In this article we will discuss about the problems of Indian economy during British rule.

During the pre-British period the problem of stagnation, poverty and backwardness of the Indian economy was not so acute. But with the advent of British in India, the economic structure in India had to face a lot of change. Self-sufficient economy of the villages in India had to face a ruin and economic exploitation of the country was initiated with it.

During the first period of hundred years, i.e., from 1757 to 1857, British looted a huge amount of resources from India. During this period cottage industries in India were totally destroyed due to the colonial strategy followed by the British rulers.

Dadabhai Naoroji, a distinguished economist of India, in his famous paper the ‘Poverty in India’ (1876) analysed that the huge amount of drain of capital assets wealth from India which started after 1857 was mainly responsible for the economic backwardness in India. Even after the transfer of power of crown in 1858, the drain still continued and it was mostly in the form of Home Charges.


During early part of twentieth century about 10 per cent of the total national income of India was remitted to England. This led to a huge drain of economic surplus of a poor country like India which had resulted in further under-development of the country.

The spine of the Indian economy was badly injured during the two hundred years of British rule in the country. During the 16th and 17th century, Indian economy was considered as an industrially advanced country. But the British did not permit to modernize the industrial sector of the country during the 18th and 19th century.

World famous Indian handicrafts and cottage industries were totally destroyed by the advent of cheap British manufactures in India. In this way Indian economy was turned into an importer of British manufactured goods and exporter of tea, coffee, oil seeds, foodstuffs and other industrial raw materials which were considered essential for running British industries in England.

About the drain of wealth and capital from India during the British period, Dadabhai Naoroji wrote, “The drain consists of two elements. First, that arising from the remittances by European Officials of their savings, and for their expenditure in England for their various wants both there and in India, from pensions and salaries paid in England; and second that arising from the remittances by the non-official Europeans.”


This sort of economic drain of Wealth from India prevented formation of capital in the country. This drained out capital was brought back by British for setting up industrial concerns in India owned by British nationals. In this way British secured a position of monopoly of all trades and major industries in India.

These industries again drained off Indian capital in the form of interest and profits. Thus these huge economic drains initiated since the inception of British rule worked as a dampener towards the strategy of economic development in India till 1947.

During British rule no official arrangement was made for measuring the national income of India. In the year 1867-68, Dadabhai Naoroji estimated and advanced the Indian national income statistics of the first time. His estimate revealed that the national income of India during that year was Rs 340 crore, total population was 17 crore and the per capita income was estimated at Rs 20.

Since then various other estimates of Indian national income were presented by different distinguished personalities like Findlay Shirras, Lord Curzon, V.K.R.V. Rao, Arora, Manu Mukherjee, Ayengar etc. and more interestingly these statistics were mostly conflicting and inconsistent with each other.


Inspite of these differences in estimates, most of the Indian economists agreed that there was no advancement in the Indian economy during the British period and the standard of living of the Indian people was very low, As per the statistics advanced by Radhakamal Mukherjee, the real wages of Indian labourers, representing their standard of living were even reduced by 50 per cent during this British period.

Occupational structure of Indian people during the British period clearly depicts a picture of stagnation and poverty in the Indian economy. The census data of 1818 revealed that about 61 per cent of our population remained totally dependent on agriculture and both in 1921 and also till the end of British regime, about 73 per cent of Indian people were dependent on agriculture.

Although British rulers realised the importance of agricultural sector on the Indian economy but they took no initiative of their own for any permanent improvement of the agricultural sector. This had resulted in failure of crops and famine in India occasionally.

During the two hundred years of British rule, exploitation of the economy was continued and this led to total under-development of the economy of the country.

At the end of two hundred years of British rule, Indian economy was subjected to the problems of low per capita income, unemployment, shattered structure of cottage and small industries, low capital formation, low level of investment, high birth and death rates and conservative attitudes of Indian people. All these problems had led to the stagnation, poverty and backwardness of the Indian economy.

Dr. Bipin Chandra has successfully analysed impact of the colonial rule in attaining development and modernisation of Indian economy. As per arguments of the British economists, the backwardness and lack of modernisation of Indian economy were mainly due to the existence of value system, i.e., spiritualism, asceticism, joint family system, the caste system and also due to shyness of capital in India.

But rejecting all these arguments, Dr. Chandra wrote, “It is a historical fallacy to assume that India under British rule did not undergo a fundamental transformation or that it remained basically traditional.” Whatever modernisation was attained in the Indian economy that was brought within the political parameters of a colonial economy.

Mr. Chandra further wrote, “It was, therefore, not an accident nor was it historically exceptional that India was integrated into world captialism without enjoying any of the benefits of capitalism, without taking part in the industrial revolution. It was modernised and underdeveloped at the same.”

British rule in India was a long history of systematic exploitation of the general people of the country by the so called imperialistic government.


The consequences of various forms of exploitation of the Indian people by the British on the Indian economy can be broadly analysed with the following points:

(i) India remained primarily an agricultural country throughout the British period and its agricultural sector totally remained backward with its little bit of commercialisation just to serve the interests of Great Britain.

(ii) British rulers never permitted to modernise the prevailing industrial structure of India during the 18th and 19th century leading to large scale destruction of world famous handicrafts and cottage industries of the country.

(iii) By following the policy of discriminating protection, Britishers gained complete control over the entire Indian markets.


(iv) British rulers gradually transformed the Indian economy into a primary producing country exporting only agricultural products and raw materials necessary for industries in Britain and importing only British manufactures.

(v) To promote foreign trade and to exploit natural resources of India to their advantage, British rulers built up economic infrastructure which includes roads and railway network, ports and shipping, irrigation and electricity etc.

(vi) The Managing agency system promoted by the British systematically appropriated about 50 per cent of the gross profit of the consumer goods industries developed by the Britishers as their managerial remuneration.

(vii) The British rulers thoroughly exploited the Indian economy through economic drain in the form of home charges and huge amount of family remittances.


The aforesaid nature of exploitative policies of the British rulers bad resulted in large scale poverty, stagnation and backwardness of the Indian economy along-with a huge drain of economic resources of the country to Great Britain.