Colonialism and Underdevelopment of the Indian Economy

Colonialism and Underdevelopment of the Indian Economy

Institute of Lifelong Learning, University of Delhi

Paper: International Economics

Lesson: Colonialism and Underdevelopment of the Indian Economy

Name: Sarabjeet Kaur

College/Department: Rajdhani College, University of Delhi



Table of the Contents

Chapter: Colonialism and Underdevelopment of the Indian Economy

1. Learning Objectives

2. Colonialism

3. Exploitation of India Under British Rule

a. Merchant Capital and the Exploitation.

b. Industrial Capital and the Exploitation.

c. Finance Capital and the Exploitation.

4. Drain Theory

5. De-industrialization

6. References



Learning Objectives

After study this chapter, you will learn:

1. Meaning of Colonialism

2. Exploitation by Britisher

3. Drain theory

4. Effect on various sectors




World experienced large number of significant events during 17th and 18th

century. One of most important event that took place in England was

Industrial Revolution. Further, the event of industrial revolution was spread

to other counties of Europe. Vasco De Gama developed sea route to India,

as a result, Britain and most of the European Countries came to India for

trading.

India provided a platform to Britain for providing raw material for factories

and also a market for finished goods. British officials have perfect

opportunity to establish their hold through wars, forced treaties, annexations

of and alliances with the various regional powers. Britishers introduced new

administrative and economic policies, which helped them to establish their

control in the country. They collect huge revenue through their land revenue

policies from poor farmers. They also forced farmers to produce various cash

crops and raw material for British industries. Britian control the political

system of India such that its trade with India only.

They improved transport and communication system in India so that they

can do easy trade with India. They also developed English education system

so that Indians would assist the Britishers in ruling India and strengthen

their political power.

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Colonialism

Before discussing the role of colonialism in India, let us discuss the meaning

of colonialism. Colonialism relate to the relation of political and social

between two countries; ruler and colony. The ruling country controls political

system of the colony. Ruling country also controls the economic system such

that they can make and regulate all the policies in favour of ruling power.

This imbalance association between the colony and ruling country causes

underdevelopment of the colony.

Bipan Chandra gave three characteristics of colonialism.

1. There is a complete and complicated relation of the colony with the

rest of world capitalist system in a secondary position.

2. There is an imbalance trade between a colony and the industrialist

countries. they use better technology with high productivity and

mainly produce capital intensive goods, whereas the colony use low

level of technology with low productivity and mainly produce labour

intensive product.

3. There is a unilateral transfer of surplus from colony to ruling country,

which is called as drain of wealth, through exports.

Exploitation of India Under British Rule

After the Battle of Plasey ,the East India Company of British established its

rule through the major portion of India. With this, the period of exploitation

of Britishers in India have started. In this period, there was huge drain of

wealth from India to England. This results in pauperization of the India and

Industrial Revolution in England. After the transfer of power from East India

Company to British Crown, it did not change any circumstances. But, the

form of colonial exploitation had changed.



India was exploited by Britishers for over period of two centuries for their

colonial rule but exploitation was never the same throughout the time

period. The whole period of exploitation have been divided in three phases:

1. Merchant Capital and the Exploitation.

2. Industrial Capital and the Exploitation.

3. Finance Capital and the Exploitation.

The first phase of exploitation (i.e, merchant capital) ended in 18th century,

which started from Battle of Plasey . The second phase (i.e, Industrial

Capital) started in the 19th century and ended till the end of this century.

The last phase of exploitation started in late of 19th century and it continued

till independence.

I. Merchant capital and Colonial Exploitation

After the Battle of Plasey, the Britishers have stronghold (both politically and

socially) on the Indian Economy. They started exploitation in India in

following ways:



1. The Company has stolen trade from India. During the initial years of

establishment of East India Company, there was huge amount of

exports but there was hardly any import from Britian. Hence, the

company has to pay in terms of gold and silver worth 30,000 pounds

per annum. The political power of India had captured by the company

after the battle of Plassey. Because of this reason, Britishers have got

maximum goods for minimum payments and hence, balance of trade

was in favour of British.

Lord Cornwalis

2. Land revenue was a tool of plundering agriculture labours under the

rule. Lord Cornwalis established the Permanent Settlement of land in

the year 1793. The land revenue was £34000. This collection of land

revenue was not spending on developmental activities or public

welfare. These were used as the surplus of the company.

3. The staff of the company was corrupt and unprincipled and they used

all the feasible ways to make huge amount of fortues.

Hence, they exploit the Indian Economy completely.

II. Industrial Capital and the Colonial Exploitation

There was a need to change in the mode of exploitation because of

increasing demand for raw material for Industrial Revolution in Britian. In



this phase, India was developing as a market for the British industries. Here

important forms of exploitation were:

1. Export of machine made goods to India

In the initial phase, British products could not compete with Indian Products

because; british products were inferior and expensive. Hence, on the one

hand, for protection of home industry, British government imposed heavy

taxes, i.e, 78 percent custom duty, on imported Indian goods. On the other

hand, there were duty free british imported goods in India. This policy has

given protection to British industry to India. Hence, export of India

decreases where as its imports increases.

2. Development of cotton and jute industry and plantation

The Britishers did not want to establish any manufacturing industry in India.

But few industries, which won’t be established anywhere, encouraged by

them. One of them was cotton and jute industry and the british government

was earning profit from this industry. Tea, coffee and indigo plantation were

few other industries set up by Britishers.

3. Revenue and expenditure policies of the Britshers

There was a need of maintaining a big army of Britisher for retaining political

pressure in India. Expenditure on army was highest, almost one-third of the

total expenditure of government. This expenditure was paid by Indian



government. Some other expenditure were also paid by the Indian

government such as pensions of army officers, expenditure on Indian office,

salaries of the members of the Indian council etc.

III. Finance capital and the colonial exploitation

During 19th century, the massive investments of British capital in India were

not brought from England. Rather it was collected in India by using all kinds

of unethical way by the British. The main sectors where British government

entered were:

1. The State Sector:

The British government unethically imposed expenses on India that were not

related with the people of the country. All these expenses were treated as

the loans which were granted to India.

2. Investment in plantations

The main interest of British government was in tea, coffee and rubber

plantations. Investments on these industries were because of the reason

that these industries could not be developed in England due to geographical

factors. India had favorable climate for these industries and labour was also

cheap. Hence, the British government wanted to make investment in this

sector.

3. Investment in Railways

The British government imported capital particularly for the construction of

Railways in India. But the Indian tax payers have to pay interest on this

capital. Hence, the entire burden of interest was on Indian tax payers. There



were number of objectives for the construction of railways in India:

a. To collect raw material different parts of the country for export to

England.

b. To supply British manufactured product in all the parts of the country.

c. To serve commercial and political interests of the British. It also

benefits to Indian economy.

d. Safe, speedy and relatively cheap mode of transport for goods and

passengers.

4. Other Sectors

The British government invested in few sectors like, oil, mining, rubber

industry, etc but total investment in these sectors was even less than 3

percent of the British total investment.

Hence, there is no dought that British government does not want to develop

India at all.

The nationalists of the country highlighted two important aspects British

Colinal rule India

A. The Drain Theory

B. The theory of de-industrialisation

Economic Drain or Drain Theory

As given by the nationalists, according to drain theory, a important part of

national wealth of India was being exported to England and for this India



was not getting any return. According to Dadabhai Naoroji, “ drain as

Dadabhai Naoroji

marking the difference between the rulers of India in the past and the

British, for under the former there was no drain of wealth from the country.

The wealth of the people remained within the country and was spent inside

it. Individual citizens might suffer but the country as a whole did not lose;

the loss of one citizen became the gain of another. The British, on the other

hand, took wealth out of the country and spent it abroad.

Dadabhai calculate the economic drain of India during 1835 to 1872.

Economic Drain (1835-1872)

_____________________________________________________

Years Yearly Average

_____________________________________________________

1835 to 1839 5,347,000



1840 to 1844 5,930,000

1845 to 1849 7,760,000

1850 to 1854 7,458,000

1855 to 1859 7,730,000

1860 to 1864 17,300,000

1865 to 1869 24,600,000

1870 to 1872 27,400,000

Source: Naoroji, Dadabhai, Poverty and Un-British Rule in India, 2nd Edition, Ministry of Information

and Broadcasting in India, Government of India, New Delhi, !966, p.31

From the above table, it was clear that there was huge amount of economic

drain from India to England and it was increasing from time to time.

The drain consists of two elements---first, that arising from the remittances

by European officials of their savings, for their expenditure in England for

their various wants both there and in India; from pensions and salaries paid

in England; government expenditure in England and India, the second that

arising from similar remittances by non-official Europeans. As the drain

prevents India from making any capital, the British by bringing back the

Capital which they have drained from India itself, thereby further exploit and

drain India, the source of the evil being the official drain. The opinions of

various people on the types of drain include the “extortions of the

government”,”appropriations of revenues by the company”.

High amounts of drain carried on for a long period would impoverish any

country. Annual drain as calculated by Montgomery Martin in 1838 at 12%

compound interest to the enormous sum of £ 2,000,000 for fifty years, to £



8,400,000,000sterling, so constant and accumulating a drain even on

England would soon impoverish her; how severe then must be its effects on

India, where the wages of labourer is from two pence to three pence a day,

going on for half a century would ultimately affect India., which has been

remitted to Great Britain to meet the deficiencies of commercial

speculations, to pay the interests of debts, to support the home

establishments, and to invest on England’s soil the accumulated wealth of

those whose lives have been spent in Hindustan.

Implication of the drain

English Government has affected the impoverishment of the country and

people to an extent almost unparalleled. The result was that the lives of

Indians had become miserable and they had started to make appeals to

government for their needs, as the very fabric of the society was destroyed.

The drain had affected the whole country and people were getting poorer.

Such a drain had reduced India to a land of famines and had resulted in the

impoverishment of the prosperous nation. So, great an Economic Drain out

of the resources of a land would impoverish the most prosperous countries

on Earth, it has reduced India to a land of famines more frequent, more

widespread, and more fatal, than any before in the history of India or of the

world. As a result, the economic drain had “impoverished an industrious,

peaceful, and once prosperous nation”.

2. De-industrialization

The British rule led to the de-industrialisation in India as argued by

nationalists. Before the British rule, India was exporting cotton but during

colonial rule, India became an importer of cotton. Hence, Indian artisans,

craftsmen and important trading centres collapsed. The main reason for this

was all the manufacturing actions existed was destroyed under the impact of

imports of cotton manufacture. Amiya Bagchi observed: “for more than



seventy five years up to 1913, India remained the major importer of cotton

goods from Britain, after taking more than forty percent of the British

exports. The decay of Dhaka, Surat, Murshidabad and many other flourishing

towns bears testimony to de-industrialisation”

Case for Protection of Industrial Policy of India

Industrial policy of India during British rule can be divided in three periods :

Period I (1850-1914):

Industrial development depends on the development of interlinked sectors

such as development of transport and communication, growth of foreign

trade etc. With the development of railways, there was some potential for

industrial development. The main features of industrial development during

1850 to 1914 were:

a) There was a decline in the handicrafts industry during this period. In

this phase, Indian Economy was transforming from traditional towards

technical. Technical education was gaining importance and crucial

steps were made to start new industries.

b) Joint-stock enterprise was established during this phase but growth of

these enterprises was slow.

c) With the development of railways, there was development of various

towns in India. The generations of these towns had positive impact in

the development of various industries of India.

d) The political movements at home and aboard, such as American Civil

War, the Crimean War, the Swadeshi Movement, etc., facilitated the

development of industrial sector of India. British government also

adopted positive attitude towards industrial growth.



e) With the development of Suez Canal in 1869, oceanic transport system

encouraged the industrial development in India because of easier

imports of machinery and technology from abroad.

f) There was development of some consumer goods industries during this

phase but there was no development in capital goods, heavy

engineering and other key and basic industries.

g) Because of improper planning, there was unbalanced regional

development.

Period II (1915-39):

In this phase, number of crises happened in the world, which affects the

pattern of development of industries in India. For instance, First World War

of 1914 to18, the post-war boom of 1919 to 20, the fluctuating exchange

rates between 1921 to 27, the worldwide depression of 1929 to 33. There

was a setting up of various commissions for industrial development such as

Indian Industrial Commission of 1916, The royal (Whitley) Commission on

Labour of 1929 etc.

Immediately after the First World War, the economies of foreign countries

were in very bad condition. Hence, British ruler made some political and

economic concessions. These economic concessions took the shape of future

industrialization.

British imports were also affecting due to foreign competition. Hence, with

the development of some industries within India was much better than

displacing Imports of British. For this, Industrial Commission and the



Munitions Board were set up. On the recommendation of Board, the

following progress was made:

a. For the fulfillment of the needs Army, railways and civil departments,

the India-made materials were purchased directly.

b. All the orders from UK and other parts of the world were diverted to

India.

c. Providing various kinds of assistance to Indian industries for importing

plants and technology.

Board was in favour of the establishment of various industries like cotton,

jute, iron and steel etc. But immediately after the war, British government

revert back all concessions. Again in the year 1920, there was competition

among industries. Hence, with the recommendation of Fiscal

Commission(1922) a policy of discriminating protection called the Tariff

Board was introduced. Thirteen industries received protection from this.

Despite of various hurdles in this period, India was among first eight

industrial counties of the world.

Period III (1940-1950):

During this phase, the Second World War (1939) was broke out. This gave a

considerable motivation for the development of industrial sector but its



contribution was not equally great. The already set up industries worked

with full capacity. Some new plants and few basic industries were also

established. But because higher prices, profit margin was decreased. Hence,

industrial development was not upto that mark which was expected by the

entrepreneur.

The damage caused by the war was major problem for industry. A worldwide

problems of machinery and shipping, political disturbances made it very

difficult to start any new major industrial project. Further, the partition of

India and Pakistan, left India with almost the entire industrial sector of

undivided India.

References:

1. Dutt, P.R, India Today (Calcutta, 1970)p. 101

2. Anstey, V, The Economic Development of India, London, 1952.

3. Naroroji, D. Poverty and Un-British Rule in India, London 1901

4. http://www.historydiscussion.net/british-india/useful-notes-

on-the-industrial-policy-of-british-in-india/646

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Colonialism and Underdevelopment of the Indian Economy