Economic Transformation of India | History Optional for UPSC (Notes) PDF Download

Ancient Prosperity of India

• Ancient India was a wealthy and thriving nation, earning the nickname ‘Golden Sparrow’. The country was known for its abundant wealth and high standard of living.
• Foreign travelers often noted India’s general prosperity and advanced industrial development. Indian craftsmanship was highly regarded, with the Roman Empire importing large quantities of luxury fabrics from India.
• The Romans paid for these goods in gold and silver. Renowned Indian products included muslin from Dacca, woollen shawls from Kashmir, and fine fabrics like linens, calicos, and brocades from Delhi.
• India also boasted a developed metal industry, exemplified by the famous iron pillar in Delhi. The shipbuilding industry was also flourishing.
• Various handicrafts thrived in both rural and urban areas. However, during the 200-year British rule, India faced systematic exploitation and looting of its economy.
• This led to the breakdown of the old economic structure, collapse of industrial systems, increased burden on agriculture, and a rise in poverty.

Economic System of India during the British Regime

• The East India Company was founded in India to promote trade with eastern countries. The company's directors carefully studied India's political situation.
• After the Mughal Empire weakened, India experienced political fragmentation, which the English exploited. This allowed them to establish trade and eventually take over administration.
• Bengal was the first province under English control, and over time, the British expanded their influence across most of India. Thus, the East India Company evolved from a commercial entity into a political power.
• Despite this transition, the English initially came to India as traders and remained focused on trade throughout.
• The British were interested in administration primarily to harness India's rich economic resources for their own benefit, rather than for India's development.
• The British regime was marked by the economic exploitation of India, leading to widespread poverty among Indians.
• To strengthen their economic system, the British disrupted India's traditional economic structure, preventing the development of a new system based on local resources.
• The British exploitation transformed India's economic system, bringing significant changes in agriculture, trade, commerce, and handicrafts.

Influence on Agriculture 

India's Economic System and the Impact of British Policies on Agriculture:

• India has always been primarily an agricultural country, with agriculture at the core of its economic system. The British Government introduced changes that significantly impacted this system.
• The British implemented the Zamindari system to collect land revenue, which led to the following consequences:
• Land Ownership Changes: The Zamindari system caused the land of real owners to be divided among moneylenders, wealthy individuals, merchants, and other influential people.
• Exploitation of Villagers: Wealthy individuals, with the help of revenue officers, illegally seized land from poor and illiterate villagers through forgery and manipulation of revenue records.
• Landlord Practices: Landlords began charging higher rents and maximizing tax collection from peasants. Failure to pay on time could lead to the peasant losing their right to cultivate the land.
• Decrease in Productivity: The productivity of cultivable land declined as landlords focused on extracting money rather than maintaining soil fertility. This disrupted the rural economic balance.
• Growing Inequality: The system widened the gap between the rich and the poor, leading to social tensions and class struggles.
• Debt and Exploitation: Farmers fell into heavy debt, relying on high-interest loans for essential agricultural needs. The harsh practices of moneylenders worsened their situation.
• Social Chaos: The transfer of land from original owners to moneylenders and merchants disrupted social peace. Dispossessed landowners resorted to violence and litigation, creating chaos and undermining the rural economy.

Influence on Small Scale Industries:

• The British administrative system had a negative impact on small-scale industries in India, which were crucial to the country's economy.
• The small-scale industry was vital for foreign trade and prosperity. The British exploited artisans, particularly in Bengal, leading to the decline of the cloth industry.
• The Charter Act of 1813 allowed English merchants to establish trade in India, increasing exploitation and damaging the economic structure.
• Heavy duties were imposed on goods exported from India to protect British industry, while light duties on imported goods harmed Indian trade and industry.
• The policy of free trade in 1833 devastated small-scale industries by allowing British raw materials and goods to flood the Indian market at low prices.

Influence on Big Industries:

• The British policy led to slow development of big industries in India.
• Indian industrialists received no government support.
• Lack of fundamental industries hindered development, with steel production starting only in 1913.
• Industries were established in specific regions, leading to regional economic inequality.

The effects of the British rule in India

Positive Aspects of British Rule in India:

• The British, despite their narrow interests, played a role in India's political, social, and economic development, as described by Karl Marx.
• Destruction of the Old Social Order: The British dismantled the old social order, laying the groundwork for a new social structure essential for economic growth.
• Breaking Caste System Rigidities: The new social order facilitated the breakdown of the rigidities of the caste system.
• Anglicised Education: Imposed Anglicised education opened avenues for English democratic and popular inspiration, sowing the seeds of Indian Nationalism and influencing movements like Swadeshi.
• Introduction of Railway System: The British introduced railways and a vast network of transportation and communication, paving the way for industrial development in India.
• Political and Economic Unification: For the first time, British rule achieved the political and economic unification of the country.
• Modern Communication System: The British developed an efficient communication system, including the first telegraph line in 1853 and the release of the first postage stamp in 1852, improving postal services. This development integrated different regions and accelerated economic growth by facilitating trade, commerce, and industry.

Distructive role of British Rule

1. Decay of Indigenous Industries:
   • Before British rule, India had a thriving industry.
   • With the arrival of the British, Indian industry began to decline, especially from the late 18th century to the mid-19th century.
   • The decline was caused by several factors:
2. Disappearance of Native Indian Courts:
   • Urban organized industry in India primarily produced luxury and semi-luxury articles.
   • The main consumers were the aristocrats, including Native Rajas, Nawabs, and their courtiers.
   • With British rule, native rulers and their courts began to disappear, leading to a decline in demand for these products.
   • The abolishment of courts meant that fine articles once needed for state occasions were no longer required, causing many handicrafts and arts to decline.
3. Lack of Patronage from the New Upper Class:
   • As the old aristocracy vanished, they were replaced by European officials and a new educated class.
   • European officials and tourists wanted local products only as souvenirs and at cheap prices, lowering the artistic value of goods.
   • Many artisans were forced to copy European designs, leading to poor imitations.
   • The new educated Indians often imitated European fashions and rejected Indian products, further declining indigenous industries.
   • For example, the decline of the embroidered shoe industry was due to a convention that mandated Indians to wear European shoes in the presence of superiors.
4. Weakening of the Guilds:
   • British rule also weakened guilds that organized urban artisans and craftsmen.
   • These guilds used to supervise quality and regulate trade.
   • With British traders entering, guilds lost their power, leading to problems like adulteration and poor workmanship.
   • This decline affected the artistic and commercial value of the goods produced.
5. Competition with Machine-Made Goods:
   • Competition from European manufacturers also contributed to the decline.
   • Roads and railways made it easier to distribute goods across India.
   • The opening of the Suez Canal shortened the distance between England and India.
   • English goods, especially textiles, flooded the Indian market.
   • Although the quality was often inferior, these goods were cheaper and accessible to everyone, even the poor.
   • This led to a decline in demand for local handicrafts.

Distructive Role of British Government in India

Decay of Old Towns and Growth of New Cities under British Rule in India:

• The British Government in India prioritized the development of industries back home over the interests of local industries.
• This led to the adoption of harmful policies for indigenous industries.
• British goods were allowed into India without any duty or barriers, creating unfair competition.
• Indian exports of manufactured goods faced heavy customs duties.
• Many examples of British policies damaging Indian industries have been cited, leading to the closure of numerous local industries.
• Despite the Industrial Revolution thriving in England and other Western countries, Indian industries faced decline during this period.
• The process of ‘deindustrialization’ in India began, with industrial labor becoming unemployed and returning to agriculture.
• This increased pressure on land, leading to the division of land into smaller holdings.
• By the end of the First World War, the decline of agriculture made it a backward industry.
• After the war, the British recognized the importance of a developed industrial economy in India for military purposes.
• However, significant damage had already been inflicted on indigenous industries by that time.
• Another impact of British rule was the decay of old towns and the growth of new cities.
• Population shifted from old towns to new trading centers, leading to the development of cities like Delhi, Bombay, Calcutta, and Madras.
• Important towns like Mirzapur, Murshidabad, and Malda faced decay.
• The decay of urban handicrafts followed the disappearance of royal courts, resulting in a decrease in the population of old Indian towns.
• Craftsmen, losing their occupations, turned to agriculture and migrated to villages.
• The introduction of railways by the British diverted trade routes, diminishing the importance of old towns.
• Prosperous old towns like Mirzapur lost significance as railways opened new means of transportation.
• Old towns became stagnant and vulnerable to diseases, with frequent outbreaks of epidemics like plague and cholera.
• These epidemics took a heavy toll on the urban population, further contributing to the decline of old towns.
• However, commerce and trade facilitated the growth of new cities.

Concentration of Trade in Big Cities

• Concentration of Trade in big cities attracts producers and distributors due to better marketing facilities, a trend established during British rule.
• Higher Wages and job opportunities in big cities draw unemployed artisans, craftsmen, and agricultural workers seeking jobs as agriculture becomes crowded.
• Centralization of Administration by the British led to government offices in big cities, creating jobs and encouraging migration to these urban areas.
• In other countries, city growth was driven by industrial establishment, but in India, the decline of old industries and the lack of new ones led to city growth being influenced more by trade and commerce.
• British interests in trade and commerce contributed to the decay of towns and cities, as industrial growth was minimal during this period.

Introduction of Railway

• India is a vast country, stretching from KanyaKumari in the South to Kashmir in the North.
• Given its size, effective means of transportation and communication are crucial for the country’s political, social, and economic integration.

British Contribution to Economic Progress:

• The British introduced railways in India, with the first train running from Bombay (Mumbai) to Thane on April 16, 1853.
• Railways played a vital role in combating famines, facilitating trade and commerce, and utilizing resources efficiently.
• They also contributed to population movement and the growth of towns and ports.

British Motives Behind Railway Construction:

• The British did not prioritize railways for India’s economic development.
• The primary motive was to exploit India’s resources more effectively for British interests.

Reasons for British Support of Railway Construction:

• Transportation of Raw Materials: The British Industrial Revolution required raw materials from colonies, with India supplying raw cotton. Railways were needed for clean transportation of cotton to England.
• Market for Manufactured Goods: India offered a large market for British manufactured goods. Railways facilitated access to remote areas for selling these goods.
• Military Considerations: The British needed to mobilize troops and military supplies quickly across India. Railways were the most efficient means of transportation for this purpose.

Post-Independence Contribution of Railways:

• Railways have significantly contributed to economic progress in India after independence.
• Despite their initial adverse effects during British rule, they became a vital part of India’s infrastructure and development.

Adverse effect of Railways in India

Decline of Urban Handicrafts:

• Railway construction in India led to the decline of urban handicrafts.
• With the expansion of railways, British mills from Lancashire and Manchester flooded Indian markets with their products.
• These machine-made goods were cheaper and posed a significant challenge to local handicrafts.
• Local handicrafts could not compete due to cost pressures and eventually declined.

Growth of Colonial Character of Trade:

• Railways facilitated the expansion of trade in India, but this trade had a colonial character.
• Railways enabled the mass distribution of British manufactured goods across India.
• They also allowed for the collection of agricultural raw materials from remote areas for export to England.
• India became a supplier of raw materials and a market for British goods, reflecting a colonial trade pattern.

Drainage of National Wealth:

• The British exploited India’s immense wealth, leading to a large-scale plunder of its resources.
• They carried away capital and wealth to England, a process termed ‘Economic Drain’ by historians and economists like Dadabhai Naoroji and C. N. Vakil.
• This drain of wealth continued for almost 200 years and severely impacted India’s economy.
• By the time the British left in 1947, the Indian economy was shattered and out of balance, having been transformed from a prosperous land into one of laborers.

Famines

• Famine refers to a situation where there is a lack of the minimum necessary food for survival, often caused by widespread drought. Before British rule, Indian villages were self-sufficient and could meet the food needs of urban areas.
• The British altered the village system, leading to a more stagnant economic life in India and making famines more common. Between 1770 and 1900, around 22 major famines were recorded, with the famine of Bengal in 1770 being the most severe.
• The Bengal famine of 1770 resulted in a 35% population loss in Bengal. In the famine of Western Uttar Pradesh in 1860-61, about 200,000 people died. The Bengal famine of 1943 was the deadliest, claiming over 3 million lives.

Causes of Famines 

• Failure of Monsoon and Natural Calamities: Indian agriculture relied heavily on the monsoon. The British did not improve irrigation systems, making crops vulnerable to insufficient rain and other natural disasters.
• Commercialization of Agriculture: The British disrupted the traditional system where farmers grew food for their families. Farmers were forced to sell their produce for cash, making it difficult to store food for emergencies. This change left them vulnerable during crop failures.
• Inadequate Transportation and Communication: The British focused on developing railways primarily for their control over India. Insufficient transportation and communication hindered the quick movement of food during famines.
• Export of Food Grains: The British laissez-faire policy led to massive exports of food grains, even during shortages in India. They did not maintain buffer stocks to ensure food security.
• Hoarding and Profiteering: Some businesses exacerbated famine conditions through hoarding, black marketing, and other profit-driven activities.
• Poverty: Widespread poverty prevented people from storing food for emergencies. Farmers were often in debt, with small, fragmented landholdings and low productivity, making it difficult to accumulate reserves.

Famines Commission

• First Famine Commission (1878): Established after the severe famine of 1876-78, chaired by Sir Richard Strachey, it recommended state intervention in food trade during famines.
• Second Famine Commission (1897): Formed after the 1896-97 famine, led by Sir James Lyall, it emphasized the need for improved irrigation facilities.
• Third Famine Commission (1901): Recommended that the machinery dealing with famines should operate year-round to manage food scarcity effectively.
• Despite the efforts of these commissions, the British Government was not genuinely committed to the welfare of the masses, leading to continued famines.
• The Bengal Famine of 1943 was particularly devastating and highlighted the failures of British rule.
• The early British rule in India involved direct exploitation of Indian wealth, evolving into systematic colonial exploitation by industrial and finance capital.
• Indian interests were sacrificed for British benefits, disrupting the harmonious relationship between agriculture and industry and reducing India to a colonial appendage.
• New Revenue Settlements: Permanent Settlement (1793): Introduced by Lord Cornwallis, it created absentee landlords and was based on arbitrary assessments without considering soil fertility. Zamindars who failed to meet dues leased parts of their estates, undermining the rights of ryots. This settlement was extended to Orissa, Banaras, and Northern Sirkars.
• Ryotwari Settlement: Adopted in Madras, it established direct relationships between the government and cultivators for fixed periods. This system enhanced cultivator security and eliminated zamindars as middlemen.
• Mahalwari or Village Settlement: Implemented in Punjab, Oudh, and Delhi, this settlement held the entire village responsible for revenue payment, both collectively and individually.

Monopoly vs. Free Trade

• The East India Company held a monopoly on trade.
• It faced opposition from British manufacturers during the Industrial Revolution.
• Free traders achieved a significant victory with the Charter Act of 1813, which ended the East India Company's monopoly on trade with India.
• By 1830, India had shifted from being the world's largest exporter of cotton textiles to a net importer of cotton from Manchester.
• The East India Company, once highly profitable from Indian trade, began to lose its profits.
• The Charter Act of 1833 also ended the company's monopoly on trade with China.