Economic Impact of British Rule in India

The overall economic impact of British rule in India was a significant drain of wealth, leading to the country’s deindustrialization and increased poverty. Read this article to know various economic impacts of British Rule in India. In this article, you will know about various Economic Impact of British Rule in India as well as its critique by prominent nationalists. To explore more interesting UPSC Modern Indian History topics of GS Paper – 1 like economic impacts of British Rule in India of NCERT Class 10 and Class 12, check out other articles and IAS Notes of IASToppers.   

Table of Content

• Background
• Economic Impact of British Rule in India
• Colonial Economy: Nationalist Perspective
• Conclusion
• FAQs on Economic Impact of British Rule in India

Background

• Mass manufacturing of goods originated during the Industrial Revolution.
• It first began in England during the later parts of the 18^th century and the early 19^th century. This resulted in increase in the production of finished goods.
• The East India Company played a significant role in funding and expanding England’s industrial base during this time.
• A segment of manufacturers in England reaped substantial benefits from manufacturing rather than trading.
  • Their focus was on importing more raw materials from India and exporting their manufactured goods back.
• Between 1793 and 1813, these English manufacturers initiated a campaign against the East India Company’s monopoly over Indian trade. They successfully ended the company’s exclusive control over Indian commerce.
• This development transformed India into an economic colony of Industrial England.
• The major difference between the British colonists in India and earlier invaders was that none of the earlier invaders made any structural changes in Indian economy or drained away India’s wealth as tribute.
• British rule in India caused a transformation of India’s economy into a colonial economy, i.e., the structure and operation of Indian economy were determined by the interests of the British economy.
• At the beginning of 18^th century India had some 23 % of the world economy. This share came down to some 3 % when India got independence.

Economic Impact of British Rule in India

Downfall of Crafts and Industries

• Under British rule, goods from Britain, produced cheaply by machines, swamped India’s market.
• The Charter Act of 1813 allowed unilateral free trade favoring Britons. On the contrary, it became increasingly difficult for Indian products to find a foothold in Europe.
• Indian textiles faced an around 80% tariff, making them costly and less competitive. Post-1820, Europe practically stopped accepting Indian exports. Indian markets were awash with low-priced British cloth.
• The newly-established railway system facilitated the spread of European goods to India’s farthest reaches. India, which once exported more than it imported, began importing more.

Lack of Industrial Progress

• The elimination of conventional occupations didn’t lead to industrial growth in India, unlike other rapidly industrializing nations at that time. This led to India’s deindustrialization during an era of European industrial resurgence.
• This occurred when Indian artisans and craftsmen were already struggling due to decreased support from royal and noble classes who were adopting Western tastes and values.

Transition to Rural Economy

• Deindustrialization led to a decline in urban areas and made India more rural.
• Many craftsmen, facing lower profits and oppressive policies left their trades, relocated to rural areas, and took up farming. This shift led to higher demands on land.

Land Taxation Policies

• The British devised several land tax schemes that led to hardship for farmers. These taxes funded their military expeditions.
• This exploitation had a substantial impact on the populace’s daily life, as they struggled to fulfill their basic needs while fulfilling their tax obligations.

Permanent Settlement System

• Lord Cornwallis established the Permanent Settlement in 1793 in Bengal and Bihar. Under this system, landlords or zamindars deposited a fixed sum into the state treasury and were granted hereditary land ownership in return.
• This arrangement fixed the revenue to be paid to the Company for a certain period, ensuring the British’s financial stability.
• The zamindars knew their tax obligations and encouraged peasants to boost production to increase their profits.
• The British benefited when a zamindar defaulted, as his land would be sold to another.
• The newly formed zamindar class became political allies of the British, serving as intermediaries with the peasants and siding with the British during the freedom movement.

Mahalwari Settlement System

• In 1822, the Mahalwari Settlement was implemented in the North Western Provinces, Punjab, the Ganga Valley, and some areas of Central India.
• All landowners of a mahal, or estate, were collectively liable for the revenue determined by the government.
• This arrangement did not improve the peasants’ conditions due to the excessive British demands.

Ryotwari Settlement System

• The Ryotwari Settlement, introduced in the early 19th century in parts of the Bombay and Madras Presidencies, imposed land revenue directly on ryots, or individual farmers.
• The ryot was can be the landowner as long as he could pay the tax, but exploitation persisted due to the high revenue demands.

Agricultural Stagnation

• The farmers lacked the means and motivation to invest in agriculture, while the landlords were disconnected from the villages.
• Lack of investment from the government in agricultural and technical education, coupled with land fragmentation, made it hard to adopt modern technology.
• This situation contributed to consistently low productivity levels.

Frequent Famines and Widespread Poverty

• Famines became commonplace in colonial India.
• Between 1850 and 1900, approximately 28 million people in these famines.

Shift in Agricultural Practices

• Prior to the 19^th century, farming in India was primarily for subsistence, not commercial gain.  Instead of growing food crops for local consumption, farmers began cultivating commercial crops such as cotton, jute, oilseeds, tobacco, and sugarcane intended for national and global markets.
• This change was most noticeable in the plantation industry, where Europeans largely owned tea, coffee, rubber, and indigo farms, selling their produce to extensive markets.
• While this commercialization offered potential profits, it also introduced significant risks, tying Indian farmers to the unpredictable trends of international markets.
  • For instance, the cotton boom of the 1860s mostly benefited middlemen, and a subsequent price drop in 1866 led to severe indebtedness and social unrest among the farming community.

New Money-lending Group

• Heavy, time-limited revenue requirements by British authorities led peasants to borrow from moneylenders.
• These lenders took advantage of peasants with high interest rates and dishonest practices, such as false bookkeeping and forged authorizations.
• Many peasants couldn’t repay their loans and the accumulated interest, resulting in a transfer of land ownership to this new money-lending class.

Downfall of Traditional Industry

• British rule led to the decline of key Indian industries.
  • Textile industry: British ceased purchasing Indian textiles at favorable rates, using revenues from Bengal instead, which further impoverished Indian farmers.
  • Shipbuilding industry: Indian shipbuilders, once renowned on both eastern and western coasts, were burdened with high duties and restricted trade routes.
  • Steel industry: Producers like the Tatas faced stringent standards and were not allowed to manufacture the lower-grade steel in demand in larger markets. This was coupled with British restrictions on Indian steel imports.

Delayed Modernization

• The advent of machine-based industries in India only began in the latter half of the 19th century.
• However, most of these modern industries were foreign-owned and controlled by British managing agencies.
• Despite foreign capital flooding into India, Indian-owned industries faced numerous challenges, including credit issues, lack of government tariff protection, and competition with foreign companies supported by strong financial and technical infrastructure.
• The industrial growth pattern under British rule was skewed, neglecting core and heavy industries and power generation.
• Certain regions were favored more than others, leading to regional disparities and impeding nation-building.
• Without a well-developed technical education system, the industry lacked sufficient technical manpower.
• Despite this, the rise of an industrial capitalist class and the working class marked an important phase of this period.

Colonial Economy: Nationalist Perspective

• In the early 19^th century, many intellectuals supported British rule in the belief that it would bring modern technology and capitalist economic organization to India.  This view changed after the 1860s.
• Renowned economic thinkers, including Dadabhai Naoroji, Justice Mahadeo Govind Ranade, Romesh Chandra Dutt, Gopal Krishna Gokhale, G. Subramaniya Iyer, and Prithwishchandra Ray, critiqued the colonial economy.
• They maintained that British rule transformed India into a source of raw materials and a market for British products, creating economic dependence.
• They advocated for India to break free from British economic control and foster a self-reliant economy with contemporary industries.

A Drain on India’s Wealth

• They believed that India’s poverty was growing due to British imperialism, and that the causes were not natural but man-made.
• They argued that foreign capital suppressed and displaced Indian capital, causing an economic drain and bolstering British domination.

Impact of Economic Drain

• As per drain theory, British rule was depleting India’s productive capital.
• Nationalists estimated the economic drain to be greater than the total land revenue, half of the total government revenue, or one-third of the total savings, equating to 8% of the national product in today’s terms.

Trade and Railways Expansion

• They debunked the British assertion that foreign trade growth and railway expansion was only for progress for India.
• They highlighted the foreign trade pattern as detrimental to India, casting it as a buyer of finished goods and a seller of raw materials.
• They argued that railway development did not align with India’s industrial needs and led to a commercial rather than an industrial revolution, enabling foreign goods to outperform local products.

Unfair Trade and Tax Policies

• Nationalists argued that the one-way free trade system devastated Indian handicrafts by exposing them to premature, unequal, and unfair competition, while tariff policies catered to British capitalist interests.
• They criticized the tax system as overburdening the poor while sparing British capitalists and bureaucrats. They proposed reducing land revenue, eliminating the salt tax, introducing income tax, and levying excise duties on luxury goods.

Conclusion

The economic impact of British rule in India was overwhelmingly negative. Despite the introduction of some modern infrastructure and industries, these were primarily in service of British interests. The policies imposed transformed India from a rich nation to one mired in poverty and economic dependence, forcing the need for substantial post-colonial recovery.

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