Module 1

Topics covered:

I. India in the Pre-British Period.

II. Forms of Colonial Exploitation.

III. Economic Consequences of British Conquest.

I. Indian Economy in the Pre-British Period

Features of the India economy in the pre-British period can be discussed as

follows:

1. The Structure and Organization of village: The village community was

based on simple division of labor. The three distinct classes in the village
were the agriculturists, the village artisans & menials and the village
officials. Most of the food produced in the village was consumed by the
village population itself. The raw materials produced from primary
agriculture were the feed for the handicrafts. The interdependence of the
agriculture and industry provided the basis for the small village to function
independently of the outside world. The villages acknowledged the outside
authority by paying a portion of their produce as land revenue, which
sustained the government.
2. The Structure and Character of Towns: Towns had come into being on
account of the following reasons:
• Towns were the places of pilgrimage or sacred religious centres.
Examples of such town were Allahabad, Banaras, Gaya, Puri, Nasik etc.
• Towns were the seat of a court or the capital of a province, example,
Delhi, Lahore, Pune, Lucknow, Tanjore etc.
• Towns were commercial or trading routes, example, Mirzapur, Banglore,
Hubli etc.
3. Condition of Industries & handicrafts: Even though India was an agrarian
economy, products of Indian industries enjoyed a world-wide reputation, for
example, muslin of Decca, calicos of Bengal, the sarees of Benaras and other
cotton fabrics. The chief industry spread over the whole country was textile
handicrafts and the high artistic skill of the Indian artisans was greatly
appreciated. Besides handicrafts, the artistic industries was also famous, for
example marble work, stone carving, brass,copper and metal wares, wood
carving etc. The Indian industries not only supplied all local wants but also
enabled India to export its finished products to foreign industries. Indian
exports chiefly included manufactures like cotton & silk fabrics, calicos, artistic
wares, silk and woolen cloth. The other articles exported included pepper,
cinnamon, opium, indigo etc.

India in the Colonial Period

The British rule can be divided into two epochs:

• The rule of the East Indian Company ranging from 1757 to 1858.
• The rule of the British Government in India from 1858 to 1947.

The British conquest in India lasted for 100 years, that is, it started in 1757
with the Battle of Plassey and completed by 1858. The coming of Industrial
Revolution in Britain which synchronized with the period of British
conquest accelerated the process of exploitation in India.

II. Forms of Colonial Exploitation

1. Exploitation through trade policies:

Both East India Company and the British Government used the trade
policies against India to:

• Drain away wealth from India to feed their expanding industries.

• Encourage the trend towards commercialization of agriculture so as to
make the Indian economy a part of the British colonial system. The
ways through which they achieved this was:
a) Exploitation of cultivators to boost indigo exports and sell it to them
at a low price..
b) Exploitation of artisans through company agents called ‘gomastas’, to
deliver cotton and silk fabrics at a price below the market price.
c) Exploitation through the manipulation of import and export duties
2. Exploitation through export of British capital to India. The British
government found the need for more investment in India for better
 control and administration. All the investments were made by the British
Multi National Companies with their subsidiaries operating in India. The
reasons for increased investment were:
a) They felt the need to have more efficient transport &
communication system.
b) To effectively exploit natural resources of India, it was essential to
develop public utilities like electricity & water.
c) To promote foreign trade it was essential to collect food stuffs and
raw materials from different ‘mandis’ (rural markets) and quickly
transport abroad and at the same time to enable speedy
distribution of manufactured goods imported, it was essential to
construct railways to link with the ports and the mandis.
3. Exploitation through finance capital via the Managing Agency
system. As the Indians lacked business experience, they were assisted by
the managing agents to organize and run modern industries. For all their
services they charged commissions which in due course turned
exploitative.
4. Exploitation through payment for the cost of British administration.
a) All the posts both in the army and among the civil administration
were held by the Britishers. Their salary and all other extra
allowances were paid from the Indian treasury.
b) Their pensions were also paid by India.
c) India was forced to pay for the various wars of the East India
Company like the Mysore & Maratha wars, the Afghan &
Burmese wars.
d) The entire cost of the telegraph line from England to India was
charged from India.
e) During the two World Wars, India exported more to Britain than it
imported.
f) Inspite of this favourable Balance of Trade (exports exceeding
imports), India was forced to issue more currency on the backing
of the sterling balances held in England. Buy this policy Britain
only imported inflation to India. This accounted for a much larger
rise of the price level in India during the war.
III. Economic Consequences of British Conquest in India

1. Decline of Indian handicrafts and progressive ruralisation of

the economy

The principal causes that led to the decline of handicrafts were the
following:

• Disappearance of princely courts which in turn meant the

disappearance of the patronage of nawabs, kings and rajas
provided to the handicraft sector of India.
• Hostile policy of the East India Company and the British
parliament. The selfish policy of the British imperialists
crippled Indian handicraft industries and helped the process of
industrialization in Britain.
• Competition of machine-made goods:

a) The large scale production that grew as a result of Industrial

Revolution meant a heavy reduction in costs. This increased the
competition of machine-made goods with the products of Indian
industries and handicrafts. This led to the decline of textile
handicrafts, the largest industry in India.

b) The development of roads, railways and telegraphs intensified

the competition between indigenous and foreign goods.

c) The opening of the Suez Canal in 1869 reduced transport costs

and thus made the exploitation of Indian markets easier.

• The development of new forms and patterns of demand as a

result of foreign influence. As a result the indigenous goods
went out of fashion and the demand for European
commodities increased.

The shift of unemployed craftsmen and artisans to agriculture,

that is, back-to-land movement is described as ‘progressive
ruralisation’ or ‘deindustrialization’ of India. In the middle of
the 19thcentury about 55% of the population was dependent on
 agriculture, in 1901 it was about 68% and in 1931 it went up to
72%. This increased pressure of population on land was
responsible for the progressive sub-division and fragmentation
of land holdings. Thus, the crisis in handicrafts and industries
seriously crippled Indian agriculture.

2. The Land System during 1793-1850. Land was the principle

source of revenue source of revenue right from East India
Company rule. To bring about stability in agriculture, especially
in regard to the revenue collected from land, British introduced the
Land Settlement in 1793. In Bengal and neighbouring areas the
new land system was called the Zamindari system, in which the
zamindar or the land lord was supposed to collect revenue from
the actual tillers of the soil. The land system that evolved in
Bombay and Madras came to be called the Ryotwari system. In
this system each peasant holding a plot of land was recognized as
the land lord and made directly responsible for the annual
payment of land revenue.

In both cases, the land rents fixed were excessive and both the
system were instrumental in the destruction of the organic village
community based on custom and traditions. The system helped to
create a class of absentee landlords who were more interested in
squeezing higher land rents than in real agricultural progress. The
excessive rents imposed on the peasant-cultivators forced them to
sell land to absentee land lords or money lenders. Thus the new
land system depressed agriculture and the peasantry.

3. Commercialisation of Agriculture (1850-1947)

It implies production of crops for sale rather than for family

consumption.

• Due to industrialization in Britain, there was tremendous

demand for raw materials, especially cotton, jute,
sugarcane, groundnuts etc. for British industries. By
offering a higher bait of market price, the peasants were
 induced to substitute commercial crops for the food crops.
This gradually led to a fall in the production of food and
consequently this period saw the occurrence of most terrible
famines in the economic history of India.
• Commercial agriculture was also to some extent, the result
of the mounting demands of the land revenue by the state
and excessive rents by the land lords from the peasantry.
• The process of commercialization was intensified by the development
of an elaborate network of railways in India after 1850. Large
quantities of wheat from Punjab, jute from Bengal and cotton from
Bombay poured in for export to England. In return the trains brought
back the foreign machine-made goods to India. Thus railways and
link-roads connecting rural areas of the country with commercial and
trading centres were instrumental in intensifying commercial
agriculture on the one hand and sharpening competition of machine-
made goods with Indian handicrafts.
4. Process of industrial transition in India.

The process of industrial transition in the British period is broadly

divided into:

• Industrial growth during the 19th century

• Industrial progress during the 20th century.

It was mainly the private sector- whether indigenous or foreign-

that carried industrialization forward. The British business
pioneered industrial enterprise in India. Their business experience
coupled with maximum state support strengthened their presence
in Indian industries. But they were solely interested in their profit
and not in accelerating the economic growth of India. In the West,
merchants and the master craftsmen took the lead to set up
factories. In India, most merchants belonged to the money lending
community, so even though they had capital they were more eager
for its security and profits. And the master crafts men not only
lacked sufficient capital but also did not have proper education
and training.
Indians joined the ranks of industrialists in the middle of the 19 th
century. The indigenous business groups who took into industrial
ventures were the Parsis, the Gujaratis, the Marwaris, the Jains
and the Chettiars. The Swadeshi movement which started in 1905
stimulated Indian industries and there was a slow but steady
growth in indigenous industries. The World War of 1914-18
created huge demand for factory goods in India. As the imports
from England and other foreign countries fell substantially and as
the government demand for war-purposes increased considerably,
great stimulus was given to the production of Indian mills and
factories. This followed by the protection offered to the
indigenous industries from foreign competition provided a great
impetus to the industrial growth of the country. As one estimate
showed, the British controlled 43% of gross assets in India in
1914, 10 % in 1935 and only 3.6 % in 1948.