Indian Economy Under the British Boot

It’s a no-brainer that India is currently in the midst of a large economic boom. However, not very long ago She was suffering. The South Asian economy had been a center of economic activity since ancient times. When European companies arrived on the scene in the 17th and 18th century they attempted to insert themselves into a booming textile and spice trade. South Asian port cities exported spices, foods, and textiles to Asia and the West, some even say that in the mid 18th century 1/4 of all the worlds textiles were provided by South Asia.

The British East India Company attempted to join the spice trade in South Asia and further east, however, the Dutch basically monopolized this market so the E.I.C. never really got enough of a footing to make profit. The story goes that one of their merchants pirated a ship which held cloth from South Asia and realized what high quality it was, prompting a company expansion into the South Asian textile market. This story is likely a myth as European traders would have known all about South Asian textiles without having to pirate a ship. But the story shows that somewhere along the line there was a turning point and the E.I.C. ended up in the textile business, a highly profitable trade necessary for the slave trade and support of British West Indies sugar plantations. This is what is called the “Triangular Trade” where cloth from India was bought largely with precious metal bullion from British traders and investors and used to buy slaves in Africa for work on the plantations in such areas as Barbados and Jamaica. However, the rising British consumer class developed a taste for foreign goods, including such South Asian goods as muslin cloth and tea. This only increased trade profitability, yet, British investors were unhappy exporting bullion which South Asians preferred for payment.

The bullion problem was solved by the conquest of India. There were other factors involved in this conquest. For instance, the French East India Company had a presence in South Asia with a base at Pondicherry. British/French continental rivalry in the 18th century spread to the colonies and other foreign endeavors. Thus we see the French and Indian War in North America and a competition in South Asia. Basically France and Britain began to manipulate local South Asian politics to promote their trade influence and neither wanted to be outdone by the other. The Mughal Empire of South Asia had been greatly weakened in the 18th century as power moved to local rulers. Both France and England tried to take advantage of this situation. France began to back South Indian princes who gave their East India Company special tax free trading rights. The British E.I.C. had already been given tax free export status by the Mughal Emperor. However, they abused this status when expanding to inland trade routes. The Bengali Prince Siraj Ud Dala disliked these British incursions and with backing of the French attacked the E.I.C. stronghold at Calcutta and won. The British propaganda backlash called this “the black hole of Calcutta” which fueled British views of South Asian primitive and vicious nature and prompted Robert Clive to lead an army into Bengal and defeat Siraj Ud Dala at the Battle of Plassey in 1757. This marked the company’s first acquisition of a South Asian province and the beginning of a change in E.I.C. policy.

Once British merchants realized they could use tax revenues in Bengal to buy trade goods instead of exporting bullion they were ecstatic to say the least. This development prompted a Company trade expansion which in turn prompted the need to conquer more provinces. Now, how to rule this newly gotten province…British rhetoric stated that the company should rule Bengal like how it was ruled under South Asian princes. However, the system was inevitably changed. For example, although the Company kept tax rates at about the same level of 50% of produce they inevitably changed the tax system by rigidity and law. Under the decentralized Mughal system 50% was not always collected depending on famines, droughts, and local politics. Besides, if tax was not paid by a local chief or landowner the land was not taken away. Under the E.I.C. tax was rigid and if the chief or landowner could not pay, their land was taken away and sold to the highest bidder. The traditional social structure of Bengal was thus greatly changed in the initial years of company rule.

The Company was mostly concerned with international export trade so inland and domestic trade initially stayed in the hands of South Asian merchants and bankers. However, over the course of the late 18th and early 19th century the Company expanded their rule and control around the subcontinent and with this control the prosperity left the South-Asians for British merchants. For even though inland trade still lay largely in the hands of Indian merchants and bankers the company began to monopolize the previously profitable foreign trade. They did this via many channels but most of all once the Company controlled local government they were basically allowed to control foreign trade. British banks and companies profited from better access to lower interest rates in Britain which relegated indigenous bankers to exchange functions for tax purposes. Plus, the local monetary drain due to the need to exchange local currencies for British pounds to pay taxes was particularly damaging. British merchants basically profited from their close relationship with government, had easier access to money and shipping which basically began to phase out Indian involvement in profitable trade.

This process was exacerbated in the 19th century with the industrial revolution and British railway system. First, the British administration began to build an extensive railway system in South Asia which added some money and employment to the local economy. Ultimately, however, profits went to English shareholders and companies at the same time as reducing transport costs only for export trade. The key is that railways only connected inland trade centers to ports, transport between inland centers was neglected and thus stayed more expensive. Local producers and merchants thus received more profit by selling goods to the export industry rather than the domestic industry.

The import side concerns both these railways and the British industrial revolution. Basically, it was cheaper to buy British consumer goods than goods made in an inland South Asian city due to the reduced/expedited transportation from port cities and the change in British economic policy at home with the industrial revolution. Enhanced machinery meant that the British could produce more goods at a lower cost. On top of this the 1830s saw a change in government policy with the rise of the Lancaster textile industry. Basically, sugar planters lost their influence with Parliament marking a change from mercantilism to supposed “Free Trade” advocated by the Lancaster block. However, this was not really free trade. Although all sorts of markets were opened up to British producers the domestic British market remained closed to outside goods, including Indian textiles, through high tariffs. Indian textile manufacturers, particularly in cloth and yarn, lost a lot of business both in the export and domestic market.

Thus, the previously robust South Asian free market economy of textile exporters and local bankers was ousted by East India Company rule and the British industrial revolution. Although the Company did not completely take over all aspects of the local economy their stranglehold on key aspects of the economy and money supply ensured their dominance and changed the South Asian economy to a cash crop exporter. Later 19th century also saw a British manipulation of Rupee value, keeping it at a fixed value close to the British Pound. This ensured that British goods remained relatively cheap to the Indian consumers and vice versa. Basically, British policies were all geared towards manipulating the Indian economy in their favor. The backlash against these manipulations came in the form of Indian nationalism of economic historians like Naoroji, Dutt, and Thakurdas. Basically heavily influenced by British “liberal” ideals desiring to in a sense re-manipulate the Indian economy out of the British-caused conundrum. I will write more later on these late 19th and early 20th century policies and ideals that affected post-independence India.

Sources:

Tomlinson, B.R. “The Economy of Modern India 1860-1970.” Cambridge; New York; Cambridge University Press, 1993.

Wild, Antony, “The East India Company: Trade and Conquest from 1600.” London; Harper Collins Illustrated, 1999.

Bagchi, Amiya Kumar. “Private Investment in India 1900-1939.” Cambridge; Cambridge University Press,  1972.

Sinha, H. “Early European Banking in India with Some Reflections on Present Conditions.” London; Macmillan and Co.., 1927.