Impact of British Rule on Indian Economy and Society

Social conditions

Indian society underwent many changes after the British came to India. In the 19th century, certain social practices like female infanticide, child marriage, sati, polygamy and a rigid caste system became more prevalent. These practices were against human dignity and values. Women were discriminated against at all stages of life and were the disadvantaged section of the society. They did not have access to any development opportunities to improve their status. Education was limited to a handful of men belonging to the upper castes. Brahmins had access to the Vedas which were written in Sanskrit. Expensive rituals, sacrifices and practices after birth or death were outlined by the priestly class.

When the British came to India, they brought new ideas such as liberty, equality, freedom and human rights from the Renaissance, the Reformation Movement and the various revolutions that took place in Europe. These ideas appealed to some sections of our society and led to several reform movements in different parts of the country. At the forefront of these movements were visionary Indians such as Raja Ram Mohan Roy, Sir Syed Ahmed Khan, Aruna Asaf Ali and Pandita Ramabai. These movements looked for social unity and strived towards liberty, equality and fraternity. Many legal measures were introduced to improve the status of women. For example, the practice of sati was banned in 1829 by Lord Bentinck, the then Governor General. Widow Remarriage was permitted by a law passed in 1856. A law passed in 1872, sanctioned inter-caste and inter-communal marriages. Sharda Act was passed in 1929 preventing child marriage. The act provided that it was illegal to marry a girl below 14 and a boy below 18 years. All the movements severely criticized the caste system and especially the practice of untouchability.

The impact of the efforts made by these numerous individuals, reform societies, and religious organisations was felt all over and was most evident in the national movement. Women started getting better education opportunities and took up professions and public employment outside their homes. The role of women like Captain Laxmi Sehgal of Indian National Army (INA), Sarojini Naidu, Annie Besant, Aruna Asaf Ali and many others were extremely important in the freedom struggle.

The British had come to India with the idea of making immense profits. This meant buying of raw materials at very cheap rates and selling finished goods at much higher prices. The British wanted the Indians to be educated and modern enough to consume their goods but not to the extent that it proved detrimental to British interests.

Some of the Britishers believed that Western ideas were modern and superior, while Indian ideas were old and inferior. This was, of course, not true. Indians had a rich traditional learning that was still relevant. By this time in England there was a group of Radicals who had a humanistic ideology towards Indians. They wanted India to be a part of the modern, progressive world of science. But the British government was cautious in undertaking rapid modernisation of India. They feared a reaction among the people if too much interference took place with their religious beliefs and social customs. The English wanted perpetuation of their rule in India and not a reaction among the people. Hence, though they talked about introducing reforms, in reality very few measures were taken and these were also half-hearted.

Economic conditions

The Industrial revolution has helped the English merchants accumulate a lot of capital from the countries of Asia, Africa and America. They now wanted to invest this wealth in setting up industries and trade with India. The mass production of goods through machines that we witness today was pioneered through the Industrial Revolution which occurred first in England during the late 18th and the early 19th century. This led to a massive increase in the output of finished products. The East India Company helped in financing and expanding their industrial base. During this time there was a class of manufacturers in England who benefited more from manufacturing than trading. They were interested in having more raw materials from India as well as sending their finished goods back. Between 1793 and 1813, these British manufacturers launched a campaign against the company, its trade monopoly and the privileges it enjoyed. Ultimately, they succeeded in abolishing the East India Company’s monopoly of Indian trade. With this India became an economic colony of Industrial England.

Earlier, Indian handloom had a big market in Europe. Indian textiles such as cotton, linen, silk and woolen goods already had markets in Asia and Africa. With the coming of industrialisation in England, the textile industry there made important headway. There was now a reverse of the direction of textile trade between Britain and India. There was a massive import of machine made clothes from English factories to Indian markets. This import of large amount of products manufactured by mechanical looms in England led to increase threat for the handicraft industries as the British goods were sold at a much cheaper price.

The British succeeded in selling their goods at a cheap price as foreign goods were given free entry in India without paying any duty. On the other hand, Indian handicrafts were taxed heavily when they were sent out of the country. Besides, under the pressure of its industrialists, British government often imposed a protective tariff on the British succeeded in selling their goods at a cheap price as foreign goods were given free entry in India without paying any duty. On the other hand, Indian handicrafts were taxed heavily when they were sent out of the country. Besides, under the pressure of its industrialists, British government often imposed a protective tariff on Indian textiles. Therefore, within a few years, India from being an exporter of clothes became an exporter of raw cotton and an importer of British clothes. This reversal made a huge impact on the Indian handloom weaving industry leading to its virtual collapse. It also created unemployment for a large community of weavers. Many of them migrated to rural areas to work on their lands as agricultural laborers. This in turn put increased pressure on the rural economy and livelihood. This process of uneven competition faced by the Indian handloom industry was later dubbed by the Indian nationalist leaders as de-industrialisation.


Unfree labour was central to agricultural production in pre-colonial India. Under colonial impact, these forms of unfree labour, while retaining their outward form, were radically changed in content. In medieval times, the subjects of the king were never `free’ as in the modern sense and all social classes and groups were linked to each other vertically and horizontally in ties of bondage, dependence and patronage. Under colonialism these ties got removed from their socio – economic context of origin and existence, and functioned differently in the new environment. It would be an attempt of this paper to see how and what changes were brought about in the institution of `Beth‘ – forced labour of unfree lower castes – in the Simla Hills under the impact of British rule.

Beth and its cousin category of Begar were forms of unfree labour of the agricultural castes. While the latter was given by practically every State subject for community and administrative works, the former was only given by the lowest castes to the higher castes and it usually took the form of semi-serf agricultural labour. When the British gained physical control of the Cis-Sutlej hills in 1815, they gave Sanads to the petty States of the region confirming their formal independence under British Paramountcy. These States, eighteen in all, were given almost complete independence in their internal matters. Begar was the only exaction of the colonial state from most of them in the absence of any proper tribute.

There has been almost no attempt to study the agrarian economies, social structures and political institutions of the Western Himalayas except in the few ecology centered works on the region. Beth ( or other forms of the labour of the lowest castes ) has never been considered worthy of even the most preliminary study, though there have been one or two exceptions. Before we begin any discussion of unfree labour in the specificities of the Simla Hill States, it would be useful to place it in the wider context of unfree labour in colonial situations.


Begar  a form of social labour without payment. Its origin goes back to the pre-money era when labour was viewed as an important item of exchange. The land of the king and his men and priests were cultivated by peasants in exchange of some tenurial rights in land granted by the king. When the state became a more elaborate and complex affair in later period, the demesne lands of the ruling classes, particularly of the landlords, were worked by their prajas or subjects gratis. This was considered to be a pious act to give free labour to the priestly classes. Village people always gave free labour in working temple lands also. Such a free labour system is not to be confused with the use of slave and bonded labours. Free labour was given either in exchange of some rights obtained in land or some invisible merit obtained from rulers or from priests. It was a social arrangement made possible under the pre-monetised modes of production and social relations.

Begar was the labour which all subjects had to provide the state for fixed periods during the year. It was unfree because there was no choice about wanting to give labour or not. Since agriculture was backward and most areas were not monetised, only a small part of the surplus could be appropriated through cash or kind. It was for this reason that direct labour services were the predominant form of surplus appropriation by the Hill States. There were basically two types of begar taken by the State; one, the regular labour extracted throughout the year and two, the contributions in labour and kind made during special occasions like birth, death and marriage in the Chief’s family. These types of labour had to be provided by all peasant proprietors and other agriculturalists, exceptions being made for members of the royal family, certain Bramhin and Rajput families and most of the village devtas and divinities. This labour service was taken by the State through its officers and the members of the royal family.

Begar was recognised by the British authorities right from 1815, and all the Sanads granted to these Hill States recorded in detail the types, quantities and other requirements of the labour to be provided by the hill people to the British authority. British records of this period have no mention of the term Beth, or other forms of unfree labour, in the Western Himalaya.


In the Shimla Hill States and many adjoining countries such as Mandi, Kullu and Kangra, an obnoxious custom namely Reet was prevalent since time immemorial. It is difficult to give any precise definition of Reet.To some it was a form of marriage but to others, it was the payment usually made on the occasion. Therefore, Reet may be defined as a form of marriage without any ritual or ceremony and was contracted by paying a price. Under this custom, girls and young women were allowed to go for sums usually ranging from Rs.lOO to Rs.500 but sometimes going up to Rs.2,000 by the parents or other guardians in the case of unmarried girls and by husbands in the case of married ones. Thus, the amount paid was known as “Reet’ money. After the payment of this money, the first marriage was, ipso facto annulled and concubinage with the second man became a marriage. There was no limit to the number of women, that one might get under Reet nor any restriction as to leaving any of them again, and in this they might change hands any number of times. Therefore, the marriage under “Reet’ could be dissolved as easily as it was contracted. From this it is clear that woman was treated as a chattel, a commodity to be brought and sold time and again.

The Reet was prevalent among the Kolis, Chanals, Chamars and other tribes which formed the lowest rung in social stratification. In most of the Hill States, if not at all, it was also prevalent among the Kanets. However, Reet was not observed among the high caste Brahmans and Rajputs.

There were many evil results of “Reet” custom; domestic ties became loose and marriage came to have very insignificant position in the stability of society. Indiscriminate relations of a woman with many men often resulted in her catching syphilla and in return, she transmitted the disease to many persons. Perhaps that is why these contagious diseases became widespread in the hill states. Further, the institution of “Reet’ also resulted in the laxity of sexual relations and the total disregard of the laws of chastity. The girls were often used for immoral purposes and this led to a notorious traffic in them, which finally swelled the ranks of prostitutes. While highlighting the bad results of the custom, the “Bombay Chronicle’ commented: The effects of such lax relationship, whether on the character of sex-relationship or on racial advancement were disastrous. Since marriage is purely mechanical, being based on money bargain, it is not regarded as a sacred human relationship with the result that the conditions which obtain there are hardly distinguishable from general promiscuity. Divorce is not obtained on some rational grounds such as cruelty or vice or insanity of a mate or even an irreconcilable incompatibility of temperament between the couple, but simply on that of lust backed by economic means. The result is the degradation of the status of women, which, after all a the test of morality and steady racial degeneration among the hill tribes.

Decline of handicrafts during British period

India’s traditional village economy was characterised by the “blending of agriculture and handicrafts”.  But this internal balance of the village economy had been systematically slaughtered by the British Government. In the process, traditional handicraft industries slipped away, from its pre-eminence and its decline started at the turn of the 18th century and proceeded rapidly almost to the beginning of the 19th century.  This process came to be known as ‘de-industrialisation’—a term opposite to industrialisation. The use of the word ‘de-industrialisation’ could be traced to 1940. Its dictionary meaning is ‘the reduction or destruction of a nation’s industrial capacity’. This term came into prominence in India to describe the ‘process of destruction of Indian handicraft industries by competition from the products of British manufacture during the nineteenth century’.

Industrialisation is associated with a relative shift in the proportion of national income as well as workforce away from agriculture. In other words, with the progress of industrialisation, proportion of income generated by and the percentage of population dependent on industry should decline.  While estimating the distribution of global output of manufactured goods, P. Bairoch concluded that India’s share of manufacturing output in the world was as high as 1.9.7 p.c. in 1800. In a span of 60 years, it plummeted to 8.6 p.c. (in 1860) and to 1.4. p.c. in 1913. The declining share of industrial output in the’ world output could be attributed to an absolute decline in manufacturing output per person.


Causes of Decline:

  1. Decline of Indian courts: The disappearance of Indian courts struck the first blow at Indian handicrafts. As native states passed under British rule, the demand for fine articles, for display in durbars and other ceremonial occasions disappeared. The ordinary demand did continue for sometime longer, but the younger generation lacked the means and inducement to patronise the arts and handicrafts. And they declined.
  2. The Establishment of British Rule: The establishment of British rule in India affected cottage industries both directly and indirectly. Directly it led to the establishment of peace and order in the country which adversely affected such handicrafts as the inlaying of arms, weapons and shields. This craft was common in the Punjab and Sindh.  By eliminating the need for such weapons and by prohibiting their possession and use, the British reduced the industry to producing ornamental knick-knacks for European tourists. Similarly, the establishment of the British rule made it neces­sary, through an un-written order, for Indians to wear patent leather shoes when in the presence of British superiors.This brought about the decay of the embroidered shoe industry. Indirectly, the British rule weekend the power of the guilds which regulated trade and supervised the quality of work done. As a consequence, evils such as the adulteration of raw materials and poor work­manship crept in and artistic and commercial value of the products deteriorated.
  3. Western Education: The new system of English education was another contributory factor. In the early stages, the newly educated Indians were more westernized than even the Europeans themselves. They blindly accepted European standards and fashions and looked down upon everything Indian.  Matters came to such a sorry pass that to follow European tastes was regarded as the hall mark of enlightenment. As a result, demand for the products of indigenous industries declined while that for Europeans goods increased.
  4. Introduction of New Patterns: With the disappearance of Indian states, old rulers and nobles also disappeared and their place was taken up by the European Officers and tourists. Indian craftsmen, however, did not clearly understand the forms and patterns which suited European tastes.  They tried to please their new customers by copying their forms and patterns. Very often, the new products were very poor copies of the original and “lacked the vigour and life” of the indigenous products. An instance of this kind is furnished by the Kaftgiri Industry in the Punjab which declined due to indiscreet European patronage.
  5. Competition of Machine Made Goods: Apart from the abolition of Indian courts and the introduction of foreign influences, it was the superior manufacturing technique based on power and im­proved machinery which enabled the British manufacturers to drive the Indian artisans from out of their home market. It was what Ranade calls, the competition of Natures’ powers against man’s labour’ which completed the ruin of Indian handicrafts.  The invention of the power loom in Europe brought about the ruin of the Indian textile industry and, by 1834-35,” the bones of the cotton-weavers were bleaching the plains of India.” The same story may be recounted of other Indian industries such as the ship-building Iron smelting, glass, dyeing and paper manufacture. The Indian domestic and cottage handicrafts could not possibly have withstood foreign competition which was backed by a powerful industrial organisation, big machinery, large-scale production and complex division of labour.  The difficulties of the Indian industries were further aggravated by the construction of the Suez canal, fall in freight rates and the reduction of transport costs which made British goods more cheap in India.
  6. Policy of the British Govt.: In the beginning, the commercial interests of East India company led it to encourage Indian industries because its exports from India were largely drawn from them. This policy, however, met with determined opposition from vested interests in England which compelled the company to concentrate only on the export of raw- materials so necessary for the expanding British Industries.  This policy of making India subservient to the industries of Great Britain was followed with rare determination and fatal success. Orders were issued to force Indian artisans, especially silk-winders, to work in the company’s factories and not in their homes; commercial residents were vested with extensive legal powers over villages and communities of Indian weavers. The use of dyed Indian calicoes was prohibited. Extensive use was made of custom duties to crush Indian in­dustries. For instance, in 1813, cotton and silk goods of India could be profitably sold in the British market at a price 50-60% lower than the price of cloth manufac­tured in England. However, duties ranging from 70-80% on their value were imposed on Indian textiles in order to drive them out of the British market.
  7. Role of Intermediaries: Except the village subsistence and rural art industries, in all others, the extension of the market led to the emergence of dealers and financiers who reduced the artisans to “hewers of wood and drawers of water” for their masters. The part played by middlemen in bringing about this stale of affairs is best illustrated by the activities of the East India Company itself.  The company, being a dealer in the products of cottage industries, made advances in cash and raw-materials to buy the finished products. Having done so once, it held the craftsmen under its iron grip.  For example, it provided that a weaver, who had received advances from the company, “shall on no account give to any other person, European or native, either the labour or the produce engaged to the company” that, on his selling the cloth to others, the “weaver shall be liable to be prosecuted in the Diwani Adalat” ; that weaver “shall be subject to a penalty of 35% on the stipulated price of every piece of cloth that he fails to deliver according to the written agreement”.  Whenever the artisans were unable to carry out the agreements forced upon them, their goods were forcibly seized and sold on the spot to make good the deficiency. Unable to resist this injustice, many weavers     “cut off their thumbs to prevent their being forced to weave silk.”

Impact of decline of handicraft industry on india

Cheap and machine-made imports flooded the Indian market after the Charter Act of 1813 allowing one-way free trade for the British citizens. On the other hand, Indian products found it more and more difficult to penetrate the European markets.  After 1820, European markets were virtually closed to Indian exports. The newly introduced rail network helped the European products to reach the remotest corners of the country.

The loss of traditional livelihood was not accompanied by a process of industrialisation in India, as had happened in other rapidly industrialising countries of the time. This resulted in deindustrialisation of India at a time when Europe was witnessing a re-intensified Industrial Revolution. This happened at a time when Indian artisans and handicraftsmen were already feeling the crunch due to loss of patronage by princes and the nobility, who were now under the influence of new western tastes and values.  Another feature of deindustrialisation was the decline of many cities and a process of ruralisation of India. Many artisans, faced with diminishing returns and repressive policies (in Bengal, during the Company’s rule, artisans were paid low wages and forced to sell their products at low prices), abandoned their professions, moved to villages and took to agriculture.

This resulted in increased pressure on land. An overburdened agriculture sector was a major cause of poverty during British rule and this upset the village economic set-up.  From being a net exporter, India became a net importer.


Critical evaluation of deindustrialization

Nationalists and Their Critique

Nationalists, Dada Bhai Naoroji, M.G. Ranade and R.C. Dutt, Rajni Palme Dutt etc. saw the destruction of Indian industry as a consequence of colonialism and they discussed deindustrialization process in context of the impact of colonial rule in India. In the beginning of the 19th century, exports of small-scale industry products came down, while on the other hand, imports of British industrial products were on the increase. This decline could be traced in cotton textiles’ import by Britain between the period 1860 (96 million pound sterling) to 1880 (1 billion 70 million pound sterling) and finally in 1900 (27 billion pound sterling). R.C. Dutt and others argue that the decline in imports shows that the demands for Indian textiles was coming down in foreign markets in the beginning of the 19th century and increasing exports indicate that the Indian handicrafts were thrown out from the indigenous market. This policy was pursued with the object of replacing the manufacturers of India, as far as possible, by British manufacturers.                                In 1960’s David Morris David questioned the assumptions and arguments of the Nationalists. He said that there was not much evidence available to demonstrate deindustrialization process in India. Morris claimed that British manufactured clothes did not harm the Indian industry because the population of India was increasing along with an increase of purchasing power of the Indians that led to an increase in demand for Indian textiles in India; so the demand for clothes was met by raising British imports, without damaging indigenous production.     Bipin Chandra, Toru Matsui and Tapan Roychaudhuri have argued, in response to Morris, that evidence points towards deindustrialization. Going by reports of famines, eye witnesses and traveler’s accounts, official enquiries and government reports of the British East India Company etc. were all pointers towards the worse possible impact of British manufactured goods in India. These thinkers said that there was not enough.

to woven cloth was very low. During 1849 to 1889 the import of cloth increased by 25.5 million sterling, while on the other hand, yarn imports increased by merely 1.8 million sterling. Indian weavers, therefore, could not really benefit from the decline in yarn prices that was comparatively less fruitful as it did not bring about the required reduction in the cost of their cloth to be able to compete with British machine-woven cloth, which was a lot cheaper.     Morris also argued that in spite of the imports from Birmingham, Manchester etc. Indian small-scale industry survived because Indian small-scale industry produced its own market. Though there exists no evidence that Indian industry did not face any destruction, but Morris gave a partial answer to this question by being surprised how Indian small scale-industry survived in spite of oddities before the nation and the arrival of competition, vide machine made cheaper imported commodities. However, the reality is that despite adverse circumstances, the weavers did not abandon their occupation because they had deep attachment with caste-based occupations. The other reason was that they had no other alternative to earn their livelihoods and many were trapped in debt.

The Nationalist faced a common criticism that they had not enough evidence to demonstrate deindustrialization, specifically in the period prior to recordings made by the census. However later historians, like Amiya Kumar Bagchi, managed to get some statistical evidence. Bagchi showed the evidence provided by the survey conducted by Francis Buchanan- Hamilton in Gangetic Bihar between 1809-1813 and the census data of 1901. According to Bagchi’s analysis, the percentage of population dependent on industries was 18.6 in 1809-1813, which declined to 8.5 percent in subsequent findings     Marika Vicziany pointed out that Buchanan- Hamilton’s survey could not be regarded as very reliable as he gathered information from local people, who may have given him incorrect information due to fear of the motive of foreigners. Local people further suspected that the East India Company might use the information to increase revenue or intervene in their lives. Vicziany also argued that Buchanan- Hamilton’s classification of spinners was not very accurate because spinners could not have supported themselves only on the basis of spinning; in her view spinners did not earn enough and should be classified as part-time spinners. So the estimate of spinners was erroneous. Bagchi responded and said even if spinning did not support spinners fully it constituted the principal means of their livelihood .

The Other Side of the Debate

In the early 1960s Daniel Thorner argued that the censuses from 1881-1931 showed that there was not much change in the proportion of population engaged in industrial occupations. He elaborated that on a first impression, the census figures indicate that the male work-force in agriculture was 65% and increased to 72% in 1931. In the same period their proportion in industry declined from 16% in 1881 to 9% in 1931 suggestive de-industrialization. However, Thorner questioned this by describing the census categories as erroneous because it assumed a clear-cut separation between agricultural work-force and general labour-force and between industrial work-force and trade. In Daniel’s view, this hard segregation was not possible in an agricultural economy like that of India which constrained people, during seasonal periods, to shift from one industry to another.

According to the Thorner, if these categories are merged then the picture looks different. Then the increase in the work-force in the primary sector, i.e. agriculture works out to about 2% and the decline in industry and trade amounts to only about 3% between 1881-1931. Thorner also dismissed the statistics on female labour on the ground that census officials themselves regarded them as inaccurate. Therefore in their view, which is somewhat controversial, the census figures do not provide evidence to support substantial de-industrialization. Nonetheless, Thorner, however, conceded that there may have been de-industrialization in India before 1881.

Some questions were raised by Tirthankar Roy and others, who have objected to the exclusion of women from the analysis. Women’s participation declined dramatically during the census period. It seems that in the Indian social context, women in many artisan families gave up artisanal work earlier than men to take up household or agricultural work. Hence any exclusion of their data would not show much change in occupational structure while the inclusion of data related to women will show a decline in the number of people engaged in industrial activity.     Recent research suggests that different regions and commodities experienced the impact of machine-made goods in different ways, depending on when they came under colonial rule. Thus for example, British-manufactured goods affected the economy of eastern India far more than other regions. Historians like Tapan Roychaudhury argue that the conditions of the artisans and weavers of eastern India started deteriorating soon after the Battle of Plassey (1757) and their condition worsened in the 19th century. It has also been suggested that that the Madras Presidency suffered less compared to Bengal and western India.

Urban Indian economy after 1858

During this period, the Indian economy essentially remained stagnant, growing at the same rate (1.2%) as the population.  India also experienced deindustrialization during this period. Compared to the Mughal era, India during the British colonial era had a lower per-capita income, a large decline in the secondary sector, and lower levels of urbanization. India’s share of the world economy and share of global industrial output declined significantly during British rule.

Some of the important features of Indian urban economy during this period are as follows:


In the seventeenth century, India was a relatively urbanised and commercialised nation with a buoyant export trade, devoted largely to cotton textiles, but also including silk, spices, and rice. India was the world’s main producer of cotton textiles and had a substantial export trade to Britain, as well as many other European countries, via the East India Company. Yet as the British cotton industry underwent a technological revolution during the late 18th to early 19th centuries, the Indian industry stagnated and deindustrialized. India also underwent a period of deindustrialization in the latter half of the 18th century as an indirect outcome of the collapse of the Mughal Empire.  Even as late as 1772, Henry Patullo, in the course of his comments on the economic resources of Bengal, could claim confidently that the demand for Indian textiles could never reduce, since no other nation could equal or rival it in quality. However, by the beginning of the nineteenth century, a beginning of a long history of decline of textile exports is observed .

A commonly cited legend is that in the early 19th century, the East India Company (EIC), had cut off the hands of hundreds of weavers in Bengal in order to destroy the indigenous weaving industry in favour of British textile imports (some anecdotal accounts say the thumbs of the weavers of Dacca were removed). However this is generally considered to be a myth, originating from William Bolts’ 1772 account where he alleges that several weavers had cut off their own thumbs in protest at poor working conditions. Several historians have suggested that that the lack of industrialization was because India was still a largely agricultural nation with low wages levels, arguing that wages were high in Britain so cotton producers had the incentive to invent and purchase expensive new labour-saving technologies, and that wages levels were low in India so producers preferred to increase output by hiring more workers rather than investing in technology. Several economic historians have criticized this argument, such as Prasannan Parthasarathi who pointed to earnings data that show real wages in 18th-century Bengal and Mysore were higher than in Britain. Workers in the textile industry, for example, earned more in Bengal and Mysore than they did in Britain, while agricultural labour in Britain had to work longer hours to earn the same amount as in Mysore. According to evidence cited by the economic historians Immanuel Wallerstein, Irfan Habib, Percival Spear, and Ashok Desai, per-capita agricultural output and standards of consumption in 17th-century Mughal India was higher than in 17th-century Europe and early 20th-century British India.

British control of trade, and exports of cheap Manchester cotton are cited as significant factors, though Indian textiles had still maintained a competitive price advantage compared to British textiles up until the 19th century. Several historians point to the colonization of India as a major factor in both India’s deindustrialization and Britain’s Industrial Revolution. British colonization forced open the large Indian market to British goods, which could be sold in India without any tariffs or duties, compared to local Indian producers who were heavily taxed, while in Britain protectionist policies such as bans and high tariffs were implemented to restrict Indian textiles from being sold there, whereas raw cotton was imported from India without tariffs to British factories which manufactured textiles from Indian cotton. British economic policies gave them a monopoly over India’s large market and raw material such as cotton. India served as both a significant supplier of raw goods to British manufacturers and a large captive market for British manufactured goods.

Decrease in the share of world GDP

India’s share of the world economy went from 24.4% in 1700 to 4.2% in 1950. India’s GDP (PPP) per capita was stagnant during the Mughal Empire and began to decline prior to the onset of British rule.India’s share of global industrial output also declined from 25% in 1750 down to 2% in 1900. At the same time, the United Kingdom’s share of the world economy rose from 2.9% in 1700 up to 9% in 1870,and Britain replaced India as the world’s largest textile manufacturer in the 19th century. Mughal India also had a higher per-capita income in the late 16th century than British India had in the early 20th century, and the secondary sector contributed a higher percentage to the Mughal economy (18.2%) than it did to the economy of early 20th-century British India (11.2%). In terms of urbanization, Mughal India also had a higher percentage of its population (15%) living in urban centers in 1600 than British India did in the 19th century.

number of modern economic historians have blamed the colonial rule for the dismal state of India’s economy, with investment in Indian industries limited since it was a colony. Under British rule, India experienced deindustrialization, the decline of India’s native manufacturing industries. The economic policies of the British Raj caused a severe decline in the handicrafts and handloom sectors, with reduced demand and dipping employment; the yarn output of the handloom industry, for example, declined from 419 million pounds in 1850 down to 240 million pounds in 1900. Due to the colonial policies of the British, the result was a significant transfer of capital from India to England, which led to a massive drain of revenue rather than any systematic effort at modernisation of the domestic economy.

Development of Railway

British investors built a modern railway system in the late 19th century—it became the then fourth largest in the world and was renowned for quality of construction and service. The government was supportive, realising its value for military use, as well as its value for economic growth. All the funding and management came from private British companies. The railways at first were privately owned and operated, and run by British administrators, engineers and skilled craftsmen. At first, only the unskilled workers were Indians. A plan for a rail system in India was first put forward in 1832. The first train in India ran from Red Hills to Chintadripet bridge in Madras in 1837. It was called Red Hill Railway. It was used for freight transport only. Few more short lines were built in 1830s and 1840s but they did not interconnect and were used for freight transport only. The East India Company (and later the colonial government) encouraged new railway companies backed by private investors under a scheme that would provide land and guarantee an annual return of up to five percent during the initial years of operation. The companies were to build and operate the lines under a 99-year lease, with the government having the option to buy them earlier. In 1854 Governor-General Lord Dalhousie formulated a plan to construct a network of trunk lines connecting the principal regions of India. Encouraged by the government guarantees, investment flowed in and a series of new rail companies were established, leading to rapid expansion of the rail system in India.

In 1853, the first passenger train service was inaugurated between Bori Bunder in Bombay and Thane, covering a distance of 34 km. The route mileage of this network increased from 1,349 km in 1860 to 25,495 km. in 1880 – mostly radiating inland from the three major port cities of Bombay, Madras, and Calcutta. Most of the railway construction was done by Indian companies supervised by British engineers. The system was heavily built, in terms of sturdy tracks and strong bridges. Soon several large princely states built their own rail systems and the network spread to almost all the regions in India. By 1900 India had a full range of rail services with diverse ownership and management, operating on broad, metre and narrow gauge networks.


The Great Depression The worldwide Great Depression of 1929 had a small direct impact on India, with relatively little impact on the modern secondary sector. The government did little to alleviate distress, and was focused mostly on shipping gold to Britain. The worst consequences involved deflation, which increased the burden of the debt on villagers while lowering the cost of living. In terms of volume of total economic output, there was no decline between 1929 and 1934. Falling prices for jute (and also wheat) hurt larger growers. The worst hit sector was jute, based in Bengal, which was an important element in overseas trade; it had prospered in the 1920s but was hard hit in the 1930s. In terms of employment, there was some decline, while agriculture and small-scale industry also exhibited gains.The most successful new industry was sugar, which had meteoric growth in the 1930s.


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