigation
network which was basic to the development of agriculture sector and their growth. Rather,
they preferred investing in the construction of the railway line which was so vital for
connectivity to port cities and finally for taking raw material to support their industries in
England. He made a scathing attack on British policies relating to public finance, free trade,
the ruin of Indian industries and so on. However, Naoroji cautioned him not to divert away
from the drain which in his opinion was the chief cause behind Indian poverty.
Irrespective of mild differences in the point of view, the drain and other related factors
helped arouse consciousness among all sections of Indian society. The economic criticism of
Justice Ranade was mild, that of Dadabhai Naoroji was hard and penetrating and R.C. Dutt
covered widely and so was the case of Joshi and others. Such was the effect of the criticism
that soon Indian opinion was to agitate against these unjust policies of the British.
Self-Assessment Questions
5. Name a few nationalists who wrote about India?
Answer.

6. What do you mean by Drain of Wealth?

Answer.
-

7. Who was Justice Govind Ranade?

Answer.
 81

8. Who was Rosa Luxemburg?

Answer.

7.5 SUMMARY
Students in this lesson we have explained the theories of imperialism. In the process
of the nationalist economic agitation, the leaders have pointed out defects in the economic
policies of the colonial government in India which resulted in its poverty and
impoverishment. They created a sound platform upon which the leadership of the Indian
National Congress made a detailed critique of the colonial policy. This created consciousness
in the minds of Indians about their country and its well-being. This further paved the way for
the national movement.

7.6 REFERENCES
A.K. Bagchi, The Political Economy of Underdevelopment, Cambridge, 1982.
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10, no. 03, 1980.
7.7 FURTHER READINGS
Bipan Chandra, The Rise and Growth of Economic Nationalism in India: Economic Policies of
Indian National Leadership, 1880-1905, New Delhi, 1966.
Rajani Palme Dutt, India to-day, Peoples Publishing House, Bombay, 1947.
R.C. Dutt, Economic History of India (2nd Edition), Rutledge & Kegan Paul, London, 2006.
7.8 MODEL QUESTIONS
1. Critically analyse the theory of Imperialism.
2. Write a note on the Nationalist economic agitation.
3. Examine the economic critique of colonialism.
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Lesson 8

MODERN INDIA AND IMPERIALISM:

FINANCE IMPERIALISM (1858-1947)

Structure
8.0 Objectives
8.1 Introduction
8.2 Modern India and Imperialism
8.3 Finance Imperialism 1858-1947
8.4 Summary
8.5 References
8.6 Further Readings
8.7 Model Questions
8.0 OBJECTIVES
After reading this chapter, you will be able to:
 understand 'the relations between Modem India and Imperialism.
 learn how the imperialists In a changed situation helped in financial imperialism in
India.
8.1 INTRODUCTION
Modern India and Imperialism deals in the post-1857 scenario in which the British
crown replaced company rule by taking the reins of British India directly into their hands
which again created a positive environment in the minds of independent business class of
Britain regarding their faith vis-a-vis the British Government. In the third phase of
colonialism popularly known as finance imperialism/capitalism, different business groups
were aggressive in their outlook as regards' investment in India. Projects related to rail, road
and other Infrastructure was undertaken and different acts were moulded primarily to suit
the British entrepreneurs In India. It was these very reasons which neglected the issues of the
natives leading to a powerful national movement later.
8.2 MODERN INDIA AND IMPERIALISM
The section makes an effort to investigate as to how imperialism in India shaped the
building, growth and development of modern India. As all of us know that colonialism In India
brought about decay and stagnation of the Indian economy, as a result of which India was
impoverished which is highlighted by economic nationalists. However, in the long run, the same
imperialism also brought about a few positive changes. The section seeks to highlight these
positives which shaped modern India to a great extent.
India was fully integrated into the world capitalist economy forcefully in a subordinate
colonial position during the nineteenth century, It emerged as a classic colony playing a
crucial role in the development of British capitalism, It was not accidental that the British
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plunder of India began in the 1750's simultaneously with, the initiation of the Industrial
Revolution in Britain. For example, the drain of wealth unilateral transfer of capital from
India after 1'765 amounted to 2 to 3 per cent of the British national income at a time when
only 5 per cent of the British national income was being invested. During the years after
1760, when Britain was developing into the leading capitalist economy of the wor1d, India
was becoming the leading backward, colonial country of the world. This requires examining
at length as to what was the actual face of Colonialism/imperialism in India.
During the nineteenth century, India served as a major market for British
manufacture, especially cotton textiles and later iron and steel products and other railway
stores. India was also an important supplier of foodstuffs and raw materials to Britain. Indian
opium played a crucial role in developing triangular trade which enabled the economic
exploitation of the Chinese people. In the second half of the nineteenth century, Indian
railways constructed at a cost of 350 million rupees (nearly 350 minion pounds sterling)
provided the largest outlet for the export of British capital. The bulk of India's transport
system, modern mines and industries, foreign trade, coastal and international shipping, and
banks and insurance companies were under British control. For nearly a hundred years after
1858, Indian exports met its international balance of payments deficit. Control over India's
coastal and international trade was a major factor in the growth of British Shipping.
India absorbed a large section of the unemployed youth of the British middle classes
and upper classes (one-third of the Indian budget in 1892 was spent-on Englishmen in
India!). This not only provided a basic cushion to the classes but also enabled the British
political process to flow smoothly without disturbances. The humanitarian- and Idealistic
proclivities of the educated youth could now find expression in missionary activity on the
right and Fabianism on the left.
India also played a significant role in shaping the ideology of imperialism which
enabled the British ruling classes to keep their political power intact even after the adult
franchise was introduced. The pride and glory underlying the slogan of 'the Sun never sets
on the British empire' were used to keep workers contented, on whose slum dwellings the
sun seldom shone in real life. Alongside this India also bore the entire cost of its conquest,
including the recapture after the Revert of 1857. More so, when 'it became necessary in the
interests of colonialism to partially modernize India through railways, education, a modern
legal system, development of irrigation, and detailed penetration of administration into the
countryside, and paid the entire cost. India also acted as the chief gendarme of British
imperialism and furnished both material and the human resources for its expansion and
maintenance. Afghanistan, Central Asia, Tibet, the Persian Gulf area, Eastern Africa, Egypt,
Sudan, Burma, China, and to some extent even South Africa were brought or kept within the
British sphere of influence through the instrumentality of the Indian army and the Indian
finances. Throughout this period, except for the duration of the world wars, the British Indian
army was the only large scale army contingent available to Britain. This is one of the major
reasons why the British Empire in Asia and Africa collapsed like a house of cards once Britain
lost control over Indian army and finances.
Bipan Chandra writes that it was precisely in the period after 18.70 when British economic
supremacy was challenged by rival capitalist powers, when the hunt for markets, raw materials,
and fields for investments was intensified, and when the adult franchise made it necessary to find
new ideological appeals to the working class, that British rule in India was more stringently and
consciously clamped down and the earlier talk of training Indians for free trade and self-
government was abandoned in favour of the doctrine of 'benevolent despotism'. Furthermore, it
was through administrative and other measures and the rigidly
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British character of the higher bureaucracy, that India was kept a close preserve of British
capitalism. An interesting result was that American capitalism had to begin its penetration of
Indian economy after 1947 virtually from scratch and had to spend many years in building
contacts and creating a base for itself in the economic, political, scientific, cultural and
intellectual life of the country.
It is important to understand that British imperialism did not derive, especially in the
twentieth century, as great an economic advantage from its. Domination of India as was
claimed both by the vigorous imperialists and by the Indian and other anti-imperialists. This
is then supposed to prove that modern imperialism did not have an economic motivation.
Indeed, in the twentieth century, India was no longer as big a market for British goods as had
been hoped, nor as big an absorber of British capital as desired. Between the hope and the
fulfilment, there was a big gap. But this does not disprove anything. It is only a manifestation
of the internal contradiction in which British imperialism had' become involved as a result of
its prolonged exploitation of India. It was necessary that India and its people transform their
economy and in general develop economically if imperialism was to exploit them fully, but
this very exploitation made it impossible for India to develop. Thus, once the existing internal
market of India had been captured, the impoverished Indian peasants could neither develop
further as a buyer of British manufactures nor provide the consumer base .of foreign-owned
industries in India. Similarly, once the peasant had been taxed to the point of endurance, the
Indian state revenues could not be further plundered by British finance capital or by the
British upper and middle classes. On the other hand, in the limited Indian market, Indian
capital was venture-some enough to challenge British capital in many fields. Faced with a
burgeoning anti-imperialist movement, the imperialist authorities could neither antagonize
the Indian bourgeoisie beyond a point nor tax the peasant beyond endurance, Imperialist
exploitation could not, therefore, fulfil the dreams that had so long inspired imperialist
policies in India.
So far we have discussed as to how the British used India as a destination for their
trade and related development. But slowly and gradually a powerful anti-imperialist
movement developed in India. Some of its facets resulted in a forceful impact on the
development of India's relations with the great powers after 1947. The next section will focus
on such relations.
The Indian nationalist movement was based 'on a brilliant and detailed investigation
and multi-faceted analysis of the economic roots and motive forces of colonialism. Before the
end of the nineteenth century, the founding fathers of the anti-imperialist movement had
worked out a clear understanding not only of the role of colonialism as an extractor of Indian
economic surplus directly via taxation and indirectly by marketing India and its agrarian
hinterland for the sale of its manufactures and purchase of India's raw materials, but also of
its new phase of the exploitation of Indian labour and the suppression of Indian capital
through the investment of the British (Metropolitan) capital. They also saw clearly that the
essence of British imperialism lay in the subordination of the Indian economy as a whole to
that of Britain. Moreover, they propagated that colonialism was not a fortuitous phenomenon
or a matter of the political policy of the ruling parties in Britain but sprang from the very
nature and character of the British society and economy, the needs of its ruling classes, and
Britain's economic relationship with India. This understanding of the complex economic
mechanism of modern imperialism was further strengthened and advanced after 1918 under
the impact of the mass struggles against imperialism: the Russian Revolution, and the spread
of Marxist and Leninist ideas. The result has been a heightened awareness of the dangers of
foreign economic penetration even after 1947. This has been particularly so in the field of
private foreign capital investment. The Indian national leadership started attacking
 85

foreign capital from the 1870s, clearly bringing out both its economic and political
consequences. Foreign capital was seen not as a tool for developing India but as 'despoiling'
India and exploiting its resources and impoverishing it. For example, the Bengalee of June 1,
1901, wrote that the expansion of foreign investments would hasten the country's ruin and
"surely reduce our nation to a state of eternal economic dependence upon British capital".
The nationalist attitude towards. Foreign capital was summed up by Bipin Chandra Pal in
his weekly, the New India, of August 12. 1901, in the following manner, quotes Bipan
Chandra:
“The Introduction of foreign, and mostly British Capital for working out the
natural resources of the country, instead of being a help, is, in fact, the
greatest of hindrances to all real improvements in the economic condition of
the people. This exploitation of the land by foreign capitalists threatens to
involve both Government and people in a common ruin. It is as much a
political, as it is an economic danger. And the future of New India absolutely
depends upon an early and radical remedy of this two- edged evil”.
Later G.V. Joshi recognized the political danger when he wrote the following in 1885:
“Politically speaking, if we do not misread history, power must gravitate
towards property and wealth, and a strong foreign mercantile interest In the
country would not fail to be a very troublesome active factor in the State; it
would always be disposed to use the power and Influence it could command
for its selfish aims, and dominate the action of Government in its own favour”.
The Hindu of September 23, 1889, remarked:
“Where foreign capital has been sunk in a country, the administration of that
country becomes at once the concern of the bondholders”.
The nationalists had very early projected the notion' of using foreign funds without letting
the foreign entrepreneur enter. This was to be done by building up a powerful state (public)
sector which would keep out the foreign capitalists in two ways. Firstly, the state, sector would
build industries which were too large for private Indian capital to build and which would
otherwise have to be built by foreign capitalists. Secondly, the state sector would act as an
intermediary and a protective wall between foreign capital and Indian enterprise. It would
borrow foreign capital and either use it on its account or lend It to the Indian capitalists through
its financial institutions.
The nationalist movement was committed to rapid industrialization based on its
capital goods sector. This was also true at the level of popular consciousness. Imperialist
pressure to bend Indian economic planning to its Interests after 1947 would find this
consciousness a powerful barrier. The nationalist movement also widely popularized the
notion of imperialist exploitation through the drain mechanism (export of profits by a foreign
enterprise, etc.) and unequal trade. This resulted in the 'people becoming very sensitive after
1947 both to large scale investment of foreign capital and the pattern of trade between .the
developed capitalist countries and India.
The nationalist movement gradually involved large scale politicization of the people
and their participation in the movement. Moreover, with the foundation of the Indian
National Congress in 1885, most of the nationalist and other mass organizations were
organized along democratic lines. This helped to produce a two-pronged result after 1947: on
the one hand, parliamentary democracy along with civil liberties and the adult franchise had
 86

to be promised as well as brought into being as the price of popular participation- in the anti-
imperialist struggle; on the other hand, the government of India after 1947 had to pay
constant heed to a popular opinion regarding its policies. Undoubtedly, the Government had
a great capacity to manipulate this opinion. But in conditions of comparatively open
competition from the left-wing parties and the pressure of its nationalist wing, this
manipulation has occurred within certain limits. It has not been possible for the Government
and the ruling classes to ignore anti-imperialist consciousness, even if they had wished to do
so. As regards left-wing movement in India, though they developed a sizeable following
among the intelligentsia, youth, working-class, and in some parts of the country among the
peasantry; the bourgeois leadership has, in fact, kept it confused, divided, and without any
real capacity to strike after 1947. However, the fear of left has been a powerful factor in
keeping, the 90vemment from aligning too closely with imperialist powers or making basic
concessions to imperialism.
The Indian nationalists evolved a foreign policy of opposition to, imperialism and
solidarity with the anti-imperialist movements in other parts of the world. From 1870s, they
opposed the use of the Indian army to extend 'British imperialism in Africa and Asia.
Sentiments of solidarity with the Burmese patriots, the Afghans, the tribal people of the
North-West Frontier, the Chinese people at the time of the I Ho-Tuan (Boxer) Uprising, the
Tibetan people, the people of Egypt and Sudan and other African people were vigorously
expressed and popularized from 1878 to 1914. In the 19205, this policy of anti-Imperialism
was developed further. Expressing the solidarity of the Indian people with other colonial
people and also the awareness of India's role as the gendarme of British imperialism the
world over, Dr. M.A. Ansari said in his Presidential Address to the Indian National Congress
session of 1927:
"The history of the philanthropic burglary on the part of Europe is written in
blood and suffering from Congo to canton. Once India is free the whole
edifice of imperialism will collapse as this is the keystone of the arch
imperialism".
Bipan Chandra writes that Indian Congn3ss' in the 1930s took a firm stand against
imperialism in any part of the world and supported anti-imperialist movements in Asia and
Africa. Despite Japan's Pan-Asian propaganda, the Congress condemned the Japanese attack
on China in 1937 and urged the Indian people to boycott "the use of Japanese goods, as a
mark of their sympathy with the people of China", The anti-imperialist consciousness of the
Indian people and their increasing understanding of the character of the world-wide struggle
between Imperialism on one side and forces of socialism and national liberation on the other
found clear-cut enunciation in Jawaharlal Nehru's Presidential Address to the Lucknow
session of the National Congress in 1936:
"Our struggle was but PM of a far wider struggle for freedom, and the forces
that moved us were moving millions of people all over the world and driving
them into action. Capitalism, in its difficulties, took to fascism...It became,
even in some of its homelands what its imperialist counterpart had long
been in the subject colonial countries. Fascism and imperialism thus stood
out as the two faces of the new decaying capitalism...Socialism in the west
and the rising nationalism in the Eastern and dependent countries opposed
this combination of fascism and imperialism".
Even though this understanding of imperialism as capitalism W8tS rapidly abandoned
by Jawaharlal Nehru and the dominant political leadership during the 1940s and 1950s,
 87

they had to pay close attention to this widespread consciousness in developing their relations
with the capitalist powers.
Even though India was economically underdeveloped in 1947, it had developed quite a
strong capitalist class. Indian capital was highly concentrated. What is more important, this
class developed as a junior partner of foreign capital. Its dominant sections had no noticeable
alliances or partnerships with British or international finance capital or the emerging giant
corporations. Its monopoly structure developed, based on its own financial and industrial
structure. Instead of allying with British capital in India or abroad through cartels and trusts,
Indian monopoly capital developed based on a multi-sided conglomerate character spread
over vast regions' and a variety of industrial, trading and financial activities. Consequently,
the Indian capitalist class was on the whole anti-imperialist and anti-foreign capital. While
wanting to develop, this class was very chary of being dominated by the larger foreign capital.
It was willing to let a powerful state sector develop as a protective wall rather than being
gobbled up by international big capital. It was helped in the task by its monopoly and
concentrated character because of which, and aided by powerful administrative measures, it
could hope to stand up against the foreign giants. Though there were no detailed studies on
the subject, it may be suggested that when the era of collaboration agreements came in the
1950s it was the small and medium capitalists who were found most willing to collaborate
and that foreign capital also preferred to deal with their rather than with the giants since the
former were easy to dominate and control.
Thus, in the nutshell one may contend that Modern India developed and came out from the
shadow of British led imperialism in India. The negative effect of imperialism soon paved the way
for aggressive economic nationalism. The national movement helped India to get rid of British
control. It helped in the growth and development of different institutions which later shaped the
destiny of modern India.
8.3 FINANCE IMPERIALISM IN INDIA (1858-1947)
In this section, the effort would be made first to see the theoretical basis of colonialism
in the third phase popularly known as 'Imperialist assertion and finance imperialism'. Notice
will be taken of developments at the global level and specifically the British version of
imperialism.
'Theoretical Aspect
A new stage of colonialism was ushered in as a result of several major changes in the
world economy: the spread of industrialization to several countries of Europe, North America
and Japan; intensification of industrialization as a result of the application of scientific
knowledge to industry; and further unification of the world market due to a revolution in the
means of international transport. There now occurred an intense struggle for new, secure
and exclusive markets, and sources of agricultural and mineral raw materials and foodstuffs.
Moreover, expanded reproduction at home and extended exploitation of colonies and semi-
colonies abroad produced large accumulations of capital in the developed capitalist
countries. There occurred simultaneously the concentration of capital and merger of banking
capital with industrial capital in several countries. This led to large-scale export of capital and
search for fields and areas where the imperialist countries could have a monopoly in capital
investment.
All the three aspects, namely, markets, sources of raw materials, and capital export,
were interlinked and each in itself important. For example, investment abroad should sustain
the rate of profit at home (metropolis), aid the production of raw materials and create a
market for home industrial products directly or indirectly. As the struggle for the division and
 88

re-division of the world among the imperialist countries was intensified, fresh U$8 was found
for the older colonies. Their social surpluses and manpower could be used as counters in this
struggle. Colonialism at this stage also served an important political and ideological purpose
in the mother country (metropolis). Nationalism or chauvinism, adventure, and the
glorification of the empire could be used to tone down the' growing social divisions at home,
by stressing the common interests in the empire. More specifically, the ideology of empire
and glory were used to counter the growth of popular democracy and the introduction of
adult franchise, which could have posed a danger to the political domination of the capitalist
class and which increased the importance of the ideological instruments of hegemony over
society. The idea of empire played an increasingly important role in constituting this
hegemony.
This stage started vigorous efforts to maintain and consolidate the hold over the
existing colonies. Reactionary imperialist policies now replaced liberal imperialist policies.
Preservation of direct colonial rule permanently was now essential on all accounts, but
especially to attract metropolitan capital to the colony and to provide its security. In this
respect, it must, however, be noted that about most colonies it was their being perceived as
potential absorbers of metropolitan capital - rather than attracting such capital. The role of
colonies as a potential absorber of capital was very powerful and important. In reality, many
of the first and second stage colonies and semi-colonies failed to absorb large quantities of
metropolitan capital, and in nearly all cases they were net 'exporters' of capital - that is, the
social surpluses exported from them far outweighed the imports of capital into them. Often,
even the limited extent of foreign capital invested in the colonies amounted to a small
percentage of the social surplus appropriated by the metropolis.
Case of India
The third phase is seen to have begun from the 1860s, when British India became part
of the ever-expanding British Empire, to be placed directly under the control and sovereignty
of the British crown. This period is also known as the phase of 'finance-imperialism', when
some British capital was invested in the colony. This capital was organized through a closed
network of British banks, export-import firms and managing agencies.
Although the process of colonization has been 'divided into stages, one should keep in
mind that this periodization is in some way arbitrary. The third phase was merely a
consolidation of the trends that wet«: already witnessed clearly in the second phase. It may
be more useful to study these phases as heavily overlapping, where new and more subtle
forms of exploitation existed alongside older, cruder forms. However, the new development
that marked out the third phase was an intensification of the rivalry between developed and
industrialized countries, for colonies in Asia, Africa and Latin America. In the 19th century,
countries like France, Belgium, Germany, the United States, and even Japan witnessed rapid
industrialization. In tile face of competition in the world market, Britain's lead in this regard
dwindled. In the search for newer markets and sources of raw material, these countries
stepped up their drive for colonies and strengthened their control over existing' one.
Industrial development also led to capital accumulation, which was concentrated 'in a small
number of banks and corporations. This capital was invested in the colonies to sustain the
rapid inflow of raw materials to fuel further expansion of industrial production.
High tariff restrictions in other developing capitalist countries led to a contraction of
markets for British manufactured goods. However, the need for heavy imports of agricultural
products into Britain was making her position vulnerable in her trade with other countries.
India proved crucial in solving the problem of Britain's deficits. British control over India and
Indian positions ensured that there would always be a captive market for Lancashire textiles.
 89

Moreover, India's export surplus in raw material with countries other than Britain, counter-
balanced her deficit elsewhere.
This third phase of colonialism in India was primarily characterized by the huge
investment of capital by the British industrialists. This phase began with the replacement of
the company rule by direct imperial rule of the British Government. Due to the above, the
newly emerged capitalist class of Britain felt that it was quite safe to make huge financial
investments in industrial ventures in India. .Hence, during this phase, the Indian economy
came under complete dominance of British financial capitalism.
The process started with the British Government taking over administration of India
from the East India Company and after a prolonged freedom struggle spreading over more
than half a century, it ended with India finally attaining independence in 1947. In 1857, the
great uprising of the Indian people against the Company's misrule was ruthlessly suppressed
by the British army. Its immediate consequence was strong resentment among British
politicians. India came directly under the governance of the British Empire. Instead of only
the East India Company enjoying the benefits, now, the new class of British industrialists
started getting huge profits and rich dividends through massive Investment in Industrial
enterprises In India. Thus, the enormous wealth of India in terms of 6f finance capital was
exported to Britain.
On the ground, the period saw all kinds of reforms in the field of agriculture, industry,
transport, communication, irrigation and education. These reforms were made to hoodwink
innocent Indian masses, to safeguard and expand their economic interests. The reforms
introduced in 1892 and 1909 were primarily meant to adjust the British administration in
the changed circumstances and not to fulfil the demands of Indian nationalists. That is why,
even Montague Declaration of 1917, pledged the progressive realization of self-governing
institutions in India. Although the reforms and Government Acts granted Indians increasing
participation in administration, 'the situation at the practical level did not change. It was due
to enormous powers conferred on Governors and the Governor Generals as 'special
responsibilities', that the British Government could protect its economic interest adequately.
This phase ended in 1947 with the passage of Indian Independence by the British Parliament.
Talking about other aspects, while on the one hand indigenous handicraft faced
impoverishment, on the other, there were few attempts at developing modern industries in
the colony. Although the colonial government spoke about 'free trade', Indigenous enterprise
faced many obstructions perpetuated by the state's discriminatory policies. British capital
was initially invested in railways, jute industry, tea plantations and mining. The Indian
money market was dominated by European banking houses. While British entrepreneurs had
easy access to capital made available by this banking network, Indian traders had to depend
on family or caste organizations for their capital needs. British banking houses and British
trading interests were well organized through Chambers of commerce and Managing
Agencies. They also influenced the colonial state to deny Indian entrepreneurs access to
capital. Before the First World War, British Managing Agencies controlled 75% of industrial
capital, and most of the profits from this limited industrialization were also sent back to
Britain.
However, despite heavy odds, Indian entrepreneurs found opportunities to expand and
grow, whenever Britain underwent periods of economic hardship: It was during the First
World War that some Marwari businessmen from Calcutta, like G.D. Birla and Swarupchand
Hukumchand invested in the jute industry. Gradually their control started expanding into
other areas like coal mines, sugar mills and paper industry, and they could even buy some
 90

European companies. The greatest success of Indian capital was seen in the cotton industry
in western India, which took advantage of high demands during the war years (1914-18) to
consolidate its success, and eventually competed with Lancashire. Certain traditional trading
communities like Gujarati Banias, Parsis, Bohras and Bhatias became important in this sector.
The Tata Iron and Steel Company under the government patronage provided leadership to
the fledgeling iron and steel company in India.
After the First World War links with the foreign market was re-established, but again
in the Depression years (1929-1933), the domestic market became relatively free to be
exploited by indigenous industries, as foreign trade declined. The colonial government also
provided some protection to the sugar and cotton industries, in the face of falling prices in
the agricultural sector. Low prices forced capital from land into the manufacturing sector.
Indians also ventured into the field of banking and insurance. Again, during the Second World
War (1939-45), as foreign economic influence declined, Indian entrepreneurs managed to
make huge profits. Strengthened by its limited success, the Indian capitalist class
strengthened their links with the nationalist movement. They soon started demanding the
establishment of heavy industries under state ownership and started organizing themselves
to resist the entry of foreign capital.
But, to place these markers of success in perspective, on an overall level, these
developments remained confined to the domestic market and indigenous capital still had a long
battle ahead, against the structural weakness of a colonial economy. The growth potential
remained depressed given the massive poverty of Indian people.
India in 1947 was not at a pre-industrial stage, and so her post-independent economic
growth patterns may not be compared with processes of industrialization in the West. In
1947, India had already been, part of capitalist development in the west for 200 years, but
the incapacity of a colony. So, in 1947, independent India embarked into a process of
modernization from a 'colonial' mode rather than a 'traditional' mode, which was structurally
backward and underdeveloped.
Hence, the phased economic exploitation of the colony was the core motive for the
British to establish their rule in the Indian 'Subcontinent. The nature of this exploitation
changed throughout their reign, owing to changes within Britain, and these, in turn, had
specific economic, social and political consequences of the colony. Most economic initiatives
undertaken by the colonial state was couched in the language of development and
'modernization', but they had a differential impact on the colony, often leading to
backwardness rather than growth. Finally, most of these initiatives helped exploit the
resources of the country to enable industrialization in Europe.

Self Assessment Questions

1. Discuss the vision of nationalists for the rapid industrialization of India?
Answer:

2. Discuss Basic features of colonialism in its third phase?

Answer:
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3. How do you visualize the reforms in infrastructure in India by the British?

Answer:

8.4 SUMMARY
In a nutshell, one may say that the last phase of colonialism in India, in one hand
exposed the myth of white men's burden theory which argues that the colonies were thrust
upon them to be civilized. The phase saw a significant shift in colonial policies owing
particularly to the change of guards i.e. transfer of power to the British Crown. Hence, the
myth of gentlemen ship was over and the roads to national movement and fight for own
rights ensued. This also helped positively in shaping the destiny of modern India. The
imperialism had a lasting effect and had definitely a lot to contribute to the future of Modern
India.
8.5 REFERENCES
Chandra Bipan, Essays on Colonialism, Orient Longman, New Delhi, 2000.
Chandra Bipan, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol. 10, no.3, 1980.

8.6 FURTHER READINGS

Chandra, Bipan, The Rise and Growth of Economic Nationalism in India: Economic Policies of
Indian National Leadership, 1880-1905, New Delhi, 1966.
Dutt, Rajani Palme, India to-day, Peoples Publishing House, Bombay, 1947.
Dutt, R.C., Economic History of India (2nd Edition), Rutledge & Kegan Paul, London, 2006.
8.7 MODEL QUESTIONS
1. Examine Finance Imperialism in India.
2. Write a note on modern India and Imperialism.
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Lesson 9

THE INDIAN CAPITALIST CLASS

Structure
9.0 Objectives
9.1 Introduction
9.2 The Indian Capitalist Class
9.3 Summary
9.4 References
9.5 Further Readings
9.6 Model Questions
9.0 OBJECTIVES
After a detailed analysis of this chapter you will be able to:
 trace the growth and development of capitalist class before 1947.
 understand the relationship between capitalist class and imperialism.
9.1 INTRODUCTION
Students in this lesson we will highlight the Indian capitalist class. This class played a
very crucial role in colonial India. The relationship between the Indian capitalist class and
imperialism evolved during the era of the development of a powerful struggle against
imperialism in India. This struggle in its different phases should not be seen in the main as a
mere reflection of the contradiction between imperialism and the Indian bourgeoisie. This
struggle was a reflection of the contradiction between imperialism and all the Indian people,
of whom the bourgeoisie constituted merely one important segment. Moreover at no stage
from its institution to its later development was the capitalist class the driving element
behind this struggle.
9.2 THE INDIAN CAPITALIST CLASS
Indian Capitalist Class and Imperialism: Theoretical Aspect
The historian Bipan Chandra writes that during the course of the national movement
the bourgeoisie had to choose whether to create an anti-imperialist movement or not. This
class had to continuously determine its attitude towards the national movement which was
at no stage waged under its direct leadership. The capitalist class could let the movementturn
against itself by opposing it, by collaborating with imperialism, or by remaining passive
towards it, or it could harness it to its interests by supporting it and thereby controlling its
direction, methods, socio-economic programme, and organization, or, in other words, confine
the movement within the political and economic parameters of its class interests. The
necessity of supporting the movement arose out of the class's objective relationship to
imperialism and its capacity to evolve a correct relationship with the national movement to
bring it under its class hegemony.
Another assumption may also be made explicit at this stage. The Indian capitalist class was
not completely homogenous. Consequently, there were certain differences in the degree of
development of contradictions between its different parts or segments also, therefore, in the
 93

attitudes of these segments. For instance, there were differences based on commerce and
industry, finance and industry, region and size. There were also purely individual differences.
However, for the purpose in hand, the class as a whole is taken, for it revealed a basic
homogeneity in its political and economic relationship with imperialism. This homogeneity is
revealed after 1927 in the pre-eminent position accorded by the class, as also the
Government, to the Federation of Indian Chambers of Commerce and industry and certain
individuals such as Purushotamdas Thakudas and G.D. Birla. Thus, it is presumed that the
Indian capitalist class had developed a long-term contradiction with imperialism while
retaining a relationship of short-term dependence on and accommodation with it.
Indian Capitalist Class and Imperialism: On the Ground
From the middle of the nineteenth century and especially after 1914 an independent
capitalist class developed in India. From the very beginning it possessed one important
characteristic: In the main, it did not develop an organic link with British capitalism; it was
not integrated with foreign capital in India. This point may be spelt out further. Indian
capitalists during the twentieth century were not middlemen between the British capitalists
in Britain or India and the Indian market. Even when some of their progenitors started out
from about the middle of the nineteenth century as traders between Britain and India or
between India and the Far East, they traded on their own account, under their own financial
steam, often in competition with British trading firms, and seldom as their compradors. Nor
did the overwhelming majority of the Indian industrialists develop as junior partners of
British entrepreneurs in India. At no stage was the main body of the Indian capitalist class
subordinated to foreign capital, industrial or financial. Nor did the Indian industrialists
depend for finance or British finance capital. In fact, Indian industrial and finance capital
developed in keen competition with British capital; and one of the major Indian complaints
was the failure of British-controlled banks to finance Indian industry. This lack of
collaboration was, of course, also since the British capitalists, having their own direct and
well-established administration in India, did not need an indigenous mediating class as was
the case in eighteenth-century India and China in the nineteenth and twentieth centuries.
The family histories of some of the leading Indian industrialists of the twentieth
century are quite revealing in this respect. The houses of the Tatas, the Birlas, Shri Ram, the
Dalmia Jains, Vithaldas Thackersey, Walchand Hirachand, Narottam Morarjee, the
Singhanias, Kasturbhai Lalbhai, Ambalal Sarabhai, Jamnalal Bajaj, Lallubhai Samaldas, Lalji
Naranji, Kirloskar, the Modis, Kilachand Devichand and Harkishan Lal show few signs of any
major contact with, not to speak of subordination to, foreign capital. Thus, the Indian
capitalist class did not depend on foreign capital for its economic existence. And not being so
“tied up”, it did not become an ally of British rule in India.
This does not imply that the Indian capitalist class played the same role economically
and politically as the capitalist class did in Britain or France or even Germany or Japan during the
seventeenth, eighteenth and nineteenth centuries respectively. But difference did not lie in the
former being “comprador”, as is widely assumed. The difference lay in the Indian bourgeoisie
being the capitalist class of an under-developed country which was structurally integrated into
world capitalism as a colony. In other words, while Indian capitalist class was not as a class
integrated with British Capitalist in a subordinate position, the economy of which it was a part so,
i.e. colonially, integrated with and subordinated to world capitalism. The weaknesses and
constraints, both economic and political, under which this class functioned, sprang from this fact
and not from compradors. Bipan Chandra argues and writes that the above fact is important for
three reasons:
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1) For understanding the economic and political capacities and frailties of this class, we
should look to the structure of the colonial economy and not to the alleged
subordinate class position of the capitalist class. Similarly, the failure of colonialism to
develop the Indian economy should not in itself lead to the conclusion that the Indian
bourgeoisie too had deserted the task. This would be so only if this class was
integrated with colonial capital and colonialism itself.
2) Since it is the economy that is colonially subordinated and structured and not the
capitalist class, the latter, on the one hand, struggles against imperialism and for
independent capitalist development, and, on the other, is compelled to compromise
with imperialism because the structural links with the world capitalist economy
weaken the position of capitalism in colonial or ex-colonial society.
3) This is a fate which is not peculiarly that of the Indian capitalist class. We have known that
world capitalism as a structure exists as imperialism, and a part of it is developed at the
cost of underdevelopment of another. Those states which do not develop tend to become
underdeveloped colonies unless they manage to walk out of the structure itself.
Indian capitalist class and long term conflict with Imperialism
The Indian capitalist class came into sharp conflict with imperialism on almost every
basic economic issue. In nearly every field of industry, Indian capitalist entered into
competition with either British home capital or British capital in India. Imperialism would
not yield on these basic issues. On the other hand, the Indian capitalists stood firmly to
defend their independent growth. Some of the major areas of conflict may be as follows:
a) The Conflict with British Home Industry: The Indian capitalist class saw clearly that they
must limit and then end the domination of the Indian internal market by British and other
foreign industries. Consequently, they constantly agitated for effective tariff protection to
their industries. Later, when Imperial Preferences, or the policy of tariff concessions to
British industry, were introduced, they mounted a powerful campaign against them because
of the harmful effect on Indian industries and deterioration in the conditions of trade with
non-Empire countries. They also fought for high export duties on certain raw materials
needed by Indian industries. Throughout the 1930s they campaigned for tariff autonomy for
the Government of India.
b) Attack on Large Scale Foreign Capital Investment: The large scale foreign capital investment
in Indian industry after 1918 led to a strong attack on foreign capital. The Indian capitalists
repudiated the widely propagated theory that India’s economic development would not take
place without foreign capital. Foreign capital investment in India was itself, they maintained, the
result of the country's economic exploitation and led not to its development but further
exploitation. In particular, they reacted strongly to the attempt of the giant British industrial
corporations to defend and extend their markets in India by forming Indian subsidiaries (India
Limited as they came to be known) to take advantage of the tariff protection granted during the
1920s and 1930s, the cheaper Indian labour, and the nearness of the market. The Indian
capitalists immediately saw the danger that these 'leviathan' corporations posed to the much
smaller Indian enterprises in the field as also to the long- term growth interests of Indian capital
in general. They demanded from the Government administrative steps against such "unfair"
internal competition. They raised the slogan of "Indian domination of Indian Industries".
Interestingly, hardly any Indian capitalist entered into a partnership with British capital in these
India Limited.
 95

The right to discriminate against and if necessary to exclude “non-national interests”,

that is, British capital, was taken up as a major issue for agitation by the Indian capitalists
during 1930s and 1940s. In the constitutional discussions during 1931-35, they fought hard
against any constitutional safeguards being provided to foreign capital and demanded,
instead, unfettered powers to discriminate against British and foreign capital.
During the World War II the threat of the much stronger American capital entering India
and resulting in “American economic domination over India” in the post-war period and the
creation of “new foreign vested interests” was immediately countered by the Indian capitalists
through vehement agitations.
Here it is pertinent to note that the Indian capitalists did not fight for the expulsion of
the existing foreign capital and the fact that only a small part of it was linked directly with
British monopoly capital at home, and given the projected withdrawal of patronage by the
state, they felt strong enough to compete with it on equal terms. But under no circumstances
should foreign capital be permitted to strengthen its position in the Indian economy. And as
seen earlier, they objected to the entry of the giant industrial corporations of the metropolitan
countries, such as the Imperial Chemical Company, the Lever Brothers, the Burmah Oil
Company, and the American corporations. In particular, they constantly agitated against the
entry of foreign capital into the key or heavy industries such as machinery and machine tools,
automobiles, aircraft, shipping, heavy chemicals, fertilizers, and the entire field of minerals
and petroleum. They wanted complete reservation of these industries for Indian private or
state capital and "statutory prohibition against the foreign or non-Indian ownership,
management and control" of any of them.
c) Objection to the domination of the Indian banking structure by British finance capital:
The Indian capitalists objected to the domination of the Indian banking structure by British
finance capital and demanded, from about 1913, that a controlling central bank should be
formed and placed under the control either of Indian share-holders or of the Indian
legislature, which was to some extent amenable to Indian influence. In no case should 'City
of London' be given much of a say in it. Throughout the twentieth century, an intense
economic struggle was waged by Indian capitalists to oust British capital from India and
acquire a dominant position in banking and insurance. Once again the government was urged
to put legislative and other restrictions on the existing operations as also on the fresh entry of
foreign insurance companies. The Indian capitalists agitated throughout the 1920s and 1930s
against the linkage of the rupee to the pound sterling and against its overvaluation as these
measures encouraged imports of foreign manufactures and foreign capital and thus
hampered Indian capital.
d) Foreign trade and shipping were an important source of surplus appropriation and the
entire Indian capitalist class rallied behind individual Indian efforts to appropriate a larger share
of these and other invisible items of the balance of payments. Indian struggle against the British
shipping monopoly had started in the 1890s and was pressed on unrelentingly since then despite
repeated failures. The capitalists also made a determined effort during the 1920s and 1930s to
get a law passed reserving Indian coastal shipping for Indians.
e) Need for active and direct state aid: The capitalist class was fully aware of the need for
active and direct state aid to its operations and it carried on a prolonged and all-sided
struggle on the issue. State aid was sought for almost every field of economic activity-
industry, banking, insurance, sea and air transport, inland transport and agriculture. The
state alone, of course, could provide tariff protection against British home industries.
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Recognizing its weakness in a straightforward competition with foreign capital, the

Indian capitalist class saw state action as the major instrument for keeping foreign capital
under check through direct administrative action as well as through public sector enterprises
where the alternative would be the use not of Indian, but foreign capital, because of the large
scale of the needed capital investment. Such was, for example, the case with heavy industries,
essential minerals, and a broad spectrum of infrastructure.
The state was also urged to give direct help in the form of guarantees and subsidies to
industries with a long gestation period or involving a large risk element, such as heavy
machine and chemical industries and shipping.
The Indian capitalists realized that no real and long-term industrial development could
occur without self-sufficiency in the heavy machine and chemical industries and other similar
industries, such as automobile, aeroplane, and shipbuilding. But precisely in these fields, the
colonial administration was not willing to help rival industries arise in the colony. Yet
without state help in the form of guarantees, subsidies, state-purchase guarantees,
reservation of markets, and in all other conceivable ways, the Indian capitalists couldn't
develop these industries because of the large capital requirements, the long gestation period,
and the large risk element. Repeated attempts by the Indian capitalists to move into these
fields in the 1930s and 1940s foundered on the rock of official indifference and hostility.
Consequently, they carried on a constant agitation for active and massive state aid to their
efforts in these fields. Simultaneously, as noted earlier, they opposed any attempt to
introduce foreign capital in these fields.
Alongside this, the Indian capitalists also expected the state to help overcome one of
their major weaknesses-the shortage of technical personnel and the low level of indigenous
technology. The Indian capitalists urged the Government to insist that there should be
compulsory training of Indian technical personnel by the foreign enterprises in India.
Bipan Chandra says that the crucial role of bureaucracy in aiding foreign enterprise
and hindering Indian enterprise was clearly seen and the demands for Indianization of the
key administrative posts dealing with the economy was vigorously pushed. To satisfy all
these demands, the state would have to make heavy financial commitments. At the same
time, the Indian capitalists noted that state revenues, or the social surplus appropriated by
the colonial government, were being utilized to subserve imperial interests and in a manner
inimical to internal capitalist growth. Consequently, the Indian capitalist class made Indian
control of the state finances one of its major political demand. For instance, during the Round
Table Conference discussions, its representative stood firm on the question of financial
safeguards in the proposed constitution. The question of state aid to industries also led them
to attack the high military expenditure due to the maintenance of a large army for purposes
of imperial expansion and defence, the bloated administrative expenditure and the large
public debt, for these heads hardly left any funds with the Government with which to aid
industry. The Indian capitalists also took note of the drain and export of Indian social surplus,
needed for internal investment, and they urged the Government to take preventive measures.
f) Assumption: Thus, a discussion on the above line makes us believe that the Indian capitalist
class fully realized that the imperialist economic exploitation of India blocked their long-term
growth, and it opposed all the three major channels through which the metropolis (imperialists)
extracted India’s social surplus: domination of the Indian market, investment of foreign capital,
both industrial and financial, and direct surplus appropriation through control over public
finance and in particular high military expenditure for imperial purposes.
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The imperialist power could not and would not yield on any of the major focal points of
conflict on which the Indian capitalist class formulated a clear-cut national policy. Hence this
class felt the clear and urgent need for a nation-state of its own. It articulated this political
demand unequivocally ever since 1929 on the ground that no real economic development of
the country was possible without the realization of this demand. For certain political and
short-term economic reasons, this class was willing to temporize with this and other
demands, but the long-term and basic issues of conflict with imperialism placed limits on the
extent of the compromise that it could enter into imperialism.
Indian Capitalists and their short-term dependencies and collaboration with
Imperialism
As highlighted above, the Indian capitalist's hostility to British rule was muted by
several factors; some of them are as follows:
For one, the Indian capitalists did get a chance to grow continuously; and however
oppressed they might feel at times, they were never directly suppressed. The two world wars,
in particular, provided them opportunities for windfall profits and rapid growth, putting
breaks on the development of anti-imperialist sentiments among them in short term.
Secondly, the Indian capitalist class began its upward climb during the second half of
the nineteenth century from extremely modest beginnings. The traditional banking and
commercial capital of India was destroyed or diverted during the eighteenth century and the
first half of the nineteenth century. There was thus hardly any primitive or original capital
with which to start. Moreover, the existing capital was very thinly spread among a host of
merchants, bankers, and money-lenders. The process of normal accumulation had thus to
start from a very low floor. Denied the opportunity of making windfall profits through colonial
plunder or unequal trade, denied any state assistance, and even the normal opportunities of
growth by imperialism in the spheres of foreign trade, banking and their domestic market;
the rate of capital accumulation by the Indian commercial and industrial bourgeoisie was
extremely slow. This had several consequences which explain the late entry of the class into
active nationalist politics and the mildness of their political stance. Some of the leading
aspects may as follows:
1. The Indian capitalist class remained weak for years and therefore lacking in the self-
confidence needed to challenge the mightiest imperialism of the day.
2. The slow rate and the petty accumulation of Indian capital could be accommodated by
imperialism. Because of its very small size, Indian capital was not seen by imperialism
as a strong challenger; and so long as the Indian capital’s share of the social surplus
remained small, it was possible to give it enough scope to grow without affecting the
overall imperialist channels of surplus extraction, nor was it difficult to find avenues
for its reinvestment. Indian capital was thus seldom faced with the total stoppage of
growth or with extinction.
3. Consequently, even though the conflict between the two capitalisms emerged early, it
took decades to mature and become sharp. This conflict was always expected to occur
in the future – it was a long-term conflict in its favour, through political and ideological
struggle. The Indian capitalist class compromised and cooperated with the colonial
administration. The state of acute tension was expected after the Second World War
when the Indian capitalist class had acquired a respectable position. But precisely at
this time, political freedom came as a result of popular political pressure and changes
in the world balance of forces and the Indian capitalist class now entereda new period
of total antagonism to the imperial power.
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4. The consistent and continuous opportunity to grow combined with the fact that the Indian
industry invariably developed, at least till 1918, through Marx’s second path, that is, from
above, also made the Indian bourgeoisie quite conservative in politics.
5. Nearly all the major capitalist families of modern India developed during the nineteenth
century from rather humble beginnings. None of them belonged to the earlier ruined
families. Instead, their rather fresh memories of British rule were quite positive. This too
created a psychology of overall satisfaction with British rule for at least the first or
second-generation entrepreneurs.
Thirdly, while the Indian capitalist class did not depend on the British capital, it did,
in the short run, depend on the colonial administration. This aspect has been often ignored.
The British Indian Government was, of course, an instrument of British colonialism. But it
was also the day-to-day administrative authority in the country to which the capitalist class
could not be totally hostile and on which they depended for innumerable purposes. The
government alone could give some measure of tariff protection, at least against the non-
British competitors. It was in full control of the major internal transport system and the
entire port organization; both gave it major leverage vis-à-vis trade and industry. It alone
could give mining concessions (so crucial to coal, iron and steel, and other industries), land
leaseholds, and land and other facilities for the generation of electric power. It was in control
of a major field of capital accumulation, that is, government contracts. Its industries
department could extend or withhold numerous facilities, including the creation of
syndicates, cartels and monopolies. It was a major buyer of industrial products. It had the
power to give or withhold permission to start factories at particular sites. Through the central
bank, it could help or squeeze a hard-pressed industrialist who had overextended his credit.
Its taxation policy had a decisive impact on the rate of accumulation. Its labour policy was
another important instrument of leverage.
Above all, the capitalist class depended on the Government for guaranteeing law and
order and social peace in the period of intense social turmoil and political and labour unrest
that followed the First World War. The capitalist class was also aware of the fact that if the
Government remained intransigent and refused to compromise with and give concessions to
the national movement in its phases of struggle, the latter could pass over to a very radical
phase. During every nationalist upsurge, the capitalists appealed to the Government to make
a compromise. This political dependence on the foreign government was, however, the
dependence not of a comprador class but a capitalist class in an era of mass movements and
socialist revolutions.
This multifarious dependence on the Government according to Bipan Chandra
compelled the Indian capitalist class to adopt a moderate political approach and to function
in the economic realm in a close relationship with the Government. Its periodical political
hostility to the Government could not be prolonged for any length of time and had to be quite
spasmodic. At the same time, to repeat me, this close economic relationship was that of an
independent capitalist class with the government of the day and not of a comprador or a
junior partner of the British ruling class that controlled the British Indian administration.
As regards imperialist policy, while opposing or neglecting the basic, overall, and long-
term growth interests of the capitalist class, the British rulers followed the policy of giving it
timely concessions to preserve the colonial system. Bipan Chandra argues that two factors
were crucial while deciding anything on the above line. One was the crisis of the colonial
economy which found reflection in agricultural stagnation and large-scale urban
unemployment; the other was the rising tempo of a popular national movement which was
getting increasingly mass-based. The necessity of containing economic and political
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discontent compelled the colonial authorities to give concessions to the Indian capitalist
class, especially in fields where no major British interests were involved. British felt that
some growth was essential and mandatory if the economic crisis of colonial under-
development and resulting discontent were to be kept within bounds. In other words, Indian
trade and industry were to serve as an economic safety valve, especially as British capital
showed no inclination to make a large-scale productive investment in India. Politically, it was
essential to prevent the Indian capitalist class from giving large-scale and active help to the
national movement and to persuade it to use its leverage on the movement to keep it
confined to 'reasonable' and moderate proportions.
Consequently, the colonial administration extended concessions and opportunities to
the Indian capitalist class to enable it to grow. It also gave representation to the spokesmen
and associations of the class on all government committees and commissions dealing with
economic affairs. In other words, it entered into a bargaining situation with this class to
preserve the basic imperial interests. This policy was in particular vigorously followed
whenever the nationalist struggle reached a militant crescendo or when the Indian capitalist
class was economically so imperilled that it could go over the brink. The capitalists had now
to be detached from the struggle or, at least, their commitment to it had to be watered down.
This was a part of the policy of divide and rule and the carrot and the stick of the British.
Precisely at such times, the Indian capitalists were willing to be conciliated as they varied of
the militancy of the national movement. They were also keen to get out of the threatening
economic crisis.
Thus, for example, in 1905 the Industries Department was opened: in 1916 the
Industrial Commission was appointed: in 1922 the policy of tariff protection was announced;
tariff on textile imports was raised to 25 per cent in 1930 and 75 per cent in 1933, and in
1932 sugar industry was given protection; also in 1932 the formation of the Reserve Bank
was taken in hand; in 1932-33 the Scindia Steam Navigation Company expanded its business;
during the Second World War, strikes were banned, contracts for the gigantic war efforts
were shared with the Indian capitalist Class, and promises were made to undertake central
planning and give large-scale state aid to Indian industry. In each of the cases cited above, the
Indian capitalists reciprocated by adopting a conciliatory political approach. While in 1930
they had boycotted the Round Table Conference and the legislative councils, in 1932 they
agreed to cooperate with the Round Table Conference Sub-Committee and from 1932 to
1935 utilized their energies to bring about a compromise between the Indian National
Congress and the Government. During the entire period of the Second World War, their
politics remained low key. They failed to give to the Quit India Movement of 1942, strong
backing they had given to the Civil Disobedience Campaigns of 1920 and 1930.
Thus, it may once again be repeated that the factors discussed above merely muted the
conflict between the Indian capitalist class and imperialism, and led to short-term
concessions, compromises and accommodation. However, the long-term antagonism between
the two continued as imperialism would not yield on any of the basic policy issues, namely,
metropolitan domination of the Indian market. British capital investment in particular
through the subsidiaries of the giant corporations, high military expenditure, and the
question of state aid in initiating heavy industry, developing indigenous technology, and
extending general financial support to Indian industry.
Self-Assessment Questions
1. Discuss the basic features of the Indian capitalist class?
Answer: -
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2. Discuss basic features of Indian capitalists and their short term dependencies and
collaboration with Imperialism?
Answer: - -

-
3.What was the conflict of the capitalist class with the British Home industry?
Answer: -

9.3 SUMMARY
To sum up, one may say that the Indian capitalist class while interacting with the
Imperialism worked on two planks i.e. to achieve long-term objectives and at the same time
achieve short term gains. While under the long-term objectives, they questioned the British home
industries and their interference in India, attacked large scale foreign capital investment,
objected to the domination of Indian banking structure by British finance capital, foreign trade
and shipping and felt the need for active and direct state aid for industrial and related
developments in India. However, under the short-term gains, they made themselves politically
correct to make maximum gains in the charged nationalist atmosphere. In doing so, they
utilized the opportunities during two World Wars and adopted a moderate political approach
during the Congress-led nationalist movement.

9.4 REFERENCES
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10, no. 03, 1980.
Bipin Chandra, The Rise and Growth of Economic Nationalism in India: Economic Policies of
Indian National Leadership, 1880-1905, New Delhi, 1966.
9.5 FURTHER READINGS
Rajani Palme Dutt India to-day, Peoples Publishing House, Bombay, 1947.
R. C. Dutt, Economic History of India (2nd Edition), Rutledge & Kegan Paul, London, 2006.
9.6 MODEL QUESTIONS
1. Examine the relationship of the Indian capitalist class and imperialism.
2. Write a note on the Indian capitalist class.
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Lesson 10
DEBATES ON IMPACT OF COLONIALISM ON
INDIAN ECONOMY; COLONIALISM AND
ETHNIC IDENTITIES IN INDIA
Structure
10.0 Objectives
10.1 Introduction
10.2 Debates on Impact of Colonialism on Indian Economy
10.3 Colonialism and Ethnic Identities in India
10.4 Summary
10.5 References
10.6 Further Readings
10.7 Model Questions
10.0 OBJECTIVES
After a critical study of this chapter, you will come to: '
 understand the debates on the impact of colonialism on Indian economy
 learn about the ethnic identities in India
10.1 INTRODUCTION
Students in this lesson we will form an understanding of the basics of modernization
under colonial rule. Different British authors professed that whatever policies were pursued
during the British rule in India, had been to modernize India. They maintained that though at
times the process was slow but India did modernize and became a part of the world capitalist
order. However, if these efforts failed, it was primarily they asserted because of the structural
problems inherent with the Indian society and not because of the lacunae in British policy.
But, the Indian nationalists opposed the British standpoint and highlighted the British
policies which put Indian economy in bad shape. Last part of this chapter shall focus on
ethnic identities and its development during colonial rule in India. This is important and
significant from the perspective of India being a plural society, having diversity about
language, religion and culture. However, despite ethnic identities coming to the forefront, the
national movement achieved its aim and this will be highlighted in this lesson.'
10.2 DEBATES ON IMPACT OF COLONIALISM ON INDIAN ECONOMY
The need for a historical approach to the problem of development is today widely,
perhaps universally, recognized. The importance of the study of modern Indian history in this
respect arises from the fact that the process and pattern of economic development (capitalist
or socialist) of post-independence India depends to a considerable extent upon its inherited
pattern of underdevelopment, as also on the strategies or policies of economic development,
which in turn are influenced by the inherited structure. As historians, we have to ask the
question: what were the economic, political, social, cultural, and intellectual forces retarding
economic development before 1947? How were they evolved or generated? What was their
inter-relationship? In other words, what was their history? Thus, a historical study of India's
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underdevelopment was and is needed before policies and programmes for its developmentcould
be fruitfully formulated. '
Debates on the Impact of Colonialism
British and European Approach
An interesting method of understanding the nature of the underdevelopment of countries
like India has been provided by what may be called the ‘initial conditions’ approach. I will use a
critical examination of this approach to come to the crux of the colonial condition. This approach,
expounded in its more recent version by Simon Kuznets, underlines the differences in the basic
economic indicators of characteristics or the initial conditions from which the underdeveloped
countries (including India) had to start their developmental programmes after independence and
the initial conditions preceding the industrial development of the presently developed countries.
This approach holds great initial promise. It undertakes to clarify the dissimilar aspects of the
two initial conditions to demonstrate that the methods and policies of development followed in
the past by the developed countries are not fully applicable to the underdeveloped countries
which should evolve their variants of developmental strategy. The proponents of this approach
are very critical of W.W. Rostow and others who try to apply universalistic remedies assuming
that the underdeveloped countries are currently at some stage or the other which the developed
countries were at earlier. Surprisingly, however, their assessment of the contrast between the
two sets of initial conditions remain confined to the techno-economic (functional) or quantitative
aspects. The structural differences, the basic dissimilarities, and the historical origins of these
differences are seldom touched upon or are skirted around. Their promise remains tantalizingly
unfulfilled. And then, with a twist of the wrist, the differences between the two conditions are put
forward, explicitly or implicitly, as the cause of the present state of the underdeveloped countries.
Some discuss the same initial conditions in the form of obstacles to development implying that
these techno-economic obstacles have no recent history and are, therefore, their causes or are the
expression of their 'traditional' or primordial backwardness. Alexander Gerschenkron promises
to study the initial conditions and 'economic backwardness in historical perspective' but his
perspective does not extend beyond degrees of backwardness. '
From the point of view of understanding the structure of India’s underdevelopment in
terms of its historical evolution, its causation, and its economic roots, the question of differences
in initial conditions has been wrongly posed. For meaningful results and to be able to ask more
meaningful questions from history, a comparison should be made between the initial conditions
of the pre-British past and the beginning of the colonial era, on the one hand, and the initial
conditions of the industrial revolution in the developed countries, on the other. I will therefore
first set out the differences in initial conditions as given by Kuznets and others and then briefly
indicate to what extent these differences apply to pre-British India.
The initial conditions of present-day India and other underdeveloped countries are
invariably seen to be more unfavourable in the following respects: (1) lower per capita income;
(2) lower savings or surplus or investible capital in the economy (this results from the first
factor which is itself the result of low savings and other factors enumerated below);
(3) much lower availability of land per capita or underemployment in agriculture; (4) lover
productivity in agriculture, also leading to lower marketable agricultural surplus for the urban
areas; (5) greater dependence on agriculture; (6) high population density and high rate of
population growth; (7) lower level of means of communication and therefore lower level of
internal trade; (8) low level of market or ‘money’ economy or monetized sector; (9) poor
availability of credit and financial institutions; (10) low level of economic performance; (11)
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low cultural level of the people expressed in lower level of skill, lower literacy rates, etc..
leading to shortage of skilled labour and technical personnel; (12) weak political structure
leading to instability and insecurity on the one hand and absence of “effective interplay
between the government and the interests of the population”; (13) Different Civilizational
Heritage on the one hand, the absence of Renaissance, Protestant and secular revolutions, a
capitalist spirit, and the pre-1800 development of capitalist institutions; on the other hand,
the prevalence of social and economic institutions of the feudal or semi-feudal pattern); (14)
social and cultural values and attitudes inimical to economic growth; (15) low level of
industry and technology; and (16) the colonial heritage. Ishikawa and Myrdal add a few
more, and I may say more meaningful, differences; (17) a lack a basic investment in
agricultural land, such as flood control, irrigation and drainage; (18) the inability of
agriculture to finance a programme of industrialization, as was the case in Meiji Japan; (19)
changed conditions of world trade which restrict the overseas market for the exports of
underdeveloped countries, leading to exchange crisis and inability to buy imports of
machinery and few materials; (20) the greater complexity of techniques and technologies
requiring highly sophisticated engineers and scientists and plants of larger size and scale
which in turn means very much higher initial capital investment which the capital-starved
countries find difficult to make and large-sized markets for their efficient and economic
functioning which are precisely lacking in poor countries; and (21) absence of colonies whose
markets, people and resources could be exploited. '
If we see these differences in initial conditions in the light of conditions prevailing in
Mughal India or early 19th century India, we will discover that most of them do not apply or
that there was not much of a gap between the initial conditions of India and those of the pre-
industrial state of the developed countries in Europe and Japan, some of them explain the
failure of capitalism to arise autonomously in Mughal India and the success of Britain in
conquering it, some of them were changed in a 'favourable' direction but were utilized to
impose a colonial structure; and, lastly, others arose because of the failure of colonial India to
take advantage of the emerging technological forces. Thus but for the social attitudes and
values, whose roles in the economic underdevelopment of India in the recent period I shall
discuss later, the unfavourable initial conditions of today came into existence during the
colonial era, the era in which there occurred "the onslaught of modernization from outside
and the Indian economy was integrated into the world capitalist economy. I may make it
clear that the intention here is not to rake up the past, to be able 'to blame' imperialism, to
provide alibis to the internal factors and forces that have held back development, nor to give
expression to psychological anti-westernism of which the leaders, scholars and citizens of
underdeveloped countries are so often suspected. The aim is to understand our past and
present, to use history to shed light on the present. Moreover, the entire question of the
character of underdevelopment (the initial conditions) and its historical roots has crucial
implications for the strategy of development which is of contemporary importance. '

The modified initial conditions approach does not, of course, tell us how these differences
have come about, i.e., about the process of evolution of the traditional Indian economy into a
colonial economy, nor what the structural dimensions of these differences are. But it does to
some extent clear the field of the weeds and leads us to ask to question; why did development
root occur during the last 150 years of British rule?
Except when the initial conditions are seen as the causes of underdevelopment or when
the underdeveloped condition is seen as archaic, three factors apart from colonialism are often
assigned a major responsibility.
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Firstly, it is said that the internal social institutions, such as the caste system and joint
family, and the prevailing mores, habits, beliefs, attitudes, values, and traditions inhibited
growth, especially by affecting the behaviour of workers, peasants, entrepreneurs, and those
in a position to save. This explanation is rather reluctantly accepted by most economists and
economic historians as a sort of residual and perhaps regrettable product of their effort at
historical explanation. This explanation has been found increasingly unsatisfactory in recent
years. Sociologists and historians have shown that there is hardly any correlation between
economic growth in India and social institutions, values and traditions. Very clearly the lack
of industrial capitalist enterprise in modern times is explained by the lack of economic
opportunities in the field and not by the deficiencies of the Indian capitalist class in qualities
of enterprise, i.e., profit-making and risk-taking. These very qualities explain their addiction
to trade and usury. But this class did not hesitate to shift to the industry when it suited its
interests. It has also gradually become clear that values and institutions have not remained
static and have tended to adapt themselves to economic necessity. Sometimes, this question
is also confused with that of social and political revolutions on which these institutions and
values act as a definite drag. '
Secondly, it is suggested that the weight of the past backwardness was so huge that
modernization from outside could not make a big enough dent in it. This view seems to have
drawn new strength from Gerschenkron’s theory that different countries possess different
degrees of backwardness in their pre-industrial condition. Pre-British India is then said to
have possessed such an extreme degree of backwardness in comparison with Japan or Russia
that a very long period of preparation for the ‘take-off was needed. There is no historical
proof of such weight of centuries.
The third explanation relies on a theory of leakages: namely, that the positive impact
of colonial modernization was there but because of its unfortunate foreign character, the
exploitative mentality of the rulers, indigenous social outlook, etc., large scale leakages
occurred. Though this explanation often prompts a critical look at colonialism, by its very
nature it directs attention to techno-economic factors. However, even though its value as a
theory of causation is severely limited, it does provide an intricate and fascinating method of
tracing the inner workings of the colonial economy.
If these three explanations are rejected as inadequate we are left with only one other:
the role of colonialism. The recognition of colonialism as a cause of underdevelopment certainly
marked a major step forward in the political development of modern India as also of history as a
discipline. Today, however, this recognition does not in itself contribute much to our historical
grasp of the period. Today hardly any major writer discusses the problems of history without
mentioning the role of colonialism or the colonial heritage. But many of them treat it as just
one of the many factors or causes and indeed seldom examine or analyze its economic impact.
Their criticism often concentrates on the political and denominational aspects of colonialism. '
Historians have also, therefore, to explain the role that colonialism played in India's social,
political and economic evolution in general and in the evolution of underdevelopment in
particular. Here again, we see different approaches. A major approach, which may be described as
the liberal-radical critique (liberal nationalist in the case of Indian writers) has existed from the
beginning of the 19th century. Its proponents are quite willing to see the failure of colonialism and
even to criticize it freely. But they see the failure of colonialism mainly in terms of the failure of
colonial policies. Their critique pertains to the negative role of the colonial state as
expressed in its policies. For example, the liberals criticize the role of the colonial state in
preventing industrialization and in inhibiting growth. They even point to
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economic exploitation in very general terms. At sharpest this critique assigns the primary
responsibility for under-development to the failure and unwillingness of the colonial government
to take positive steps to aid the process of internal capitalist development. More specifically, it
concentrates on such matters as the British Government's imposition of free trade upon India, its
failure to give tariff protection to Indian industries and to aid and encourage them through direct
state support in the form of state subsidies, purchase of stores, encouragement to credit
institutions, etc., and also its negative policy towards irrigation. The origin of these colonial
policies is seen in a lack of understanding, colour and racial prejudice, the foreign character of the
bureaucracy and the regime itself. British devotion to laissez-faire, the self-interest of the
dominant classes in Britain who compelled the colonial government to follow deliberately
discriminatory policies. Thus, the liberals are critical of colonialism, they do point to colonialism
as the major cause of the lack of economic development. Undoubtedly, the colonial government's
policies were anti-growth and the denial of state support, perhaps the most powerful instrument
of development in almost all countries, including Britain, greatly hampered the growth of the
Indian capitalist class. And this gives the liberal approach not only a degree of historical
validity but also a certain worth as an analytical tool. This approach is, however, limited in its
capacity to go to the heart of the matter for its does not fully explain the process of
underdevelopment under British rule. It does not concentrate attention on, rather it diverts
attention from, the structural changes that imperialism brought about, the new network of
institutions and factors that emerged, the obstacles to growth which were essentially the
products of India's integration with world capitalism and not of government policy, which were
brought about through policy but which could stand without it. It may even be suggested that the
necessity to blame colonial state policy was forced upon the liberal critics because they failed
to analyze the colonial structure. This concentration on colonial policy is also to some extent
responsible for the failure of the liberals to study the differential impact of colonialism on
different classes in India and the diverse relations of different classes with each other and with
imperialism. '
The liberal critique of colonialism led to the belief that once the political or state power
was taken away from the foreign rulers and the full weight of the new power was thrown
behind the indigenous economic effort, the colonial content of the economy would gradually
disappear. The new, independent state would release, so to speak, the full forces of
development and modernization that colonialism had 'arrested'. Once the new engine of
growth, the state planning commission, was coupled to the old modernizing forces, i.e.,
contact with the 'world market forces' in general and international trade and foreign capital
in particular, the road to development would be wide open even if the speed was less than
that of the allegedly 'totalitarian' socialist states. This approach had also an ideological
component. Popular attention needs no longer be focused on the colonial question in history
or theory. The anti-imperialist ideology had, it was said, exhausted its positive creative role; it
was to be replaced in to by 'the ideology of state planning development'. The only role the
former could play lay in political mobilization behind foreign policy and at times of elections,
but it was no longer of any use to the intellectuals. In economics as in history, all that was
needed was to add the new ideology of state planning to the ideology of contemporary
capitalism, the new economics and new sociology based essentially on the contemporary
structure of 'world market forces', i.e., capitalism. '
Post-Independent Development
This liberal emphasis on the role of the state also partly explains the abandonment by
Indian scholars after 1947 of the approach towards an understanding of the structure of
colonialism that was initiated so brilliantly by Dadabhai Naoroji, G.V. Joshi and R.C. Dutt,
developed further by R. Palme Dutt, and was still of interest to some writers such as
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Jawaharlal Nehru, K.S. Shelvankar, H. Venkatasubhiah, and A.R. Desai. Since the essence
of colonialism was seen as colonial state policy, colonialism was considered to be already
dead on 15th August, 1947. The social scientists, some of whom had earlier, under the
impact of the anti-imperialist struggle, paid some attention to the study of colonialism, could
now start helping the evolution of a state policy of development by asking techno- economic
questions. They were to concentrate on what Paul Baran has called ‘the study of observable
facts’. They were to ignore the interconnections. The task of the modern historian was also
increasingly seen as the study of the evolution of functional and dysfunctional social and
economic indicators from the point of view of economic growth; for example, population
growth, urbanization, stagnation or otherwise in agricultural or industrial technology, caste
movements, elite evolution, etc. I am of course not suggesting that these are not legitimate or
very useful subjects for study, but only that they may not, at present, because of our limited
intellectual resources, constitute the basic direction of research in modern Indian history.
Colonialism was, however, something much more than political control or colonial
policy. The colonial state was undoubtedly a part of the colonial system; it was the
instrument through which the system was best enforced, and colonial policies helped evolve
and maintain the colonial structure. But the colonial state and colonial policies did not
constitute the essence of colonialism. Colonialism was the complete but complex integration
and enmeshing of India's economy and society with world capitalism carried out by stages
over a period lasting nearly two centuries. The essence of India's underdevelopment,
therefore, lay not in colonial policies but the nature of its 'contacts' with the world capitalist
economy through trade and capital. The colonial policy was responsible not for limiting
India's contacts with the 'world market forces' but for making it a full though an unequal
member of the 'international economy'. '
Consequently, political independence did not automatically lead to a new stage of the
economy. It could merely create the political conditions for the adoption of new state policies
which could now be designed to shatter or disintegrate the colonial structure. But this
shattering or restructuring of the colonial economy and society had to be a conscious task, to
be undertaken actively, and to be struggled for based on a full grasp of the mechanism of
colonialism as it had operated in India and other parts of the world. '

This was, and still is, the challenge that faces the historians of modern India. We have yet
to trace the deep roots of the underdevelopment of our economic, social, political, administrative,
cultural and intellectual structure in the colonial period, to trace the evolution of the multifarious
channels and ties through which India was integrated into world capitalism.
In the end, it may be suggested that the study of colonialism would be helped if it was
seen as a distinct historical stage or period in the modern historical development of India
which intervenes between the traditional, pre-British society and economy and the modern
capitalist or socialist society and economy. It is not a mere adaptation or distortion of the old,
nor a partially modernized society, or a transitional state of society. It is also not an unhappy
and badly mixed amalgam of positive and negative features. It is a well-structured 'whole', a
distinct social formation (system) or sub-formation (sub-system) in which the basic control of
the economy and society is in the hands of a foreign capitalist class which functions in the
colony (or semi-colony) through a dependent and subservient economic, social, political, and
intellectual structure whose forms can vary with the changing conditions of the historical
development of capitalism as a worldwide system. '
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It may be reiterated here that the British rule did shatter the economic and political
basis of the old society. It dissolved the old pre-capitalist mode of production, but a new
capitalist system did not follow; instead, a new colonial mode of production came into being.
For example, the land tenure systems introduced after 1793 completely overturned the old
agrarian relations. The new agrarian structure that was evolved suited the needs of
colonialism. In fact, throughout the Indian social structure, new relations and new classes – a
new internal class structure-were evolved which were the product of, and fully integrated
with, colonialism. '
It is from this, the colonial stage that India began its process of transition to a new
social system after 1947. In other words, the task of the post-independence era was not to
complete the transition begun in the colonial era but to make a transition from the colonial
system or stage to a new system or stage of history. '
10.3 ETHNIC IDENTITIES IN INDIA DURING COLONIAL RULE
Before an attempt to understand ethnic identities and ethnic factors in the Indian national
movement during colonial rule, it is important here to understand as to what ethnicity means and
how it was connected to Indian national movement. Belonging to one ethnic group means
commonality in thoughts, feelings and behaviours. An ethnic group (or ethnically) is a group of
people where members identify with each other, through a common heritage, a common
language, a common culture (often including a shared religion) and a tradition of common
ancestry (corresponding to a history of endogamy). The reference to ethnic identity and its
formation during the national movement could have caused serious problems for national
movement and its professed ideology. Some western scholars have highlighted the same. But to
me, it was an issue but not to the extent that it may change the current of a national movement. '
There is a standard viewpoint which is particularly popular in Indian historiography, that
the national movement was completely coherent and uniform, meaning that it was mainly a
single constitutional process aimed at state-building. Cultural and social sub-division is
relegated to the background. R.C. Majumadar stressed that the national awakening of India
was based on ‘the unity of India as a whole. Quanungo, on the other, rejected the notion
supposedly implied in Communal Award ‘that India was not a nation but congeries of groups
(religious, cultural, racial, caste, class and interest)’. If it is not overtly assumed that ethnic
and religious movements or conflicts were invented or instigated by the British (the colonist),
it is at least alleged that they manifested themselves mainly after independence when the
grand coalition of the nationalist movement broke apart.
There is no reason to deny the profound impact of the all-India nationalist movement
on the political project of the nation-state as embodied in the development of India and
Pakistan. The compulsion to confront the colonial administration made it necessary for all
opposition forces to unite on a single political platform. However, there was a vast gap
between claim and reality which came up as a result of the personal ambition and desire of
few leaders to corner such movements at times on ethnic lines. '
Ethnicity and Ethnic Factor in the National Movement
It is argued here that the high point of the nationalist movement was also the formative
phase of the regionalization of politics in ethnic and religious terms. It was in the 1920s and
1930s that the drive against colonial rule over India entered the new phase of mass politics. That
period saw not only the rise of the all-India nationalist force to prominence but also the
formation of its different composite parts into separate ethnic and religious movements, rivalling
each other enviously. This happened both inside and outside
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the two major parties, the Congress and the Muslim League. The kind of state nationalism
that was pursued by the Indian National Congress and the Muslim League was closely echoed
by regional elites and spurred the rise of ethnic nationalism. Where the nation-state project
seemed to attract the all-India political class with its prospects of power and prosperity, the
same goals were followed at the level of local government. '
Looking at the formation of these two major political parties, both Congress and
League were composed of regional groups which owed their identity to ethnicity and religion.
Though Congress had a larger mass base but emerged from three regional organizations, the
Indian Association of Calcutta (1876), the Madras Mahajan Sabha (1884), and the Bombay
Presidency Association (1885). The congress developed along the lines of the three
Presidencies of British rule in India with strong Bengali, Tamil and Marathi overtones.
Though Congress consolidated its mass base during Gandhian Movements, one cannot push
ethnic factors under the carpet. A new upsurge of the Swadeshi Movement to boycott
imported goods in 1905-08 (mainly in response to the partition of Bengal), the major
movements of non-cooperation in 1920-22 (boycott of titles, schools, courts and councils)
and Civil-Disobedience in 1930-34 (no rent and no-tax campaigns, courting arrests, etc), as
well as Khilafat Movement of 1920s, revealed strong regional and ethnoreligious features and
disparities. Since the creation of separate Congress provinces on linguistic grounds as a result
of the 1920 Nagpur session, Congress tried to mobilize public opinion through the very means
of ethnolinguistic identities. The Congress felt that the only alternative to reach the masses
was through the medium of their native tongue and culture, otherwise, there was a danger
that the British may use these spaces for their professed ideology. '
Regional disparities and contradictions were also major features of the Muslim
movement and had long prevented the Muslim League from gaining an undivided hold on
Indian Muslims. Professor Ayesha Jalal writes that after the Muslim League had been
profoundly defeated during the 1937 provincial elections, it had to execute a special mass-
contact campaign to overcome the regional divisions to gain a foothold in the ‘majority
provinces’ where Muslim constituted the bulk of the population.
Ethnicity and Regional Movements in India
During the colonial period, autonomous regional, ethnic and religious movements had
emerged which operated in a framework of their own, irrespective of their interaction with
Congress or with Muslim League. The Sikhs and Pathans, for instance, developed
autonomous movements in the 1920s. In both cases, these movements constituted a
particular cultural response to the capitalist transformation of the colonial society. Since
1921 the Sikhs were fighting against the Mahants, a particular sect which was looking after
the Sikh temples and the shrines. Under the British, they had come to regard these religious
places as their property and started using them for commercial purposes. In many areas
Mahants closely collaborated with the local authorities. The Sikhs who in Punjab mainly
hailed from agricultural castes such as the Jats had also come under severe pressure as a
result of the agricultural policies of the colonial government. Rising taxes and a slack in crop
prices left them with a little surplus. Also, their political pride was greatly hurt when those
who had fought prominently in the Anglo-Indian army during World War I had returned to
India, not to a hero's welcome with a promise of an independent India but political repression
and suspicion embodied in the Rowlatt act. After the Sikhs had been 'gainfully' employed to
defend the British Empire they were now made redundant. The Jallianwala Bagh massacre of
1919 that aroused wrath all over India naturally stirred Punjab as well. Thus, the Sikh
movement for temple control was a regional response to growing social and political
polarization during the colonial rule. '
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The Pathan movement of the Red Shirt volunteers was the political off-spring of
Congress-led civil disobedience campaign, scheduled to start in 1930. Though it aligned itself
with Congress, those links were rather formal and it retained its distinct ethnocultural
identity throughout 1930s and 1940s. Originating in the countryside, it also strongly featured
social reform. When its leader, Abdul Ghaffar Khan, who had taken to politics with the
Khilafat movement in 1919, compared the situation of the Pathans to the status of other
peoples and regions in India he saw backward social customs like the permanent tribal feuds
as the main reason for the weakness of the Pathans. The brigades which were formed in
many villages acted as a sort of social workers who promoted reform. They judged feuds and
promoted schools and sanitary living conditions. Similar to the Sikh movement, the Red
Shirts mobilized their followers, i.e. mainly small farmers and landless labourers, against a
social group on which the British relied heavily for their rule over the province, the rich and
big Khans. Economically, agrarian unrest in the Frontier Province reflected the concern over
increased revenue assessments by an average of 22% and a drop in agricultural prices by 50-
70%. Politically, the Afghan war of 1919 had left behind a great deal of tension and
discontent in the frontier Province where the British had massively deployed troops not only
to fight the Afghans but also to suppress tribal discontent and resistance.
The south Indian no-Brahmin movement did not originate in the countryside in
colonial India. Its leaders came from the new urban professionals which had been patronized
by the British. They felt threatened by the prospect of the Congress movement gaining the
upper hand. They regarded the Congress as Brahmin-dominated and sought the protection
of the British Indian administration against it. Though coming from an urban background, the
movement depended on landlord finance. Its social base was the intermediate castes, not
confined to urban professions. E.V. Ramaswami Naicker, who joined the Justice party in 1935,
conducted a Self-Respect movement in the 1920s that sought to put an end to Brahmanism
and became particularly known for its atheistic marriages without Brahmins. He tried to
associate peasants, weavers, and local merchants with the movement. In the non- Brahmin
movement, the regional appeal at first was hardly recognizable. But the treatment of
Brahmins, as 'foreigners' and outsiders provided the link and a convenient base for a South
Indian Dravidian regionalization of the movement. When Congress had dislodged the Justice
ministry in the Madras Presidency in 1937, its Hindi-first policy combined with growing
popular discontent over agrarian and urban economic problems in the aftermath of the Great
Depression hastened the Dravidian and Tamil slogans in the course of the anti- Hindi
movement led by the Justice party. In 1944, it was transformed into the Dravida Munetra
Kazhagam.
Later on, the movements to create the linguistic provinces in Andhra, Assam, Orissa,
Bihar and Sindh, which except for Andhra were subsequently granted by the British through
the re-demarcation of the provinces, also betrayed a strong sense of ethnic identity. Some of
the British legislations like separate electorate and communal award were partly responsible.
It is a fact that ethno-nationalist sentiments ruled movements in Bengal, Baluchistan and
Kashmir during the colonial period. '
The sudden flowering of political diversity confirmed that secular nationalism was
never monolithic in the colonial period. The dichotomy of state and ethnic nationalism
showed the ambiguity in identity-building. On the one hand, a sense of community among
Indians of various ethnic groups and regions was real. Time and again, syncretism
manifested itself in daily life, particularly in the villages, when people of different
communities took part in cultural ceremonies, and sometimes even adopted them. On the
other hand, increased political awareness almost always drew on a heightened sense of
‘native’ ethnic identity to contrast with the ‘alien’ colonial polity.
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There could be numerous references which may pertain to ethnic factors and for their
dominance for the time being, which is quite logical to Indian or any other country has so
much of diversity. However, one must contend it was these very factors which later on guided
the framers of our constitution to take enough care while drafting the same. The constituent
assembly discussed these questions for the future of pluralist society like India and took
enough care in this regard. '
Self-Assessment Questions
1. What was the impact of colonialism on modern India?
Answer:
-
-
2. Define ethnic identity?
Answer:
-
-

3. What do you understand by regional movements?

Answer:
- -
-
4. What was the Dravida Munetra Kazhagam?
Answer: -
-
-
10.4 SUMMARY
Students to conclude one may say that the colonialism as maintained by the colonial
authors tried to bring development by forcefully making India as part of the world capitalist
economy but failed to achieve the desired result. The same has been highlighted by our
economic historians. However, the policymakers in post-independent India took enough
incentives from the debates of these economic historians which are duly reflected in the
formulated policies. This lesson has underlined that ethnic identity was important during the
colonial period and different ethnic groups played an important role in the national
movement. '
10.5 REFERENCES
Bipan Chandra, Nationalism and Colonialism in Modern India, Orient Longman, New Delhi,
1979.
Reetz Dietrich, ‘Ethnic and Religious Identities in Colonial India (1920s-1930s): A Conceptual
Debate’, Journal of Contemporary South Asia (1993), 2(2).
10.6 FURTHER READING
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Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.

10.7 MODEL QUESTIONS
1. Write a note on debates on the impact of colonialism on the Indian economy.'
2. Examine the relationship between colonialism and ethnic identities.
3. What do you know about regional movements in India?
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Lesson 11

BRITISH AND INDIAN IDEAS ON INDIAN ECONOMIC

DEVELOPMENT, 1858-1905
Structure
11.0 Objectives
11.1 Introduction
11.2 British and Indian Ideas on Indian Economic Development, 1858-1905
11.3 Summary
11.4 References
11.5 Further Readings
11.6 Model Questions
11.0 OBJECTIVES
After a detailed analysis of this chapter you will be able to:
 Understand the British and Indian ideas on economic development from 1858 to
1905.
 analyze economic development in India from 1858 to 1905.
11.1 INTRODUCTION
Students this lesson seeks to highlight the ideas presented by both British and Indian
authors based on the events taking place during 1858-1905. The British authors had
deliberately written and justified British policies and efforts during this period. They argued
that whatever steps the British government undertook were to develop India and to make
India advanced and helped it to compete with the world economy. The Indian authors, in
general, have questioned the very basis of the above argument and highlighted issues and
policies which helped British cause and neglected Indian industries leading to backwardness
in India. '
11.2. BRITISH AND INDIAN IDEAS ON INDIAN ECONOMIC DEVELOPMENT, 1858-
1905
British Ideas
Two aspects of the British view of the Indian economy and its future growth stand out.
Throughout the half-century, the British writers with remarkable unanimity denied thatIndia
was economically stagnating or was backward and poor. On the contrary, they asserted that
India and Indians were at that time prosperous and the country was in the midst of a process
of rapid economic development. Differences on the question related mostly to the language in
which the existing state of affairs was to be described. Some writers approached the lyrical.
For example, even the sober and scholarly George Campbell declared in 1882 that: '
“…in respect of public works and material improvement India has
been well kept up to the level of civilized countries; in the last thirty
years a transformation has been wrought by means of railways and
other developments almost as complete as that which has taken
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place in Europe and America, dating from a somewhat earlier

period”.
John and Richard Strachey asserted in 1882 that:
“…A greater or more admirable work was never conceived in any
country than that which has been undertaken, and in great degree
accomplished, by Englishmen in India during the last twenty-five
years, and which is still going on….(It has) increased to an extent
absolutely incalculable the wealth and comfort of the people of
India…”.
Henry Summer Maine wrote as follows regarding India’s progress from 1859 to 1887:
“…taking the standards of advance which are employed to test the
progress of Western countries, there is no country in Europe which,
according to these criteria, and regard being had to the point of
departure, had advanced during the same period more rapidly and
farther than British India…(There has occurred) a process of
continuous moral and material improvement which in some
particulars has attained a higher point than has yet been reached in
England”
W.W. Hunter, who according to Prof. Bipan Chandra was perhaps the most critical of
the imperialist writers and who expressed grave apprehension regarding the living conditions
of the common people, wrote in 1880 that the figures of growth of foreign trade and
industries “are so great, and the material progress which they indicate is so enormous, that
they elude the grasp of the imagination”. Comparing India’s economic growth with that of the
United States, he wrote in 1887: “The progress of India during the past fifty years has been
not less wonderful, and considering the lower level from which India had started, in some
respect, even more rapid.”
Even Alfred Marshal said in 1899 that though India had not been able “to keep pace
with the west or even with Japan…when one complains of the slow progress of India, one
must recollect that there is scarcely any other old civilization in the same latitude, and with
the same difficulties, that has made progress to be compared with that of India”.
Secondly, more than in the present, the British writers of the period had confidence in the
future. Nearly all of them foresaw a new era of rapid economic development – development of
Indian resources, as it was then called. The view expressed over the entire range of the years
was that firm foundations for economic growth had been or were being laid in the immediate
past and the present and rapid economic growth in the future was thus assured. In any case, there
was a remarkable lack of pessimism. The degree of optimism, of course, varied and tended to be
qualified near the end of the period. But most of the writers believed that there could be no limits
to India's economic growth. Thus R.D. Mangles wrote in 1864: “At last the great driving-wheel of
progress has been fairly set in motion, and it demands but scanty powers of observation to see
that society is moving onward at a pace almost Anglo-Saxon in its rapidity”.
Most of the British writers used the concept ‘development of resources’ rather vaguely and it
is difficult to pinpoint as to what they meant exactly by it or what constituted economic
development in their view. While a few included a hazy notion of industrialization, most of
them understood it by the growth of agricultural production, plantations, and foreign trade.
It is easier to identify the factors which they thought would lead to rapid economic growth.
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Issues
In highlighting the issues, according to the British writers, perhaps the most
important pre-requisite for growth that British rule had provided in India was the security of life
and property – law and order within the country, security from external aggression, and an
impartial system of justice. According to most of them, India's past was one of the perpetual and
continuous invasions, plunders and massacre, internal strife accompanied by administrative
anarchy and lawlessness, and in general a state of society in which property and 'fruits of labour'
were not safe, taxation was oppressive, etc., leading to impoverishment and economic stagnation.
'
These British writers, however, seldom established any direct economic correlation
between law and order and economic growth. They tended to assume it as an accepted economic
axiom. Quite often they confused administrative improvement with economic growth.
Presumably, they drew their conviction from the classical economists' general view that once the
government assured conditions in which an individual was guaranteed the fruits of his industry,
private enterprise and competition would assure economic growth. Moreover, John Stuart Mill,
the most influential economic thinker of the period, had also held that "great insecurity of
property, from military and fiscal rapacity" had in the past prevented the Asian people from
accumulating capital (or retaining it when accumulated), from having any incentive to work hard
and improve, and from trade with the towns. The first condition for an 'increase in industry' in
the East was, '
“A better government: more complete security of property; moderate
taxes, and freedom from arbitrary exaction under the name of taxes;
more permanent and more advantageous tenure of land, securing to
the cultivator as far as possible the undivided benefits of the industry,
skill and economy he may exert”.
Henry Fawcett, the only contemporary British economist to take interest in the general
problems of Indian economy, gave the economic rationale of the British view in his manual of
political economy. He blamed anarchy and insecurity for hoarding and high rates of interest and
claimed that the British rule would lead to the release of hoarded capital and its effective
employment. He wrote that if in the past Indians
“employed labourers, they could not feel certain that they would be able
to retain the results of the labourers’ industry. Hence we can reasonably
anticipate one most beneficent result from England’s rule in India feel
that the rights of property are respected. Nothing will more tend to
increase the capital, and hence the wealth of the country; for when
security is given to property there is great inducement to save, and the
wealth which is saved, instead of being hoarded, will be usefully applied
as capital to assist the further production of wealth”.
The second major factor of development in India was the growth of foreign trade. In
fact, among the purely economic factors, promotion of foreign trade was seen as the chief
instrument for developing India. Here, again, John Stuart Mill had provided the theoretical
approach. He had laid down, in his Principles of Political Economy, that the Indian peasantry
could produce much more than it did but had in the past lacked the stimulus to do so. It
could not dispose of the surplus since, for various reasons, there did not exist a large town
population. "The few wants and unaspiring spirit of the cultivators" in turn prevented them
from consuming town products. Thus the vicious cycle was completed. The
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best way of breaking this cycle and initiating economic development was to promote the
export of India's agricultural products like cotton, indigo, sugar and coffee. This would
create a market for food grains within the villages and thus also promote their production.
This process would create a rural market for manufacturers which would not only increase
import of European goods but also given incentives to manufacturing in India. The process
of growth would have been initiated. '
It may be pointed out that the connection between law and order and foreign trade
was made more explicitly by many writers to establish the need for the British to stay in
India in the interests of British trade. The argument was that while trade with the U.S.A.
Australia and Canada would continue even after British withdrawal, in India, British trade
would disappear with Britain's withdrawal, as this step was bound to lead to administrative
anarchy, civil war, etc. The interests of British trade, therefore, required Britain rule India.
'
A third major factor for the economic growth in India according to the British was to
develop Railways. The British writers repeatedly pointed out that the growth both of
exports and imports and therefore the development of both agriculture and industry
depended on railways. The discussion of this topic had of course been virtually exhausted
in the pre-1858 period and the role of railways as an active agent of economic development
was by now taken for granted. John and Richard Strachey well summed up the accepted
position: '
“Improvements in the material conditions of the people of India…is
to be obtained only through an accumulation of wealth
accompanying a steady development of the foreign trade. The
means of accomplishing this are obvious and quite within our
reach….These means lie, as this volume seeks to establish, in an
intelligent extension of the great public works which the country
requires, whereby will be ensured its future well-being, and the
continued prosperity of its finances”.
No writer of the imperialist school expressed any doubt that railways might fail to
generate economic development. At the same time, no one examined the relation of
industrial development to railways in India or the strategy of their construction. No other
aspect of the impact of railways on Indian economy except that on foreign trade and
agriculture was examined. '
Along with railways most of the British writers also emphasized irrigation as a
means of improving agriculture. They, however, miss any consciousness of the fact that
irrigation was not being developed adequately in terms of either economic needs and
possibilities or total financial expenditure of the government. Nor were patterns of
irrigation, their linkage with patterns of agriculture growth, and the harmful
consequences of certain patterns of irrigation development examined. '
Increasingly, after 1858, British writers placed their hopes for the development of
India on the application of foreign capital. India, it was said, had plenty of land (land
resources) and labour but lacked capital which was precisely to be found in abundance
in Britain. The coming era of the rapid development of India after 1858 was proclaimed
basically on the expectation that British capital would be invested in India on large scale.
'
Once again John Stuart Mill had taken the lead. He had written that among thebasic
deficiencies in an Asian country was lack of internal capital and, therefore, one of
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the basic requirements of growth there was “the importation of foreign capital, which renders
the increase of production no longer exclusively dependent on the thrift or providence of the
inhabitants themselves”. Professor Fawcett and Marshall reiterated that a major barrier to
India's economic growth was a shortage of internal capital which could be made up only by
foreign capital. Many other British writers in India expressed this view in much more
exuberant terms. Thus, a writer declared in the Westminster Review of January 1868:
“And if English capital, English intelligence, and English
enterprise were applied fully to develop the untold and
inexhaustible treasures of this teeming land which has been given
into our hands, the imagination fails to realize the wonderful
results which might be achieved.”
Earlier, in 1864, R.D.Mangles had said:
“Happily, all that India needs beyond the essential elements of wise
legislation and general good government, for the prompt and
complete development of her vast natural resources – namely,
English capital, enterprise, and energy – can be supplied with equal
benefit to both countries”.
These writers did not see any disadvantage in the use of foreign capital; and some of
them explicitly denied that the export of profits of foreign enterprises constituted drain of
wealth for, they argued, the profits came out of the income which foreign capital had
generated.
While emphasizing the role of foreign capital, the British writers ignored the
problems of the utilization of internal capital. Instead of asking what happened to internal
capital, or examining the pattern of its utilization, or discussing the reasons why it was not
being utilized productively, the notion – which is current to this day - was popularized that
India lacked internal capital. As pointed out earlier, nearly all the writers including J.S.Mill
and Alfred Marshall held this view.
The British administrators had remodelled Indian agrarian relations after 1790 on the
theory that the right of land ownership or private property in land, whether in the hands of the
zamindars or the ryots, combined with competition and free transferability of the right would
lead to the application of capital to land i.e., inputs of capital and technology; and this
combination of land, labour, and capital would, along with the incentive to improve which
ownership gives, lead to agricultural growth. At the same time, the land of improvident, ignorant,
and lazy owners would be bought by those who were thrifty, industrious, and skilful. Thus
gradually India would become the land of 'the improving landlord' and 'the efficient farmer'. The
government gains would come from the security of land revenue which private ownership of land
and its saleability would insure and from the increase in revenue which agricultural growth
would make possible. '
In general, the British belief was that there was nothing wrong with Indian agriculture.
There was satisfaction with the increase in area under cultivation believed to be from 50 to
100 per cent since 1820. No claims were made for technological improvements and some fears of
exhaustion of the soil were expressed, but even here increase of irrigation facilities was believed
to be a positive factor. But the main reason for optimism was the belief that as a result of the
growth of exports and the consequent commercialization of agriculture, Indian agriculture had
abandoned the 'stationary stage' to which Mill had assigned it and traditional Indian economy
and entered the modern stage of change, modernization, and growth. It was
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believed that some of its troubles regarding landlord-tenant relations and transfer of land to
money-lenders sprang from this modernization and should be seen as the inevitable
temporary dislocation in the transition from a lower to a higher stage. '
Some British writers made excessive population and other presumably negative factors
responsible for such state of affairs and contended that there was nothing wrong with the
British policies as such. However, they were optimistic that despite all this India will achieve
growth in near future surpassing all negative factors. They gave up the grand design of India
becoming a great industrial power, and in general, tended to abandon both optimism and
economic rationality. At the same time, they continued to emphasize that their model of
development of India as a colony was not only viable but that India's development was
possible only if it remained a colony and followed the model. Indian nationalists, on the other
hand, joined by many anti-imperialist writers of the west, adopted the first course; and in the
process created a political economy of 19 th-century imperialism and put forward new ideas
on how to develop the underdeveloped economies. '
Indian Ideas
The Indian nationalist writers too started with a positive evaluation of British impact
on India's economy. They too hoped that the establishment of a centralized administration,
security of person and property, importation of Western science, technology, capital and
economic organization, construction of railways and roads, linkage with the world market,
and spread of modern ideas and culture would initiate a new era of economic modernization
and progress. But they soon began to notice that reality was not conforming to their hopes.
They came to believe that not only was progress in new directions slow and halting but the
country was economically regressing, that is, becoming more underdeveloped. Their
economic ideas developed in the course of their efforts to find an answer to the question: Why
was the earlier promise not being realized, and what steps had to be taken to realize it? '
Professor Bipan Chandra says that two basic aspects of the nationalist outlook may be noted
at the outset:
The nationalists developed an integrated approach towards the problem of economic
development. They did not accept that advances in isolated sectors like transport, trade, or
area under cultivation could in themselves constitute development. All these were to be seen
in their relationship to the economy as a whole. Different sectors of the economy must be
balanced if they were to produce a healthy effect.
Secondly, the Indian nationalists maintained that the core of economic development lay in
rapid and modern industrialization. Not every increase of wealth was development, they said.
It was the potentiality for future growth or, as they put it, 'the power of production' that
counted. They, of course, denied that nature had designed India to be in the main an
agricultural country. To the contrary, they said, India had to industrialize or go under since
land was here in short supply. They also favoured industrialization for cultural, social and
political reasons. Regarding the last, the argument was that modern industry was precisely
the force which could help unite the diverse people of India into a single national entity
having common interests. '
The nationalists, therefore, insisted on examining official policies regarding trade,
transport, currency and exchange, tariffs, finance, and foreign capital in their relationship to this
paramount aspect of industrialization. For example, their definition of economic backwardness or
underdevelopment 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. Hence, they
condemned the destruction of India's handicraft industries and the
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failure of new modern industries to rise in their place. They also believed that despite the
absence of modern industry, the balance between industry and agriculture in India at the
beginning of British rule was more favourable than in the second half of the nineteenth century.
Since this balance was not very different from the one prevailing in the rest of the world, and if
the development of modern industries in Britain and Europe since then was taken into
consideration, India had regressed and become more underdeveloped or rather had now become
underdeveloped. In a way, the Indian nationalists were, therefore, perhaps the first to define
economic underdevelopment in a modern scientific sense, for the 19th- century British
economists still talked of stationary and changing societies. This approach also led the
nationalists to understand that India's underdevelopment at the end of the nineteenth century
was of recent origin and was not a mere carry-over of the traditional past. Furthermore, they
recognized that the other aspect of this underdevelopment was foreign economic domination,
whereby partial modernization of the economy was used to serve colonial purposes. As Justice
Ranade put it, India was looked upon by its rulers as “a plantation, growing raw produce to be
shipped by British skill and capital, and to be re- exported to the dependency by British
merchants to their corresponding British firms in India and elsewhere”.
The nationalists tried to correlate British economic policies in India and the factors of
growth which British writers believed were leading to growth with the actual course of
economic development. They also analyzed the capacity of these factors to retard or advance
growth. So far as foreign trade was concerned, they denied that its growth in itself
constituted economic progress or could trigger off economic development. To them, what was
important was not the volume of trade but its pattern – the nature of goods exchanged – and
its impact on domestic income, industry and employment. Once again, they drew attention to
the overwhelming bias of exports towards raw materials and imports towards manufactured
goods. In a nutshell, the British policies in this regard far from creating the atmosphere of
growth injured the domestic industries in India. '
Indian nationalists also denied that the railways automatically led to economic
development. While acknowledging the other usual benefits of the railways, they noted that
their construction had not led to industrial growth. Instead, they had facilitated the
penetration of the Indian market by foreign goods and thus had tried to perpetuate and
extend economic backwardness. The benefits of railway construction both in terms of their
impact on industry and side-effects in terms of finance and encouragement to steel and
machine industry had been reaped by Britain. In terms of recent terminology, the nationalist
view was that railways served as social overhead, not for Indian but British industry and
their external economies were exported back to Britain. In fact, remarked G.V. Joshi,
guaranteed interest on the railways should be seen as Indian subsidy to British industry. Or,
in other words of Tilak, it was like "decorating another's wife". '
As regards tariff protection, the Indian case of tariff protection was made along the
usual lines, as pointed out earlier. But the role of the state was delineated not only forcefully
but even with some originality. It could have been done in the following ways: '
1. Make up the lack of internal private capital through low-interest loans to the
entrepreneurs directly by the state or through finance corporations. '
2. Make up for the ‘shyness’ of the Indian capitalists by extending subsidies and by
providing security to their enterprises by giving guarantees of minimum profit similar
to those given top railway companies.
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3. Help mobilize scattered indigenous capital through the development of state-aided,

directed, or controlled joint-stock banks and other similar credit institutions. '
4. Organization of state-run and financed agricultural credit banks
5. Help absorb foreign capital into the Indian economy and shield indigenous capital
from domination by it by importing foreign capital on its account and then lending
it to the local capitalists. '
6. Pioneer government-owned industries, when there was no hope of local capital
venturing into the field. Joshi and Naoroji also suggested government operation of
those industries which needed enormous foreign capital. In such circumstances, the
state should borrow money abroad at low rates of interest on the security of its
revenues and employ it to undertake public works, mining, industries, etc. '
7. Providing greater irrigation facilities
8. Purchase government and railway stores from Indian manufacturers.
9. Collect and disseminate industrial and commercial information.
10. Promote technical education.
11. End the drain of capital from India.
The main theoretical contribution of the nationalist's writers lay (a) in their analysis of
the nature and economic mechanism of imperialism which no longer functioned through the
crude tools of plunder and tribute or mercantilism but operated through the more disguised
and complex mechanism of free trade and capital investment; (b) their analytical conclusion
that imperialism in its many guises was the main obstacle to economic development in India
already by the end of the nineteenth century; and (c) in their grasping of the fact that
economic development required a political system conducive to it. Their failure lay in the fact
that they ignored the importance of the internal socio-economic structure, particularly the
agrarian structure, moreover, their entire economic thinking was done within the framework
of a capitalist economic outlook. They never asked the question whether the Indian economy
could develop along national capitalist lines even with government help in a period when it
had been integrated into the world capitalist economy as a colony of British imperialism. '

Self-Assessment Questions
1. Discuss the British ideas of development between 1858-1905?
Answer:

2. Discuss Indian views on ideas of development in India in the above period with leading
criticism? '
Answer:

3. What do you mean by the development of resources?'

 120

Answer:

-
11.3 SUMMARY
Students, to sum up, one may say that the British policymakers justified their policies in
the broad context of world capitalism without looking into the actual Indian conditions. However,
the Indian nationalists took note of the British policies from the perspectives of Indian reality and
hence, criticized them on a real plank and this has been underlined in this lesson.
11.4 REFERENCES
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10,no.03, 1980.
11.5 FURTHER READING
Bipan Chandra, Nationalism and Colonialism in Modern India, Orient Longman, New Delhi,
1979.
11.6 MODEL QUESTIONS
1. Critically analyse British ideas on Indian economic development (1858-1905).
2. What do you know about Indian ideas on Indian economic development during the period
from 858 to 1905?
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Lesson 12

DANGERS OF NEO-COLONIALISM AFTER 1947

Structure
12.0 Objectives
12.1 Introduction
12.2 Dangers of Neo-Colonialism After 1947
12.3 Summary
12.4 References
12.5 Further Readings
12.6 Model Questions
12.0 OBJECTIVES
After reading this chapter you will:
 learn about the danger of neo-colonialism after 1947.
 understand the relationship between capitalism and capitalist class vis-à-vis the
Indian establishment after 1947.'
12.1 INTRODUCTION
Students this lesson will attempt to understand the developments in India in the post-
independence phase and highlight the policies which helped negate the possible
developments of colonialism and related tendency referred to as 'neo-colonialism'. In doing
so, our effort would be to discuss all the efforts in the realm of policy-making which
significantly helped not to repeat European or Latin-American character vis-à-vis colonialism
in India.'
12.2 DANGERS OF NEO-COLONIALISM AFTER 1947
India became politically independent on 15th August, 1947, and the Indian capitalist class
acquired control over its social development. In the colonial period, the Indian economy had been
integrated with the world capitalist economy in a subordinate position and this constituted the
essence of the colonialization of the Indian economy. The end of the political domination by
colonialism did not and could not mean the automatic decolonialization of the Indian economy. In
fact, the colonial economy could absorb and had absorbed a degree of independent development
of the capitalist class and the capitalist economy in the colony. '
The aim and thrust of the Government of India and the Indian capitalist class since
1947 has been towards the development of an independent and balanced national capitalist
economy and the avoidance of further imperialist economic control and domination. The
Indian capitalist class neither before 1947 nor since 1947 has been either a comprador class
or a junior partner of the imperialist monopolies. Its evolution under colonialism as an
independent capitalist class and its opposition to and struggle against colonialism already
indicated that it would not readily fall into the clutches of imperialism and welcome 'neo-
colonialism'. The big monopoly corporations and international conglomerates of the
imperialist world in general and the U.S.A., in particular, have not acquired a major hold in
India. By and large, the import bans and restrictions and high tariff walls have been used to
promote Indian capitalist owned and controlled industries and not to facilitate the setting up
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of the subsidiaries of the international corporations. In spite of the increase in technical

collaboration agreements and growth in foreign investment, it cannot be said that the
national bourgeoisie of India, big or small, is entering into a partnership with the giant
foreign corporations. In fact, investment of foreign capital in the Indian economy has been
carefully controlled, though given a great deal of encouragement within prescribed limits. The
result is that foreign capital has hitherto remained quite 'shy' or hesitant in entering India.
Moreover, there is not a single major or economically strategic sector of the Indian economy
which is under the domination of foreign capital. Lastly, foreign finance capital hardly
occupies today an important, not to speak of a dominant position in the Indian economy. '
Thus, India has not been and it's not likely in the immediate future to be further
colonialized or made into a 'neo-colony'. Rather the underdeveloped Indian capitalism has been
striving to follow and will continue to strive to follow, the path of independent capitalist
development. '
At the same time, it cannot be said that Indian capitalism is not dependent on imperialism
or that its independent development is not seriously hampered by imperialism. While India’s
dependence on imperialism is not the result of the domination of the Indian capitalist class by the
imperialist capitalist class, it is still very much there because of the dependence of the Indian
economy on imperialism which in turn is due to its being an integral part of the world capitalist
economy in a subordinate position. Thus the ‘external’ restrictions on the Indian economy and its
development are ‘structural’ i.e., the products of it being a well-structured part of world
capitalism which inevitably produces development in one of its parts while producing
underdevelopment in the other. The underdeveloped Indian capitalism has therefore found itself
in a dilemma. It tries to develop independently but does so without breaking structural links
with world capitalism, with the result that development is hampered and economic
dependence on the imperialist economic structure remains. On the other hand, in today’s
condition, any effort, even within the bounds of capitalism, to break out of the world capitalist
structure invariably takes on revolutionary dimensions if it is to be successful, as the initial
experience of Cuba after the revolution indicates. Indian capitalism has not even been willing to
make a radical effort in the direction. Just as the Indian capitalist class and the Indian nationalist
leadership developed a non-revolutionary or ‘muddling through’ strategy of mass mobilization
and anti-imperialist struggle before 1947, they have since then followed a similar strategy of
independent capitalist development, hoping that economic development within carefully
controlled political limits and without revolutionizing the internal social structure will gradually
erode dependence on imperialism. In the bargain, India remains an independent country with a
developing but still underdeveloped capitalist economy which is still dependent on imperialism.
What are the elements of this strategy which have enabled the system to exist
successfully so far, and what are the possible reasons which may lead to its failure?
(A) Firstly, the state in India has been gradually trying, though in a non-
revolutionary way and the interests of the propertied classes, to implement
internally a bourgeois-democratic programme of social and economic reforms of the
sort that is usually associated with the completion of the bourgeois-democratic
revolution. To put it negatively, although not radically restructuring the internal
social, economic, and political order, India has not been following internally, a neo-
colonial or semi-feudal programme either. Socially, education is spread on a wide
scale, women are educated on a massive scale, oppression of women increasingly
takes on a bourgeois colouring in place of a feudal colouring especially in towns,
the caste system is eroded at least to the extent that it does not remain an obstacle
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to the growth of capitalism (increasingly, oppression of the lower castes in the

countryside becomes an instrument for keeping agricultural wages down and rents
high), and family relations increasingly become bourgeois. The cultural and moral
ethos is virtually dominated by the cash nexus. The structure of agrarian relations
is gradual, stage by stage, transformed in the capitalist direction though, as in the
case of Britain, Germany and Japan, at the cost of the cultivator and the agricultural
worker. Politically, parliamentary democracy and adult infringements of and
attacks upon civil liberty and parliamentary democracy occur in a modern,
capitalist way! Indian administration, however corrupt, is modern by any
standards, bent fully to the will of the small and big bourgeoisie. '
(B) Secondly, state power has been used by an extremely mature and foresighted
bourgeois political leadership to counter imperialist penetration through economic
administrative measures and the assignment of a very active and large role to the
public or state sector in modern industry. There has been a concentration of
economic power in the hands of the state to face the giant imperialist monopoly
corporations and international finance on less unequal terms. The state sector has
been used to build industries and elements of infrastructure which would not have
been build by domestic capital and would have invariably necessitated the use of
foreign capital. The state industrial and financial institutions have been used to
absorb foreign capital into the economy without permitting the latter to acquire
direct power. The giant foreign corporations’ immense advantage of greater
financial power, technological capacity, and monopoly have been largely
neutralized by the use of state power to shut out their products through exchange
controls, high tariffs, and absolute prohibitions, thus enabling the weaker domestic
capital to burgeon forth under hothouse conditions. The resources of the state have
been used to train a large army of engineers, scientists and technical workers. Even
the economic integration with world capitalism is sought to be loosened through
administrative means.
(C) Thirdly, economic aid and technical assistance from the socialist countries and the
development of trade with them has played a crucial role in the effort to complete the
bourgeois-democratic tasks in a non-revolutionary manner and to develop and
strengthen independent capitalism. They have not only been used as bargaining
counters to prevent the imperialist countries from presenting a monopolistic front
towards India, but have also helped strengthen the public sector, to lay the foundation
of heavy capital goods sector, to develop strategic industries such as the aeroplane
industry, and to break the stranglehold of foreign oil monopolies on India's industry,
transport system and military structure. It is of interest to note that the Indian
capitalist class has both actively supported the development of economic relations
with the socialist countries as well as utilized this link to the hilt and a far greater
extent than any other capitalist country. '
(D) Fourthly, the Indian bourgeois order has been based from its inception in 1947
on the most advanced system of political legitimization, i.e., bourgeois democracy.
Just as in the struggle against British imperialism, the Indian nationalist
leadership evolved a style of mass mobilization and mass action which on the one
hand involved the people in politics and on the other hand left them without any
political initiative or autonomy, similarly Indian political leadership has used
parliamentary democracy both to give people the satisfaction of participating in the
government and to deny them any effective voice in it. Yet every successive election
has politicized or 'politically socialised' an increasingly larger number of people.
 124

Consequently, at no stage have any significant number of people questioned the

legitimacy of the political system. Even the most radical critics of the system have
had to function within the rules of the game. Political democracy has thus enabled
the political leadership to throw the entire cost of capitalist development on the
shoulders of the common people. Even more, the failure to generate self-sustaining
growth and the failure of living standards to rise have not generated the type of
internal political crisis which would enable the imperialist forces to intervene in
internal politics on a decisive scale. '
(E) India’s foreign policy has played a major role, particularly after political unrest
began to develop, in cementing the diverse social forces around the dominant
political leadership. Foreign policy and its cementing role have been consciously
used to follow the path of independent capitalist development, to counter overt
imperialist blackmail, and to weaken the elan of the left-wing opposition.
(F) A major factor that has enabled capitalism to develop in India has been the
failure of the anti-capitalist left-wing to seriously challenge the existing social order
even when the objective conditions favoured such a challenge. Just as before 1947,
the bourgeois nationalist leadership was at no stage faced with a serious left-wing
challenge based on an independent mobilization of the people against imperialism
under left-wing leadership, so also after 1947 there has been no such left-wing
mass, nation-wide political mobilization either on the agrarian question or against
imperialist economic penetration or on the question, and the consequences, of the
capitalist path of development. A ready postulate of many on the left has been that
because of the fear of revolutionary forces and 'expropriation', the bourgeoisie
would rapidly become reactionary, abandon internal bourgeois reforms including
economic development and political democracy, and join up with imperialism in an
anti-Communist and anti-people crusade. The 'only' thing wrong with this
postulate has been that it assumed the presence of such a threatening
revolutionary force!'
It hasn’t happened that way. Thus the reformist bourgeoisie has increasingly
succeeded in weakening semi-feudalism and imperialism and in building capitalism both in
agriculture and industry precisely because the left was strong enough to keep it on its toes
but not strong enough to endanger it to such an extent that it was compelled to take shelter
in the lap of imperialism and feudalism. In other words, there has been a dialectical, mutually
reinforcing development here. Bourgeois liberalism and reforms, independent capitalist
development, and the policy of keeping out of the imperialist alliances and political system
have enabled the bourgeois leadership to maintain its political influence over the people and
to keep the left weak. At the same time, the weakness of the left has enabled the bourgeois to
remain liberal and outside the imperialistic camp and to develop capitalism after1947.
The strategy of independent capitalist development suffers, however, from two basic
constraints. An underdeveloped capitalist country finds it impossible to develop today without
those basic internal social, economic and political changes which would invariably tend to take
the economy out of the capitalist path. Secondly, so long as it is a well- structured part of the
world capitalist economy in a dependent position, it suffers from basic constraints on its
development. Consequently, India has found it impossible to solve its national problems while
following the capitalist path. But it should be carefully noted that both at the external and the
internal planes the restrictions are structural or those of the system, being built or structured
into it. The dependence of India on imperialism is a
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system's dependence arising out of the very position of Indian capitalism in the world capitalist
economy. This dependence does not arise out of the stranglehold of foreign capital on the
Indian economy, the comprador character of Indian capitalist class or the latter being a junior
partner of foreign capital or the Indian State being politically dominated by imperialism directly
or through foreign aid or finance capital in general. As pointed out earlier, neither foreign capital
nor international corporations nor finance capital plays a dominating or even an increasing role
in the Indian economy. Nor is there one metropolitan centre vis-à-vis India. American private
foreign capital in India plays second fiddle to British foreign capital, both in terms of finance and
collaboration agreements. In trade, aid, foreign capital and technological collaboration, India has
been 'playing the field'. Here again, India's relationship is a dependent one not vis-à-vis dominant
American imperialism but vis-à-vis entire world capitalist system. Undoubtedly, India, as other
underdeveloped countries, suffers today from technological dependence which in specific
industries may lead to some forms of control. It should, however, be noted that this is once again
a case of the system's dependence. '
All this does not, of course, mean that India, in following the strategy of independent
capitalism, does not constantly face the danger of neo-colonialism. But such a danger would
arise primarily from the structural and social inability of its under-developed capitalism to
develop itself and the country to the extent that social needs are met at a minimum desired
plane. When the social failure becomes more and more glaring and also more and more
unacceptable to the mass of people and leadership begins to be provided to this discontent,
the capitalist class and the dominant leadership would be compelled to seek economic and
political support from imperialist powers. They would be compelled to strengthen their links
with world capitalism to solve the very economic and political problems which are in part
created by these links. In case of a genuine threat of mass revolt, the dependent political and
military link may also be forged to defend the system. Hypothetically, this may also increase
the dependence on socialist countries. A few years back, one might have rejected out of hand
the possibility of socialist countries aiding a capitalist regime to suppress the popular revolt.
But today such a possibility does not appear so preposterous. It could happen under the
slogans of keeping neo-colonialism out and helping to strengthen the independence of
developing capitalism. It may also be noted that this type of economic and political threat of
neo-colonialism is not faced only by an ex-colony like India. Lenin noted much earlier, even
other developing or developed capitalist countries could be subjected to it. The position of
India today is similar to that of Portugal, Spain, Italy, or even Russia at different times during
the nineteenth century and the first half of the twentieth century, moreover, in the highly
integrated system of the international capitalist economy, this threat is constantly faced by
countries such as Canada, Spain, Greece and Yugoslavia or even Japan and the
Scandinavian countries. Only the degree of the threat and its immediacy are greater in the
case of India. '
The struggle against imperialism, semi-colonialism, or 'neo-colonialism' in India has
therefore to take the form of a struggle against the development of capitalism. India is at
present, not a neo-colony or semi-colony dominated by foreign capital. Imperialist
penetration occurs and the danger of 'neo-colonialism' arises because India follows the path
of independent capitalism. Similarly, imperialist pressure is also exercised primarily not
through ambassadors, World Bank officials, foreign capital control, etc., but through
economic realities. This is why the entire U.S. effort and pressure in India have been
exercised primarily to promote the development of the capitalist system or private enterprise
and it's enmeshing with international capitalism and only secondarily to promote American
investments. This is also the reason why the U.S.A. stopped objecting in a serious vein to the
Soviet economic assistance to India once it was obvious that the object and consequences of
this assistance were not to build socialism but independent capitalism, not to strengthen the
forces of social revolution but of capitalism. Such assistance was now even praised as sharing
the international burden for the development of India. '
It may be acknowledged at this stage that the integration of the Indian economy, as also of
the other similar under-developed capitalist economies, into the world capitalist- imperialist
economy in a dependent position has yet to be explored thoughtfully. What is obvious is that
what is involved here is not merely the use of these countries as markets for manufactures, or
sources of raw materials, or fields of investment, but their integration into a world-wise structure
through aid, trade, finance, investment, technology, science, brain- drain, military defence against
internal revolt and external enemies, and culture and ideology (for example, the integrated
development of economics, political science, and sociology all over the capitalist world including
its under-developed part). '
Self-Assessment Questions
1. How has India's foreign policy helped follow independent capitalist development?'
Answer:
- -

2. What steps negated the development of neo-colonialism in India?

Answer:

-
12.3 SUMMARY
Students one may say that any danger of neo-colonialism in India is unlikely, as the
developments in India in the post-independent scenario has taken into its fold every possible
effort to check that India may not go the European or Latin-American way. Be it the
development of our constitution, philosophy from the socialist setup or the question of
agrarian developments and parliamentary democracy, our forefathers realistically took up
and discussed all possible fallouts which may negate the situation like the danger of neo-
colonialism in India. This has been elaborated in this lesson.
12.4 REFERENCES
Bipan Chandra, Colonialism, Stages of Colonialism and the Colonial State, Journal of
Contemporary Asia, Vol.10, No.03, 1980.+00
Bipan Chandra, Nationalism and Colonialism in Modern India, Orient Longman, New Delhi,
1979.
12.5 FURTHER READING
Bipan Chandra, Essays on Colonialism, Orient Longman, New Delhi, 2000.
12.6 MODEL QUESTIONS
2. Critically analyse the dangers of neo-colonialism after 1947 in India.
3. What do you understand by neo-colonialism?