Indian Economic and Political History

2016-17
Session 3

Rajesh Bhattacharya
rb@iimcal.ac.in
Office: M-205, NAB
Office Hours: Monday/Thursday: 4:30-6pm

27/6/16-29/6/16

IIM Calcutta

Second Stage of Colonization:

Doctrine of Free trade (18131857)

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End of Monopoly of EIC

Industrial Revolution in Britain, making India a
potential market for British Goods.
Monopoly obsoletethe vicious critique of
mercantilism by Adam Smith in Wealth of Nations
(1776)
Monopoly of EIC abolished in 1813, except China
Trade.
All monopoly rights of EIC withdrawn in 1833.
Rise of Free Trade Doctrine in Britain.
India becomes an open market for British industrial
goods under free trade policies imposed by the British.
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Industrial Revolution in England

One view is that industrialization was an endogenous
process in Englandtechnological advancements,
scientific spirit, property rights and contract laws etc.
The other view is that the English got crucial
apprenticeship in textiles industry and trade through
participation in the global trade in Indian cotton
textiles.
In fact, the competitive pressure faced by English
manufacturers from Indian textile imports in their
country may have led to the technological
breakthroughs.
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Industrialization in England
Technological breakthroughsInventions by
James Watt, Samuel Crompton, James
Hargreaves, Richard Arkwright in the second
half of the 18th century.
The Calico Acts (16901721) banned the
import of textiles into England followed by the
restriction of sale of most cotton textiles.
Tariff on Indian goods steeply raised in
E gla d et ee 1
a d 1 1 . . Wh ?
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Exports of British Cotton piece goods

Year
1820

Europe and US Underdeveloped Other

World
Countries
60.4
31.8
7.8

1840

29.5

66.7

3.8

1860

19.0

73.3

7.7

1880

9.8

82.0

8.2

1900

7.1

86.3

6.6

E.J.Hobsbawm, industry and Empire, Penguin, Harmondsworth, 1968, Pg. 146

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Deindustrialization
Weaving and spinning industry were hit by British
competition as Indian weavers first lost their export market
and then domestic market
Urban artisans were hit because of decline of traditional
aristocratic class and the export market. Imperial factories
(Karkhanas) declined.
The new ruling class was the British and the Indian elite
landlords, professionals, who imitated the British
lifestylewho imported luxury goods from England. Thus
decline of urban demand for Indian manufactures.
Absolute decline in urban population in Eastern (Patna,
Dhaka, Murshidabad etc.), except Calcutta which, being the
capital of British India, grew fast.
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Deindustrialization (contd.)
Traditional ship-building industry goes down.
Alongside the cotton goods, English exports to
India of iron goods, cutlery, guns, glass, and
'machinery', increased enormously
throughout the nineteenth century
Artisans and weavers in the rural hinterland
were hurt much later, after the penetration by
railways.
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Co tradi tio s i EICs o je ti es

The importance of tribute was undiminished.
Land revenues continued to be extracted at a
very high rate throughout large parts of India.
The tribute traditionally took the form of export
of Indian commodities.
But deindustrialization closed that route.
Cotton and Indigo only provided short-term
solutions as American cotton was more suited to
the British textile machinery and West Indian
indigo production out-competed Indian indigo.
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Opium
Opium, produced in India, was exported to China.
China would in return furnish tea and silk.
In 1855, England consumed tea and silk of China worth
.
illio pou ds, hile E gla ds e ports to Chi a
was worth 1 million ponds. The balance was sheer gain
obtained through Indian exports of opium, which in
1855 amounted to 6.23 million pounds.
Opium Wars( 1839-1842) and (1856-60) kept Chinese
ports open for illegal opium imports.
Opium became the premier article of export of India,
accounting for nearly a third of the total value of Indian
exports.
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The Third Phase of

Colonization: The Second Half
of the 19th Century

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Infrastructure and Institutions

Existing infrastructure constrained business and effective governance.
Lesson of 1857Need for tighter Imperialist control, free movement
of raw materials from India, imported manufactured products from
Britain and British troops.
Abolition of transit and town duties between 1836 and 1844.
Assault on Thugees and Pindaris
Unification of currency The company rupee was declared legal
tender throughout he Empire
Homogenization of weights and measures was less successful.
Introduction of Railways in 1854
Modern British Education
Company Laws1850. Limited Liability-1857

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Crown Rule
Under the new regime the emphasis shifted from the levy of
direct tribute through land revenue to the exploitation of
India as a market and as a source of raw materials and a
destination for British capital.
Zamindars were transformed into true landlords and the
political ally of the British rulers who were by the Sepoy
Mutiny.
About the middle of the nineteenth century, factory
production was extended to all industries in Britain. The
search for new profitable outlets for British capital began.

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British foreign investment and

development of railways
British 'net foreign investment' was equal to
42% per cent of the net domestic capital
formation in fixed assets during 1860-69; 80%
per cent during 1880-89 and peaked at 114%
during 1905-14.
British capital pouring into railways
construction in India. Fantastic expansion of
railways in India, with a guaranteed rate of
return of 5 % by the Government of British
India.
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Expansion of the market for British

commodities
Higher inflow of imports from Britain as the railways
opened up markets.
Cotton textiles, silk goods, wool manufactures, metal
manufactures, machinery tools, equipment and rolling
stock for railways expanded tremendously.
As modern Indian industries emerge, all the machinery
goods begin to be imported from Britain.
Indian exports also expanded. Western Indian cotton,
Punjab Wheat, Bengal jute, Assam Tea, South Indian
oilseeds and hides and skins etc. Opium falls behind.

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Impact of Railways
Railways fastened India more securely to
England as it strengthened the colonial
pattern of tradeIndia as an exporter of raw
materials and agricultural products and the
importer of manufactured consumer and
capital goods.
Rural industries were now hurt as Railways
reached them. Deindustrialization is complete
by late 19th century
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The Tribute in the Third Phase of

Colonization (1857-1900)
The urde of EICs Lo do esta lish e t a d of
dividends to its shareholders was replaced after
1
the osts of e retar of tates I dia
Office.
Ho e harges also i luded pe sio s to British
Indian officials and army officers, military and
other stores purchased in England, costs of army
training, transport and campaigns outside India
but charged on Indian finances and the
guaranteed interest on railways.
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