Debate of De-industrialisation in 1860-1880 in India

Abstract

Textile industry was the second largest employer in India, only after agriculture. Indias traditional village
economy was characterized by the blending of agriculture and handicraft. Before the nineteenth century
Indian cottons, also known as calico, were less expensive and of higher quality than locally made cotton
goods in almost all the markets worldwide. When in mid-seventeenth century Indian cotton started
increasingly invading European markets the local textile owners and workers protested against the
imported textile because their own goods could not compete with the Indian goods. Even though the
price of Indian goods was lower, studies show that the standard of living of Indian workers was far
similar to that of workers in Europe (Parthasarathi, 2009). However, India came under East India
Company rule from 1757 onwards and from late eighteenth century there was a massive technological
and institutional change in British cotton manufacturing. The effects of these changes on Indian textile
industry have been a topic of discussion for a long time. Many historians and economists, the likes of
which includeAmiya Bagchi, Prasannan Parthasarathi, Irfan Habib, Prabhat Patnaik, have argued that
India went through a period of de-industrialisation under the colonial rule. Others argue, like Daniel
Thorner and Morris D Morris, otherwise.
1. Introduction
Many historians of Indian industrialisation have considered that the rich artisan tradition in the
region had suffered a catastrophic blow in the nineteenth century. This process in the literature
is known as de-industrialisation. Over the years there have been many debates on whether and
why deindustrialization happened in India . There are three contending hypothesis on
deindustrialization. First, the dissolution of Mughal hegemony/dynasty in the eighteenth
century ultimately led to aggregate supply-side problems for Indian manufacturing. Second
hypothesis has roots in globalization forces; Indias commodity export sector saw its term of
trade improve significantly in the eighteenth century which drew workers away from textiles.
Third, Britains productivity gains in textile manufacture, world transport revolution and
colonization.

Another important factor is the definition of deindustrialization. The methodology of measuring

de-industrialisatation changes with a change in definition which leads to contradictory and
conflicting conclusions. Historically, the period of industrialisation has been associated with
rising manufacturing and total output with a rising industrial workforce.

2. Debates
The nationalists of the nineteenth century credited the complete or partial destruction of many
indigenous industries in India to the British rule. However, Daniel Thorner in 1962 was one of
the first scholars to investigate the data for de-industrialisation of India. This study deals with
the period 1881-1931. Thorner defined de-industrialisation as a decline in the proportion of
the working population engaged in secondary industry. The hypothesis that was tested by
Thorner was decline of handicraft continued well into the 20th century, that it was not
compensated by a sufficient rise of modern industry and, in consequence, the Indian economy
became more and more agricultural. To test this hypothesis Thorner used the information
available in the census reports of 1881-1931. As an index he considered the male industrial
working force and reached a conclusion that the census data for males do not support the case
for absolute de-industrialisation of workforce. As an afterthought he suggested that if indeed a
major shift from industry to agriculture ever occurred during the British Rule in India, it might
have happened sometime between 1815 and 1880. The critics of Thorners study say that it
was wrong to consider the ratio between industrial working force and the total working force as
the index for de-industrialisation. This is because it didnt not take into account the unemployed
and the dependents. The more appropriate index would have been the ratio of industrial
working force to total population. Hence, even if the number of industrial workers does not
increase, the ratio between industrial worker and total population can still reduce which would
imply that deindustrialization happened. Another problem with Thorners method was his
 gouping of data. He divided the whole workforce into five categories: agriculture, factory and
fishing; general labour; manufacturing, mining and construction; trade; transport and other
services. The different categories were over-lapping. Moreover, he included General Labour
and Trade in the industrial working force and he excluded female working population.

J. Krishnamurthy in Changes in the Composition of the Working Force in Manufacturing, 1905

to 1951: A Theoretical and Empirical Analysis challenged Thorners conclusions and gave his
own alternative approach. The main argument put forth by Krishnamurthy is that the hypothesis
can only be tested with data on total output rather than total employment. This is because
Krishnamurthy defines de-industrialisation as a decline in the share of manufacturing output
per capita. In addition, he suggests that it is also necessary to know the capital intensity in
different branches of the industrial sector. However, when the manufacturing sector in a
colonized economy is in the hand of the imperialists then the output may be generated for the
outside market. Therefore, any increase in output might not imply an increase in the net
national income. The profit from the production process may not be ploughed back into the
nation. Erection of a few industries may not mean anything to the economy if it does not lead to
economic development.

We can see that when it comes to methodology used to measure de-industrialisation the
definition of the concept is very important. Historically, the period of industrialization in the
developed countries was a period of rising manufacturing and total output with a rising
industrial working force which absorbed the surplus agricultural population. The necessary and
sufficient condition must have conditions which are historically consistent. Raghabendra
Chattopadhya(1975) formulated a set of criteria to satisfy this condition. The criteria are as
follows:

i. Change in the national income.

ii. Change in ratio of manufacturing output to total output.
iii. Change in the manufacturing workforce with respect to total population.

If all the three parameters are increasing over the years then the nation is strictly
experiencing industrialisation. Similarly, if all three parameters are declining it will indicate a
process of de-industrialisation. However, if the second and third parameter declines over time
while national income remains constant it will imply that the country has suffered de-
industrialisation.

Since the late eighteenth century the English East India company began converting large portions
of tax revenues from the area under their control and tributary payments from princely states,
into funds for investments. With these investments, Indian goods were bought. These good
were in turn carried overseas and sold throughout the world. The profits from this transaction
without any investment from British represented a wholesale transfer of Indian revenues to the
Companys coffers in Britain. This in effect meant that Britain did not need to export to India
anything in return for what it obtained from this country as import. This implied that there was a
large annual excess of Indian exports over imports. According to British customs-house records,
the excess value of British imports from East India over exports amounted to 2.81 million per
annum during 1797-1801. According to the standard macroeconomics and economy cannot
experience de-industrialisation when it runs an export surplus matched by a budgetary surplus.
De-industrialisation is understood in terms of decrease in output or/and employment in the
manufacturing sector. It is a fall in output or employment which is beyond the expected level of
per capita GDP. The standard macroeconomic justification is that if an economy, ceteris paribus,
runs an export surplus then the level of aggregate demand increases. And if the economy has
balanced trade, or export surplus equal to budgetary surplus the aggregate demand remains
constant so does the output and level of employment. A fall in aggregate demand is possible only
if an import surplus or a budgetary surplus is in excess of the export surplus. Neo-classical
economics is unable to explain the existence of de-industrialisation along with surplus exports
because of the inherent assumption of the economy always working on full-employment.
Prabhat Patnaik and Jayati Ghosh (1996) have formulated a model for explaining de-
industrialisation while there is budget balance or export surplus. They define de-industrialisation
as a shrinking of industrial activity without an accompanying increase in any other sector. Their
aim was to show theoretically the possibility of deindustrialization in this ense even with export
surplus. The model has fixed real wages at w, all of which is consumed. Agriculture produces
surplus S over its own wage bill and if the agriculture as well as industrialist capitalist neither
consume, nor directly use it for investment purpose, then in an economy with two sector,
industrial employment would be given by S/w. Subsequently the industrial output is given by
bS/w, where b denotes productivity per worker in industrial sector. If e part of S is exported by
agricultural capitalist and exchanged directly for a equivalent amount of imported industrial
good, then the domestic industrial employment would shrink to (1-e)S/w and output reduces to
(1-e)bS/w. This contraction in the economy can happen in two ways:

i. Either decrease in agriculture supply for domestic industry.

ii. Reduction in demand for industrial goods which surplus in agricultural sector gave rise to.

This is the simple way in which Patnaik (1996) showed we can have deindustrialization despite
external trade being balanced. Deindustrialisation with export surplus is an extension of this
argument. In this case aeS (a<1) part of the surplus is exported instead of eS, the remained being
lend abroad by agricultural capitalist.

Conventional neo-classical trade theory would say that if de-industrialization occurs because
domestic landlords prefer imported manufactured goods to domestically produced ones, then
the resources released through such de-industrialization would get absorbed in the agricultural
sector (where there is comparative advantage), resulting once again in a full employment
equilibrium, but one with a different output-mix. But there is an essential difference between
agriculture and industry (which the neo-classical assumption of symmetry between goods
obliterates): resources released by de-industrialization can be employed in agriculture only if
unused land for employing these additional resources exists.
 Prasannan Parthasarathi (2009) looked at the de-industrialisation debate in historical
perspective. Since the 1790s, the British Parliament had been seeking to restrict Bengal cotton
textile in Britain. The Parliament enhanced tariffs on Indian textile three times during 1797-9, and
nine times during 1809-19. The duty on Bengal white calicoes was increased. According to him
the process of deindustrialization happened in two phases. The first phase lasted roughly from
the late eighteenth century to mid- nineteenth century. It was characterized by decline in textile
manufacturing which was primarily due to the loss of export markets for Indian cloth to British
textile. In the second phase, from 1850 to 1880, Indian production suffered from imported cloth,
which cut into the business of local producers. In the first phase, the loss of the export markets
had far reaching consequences. In the eighteenth century, quality of the cloth produced for
export, especially for European buyers, tended to be superior to that of the local market on an
average. Because of these quality differences, the income created from production for export
was on an average greater than that from production for local markets. Loss of markets for high
quality cloth implied a reduction in demand of high quality yarn. Weaving employed a lot of
people, especially women. Hence, another important source of income was encroached upon.
During this period, export of Indian goods went slightly up but the import of yarn increased a lot
in comparison.

Amiya Kumar Bagchi (1976), compared the employment figures from 1809-1 and 1901 in
spinning as well as other manufactures from several districts in Bihar and concluded that there
had been an absolute decline in manufacturing employment. He even asserted that the
proportion of manufacturing workers in the population fell by more than half.

District Number of Number of Total population Percentage of

Spinners industrial workers dependent on Industrial to total
other than secondary population
spinners industry
Patna-Gaya 330,396 65,031 655,551 19.5
Bhagalpur 168,975 23,403 286,080 14.2
Purniya 287,000 60,172 587,860 20.2
Shahabad 159,500 25,557 287,285 20.2
Total 945,871 174,163 1,816,776 18.6
Table: Population dependent on secondary industry in Gangetic Bihar around 1809-1813. Source:
Deindustrialization in India, Amiya Kumar Bagchi, 1976

District Total population Industrial Percentage of

Population industrial to total
population
Patna 1,624,985 179,695 11.1
Gaya 2,059,933 187,016 9.1
Shahabad 1,962,696 228,051 11.6
Moghyr 2,068,804 155,439 7.5
Bhagalpur 2,088,953 115,618 5.5
Purnea 1,874,794 121,933 6.5
 Total 11,680,794 987,752 8.5
Table: Population dependent on secondary industry in 1901

In arrival at the total population dependent on industry, the assumption was made that spinners of
cotton and silk yarn supported only themselves because they had very low earnings whereas other
artisans working full time supported normal-sized families. This data was collected fifty years after the
fall of Indian rulers thus the degree of de-industrialisation was an addition to rather than the immediate
result of the elimination of traditional patrons of luxury manufacturing through coming of British. The
other argument given is that there was a growth in modern industry in lieu of fall in traditional
industries. But the employment generated was largely inadequate to even make up for the loss in the
same town let alone the entire region.

Another important comparison is between the employment creation by Britain and the destruction of
employment in the rest of the world. It is shown by the fact that in Bengal atleast a million people in
cotton industry lost their jobs before 1828, total number of cotton workers who lost their job in whole
of Britain was 527,000 (Mathias, 1972). The decline started around the mid-1920s. This pace of decline
was slow though steady. It reached the crisis point by 1860, when around 563,000 workers lost their
jobs (Ray, 2009)

Period Production Import Cotton Export Net Import Consumption

equivalence
of imported
yarn
Late 18th 156 450 0 41 409 565
century
Mid-19th 110 450-533 18 170 298-381 408-91
century
Table: Consumption of cotton wool in Bengal (in 000 maunds). Source: Medlicott, Cotton handbook for
Bengal.

As seen in the table above by the mid- nineteenth century the import of yarn was picking up. It was the
warning sign. This growing import of yarn displaced many spinners, especially women. It also made the
textile industry dependent on the foreign producers which made them more vulnerable.

3. Conclusion
The debate on de-industrialisation in the nineteenth century India is multidimensional. In the absence of
data on production and other important parameters various researchers have used variety of data and
methodology. There is difference of opinion starting from the definition of the term de-industrialisation
to the methodology and data to be used to measure it. The importance of textile industry in the self
sufficiency of the village economy cannot be overlooked. The internal balance of the village economy
was systematically dismantled by the British rule. In the West, with the process of industrialisation, the
people in primary sector were thrown out of employment it was balanced by employment and income-
generation effect in modern industries. But in India, textile industry succumbed before the machine-
made goods. It began with gradual disappearance of cotton goods from the list of Indias exports and
the remarkable growth of cotton goods on the import list. That is why it is said that Britain Iundated
the very mother country of cotton with cottons.
 Bibliography
1. De-Industrialisation in India Reconsidere, Raghabendra Chattopadhya, Economic and Political
Weekly, Vol 10, March 22, 1975.
2. De-Indurstrialisation in India in the Nineteenth Century: Some Theoratical Implication, A.K.
Bagchi, Journal of Development Studies, 1976 (pp. 135-145).
3. Historical Issues of De-Industrialisation in Nineteenth Century South India, Prasanna
Parthasarathy.
4. De-Industrialisation: Alternative view, Tirthankar Roy (2000), EPW (pp1442-1447).
5. De-Industrialisation without an Import Surplus: A Theoretical Note in the Context of a Slised
Colonial Economy, Prabhat Patnaik and Jayati Ghosh, Economic and Political Weekly, Vol. 26,
March 1991.
6. Identifying the woes of the cotton textile industry in Bengal: tales of the nineteenth century,
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