Indian Economy during British Period

The following points highlight the top four conditions of Indian economy during British period. The conditions are: 1. Agriculture 2. Industry 3. Transport and Communications 4. Foreign Trade.

Indian Economy: Condition # 1. Agriculture:

Indian agriculture remained completely traditional and primitive during the British rule from 1757 to 1947. Farm technology followed during those days was simple and no transformation was adopted into it. There was an increasing pressure on agricultural sector as there was a decline of urban handicrafts in India.

This has resulted sudden swelling in the number of agriculturists leading to a continuous sub-divisions and fragmentation of agricultural land.

This has resulted the problem of uneconomic holding and unproductive agriculture in the country. Thus agriculture remained merely a means of subsistence for most of the farmers. In the second half of 19th century, famines deteriorated the conditions of agriculture further. The British rulers took no sufficient steps to develop irrigation facilities.

Till the 19th century, there was a little change in the agricultural practices adopted in India. Throughout the past centuries, Indian farmers were growing the same crops. Rice and Wheat were the two principal crops in India followed by jawar and barley. Other crops, produced in India from the very beginning, were consisting of pulses of different types, oil seeds, jute, cotton, indigo and spices.

All these crops were produced in the country with the use of simple implements and tools like light wooden plough, sickle and spade, supported by animal power. Open field type of cultivation with no enclosures was practised in India. The rotations of crops of traditional type were followed to regain fertility. Farmers were using only natural manures. Storage and marketing facilities were totally inadequate.

Commercialisation of Agriculture:

Towards the end of the 18th century, the East India Company realised the export potentialities of some of the Indian agricultural commodities like indigo, jute, cotton and oilseeds. This was mostly resulted from growing demand for agricultural raw materials like jute and raw cotton arising out of Industrial revolution in England and imposition of restrictions on the export of manufactured and finished goods from India.

All these had resulted commercialisation of Indian agriculture.

The commercialisation of agriculture simply indicates the process of production of some crops for selling it in the market for deriving cash rather than for subsistence or family use. Development of roads and railways after 1850 had boosted the process of commercialisation of Indian agriculture.

Major effects of commercialisation of Indian agriculture include:

(a) Increase in the production of cash crops like cotton, jute, oilseeds, sugar cane, tobacco etc. by substituting foodgrains and their growing localisation into certain areas;

(b) Widening of markets for Indian cash crops,

(c) Rise in the income of a section of agriculturists producing cash crops;

(d) Introduction and growth of new crops like, tea, coffee, groundnut, potato, fruits, different types of oilseeds etc. and

(e) Disappearance of village self-sufficiency.

Indian Economy: Condition # 2. Industry:

The process of industrialisation in India during British period must be traced back from 1750 onwards. India was quite well known for her industrial products. The industry which was very much famous in India during those days was the urban handicraft industry. Again the most important urban handicraft industry in India during those days was the textile industry.

The well known products produced by this textile industry include cotton textile. Dacca muslin, dhotis and dopattas of Ahmedabad, Chintzes of Lucknow, sarees of Madurai etc. These products were quite famous throughout the country and also outside the country. Moreover, silk fabric produced in Bengal, Poona, Ahmedabad etc. was also quite famous.

The woollen articles viz., Kashmiri shawls produced in Kashmir and in some parts of Punjab were also quite famous within the country and also in Europe. Again a good number of metal industries flourished in India which includes brass, copper and bell-metal industries established in Banaras, Nasik, Poona, Hyderabad, Tanjore, Vishakhapattnam etc.

Besides these industries, other industries which were existing in India at the time of arrival of East India Company included stone carving, gold and silver thread work, enamelled jewellery, sandal wood work, marble work, glass bangles making, tanning and leather works, melting and forging of iron, ship building etc.

Towards the end of the 18th century and thereafter, there was a rapid decline of most of the aforesaid handicrafts industries. These was mostly resulted from increasing competition faced by Indian handicrafts industries with the factory-made goods produced in England after the Industrial Revolution started in England after 1750 and especially in the first half of 19th century.

The policy followed by the British in respect of its industries and trade are also responsible for the decline of Indian industries.

The British industrialists took interests only in those industries which they failed to set up elsewhere for geographical reasons. These industries include jute and plantation. British capitalist established jute mills in Bengal and also started tea, coffee and indigo plantation which made it possible to exploit Indian labourers extensively.

In this way, India was forcibly transformed from a country of combined agriculture and manufacture into an agricultural colony of British manufacturing capitalism. Therefore, Indian industries were more or less destroyed gradually making way for growing market for British manufacturers.

Thus during the period of industrial capital the industrial revolution in Britain had gathered its momentum through the utilisation of its mercantile capital and then started to exploit the Indian economy in a different manner.

During those days, the main motive of the British regime was to transform the Indian economy as a primary producing country, concentrating on the production of raw materials and to create a potential market in India for the sale of their industrial finished goods.

Thus the strategy of free trade followed by the British had ruined the age old Indian textile industry as this industry could not stand in the competition with the machine made textile produced by the British. Moreover, British capitalists gradually developed tea, jute, and coffee industry in India due to geographical reasons and finally exploited Indian labourers extensively.

In this way, British industrial capital had accelerated the process of economic drain from India alongwith the degree of exploitation and then set imbalances in Indian economy.

Indian Economy: Condition # 3. Transport and Communications:

Development of transport and communications has been considered quite significant from strategic, administrative, economic, political, cultural and social point of view. During the British period, the transport and communications system in India was totally backward.

(A) Road Communications:

Road communications in India were extremely underdeveloped in the early part of 19th century. Whatever few trunk roads that were developed in the country by the Mughal emperors, they started deteriorating due to lack of proper care and maintenance.

Due to the absence of all-weather roads, the villages were totally disconnected and remained isolated from the rest of the areas during monsoon. T. Banerjee in his book entitled, “Internal Market of India, 1834-1900” has quoted in this connection, the observations of W.P.

Andrew as, “when England became dominant in India, probably there never was a country with people so rich and intelligent in which roads were so few and travel so difficult.”

Although British constructed a few roads during the early part of their conquest of India, but most of them were abandoned after their conquest of the country. Till 1936, the East India Company did not pay any attention to the construction of roads for the development of transportation and communication system and commerce.

It was only 1836, the East India Company took some initiative to introduce postal communications and thereby taken up the construction of Calcutta-Delhi road at the estimated cost of £1.5 million. Again in 1842 Calcutta and Bombay and also Bombay and Agra were connected by roads. All these road constructions were undertaken both for strategic considerations and also for general social improvement.

During the early part of the British rule, the factors which mostly prevented the rapid construction of roads were the shortage of funds and the organisational loopholes.

Such an inefficient and inadequate means of transportation and communications in India during the early part of British period, had resulted in village isolation, prevalence of local economy, self-sufficiency of villages, small scale of production and limited division of labour, immobility of labour, peoples conservative attitude, dislocation of local economies during floods, drought and famine.

It was only during the regime of Lord Dalhousie, the central public works department was established in 1850 and real initiative was taken to construct roads in various parts of the country. Lord Dalhousie abolished the Military Boards and set up Public Works Department in the provinces of Bombay, Madras and Bengal in 1854-55.

Thus till the middle of the last century, the road transport in India was in a most backward condition. The East India Company neglected the road development by assigning the responsibility of road development to the Provincial Military Boards instead of Public Works Department.

Considering such unsatisfactory condition of Indian roads, Lord Dalhousie initiated a more vigorous road policy. Accordingly, in addition to the Central Public Works Department, similar departments were created in each province in 1855.

Considering the growing need for building more roads and to examine the question of road development, the Government of India appointed Road Development Committee in 1827. The committee suggested that the Grand Trunk Roads be maintained by the Central Government and the remaining roads be maintained by provincial government and local bodies.

The committee also recommended to create a separate fund called ‘Road Fund’ by imposing an additional duty of 2 annas, per gallon of petrol for providing grants to the Provincial Government for the construction of roads.

Accordingly, the Government of India created a Road Fund in 1934 on a permanent basis. After 1880, there was extensive road construction in the country and by 1943; there were nearly 95,054 miles of metalled roads and 2, 01,414 miles of Kacha roads under the British regime.

But considering the rapid expansion of motor transport, the aforesaid mileage of roads was inadequate for a vast country like India. Accordingly, the Chief Engineers meeting held at Nagpur (Nagpur Plan) recommended to construct additional 40,000 miles of roads in different parts of the country. But the progress on road construction was very slow due to various difficulties and growing shortage of funds.

Again the conditions of district roads and village roads deteriorated due to increasing load of traffic and limited fund available with local bodies.

(B) Railway Development in India:

Development of railway has played a pivotal role in the development of Indian economy during British period. Railways was introduced in England during the first quarter of the 19th century and the first passenger carrying railway line was opened for service in England in 1825.

In 1832, the first proposal for railway construction in India was made. In 1844-45, a number of surveys were carried out in India for the construction of railway lines in Eastern and South-west India.

In 1849, the East India Company and the Great Britain Peninsula Railway Company entered into a contract for constructing an experimental railway line between port of Bombay and Cotton growing track of Berar. The construction work for the same began on 31st October, 1850 and the first railway passenger train left Bombay for Thana for a distance of nearly 21 miles.

Again on 16th April, 1853, the Bombay-Thana railway route was opened for traffic officially.

Moreover, in subsequent years, the East India Company entered into contracts with 12 more Railway companies for railway construction during the period 1844-1860. As a result, some short routes like Howrah to Panduah (38 miles), Howrah to Raniganj (120 miles) coal field etc. were opened.

Lord Dalhousie laid down the general principles of railway development in India in his second Minute of 1853. Accordingly, he advocated the construction of some trunk railway routes to link up the principal port in each Presidency with the interior of that Presidency along with linking up different Presidencies with each other under the Old Guarantee System.

This system was in operation for about 25 years, i.e., between 1844 and 1869. During this first phase of railway construction, i.e., during 1859-69, 4,600 miles of railway lines were constructed. The second phase of railway construction, i.e., the State Construction of Railway was undertaken during 1869-1879 and only 2,200 miles of railway lines were constructed under this scheme.

The third phase of railway construction under the New Guarantee Scheme was based on the partnership between Government of India and British Private Companies and the phase was continued during 1880-1900. Again during the period of 1900-1914, the State Ownership of Railways was introduced as the Government bought most of the railway lines on the expiry of contract with various private railway companies.

Thus by the beginning of 20th century, there were nearly 25,000 miles of railway lines in India. Since then the railway mileage in India was gradually extended to cover new areas. Accordingly, total railway mileage in India stood at 40,525 miles on August 1947. After partition of the country, 6.659 miles of railway lines had gone into Pakistan’s territory, leaving the rest 33,865 miles of railway line for India.

Effects:

Construction of railways in India from 1850 onwards had resulted important consequences on economic, social and political conditions of the country. Railway construction had helped to bring commercialisation of Indian agriculture and also gave a big stimulus to India’s foreign trade.

It also provided sufficient impetus to the development of internal trade and also helped in the development of modern industries in India which include cotton textiles, paper, sugar, coal, iron and steel. Finally, development of railways had resulted extensive social and political changes within the country.

(C) Water Transport:

India has been enjoying the benefit of water transport both in the form of:

(i) Inland waterways, and

(ii) Oceanic Waterways to a limited extent.

(i) Inland Waterways:

Although there is a good number of rivers in India but these rivers are not so suitable to serve as natural waterways as in England. While the major rivers of Northern and Eastern India viz., the Ganges, Jamuna and Brahmaputra remained navigable for hundreds of miles above their mouths but the rivers of South India are not having that sort of navigability.

Only a few of those rivers are navigable only at and near the mouth and that too during rainy season. History also suggests that inland waterways were of considerable use in the Northern and Eastern India in ancient days and also during Mughal period.

As for example, Ganga was considered as a great natural waterway of commerce and accordingly its banks facilitated the growth of many towns like Mirzapur as a centre of trade. During the British period, a good number of British navigation companies came up to tap the navigable capacity of Ganga, Jamuna and Brahmaputra rivers.

But the inland waterways received a set-back after the advent of Railways in 1850. The Industrial Commission Report observed, “In the absence of a representative specially charged with their interests (that is those of the existing waterways) the vested interests of the railways have prevented waterways in India from receiving the attention that has been given to them in other countries with such satisfactory results.”

Inspite of various physical limitations imposed on inland waterways, the importance of this mode of transport was felt. The Industrial Commission (1916) and the National Planning Commission (1938) had suggested to the then British Government to develop this inland waterways side by side with railways.

(ii) Oceanic Waterways:

In respect of Oceanic Waterways, India was occupying a potential position from the very beginning. Although India was having a coast line of 4,000 miles but it did not possess the advantage of indented coast line as available in England. But considering its extensive seaboard and the country’s geographical location, India could aspire to become a principal carrier of world trade.

As the first part of 19th century, India was known as a great sea-faring country and the ship building capacity of the country was also quite excellent. In 1800, the Governor General wrote, “The port of Calcutta contains about 10,000 tons of shipping, built in India, of a description calculated for the conveyance of Cargoes to England.”

The teak wood vessels of Bombay were superior to that of the ‘Oaken’ Walls of Old England.’ Moreover, the passenger ships built in India were also much larger than anyone built in contemporary Europe, excluding the ships built by the Portuguese.

Thereafter, with the introduction of iron-made ships, India was deprived of her differential advantage in respect of timber.

Regarding the decay of Indian shipping, Willium Digby observed, “The rapid improve­ment in naval architecture and the introduction of mechanised sea transport, the jealousy of the British shipping interests and the operation of the British Navigation Acts which were applied to India as she came under the British subjugation may be regarded as the chief causes which led to the decay of Indian shipping.”

It has been estimated that at the beginning of World War II, the share of Indian vessels in its coastal trade was around 40 per cent and in oceanic trade was nearly 4 per cent. But the share of British in India’s oceanic trade was around 66 per cent.

The British Indian Steam Navigation Company and some other British companies dominated in the coastal and overseas trade of India for more than hundred years and suppressed the Indian shipping companies by forming a ‘conference’ between themselves, through the weapons of (a) Deferred Rebate System and (b) the Rate Wars.

(D) Air Transport:

After the First World War, the air transport services started to develop in India to a limited range. In 1932, the first regular airline service started to function. Again, in 1939, three Indian companies were organised to operate regular air services in the country. Moreover, a few international air companies started to use India of their regular route flights.

In 1948, the Air India International, a government- cum-private enterprise in the joint sector was set up with 49 per cent Government holding to operate on overseas routes. Again, in 1949, 12 air companies were operating inland air services throughout the country with limited capacity.

Thus it is found that although the air transport services were developed in India during the fag end of the British period but it could not gain momentum due to lack of infrastructural facilities and scarcity of investment.

(E) Postal and Tele-communication Facilities:

The East India Company in its early rule just continued the postal communication system, operated through personal carriers moving on horses or on foots adopted during the pre-Mughal and Mughal periods. It was only during the regime of Lord Dalhousie, the present system of uniform postage throughout the country and use of postage stamps (instead of cash) was developed in 1856.

It was again during Lord Dalhousie’s regime that the system of electric telegraph line was installed between Calcutta and Agra in 1853, covering a distance of about 800 miles. By 1855, nearly 4,000 miles of telegraph lines were installed. In 1950-51, there was only one post office for every 10,000 population of the country and the condition of the postal services in rural areas was deplorable.

The number of telegraph office in 1950-51, was just a quarter of the total number of post offices and the telephone facilities were mostly availed by a mere 0.2 per cent of the total population of the country.

Indian Economy: Condition # 4. Foreign Trade:

During the pre-British period, India was quite self-sufficient in foodstuffs and maintained a favourable balance of trade. But the composition, volume and direction of foreign trade have undergone a significant change during the British period. During the early part of British period, India experienced a little change in the composition of its foreign trade.

At the beginning of 18th century, exports from India were mostly consisting of cotton and silk manufactures, indigo, spices and sugar and its imports were consisting of gold and silver, woollen goods and miscellaneous types of novelties.

After the Industrial Revolution in England since 1750, factory industries started to produce various commodities on a large scale and thereby replaced the old small scale handicrafts. Thereafter, England wanted to establish market for their manufactured goods in Indit6a and also wanted that India should supply different types of raw materials to the newly developed industries in England.

Thus England wanted to adopt a colonial pattern of foreign trade in India. Accordingly, during the first half of the 19th century India experienced fundamental changes in the composition of its exports and imports. India started to export more of primary products like food-grains and raw materials, viz., raw cotton and jute, hides and skins, dyes and oilseeds.

On the other hand, India started to import manufactured goods mostly from England. Among these manufactured goods cotton piece goods from Lancashire constituted about half of the total imports by the middle of 19th century. Import of other factory products with high quality at cheaper price had also led to decay of Indian handicrafts and cottage industries.

During the second half of 19th century and possibly with the introduction and development of railways, development of roads, introduction of steam-ships, construction of ports and telegraphs and finally with the opening of Suez Canal in 1869, India had to experience fundamental changes in the volume and composition of its foreign trade.

In the beginning of 20th century, India along with other countries had registered a considerable increase in its foreign trade. This is mostly resulted from increase in the production of gold and consequent rise in prices of all different types of goods.

After the First World War, the volume of India’s trade declined to nearly half of the previous total and imports declined more steeply than its exports. During the Second World War (1938-45), India again experienced considerable dislocation in the normal channels of its foreign trade leading to a change in the composition and direction of its trade.

Again during the Post-War Years (1945-51), foreign trade of India rose steeply but the imports of the country rose much more steeply than exports.

This is mostly due to imports of foodgrains, raw jute and raw cotton necessitated by the loss of areas to Pakistan because of partition and increasing volume of imports of capital equipment’s, spares and industrial raw materials to replace old machines and to speed up economic development of the country.

But exports from India could not rise as fast due to scarcity of goods, increasing domestic demand and rising prices of Indian goods.

During the major part of the British period excess of exports over imports had resulted in a favourable balance of trade. This excess of India’s exports over her imports did not result any flow of gold and silver to India in return.

Rather it was meant to make payment for invisible imports like services of British army, of civil officials, of shipping and insurance companies, interest on debt raised in England etc., which were termed as “Home Charges”. Indian National leaders termed it as “Drain” of resources which amounted to Rs 40 crore per annum.

Moreover, the direction of India’s foreign trade had also experienced a substantial change during the entire British period. At the dawn of British period (i.e., 1818 onwards) India’s foreign trade was mostly connected with Great Britain.

During 1850s, about 75 per cent of India’s imports and exports was related to United Kingdom., But with the growing industrialisation of U.S.A., Germany and Japan, India started to establish its exports and imports contracts with other European countries and Japan.

Accordingly, regarding India’s imports, the shares of different countries at the end of 19th century were as follows: UK (69 per cent), Germany (2.4 per cent), U.S.A. (2.6 per cent) and Japan (2.6 per cent). But at the beginning of the 20th century, the shares of different countries in India’s imports were as follows: U.K. (27 per cent), U.S.A. (7 per cent), Far East (24 per cent) and remaining countries (15 per cent).

Again the share of U.K. in India’s imports declined from 31 per cent in 1938-39 to about 25 per cent in 1945-46 and then to 21 per cent in 1950- 51. Similarly, the share of U.K. in India’s exports which was 24 per cent in 1913-14, gradually increased to 34.0 per cent in 1938-39 and then gradually declined to 28 per cent in 1945-46 and then to 22 per cent in 1950-51.

Again the share of U.S.A. in India’s import trade gradually increased from 7 per cent in 1938-39 to 21 per cent in 1950-51.