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Unit 1
Economic Impact of British Rule

Learning Outcomes

Upon the completion of this unit, the learner will be able to :

  • explain the economic exploitation of India under British rule
  • describe the various ways of economic decay in British India
  • analyze the impact of British economic policies upon the various sections of Indian society
  • explain the pathetic conditions of agriculture and industry under the British rule


The Indian economy underwent a fast shift as a result of British economic policies. British made the majority of their profit from exporting Indian goods between the years 1600 and 1757. Ingeniously, the British government devised economic programmes for the Indians. As a result of these measures, India was always dependent on them. The conventional Indian economic structure had been entirely destroyed by these actions. The primary reason the British came to India was to engage in trade. Britain had to deal with the Industrial Revolution during that time. Because of this, they need a large quantity of raw materials for their factories, most of which came from India. They also required a suitable market to sell their final goods. India could provide them with both of these things: a sizable supply of raw materials and an ideal market for the sale of those finished goods. Indian economy was therefore most significantly impacted by British control when it became the hub of British trade. The whole economic structure of the nation was further altered by this.

Key Words

Artisans, Bengal, Economy, Famines, Madras, Peasantry, Warren Hastings, Zamindars

3.1.1 Disruption of the Traditional Economy

The economic policies followed by the British led to the rapid transformation of India’s economy into a colonial economy whose nature and structure were determined by the needs of the British economy. In this respect the British conquest of India differed from all previous foreign conquests.

The previous conquerors had overthrown Indian political powers, but had made no basic changes in the country’s economic structure; they had gradually become a part of Indian life, political as well as economic. The peasant, the artisan and the trader had continued to lead the same type of existence as before.

The fundamental economic model—the self-sufficient rural economy—had been upheld. The only thing that had changed when the ruling class changed was the people in charge of taking the excess from the peasants. The conquerors from Britain, however, were very different. The conventional Indian economic structure was completely ruined by them. Additionally, they were never integrated into Indian culture. They continued to live like outsiders in the country, making use of its resources and taking its riches as a form of tribute. There were a wide range of outcomes from this subjection of the Indian economy to British trade and manufacturing interests.

3.1.2 Ruin of Artisans and Craftsmen

The urban handicrafts sector, which had for centuries made India’s reputation synonymous with quality in the markets of the entire civilised world, collapsed suddenly. Competition from Britain’s cheaper imported machine-made goods was a major factor for this downfall. We are aware that the British enforced a one-way free trade policy on India after 1813, and that this was followed immediately by an invasion of British goods, particularly cotton textiles. Indian products manufactured using archaic methods could not compete with commodities manufactured on a large scale by potent steam-powered machinery. Once the railways were constructed, the decline of Indian industry, especially rural artisan industries, accelerated. By using the railways, British manufacturers were able to access the most isolated areas in the nation and displace the local traditional industries. The steel rail “pierced the armour of the isolated self-sufficient town, and its vital blood ebbed away,” as the American author D.H. Buchanan put it. The spinning and cotton-weaving sectors took the biggest hit. Textiles made of silk and wool fared no better, while industries producing iron, pottery, glass, paper, metals, firearms, ships, oil-pressing, tanning, and dyeing suffered a similar fate.

Other effects of the British conquest, aside from the importation of foreign commodities, also had a role in the collapse of Indian industry. Many Bengali craftsmen were forced to leave their traditional occupations due to the oppression that the East India Company and its servants inflicted on them in the second half of the eighteenth century. They were forced to sell their goods below market value and to be paid less than the going rate for their services. Normally, the Company’s encouragement of their export would have boosted Indian handicrafts, but this persecution had the reverse effect. The development of modern manufacturing industries in Britain, coupled with the high import duties and other restrictions placed on the import of Indian goods into Britain and Europe during the eighteenth and nineteenth centuries, resulted in the virtual closure of European markets to Indian manufacturers after 1820.

These industries also suffered greatly from the eventual removal of Indian kings and their courts, who were the primary consumers of the handicrafts produced. For instance, the manufacturing of military armaments in the Indian states was entirely dependent on the British.

All of the military and other government supplies were bought in Britain by the British themselves. Moreover, British politicians and military men, who almost exclusively bought goods made in their own country, replaced Indian kings and nobles as the governing elite. Due to this, handicrafts became more expensive and lost some of their ability to compete with imports.

The towns and cities that were renowned for producing Indian handicrafts also fell into decline. Cities that had survived the devastation of war and pillage perished during British occupation. Many other thriving industrial cities, including Murshidabad, Surat, and Dhaka, were completely depopulated. Urban populations made up only 10% of the total population by the end of the nineteenth century.

The Governor-General, William Bentinck, observed in 1834 that “the agony barely finds a parallel in the history of commerce.” The Indian plains are becoming whiter due to the cotton weavers’ bones. The tragedy was made worse by the fact that, unlike in Britain and western Europe, the decline of old industries was not accompanied by a rise in contemporary machine industries. The damaged handicraftsmen and artisans were unable to find new employment as a result of this ongoing phenomenon. They had no choice except to go into agriculture. Additionally, the British occupation of the villages disturbed the equilibrium of the local economy. The rural economy’s ability to sustain itself was gradually destroyed as rural crafts were gradually lost, severing the link between agriculture and rural household industry.

In contrast, millions of rural artisans lost their traditional means of subsistence and were forced to work as agricultural labourers or petty tenants with small plots. Millions of peasants who had previously supplemented their income by part-time spinning and weaving now had to rely almost exclusively on agriculture. They increased the weight of people on the land.

As a result of British annexation, the nation lost its industrial base and became more dependent on agriculture. The percentage of the population that was dependent on agriculture rose from 63.7 percent to 70 percent between 1901 and 1941 alone, while there were no data for the prior time period. One of the main reasons for the tremendous poverty that existed in India under the British rule was the mounting pressure on the agricultural sector. In India, now served as an agricultural colony of Britain’s industrial sector, which depended on it for raw commodities. The cotton textile business was the one place where the transformation was most obvious. India used to be the world’s greatest exporter of cotton products, but it was now primarily an importer of British cotton items and a producer of raw cotton.

3.1.3 Impoverishment of the Peasantry

The peasant was also progressively impoverished under the British rule. Although peasants were then free from internal wars, their material condition deteriorated and they steadily sank into poverty. In the very beginning of the British rule in Bengal, the policy of Clive and Warren Hastings of extracting the largest possible land revenue had led to such devastation that even Cornwallis complained that one-third of Bengal had been transformed into “a jungle inhabited only by wild beasts”, nor did the improvement occur later. In both the permanently and the temporarily settled Zamindari areas, a lot of the peasants remained helpless. They were left to the mercy of the zamindars who raised rents to unbearable limits, compelled them to pay illegal dues and to perform forced labour and menial labourers. Furthermore, zamindars resort to such measures that oppressed the peasants in diverse other ways.

The condition of the cultivators in the Ryotwari and Mahalwari areas was no better. The government took the place of the zamindars and levied excessive land revenue which was in the beginning fixed as high as one-third to one-half of the produce. Heavy assessment of land was one of the main causes of the growth of poverty and the deterioration of agriculture in the nineteenth century. Many contemporary writers and officials noted this fact. For instance, Bishop Heber wrote in 1826: ‘Neither Native nor European agriculturist, I think, can thrive at the present rate of taxation. Half of the gross produce of the soil is demanded by the government. … In Hindustan [Northern India] I found a general feeling among the King’s officers… that the peasantry in the Company’s Provinces are on the whole worse off, poorer and more dispirited than the subjects of the Native Provinces; and here in Madras, where the soil is, generally speaking, poor, the difference is said to be still more marked. The fact is, no Native Prince demands the rent which we do’.

Even though the land revenue demand went on increasing year after year—it increased from Rs. 15.3 crore in 1857—58 to Rs. 35.8 crore in 1936—37—the proportion of the total produce taken as land revenue tended to decline, especially in the twentieth century as the prices rose and production increased considerably. No proportional increase in land revenue was made, as the disastrous consequences of demanding extortionate revenue became obvious. But by now the population pressure on agriculture had increased to such an extent that the lesser revenue demand of later years weighed on the peasants as heavily as the higher revenue demand of the earlier years of the Company’s administration.

Moreover, by the twentieth century, the agrarian economy had been ruined and the landlords, moneylenders and merchants had made deep inroads into the village. The evil of high revenue demand was made worse because the peasant got little economic return for his labour. The government spent very little on improving agriculture. It devoted almost its entire income to meet the needs of the British-Indian administration, making the payments of direct and indirect tribute to England, and serving the interests of British trade and industry. Even the maintenance of law and order tended to benefit the merchant and the moneylender rather than the peasant.

The harmful effects of an excessive land revenue demand were further heightened by the rigid manner adopted in its collection procedure. Land revenue had to be paid promptly on the fixed dates even if the harvest had been below normal or had failed completely. However, in ‘bad years’ the peasant found it difficult to meet the revenue demand even if he had been able to do so in ‘good years’(based on the increased output which he received through agrarian activities). Whenever the peasant failed to pay land revenue, the government put up his land on sale to collect the arrears of revenue. However, in most cases the peasants themselves took this step and sold part of their land to meet the government’s demand. In either case they lost their land.

More often the inability to pay revenue drove the peasants to borrow money at high rates of interest from the moneylender. They preferred getting into debt by mortgaging their land to a moneylender or to a rich peasant neighbour to losing it outright. They were also forced to go to the moneylender whenever they found it impossible to make both ends meet in their life. But, there were instances where the farmers found themselves strangled with debt issues where it seemed practically impossible for them to get out of the same. The moneylenders charged high rates of interest and through cunning and deceitful measures, such as false accounting, forged signatures; thereby making the debtors sign for larger amounts than they had borrowed from the former ones. This led the peasant deeper and deeper into debt till they parted with their land.

The moneylenders were greatly helped by the new legal system and the new revenue policy. In pre-British times, the moneylenders were subordinated to the village community. They could not behave in a manner totally disliked by the rest of the village. For instance, they could not charge usurious rates of interest. In fact, the rates of interest were fixed by the usage and public opinion. Moreover, they could not seize the land of the debtors; take possession of the debtor’s personal assets like jewellery, or crops. By introducing transferability of land, the British revenue system enabled the moneylenders or the rich peasants to take possession of the land.

Even the benefits of peace and security established by the British through their legal system and police were primarily reaped by the moneylenders in whose hands the law placed enormous power. They also used their power to turn the expensive process of litigation in their favour and to make the police serve their purposes. Moreover, the literate and shrewd moneylenders could easily take advantage of the ignorance and illiteracy of the peasants to turn the complicated processes of law in their favour.

Gradually, the cultivators in the Ryotwari and Mahalwari areas sank deeper and deeper into debt where increased land passed into the hands of moneylenders, merchants, rich peasants and other elite rich classes. The process was repeated in the zamindari areas where the tenants lost their tenancy rights and were ejected from the land or became subtenants of the money lenders. The process of transfer of land from cultivators was intensified during periods of scarcity and famines. The Indian peasants hardly had any savings for critical times and whenever crops failed, they fell back upon the moneylenders not only to pay land revenue but also to feed themselves and their family.

By the end of the nineteenth century, the moneylenders had become a major curse of the countryside and an important cause of the growing poverty of the rural people. In 1911, the total rural debt was estimated to be Rs 300 crore. By 1937, it amounted to Rs 1800 crore. The entire process became a vicious circle. The pressure of taxation and growing poverty pushed the cultivators into debt, which in turn worsened their poverty – stricken situation in an alarming way. In fact, the farmers often failed to understand that the money lenders were an inevitable cog in the mechanism of imperialist exploitation and turned their anger against the latter. The moneylenders appeared to be the visible cause of farmers’ impoverishment.

For instance, during the Revolt of 1857, wherever the peasantry rose in revolt, quite often its first target of attack was the money lenders and their account books. Such peasants actions soon became a common occurrence.The growing commercialisation of agriculture also helped the money lenders-cum-merchants to exploit the farmer. The poor peasants were forced to sell their products just after the harvest and at whatever price they could get as they had to meet in time the demands of the government, the landlords and the money lenders. This placed the farmers at the mercy of the grain merchants who were in a position to dictate terms and who purchased the farmers’ products at much less rate than the existing market price. Thus, a large share of the benefit of the growing trade in agricultural products was reaped by the merchants who were very often also the village money lenders.

The loss and overcrowding of land caused by de-industrialisation and lack of modern industry compelled the landless peasants and ruined artisans and handicrafts men to become either tenants of the money lenders and zamindars by paying rack-rent or agricultural labourers at starvation wages. Thus the peasantry was crushed under the triple burden of the government, the zamindars or landlords, and the money lenders.

After the above centres of power had taken their share, not much was left for the farmers and their family to subsist on. It has been calculated that in 1950-51 land rent and moneylenders’ interest amounted to Rs 1400 crore or roughly equal to one-third of the total agricultural products for the year. The result was that the impoverishment of the peasantry continued along with an increase in the incidence of famines. People died in millions whenever droughts or floods caused failure of crops and scarcity.

3.1.4 Ruin of Old Zamindars and Rise of New Landlordism

The first few decades of British rule witnessed the ruin of most of the old zamindars in Bengal and Madras. This was particularly so with Warren Hastings’ policy of auctioning the rights of revenue collection to the highest bidders. The Permanent Settlement of 1793 also had a similar effect in the beginning. The heaviness of land revenue—the government claimed ten-elevenths of the rental—and the rigid law of collection, under which the zamindari estates were ruthlessly sold in the case of delay in payment of revenue, wreaked havoc for the first few years. Many of the great zamindars of Bengal were utterly ruined and were forced to sell their zamindari rights.

By 1815, nearly half of the landed property of Bengal had been transferred from the old zamindars, who had resided in the villages and had traditions of showing some consideration to their tenants, to merchants and other rich classes. They usually lived in towns and were quite ruthless in collecting to the last pie what was due from the tenant irrespective of difficult circumstances.

Being utterly unscrupulous and possessing little sympathy for the tenants, these new landlords began to subject the latter to rack-renting and ejectment.The Permanent Settlement in north Madras and the Temporary Zamindari Settlement in Uttar Pradesh were equally harsh on the local Zamindars. However, the condition of the zamindars soon improved radically irrespective of the adverse conditions they were facing in these regions. In order to enable the zamindars to pay the land revenue in time, the authorities increased their power over the tenants by obliterating the traditional rights of the tenants. The zamindars were now all set out to push up the rents to the utmost limit. Consequently, they rapidly grew in comfort and prosperity whereby they were able to lead a luxurious life when compared with the rest of the population.

In the Ryotwari areas too the system of landlord-tenant relations began to spread in a gradual manner. As we have seen above, more and more land passed into the hands of money lenders, merchants and rich peasants who usually got the land cultivated by tenants. One reason why the Indian moneyed classes were keen to buy the lands was the absence of effective outlets for investment of their capital in the industry. Another process through which this landlordism spread was that of subletting. Many owner-cultivators and occupancy tenants, having a permanent right to hold land, found it more convenient to lease out land to land-hungry tenants at exorbitant rent than to cultivate it all by themselves. In time, landlordism became the main feature of agrarian relations not only in the zamindari areas but also in the Ryotwari ones.

A remarkable feature of the spread of landlordism was the growth of subinfeudation or intermediaries. Since the cultivating tenants were generally unprotected and the overcrowding of land led the tenants to compete with one another to acquire land, the rent of land went on increasing rapidly. The zamindars and the new landlords found it convenient to sublet their right to collect rent to other eager persons on profitable terms. But as rents increased, sub-leasers of land in turn sublet their rights in land. Thus by a chain-process a large number of rent-receiving intermediaries between the actual cultivator and the government sprang up in these places.

In some cases like that in Bengal their number even went up to as high as fifty. The condition of the helpless cultivating tenants who ultimately had to bear the burden of maintaining this horde of superior landlords was precarious beyond imagination. Many of them were little better than slaves. An extremely harmful consequence of the rise and growth of zamindars and landlords was the political role they played during India’s struggle for independence. Along with the princes of protected states having British affiliation, many of them became the chief political supporters of the foreign rulers and opposed the rising national movement. Realising that they owed their existence to British rule, they tried hard to maintain and perpetuate it.

3.1.5 Stagnation and Deterioration of Agriculture

Overcrowding in agriculture, excessive land revenue demand, growth of landlordism, increasing indebtedness resulted in the growing impoverishment of cultivators. Indian agriculture began to stagnate and even deteriorate resulting in extremely low yields per acre. Overall agricultural production fell by 14 per cent between 1901 and 1939.

The overcrowding in agriculture and increase in subinfeudation led to subdivision and fragmentation of land into smallholdings most of which could not maintain their cultivators. The extreme poverty of the overwhelming majority of peasants left them without any resources with which to improve agriculture by using better cattle and seeds, more manure and fertilisers, alongside improved techniques of production. Nor did the farmer, rack-rented by both the government and the landlord, have any incentive to do so. After all, the land they cultivated was rarely their property and the bulk of the benefit which agricultural improvements would bring was likely to be reaped by the horde of absentee landlords and moneylenders. Subdivision and fragmentation of land also made it difficult to effect improvements.

In England and other European countries, the rich landlords often invested capital in their land to increase its productivity with a view to sharing in the increased income. Nevertheless in India the absentee landlords, both old and new, performed no useful function. They were mere rent-receivers who had often no roots in the land and who took no personal interest in it beyond collecting rent. They found it possible and therefore preferred to increase their income by further squeezing their tenants rather than by making productive investments in their lands.

The government could have helped in improving and modernising the agriculture. However, the government refused to recognise any such responsibility. A characteristic of the financial system of British India was that, while the main burden of taxation fell on the shoulders of the peasant, the government spent only a very small part of it on him. An example of this neglect of the peasant and agriculture was the stepmotherly treatment meted out to public works and agricultural improvement.

While the Government of India had spent by 1905 over 360 crore of rupees on the railways which was demanded by British business interests, it spent in the same period less than 50 crores of rupees on irrigation and related activities. Even so, irrigation was the only field in which the government took some steps forward initiating some drastic changes in the same field.. At a time when agriculture all over the world was being modernised and revolutionised, Indian agriculture was technologically stagnating; hardly any modern machinery was used. What was worse was that even ordinary implements were centuries old. For example, in 1951, there were only 930,000 iron ploughs in use while wooden ploughs numbered upto say, 31.8 million.

The use of inorganic fertilisers was virtually unknown, whereas a large part of animal manure, i.e., cow-dung, night-soil and cattle bones, were wasted for no apparent reason. In 1922—23, only 1.9 percent of all cropped land was under improved seeds. By 1938-39, this percentage had gone up to only 11 percent. Furthermore, agricultural education was completely neglected. In 1939 there were only six agricultural colleges with 1306 students. There was neither a single agricultural college in Bengal, Bihar, Orissa and Sind, nor could peasants make any improvements through self-study. There was hardly any spread of primary education or even literacy in the rural areas among the peasants and labour class.

3.1.6 Development of Modern Industries

An important development in the second half of the nineteenth century was the establishment of large-scale machine-based industries in India. The machine age in India began when cotton textile, jute and coal-mining industries were started in the 1850s. The first textile mill was started in Bombay by Cowasjee Nanabhoy in 1853, and the first jute mill in Rishra (Bengal) in 1855. These industries expanded slowly but continuously in almost all major regions in India in due course of time. In 1879 there were 56 cotton textile mills in India employing nearly 43,000 persons. In 1882 there were 20 jute mills, most of them in Bengal, employing nearly 20,000 persons.

By 1905, India had 206 cotton mills employing nearly 196,000 persons. In 1901 there were over 36 jute mills employing nearly 115,000 persons. The coal-mining industry employed nearly one lakh people in the year 1906 itself. Other mechanical industries which developed during the second half of the nineteenth and the beginning of the twentieth centuries were cotton gins and presses, rice, flour and timber mills, leather tanneries, woolen textiles, sugar mills, iron and steel works, alongside mineral industries, such as salt, mica and saltpeter.

Cement, paper, matches, sugar and glass industries developed during the 1930s. Nonetheless all these industries had very stunted growth owing to certain situations of this time period. Most of the modern Indian industries were owned or controlled by British capital. Foreign capitalists were attracted to Indian industry by the prospect of high profit. Labour was extremely cheap; raw materials were readily and cheaply available; and for many goods, India and its neighbours provided a ready market. For many Indian products, such as tea, jute and manganese, there was a ready demand the world over.

On the other hand, profitable investment opportunities at home were getting fewer. At the same time, the colonial government and officials were willing to provide all help and give all favours. Foreign capital easily overwhelmed Indian capital in many of the industries. Only in the cotton textile industry did Indians have a large share from the beginning, and in the 1930s, the sugar industry was developed by the Indians. Indian capitalists also had to struggle from the beginning against the power of British managing agencies and British banks.

To enter a field of enterprise, the Indian businessmen had to bend before British managing agencies dominating that field. In many cases even Indian-owned companies were controlled by foreign-owned or controlled managing agencies. The Indians also found it difficult to get credit from banks, most of which were dominated by British financiers.Even when they could get loans they had to pay high interest rates while foreigners could borrow on much easier terms. Of course, gradually the Indians began to develop their own banks and insurance companies. In 1914, foreign banks held over 70 percent of all bank deposits in India; by 1937, their share had decreased to 57 percent.

British enterprises in India also took advantage of their close connection with British suppliers of machinery and equipment, shipping, insurance companies, marketing agencies, government officials and political leaders to maintain their dominant position in Indian economic life. Moreover, the government followed a conscious policy of favouring foreign capital as against Indian capital. The railway policy of the government also discriminated against Indian enterprise; railway freight rates encouraged foreign imports at the cost of trade in domestic products. It was more difficult and costlier to distribute Indian goods than to distribute imported goods.

Another serious weakness of Indian industrial effort was the almost complete absence of heavy or capital goods industries, without which there can be no rapid and independent development of industries. India had no big plants to produce iron and steel, or to manufacture machinery. A few petty repair workshops represented engineering industries and a few iron and brass foundries represented metallurgical industries. The first steel in India was produced only in 1913. Thus India lacked basic industries such as steel, metallurgy, machine, chemical and oil. India also lagged behind in the development of electric power.

Apart from machine-based industries, the nineteenth century also witnessed the growth of plantation industries, such as indigo, tea and coffee. They were almost exclusively European in ownership. Indigo was used as a dye in textile manufacture. Indigo manufacture was introduced into India at the end of the eighteenth century and flourished in Bengal and Bihar. Indigo planters gained notoriety for their oppression over the peasants who were compelled by them to cultivate indigo. This oppression was vividly portrayed by the famous Bengali writer Dinabandhu Mitra in his play Neel Darpan in 1860. The invention of a synthetic dye gave a big blow to the indigo industry and it gradually declined.

The tea industry developed in Assam, Bengal, south India and the hills of Himachal Pradesh after 1850. Being foreign-owned, it was helped by the government with grants of rent-free land and other facilities. In time, the use of tea spread all over India and it also became an important item of export. Coffee plantations were developed during this period in south India. The plantation and other foreign-owned industries were of hardly any advantage to the Indian people. Their profits went out of the country. A large part of their salary bill was spent on highly paid foreign staff. They purchased most of their equipment abroad. Most of their technical staff was foreign.

Most of their products were sold in foreign markets and the foreign exchange so earned was utilised by Britain. The only advantage that Indians got out of these industries was the creation of unskilled jobs. Most of the workers in these enterprises were, however, extremely low paid, and they worked under extremely harsh conditions for very long hours. Moreover, conditions of near-slavery prevailed in the plantations. On the whole, industrial progress in India was exceedingly slow and painful. It was mostly confined to cotton and jute industries and tea plantations in the nineteenth century, and to sugar and cement in the 1930s.

As late as 1946, cotton and jute textiles accounted for 40 percent of all workers employed in factories. In terms of production as well as employment, the modern industrial development of India was paltry compared with the economic development of other countries or those with India’s economic needs. It did not, in fact, compensate even for the displacement of the indigenous handicrafts; it had little effect on the problems of poverty and overcrowding of land. The paltriness of Indian industrialization is brought out by the fact that out of a population of 357 million in 1951 only about 2.3 million were employed in modern industrial enterprises.

Furthermore, the decay and decline of the urban and rural handicraft industries continued unabated after 1858. The Indian Planning Commission calculated that the number of persons engaged in processing and manufacturing fell from 10.3 million in 1901 to 8.8 million in 1951, even though the population increased by nearly 40 per cent. The government made no effort to protect, rehabilitate, reorganise and modernise these old indigenous industries. Moreover, even the modern industries had to develop without government help and often in opposition to British policy. British manufacturers looked upon Indian textile and other industries as their rivals and put pressure on the Government of India not to encourage but rather to actively discourage industrial development in India. Thus British policy artificially restricted and slowed down the growth of Indian industries.

Furthermore, Indian industries, still in a period of infancy, needed protection. They developed at a time when Britain, France, Germany and the United States had already established powerful industries and could not therefore compete with them. In fact, all other countries, including Britain, had protected their infant industries by imposing heavy customs duties on the import of foreign manufacturers. But India was not a free country. Its policies were determined in Britain and in the interests of British industrialists who forced a policy of Free Trade upon their colony. For the same reason the Government of India refused to give any financial or other help to the newly founded Indian industries as was being done at the time by the governments of Europe and Japan for their own infant industries. It would not even make adequate arrangements for technical education which remained extremely backward until 1951 and further contributed to industrial backwardness. In 1939 there were only 7 engineering colleges with 2217 students in the country.

Many Indian projects, for example, those concerning the construction of ships, locomotives, cars and aeroplanes, could not get started because of the government’s refusal to give any help. Finally, in the 1920s and 1930s under the pressure of the rising nationalist movement and the Indian capitalist class, the Government of India was forced to grant some tariff protection to Indian industries. But, once again, the government discriminated against Indian-owned industries.

The Indian-owned industries, such as cement, iron and steel, and glass were denied protection or given inadequate protection. On the other hand, foreign dominated industries, such as the match industry, were given the protection they desired. Moreover, British imports were given special privileges under the system of ‘imperial preferences’ even though Indians protested vehemently. Another feature of Indian industrial development was that it was extremely lopsided regionally.Indian industries were concentrated only in a few regions and cities of the country. Large parts of the country remained totally underdeveloped.

This unequal regional economic development not only led to wide regional disparities in income but also affected the level of national integration. It made the task of creating a unified Indian nation more difficult. An important social consequence of even the limited industrial development of the country was the birth and growth of two new social classes in Indian society—the industrial capitalist class and the modern working class. These two classes were entirely new in Indian history because modern mines, industries and means of transport were new.

Even though these classes formed a very small part of the Indian population, they represented new technology, a new system of economic organisation, new social relations, new ideas and a new outlook. They were not weighed down by the burden of old traditions, customs and styles of life. Most of all, they possessed an all-India outlook. Moreover, both of these new classes were vitally interested in the industrial development of the country. Their economic and political importance and roles were, therefore, out of all proportion to their numbers.

3.1.7 Poverty and Famines

A major characteristic of British rule in India, and the net result of British economic policies, was the prevalence of extreme poverty among its people. While historians disagree up on the question whether India was getting poorer or not under British rule, there is no disagreement on the fact that throughout the period of British rule most Indians always lived on the verge of starvation. As time passed, they found it more and more difficult to find employment or make a living. British economic exploitation, decay of indigenous industries, failure of modern industries, high taxation, drain of wealth to Britain and a backward agrarian structure, led agricultural activites to stagnation. Along with, the exploitation of the poor peasants by the zamindars, landlords, princes, moneylenders and merchants accelerated the same. The state gradually wittnessed the extreme poverty of Indian people. This prevented the progress of India’s colonial economy and it fell down to very poor economic condition.

The poverty of the people found its culmination in a series of famines which ravaged all parts of India in the second half of the nineteenth century. The first of these famines occurred in western Uttar Pradesh in 1860-61 and took over 2 lakhs of Indian lives. From 1865-66 a famine engulfed Orissa, Bengal, Bihar and Madras and took a toll of nearly 20 lakhs of lives, Orissa alone losing 10 lakh people in such circumstances created a panic – stricken situation among the natives of India. More than 14 lakhs of people died in the famine of 1868-70 in western Uttar Pradesh, Bombay and Punjab. Many states, like Rajasthan, another affected area, lost one-fourth to one-third of their then population.

Perhaps the worst famine in Indian history till then occurred from 1876—78 in Madras, Mysore, Hyderabad, Maharashtra, western Uttar Pradesh, and Punjab. Maharashtra lost 8 lakh people, and Madras nearly 35 lakh. Mysore lost nearly 20 percent of its population and Uttar Pradesh lost over 12 lakhs. Drought led to a country-wide famine in 1896-97 which affected over 9.5 crores of people of whom nearly 45 lakh died. The famine of 1899-1900 followed quickly and caused widespread distress. In spite of official efforts to save lives through provision of famine relief, over 25 lakhs of people died.

Apart from these major famines, many other local famines occurred. William Digby, a British writer, has calculated that, in all, over 28,825,000 people died during famines from 1854 to 1901. Another famine in 1943 carried away nearly three million people in Bengal alone. These famines and the high losses of life caused by them indicate the extent to which poverty and starvation had taken root in India. Many English officials in India recognised the grim reality of India’s poverty during the nineteenth century. For example, Charles Elliott, a member of the Governor-General’s Council, remarked:“I do not hesitate to say that half the agricultural population do not know from one year’s end to another what it is to have a full meal.” William Hunter, the compiler of the Imperial Gazetteer, conceded that “forty million of the people of India habitually go through life on insufficient food.” The situation became even worse in the twentieth century. The quantity of food available to an Indian declined by as much as 29 percent in the 30 years between 1911 and 1941.

There were many other indications of India’s economic backwardness and impoverishment. Colin Clark, a famous authority on national income, has calculated that during the period 1925-34, India and China had the lowest per capita incomes in the world. The income of an Englishman during that time was five times that of an Indian. Similarly, the average life expectancy of an Indian during the 1930s was only 32 years in spite of the tremendous progress that modern medical sciences and sanitation had made at that particular point in time. In most of the West European and North American countries, the average age was already over 60 years.

India’s economic backwardness and poverty were not due to the niggardliness of nature. They were man-made. The natural resources of India were abundant and capable of yielding, if properly utilised, a high degree of prosperity could have been achieved in a short span of time. But, as a result of foreign rule and exploitation, and of a backward agrarian and industrial economic structure—in fact as the total outcome of its historical and social development—India presented the paradox of poor people living in a rich country. The poverty of India was neither a product of its geography ; of the lack of natural resources or of some ‘inherent’ defect in the character and capabilities of the people, nor was it a remnant of the Mughal period or of the pre-British past.

It was mainly a product of the history of the last two centuries. Prior to this, India was no more backward than the countries of Western Europe. Moreover, the differences in the standards of living at the time was unaffordable among other countries of the world. Precisely, during this period, the countries of the West developed and prospered in an unprecedented manner, India was subjected to modern colonialism and was prevented from developing further in the areas of their expertises. The economic situation retained their status quo till 1750 globally, however after this period, standards of living and economic differences began to reflect in the world economy due to the impact of Industrial Revolution and the activities initiated by the imperialist powers like Britain in their colonies like India and other Afro-Asian nations during this time period.

The basic fact is that the same social, political and economic processes that produced industrial development and socio cultural progress in Britain produced and maintained economic underdevelopment, alongside social and cultural backwardness, in India. The reason for this is obvious. Britain subordinated the Indian economy to its own one and “re-moulded” the basic social trends in India based on their needs and necessities. The result was stagnation of India’s agriculture and industries; exploitation of its peasants and workers by the zamindars, landlords, princes, moneylenders, merchants, capitalists and the foreign government and its officials; and the spread of poverty, disease and semi-starvation.


  • Destruction of India’s traditional Economy under the British
  • Demolition of Artisans and Craftsmen
  • New landlord system
  • Poor situations of agriculture and peasantry
  • Ruin of the Indian owned traditional businesses
  • Poverty,famine and unemployment of the working class
  • West developed and prospered in an unprecedented manner
  • India subjected to modern colonialism
  • The disparity in income of the English and Indian

Objective type questions

  1. In which year was the Permanent Settlement act established?
  2. Who introduced the Mahalwari system in India?
  3. Where did the first famine occur in the nineteenth century?
  4. What was the average life expectancy of an Indian during the 1930s?
  5. Who wrote the famous Bengali play, ‘Neel Darpan’?
  6. When did the first textile mill start in Bombay?
  7. Which were the prominent centers of tea Industry in India after 1850?
  8. Where was the first jute mill started?

Answer to Objective type questions

  1. 1793
  2. William Bentick
  3. Uttar Pradesh
  4. 32
  5. Dinabandhu Mitra
  6. 1853
  7. Assam, Bengal, South India and the hills of Himachal Pradesh
  8. Rishra (Bengal) in 1855


  1. Analyse the changes in Indian economic policies during British rule and after in-dependence.
  2. Bring out the economic changes that happened globally ever since the introduc-tion of the Industrial Revolution to the world.
  3. Critically evaluate the imperialistic activities of European nations in their colonies leading to economic issues and famine with special reference to Indian economy.
  4. Discuss the difficulties faced by indegenous and small scale industries of India owing to the corrupted and exploitative rule of the British in India.

Suggested Reading

  1. Chandra, Bipin, Rise and Growth of Economic Nationalism in India (Delhi: Har-Anand, 2010).
  2. Chandra Bipan, Indias Struggle for Independence,(Penguin Books, 1988)
  3. Dube, Ishita Banerjee, A History of Modern India (Delhi: Cambridge University Press, 2015)
  4. Grover B.L., Grover S., A New Look at Modern Indian History, S. Chand and Company, New Delhi, 2001.
  5. Sarkar, Sumit, Modern India, 1885-1947 (Delhi:Macmillian, 1985).