In this article we will discuss about colonial exploitation in India. After reading this article you will learn about: 1. Forms of Colonial Exploitation 2. Consequences of Colonial Exploitation 3. Periods of British Colonialism and the Exploitation in India.

Forms of Colonial Exploitation:

In India, colonial exploitation is a long history spread over nearly 200 years. It would be better to look at the forms of colonial exploitation in India and its consequences.

Exploitation of India which was started initially in the form of trade, later on other forms of exploitation were made through investment income in the form of dividends and profits and through payment of costs of British administration in the form of home charges. These included salaries of British army and civil officers, payment of pensions, furloughs and other benefits and also payment of interest on Sterling debt.

Thus the main forms of colonial exploitation in India were:


(i) Trade policies with the objective of developing a colonial pattern of trade in which India became an exporter of primary products like raw materials and food stuffs and an importer of manufactures;

(ii) Encouragement of British Capital to participate in direct investment in Indian consumer goods industries;

(iii) Encouragement of finance capital in the country through Managing Agency System for appropriating a major portion of the profits through various malpractices; and

(iv) Forcing India for paying the costs of British administration and also to finance the wars and expeditions conducted by the British Government.

(i) Exploitation through Trade Policies:


Various trade policies enforced in India by the East India Company and then by the British Government resulted huge drain of wealth from India so as to facilitate the growing British industry with the supply of raw materials from India and also encouraging commercialisation of Indian agriculture in order to transform Indian economy into a British colony.

Thus the major trade policies which resulted huge exploitation of India were as follows:

1. Colonial Exploitation of Indian cultivators by the East India Company through its indigo planters to boost indigo exports by compelling the zamindars and cultivators to go for indigo cultivation.

2. Colonial Exploitation of artisans through the agents of East India Company for delivering cotton and silk fabrics at a price much below the market price. Under that situation, artisan had to work in inhuman condition like bonded labour.


3. Colonial Exploitation through manipulation of import and export duties by the British rulers so as to destroy the supremacy of the Indian goods, especially cotton and silk fabrics over the British goods and then to succeed ultimately in penetrating into the Indian market through its machine made goods.

Accordingly, heavy import duties were imposed on Indian goods excluding raw materials and foodstuffs but a very nominal rate of import duties were imposed on British manufactures into India.

(ii) Exploitation through Export of British Capital to India:

The second form of colonial exploitation of India by the British was through investment by exporting British Capital to India.

The main three reasons for exporting British Capital into India were—development of efficient system of transport and communication; developing public utilities like generation of electricity and water supply works for exploiting natural resources; and to promote foreign trade through quicker disposal of goods by linking railways with major parts and marketing centres or mandis.

The main fields of foreign direct investment into India include:

(1) Development of infrastructural projects such as railways, roads, communications, port, shipping, water works, generation of electricity;

(2) Promoting mining of coal, petroleum, gold and development of metallurgical industries;

(3) To promote investments in consumer goods industries such as cotton and jute textiles, woollen textiles, paper, matches, tobacco, sugar etc.;

(4) Promoting commercialisation of agriculture and undertaking investments in tea, coffee and rubber plantations;


(5) Investments in machine building, engineering industries and chemicals; and

(6) Investments in banking, insurance and trade.

British multinationals made all these investments through its subsidiaries. Again a part of these investments were in the form of loans to the British Government in India in terms of sterling debts.

Thus the two major forms of British investment in India were:


(i) Private foreign direct investment in mining, mills and plantations and

(ii) Sterling loans given to British Government in India and public and semi-public organisations for undertaking infrastructural and public utility projects.

Estimate of Foreign Capital:

Although various estimates of foreign capital were made but they suffer from various limitations.


Following are the three important estimates of foreign capital in India:

Three important Estimates of Foregin Capital in India

Among these three estimates, the estimates of Findlay Shirras (1929) and British Associated Chamber of Commerce (1933) were considered fairly reliable. It was observed that as per estimates of Findlay Shirras, total amount of foreign capital in India was £ 500 million in 1929 and that of British Associated Chamber of Commerce was £ 1000 million, which was about 20 per cent of the total British foreign investments.

The Chamber of Commerce estimate revealed that out of the total investment of foreign capital in India, 38 per cent was in the form of Sterling debt of the Government, 50 per cent in companies registered outside but operating in India and 12 per cent in companies registered in India and the rest.

After the Second World War, Indian businessmen earned huge profits in industry and business and that enabled them to buy foreign business investments in India. As a result, there was a decline in the magnitude of foreign business investments in India.

The Reserve Bank of India also made an estimate of foreign investments and accordingly on 30th June 1948, published its first Census of India’s foreign liabilities and assets. As per RBI estimates, total foreign business investments in India was to the extent of Rs 302 crore, out of which British investments were Rs 230 crore, i.e., around 72 per cent of the total investments.


British investments in India during pre-independence period thus revealed that British took a lot of interest in developing economic infrastructure for maintaining administration and promotion of trade. Moreover, the British investments never promoted any basic and heavy industries rather these investments were mostly made consumer goods industries and also for processing primary produce for its export.

Finally, British tried to keep the ownership and management of its industries in their hands and Indians were placed in all low level and maintenance jobs.

(iii) Exploitation in the Form Finance Capital via the Managing Agency System:

At the end of nineteenth Century, British investors started to invest a huge amount of their capital in India, a major portion of which was actually looted earlier from India by the East India Company. British rulers invited British capital for the growth of railways in India and gradually repaid these loans by imposing taxes on the Indian people.

Moreover, British capital increased the demand for British capital goods like iron and steel, machine and tools, coal etc. for Indian railway.

As the plantation industries, viz., tea, coffee and rubber were very much profitable in India, British capitalists had also invested a huge amount of capital on these industries, more particularly on tea industry. After that British capitalists also invested their capital on some other industries such as petroleum, coal, tramways, banks, sugar, textile, paper etc.

Thus with the sole intention to strengthen British economy the British rulers showed considerable interest towards the establishment of all these industries mentioned above.


As Indian business houses were not having any experience of the organisation of modern industry by setting up joint stock companies, the British merchants having trading firms mostly worked as promoters and pioneers in setting different industries like jute, coal and tea. These merchants were known as managing agents.

The managing agency firms can be defined as partnership of companies formed by a group of persons having huge financial resources and business experience. They are entitled to the entire management affairs of the company.

The main functions of managing agents were to float new concerns, to provide fund and arrange finance, to act as agents for purchasing raw materials, stores, machinery and equipment and also for marketing the produce and to manage the entire affairs of business.

During those days, the pioneering managing agents were Messrs Andrew Yule & Co., Martin Burns, Bird & Co., Williamson Major and Duncan Brothers. These European Managing Agents were actually the pioneers of modern Indian industries.

But these Managing Agents showed their exploitative character by charging commission on all of its agency activities related to purchase and sale activities of the company, by charging heavy officer allowances for management of the company and by sharing the profits of the company.

In the later part various malpractices were developed in this managing agency system. In this regard, Dr. P.S. Loknathan observed, “Finance, instead of being the servant of industry, has become its master.” Guided by its exploitative attitude, the whole system gradually became degenerated and inefficient.

(iv) Exploitation through Payments for the Cost of Administration:


The fourth form of colonial exploitation by the British was in the form of payments for the cost of British administration. Accordingly, British employed a large number of British officers both for maintaining its military and civil administration of the country. These British officers were paid higher salaries and allowances as compared to their Indian counterpart.

The British officers were given immense administrative powers for awarding contracts for supplies and stores and in return they collected commissions from the contractors. These officers were given pensions after a specified period of service. All these resulted a huge remittance in the form of savings, pensions and other benefits known as family remittances, causing huge drain on India’s resources.

Moreover, a huge amount was also paid as interest on sterling loan taken for the construction of railway telegraph line and irrigation works. All these payments, known as House Charges, had resulted a huge drain of our resources which was to the extent of Rs 43 crore in 1931.

Moreover, India was also forced to meet the cost of various wars faced by East India Company such as Mysore and Maratha Wars, Afghan and Burmese Wars. During the World War I and II, India attained positive balance of trade by exporting more and importing less.

To fulfill its formality, Britain simply authorised the Government of India to issue more currency on the security of Sterling Balance held in England and thereby simply exported inflation to India resulting huge burden on Indian people.

Consequences of Colonial Exploitation:

Various forms of colonial exploitation ultimately resulted the following consequences on Indian Economy:


1. The first important consequence of colonial exploitation was that India remained primarily an agricultural country with a scope for commercialisation of agriculture so as to serve the interests of Great Britain.

2. Although India was an industrially advanced country during the 16th and 17th century but the British policy never permitted those industries to modernise its structure during the 18th and 19th century. This led to destruction of Indian handicrafts and transformed the country into an importer of manufactured goods from Britain.

3. The British developed some forms of economic infrastructure such as electricity work, railways and irrigation with the objective of promoting foreign trade and also for exploiting natural resources of India to their own advantage. No direct British investment was made for the development of heavy and basic industries rather all investments were made in plantation and consumer goods industries.

4. The British followed the policy of discriminating protection and imperial preference so as to maintain complete control over the Indian market and also to provide secure avenues for British investors in India.

5. The British developed Managing Agency System for promoting consumer goods industries which had its exploitative nature in appropriating 50 per cent of the gross profits as managerial remuneration.

6. The industrial Revolution in England created a serious impact on Indian economy as it reversed the character and composition of India’s foreign trade. This led to destruction of Indian handicrafts, increasing competition of British machine made goods and increasing demand for Western commodities as a result of foreign influence.

7. The new land system in the form of Zamindari and Ryotwari system introduced by the British created a class of absentee landlords making way for exploitation of the peasants and concentration of economic power in the hands of the few. This had resulted total depression in agriculture and industry.

8. The colonial exploitation through the entry of British capital and finance capital and through the payment for the costs of administration via Home charges and for meeting the costs of War led to a huge economic drain of India weakening the base of Indian economy.

Thus the British rule in India was a long history of systematic exploitation of Indian people by the imperialistic Government which led to stagnation and poverty of Indian economy.

Periods of British Colonialism and the Exploitation in India:

The British rule in India can be broadly divided in two parts, i.e., firstly the rule of East India Company covering the period from 1757 to 1858 and secondly, the rule of British Government India from 1858 to 1947. During those days, British established the colonial rule in India. The colonial rule indicates a peculiar socio-political relationship between the people of the country and the foreign rulers.

Colonial rule starts its operation in the country when the foreign ruler frames the political and economic policies of a country in the interest of the ruler country. Colonial economy is normally organised in such a manner so that it can help the ruler country in the expansion and development of its economy.

In a colonial country, people cannot take any independent economic and socio-political decision of their own for attaining development of their economy.

Foreign colonial rulers are used to exploit and loot the different sectors and resources of the colonial economy and gradually establish market for their own industrial products. This leads to destruction of its cottage and small scale industries. In this way, the colonial economy gradually enters into the vicious circle of poverty.

Just after the battle of Palassey in 1757, the British East India Company ultimately managed to conquer most of the states of India and that was the start of colonial exploitation in India. During this period of colonial rule, the Company looted almost all valuable wealth and riches of India and then sent it to England. This move of the company had forced the country towards vicious circle of poverty and disaster.

This motive of looting and exploitation could not find any change even when the Indian administration was transferred from the hands of British East India Company to British Empire. By adopting its colonial system, British exploited the Indian economy in different manners during their long two hundred years of rule.

This period of two hundred years of exploitation during British rule had been classified by the economic historians into three different parts.

These were:

(a) The period of Mercantile Capital,

(b) The period of industrial capital and

(c) The period of Finance Capital.

(a) The Period of Mercantile Capital:

The period covering just from the start of battle of Palassey in 1757 to the end of eighteenth century, is considered as the period of Mercantile Capital. Thus, in 1757, the East India Company finally managed to conquer the political power in India. During those days, feudal type of economy was existing in India.

During this period, British Mercantalists started to obstruct the growth of Indian economy with their vested interests. They also exploited a huge amount of profit through trade and also by charging a higher rate of land revenue from the agriculturists by adopting a new land revenue system.

This new land revenue system had led to disintegration of the village community partly along-with untold exploitation of Indian peasantry and then the country had to face famines frequently.

(b) The Period of Industrial Capital:

The period of Industrial Capital covers the entire nineteenth century, i.e., from the beginning to its end. During this second period, 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 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 textiles produced by the British.

Moreover, British capitalists gradually developed jute, tea and coffee industry in India on geographical reasons and finally exploited Indian labourers extensively. In this way British industrial capital had accelerated the process of economic drain from India along-with the degree of exploitation and then set imbalances in Indian economy.

(c) The Period of Finance Capital:

This period had its start from the end of nineteenth century and continued upto the year 1947, i.e., the year of achieving independence in India. During this period of Finance capital British investors started to invest a huge amount of their capital in India which was actually looted earlier from India by the East India Company.

During those days, British rulers gradually started to incur a huge amount of expenditure for those different purposes which were not at all related to the welfare of general masses in India. Later on, they transformed all these expenditures into loan to the account of India and thus gradually raised the burden of loan.

British rulers invited British capital for the growth of railways in India and gradually repaid those loans by imposing taxes on the Indian people. Moreover, British capital increased the demand for British capital goods like iron and steel, machine and tools, coal etc. for Indian railway.

As the plantation industries, viz., tea, coffee and rubber were very much profitable in India British Capitalists had also invested a huge amount of capital on these industries, more particularly on tea industry. After that British capitalists also invested their capital on some other industries such as petroleum, coal, tramways, bank, sugar, textile, paper etc.

Thus with the sole intention to strengthen the British economy, the British rulers showed considerable interest towards the establishment of all these industries mentioned above.

Thus the British-rulers were not at all interested in the development of Indian economy as such.

These economic transformations, which include, commercialisation of agriculture, the development of different industries, the growth of railways, the spread of irrigation facilities, the expansion of education, the creation of revenue settlements etc. were all initiated by the British with the sole motive, i.e., for accelerating the process of drain from the Indian economy.

It would be better to deal with the causes and impacts of these economic transformations in India during the colonial rule under the British period.