While we have made reasonable progress since independence, a substantial part of our countrymen continue to live in poverty. I have been asking myself, were we always like this? This essay seeks to provide some answers by exploring the Indian economy from 1000 to 1947 a.d. Within eight pages, I have tried my best to do justice to what most of you might agree is a very complex subject.

1. Indian Economy - 1000 to 1300 AD

During this period, agriculture was thriving and well cared about. It appears that scientific agriculture systems were followed. The Cholas had constructed a huge dam across the Kaveri River, later renovated by the British. Fruits, cardamom, sandalwood, saffron, cotton, indigo etc were grown in various parts of the country. Manufacture of leather was enhanced. Pearl fisheries and ornaments were popular. Textile business, stone cutting, and the art of working metals was very successful.

International trade was flourishing. Malabar was vaguely a clearing house between East and West. Broach and Sindh were important ports. As in the past, industrial and commercial guilds played a chief constituent. The condition of agriculture and trade indicate the high level of prosperity that prevailed at the beginning of this period. Marco Polo described the land of Malabar as “the best of all the Indies.”

During his various invasions, Mahmud Ghazni drained India of enormous wealth and manpower resources (totally 60,098,300 dirhams). He plundered and looted every place he conquered, the quantifiable amounts being Somnath 20,000,000, Kanuaj 20,000,000, Mathura 98,300 and Multan 20,000,000 dirhams.

2. Indian Economy - 1300 to 1526 AD

The textile industry continued to prosper, with Gujarat being the largest exporter. Cotton and silk items from Cambay found their way into Western Europe, South Africa, and South-East Asia. Bengal excelled in abundance and variety of its finer textiles. Malabar was known for its cotton fabrics. Work in gold, silver, precious stones and ivory was very popular in Cambay, Vijayanagara, and Malabar. Inland trade was extremely progressive. There was a vibrant trade with the Arab world and East Africa.

The Delhi Sultanate was affluent with an extraordinary splendor in the court of Muhammad bin Tughuluq. Immense bouty was obtained by Malik Kafur from his devastating campaigns of South India between 1309 and 1311.

Various accounts indicate that there was a wide diffusion of material prosperity in the country with an exception in Gujarat. Vijayanagara in the South has been described by a traveler as the best-provided city in the world. Bengal was roaring in this regard, too. The economic prosperity of Delhi was shattered by the invasion of Timur in 1398.

Besides plundering the North, a historian accurately pointed out that Timur had inflicted more misery on India than had ever been inflicted by any conqueror in a single invasion.

3. Indian Economy - 1526 to 1707 AD

The Indian economy was predominantly agriculture based. The country was full of food and products”, quoted Babur’s memoirs. Cotton was widely grown. Nearly all villages had set up the looms for manufacturing cloth. Cotton cloth was exported to Burma, Arabia and the east coast of Africa. Sericulture had been celebrated in India since remote ages. Silk pieces were exported to Indonesia, East Africa, Philippines, and Holland. Indigo was used for dying cloth and washing it crystal white. It was grown in a large fraction of the country and exported to Europe.

Sugarcane produced in Bengal was exported to Arabia and Persia. The country had a massive forest cover which acted as a shelter for people after revolting. Akbar, therefore, reclaimed the forestland for cultivation. The Dutch purchased large quantities of Gum Lac for export to Persia. Ships were built for use by the locals. Gold was found in abundance in the Northern Mountains. Diamond mines were found in Golconda. India, particularly the Malabar region was rich in spices, which was one of the reasons why the Portuguese tried to discover the sea route to the country. Tobacco was unknown to India till the 16th century and was brought to the country by the Portuguese.

The nature of India’s trade was the same as in the earlier periods. Amongst the largest items of export were Cotton and Pepper. Lahari Bandar was the chief seaport in Sind from where cotton cloth was exported. Some of the other ports were Cambay, Dabhol, Goa, Vizag, Hooghly, and Calicut. India maintained a balance of trade in its favor during the Mughal age.

The quality of manufactured articles had improved during this period and higher technical skill had diffused to some of the industrial centers of the country. The artisans continued to produce stereotype articles in their cottages. In this era, India was in a state of overall prosperity as has been articulated by various Muslim and Christian visitors. Despite recurring famines, they were confined to local areas. However, during this period the average standard of living was low. The condition of masses was unsatisfactory, the fault lying with faulty distribution and governmental extortion.

In their hearts, the Mughal Emperors wanted to recapture their Central Asian homeland. Their dream ended in 1647. Three futile sieges on Quandhar (for strategic importance), cost the Empire an enormous amount of money. Having lost control over Afghanistan, the age long trade and commerce between India and Persia/Central Asia suffered, forcing diversion of trade from the North to the seaports of South India. This was a source of great advantage for the Europeans and a tremendous loss to the Mughal treasury.

The ferocity and frequency of wars took its toll on the economic and spiritual prosperity of the people. Regular conquest, reconquest, and a standing army cost money and eventually had to be funded by the common man. At the time of Aurangzeb’s death, peace and prosperity no longer existed. The laboring populations suffered from violent capture, forced labor, starvation, and also from the breakout of epidemics.

4. Indian Economy - 1708 to 1818 AD

A brief summary

The British conquest of India, starting 1757, compensated it for the loss of its American colonies, which till then had been great suppliers of cotton and food grains. With the technological advancements in 1760, Britain created a capitalist class to take advantage of the new inventions, which led to the industrial revolution.

With the conquest of Bengal, the Company’s servants edged out competition and weavers were forced to supply their goods at a price decided by the Company. The land revenue system was reorganized giving Zamindars contracts for collection of the revenue. The company’s servants made colossal fortunes, mostly by unscrupulous means. Following 1793, the condition of the agriculturists in Bengal greatly deteriorated. (One of the reasons that Marxists continue to be in power in West Bengal, for over twenty years, is the far-reaching land reforms that they implemented in the State.)

In most of the South, the Ryotwari system was introduced where settlement was made for a period of twenty to thirty years. As a result, revenue was pitched high initially and was periodically revised upward, squeezing the farmer in the process. He had to borrow to pay revenue and when he defaulted, his land was sold. This practice made land a tradable commodity.

The Indian economy began to be modernized as a result of the British conquest. On one hand, it lead to the disintegration of the old social order which provided security in times of need and scarcity and on the other, it increased the hold of foreign capitalist over the Indian economy. With the State establishing direct contact with the farmer it dealt a great blow to age-old village community ties. Now competition took precedence over custom.

Mechanical and technological inventions in England began to revolutionize the cotton industry starting 1760. The machinery could not be operated without the capital, which was provided by loot carried out by the Company servants in Bengal. Macaulay said, Treasure flowed to England in oceans”. With the help of this, a credit system based on Indian metal sprang up in England.

Thus, the foundation of England’s economic prosperity was made possible by the flow of Indian treasure and a ready made market for goods produced in the United Kingdom. There might be a dispute regarding the degree of India’s contribution to the making of the Industrial Revolution but none can deny the fact that India had a massive hand in the its layout.

When the European merchants first arrived, the Indian traders served as their brokers and cashiers by lending them money. As time passed, these traders got scotched due to the monopoly established by the English company on ordinary trade. Due to this, many merchants gave up trade and acquired estates. Village communities began to disintegrate in the 18th century as a result of the increasing vogue of farming out government revenues. For various reasons landless laborers, as a class of people, not altogether new to India multiplied and came into prominence.

The Portuguese carried out a profitable slave-trade in the period of the 16th and 17th centuries. Although traffic in slaves was banned in 1789, rural slavery continued. The 18th century saw a complete revolution in the price structure. An intolerable increase in the burden of revenue on agriculturists was a depreciation of the value of silver in terms of copper (from 40 to 30 dams) as the revenue was assessed in copper but paid in silver. This lead to an appreciation of copper, which was equal to a fall in the prices of the agricultural produce and a diminution of agricultural income, measured in terms of copper. Thus, the farmer had to share more of his produce to pay revenue and interest to creditors.

The Mughal practice of assigning jagirs to a host of civil/defense officials instead of paying cash led to greater exploitation of the peasant class. Taking advantage, the British decided to debase the coinage, leading to a great financial loss to the common population.

In the 16th and the 17th centuries, India was the magnet of the world’s precious metals. European nations had nothing of substance except gold to grant for all that they had imported from India. By the end of the 18th century, trade suffered a massive decline. Lack of peace was one of the reasons. The Maratha system of exercising their supremacy over provinces by extracting revenue without proper administration was wasteful and expensive. Their armies destroyed whatever they could not carry.

The Indian shipping industry was hit by the Portuguese, Dutch and English in that order. While the Indian cotton industry was hit by the ban on import of cotton into England, it lost hold over the traditional markets like Persia due to loss of naval power. By imposition of various discriminatory duties, the ship building industry was eliminated.

The economic decline of the country started around 1650. Reduction or exemption of duties to the British and Dutch was the beginning. Import of printed calicos and silks was banned into England in 1720. The English industry thrived on the import of plain Indian calicos. It was in 1799, that a duty of GBP 67-10-0 was imposed on plain white clothes. The gradual rise in the prices of Indian cotton towards the end of the 18th century deprived India of a competitive advantage. The export of Indian silk and cotton to Europe was around GBP 2.5 million in the beginning of the 18th century. The import of British cloth into India began to rise from about 1813.

Indigo was an important export item. There were roughly 400 factories in Bengal and Bihar and commodities worth GBP 3.6 million were exported. But indigo cultivation led to a great oppression of the cultivating class by the Brits.

Every time an Indian ruler lost a war, he was forced to pay war expenses or buy peace from the British. The source of this money was none other than the common population. For example, Shuja-ud-daulah paid the British men INR 50 lakhs as war expenses for the Battle of Buxar.

Throughout the 17th and 18th centuries, India maintained a favorable balance of trade. Nadir Shah’s invasion of 1738 shook the financial and political set up of North India. Wealth accumulated during the two centuries of the Mughal rule (approximately INR 100 crores) was lost in a month’s time.

5. Indian Economy - 1818 to 1905 AD

The Charter Act of 1813 was a landmark in the Indian economy. It abolished the East India Company’s monopoly over Indian trade, opened the doors of India to the British traders, and exposed it to the effects of the Industrial Revolution. This period saw the rise of the Managing Agency System in India. It grew on the ruins of the agency houses that financed the earliest British capitalistic enterprise. They emerged as family concerns and went on to become public or private companies, later. For example, Tata.

The Charter Act of 1833 provided that a dividend of 10.5% must be paid out of the revenues of India to the company’s stockholders. The sum of the dividend and the home charges was greater than India’s revenues. A debt of GBP 69,000,000 was incurred for such payment.

R. C. Dutt considered excessive home charges, unrestrained military expenditure, burden of a heavy debt and remittances by European officers as responsible for Indian poverty.

According to Mr. Dutt, the home charges during 1901-02 were 17 mill pounds sterling divided into interest on debt 3 mill pounds, railways (interest and annuities) 6.5 mill, military 3 mill, Government costs including Secretary of state costs 2.5 mill, Stores 2 mill etc. Home charges coupled with the remittances by European officers were equal to nearly 50% of India’s revenues. Wealth was therefore lost forever.

Interest on public debt.

The debt was used for the internal wars in India, suppression of the 1857 mutiny, and military expeditions to foreign countries. This concludes that India had to pay for its own conquest. No such charge was levied on other conquests like Canada. Wars against Persia, Tibet, Burma, Afghanistan, Abyssinia, China, Malay Peninsula, Sudan, and Egypt were funded by India.

Military expenditure in India was very high as compared to other colonies. Data for 1913-14 indicated in table below.

Name of the country Million Pounds % of total revenue
Great Britain 28.2 14.5
India 18.0 22.0
Australia 2.5 10.0
Canada 1.5 5.0
South Africa 1.15 7.7

Railways: For 50 years, the railways did not pay but were extended continuously. The expenses, interest and profits guaranteed to private companies exceeded the revenue by 50 million pounds. They became profitable in the 20th century. However, the development was not even. It was based on meeting need for transporting raw materials to ports for onward shipment to the UK. This explains why the port city of Bombay (now Mumbai) is so well connected by rail. Having said that, the railways significantly contributed in unifying the country, breaking down social barriers and broadening people’s outlooks.

However, it was Indians who funded the railways and not the British. In the period from 1850 to 1880, a sum of GBP 99,000,000 was raised in the English market under a GOI guarantee of 5 %.

No attempt was made to develop the local industry for the purchase of stores.

The civil and military administration expense was high due to the employment of Europeans at very high salaries. For example, the President of the United States was paid $ 75,000 but the Viceroy of India got $ 83,000 and other allowances. Cabinet ministers in the U.S. received $ 12,000 but the members of the Viceroy’s Council received $ 26,700. According to a survey in 1892, the number of Europeans were 2313 costing INR 42,070,000 and the number of Indians were 60, costing INR 1,002,000. The entire expenditure in this regard was borne by India unlike in other cases where it was borne by Britain.

Costly administration and an inefficient financial supervision meant a heavy dosage of taxation which fell massively on the poorer classes. According to William Digby, author of Prosperous India, the flight of capital from India to England during the 19th century was GBP 6,080,172,021. At the current exchange rate of Rs 70 to a pound, it is INR 4,25,561 crores. In 1875 Salisbury, the Secretary of State, said, “As India must be bled, it must be done judiciously”.

Duties on all cotton goods except those manufactured from finer counts of the 30s and upwards were, at the behest of the cotton manufacturers of Lancashire, abolished to the detriment of the local industry. The duty was 10% in 1860 and 5% in 1875.

The condition of cultivators grew from bad to worse. According to R. C. Dutt, “The great famines of 1837, 1857, 1877, and 1897 are sad landmarks in the history of India – landmarks of desolation and disaster”. Repeated famines were caused by heavy land revenue and the oppressive manner in which it was realized, the ruin of trade and industry and the flight of capital to England. The cruelties perpetrated by European indigo and tea planters are legendary. At the instance of foreign planters, an organized emigration of labor from Bengal to the British colonies began in 1838. The development of railways helped in the export of food grains causing a shortage and increase in the prices of agricultural commodities.

According to D. Naoroji, the per capita income was INR 20 while most others put it at a maximum of INR 30. This indicates widespread poverty in the country.

A commercial policy that pampered British trade at the cost of India, an industrial policy which failed to protect the nascent industries, and a revenue policy that discriminated against the majority of cultivators should be held responsible for the poverty prevailing in India. By the end of 19th century British had almost lost the large amount of goodwill that they had at the beginning of the century.

6. Indian Economy - 1905 to 1947 AD

The Duke of Argyll, Secretary of State stated, “The chronic poverty and permanent reduction to the lowest level of subsistence amongst the vast population of India has no parallel in the Western world.”

The 19th century is supposed to have destroyed the cotton industry. However, data released in 1905 indicates that hand looms accounted for 63% of the total production of cotton pieces in the country. Led by urban demand, the domestic market grew and seemed to have absorbed imported and domestic production. World War I did open some new vistas for the Indian industry for a limited period, though i.e. up to 1922. World War II opened a new phase in the industrial history of India. Starting the 1890s, the textile industry got well established in western India.

Till the advent of World War I, the British contribution was practically nil. No attempt was made to mobilize the capital or develop heavy industry. The tariff policy was tailored to suit the British needs. The appointment of the Industrial Commission in 1916 symbolized the abandonment of the laissez-faire policy.

Commerce: In absolute terms, there was a seven-fold increase in the volume of trade between 1869 and 1929. The opening of the Suez Canal in 1869 was responsible for an increase in trade. The balance of payments position for the period of 1922-1939 indicates: Commodity balance + INR 1492 crores, Balance of services – INR 1487 crores, Non-commercial transactions – INR 222 crores, suggesting a net deficit of INR 217 crores. The balance of services included the famous Home Charges.

Net - Net, the economy history of India under the British rule does reveal some gains with losses elsewhere. An overall increase in agricultural production is accompanied by a decrease in production in Bengal. What is worse is that the aggravation of India’s agricultural problems created various other disincentives to agricultural production. Industry developed, but the process of industrial employment was inadequate. Industry capital formation was affected by the high cost of servicing foreign capital. An adverse balance of payments, thanks to home charges, did little to improve things. Finally, whatever was gained in the agriculture and industry was outstripped by an increase in the population.

The marked changes in the history of Indian agricultural scenario after 1947, in spite of many loopholes in government policy and experience with industry, indicate that the British deliberately followed a policy of Guided Underdevelopment in the last two centuries. Its main result was to help establish “a raw material based export economy”.

In 1947 industrial development was limited, export sector isolated and the development of agriculture was through expansion, within the framework of traditional techniques and organization. Thus, India was a typical case of economic backwardness in the middle of the 20th century.

9. Some advantages of British Rule

Regular archaeological excavations began in 1861. It made the educated Indians get a vivid picture of the past glory of ancient India and realize that Bharat was on par with Rome and Greece. The learning of English enabled Indians to read about the strong current of nationalistic ideas that passed through Europe and South America during the 19th century.

According to Bal G. Tilak, “English education has imparted to us, the knowledge of ancient and modern history. We have learned how the Greeks, Romans lost their patriotism etc. Only those who have learned, have begun to realize the defects of British administration”.

The printing press helped the growth of vernacular literature, spread of education and connecting India. Although not intended, the railways have played an important part in uniting the country. A train journey has become a sort of a melting pot. A berth of four could have people from different parts of the country, each sharing the beauty and uniqueness of the places they come from.

To know the state of our country in 1835, I am reproducing Lord Macaulay’s address to the British Parliament on 2/2/1835. He said –

“I have travelled through the length and breadth of India and not seen one person who is a beggar who is a thief. Such wealth I have seen in this country, such high moral values, such people of high caliber, that I do not think we would ever conquer this country unless we break the backbone of this nation, which is her cultural and spiritual heritage, and therefore I suggest we replace her old and ancient educational system, her culture for if the Indians think that all that is foreign and English is good and greater than their own, they will loose their self esteem, their native culture and they will become what we want them, a truly dominated nation”.

We have only ourselves to blame for this current state.

This essay is based on inputs from The History and Culture of the Indian People by the Bhartiya Vidya Bhavan and England’s Debt to India by Lala Lajpat Rai.

Also read
1. Interview with Dharampalji on above subject
2. Changes by British in the land revenue system
3. How British lowered wages in India
4. Agriculture yields in the pre-British era
5. Why did the Portuguese want to discover India
6. Stolen Wealth of India