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Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper: International Economics 
Lesson: Colonialism and Underdevelopment of the Indian Economy 
Name: Sarabjeet Kaur 
College/Department: Rajdhani College, University of Delhi 
 
 
  
Page 2


Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper: International Economics 
Lesson: Colonialism and Underdevelopment of the Indian Economy 
Name: Sarabjeet Kaur 
College/Department: Rajdhani College, University of Delhi 
 
 
  
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
Table of the Contents 
 Chapter: Colonialism and Underdevelopment of the Indian Economy 
1. Learning Objectives 
2. Colonialism 
3. Exploitation of India Under British Rule 
a. Merchant Capital and the Exploitation. 
b. Industrial Capital and the Exploitation. 
c. Finance Capital and the Exploitation. 
4. Drain Theory 
5. De-industrialization 
6. References 
 
Page 3


Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper: International Economics 
Lesson: Colonialism and Underdevelopment of the Indian Economy 
Name: Sarabjeet Kaur 
College/Department: Rajdhani College, University of Delhi 
 
 
  
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
Table of the Contents 
 Chapter: Colonialism and Underdevelopment of the Indian Economy 
1. Learning Objectives 
2. Colonialism 
3. Exploitation of India Under British Rule 
a. Merchant Capital and the Exploitation. 
b. Industrial Capital and the Exploitation. 
c. Finance Capital and the Exploitation. 
4. Drain Theory 
5. De-industrialization 
6. References 
 
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
Learning Objectives 
After study this chapter, you will learn: 
1. Meaning of Colonialism 
2. Exploitation by Britisher  
3. Drain theory  
4. Effect on various sectors 
  
Page 4


Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper: International Economics 
Lesson: Colonialism and Underdevelopment of the Indian Economy 
Name: Sarabjeet Kaur 
College/Department: Rajdhani College, University of Delhi 
 
 
  
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
Table of the Contents 
 Chapter: Colonialism and Underdevelopment of the Indian Economy 
1. Learning Objectives 
2. Colonialism 
3. Exploitation of India Under British Rule 
a. Merchant Capital and the Exploitation. 
b. Industrial Capital and the Exploitation. 
c. Finance Capital and the Exploitation. 
4. Drain Theory 
5. De-industrialization 
6. References 
 
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
Learning Objectives 
After study this chapter, you will learn: 
1. Meaning of Colonialism 
2. Exploitation by Britisher  
3. Drain theory  
4. Effect on various sectors 
  
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
 
Colonialism and Underdevelopment of the Indian Economy 
World experienced large number of significant events during 17
th
 and 18
th
 
century. One of most important event that took place in England was 
Industrial Revolution. Further, the event of industrial revolution was spread 
to other counties of Europe. Vasco De Gama developed sea route to India, 
as a result, Britain and most of the European Countries came to India for 
trading.  
 
India provided a platform to Britain for providing raw material for factories 
and also a market for finished goods. British officials have perfect 
opportunity to establish their hold through wars, forced treaties, annexations 
of and alliances with the various regional powers. Britishers introduced new 
administrative and economic policies, which helped them to establish their 
control in the country. They collect huge revenue through their land revenue 
policies from poor farmers. They also forced farmers to produce various cash 
crops and raw material for British industries. Britian control the political 
system of India such that its trade with India only. 
They improved transport and communication system in India so that they 
can do easy trade with India. They also developed English education system 
so that Indians would assist the Britishers in ruling India and strengthen 
their political power. 
Page 5


Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
Paper: International Economics 
Lesson: Colonialism and Underdevelopment of the Indian Economy 
Name: Sarabjeet Kaur 
College/Department: Rajdhani College, University of Delhi 
 
 
  
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
Table of the Contents 
 Chapter: Colonialism and Underdevelopment of the Indian Economy 
1. Learning Objectives 
2. Colonialism 
3. Exploitation of India Under British Rule 
a. Merchant Capital and the Exploitation. 
b. Industrial Capital and the Exploitation. 
c. Finance Capital and the Exploitation. 
4. Drain Theory 
5. De-industrialization 
6. References 
 
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
Learning Objectives 
After study this chapter, you will learn: 
1. Meaning of Colonialism 
2. Exploitation by Britisher  
3. Drain theory  
4. Effect on various sectors 
  
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
 
Colonialism and Underdevelopment of the Indian Economy 
World experienced large number of significant events during 17
th
 and 18
th
 
century. One of most important event that took place in England was 
Industrial Revolution. Further, the event of industrial revolution was spread 
to other counties of Europe. Vasco De Gama developed sea route to India, 
as a result, Britain and most of the European Countries came to India for 
trading.  
 
India provided a platform to Britain for providing raw material for factories 
and also a market for finished goods. British officials have perfect 
opportunity to establish their hold through wars, forced treaties, annexations 
of and alliances with the various regional powers. Britishers introduced new 
administrative and economic policies, which helped them to establish their 
control in the country. They collect huge revenue through their land revenue 
policies from poor farmers. They also forced farmers to produce various cash 
crops and raw material for British industries. Britian control the political 
system of India such that its trade with India only. 
They improved transport and communication system in India so that they 
can do easy trade with India. They also developed English education system 
so that Indians would assist the Britishers in ruling India and strengthen 
their political power. 
Colonialism and Underdevelopment of the Indian Economy 
Institute of Lifelong Learning, University of Delhi 
Colonialism 
Before discussing the role of colonialism in India, let us discuss the meaning 
of colonialism. Colonialism relate to the relation of political and social 
between two countries; ruler and colony. The ruling country controls political 
system of the colony. Ruling country also controls the economic system such 
that they can make and regulate all the policies in favour of ruling power.   
This imbalance association between the colony and ruling country causes 
underdevelopment of the colony.  
Bipan Chandra gave three characteristics of colonialism.  
1. There is a complete and complicated relation of the colony with the 
rest of world capitalist system in a secondary position.  
2. There is an imbalance trade between a colony and the industrialist 
countries. they use better technology  with high productivity and 
mainly produce capital intensive goods, whereas the colony use low 
level of technology with low productivity and mainly produce labour 
intensive product.  
3. There is a unilateral transfer of surplus from colony to ruling country, 
which is called as drain of wealth, through exports. 
Exploitation of India Under British Rule 
After the Battle of Plasey ,the East India Company of British established its 
rule through the major portion of India. With this, the period of exploitation 
of Britishers in India have started. In this period, there was huge drain of 
wealth from India to England. This results in pauperization of the India and 
Industrial Revolution in England. After the transfer of power from East India 
Company to British Crown, it did not change any circumstances.  But, the 
form of colonial exploitation had changed. 
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FAQs on Lecture 2 - Colonialism and Underdevelopment of the Indian Economy - Indian Economy - In Depth Analysis - Economics

1. What is colonialism and how did it contribute to the underdevelopment of the Indian economy?
Ans. Colonialism refers to the establishment and maintenance of political and economic control over a foreign territory by a foreign power. In the context of India, colonialism refers to the period of British rule from the 18th century until 1947. Colonialism contributed to the underdevelopment of the Indian economy in several ways. The British implemented policies that favored their own industries, leading to the destruction of traditional Indian industries. They also imposed high taxes and tariffs, which hindered the growth of Indian businesses. Additionally, the British exploited India's resources, such as agriculture and minerals, for their own benefit, without reinvesting in the country's development. This economic exploitation and unequal trade relations led to the underdevelopment of the Indian economy.
2. What were the effects of colonialism on the Indian economy?
Ans. Colonialism had significant effects on the Indian economy. Firstly, the British implemented policies that prioritized the interests of their own industries, resulting in the decline and destruction of traditional Indian industries. This led to unemployment and loss of income for many Indians. Secondly, the British imposed high taxes and tariffs on Indian goods, hindering the growth of Indian businesses and making it difficult for them to compete in the global market. Thirdly, the British exploited India's resources, such as agriculture and minerals, for their own benefit, without adequately investing in the country's development. This led to the depletion of resources and hindered the growth of the Indian economy. Overall, colonialism resulted in the underdevelopment and economic exploitation of India.
3. How did colonialism impact the agriculture sector in India?
Ans. Colonialism had a significant impact on the agriculture sector in India. The British implemented policies that favored commercial agriculture and cash crops, such as indigo, opium, and cotton, which were in high demand in the global market. This led to the conversion of fertile land from food crops to cash crops, causing a decline in food production and leading to famines and food shortages. The British also introduced the Zamindari system, which resulted in the loss of land rights for farmers and increased their economic exploitation. Additionally, the British imposed high taxes on agricultural products, making it difficult for farmers to earn a decent income. These policies and practices disrupted traditional agricultural systems and contributed to the underdevelopment of the agriculture sector in India.
4. How did colonialism affect trade and industrialization in India?
Ans. Colonialism had a significant impact on trade and industrialization in India. The British implemented policies that favored their own industries and hindered the growth of Indian industries. They imposed high tariffs and taxes on Indian goods, making it difficult for Indian businesses to compete in the global market. This led to the decline and destruction of traditional Indian industries, such as textiles, handicrafts, and metalwork. The British also used India primarily as a source of raw materials for their industries, rather than promoting industrialization within India. This unequal trade relationship and lack of support for domestic industries hindered the development of a strong industrial sector in India. Instead, India became a market for British manufactured goods, further contributing to the underdevelopment of the Indian economy.
5. Did colonialism leave any positive impacts on the Indian economy?
Ans. While colonialism had predominantly negative impacts on the Indian economy, there were some positive aspects as well. The British introduced modern infrastructure, such as railways, telegraph lines, and ports, which facilitated transportation and communication within India. This infrastructure development had long-term benefits for trade and economic development. Additionally, the British introduced modern education systems and institutions, which led to the spread of Western education and knowledge in India. This had a positive impact on the intellectual and human capital of the country. However, it is important to note that these positive impacts were limited and often served the interests of the colonial power, rather than promoting the overall development of the Indian economy.
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