Economic Policies of the British in India

Immediately after the Battle of Plassey, the British influence in Bengal's internal trade substantially expanded, eventually spreading to other areas of the country. Although the British emerged in India in 1612, it wasn't until 1757 that they attempted to meddle with the country's economic and political framework. To establish India as a trustworthy and excellent supplier of raw materials for its factories in Britain and to generate a marketplace for those factories' completed goods in India, the Britishers restructured the Indian economy into a British colonial economy. Let's learn more about British economic policies in this comprehensive article.

Stages of Indian Economic Exploitation

Three stages can be differentiated between the British Raj's economic plans and their repercussions on the Indian economy.

Initial Stage (Mercantilism phase)

• Mercantilism, which commenced after the Battle of Plassey in 1757 and flourished until 1813, was a defining characteristic of the first phase.
• It marked the start of colonial exploitation of the Indian economy.
• The direct colonial looting marked this period by the East Indian Company through its trade dominance and other measures, as well as the outflow of riches from India.
• The Battle of Plassey, which took place in 1757, altered the power distribution in the Indian polity and economy, benefiting the British.
• The East India Company gained political sway in Bengal throughout the 1750s and 1760s, which allowed the British to loot India's economy openly.
• Thirdly, the East India Company's administrators accumulated an enormous fortune delivered to England by Indian traders, including Zamindars and feudal lords.
• The East India Company returned about 33% of its overall earnings in the form of products between 1765 and 1770.
• From the perspective of R.P. Dutt and Pandit Nehru, the British crushed and stole the foundations of capitalist development that had previously existed in India.
• British demanded significant investment in its industries in the second part of the eighteenth century, which was met by robbing and removing riches from India, severely exploiting the Indian economy.

The Second Stage (Capitalism Phase)

• The second phase, which lasted from 1813 to 1858, was highlighted by unfettered industrial capitalism.
• During this time, India saw deindustrialization, ruralisation, and commercialization of its farming.
• The second phase is additionally known as the era of trade capitalism. (1813-1858).
• India's economy was being exploited by free trade capitalism at the time.
• The 1813 Charter Act helped British industrialists and made India a source of raw materials.
• It turned India's economy into a marketplace for British products and a raw material supplier.

Phase Three (Financial Capitalism phase)

• The financial capitalism era was the third phase.
• It began in the final decade of the 19th century and persisted till independence.
• During this phase, financial imperialism was manifested through exchange banks, managing agency companies, and other means.
• Several European nations could industrialize themselves in the second part of the nineteenth century.
• Thus, to contend with them, the British decided to invest heavily in India's railways, roads, postal, and banking infrastructures, among other sectors.
• Due to inexpensive labour, markets, and raw resources in India and its surrounding regions, as well as favourable profit margins, the period saw a boom in foreign investment in India.

Over time, the British understood that they might use their military to subjugate other European nations and local Indian rulers to get a disproportionately big piece of the trade coming from the subcontinent and expand their share of the lucrative Indian markets. If they could tighten their hold over the nation's politics, which was not a difficult undertaking given the shortcomings of the Indian authorities caused by internal strife and a shoddy administrative structure; all of these would seem more conceivable. Incidentally, the British were successful in their endeavours and established their political dominion over the whole subcontinent. After the British Empire was founded over India, a structured approach to its colonial oppression and sink of wealth, natural resources, and materials for the advancement of the colonial power began, and it continues to this day. India was the largest exporter and producer of industrially produced items that were outsourced to all parts of the world by European businesses till the close of the 18th and the start of the 19th century. Still, by the end of the century, India was transitioned from a subsistence economy to a colonial economy.

The British economic structure they developed to take advantage of the natural resources of the Indian subcontinent is referred to as the "colonial economy."

Economic Policies during British Rule

I. British Land Revenue System

One of the principal sources of income for the British in India was agricultural income. While the British were in charge of India, various land revenue schemes were in operation.

1. Izaredari System

• Warren Hastings established this approach in 1772.
• Features:
  • In this arrangement, the privilege to collect money would go to the highest bidder.
  • The original term was five years, but in 1777 they changed it to one year.
  • Instead of acting as landowners and receiving a commission, zamindars were viewed as revenue collectors.
• Outcomes:
  • For the following reasons, this system was a total failure:
  • Most bidders were contractors who only wanted to increase their profit and were not concerned for the peasants' welfare.
  • In an auction, revenue was highest, and bidding was presumptively higher than the land's real carrying capacity.
  • Company executives are also indirectly involved in the sale through their employees.

2. Permanent Settlement

• In 1793, Lord Cornwallis first proposed it.
• 19% of British India, which includes the states of Bengal, Bihar, Odisha, the Banaras region of Uttar Pradesh, and North Karnataka, had a high prevalence.
• The zamindars were acknowledged as the land's owners under this system.
• 10/11^th of the income was to be sent to the East India Company, while the zamindars might keep 1/11^th.
• The landlord's estate was to be treated as his possession and dispersed among his descendants in the event of his passing.
• Features:
  • For zamindars and their heirs, the land revenue was fixed and would not alter in the future.
  • The government can choose its spending due to the set income from the revenue.
  • Politically, Cornwallis was promised that this system would create zamindars who would obey the British administration. As is well known, many zamindars or landowners refrained from participating in the 1857 Revolt.
• Drawbacks:
  • This system fostered slavery in the lower classes and feudalism in the highest classes of society.
  • Due to the fixing of land revenue, even if the price of agricultural land and productivity grew, the government's income from land revenue could not rise.
  • The majority of zamindars prioritized maximizing earnings rather than improving agricultural land, which worsened the conditions of the farmers.
  • As zamindars began to move to the cities, "Absentee Landlordism" emerged.
  • Following the 1794 Sunset Law, a zamindar's estate would be seized and sold at auction if he failed to submit the revenue from his land by the appointed date's sunset.

3. Ryotwari System

• Thomas Munroe and Captain Reed introduced it in the company's domains in 1820.
• Captain Reed first used it in the Bara Mahal district of Tamil Nadu under the Madras presidency in 1792.
• It worked in 5% of British India's territory, which included the states of Madras, Bombay, Eastern Bengal, Assam, and Coorg.
• Wingate and Elphinstone Chaplin implemented it during the presidency of Bombay.
• The revenue was to be immediately collected from the Ryots or Raiyats, who were recognized as the owners of the land they farmed.
• Between 45% and 55% of the farmers' revenue had to be paid to the business.
• Wingate and Goldsmith made changes and improvements to the method after 1836.
• Features:
  • This technique was more widely adopted since it appeared to be more advantageous.
  • In this system, ryots were comparatively more independent.
  • For the government to increase revenue in the event of increased production, revenue was not fixed.
  • Under British rule, arid terrain could be used for agricultural purposes, and the government received a portion of the proceeds.
  • Land may be confiscated in the case that the revenue is not paid.
  • In this arrangement, lessees had the option to give prior notice and release themselves from paying rent for any land or portion of land offered for lease.
• Drawbacks:
  • Compared to the Zamindari system, this system was exceedingly expensive.
  • Under this system, the government was required to accurately assess the state of the land and the agricultural sector to set the appropriate tax rate.
  • It added to the government's workload, so the revenue department had to be expanded.
  • Bribery was a common practice among the officers who assessed the land.
  • The land was used as the basis for determining the revenue for other lands, and in this case, the fixed land revenue was frequently higher than the land's carrying capacity.
  • Within this system, corruption among the cops grew quickly.

4. Mahalwari System

• The Mahalwari system was essentially a dual structure in which the settlement was done individually with the landowners and collectively with the entire community.
• Under this approach, revenue was assessed based on the total output of the village or mahal and was determined jointly for all the landowners.
• This revenue agreement was made with the landlords, who jointly assert that they are the village's landlords.
• The fact that the survey was essentially built on false assumptions, leaving room for manipulation and corruption, is a significant flaw in this method.

II. The Commercialization of Indian Agriculture

• The commercialization of Indian agriculture was one of the key facets of British monetary strategy.
• Following 1813, Indian agriculture began to become commercialized.
• It gained popularity around 1860 AD.
• Britain experienced a rise in trade activities from India as a result of America's inability to offload cotton during the American Civil War.
• Because India was so far behind in industrial growth, its goal was not to support Indian industries.
• The only agricultural commodities that were produced as a result were those that were either needed by British enterprises or had the potential to be profitable.
• Plantations of indigo, tea, and coffee were encouraged in India because they might find lucrative markets outside.
• The English were in charge of the plantations that produced market crops.
• Another commodity that attracted the English company's attention was jute.
• The barter system was mainly superseded by cash transactions, which established the exchange basis.
• Permanent settlement and the ryotwari system were the two forms of land tenure.
• Agricultural land was made available for free trade.
• By granting zamindars ownership rights, the permanent settlement system produced a class of affluent landlords who could sell or buy land to exercise this ownership right.
• Crops in high demand, such as cotton, jute, sugarcane, ground nuts, and tobacco, were growing more.
• For most Indian peasants, commercializing agriculture was a forced and unnatural process.
• The British used force to compel its introduction, not the general population of peasants. Under pressure, the peasantry engaged in commercial crop production.

How commercialization of Indian agriculture affected the Indian economy

1. This stage favoured the wealthy.

• The British planters, traders, and manufacturers benefited from the commercialization of agriculture because they had access to cheap agricultural products that allowed them to earn great profits.
• Indian traders and moneylenders amassed enormous wealth by acting as British intermediaries.

2. Taking advantage of the poor

• Poor peasants were compelled to sell their products as soon as they were harvested for whatever price they could get to fulfil the deadlines set by the government, their landlord, their lender, and their family members.
• The merchants, frequently also the villagers' lenders of last resort, received a sizable portion of the benefits of the expanding trade in agricultural products.
• Indian money lenders gave farmers cash advances to grow commercial crops, but if the farmers failed to repay the advances on time, the money lenders acquired control of the farmers' land.

3. Indian farmers' growing misery

• Due to the British policy of commercializing Indian agriculture, most Indians suffered horribly.
• The region cultivated for food crops declined due to the replacement of commercial non-food grains for food grains.
• This is detrimental to the rural economy and frequently manifests as famines.
• The British commercialization of Indian agriculture was one of the leading causes of the misery of the Indian masses.

4. Localized Specialization

• The commercial agricultural revolution led to a regional specialization in crop production based on soil and climatic factors.

5. The Indian market was impacted

• Connecting the agricultural industry to the global market. In the global market, price changes and business volatility started to impact. The imbalances in the market situation harmed the peasant class.

6. Reduced level of independence

• The self-sufficiency of village economies was negatively impacted by the commercialization of agriculture, which was a significant contributor to the rural economy's deteriorating situation.
• It impacted the established connections between agriculture and industry.

7. To help Britain industrialize, India's growth was sacrificed.

• Agriculture's commercialization had conflicting results.
• While it supported the British industrial revolution, it undermined the economic independence of Indian communities.

This leads us to the conclusion that the harm caused by the commercialization of Indian agriculture to the country's economy, population, and quality of life was greater. The British made every effort to plunder India's resources by enacting various policies.

III. Deindustrialization

• Deindustrialization is the term employed to describe the slow decline and eradication of industries in any nation.
• The British East India Company's meddling in the manufacture of the handicrafts sector through gumastas and its control over Bengali handicraft artisans following the Battle of Plassey and Buxar are the elements that led to deindustrialization in India during the British era.
• In the Charter Act of 1813, the Indian market was made available to import British products.
• Indian trade declined in the British markets due to strong restrictions on Indian commodities, some of which were outright banned.
• King and royal patronage of artisans was sidelined by the British government's imperial policies, destroying the domestic market for Indian handcraft enterprises.
• The British societal and educational practices are also held accountable for the decline of the handicraft sector.
• It gave rise to a group of individuals with an unusual worldview who preferred British goods over those from India.
• The British deindustrialization initiatives harmed India's old industries and handicrafts.
• In India, cotton textile manufacturing was the second-largest employment source after agriculture.
  • However, the British's discriminating regulations and continual rivalry with Indian products led to India's cotton industry's downfall.
• After 1835, when it had to compete with British goods made by beautifully woven machines, jute handicrafts also saw resurgence.
• Kashmir was well known for its scarves and blankets, but in the nineteenth century, Scottish goods pushed Kashmiri handcrafted shawls to the side, leading to a fall in the industry.
• Before the arrival of the British, India had a thriving paper industry.
  • Still, Charles Wood's decree issued in the middle of the 19th century mandated that all paper used for official government business be imported exclusively from Great Britain.
  • This inflicted India's paper sector severe damage.
• India has always been known for producing higher-quality iron and steel, but the British import of iron equipment impacted the country's iron- and steel-making industry.

Despite of the de-industrialisation, modern industries did flourish in India and let us look at them in brief.

India's Growth of Modern Industries

• India could not be protected from the winds of the industrial revolution sweeping the sections of the British Empire, notwithstanding the relative disinterest of the British in supporting Indian business.
• Because of this, two types of new industries generally emerged: Factories and mills on plantations.
• These industries' character was mostly determined by the raw resources accessible in the nation.
• They also served as industries that promoted the production of auxiliary raw materials to meet the needs of higher-end industries in England.
• The British initially became interested in creating plantation enterprises focused on cash or commercial crops like Indigo, tea, etc.
• However, the British started to establish industries based on mills around 1875.
• Cotton, leather, glass, iron, steel, paper, and wood were all included.
• On July 7, 1854, the Bombay Spinning and Weaving Company became the city's first cotton mill.
• The first modern sugar mill was built in the United Provinces in 1903, and the first jute mill was built in Bengal in 1855.
• South of Madras was where the first iron and steel mill were attempted.
• Jamshetji Tata then formed the Tata Iron and Steel Company.
• Certain is how these industries developed and expanded.

1. Drain of Wealth

• When an economy repeatedly loses riches, prosperity, and a significant amount of bullion (precious stones like gold and silver) without earning any material or commercial gains due to unflattering trade with another nation, this is referred to as the "drain of wealth."
• The granting of Bengal's Diwani privileges allowed the East India Company to become economically independent of its parent country.
• A portion of the acquired money, including internal trade earnings, looted wealth, and revenue from Bengal, could now be leveraged to buy Indian items of commerce, eliminating the need to import bullion from the home nation.
• A drain of wealth was an evident outcome of such a circumstance.
• It is believed that four million pounds sterling had been moved from India to Britain by the late 18th century.
• The Mercantile School of thinking, which held that the colony should be used to the advantage of the mother nation, served as the East Indian Company's strategy in India up until 1813.
• The drain on wealth persisted even after 1857, but in a slightly altered form.
• In 1858, the English crown seized the administration of the East India Company's settlement in India.
• With the help of a Council of 15 members, the proclamation of 1858 resulted in the establishment of the position of Secretary of State.
• It was expected that the Indian money would cover all associated costs.
• The costs incurred in the 1857 uprising had to be paid out of the Indian Treasury.
• The British Indian administration submitted a report every year that included the following items: "home charge" for the job done by British forces in India, "transportation expenditures for the soldiers moving to India or going to England," and "expenses of retirement and gratuities to army officers."
• These expenses collectively caused a wealth drain.
• Along with submissions, British officers stationed in India also sent reports to England detailing their earnings from commerce with India.
• The selling of Council bills, which were used by British officers and merchants alike and issued by the secretary of state, was another money transfer method.

Estimation of the Drain

• Each individual has a different estimation of the wealth drain.
• Dadabhai Naoroji pegged the outflow at 1/4 of India's total revenues, MG Ranade pegged it at 1/3 of national income, and Dr. R.C. Dutt pegged it at 1/2 of national income.

Roots of the Wealth Drain

Direct and indirect sources are employed to characterize the origins of wealth drain.

Direct Sources

• The money sent from India to Britain went through several channels.
• 5% of India's earnings under the company's control were paid out as dividends to the company's stockholders.
• The Secretary of State for India's pay and the upkeep of the India Office was funded by the Indian public purse when India was positioned under British rule.
• The so-called "Home Charges," which consisted of returns on British infrastructure investments made in India, such as for the construction of the Rail Network, the acquisition of military technology and railway equipment supplied to India, the credit of pensions and compensations, among other things, to British civil, military, and railroad employees who had served in India.
• The profits on foreign capital invested in trade in the industry were the single biggest source of direct wealth drain.

Indirect Sources

• One of the main indirect wealth drains came from trade.
• The costs incurred by the British Indian exchequer to fight in British imperialist and colonial wars such as the Indo-Burma war, the Indo-Afghan war, and the First and Second World Wars.
• The price of the lavish and costly British governance of India included high wages for British civilian and military officials, Shimla as the summer capital, the shift of the capital from Calcutta to Delhi, the construction of the Imperial New Delhi, etc.

Consequences of the Wealth Drain

The nationalist economists have described several effects, including:

• According to Naoroji, the principal motivation for India's widening inequality is the country's population's destitution.
• Given that the same amount of wealth would have been spent in India and distributed among the populace, a strong capital base would have been built, resulting in the loss of riches and capital.
• According to Dadabhai, the lack of industrial progress in India was not due to a lack of willingness on the part of Indians to invest their money but rather to a shortage of money available to Indians.
• Naoroji went on to say that the deindustrialization of India was a result of the wealth drain as well.
• According to some financial economists, the lack of development in India has been caused by the traditional colonial exploitation of one country by another, which is reflected in the drain theory's consequences and causes.
• India became dependent on the British economy due to the wealth drain in that country.

V. Railways

Positive Impact

• Increased domestic market size
• It facilitated the commercialization of agriculture and allowed people to overcome distance limitations, which in turn helped to prevent famines

Unfavourable Effects

• It accelerated the use of colonial force:
  • by accelerating the export of Indian raw commodities
• The spread of cheap imported items to every region of the nation is accelerated by speeding up the imports of finished goods through ports, which is detrimental to the domestic handicraft industry.

Conclusion

The economic situation in our nation deteriorated dramatically after the British left India. Indians suffered tremendously under nearly 200 years of European domination. The two economic foundations of India, industries, and agriculture, were in terrible shape. The industrial development's infrastructure had deteriorated significantly. In light of this, India embarked on a number of efforts to enhance the financial environment in our nation.