(Online Course) GS Concepts : Mordern Indian History - Colonial Economy and Its phases

Topic: Colonial Economy and Its phases

Question : Give a brief description of colonial economy and its phases?

Answer :

The state of Indian economy under the lmperial ru1e has a long history. Its discussion can be traced to 1860’s when the moderates or a group of intellectual now known as the economic nationalists led by Dadbhai Naoroji and R.C. Dutt spoke about the apparent lack of growth and development of Indian economy in the colonial period: The nationalist school has been the staunchest critics of role of British Government.
R.C. Dutt’s (1901, 1903) work The Economic History Of India, “Volumes I & II”, remain till date the most influent book on the analysis of the Indian colonial economy. He broadly identified three phases of British exploitation of India. This periodisation often overlaps and should not be treated as rigid blocks.

Mercantile Phase from 1757 up to 1813- This phase was marked by direct plunder. The East India Company used it monopoly of trade which functioned through ‘investments’ of Indian revenues to buy Indian products at low rates. These goods were then exported to Europe and England. So in essence, the East India Company bought Indian products from the revenues they collected mainly from Bengal and then exported them. Taking advantage of the political power the British now could dictate the prices of the goods that they needed to export. The servants of the Company amassed enormous fortunes by engaging in the illegal trade till the time this was banned by Lord Cornwallis. The revenues of Bengal were exploited till the introduction of the Permanent Settlement in 1793.

The 2nd phase coincided with the ‘Industrial revolution in England (1813- 1858) — It was the age of Free Trade capitalist exp1oitation. The English manufacturers were given, a boost by the Charter of 1813. Indian markets were opened up for English imports and India became a source of raw materials. It is popularly said that this was the period when ‘the home-land of cotton was inundated with cotton (from abroad.)’. The cotton manufacturers of Lancashire benefitted the most and in the next ‘thirty years’ time Indian cotton industry was destroyed. The constant drain was affecting the purchasing power of the Indians and this would have blocked India as the market for English products. To resolve this, commercialization of agriculture was introduced (though this alone was not the reason for commercialization of agriculture) Laying of the railways from 1850s under Lord Dalhousie opened the interior markets of India for English products and enhanced the capacity of India as a source of raw materials for the English industries.

The 3rd phase- Finance-Imperialism from the latter half of the nineteenth century onwards- This phase saw export of capital from India and also chains of British-controlled banks, export-import firms and managing agency houses. The manner in which Railways were developed is a fine example of finance imperialism.

The true exploitative nature of the colonial economy started in the first phase after gaining the diwani of Bengal, Bihar and Orissa. In trade till 1750s bullion flowed into India from Europe which meant that India profited from the trade. The import of Indian infact was so high that the British Parliament in 1700 had to pass an Act which prohibited the use of Asiatic Silks, printed and dyed calicoes. They could be brought in England but only for the purpose of re-exporting. Protective duties were imposed on Indian cloth entering England which over the years was raised to 80%. This meant that the Indian cloth that was already expensive became more expensive on account of paying custom duties. This was done in order to protect the English weavers from finer Indian cloth. BuT throughout this period India gained due to inflow of bullion.

Changes in Balance of Trade In Favour of Britain

In the late eighteenth and beginning of the nineteenth century, England .was undergoing Industrial Revolution. This meant that the machines were replacing the human labour in production. Machines made possible production of goods on a large scale which were significantly cheaper than hand-made goods. England now needed an outlet to sell these goods and raw material to feed its rising industries.
The East India Company by several means was able to change the balance of trade in its own favour. Under the conditions of the farman granted by the “Emperor Farrukhsiyar in 1717, a dastak was given to the East India Company that had to be signed by the President of the Calcutta Council. Dastak exempted the goods covered by the English factory from payment of custom duties. The dastaks were not applicable for the private trade of the individual servants of the Company as these duties formed an important source of revenues. This was one of the bones of contention between the English and Siraj-ud-daula and reason for the Battle of Plassey in 1757.
Defeat of Siraj gave the British the freedom to exploit Indian sources and acted as a stepping stone in Indian politics The British installed Mr. Jafar, a weak Nawab, on the throne. In estimation within the seven years after the battle of Plassey in 1757, the puppet Nawabs had to give East India Company more than 5 million pounds sterling in terms of payments for support, concessions granted and so on. And this amount flowed out of India in the form of bullion. The servants of the Company even overlook the trade in commodities which had thus far remained prohibited to all Europeans, like tobacco, betel nut and salt.
The East India Company benefited further after the winning the Battle of Buxar in 1764 and the subsequent signing of the Treaty of Allahabad whereby the East India Company gained the diwani rights of Bihar, Bengal and Orissa. This meant that the Company gained the rights to collect the revenues. The ‘surplus’ that is one left after giving the Nawab his dues, was used to buy Indian goods for exporting to England and elsewhere. Thus, revenues were drained out of India and helped in the accumulation of capital in Britain.

This marked the beginning of the reversal of terms of trade.

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