Indian Economy during the British Regime (1761 to 1947)
The English East India Company established its supremacy in Bengal in 1757, and it was a century later, in 1858, when the Crown took over the administration of India. Subsequently, British Crown rule over India lasted 90 years, from 1858 to 1947.
Advent of the British (1600 to 1740): Encyclopedia Britannica in its narrative has provided a very lucid description of the period between 1600 to 1740 and we are tempted to use their narrative in detail for this section. It has stated that “the English expedition to India was entrusted to the (English) East India Company, which received its monopoly rights of trade in 1600. The company included a group of London merchants attracted by Eastern prospects. Its objective was to trade in spices, and it was at first modestly organized on a single-voyage basis. These separate voyages were initially financed by groups of merchants within the company, and in 1657, a permanent joint stock company was established. The company’s objective was to procure the spices of the East Indies, and it went to India only for the secondary purpose of securing cotton for sale to the spice growers”.
It further explained that “in India, the English found the Portuguese enjoying Mughal recognition at the Western Indian port of Surat. Portuguese command of the sea nullified the English embassy to the Mughal court in spite of its countenance by the emperor Jahāngīr. However, the English victory at Swally Hole in 1612 over the Portuguese, whose control of the pilgrim sea route to Mecca was resented by the Mughals, brought a dramatic change. The embassy of Sir Thomas Roe (1615 to 1618) to the Mughal court secured an accord (in the form of a farmān, or grant of privileges) by which the English secured the right to trade and to establish factories in return for becoming the virtual naval auxiliaries of the empire. This success determined that India, not the Far East, should be the chief theatre of English activity in Asia” (Encyclopedia Britannica).
It went on to express in following words “there followed through the 17th century a period of peaceful trading through factories operating under Mughal grants. This held good for Surat and later for Hugli (1651) in Bengal. In the south the factory at Masulipatam (1611) was moved to the site of Madras (now Chennai), granted by a Hindu raja (1640); it shortly (1647) came under the control of the sultans of Golconda and thence passed to the Mughals in 1687. The only exception to this arrangement was the island port of Bombay (now Mumbai); although independently held, its trade was small because the Marathas, soon locked in combat with the Mughals, held the hinterland.”
“The trade the company developed was a trade in bulk instead of in highly priced luxury goods; the profits were a factor of volume rather than scarcity; it worked in competitive instead of monopolistic conditions; and it depended upon political goodwill instead of intimidation. But despite being profitable, it encountered difficulties as well. The Indians would take little other than silver in exchange for their goods, and the export of bullion was anathema to the concept of mercantilism, then England’s reigning political economy. Lack of military power meant management of Asian governments instead of their coercion. Lack of home dominance meant compromise and hazard of fortune.”
“To solve the silver problem, the English developed a system of country trade, the profits of which helped to pay for the annual investment of goods for England. Madras and Gujarat supplied cotton goods, and Gujarat supplied indigo as well; silk, sugar, and saltpeter (for gunpowder) came from Bengal, while there was a spice trade along the Malabar Coast from 1615 on a competitive basis with the Dutch and Portuguese. Opium was shipped to East Asia, where it later became the basis of the Anglo-Chinese tea trade. The merchants lived in factories (trading houses) or in a collegiate type of settlement where life was confined, colorful, and often short.”
The Encyclopedia Britannica has pointed out the difficulties which the East India Company was facing in England.
By way of concluding this section we would like to quote again Encyclopedia Britannica “a way for rivals to harass the company was to limit the sale of cotton goods in England. In India the company suffered a serious setback when it resolved to resort to armed trade and to attack the Mughals. Out of this fiasco came both the foundation of Calcutta (now Kolkata) by Job Charnock in 1690—a mudflat that had the advantage of a deep anchorage—and the age of fortified factories surrounded by satellite towns. These were the answers, with Mughal consent, to increasing Indian insecurity. The Madras factory was already fortified, and Fort William in Calcutta followed in 1696. The company thus had, with independent Bombay, three centers of Indian power”.
“For the next half century the company confined its relations with the Mughals. Fresh privileges were obtained in Delhi, and these they were content to argue about rather than fight for. The factors were learning the art of Indian diplomacy as they had formerly to learn the arts of Indian commercial management” (Encyclopedia Britannica).
The Extension of British Power (1760 to 1856)
The European and the British traders initially came to India for trading purposes. Around the 18th Century a number of significant events took place in the world. One such event was the Industrial Revolution which took place in England. It gradually spread to other countries of Europe also. With the discovery of new sea and trade routes a Portuguese called Vasco da Gama discovered India in 1498. As a result, the English, French, Portuguese and the Dutch came to India for trade. At the same time, they also required a market to sell their finished goods. India provided such a platform to Britain to fulfill all their needs. The 18th century was a period of internal power struggle in India and with the declining power of the Mughal Empire, the British officials were provided with the perfect opportunity to establish their hold over Indian Territory. They did these through numerous wars, forced treaties, annexations of and alliances with the various regional powers all over the country. Their new administrative and economic policies helped them consolidate their control over the country. Ellis (2017) has pointed out that in 1764, Mīr Qāsim, the son-in-law of the Nawab of Bengal, Mir Jāfar, was defeated at the Battle of Buxar (Baksar). This conflict, rather than the famous one at Plassey, was the decisive battle that gave Bengal to the British. Robert Clive, who returned to Bengal in May 1765 and turned the whole Mughal Empire into a company-sponsored state. In 1765, the Mughal Emperor granted the Company the diwani (the right to harvest the revenues of Bengal, Bihar and Orissa), which provided funds to bolster the Company’s military presence in the sub-continent. Further territorial acquisitions in India during the late 18th and early nineteenth centuries cemented the change in the Company’s role from mere trader to a hybrid sovereign power.
“Clive’s next step was to settle Bengal’s status. The Mughal emperor still had much influence, though little power. Clive’s solution was to obtain from Shah ‘Ālam, the “dewanee,” or revenue-collecting power, in Bengal and Bihar.” “The nawab was left in charge of the judiciary and magistracy, but he was helpless because he had no army and could get money to raise one only from the company”.
“This was Clive’s system of “dual government.” The actual administration remained in Indian hands”. “The company, acting in the name of the emperor and using Indian personnel and the traditional apparatus of government, now ruled Bengal. Within the company, Clive enforced his authority by accepting some resignations and enforcing others. Clive left Calcutta in February 1767. His work—diplomatic, political, and administrative—was a beginning rather than a complete settlement. But in each direction, instead of looking back to the past, it reached out to the future” Ellis (2017).
The Company Bahadur: “The year 1765, when Clive arrived in India, can be said to mark the real beginning of the British Empire in India as a territorial dominion.” However, “the structure of the administration was Mughal, not British, and its operators were Indian. It was a continuation of the traditional state, but under British control, and it can be aptly described by the company’s popular title, the Company Bahadur, which meant the “valiant” or honorable company. Lord Cornwallis (governor-general, 1786 to 1793 and 1805) substituted largely British for Indian personnel. The revenue was collected by the officers of the deputy nawab; and the language of administration was Persian. Only the army broke with the past, with its British officers, its discipline, and its Western organization and tactics” Ellis (2017).
“It was this state that Warren Hastings inherited when he became governor of Bengal in 1772. Noteworthy in his 13-year rule were his internal administration, his dealings with his council, and his foreign policy. Hastings was armed with authority by the directors, substituted British for Indian collectors working under a Board of Revenue. The change gave legal power to those who already wielded it, and in the future their irregularities could more easily be dealt with than could the surreptitious dealings through the old Indian collectors. Finally, Hastings instituted a network of civil and criminal courts in place of the deputy nawabs. The same law was administered by British judges, who were often incompetent, but a model was provided into which Western ideas and practices could later be fed. These changes held good through the period of Hastings’ rule and may be said to have provided a viable, though not yet very competent or equitable, state” Ellis (2017).
The Company and the State: The British Parliament decided to place a curb on the Company’s autonomy. From 1784 the Board of Control supervised the East India Company’s (EIC) administrative and political affairs, but not its’ commercial business nor the exercise of patronage by the directors. The Company’s mercantile monopoly came increasingly under attack and its commercial operations were at first scaled down by Parliament after years of pressure from the free trade lobby and then wound up completely by the Charter Act of 1833. The Company continued in its imperial role until 1858 when, in the aftermath of the military and civil rebellion in the north of the sub-continent, the Government of India Act transferred its powers to the India Office, a department of state. The EIC was finally dissolved on 1 June 1874, after shareholders received compensation from Parliament.1
“In India a governor-generalship of Fort William in Bengal was established by the British government, with supervisory control over the other Indian settlements and Warren Hastings as its first incumbent. Hastings was given four named councilors, but future appointments were to be made by the company. A supreme court with a chief justice and three judges was also set up. All of this was achieved as a result of the Regulating Act, passed in 1773, which was a first step toward taking the political direction of British India out of the hands of the company and of securing a unified overall control. Ten years later, Prime Minister William Pitt’s India Act proved to be the next landmark decision in this regard, because it gave the British government control of policy without patronage. By the enforcement of the provisions of this Act, the company slowly became a managing agency of the British government” (Encyclopedia Britannica).
The ascent to paramountcy: The “term of office of the governor-general Wellesley (1798 to 1805) was a decisive period in the rise of the British dominion. During his governance, the company undertook to protect a state from external attack in return for control of its foreign relations.” Thus, Wellesley’s work, avowedly imperialistic, made ultimate supremacy of the British inevitable.
In the course of the next few decades, The year 1818 marks a watershed, when the British Empire in India became the British Empire of India. Control of India was given to a British Governor-General, who reported back to the British Parliament. It should be noted that the British Raj included only about two-thirds of modern India, with the other portions under the control of local princes. However, Britain exerted great pressure on these princes, effectively controlling all of India (Szczepanski 2019b). The diplomatic settlement of 1818, except for a few annexations before 1857, remained in force until 1947. “Given the fact of expansion, Britain enjoyed the advantage of overseas reinforcement through its sea power and of reserves of power, far greater than that of any Indian prince, through its rapidly expanding industrial economy. Then there were the technical advantages of arms and military discipline and the immense general advantage of a disciplined civilian morale” (Encyclopedia Britannica).
Organization and economic policy in British India: The land revenue was fixed permanently. In Bengal, among the other reforms that he had instituted, Cornwallis’s permanent settlement of the land revenue was the measure that most deeply affected the life and structure of Indian society, three-quarters of the revenue coming from the land. The “settlement” was the decision in 1793 to stabilize the revenue demand at a fixed annual figure, with a commission to the zamindar for collection, and to regard him as the owner of his zamindari. The net result of this measure was the creation of a landlord class, loyal to the British connection but divorced from touch with the cultivators of their lands. The government, receiving the revenue from the zamindars, knew little of the people and could do little for them. This was the arrangement made under the Permanent settlement that was introduced in Bengal and Bihar in 1793.
“At first the Bengal system was thought to provide the key to Indian administration, but doubts multiplied with the years. In Madras, Sir Thomas Munro retained the paternal framework of the government but introduced a radically differing method of revenue management known as the ryotwari system, in which the settlement was made directly with the cultivator, each field being separately measured and annually assessed. This system eliminated the middleman but sometimes placed the cultivators at the mercy of lower officials, who often formed cliques of caste groups. In Western India, the ryotwari method was used for assessing land revenue, which was collected through local officials from the village headmen. In the north, it was the largely autonomous village system with its joint ownership and cultivation by caste oligarchies.” According to Pletcher (2011) “the resulting system of administration of British India was still largely Indian in pattern, though it was now British in direction and superintendence. It was paternalistic and hierarchical in nature”. “The British established on a national scale the idea of property in land, and the resulting buying and selling caused large class changes. Their new security benefitted the commercial classes generally, but the deliberate sacrifice of Indian industry to the claims of the new machine industries of Britain ruined such ancient crafts as cotton and silk weaving. The new legal system, with its network of courts, proved efficient on the criminal justice side but was heavily overloaded on the civil side”.
“The real breakthrough in terms of the future direction of British governance in India came with the governor-generalship of Lord William Bentinck (1828 to 1835) and with the Whig government, that from 1830 carried the great Reform Bill. It was as a social reformer that Bentinck made the most indelible mark on the future of India” (Encyclopedia Britannica). “This period saw the British in India committed to promoting the positive welfare of India instead of merely holding a ring for trade and exploitation; to introducing Western knowledge, science, and ideas alongside the Indian with a view to eventual absorption and adoption; and to the promotion of Indian participation in the government with a view to eventual Indian self-government. It was the changeover from the concept of a Mughal successor state—the Company Bahadur—to that of a Westernized self-governing dominion. In the former case, the British were wardens of a stationary society; in the latter, trustees of an evolving one.” Pletcher (2011).
Economic effects: India became an economic colony of Industrial England. With the coming of industrialization in England, the textile industry there made important headway. There was now a reverse of the direction of textile trade between Britain and India. There was a massive import of machine made clothes from English factories to Indian markets. This import of large amount of products manufactured by mechanical looms in England led to increase threat for the handicraft industries as the British goods were sold at a much cheaper price. India was then, mainly agricultural, and its industries, though significant, were marginal to its whole economy. The latter changed, however, with the acquisition of Bengal. The bias in favor of British merchants diverted trade from their Indian counterparts. The British had come to India with the idea of making immense profits. This meant buying of raw materials at very cheap rates and selling finished goods at much higher prices. The British succeeded in selling their goods at a cheap price as foreign goods were given free entry in India without paying any duty. On the other hand, Indian handicrafts were taxed heavily when they were sent out of the country. Besides, under the pressure of its industrialists, British government often imposed a protective tariff on Indian textiles. Therefore, within a few years, India from being an exporter of clothes became an exporter of raw cotton and an importer of British clothes. This reversal made a huge impact on the Indian handloom weaving industry leading to its virtual collapse. This steadily undermined the Indian handicraft industries until all but the highest and coarsest grades of cloth were squeezed out. The district of Dacca (now Dhaka, Bangladesh) was especially illustrative of this process. It also created unemployment for a large community of weavers.
The “permanent settlement (1793), after an initial period of dislocation, gave relief and security to the zamindars in Bengal, though not to the cultivators of their lands. In Madras, economic settlement turned on the working of the ryotwari revenue system; regularity of collection was offset by the severity of assessment, and the same may be said of both Western and Northern India” (Encyclopedia Britannica). Western inventions like the telegraph, modern irrigation, railways, and steamships followed, throwing India open to the industrial mechanistic and democratic world.
Social effects: The social effects of this period were considerable. They mainly took the form of the displacement of classes. In Bengal, the social link between landholder and cultivator had been broken, with a cash nexus replacing traditional rights. The British wanted the Indians to be educated and modern enough to consume their goods but not to the extent that it proved detrimental to British interests. They wanted India to be a part of the modern, progressive world of science. British brought ideas of freedom, equality, liberty and human rights to India and resulted in to changes in condition of Indian women, education and reform movement. As such, during British rule Indian society underwent many changes.
Cultural effects: The cultural effects of British influence during the century from 1757 to 1857, though less spectacular, were in the long run farther-reaching. Educating the Indians in British modes of thought and stamping out cultural practices such as sati—the practice of immolating a widow on the death of her husband. The British thought of their rule as a form of “autocratic paternalism”. The British also created ”divide and rule" policies, pitting Hindu and Muslim Indians against one another. In 1905, the colonial government divided Bengal into Hindu and Muslim sections; this division was revoked after strong protests. Britain also encouraged the formation of the Muslim League of India in 1907 (Szczepanski 2019b).
In British India, land settlements had produced much social dislocation while purporting to respect traditional rights and to learn from the past; in particular, the Western concept of property in land had led to much social displacement. The Westernized legal system was efficient in suppressing crime but dilatory in upholding rights and incomprehensible for most natives in its working.
The revolutionary aspect of the British presence was the decision to introduce Western knowledge and science through the medium of the English language. Along with education came the Christian missionary intrusion, with its moral and ideological challenge (Encyclopedia Britannica).
Economic policy and development (1858–1947): British rule in India formally lasted between 1858 and 1947 (Roy 2002).
According to Roy (2016) “interpretations of the role of the state in economic change in colonial (1858 to 1947) and post-colonial India (1947) tend to presume that the colonial was an exploitative state, while the post-colonial was a developmental state. However, the differences between the two states lay elsewhere than in the drive to exploit Indian resources by a foreign power. The difference was that British colonial policy was framed with reference to global market integration, whereas post-colonial policy was framed with reference to nationalism”.
The fate of the Indian economy under British rule has long been a battleground of historiography, with little agreement between historians, either of interpretation or of fact. This partly reflects the difficulties of the sources, but also the widely differing expectations, assumptions, and “counter-factual” models. It is emphasized that concepts of “development” be situated in their time-bound historical contexts and construed in relation to political and social, as well as narrowly economic, criteria (Washbrook 2012).
Endnote
- 1.A Brief History of the English East India Company 1600–1858. https://www.qdl.qa/en/brief-history-english-east-india-company-1600%E2%80%931858, (accessed on December 24, 2019).